-----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, RHQ2VuPBR4pI5qqNyKwQzQC5dvq9alWNc52TJ04w09SNTsuoNHiMwHRLIk8RHJKQ v/ScO/MCponRbD9Jkvlg2g== 0000711642-09-000602.txt : 20090814 0000711642-09-000602.hdr.sgml : 20090814 20090814153553 ACCESSION NUMBER: 0000711642-09-000602 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2 CENTRAL INDEX KEY: 0000719184 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942883067 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11723 FILM NUMBER: 091015382 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOC 1089 CITY: DENVER STATE: CO ZIP: 80222 10-Q 1 ccip2_10q.htm 10-Q FORM 10-QSB—QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF

 

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, 2009

 

or

 

[ ]   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 0-11723

 

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-2883067

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

55 Beattie Place, PO Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)

 

(864) 239-1000

(Registrant's telephone number, including area code)

 

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. 

[X] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No

 

PART I – FINANCIAL INFORMATION

 

 

ITEM 1.     FINANCIAL STATEMENTS

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

BALANCE SHEETS

 (in thousands, except unit data)

 

 

 

June 30,

December 31,

 

 

2009

2008

 

 

(Unaudited)

(Note)

 

Assets

 

 

Cash and cash equivalents

 $    665

 $  1,021

Receivables and deposits

      139

      590

Other assets

      676

      464

Restricted escrows

      977

       36

Investment in affiliated partnerships (Note C)

      515

      566

Investment properties:

 

 

Land

    9,912

    9,912

Buildings and related personal property

   47,162

   49,436

 

   57,074

   59,348

Less accumulated depreciation

  (12,876)

  (12,303)

 

   44,198

   47,045

 

 $ 47,170

 $ 49,722

 

 

 

Liabilities and Partners' (Deficiency) Capital

 

 

Liabilities

 

 

Accounts payable

 $    312

 $  1,012

Tenant security deposit liabilities

      157

      152

Distributions payable

      141

      141

Due to affiliates (Note B)

    5,857

    6,680

Accrued property taxes

      669

    1,007

Other liabilities

      292

      276

Mortgage notes payable (Note F)

   32,601

   35,046

 

   40,029

   44,314

 

 

 

Partners' (Deficiency) Capital

 

 

General partner

     (443)

     (460)

Limited partners (908,998.20 Series A units

 

 

issued and outstanding)

    7,584

    5,868

 

    7,141

    5,408

 

 $ 47,170

 $ 49,722

 

Note: The balance sheet at December 31, 2008 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

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

 

 

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2009

2008

2009

2008

Revenues:

 

 

 

 

Rental income

 $ 1,885

 $ 1,738

 $ 3,636

 $ 3,505

Other income

      185

      214

    444

    470

Total revenues

    2,070

    1,952

  4,080

  3,975

 

 

 

 

 

Expenses:

 

 

 

 

Operating

     966

     882

  1,697

  1,740

General and administrative

     113

     168

    266

    342

Depreciation

     487

     536

    974

  1,070

Interest

     740

     543

  1,366

  1,089

Property taxes

      265

      240

    535

    515

Total expenses

    2,571

    2,369

  4,838

  4,756

 

 

 

 

 

Loss before discontinued operations,

 

 

 

 

  casualty gain, impairment loss, equity

 

 

 

 

  in loss from investments and

 

 

 

 

  distribtuions in excess of investment

    (501)

    (417)

   (758)

   (781)

Casualty gain (Note D)

   2,805

      --

  3,018

     --

Equity in loss from investments

  (Note C)

 

     (13)

 

      (3)

 

    (31)

 

     (9)

Distributions received in excess of

 

 

 

 

  investment (Note C)

      --

      --

    454

     --

Impairment loss (Note E)

      --

      --

   (950)

     --

Loss from discontinued operations

  (Note A)

 

       --

 

  (1,296)

 

     --

 

 (1,372)

Net income (loss)

 $ 2,291

 $(1,716)

$ 1,733

$(2,162)

 

 

 

 

 

Net income (loss) allocated to

 

 

 

 

  general partner

 $    23

 $   (17)

$    17

$   (22)

Net loss allocated to limited

 

 

 

 

  partners

      --

    (187)

     --

   (628)

Net income (loss) allocated to

 

 

 

  

  Series A unit holders

   2,268

    (261)

  1,716

   (261)

Net loss allocated to Series B unit

 

 

 

 

  holders

      --

  (1,251)

     --

 (1,251)

 

 

 

 

 

 

 $ 2,291

 $(1,716)

$ 1,733

$(2,162)

 

 

 

 

 

Per limited partnership unit:

 

 

 

 

  Income (loss) before discontinued

    operations

 

 $    --

 

 $ (0.16)

 

$    --

 

$ (0.56)

  (Series A) (Note A)

    2.50

   (0.28)

   1.89

  (0.28)

  (Series B) (Note A)

      --

   (0.02)

     --

  (0.02)

Loss from discontinued operations

      --

   (0.05)

     --

  (0.13)

Loss from discontinued operations (Series B)

      --

    (1.36)

     --

  (1.36)

Net income (loss)

 $  2.50

 $ (1.87)

$  1.89

$ (2.35)

 

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Six Months Ended

 

June 30,

 

2009

2008

 

 

 

Cash flows from operating activities:

 

 

Net income (loss)

$ 1,733

 $(2,162)

Adjustments to reconcile net income (loss) to net cash

 

 

(used in) provided by operating activities:

 

 

Depreciation

    974

  1,236

Amortization of mortgage premiums

     (26)

     (31)

Amortization of loan costs

     27

     26

Casualty gain

  (3,018)

      (6)

Impairment loss

    950

  1,215

Distributions in excess of investment

    (454)

     --

Equity in loss from investments

     31

      9

Change in accounts:

 

 

Other assets

    (239)

     (47)

Receivables and deposits

     16

      (1)

Accounts payable

    (186)

     99

Accrued property taxes

    (338)

    (359)

Due to affiliates

     55

    300

Tenant security deposit liabilities

      5

      1

Other liabilities

      16

      (56)

Net cash (used in) provided by operating activities

     (454)

     224

 

 

 

Cash flows from investing activities:

 

 

Property improvements and replacements

  (1,427)

  (1,843)

Insurance proceeds received

  4,321

      3

Distributions from affiliated partnerships

    474

     --

Net withdrawals from (deposits to) restricted escrows

      27

     (22)

Net cash provided by (used in) investing activities

   3,395

  (1,862)

 

 

 

Cash flows from financing activities:

 

 

Advances from affiliate

  3,014

  3,963

Repayment of advances from affiliate

  (3,892)

     --

Principal payments on mortgage notes payable

  (2,419)

    (476)

Net cash (used in) provided by financing activities

   (3,297)

   3,487

 

 

 

Net (decrease) increase in cash and cash equivalents

    (356)

  1,849

Cash and cash equivalents at beginning of period

   1,021

     454

 

 

 

Cash and cash equivalents at end of period

$    665

$ 2,303

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest, net of capitalized interest

$ 1,394

$ 1,149

 

 

 

Supplemental disclosure of non-cash activities:

 

 

Property improvements and replacements included in

 

 

  accounts payable

$    152

$    401

 

 

 

Insurance proceeds held on deposit with the mortgage lender

$    968

$     --

 

Included in property improvements and replacements for the six months ended June 30, 2009 and 2008 are approximately $666,000 and $43,000, respectively, of improvements which were included in accounts payable at December 31, 2008 and 2007, respectively.

