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March 30, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Consolidated Capital Institutional Properties
Form 10-K
File No. 0-10831
To Whom it May Concern:
The accompanying Form 10-K for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
FORM 10-K--ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITES AND EXCHANGE ACT OF 1934
UNITED STATE SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Name of registrant as specified in its charter)
California 94-2744492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interests
(Title of class)
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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
General
Consolidated Capital Institutional Properties (the "Partnership" or
"Registrant") was organized on April 28, 1981, as a Limited Partnership under
the California Uniform Limited Partnership Act. On July 23, 1981, the
Partnership registered with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (File No. 2-72384) and commenced a public offering
for the sale of $200,000,000 of Units. The sale of Units terminated on July 21,
1983, with 200,342 Units sold for $1,000 each, or gross proceeds of
approximately $200,000,000 to the Partnership. In accordance with its
Partnership Agreement (the original partnership agreement of the Partnership
together with all amendments thereto shall be referred to as the "Agreement"),
the Partnership has repurchased and retired a total of 1,296.8 Units for a total
purchase price of $1,000,000. The Partnership may repurchase any Units, in its
absolute discretion, but is under no obligation to do so. Since its initial
offering, the Registrant has not received, nor are limited partners required to
make, additional capital contributions. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2011 unless terminated prior to
such date.
Upon the Partnership's formation in 1981, Consolidated Capital Equities
Corporation ("CCEC") was the Corporate General Partner. In 1988, through a
series of transactions, Southmark Corporation ("Southmark") acquired controlling
interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter
11 of the United States Bankruptcy Code. In 1990, as part of CCEC's
reorganization plan, ConCap Equities, Inc. ("CEI") acquired CCEC's general
partner interests in the Partnership and in 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the sole
managing general partner was approved by a majority of the limited partners in
the Partnership and in each of the Affiliated Partnerships pursuant to a
solicitation of the Limited Partners dated August 10, 1990. As part of this
solicitation, the Limited Partners also approved an amendment to the Agreement
to limit changes of control of the Partnership. All of CEI's outstanding stock
was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT
was merged into Apartment Investment and Management Company ("AIMCO"). Hence,
CEI is now a wholly-owned subsidiary of AIMCO. (See "Transfer of Control" below)
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was formed for the benefit of its Limited
Partners (herein so called and together with the General Partner shall be called
the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a
California general partnership in which certain of the partners were former
shareholders and former management of CCEC, the former Corporate General Partner
of the Partnership. See "Status of the Master Loan" for a description of the
loan and settlement of EP's bankruptcy.
Through December 31, 1999, the Partnership had advanced a total of approximately
$180,500,000 to EP and its successor under the Master Loan (as defined in
"Status of the Master Loan"). As of December 31, 1999, the balance of the Master
Loan, net of the allowance for possible losses, was approximately $50,448,000.
EP used the proceeds from these loans to acquire eighteen (18) apartment
buildings and four (4) office complexes, which served as collateral for the
Master Loan. EP's successor in bankruptcy (as more fully described in "Status of
the Master Loan") currently has eleven (11) apartment buildings. The Partnership
acquired The Loft Apartments through foreclosure in November 1990. Prior to that
time, The Loft Apartments had been collateral on the Master Loan. The
Partnership acquired a multiple-use building, The Sterling Apartment Homes and
Commerce Center ("The Sterling") (formerly known as The Carlton House Apartment
and Office Building) through a deed-in-lieu of foreclosure transaction on
November 30, 1995. The Sterling has also been collateral on the Master Loan. For
a brief description of the properties refer to "Item 2 - Description of
Property".
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
Property management services were performed at the Partnership's properties by
an affiliate of the General Partner.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential and commercial properties within the
market area of the Registrant's properties. The number and quality of
competitive properties, including those which may be managed by an affiliate of
the General Partner in such market area, could have a material effect on the
rental market for the apartments and the commercial space at the Registrant's
properties and the rents that may be charged for such apartments and space.
While the General Partner and its affiliates own and/or control a significant
number of apartment units in the United States, such units represent an
insignificant percentage of total apartment units in the United States and
competition for the apartments is local.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential and
commercial properties because such properties are susceptible to the impact of
economic and other conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999, 1998, and 1997. As a
result of these tender offers, AIMCO and its affiliates currently own 115,486.5
limited partnership units in the Partnership representing 58.02% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the General
Partner because of their affiliation with the General Partner.
