-----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, LeqKrUE+5Oq32pln9NlObOGq+OR+UnS25s/cQLgPl8Nvd69600TpFmtcgefjTR4k yaRcYQAPD8YDfbCGeVKHEA== 0000711642-99-000189.txt : 19990811 0000711642-99-000189.hdr.sgml : 19990811 ACCESSION NUMBER: 0000711642-99-000189 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSTOWN CONSOLIDATED INCOME PARTNERS CENTRAL INDEX KEY: 0000787621 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 943004963 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16010 FILM NUMBER: 99682480 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED CAPITAL INCOME GROWTH PARTNERS DATE OF NAME CHANGE: 19860401 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (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, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from_________to_________ Commission file number 0-16010 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS (Exact name of small business issuer as specified in its charter) California 94-3004963 (State or other jurisdiction of (IRS Employer incorporation or organization) (Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 2,163 Receivables and deposits, net of allowance of $129 245 Restricted escrows 227 Other assets 417 Investment properties: Land $ 1,571 Buildings and related personal property 12,282 13,853 Less accumulated depreciation (6,921) 6,932 $ 9,984 Liabilities and Partners' (Deficit) Capital Accounts payable $ 24 Tenant security deposit liabilities 74 Accrued property taxes 77 Other liabilities 91 Mortgage note payable 2,325 Partners' (Deficit) Capital General partner $ (172) Corporate limited partner on behalf of the Unitholders - (128,810 units issued and outstanding) 7,565 7,393 $ 9,984 See Accompanying Notes to Financial Statements b) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 622 $ 549 $ 1,217 $ 1,135 Other income 29 80 62 144 Casualty gain -- 107 -- 215 Total revenues 651 736 1,279 1,494 Expenses: Operating 196 211 419 444 General and administrative 87 74 154 139 Depreciation 177 135 312 264 Interest 46 46 92 92 Property taxes 40 42 44 85 Total expenses 546 508 1,021 1,024 Net income $ 105 $ 228 $ 258 $ 470 Net income allocated to general partner (1%) $ 1 $ 2 $ 3 $ 5 Net income allocated to limited partners (99%) 104 226 255 465 $ 105 $ 228 $ 258 $ 470 Net income per Unit of Depositary Receipt $ .81 $ 1.75 $ 1.98 $ 3.61 Distributions per Unit of Depositary Receipt $ -- $ -- $ -- $ 7.69 See Accompanying Notes to Financial Statements c) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Unitholders Units of Units of Depositary Depositary General Receipt Receipt Partner (Note A) Total Original capital contributions 129,266 $ 1 $ 32,317 $ 32,318 Partners' (deficit) capital at December 31, 1998 128,810 $ (175) $ 7,310 $ 7,135 Net income for the six months ended June 30, 1999 -- 3 255 258 Partners' (deficit) capital at June 30, 1999 128,810 $ (172) $ 7,565 $ 7,393 See Accompanying Notes to Financial Statements d) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 258 $ 470 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 312 264 Amortization of lease commissions and loan costs 40 31 Casualty gain -- (215) Change in accounts: Receivables and deposits (67) (77) Other assets (10) (19) Accounts payable 10 (286) Tenant security deposit liabilities 2 -- Accrued property taxes 28 85 Other liabilities (7) 10 Net cash provided by operating activities 566 263 Cash flows from investing activities: Property improvements and replacements (133) (431) Net deposits to restricted escrows (13) (34) Lease commissions paid (11) (93) Net insurance proceeds from casualty -- 254 Net cash used in investing activities (157) (304) Cash flows used in financing activities: Distribution to partners -- (1,000) Net increase (decrease) in cash and cash equivalents 409 (1,041) Cash and cash equivalents at beginning of period 1,754 2,770 Cash and cash equivalents at end of period $ 2,163 $ 1,729 Supplemental disclosure of cash flow information: Cash paid for interest $ 85 $ 85 See Accompanying Notes to Financial Statements e) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements of Johnstown/Consolidated Income Partners (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the fiscal year ended December 31, 1998. Certain reclassifications have been made to the 1998 balances to conform to the 1999 presentation. Units of Depositary Receipt Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"), an affiliate of the General Partner, serves as a depositary of certain units of depositary receipt ("Units"). The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the unitholders thereof ("Unitholders") to certain economic benefits, allocations and distributions of the Partnership. For this reason, partners' (deficit) capital is herein represented as an interest of the Unitholder. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities, as provided for in the Partnership Agreement. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the General Partner and its affiliates were incurred during the six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Asset management fees (included in general and administrative expense) $ 47 $ 46 Property management fees (included in operating expenses) 50 58 Reimbursement for services of affiliates (included in operating and general and administrative expenses, and investment properties) 21 60 The Partnership Agreement provides that the Partnership shall pay in monthly installments to the General Partner, or an affiliate, a yearly asset management fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans outstanding at the end of the month preceding the installment payment; (ii) 1/8 of 1% of the market value of guaranteed mortgage-backed securities as of the end of the Partnership quarter immediately preceding the installment payment; and (iii) 5/8 of 1% of the purchase price of the properties plus improvements for managing the Partnership's assets. In the event the property was not owned at the beginning or end of the year, such fee shall be pro-rated for the short-year period of ownership. Under this provision, fees of approximately $47,000 and $46,000 were paid to the General Partner and its affiliates for the six months ended June 30, 1999 and 1998, respectively. During the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's residential property for providing property management services. The Partnership paid to such affiliates approximately $27,000 and $25,000 for the six months ended June 30, 1999 and 1998, respectively. For the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive varying percentages of gross receipts from the Partnership's Florida #11 Mini-Warehouse commercial property for providing property management services. The Partnership paid to such affiliates approximately $23,000 and $22,000 for the six months ended June 30, 1999 and 1998, respectively. Effective October 1, 1998 (the effective date of the Insignia Merger) these services for the Phoenix Business Campus commercial property were provided by an unrelated party. For the six months ended June 30, 1998, the Partnership paid approximately $11,000 to an affiliate of the Managing General Partner for providing property management services for Phoenix Business Campus. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $21,000 and $60,000 for the six months ended June 30, 1999 and 1998, respectively. Included in these expenses for the six months ended June 30, 1998, is approximately $13,000 in reimbursements for construction oversight costs. No construction oversight costs were paid during the six months ended June 30, 1999. The Partnership paid leasing commissions of approximately $78,000 to an affiliate of the General Partner during the six months ended June 30, 1998. No leasing commissions were paid to affiliates during the six months ended June 30, 1999. Leasing commissions are capitalized and amortized over the lives of the respective leases. Unamortized leasing commissions are included in other assets. On December 19, 1997, an affiliate of the General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 39,000 units of the outstanding units of limited partnership interest in the Partnership, at $68.00 per Unit, net to the seller in cash. During February 1998, the tender offer was completed and the Purchaser acquired 13,985.5 units of limited partnership interest (10.86%) in the Partnership at $68.00 per Unit. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 44,521.76 (34.56% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $86.00 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 7,214 units. As a result, AIMCO and its affiliates currently own 37,183.50 units of limited partnership interest in the Partnership representing 28.87% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. NOTE D - COMMITMENT The Partnership is required by the Partnership Agreement to maintain working capital for contingencies of not less than 5% of Net Invested Capital as defined in the Partnership Agreement. In the event expenditures are made from these reserves, operating revenues shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents and tenant security deposits, totaling approximately $2,237,000 at June 30, 1999, exceeded the Partnership's reserve requirement of approximately $1,338,500. NOTE E - DISTRIBUTIONS During the six months ended June 30, 1999, no distributions were declared or paid. In March of 1998, the Partnership paid a distribution attributable to cash flow from operations of approximately $1,000,000. Subsequent to June 30, 1999, a distribution from operations of approximately $575,000 was declared by the Partnership. NOTE F - SEGMENT INFORMATION The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of one apartment complex located in Independence, Missouri. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consists of an office building located in Atlanta, Georgia, and a self-storage mini-warehouse located in Davie, Florida. The office building leases space to a mortgage lender, construction company, travel agency, computer software company and various other businesses at terms ranging from 12 months to 5 years. The self-storage mini-warehouse leases its space to individual and commercial customers for terms that are typically twelve months or less. The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998. The Partnership's reportable segments consist of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the six months ended June 30, 1999 and 1998, is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to reportable segments. 1999 Residential Commercial Other Totals Rental income $ 515 $ 702 $ -- $ 1,217 Other income 19 19 24 62 Interest expense 92 -- -- 92 Depreciation 121 191 -- 312 General and administrative expense -- -- 154 154 Segment profit (loss) 81 307 (130) 258 Total assets 2,148 6,743 1,093 9,984 Capital expenditures for investment properties 59 74 -- 133 1998 Residential Commercial Other Totals Rental income $ 472 $ 663 $ -- $ 1,135 Other income 25 63 56 144 Interest expense 92 -- -- 92 Depreciation 84 180 -- 264 General and administrative expense -- -- 139 139 Casualty gain 215 -- -- 215 Segment profit (loss) 286 267 (83) 470 Total assets 2,173 6,315 1,127 9,615 Capital expenditures for investment properties 363 68 -- 431 NOTE G - LEGAL PROCEEDINGS In March 1998, the Managing General Partner was named in a legal action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have recently filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of one apartment complex and two commercial properties. The following table sets forth the average occupancy of the properties for each of the six months ended June 30, 1999 and 1998: Average Occupancy 1999 1998 Cedar Brooke Apartments Independence, Missouri 97% 95% Florida #11 Mini-Warehouse Davie, Florida 96% 96% Phoenix Business Campus College Park, Georgia 84% 71% The General Partner attributes the increase in occupancy at Phoenix Business Campus to the addition of several tenants in the third quarter of 1998 and the first quarter of 1999. Results of Operations The Partnership's net income for the six months ended June 30, 1999, was approximately $258,000 versus net income of approximately $470,000 for the six months ended June 30, 1998. The Partnership reported net income for the three months ended June 30, 1999, of approximately $105,000 as compared to net income of approximately $228,000 for the corresponding period of 1998. The decrease in net income for the six months ended June 30, 1999, is primarily attributable to an overall decrease in total revenues slightly offset by an overall decrease in total expenses. The decrease in net income for the three months ended June 30, 1999 is primarily attributable to a decrease in total revenues and an increase in total expenses. The decrease in overall revenues for both the three and six months periods is attributable to a decrease in interest income due to lower average cash balances held in interest-bearing accounts for such periods in 1999 as compared to the same periods of 1998 and to the fact that there was recognition of a casualty gain in 1998 and no such gain was recognized in 1999. The decrease in revenues was partially offset by an increase in rental income as a result of an increase in average rental rates at all of the Partnership's investment properties, as well as an increase in the average occupancy rate at both Cedar Brooke Apartments and Phoenix Business Campus. The slight decrease in overall expenses for the six months ended June 30, 1999 is the result of decreases in property tax and operating expense which was almost entirely offset by an increase in depreciation and general and administrative expenses. The increase in total expenses for the three months ended June 30, 1999 was the result of increases in depreciation and general and administrative expenses which were offset by a decrease primarily in operating expense. The decrease in property tax expense is the result of refunds received during the first quarter of 1999 on behalf of the Phoenix Business Center property for 1997 and 1998 taxes. Operating expense decreased due to decreases in insurance and maintenance expenses. Insurance expense decreased at all of the investment properties due to a change in insurance carriers during the current year which resulted in lower premiums. Maintenance expense decreased due to exterior building improvements made at Cedar Brook Apartments during 1998. The increase in depreciation expense was caused by the addition of depreciation on a significant amount of fixed assets placed into service over the past twelve months. General and administrative expense increased as a result of an increase in legal costs associated with the settlement of a litigation case against the Partnership during the first six months of 1999 as disclosed previously in prior quarters. Included in general and administrative expense for the six months ended June 30, 1999 and 1998, are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 1999, the Partnership held cash and cash equivalents of approximately $2,163,000 compared to approximately $1,729,000 at June 30, 1998. The net increase in cash and cash equivalents for the six months ended June 30, 1999, from the Partnership's year ended December 31, 1998, was approximately $409,000. This increase is due to approximately $566,000 of cash provided by operating activities, which was partially offset by approximately $157,000 of cash used in investing activities. Cash used in investing activities consisted primarily of property improvements and replacements and, to a lesser extent, net deposits to escrow accounts maintained by the mortgage lender and the payment of lease commissions. The Partnership invests its working capital reserves in money market accounts. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital as defined in the Partnership Agreement. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents and tenant security deposits, totaling approximately $2,237,000 at June 30, 1999, exceeded the Partnership's reserve requirement of approximately $1,338,500. 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 investment properties to adequately maintain the physical assets and other operating needs of the Partnership, and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Partnership's properties are detailed below. Cedar Brooke Apartments During the six months ended June 30, 1999, the Partnership expended approximately $59,000 for capital improvements at Cedar Brooke Apartments consisting primarily of cabinet, carpet, landscaping, and appliance replacement. These improvements were funded from replacement reserves and operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $205,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $348,000 for 1999 at this property which include certain of the required improvements and consist of heating system upgrades, landscaping, flooring and roof replacements and other building improvements. Florida #11 Mini-Warehouse During the six months ended June 30, 1999, the Partnership expended approximately $3,000 for capital improvements at the property, consisting of floor covering, appliances, and building improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $205,000 of capital improvements over the next few years. The General Partner is still in the process of finalizing budgeted capital improvements for 1999. Phoenix Business Campus During the six months ended June 30, 1999, the Partnership completed approximately $71,000 of tenant improvements at Phoenix Business Campus. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $174,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $62,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's assets are currently thought to be sufficient for any near- term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness on Cedar Brooke Apartments of $2,325,000, which carries a stated interest rate of 7.33% (interest only), matures in 2003. The General Partner will attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure. There were no distributions declared or paid during the six months ended June 30, 1999. During the six months ended June 30, 1998, a cash distribution from operations of approximately $1,000,000 (of which $990,000 was paid to limited partners or $7.69 per unit of depositary receipt) was paid to the partners. Subsequent to June 30, 1999, a distribution from operations of approximately $575,000 (of which $569,250 will be paid to limited partners or $4.42 per unit of depositary receipt) was declared by the Partnership. The Partnership's distribution policy will be reviewed on a quarterly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of working capital reserves, and the timing of debt maturities, refinancings and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures and required working capital reserves to permit further distributions to its partners in 1999 or subsequent periods. Tender Offer On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 44,521.76 (34.56% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $86.00 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 7,214 units. As a result, AIMCO and its affiliates currently own 37,183.50 units of limited partnership interest in the Partnership representing 28.87% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, the Managing General Partner was named in a legal action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have recently filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. (b) Reports on Form 8-K: None filed during the quarter ended June 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the Partnership caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS By: CONCAP EQUITIES, INC. General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: EX-27 2
5 This schedule contains summary financial information extracted from Johnstown/Consolidated Income Partners 1999 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000787621 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS 1,000 6-MOS DEC-31-1999 JUN-30-1999 2,163 0 0 0 0 0 13,853 (6,921) 9,984 0 2,325 0 0 0 7,393 9,984 0 1,279 0 0 1,021 0 92 0 0 0 0 0 0 258 1.98 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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