 

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note A – Basis of Presentation

 

The accompanying unaudited financial statements of Consolidated Capital Institutional Properties/2, LP (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 8-03 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. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Operating results for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

 

The Partnership’s management evaluated for subsequent events through the time this Quarterly Report on Form 10-Q was filed on August 14, 2009.

 

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”, the statements of operations for the three and six months ended June 30, 2008 have been restated to reflect the operations of Canyon Crest Apartments as loss from discontinued operations due to its sale on August 1, 2008.

 

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three and six months ended June 30, 2008 (in thousands):

 

 

Three Months Ended

Six Months Ended

 

June 30, 2008

June 30, 2008

 

 

 

Revenues

      $   232

      $    466

Expenses

         (313)

          (623)

Impairment loss

       (1,215)

        (1,215)

Loss from discontinued operations

      $ (1,296)

      $ (1,372)

 

Certain reclassifications were made to the 2008 balances to conform with the 2009 presentation.

 

Organization

 

On April 25, 2008, the Partnership changed its domicile from California to Delaware by merging with and into Consolidated Capital Institutional Properties/2, LP, a Delaware limited partnership, with the Delaware partnership as the surviving entity in the merger. The merger was undertaken pursuant to an Agreement and Plan of Merger, dated as of March 19, 2008, by and between the California partnership and the Delaware partnership. All references herein to the Partnership shall mean Consolidated Capital Institutions Properties/2, a California limited partnership, for all periods prior to March 19, 2008 and Consolidated Capital Institutions Properties/2, LP, a Delaware limited partnership, for all periods from and after March 19, 2008.

 

Under the merger agreement, each unit of limited partnership interest in the California partnership was converted into an identical unit of limited partnership interest in the Delaware partnership and the general partnership interest in the California partnership previously held by the general partner was converted into a general partnership interest in the Delaware partnership. All interests in the Delaware partnership outstanding immediately prior to the merger were cancelled in the merger.

 

The voting and other rights of the limited partners provided for in the partnership agreement were not changed as a result of the merger. In the merger, the partnership agreement of the California partnership was adopted as the partnership agreement of the Delaware partnership, with the following changes: (i) references therein to the California Uniform Limited Partnership Act were amended to refer to the Delaware Revised Uniform Limited Partnership Act; (ii) a description of the merger was added; (iii) the name of the partnership was changed to “Consolidated Capital Institutional Properties/2, LP” and (iv) a provision was added that gives the general partner authority to establish different designated series of limited partnership interests that have separate rights with respect to specified partnership property, and profits and losses associated with such specified property.

 

On April 30, 2008, the General Partner amended the Partnership Agreement to establish, and convert existing limited partnership interests into, different designated series of limited partnership interests that have separate rights with respect to specified partnership property. Effective as of the close of business on April 30, 2008 (the “Establishment Date”), each then outstanding Unit of limited partnership interest in the Partnership was converted into one Series A Unit and one Series B Unit. Except as described below, the Series A Units and Series B Units entitle the holders thereof to the same rights as the holders of Units of limited partnership interests had prior to the Establishment Date.

 

From and after the Establishment Date, the Series A Units will be entitled to all of the Partnership’s interests in any entity in which the Partnership owns an interest, other than the Series B Subsidiary (as defined below), including, but not limited to, all profits, losses and distributions from such entities.

 

From and after the Establishment Date, the Series B Units will be entitled to all of the Partnership’s membership interest in Canyon Crest, L.L.C., a Delaware limited liability company (the “Series B Subsidiary”), including, but not limited to, all profits, losses and distributions from Canyon Crest Apartments. The Series B Units were dissolved during December 2008, upon the dissolution of the remaining assets and liabilities of Canyon Crest Apartments.

 

Recent Accounting Pronouncement

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, or SFAS No. 168, which is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Upon the effective date of SFAS No. 168, the FASB Accounting Standards Codification, or the Codification, will become the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  Following SFAS No. 168, the FASB will issue Accounting Standards Updates that serve to update t he Codification. The Partnership does not anticipate that SFAS No. 168 will have a significant effect on its financial statements.

 

Note B – Transactions with Affiliated Parties

 

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. 

 

Affiliates of the General Partner receive 5% of gross receipts from the Partnership’s properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $196,000 and $222,000 for the six months ended June 30, 2009 and 2008, respectively, which are included in operating expenses and loss from discontinued operations.

 

An affiliate of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $238,000 and $296,000 for the six months ended June 30, 2009 and 2008, respectively, which is included in general and administrative expenses and investment properties. The portion of these reimbursements included in investment properties for the six months ended June 30, 2009 and 2008 are construction management services provided by an affiliate of the General Partner of approximately $104,000 and $37,000, respectively. At June 30, 2009 and December 31, 2008, the Partnership owed approximately $958,000 and $823,000, respectively, for accountable administrative expenses, which is included in due to affiliates.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the General Partner, advanced the Partnership approximately $3,014,000 and $3,963,000 during the six months ended June 30, 2009 and 2008, respectively, to fund a partial repayment of the mortgage encumbering Glenbridge Manor Apartments, reconstruction related to the casualties at Windemere Apartments and Glenbridge Manor Apartments and operations and real estate taxes at two of the investment properties. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review the market rate adjustment quarterly. The interest rates on outstanding advances at June 30, 2009 ranged from 5.25% to 12.06%. Interest expense was approximately $308,000 and $42,000 for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009, the Partnership made payments of principal and accrued interest of approximately $4,280,000 from the receipt of insurance proceeds and cash from operations.  No payments were made during the six months ended June 30, 2008. At June 30, 2009 and December 31, 2008, approximately $4,899,000 and $5,857,000, respectively, of advances and accrued interest remain unpaid and are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.  Subsequent to June 30, 2009, the Partnership repaid approximately $2 ,000,000 of advances and accrued interest from proceeds from the sale of Windemere Apartments.