A further description of the Partnership's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in "Item 7" of this Form 10-K.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and IPT merged
into 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 has had or will have a material effect on the affairs and
operations of the Partnership.
Segments
Segment data for the years ended December 31, 1999, 1998, and 1997 is included
in "Item 8. Financial Statements - Note L" and is an integral part of the Form
10-K.
Status of the Master Loan
Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP
subject to a nonrecourse note with a participation interest (the "Master Loan"),
pursuant to the Master Loan Agreement dated July 22, 1981, between the
Partnership and EP. The Partnership secured the Master Loan with deeds of trust
or mortgages on real property purchased with the funds advanced, as well as by
the assignment and pledge of promissory notes from the partners of EP.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"), EP was converted from a California General Partnership
to a California Limited Partnership, Consolidated Capital Equity Partners, L.P.,
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement.
ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary
of CEI, is the sole General Partner of CCEP and an affiliate of the Partnership.
The General Partners of EP became Limited Partners in CCEP. CHI has full
discretion with respect to conducting CCEP's business, including managing CCEP's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings.
Under the terms of the New Master Loan Agreement (as adopted in November 1990),
interest accrues at a fluctuating rate per annum adjusted annually on July 15 by
the percentage change in the U.S. Department of Commerce Implicit Price Deflator
for the Gross National Product subject to an interest rate ceiling of 12.5%.
Interest payments are currently payable quarterly in an amount equal to "Excess
Cash Flow". If such Excess Cash Flow payments are less than the current accrued
interest during the quarterly period, the unpaid interest is added to principal,
compounded annually, and is payable at the loan's maturity. If such Excess Cash
Flow payments are greater than the current accrued interest, the excess amount
is applied to the principal balance of the loan. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to the Partnership under the
terms of the New Master Loan Agreement. The New Master Loan Agreement matures in
November 2000. The Registrant is currently evaluating its options as to the
maturity of the Master Loan in November 2000. The options include foreclosing on
the properties that collateralize the Master Loan or extending the terms of the
loan.
For 1992, Excess Cash Flow was generally defined in the New Master Loan
Agreement as net cash flow from operations after third-party debt service.
Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan
Agreement to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from the Partnership to CCEP. This amendment and change in the definition
of Excess Cash Flow will have the effect of reducing income on the investment in
the Master Loan by the amount of CCEP's capital expenditures since such amounts
were previously excluded from Excess Cash Flow.
Item 2. Description of Properties:
The following table sets forth the Partnership's investment in real estate as of
December 31, 1999:
Date of
Property Purchase Type of Ownership Use
The Loft Apartments 11/19/90 Fee ownership, subject to Apartment
Raleigh, NC a first mortgage 184 units
The Sterling Apartment Homes 12/01/95 Fee ownership subject to Apartment
and Commerce Center a first mortgage (1) 536 units
Philadelphia, PA Commercial
110,368 sq ft
(1) Property is held by a Limited Partnership in which the Registrant
ultimately owns a 100% interest.
Schedule of Properties:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
The Loft Apartments $ 7,043 $ 3,219 5-20 yrs S/L $ 5,203
The Sterling Apartment
Homes and Commerce
Center 33,636 6,734 5-25 yrs S/L 28,846
$40,679 $ 9,953 $34,049
See "Note A" of the consolidated financial statements included in "Item 8.
Financial Statements and Supplementary Data" for a description of the
Partnership's depreciation policy and "Note N - Change in Accounting Principle".
Schedule of Property Indebtedness
The following table sets forth certain information relating to the mortgages
encumbering the Registrant's properties.
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (3)
(in thousands) (in thousands)
The Loft Apartments
1st mortgage $ 4,338 6.95% (1) 12/01/05 $ 3,903
The Sterling Apartment
Homes and Commerce
Center
1st mortgage 22,736 6.77% (2) 10/01/08 19,975
$ 27,074 $ 23,878
(1) Payments of approximately $30,000 consisting of principal and interest are
being amortized over 360 months with a balloon payment due December 1,
2005.