 

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability.  The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner.  During the six months ended June 30, 2009, the Partnership was charged by AIMCO and its affiliates approximately $224,000 for insurance coverage and fees associated with policy claims administration.  Additional charges will be incurred by the Partnership during 2009 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $181,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2008.

 

Note C - Investments in Affiliated Partnerships

 

The Partnership has investments in the following affiliated partnerships:

 

 

 

 

Investment Balance at

 

Type of

Ownership

June 30,

December 31,

Partnership

Ownership

Percentage

2009

2008

 

 

 

(in thousands)

(in thousands)

Consolidated

  Special Limited

 

 

 

  Capital

 

 

 

 

   Growth Fund

Partner

0.40%

$   --

$   --

 

 

 

 

 

Consolidated

  Special Limited

 

 

 

  Capital

 

 

 

 

   Properties III

Partner

1.86%

     1

      3

 

 

 

 

 

Consolidated

  Special Limited

 

 

 

  Capital

 

 

 

 

   Properties IV

Partner

1.86%

    514

     563

 

 

 

$   515

 $    566

 

These investments are accounted for using the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations.  During the six months ended June 30, 2009 and 2008, the Partnership recognized equity in loss from the operating results of the investments of approximately $31,000 and $9,000, respectively. During the six months ended June 30, 2009, the Partnership received approximately $474,000 of distributions from sale proceeds of two of its affiliated partnerships, approximately $454,000 of which is recognized as income on the accompanying statements of operations.

 

Note D – Casualty Events

 

During 2008, Glenbridge Manor Apartments experienced significant ground movement causing damage to two buildings, water pipes and sewer lines. These two buildings, containing 17 units, the office, clubhouse and fitness center, have been evacuated. One of the buildings containing 12 units has been demolished, and another building was partially demolished. The Partnership plans to rebuild these units. A third building has experienced minor ground movement, which is estimated to require approximately $60,000 to reconstruct. The property is currently undergoing testing to determine whether additional buildings will be affected.  The total extent of the damages is approximately $2,369,000, with costs incurred related to demolition and reconstruction of approximately $3,833,000 and lost rents of approximately $138,000.  During the year ended December 31, 2008, the Partnership entered into contracts for approximately $3,400,000 to begin reconstruction, of which approximately $3,309,000 has been spent as of June 30, 2009. During the three and six months ended June 30, 2009, the Partnership received approximately $4,639,000 of insurance proceeds to cover the damages, approximately $968,000 of which was held on deposit with the mortgage lender at June 30, 2009 and approximately $138,000 to cover lost rents. During the three and six months ended June 30, 2009, the Partnership recognized a casualty gain of approximately $2,798,000 due to the receipt of insurance proceeds, partially offset by the net write off of undepreciated assets of approximately $1,841,000.

 

In September 2008, Windemere Apartments sustained damage from Hurricane Ike.  The damages are approximately $1,284,000, including clean up costs of approximately $634,000. During the fourth quarter of 2008, the Partnership removed approximately $435,000 of undepreciated damaged assets and recorded a corresponding receivable for the estimated insurance proceeds. For the year ended December 31, 2008, the estimated clean up costs were included in operating expenses. During the six months ended June 30, 2009, the Partnership received insurance proceeds of approximately $650,000 to cover the damages and approximately $259,000 for clean up costs. Included in these amounts are approximately $16,000 and $117,000 to cover damages and clean up costs, respectively, which were received during the three months ended June 30, 2009. The Partnership recognized a casualty gain of approximately $220,000 due to receipt of insuranc e proceeds, offset by the net write off of undepreciated damaged assets of approximately $430,000, which is a change of approximately $5,000 from the estimate removed as of December 31, 2008. For the six months ended June 30, 2009, the proceeds received to cover clean up costs are reflected as a reduction of operating expenses.

 

In July 2008, Highcrest Townhomes experienced damages of approximately $23,000 from a broken water pipe, which were included in operating expenses for the year ended December 31, 2008, causing damage to 3 units. The Partnership received insurance proceeds of approximately $13,000 to cover the damages during the six months ended June 30, 2009, which are reflected as a reduction of operating expenses.

 

In October 2007, Canyon Crest Apartments experienced damages as a result of a kitchen fire. During the year ended December 31, 2007, the Partnership recorded a casualty loss of approximately $2,000 as a result of the expected receipt of insurance proceeds of approximately $21,000, of which approximately $12,000 was received during the year ended December 31, 2007, net of the write-off of undepreciated damaged assets of approximately $23,000.  During the six months ended June 30, 2008, the Partnership received additional insurance proceeds related to this casualty of approximately $3,000 and approximately $2,000 to cover lost rents.  The Partnership recognized a casualty gain of approximately $6,000 for the six months ended June 30, 2008, which is included in loss from discontinued operations, as a result of a change in the previous write-off of undepreciated damaged assets of approximately $12,000, net of t he write-off of the remaining receivable of approximately $6,000.

 

Note E – Impairments

 

In May 2009, the Partnership entered into a sale contract with a third party relating to the sale of Windemere Apartments. The Partnership determined that certain criteria of SFAS No. 144 were not met at June 30, 2009 and therefore continued to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations. In accordance with the Partnership’s impairment policy and SFAS No. 144, the Partnership recorded an impairment loss of approximately $950,000 to write the property value down to the expected sale price during the six months ended June 30, 2009.  On August 6, 2009, the Partnership sold Windemere Apartments to a third party for a total sales price of $8,077,000.  The net proceeds realized by the Partnership were approximately $7,882,000 after payment of closing costs. The Partnership used app roximately $4,514,000 of the net proceeds to repay the mortgage encumbering Windemere Apartments.  The Partnership anticipates recognizing a loss, during the third quarter of 2009, of approximately $239,000 as a result of the sale.  In addition, the Partnership anticipates recognizing a loss on the early extinguishment of debt, during the third quarter of 2009, of approximately $173,000 as a result of a prepayment penalty of approximately $242,000, partially offset by the write off of unamortized mortgage premium of approximately $69,000.

 

In accordance with the Partnership’s impairment policy and SFAS No. 144, the Partnership recorded an impairment loss of approximately $1,215,000 related to Canyon Crest Apartments, to write the property value down to the expected sale price, during the three and six months ended June 30, 2008. This impairment loss is included in loss from discontinued operations for the three and six months ended June 30, 2008.

 

Note F – Modification of Mortgage Note Payable

 

On April 7, 2009, the Partnership amended the mortgage note encumbering Glenbridge Manor Apartments, as a result of a principal payment of approximately $2,000,000, which was funded with an advance from AIMCO Properties, L.P. The amendment to the mortgage note requires monthly payments of principal and interest of approximately $117,000 beginning on May 15, 2009 until the December 2013 maturity, at which time a balloon payment of approximately $14,835,000 is due. The previous terms consisted of monthly payments of principal and interest of approximately $131,000 with a balloon payment of approximately $16,566,000 due at the December 2013 maturity date.