(2) Payments of approximately $149,000 consisting of principal and interest
are being amortized over 120 months with a balloon payment due on October
1, 2008.
(3) See "Item 8. Financial Statements and Supplementary Data - Note E" for
information with respect to the Registrant's ability to prepay these
mortgage and other specific details about the mortgages.
Rental Rate and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average
Rental Rates Occupancy
Property 1999 1998 1999 1998
The Loft Apartments $8,771/unit $8,664/unit 96% 92%
The Sterling Apartment Homes
(residential) 14,371/unit 13,121/unit 91% 92%
The Sterling Commerce Center
(commercial) $14.90/s.f. $14.43/s.f. 84% 81%
The increase in occupancy at the Sterling Commerce Center is attributable to
recent major capital improvements including exterior renovations, elevator
rehabilitation, and common area renovations. The increase in occupancy at The
Loft is due to increased marketing and capital improvements completed to
increase the curb appeal of the property. Also, the property changed the timing
of lease expirations. They now expire during the spring and summer months when
there is more rental traffic at the property rather than during the winter
months when traffic is historically slower.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes and commercial buildings in the area. The
General Partner believes that all of the properties are adequately insured. Each
apartment complex leases properties for terms of one year or less. No
residential tenant leases 10% or more of the available rental space. All of the
properties are in good physical condition, subject to normal depreciation and
deterioration as is typical for assets of this type and age.
The following is a schedule of the lease expirations of the commercial space for
The Sterling Commerce Center for the years beginning 2000 through the maturities
of the current leases.
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
2000 3 6,687 $ 93,793 7.32%
2001 3 4,792 80,216 6.26%
2002 4 8,948 192,074 14.98%
2003 6 12,136 160,422 12.51%
2004 1 2,835 41,122 3.21%
2005 1 2,259 37,893 2.96%
2006 1 3,838 65,000 5.07%
2007 3 40,894 611,586 47.70%
The following schedule reflects information on tenants occupying 10% or more of
the leasable square footage of The Sterling Commerce Center.
Square Footage Annual Rent
Nature of Business Leased Per Square Foot Lease Expiration
Business Services 33,747 $12.12 7/31/07
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
(in thousands)
The Loft Apartments $ 67 1.31%
The Sterling Apartment Homes and
Commerce Center 505 8.77%
Capital Improvements:
The Loft Apartments: During the year ended December 31, 1999, the Partnership
completed approximately $162,000 of capital improvements at The Loft Apartments,
consisting primarily of flooring replacement, roof and air conditioning
improvements, major landscaping and interior enhancements. These improvements
were funded from cash flow and replacement reserves. The Partnership is
currently evaluating the capital improvements needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $55,200. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The Sterling Apartment Homes and Commerce Center: During the year ended December
31, 1999, the Partnership completed approximately $2,021,000 of capital
improvements at The Sterling Apartment Homes and Commerce Center, consisting
primarily of plumbing and electrical upgrades, new appliances, cabinet and
furniture replacements and interior building improvements. These improvements
were funded from cash flow and replacement reserves. The Partnership is
currently evaluating the capital improvements needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $160,800 for the apartments and $1.00 per square foot or $110,368 for the
Commerce Center. Additional improvements may be considered and will depend on
the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Item 8. Financial Statements and Supplementary Data - Note B - Transfer of
Control"). The plaintiffs seek monetary damages and equitable relief, including
judicial dissolution of the Partnership. On June 25, 1998, the General Partner
filed a motion seeking dismissal of the action. In lieu of responding to the
motion, the plaintiffs have filed an amended complaint. The General Partner
filed demurrers to the amended complaint which were heard February 1999. Pending
the ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
General Partner and its affiliates terminated the proposed settlement. Certain
plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in
the action. The General Partner does not anticipate that costs associated with
this case will be material to the Partnership's overall operations.
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal quarter ended December 31, 1999, no matter was submitted to a
vote of unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 200,342
limited partnership units aggregating $200,342,000. The Partnership currently
has 13,686 holders of record owning an aggregate of 199,045.2 Units. Affiliates
of the General Partner owned 115,486.50 units or 58.02% at December 31, 1999. No
public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1997, 1998 and 1999 and the subsequent period through
March 15, 2000 (See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.):
Distributions
Per Limited
Aggregate Partnership Unit
1997 $ 1,999,000 (1) $ 9.94
1998 $28,598,000 (2) $143.58
1999 $22,621,000 (3) $113.65
1/1/00 - 3/15/00 $ 5,481,000 (3) $ 27.54
(1) Distribution was made from cash from operations.