 

Note G – Fair Value of Financial Instruments

 

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, long-term debt.  At June 30, 2009 the fair value of the Partnership 's long-term debt at the Partnership's incremental borrowing rate approximated its carrying value.

 

Note H – Contingencies

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action.  In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. sett led the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment property.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators.  The arbitrations have not yet been scheduled.  The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

 

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

 

Environmental

 

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, r emediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.

 

Mold

 

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law rega rding mold is unsettled and subject to change, the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.

 

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and , in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risk; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto and the other documents the Partnership files from time to time with the Securities and Exchange Commission.

 

The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 2009 and 2008:

 

 

Average Occupancy

Property

2009

2008

 

 

 

Windemere Apartments

96%

95%

Houston, Texas

 

 

Highcrest Townhomes (1)

91%

97%

Wood Ridge, Illinois

 

 

Glenbridge Manor Apartments (2)

92%

88%

Cincinnati, Ohio

 

 

 

(1)   The General Partner attributes the decrease in occupancy at Highcrest Townhomes to poor economic conditions in the local area.

 

(2)   The General Partner attributes the increase in occupancy at Glenbridge Manor Apartments to increased resident retention and competitive pricing efforts.

 

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing 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 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, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors which are outside the control of the Partnership such as the local economic climate and weather can adversely or positively impact the Partnership’s financial results.

 

Results of Operations

 

The Partnership’s net income for the three and six months ended June 30, 2009 was approximately $2,291,000 and $1,733,000, respectively, compared to net losses of approximately $1,716,000 and $2,162,000, respectively, for the three and six months ended June 30, 2008. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”, the statements of operations for the three and six months ended June 30, 2008 have been restated to reflect the operations of Canyon Crest Apartments as loss from discontinued operations due to its sale on August 1, 2008.

 

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three and six months ended June 30, 2008 (in thousands):

 

 

Three Months Ended

Six Months Ended

 

June 30, 2008

June 30, 2008

 

 

 

Revenues

      $   232

       $   466

Expenses

         (313)

          (623)

Impairment loss

       (1,215)

        (1,215)

Loss from discontinued operations

      $ (1,296)

       $ (1,372)

 

The Partnership’s income before discontinued operations for the three and six months ended June 30, 2009 was approximately $2,291,000 and $1,733,000, respectively, compared to loss before discontinued operations of approximately $420,000 and $790,000, respectively, for the corresponding periods in 2008. The increase in income before discontinued operations for the three months ended June 30, 2009 is due to the recognition of casualty gains and an increase in total revenues, partially offset by an increase in total expenses. The increase in income before discontinued operations for the six months ended June 30, 2009 is due to the recognition of casualty gains, increases in distributions in excess of investments in affiliated partnerships and an increase in total revenues, partially offset by the recognition of an impairment loss during 2009 and an increase in total expenses.

 

In May 2009, the Partnership entered into a sale contract with a third party relating to the sale of Windemere Apartments. The Partnership determined that certain criteria of SFAS No. 144 were not met at June 30, 2009 and therefore continued to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations. In accordance with the Partnership’s impairment policy and SFAS No. 144, the Partnership recorded an impairment loss of approximately $950,000 to write the property value down to the expected sale price during the six months ended June 30, 2009. On August 6, 2009, the Partnership sold Windemere Apartments to a third party for a total sales price of $8,077,000.  The net proceeds realized by the Partnership were approximately $7,882,000 after payment of closing costs. The Partnership used approxima tely $4,514,000 of the net proceeds to repay the mortgage encumbering Windemere Apartments.  The Partnership anticipates recognizing a loss, during the third quarter of 2009, of approximately $239,000 as a result of the sale.  In addition, the Partnership anticipates recognizing a loss on the early extinguishment of debt, during the third quarter of 2009, of approximately $173,000 as a result of a prepayment penalty of approximately $242,000, partially offset by the write off of unamortized mortgage premium of approximately $69,000.

 

In accordance with the Partnership’s impairment policy and SFAS No. 144, the Partnership recorded an impairment loss of approximately $1,215,000 related to Canyon Crest Apartments, to write the property value down to the expected sale price, during the three and six months ended June 30, 2008. This impairment loss is included in loss from discontinued operations for the three and six months ended June 30, 2008.

 

During 2008, Glenbridge Manor Apartments experienced significant ground movement causing damage to two buildings, water pipes and sewer lines. These two buildings, containing 17 units, the office, clubhouse and fitness center, have been evacuated. One of the buildings containing 12 units has been demolished, and another building was partially demolished. The Partnership plans to rebuild these units. A third building has experienced minor ground movement, which is estimated to require approximately $60,000 to reconstruct. The property is currently undergoing testing to determine whether additional buildings will be affected.  The total extent of the damages is approximately $2,369,000, with costs incurred related to demolition and reconstruction of approximately $3,833,000 and lost rents of approximately $138,000.  During the year ended December 31, 2008, the Partnership entered into contracts for approximately $3,400,000 to begin reconstruction, of which approximately $3,309,000 has been spent as of June 30, 2009. During the three and six months ended June 30, 2009, the Partnership received approximately $4,639,000 of insurance proceeds to cover the damages, approximately $968,000 of which was held on deposit with the mortgage lender at June 30, 2009 and approximately $138,000 to cover lost rents. During the three and six months ended June 30, 2009, the Partnership recognized a casualty gain of approximately $2,798,000 due to the receipt of insurance proceeds, partially offset by the net write off of undepreciated assets of approximately $1,841,000.

 

In September 2008, Windemere Apartments sustained damage from Hurricane Ike.  The damages are approximately $1,284,000, including clean up costs of approximately $634,000. During the fourth quarter of 2008, the Partnership removed approximately $435,000 of undepreciated damaged assets and recorded a corresponding receivable for the estimated insurance proceeds. For the year ended December 31, 2008, the estimated clean up costs were included in operating expenses. During the six months ended June 30, 2009, the Partnership received insurance proceeds of approximately $650,000 to cover the damages and approximately $259,000 for clean up costs. Included in these amounts are approximately $16,000 and $117,000 to cover damages and clean up costs, respectively, which were received during the three months ended June 30, 2009. The Partnership recognized a casualty gain of approximately $220,000 due to receipt of insuranc e proceeds, offset by the net write off of undepreciated damaged assets of approximately $430,000, which is a change of approximately $5,000 from the estimate removed as of December 31, 2008. For the six months ended June 30, 2009, the proceeds received to cover clean up costs are reflected as a reduction of operating expenses.

 

In July 2008, Highcrest Townhomes experienced damages of approximately $23,000 from a broken water pipe, which were included in operating expenses for the year ended December 31, 2008, causing damage to 3 units. The Partnership received insurance proceeds of approximately $13,000 to cover the damages during the six months ended June 30, 2009, which are reflected as a reduction of operating expenses.

 

In October 2007, Canyon Crest Apartments experienced damages as a result of a kitchen fire. During the year ended December 31, 2007, the Partnership recorded a casualty loss of approximately $2,000 as a result of the expected receipt of insurance proceeds of approximately $21,000, of which approximately $12,000 was received during the year ended December 31, 2007, net of the write-off of undepreciated damaged assets of approximately $23,000.  During the six months ended June 30, 2008, the Partnership received additional insurance proceeds related to this casualty of approximately $3,000 and approximately $2,000 to cover lost rents.  The Partnership recognized a casualty gain of approximately $6,000 for the six months ended June 30, 2008, which is included in loss from discontinued operations, as a result of a change in the previous write-off of undepreciated damaged assets of approximately $12,000, net of the write-off of the remaining receivable of approximately $6,000.

 

Total revenues increased for both periods due to an increase in rental income, partially offset by a decrease in other income.  Rental income increased primarily due to the receipt of proceeds to cover lost rents at Glenbridge Manor Apartments, increases in occupancy at Windemere Apartments and Glenbridge Manor Apartments and the increases in the average rental rates at Windemere Apartments and Highcrest Townhomes, partially offset by decreases in occupancy at Highcrest Townhomes and the average rental rate at Glenbridge Manor Apartments and an increase in bad debt expense at Highcrest Townhomes and Windemere Apartments.  Other income decreased for both periods due to decreases in lease cancellation fees at Glenbridge Manor Apartments and decreases in tenant utility reimbursements at Highcrest Townhomes and Windemere Apartments.

 

Total expenses increased for the three months ended June 30, 2009 due to increases in operating, interest, and property tax expenses, partially offset by decreases in depreciation and general and administrative expenses. The increase in total expenses for the six months ended June 30, 2009 is due to an increase in interest expense, partially offset by decreases in depreciation, operating and general and administrative expenses. Property tax expense remained relatively constant for the six months ended June 30, 2009.  Operating expenses increased for the three months ended June 30, 2009 primarily due to increases in legal fees associated with the casualty at Glenbridge Manor Apartments and the hazard insurance premium at Glenbridge Manor Apartments, partially offset by the receipt of insurance proceeds to cover clean up costs related to Hurricane Ike at Windemere Apartments. The decrease in operating expenses for the six months ended June 30, 2009 is primarily due to the receipt of insurance proceeds to cover clean up costs related to Hurricane Ike at Windemere Apartments, partially offset by increases in legal fees associated with the casualty at Glenbridge Manor Apartments and the hazard insurance premium at Glenbridge Manor Apartments.  Interest expense increased for both periods primarily due to an increase in interest expense on advances from an affiliate of the General Partner as a result of a higher average outstanding advance balance in 2009.  Property tax expense increased for the three months ended June 30, 2009 due to a reduction in property taxes capitalized related to the casualty at Glenbridge Manor Apartments.  The decrease in depreciation expense for both periods is primarily due to the removal of damaged assets during 2009 related to the casualty at Glenbridge Manor Apartments.

 

General and administrative expenses decreased for the three and six months ended June 30, 2009 primarily due to a decrease in management reimbursements charged by the General Partner as allowed under the Partnership Agreement, partially offset by an increase in professional expenses associated with the administration of the Partnership. Also included in general and administrative expenses for the three and six months ended June 30, 2009 and 2008 are costs associated with the quarterly and annual communications with investors and regulatory agencies and annual audit required by the Partnership Agreement.

 

The equity in loss from investment for the three and six months ended June 30, 2009 and 2008 is due to the recognition of the Partnership’s share of loss on its investments in affiliated partnerships. These investments are accounted for on the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the statements of operations. During the six months ended June 30, 2009, the Partnership received approximately $474,000 from two of its affiliated partnerships, approximately $454,000 of which was recognized as income on the statements of operations. No such distributions were received during the six months ended June 30, 2008.

 

Liquidity and Capital Resources

 

At June 30, 2009, the Partnership had cash and cash equivalents of approximately $665,000, compared to approximately $2,303,000 at June 30, 2008. The decrease in cash and cash equivalents of approximately $356,000, from December 31, 2008, is due to approximately $3,297,000 and $454,000 of cash used in financing and operating activities, respectively, partially offset by approximately $3,395,000 of cash provided by investing activities. Cash used in financing activities consisted of repayment of advances received from AIMCO Properties, L.P. and principal payments made on the mortgages encumbering the Partnership’s investment properties, partially offset by advances received from AIMCO Properties, L.P. Cash provided by investing activities consisted of insurance proceeds received, distributions received from affiliated partnerships, and net withdrawals from restricted escrows, partially offset by property improvem ents and replacements. The Partnership invests its working capital reserves in interest bearing accounts.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the General Partner, advanced the Partnership approximately $3,014,000 and $3,963,000 during the six months ended June 30, 2009 and 2008, respectively, to fund a partial repayment of the mortgage encumbering Glenbridge Manor Apartments,reconstruction related to the casualties at Windemere Apartments and Glenbridge Manor Apartments and operations and real estate taxes at two of the investment properties. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review the market rate adjustment quarterly. The interest rates on outstanding advances at J une 30, 2009 ranged from 5.25% to 12.06%. Interest expense was approximately $308,000 and $42,000 for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009, the Partnership made payments of principal and accrued interest of approximately $4,280,000 from the receipt of insurance proceeds and cash from operations. No payments were made during the six months ended June 30, 2008. At June 30, 2009 and December 31, 2008, approximately $4,899,000 and $5,857,000, respectively, of advances and accrued interest remain unpaid and are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission. Subsequent to June 30, 2009, the Partnership repaid approximately $2,000,000 of a dvances and accrued interest from proceeds from the sale of Windemere Apartments.

 

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance.  Capital improvements planned for each of the Partnership's properties are detailed below.

 

Windemere Apartments

 

During the six months ended June 30, 2009, the Partnership completed approximately $291,000 of capital improvements at Windemere Apartments, consisting primarily of roof replacement, exterior improvements, sidewalk and air conditioning upgrades, appliance and floor covering replacements and construction related to the casualty discussed above. These improvements were funded from operations, replacement reserves, insurance proceeds and advances from AIMCO Properties, L.P. The Partnership regularly evaluates the capital improvement needs of the property. The Partnership sold Windemere Apartments to a third party on August 6, 2009.