(2) Consists of $1,798,000 of cash from operations and $26,800,000 of cash
from surplus funds.
(3) Distributions were made from surplus funds.
The Registrant's distribution policy is reviewed on a semi-annual basis. Future
distributions will depend on the levels of cash generated from operations, the
availability of cash reserves and the timing of debt maturities, refinancings,
and/or property sales. Furthermore, cash reserves are subject to the requirement
of the Agreement which requires that the Partnership maintain reserves equal to
5% of Net Investment Capital. There can be no assurance, however that the
Partnership will generate sufficient funds from operations, after planned
capital expenditures, to permit any additional distributions to its partners in
2000 or subsequent periods.
Item 6. Selected Financial Data
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8. Financial
Statements and Supplementary Data".
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Total Revenues $ 13,545 $ 14,394 $ 11,608 $ 9,414 $ 5,275
Total Expenses (9,773) (9,087) (8,041) (8,586) (3,088)
Decrease (increase) in
provision for impairment
loss -- 23,269 -- -- (5,578)
Net income (loss) $ 3,772 $ 28,576 $ 3,567 $ 828 $ (3,391)
Net income (loss) per
Limited Partnership Unit $ 18.76 $ 142.12 $ 17.74 $ 4.12 $ (16.87)
Distributions per Limited
Partnership Unit $ 113.65 $ 143.58 $ 9.94 $ 85.33 $ 15.10
Limited Partnership Units
outstanding 199,045.2 199,045.2 199,052 199,052 199,052
AS OF DECEMBER 31,
BALANCE SHEETS 1999 1998 1997 1996 1995
(in thousands)
Total assets $ 95,668 $115,182 $ 91,628 $ 91,657 $106,351
Mortgage note payable $ 27,074 $ 27,360 $ 4,448 $ 4,498 $ 4,545
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of 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.
This item should be read in conjunction with "Item 8. Financial Statements and
Supplementary Data" and other items contained elsewhere in this report.
Results of Operations
1999 Compared with 1998
The Registrant's net income for the year ended December 31, 1999, was
approximately $3,772,000 compared to net income of approximately $28,576,000 for
the corresponding period in 1998. (See "Item 8. Financial Statements and
Supplementary Data, Note C" for a reconciliation of these amounts to the
Registrant's federal taxable income.) The decrease in the net income for the
year ended December 31, 1999 was primarily due to the $23,269,000 reduction of
provision for impairment loss recognized in 1998. No reduction of allowance for
impairment loss was recorded for December 31, 1999 as the fair value of the
collateral properties underlying the Master Loan did not significantly change
from the fair value at December 31, 1998 and accordingly no change to the
allowance was deemed necessary during 1999. Excluding the reduction of provision
for impairment loss, the Registrant's net income for the year ended December 31,
1998 was approximately $5,307,000. For the comparable years, total revenues
decreased, exclusive of the reduction of provision for impairment loss, due to a
decline in interest income related to the Master Loan, which was partially
offset by an increase in rental income. The decrease in interest income related
to the Master Loan is a factor of the method used to recognize income. Income is
only recognized to the extent that actual cash is received. The receipt of cash
is dependent on the corresponding cash flow of the properties, which secure the
Master Loan. Cash flow for these properties was lower for the year ended
December 31, 1999 as a result of capital expenditures at the properties. The
increase in rental income was due to an increase in occupancy at The Loft and
The Sterling Commerce Center and an increase in the average annual rental rates
at all of the properties which more than offset a slight decrease in occupancy
at The Sterling Apartment Homes.
The increase in total expenses for the year ended December 31, 1999 is primarily
attributable to increases in interest and depreciation expenses, partially
offset by decreases in operating, general and administrative and property tax
expenses. Interest expense increased due to the financing of The Sterling in
September 1998. Depreciation expense increased due to major capital improvements
and replacements at The Sterling during 1999 and 1998. The decrease in operating
expenses was mainly due to the completion of interior building improvements at
The Sterling during the year ended December 31, 1998. Also contributing to the
decrease in operating expense is a decrease in insurance expense due to a change
in insurance carriers and a decrease in legal fees which were incurred during
the year ended December 31, 1998 to defend the Partnership's objection to an
increase in assessment values at The Sterling. General and administrative
expense decreased due to a decrease in reimbursements to the General Partner for
accountable administrative expenses, which is partially offset by an increase in
legal fees due to the settlement of legal matters as previously disclosed in
prior quarters. Property tax expense decreased due to a refund received at The
Sterling during the year ended December 31, 1999 as a result of the successful
appeal of the increase in the property's assessment value.
1998 Compared with 1997
The Registrant's net income for the year ended December 31, 1998, was
approximately $28,576,000 as compared to approximately $3,567,000 for the year
ended December 31, 1997. The increase in net income was due to an increase in
total revenue partially offset by an increase in total expenses. Total revenues
increased due to increases in rental income, interest income recorded on the
investment in Master Loan to affiliate and other income as well as the reduction
of provision for impairment loss. Rental income increased due to an increase in
occupancy and average annual rental rates at The Sterling offset somewhat by a
decrease in occupancy at The Loft Apartments. The General Partner attributed the
increase in occupancy at The Sterling Commerce Center to recent major capital
improvements including exterior renovations, elevator rehabilitation, and common
area renovations. The decrease in occupancy at The Loft is due to a declining
market and increased competition in the area. The Partnership recorded interest
income of approximately $4,138,000 and $2,668,000 for the years ended December
31, 1998 and 1997, respectively. The increase in income recognized is due to an
increase in the fair value of the underlying collateral properties as a result
of capital improvements and repairs performed over the last few years, changing
market conditions and improved operations at such properties. See table below
for details of average annual occupancy and rental rates for 1998, 1997, and
1996. The increase in other income is primarily due to increases in utility
income and miscellaneous receipts.
Contributing to the increase in total expenses was an increase in depreciation
expense, general and administrative expenses, property tax expense and interest
expense. The increase in depreciation expense is due to the major capital
improvements and renovations to the Sterling over the past year. The increase in
general and administrative expenses is due to an increase in expense
reimbursements, administrative expenses and audit fees. Property tax expense
increased at the Sterling for the year ended December 31, 1998, compared to the
year ended December 31, 1997, due to a reassessment of the property. Interest
expense increased due to the financing of The Sterling in September 1998.
Partially offsetting the increase in total expenses is a decrease in operating
expense primarily as a result of decreased marketing activities at The Sterling
Apartment Homes, a major landscaping project completed at The Loft in 1997 and a
decrease in utilities at The Sterling Commerce Center.
1998 Average 1997 Average 1996 Average
Annual Annual Annual
Rental Rental Rental
Occupancy Rate Occupancy Rate Occupancy Rate
Tates Creek Village 91% $ 7,516 90% $ 7,588 90% $ 7,407
Magnolia Place 92% 5,813 91% 5,654 89% 5,462
Indian Creek
Village 96% 7,971 94% 7,521 96% 6,962
Shirewood 92% 5,013 88% 4,909 89% 4,799
Society Park East 94% 6,458 96% 6,253 90% 6,080
Palm Lake 93% 7,540 95% 7,284 92% 6,972
Society Park 94% 5,782 93% 5,446 92% 5,178
Plantation Gardens 92% 8,462 93% 8,292 95% 8,045
Regency Oaks 95% 6,478 91% 6,292 93% 5,956
The Knolls 96% 7,696 95% 7,515 91% 7,151
Silverado 95% 5,668 91% 5,672 88% 5,775
444 DeHaro (1) 97% 14.76 94% 13.94 98% 13.48
(Commercial)
(1) Commercial average annual rental rate is per square foot. This property
was sold during 1999.
The General Partner attributes the increase in the net realizable value of the
collateral properties securing the Master Loan to the increase in occupancy
and/or average rental rates as presented in the table above. The increase in
occupancy at the properties is attributable to approximately $8,403,000 of
combined capital improvements made at most of the properties for the three years
ended December 31, 1998. These improvements were funded primarily from property
operations and cash flows as the only advances from the Partnership to CCEP
total approximately $367,000 for 1998, 1997, and 1996.