 

Highcrest Townhomes

 

During the six months ended June 30, 2009, the Partnership completed approximately $102,000 of capital improvements at Highcrest Townhomes, consisting primarily of water heater and floor covering replacements. These improvements were funded from operations. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Glenbridge Manor Apartments

 

During the six months ended June 30, 2009, the Partnership completed approximately $520,000 of capital improvements at Glenbridge Manor Apartments, consisting primarily of construction related to the casualty discussed above. These improvements were funded from operations, insurance proceeds, and advances from AIMCO Properties, L.P. The Partnership regularly evaluates the capital improvement needs of the property. The Partnership expects to continue reconstruction resulting from the casualty discussed above. While the Partnership has no other material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property as well as insurance proceeds and anticipated cash flow generated by the property.

 

Capital expenditures will be incurred only if cash is available from operations, insurance proceeds, Partnership reserves or advances from AIMCO Properties, L.P., an affiliate of the General Partner, although AIMCO Properties, L.P. is not obligated to provide such advances. To the extent that capital improvements are completed the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.

 

The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and repayment of amounts due to affiliates) of the Partnership. The mortgage indebtedness encumbering Windemere Apartments of approximately $4,535,000 is being amortized over 240 months and requires a balloon payment of approximately $4,189,000 in 2010. The mortgage indebtedness encumbering Highcrest Townhomes of approximately $10,949,000 is being amortized over 360 months and requires a balloon payment of approximately $9,414,000 in 2017. Subsequent to June 30, 2009, the Partnership repaid the mortgage encumbering Windemere Apartments from the sale proceeds.

 

The mortgage indebtedness encumbering Glenbridge Manor Apartments of approximately $17,043,000 is being amortized over 300 months and requires a balloon payment in 2013. On April 7, 2009, the Partnership amended the mortgage note encumbering Glenbridge Manor Apartments, as a result of a principal payment of approximately $2,000,000, which was funded with an advance from AIMCO Properties, L.P. The amendment to the mortgage note requires monthly payments of principal and interest of approximately $117,000 beginning on May 15, 2009 until the December 2013 maturity, at which time a balloon payment of $14,835,000 is due. The previous terms consisted of monthly payments of principal and interest of approximately $131,000 with a balloon payment of approximately $16,566,000 due at the December 2013 maturity date. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates.  If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure.

 

There were no distributions made by the Partnership during the six months ended June 30, 2009 and 2008. Future cash distributions will depend on the levels of net cash generated from operations and the timing of debt maturities, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the General Partner at June 30, 2009, there can be no assurance that the Partnership will generate sufficient funds from operations, after planned capital expenditures, to permit any distributions to its partners in 2009 or subsequent periods.

 

Other

 

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 574,447.25 limited partnership units (the "Units") in the Partnership representing 63.20% of the outstanding Units at June 30, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, Unit holders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 63.20% of the ou tstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

 

Critical Accounting Policies and Estimates

 

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Impairment of Long-Lived Assets

 

Investment properties are stated at their fair market value at the time of foreclosure, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

 

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment properties.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing.  Any adverse changes in these factors could cause impairment of the Partnership’s assets.

 

Capitalized Costs Related to Redevelopment and Construction Projects

 

The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress in accordance with SFAS No. 34, “Capitalization of Interest Costs”, and SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties”. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level.

 

Revenue Recognition

 

The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. 

 

ITEM 4T.    CONTROLS AND PROCEDURES

 

(a)   Disclosure Controls and Procedures.

 

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

(b)   Changes in Internal Control Over Financial Reporting.

 

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

 

ITEM 1.     LEGAL PROCEEDINGS

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action.  In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. sett led the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment property.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators.  The arbitrations have not yet been scheduled.  The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional lo ss will occur or a potential range of loss.

 

ITEM 6.     EXHIBITS

 

See Exhibit Index.

 

The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

  • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

  • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

  • may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

 

  • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

 

EXHIBIT INDEX

 

 

Exhibit Number     Description of Exhibit

 

3.1           Certificates of Limited Partnership, as amended to date.

 

3.2           Fourth Amendment to the amended and restated limited partnership agreement of CCIP/2 dated January 8, 2002 (Incorporated by reference to the annual report on Form 10-KSB for the year ended December 31, 2004).

 

3.3           Fifth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated March 19, 2008. Incorporated by reference to the Registrant's Current Report on Form 8-K dated April 30, 2008.

 

3.4           Sixth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated April 30, 2008. Incorporated by reference to the Registrant's Current Report on Form 8-K dated April 30, 2008.

 

3.5           Seventh Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated May 8, 2008

 

3.6           Eighth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated December 30, 2008. (Incorporated by reference to the Registrant’s Annual Report on Form 10K for the year ended December 31, 2008).

 

10.30         Multifamily Note dated October 2, 2000 between Consolidated Capital Equity Partners/Two L.P., a California limited partnership, and GMAC Commercial Mortgage Corporation for refinance of Windmere Apartments (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed November 17, 2000).

 

10.33         Assignment of Partnership Rights and Distributions between Consolidated Capital Equity Partners/Two, L.P., a California limited partnership and Consolidated Capital Institutional Properties/2, a California limited partnership (Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 22, 2002).
 
10.34         Agreement for Conveyance of Real Property, including exhibits thereto, between Consolidated Capital Equity Partners/Two, L.P., a California limited partnership and Consolidated Capital Institutional Properties/2, a California limited partnership (Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 22, 2002).

 

10.35         Promissory Note dated December 17, 2003 between CCIP/2 Village Brook, LLC, a Delaware limited partnership, and Northwestern Mutual Life Insurance Company, a Wisconsin corporation (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 19, 2003).

 

10.36         Mortgage and Security Agreement dated December 17, 2003 between CCIP/2 Village Brook, LLC, a Delaware limited partnership, and Northwestern Mutual Life Insurance Company, a Wisconsin corporation (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 19, 2003).

 

10.37         Multifamily Note, dated September 28, 2007 between CCIP/2 Highcrest L.L.C., a Delaware limited liability company, and Capmark Bank, a Utah industrial bank. (Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 28, 2007).

 

10.38         Multifamily Mortgage, Assignment of Rents and Security Agreement, dated September 28, 2007 between CCIP/2 Highcrest, L.L.C., a Delaware limited liability company, and Capmark Bank, a Utah industrial bank. (Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 28, 2007).

 

10.39         Purchase and Sale Contract between CCIP/2 Canyon Crest, L.L.C., a Delaware limited liability company, and Bellaire Holdings, LLC, a Colorado limited liability company, and FW Madison Marketing Group LLC, a Colorado limited liability company, dated June 27, 2008 ( Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 27, 2008).

 

10.40         First Amendment to Purchase and Sale Contract between CCIP/2 Canyon Crest, L.L.C., a Delaware limited liability company, and Bellaire Holdings, LLC, a Colorado limited liability company, and FW Madison Marketing Group LLC, a Colorado limited liability company, dated July 21, 2008 ( Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 21, 2008).

 

10.41         Purchase and Sale Contract between CCIP/2 Windemere, L.P., a Delaware limited partnership, and Derbyshire Investments Windemere, LLC, a Texas limited liability company, dated May 8, 2009 (incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 8, 2009).

 

10.42         First Amendment to Promissory Note between CCIP/2 Village Brooke, L.L.C., a Delaware limited liability company, and The Northwestern Mutual Life Insurance Company, a Wisconsin corporation, dated April 7, 2009 (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated March 31, 2009).

 

10.43         First Amendment to Purchase and Sale Contract between CCIP/2 Windemere, L.P., a Delaware limited partnership, and Derbyshire Investments Windemere, LLC, a Texas limited liability company, dated July 7, 2009 (incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 7, 2009).

 

31.1          Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2          Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1          Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 EX-31.1 2 ccip2_ex31z1.htm EXHIBIT 31.1 Exhibit 31

Exhibit 31.1

 

CERTIFICATION

 

I, Steven D. Cordes, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Consolidated Capital Institutional Properties/2, LP;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date:  August 14, 2009

 

/s/Steven D. Cordes

Steven D. Cordes

Senior Vice President of ConCap Equities Inc., equivalent of the chief executive officer of the Partnership

EX-31.2 3 ccip2_ex31z2.htm EXHIBIT 31.2 Exhibit 31

Exhibit 31.2

 

CERTIFICATION

 

I, Stephen B. Waters, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Consolidated Capital Institutional Properties/2, LP;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date:  August 14, 2009

 

/s/Stephen B. Waters

Stephen B. Waters

Senior Director of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership

EX-32.1 4 ccip2_ex32z1.htm EXHIBIT 32.1 Exhibit 32

Exhibit 32.1

 

 

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

In connection with the Quarterly Report on Form 10-Q of Consolidated Capital Institutional Properties/2, LP (the "Partnership"), for the quarterly period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Steven D. Cordes, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

 

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 

 

 

      /s/Steven D. Cordes

 

Name: Steven D. Cordes

 

Date: August 14, 2009

 

 

 

      /s/Stephen B. Waters

 

Name: Stephen B. Waters

 

Date: August 14, 2009

 

This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 EX-3.5 5 ccip2e_ex3z5.htm EXHIBIT 3.5

Exhibit 3.5

 

SEVENTH AMENDMENT
TO
THE LIMITED PARTNERSHIP AGREEMENT
OF
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

This SEVENTH AMENDMENT TO THE LIMITED PARTNERSHIP AGREEMENT OF CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP, dated as of May 8, 2008 (this "Amendment"), is made by ConCap Equities, Inc., a Delaware corporation (the "General Partner"). All capitalized terms used in this Amendment but not otherwise defined herein shall have the respective meanings given to them in the Partnership Agreement (as defined below).

WHEREAS, Consolidated Capital Institutional Properties/2, LP, a Delaware limited partnership (the "Partnership"), is governed pursuant to the terms of that certain Limited Partnership Agreement of Consolidated Capital Institutional Properties/2, dated as of April 12, 1983, as amended to date (the "Partnership Agreement" and, as amended by this Amendment, the "Agreement");

WHEREAS, pursuant to Article XXI of the Partnership Agreement, the General Partner is authorized to amend the Partnership Agreement as it determines may be necessary or desirable to establish, and convert existing limited partnership interests into, different designated series of limited partnership interests that have separate rights with respect to specified partnership property, in accordance with Section 17-218 of the Delaware Revised Uniform Limited Partnership Act;

WHEREAS, the General Partner has previously amended the Partnership Agreement to convert each of the Units of limited partnership interest into two separate series of limited partnership interests that have separate rights with respect to (i) the Partnership's membership interest in Canyon Crest, L.L.C., which owns the Canyon Crest Apartments and (ii) the Partnership 's interests in all other limited partnerships and limited liability companies; and

WHEREAS, the General Partner has determined that its interest in the Partnership should be converted into three separate series that correspond to the series of interests into which the Limited Partners ' interests were converted.

NOW, THEREFORE, in consideration of these premises and of the mutual provisions, conditions and covenants herein contained, the parties hereto do hereby agree as follows:

1.                   Amendments to the Partnership Agreement. Article XXII of the Partnership Agreement is hereby amended
to read in its entirety as follows:

XXII. DESIGNATION OF SERIES OF PARTNERSHIP INTERESTS

22.01       Designation of Series; Conversion of Existing Interests.

(a)   There is hereby established two series of interests in the Partnership, with each series comprised of both a General Partner's interest in the Partnership and the Limited Partners' interest in the Partnership. The General Partner's interests are hereby designated as a "Series A GP Interest" and a "Series B GP Interest." The Limited Partners' interests are hereby designated as "Series A Units" and "Series B Units." The collective interests of both the General Partner and the Limited Partners of each series are herein referred to as the "Series A Interests" and the "Series B Interests," respectively.

(b)   Effective as of the close of business on April 30, 2008 (the "Establishment Date"), without any further action by the General Partner or any Limited Partner, (i) the interest of the General Partner in the Partnership shall automatically be converted into a Series A GP Interest and a Series B GP Interest, and (ii) each then outstanding Unit of limited partnership interest in the Partnership shall automatically be converted into one Series A Unit and one Series B Unit.

(c)   Each series of interests shall entitle the holders thereof to the respective rights set forth in this Article XXII. The relative rights of the General Partner, on one hand, and the Limited Partners, on the other, prior to the Establishment Date shall be maintained after the Establishment Date, but considered on a series by series basis. The General Partner's Series A GP Interest and Series B GP Interest shall only entitle it to receive an amount equal to a 1% allocation of the Partnership 's Net Profits and Net Losses, and 1% of distributions of Distributable Cash From Operations, in each case, calculated on a series by series basis.

22.02       Series A Interests. From and after the Establishment Date, the following assets shall be allocated solely to the Series A Interests for all purposes, and shall be so recorded upon the books of account of the Partnership: (i) all of the Partnership's interests in any entity in which the Partnership owns an interest, other than the Series B Subsidiary (as defined below), (ii) all consideration received by the Partnership from the issuance or sale of any Series A Interests, or from any additional capital contributions relating to the Series A Interests, and all assets in which such consideration is invested, and (iii) all interest, dividends, distributions, income, earnings, profits, gains and proceeds from any assets described in the foregoing clauses (i) and (ii), including any proceeds derived from the refinancing, sale or other disposition of such assets, and any funds or payments derived from any reinvestment of such proceeds. No P erson, other than a Person who holds a Series A Interest, shall have any claim on or any right to any assets allocated solely to the Series A Interests.

22.03 Series B Interests. From and after the Establishment Date, the following assets shall be allocated solely to the Series B Interests for all purposes, and shall be so recorded upon the books of account of the Partnership: (i) all of the Partnership's membership interest in Canyon Crest, L.L.C., a Delaware limited liability company (the "Series B Subsidiary"), (ii) all consideration received by the Partnership from the issuance or sale of any Series B Interests, or from any additional capital contributions relating to the Series B Interests, and all assets in which such consideration is invested, and (iii) all interest, dividends, distributions, income, earnings, profits, gains and proceeds from any assets described in the foregoing clauses (i) and (ii), including any proceeds derived from the refinancing, sale or other disposition of such assets, and any funds or payments derived from any reinvestment of such proceeds. No Person, other than a Person who holds a Series B Interest, shall have any claim on or any right to any assets allocated solely to the Series B Interests.

22.04 Allocation of Certain Assets and Income. If there are any assets, income, earnings, profits, proceeds, funds or payments that are not readily identifiable as belonging to any particular series of interests, the General Partner shall allocate them among any one or more of the series in such manner and on such basis as the General Partner, in its sole discretion, deems fair and equitable, which determination shall be conclusive and binding on the Limited Partners of all series for all purposes.

22.05 Liabilities and Expenses of Each Series. The debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to each series of interests shall be enforceable only against the assets allocated to such series, and not against the Partnership generally or the assets of any other series of interests. The interests of each series shall be charged with all expenses, costs, charges and reserves attributable to such series, and shall not be charged with any expenses, costs, charges or reserves attributable to any other series or the assets of such other series. The General Partner's determination of which debts, liabilities and obligations, and which expenses, costs, charges and reserves, are attributable to each series of interests shall be conclusive and binding on the Limited Partners of all series for all purposes. Any Person extending credit to, contracting with or otherwise having a claim against any series of interests may look only to the assets of that series to satisfy any such obligation or claim, and not against the assets of the Partnership generally or the assets of any other series. Any general liabilities, expenses, costs, charges or reserves of the Partnership that are not readily identifiable as belonging to any particular series of interests shall be allocated and charged by the Partnership to and among one or more of the series in such manner and on such basis as the General Partner, in its sole discretion, deems fair and equitable, which allocation shall be conclusive and binding on the Limited Partners of all series for all purposes.

22.06 Distributions to Partners of Each Series. From and after the Establishment Date, all distributions to Partners (including distributions comprised of Distributable Cash from Operations and Surplus Funds and distributions upon termination and dissolution of the Partnership) shall be determined on a series by series basis in accordance with the criteria set forth in Sections 22.02 and 22.03.

22.07 Capital Accounts for Each Series. On the Establishment Date, for each series of interests, a separate capital account shall be established on the books of the Partnership for each Partner who holds such series, which shall initially consist of that portion of such Partner 's existing capital account that relates to the assets of such series. Thereafter, the capital account of each Partner who holds any series of interests shall be adjusted in the manner set forth in the Agreement, but on a series by series basis, with respect to (i) capital contributions relating to such series, (ii) that portion of the Partnership's Net Profits and Net Losses allocated to such series, and (iii) distributions paid in respect of such series.

22.08 Separate Books and Records. Separate and distinct books and records shall be maintained for each series of interests, and the assets and liabilities associated with a particular series shall be held and accounted for separately from the other assets and liabilities of the Partnership and other series. The Partnership shall prepare, and provide to Limited Partners (to the extent not included in the Partnership's filings with the Securities and Exchange Commission), quarterly financial reports (which need not be audited) for each series.

22.09 Transfers of Series Interests. Each series of interests shall be transferable separate and apart from each other series. Notwithstanding Section 5.01 of the Agreement, a minimum of twenty (20) Units of any particular series may be transferred, except for IRA or Keogh plans, and except for transfers by gift or inheritance, intrafamily transfers, family dissolutions and transfer to affiliates.

22.10 Voting & Approval Rights. If any term or provision of the Agreement requires the vote, consent or approval of Limited Partners holding a majority of the Units, such term or provision shall be deemed to require the vote, consent or approval of Limited Partners holding a majority of outstanding Units of each series, except with respect to any matter or action relating to a particular series or its assets, which shall require only the vote, consent or approval of Limited Partners holding a majority of the outstanding Units of such series. Notwithstanding Article XIV of the Agreement, meetings of the Limited Partners to vote upon any matters on which the Limited Partners are authorized to take action under this Agreement may be called at any time by the General Partner or (i) in the case of any matter that is subject to the vote, consent or approval of Limited Partners holding a majority of outstanding Units of each series, by one or more Limited Partners holding more than 10% of the outstanding Units of each series, or (ii) in the case of any matter that is subject to the vote, consent or approval only of Limited Partners holding a majority of outstanding Units of a particular series, by one or more Limited Partners holding more than 10% of the outstanding Units of such series, in either case, by delivering written notice, either in person or by registered mail, of such call to the General Partner.

22.11 Repurchase of Units. From and after the Establishment Date, a repurchase of Units of any series may be effected pursuant to Article VI of the Agreement with Net Asset Value calculated separately for each series of Units in accordance with the criteria set forth in this Article XXII.

 

22.12 Tax Treatment. For United States federal income tax purposes, each series of interests shall represent a separate and distinct entity treated as a partnership.

22.13 Termination of a Series. Any series of interests may be terminated only upon (i) the termination and dissolution of the Partnership, (ii) the vote or written consent of Limited Partners holding a majority of the outstanding Units of such series, or (iii) the sale or other disposition of all or substantially all of the assets of such series. Upon termination of a series, the General Partner shall proceed to wind up the affairs of such series, and the Partnership shall not carry on any business in respect of such series except for the purpose of winding up its affairs.

2.             Miscellaneous.

(a)          Effect of Amendment. In the event of any conflict or inconsistency between the terms of the Partnership Agreement and the terms of this Amendment, the terms of this Amendment shall prevail, and any conflicting or inconsistent provisions shall be reconciled and construed to give effect to the terms and intent of this Amendment.

(b)         Ratification. Except as otherwise expressly modified hereby, the Partnership Agreement shall remain in full force and effect, and all of the terms and provisions of the Partnership Agreement, as herein modified, are hereby ratified and reaffirmed.

(c)          Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CONFLICTS OF LAW.

[Remainder of page left intentionally blank]

 

IN WITNESS WHEREOF, the General Partner has executed this Amendment as of the date first set forth above.

 

CONCAP EQUITIES, INC.,

a Delaware corporation

 

By: /s/Harry Alcock

Harry Alcock

Executive Vice President

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