Included in general and administrative expenses for the years ended December 31,
1999, 1998 and 1997 are management reimbursements to the General Partner allowed
under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was not
material. The cumulative effect, had this change been applied to prior periods,
is not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
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 expense. As part of this
plan, the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Capital Resources and Liquidity
At December 31, 1999, the Partnership had cash and cash equivalents of
approximately $11,175,000 compared to approximately $8,683,000 at December 31,
1998. The increase in cash and cash equivalents is due to approximately
$5,565,000 of cash provided by operating activities, and approximately
$19,842,000 of cash provided by investing activities, which was partially offset
by approximately $22,915,000 of cash used in financing activities. Cash provided
by investing activities consisted primarily of principal repayments received on
the Master Loan and, to a lesser extent, net receipts from escrow accounts
maintained by the mortgage lender, which is partially offset by property
improvements and replacements. Cash used in financing activities consisted
primarily of distributions to partners and, to a lesser extent, payments of
principal made on the mortgages encumbering the Registrant's properties and the
payment of loan costs. The Registrant invests its working capital reserves in a
money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, and local legal and regulatory requirements. The Partnership is
currently evaluating the capital improvements needs of all the properties for
the upcoming year. The minimum amount to be budgeted for the Partnership is
expected to be $300 per unit or $216,000 for all the apartments and $1.00 per
square foot or $110,368 for the Commerce Center. Additional improvements may be
considered and will depend on the physical condition of the properties as well
as replacement reserves and anticipated cash flow generated by the properties.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $27,074,000 requires monthly payments of principal
and interest and balloon payments of approximately $3,903,000 and $19,975,000 on
December 1, 2005 and October 1, 2008, respectively. The General Partner will
attempt to refinance such indebtedness and/or sell the properties prior to such
maturity date. If the properties cannot be refinanced or sold for a sufficient
amount, the Registrant will risk losing such properties through foreclosure.
Distributions from surplus cash of approximately $22,621,000 were paid to
limited partners ($113.65 per limited partnership unit) during the year ended
December 31, 1999. During the year ended December 31, 1998, the Partnership paid
approximately $1,798,000 in distributions from operations, of which $1,780,000
was paid to limited partners ($8.94 per limited partnership unit). Also, during
the year ended December 31, 1998, the Partnership paid approximately $26,800,000
in distributions from surplus funds to limited partners ($134.64 per limited
partnership unit). Included in the 1998 amounts were payments to the North
Carolina Department of Revenue for withholding taxes related to income generated
by the Partnership's investment property located in that state. Subsequent to
December 31, 1999 the Partnership distributed approximately $5,481,000 of
surplus cash all to the limited partners ($27.54 per limited partnership unit).
The Registrant's distribution policy is reviewed on a semi-annual basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. Furthermore, cash reserves are
subject to the requirement of the Agreement which requires that the Partnership
maintain reserves equal to 5% of Net Investment Capital. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit further
distributions to its partners in 2000 or subsequent periods.
CCEP Property Operations
For the year ended December 31, 1999, CCEP's net loss totaled approximately
$20,178,000 on total revenues of approximately $19,262,000. CCEP recognizes
interest expense on the Master Loan Agreement obligation according to the note
terms, although payments to the Partnership are required only to the extent of
Excess Cash Flow, as defined therein. During the year ended December 31, 1999,
CCEP's statement of operations includes total interest expense attributable to
the Master Loan of approximately $39,609,000, all but $2,744,000 of which
represents interest accrued in excess of required payments. CCEP is expected to
continue to generate operating losses as a result of such interest accruals and
noncash charges for depreciation.
During the year ended December 31, 1999, the Partnership received approximately
$20,713,000 as principal payments on the Master Loan. Approximately $163,000 of
this amount was received on certain investments by CCEP, which are required to
be transferred to the Partnership per the Master Loan Agreement. The remaining
$20,550,000 represents part of the net proceeds from the sale of 444 DeHaro. The
property sold in September 1999 to an unrelated third party for a contract price
of approximately $23,250,000. CCEP received net proceeds of approximately
$20,550,000 after payment of closing costs.
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, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO acquired a 100% ownership interest in the
General Partner. The General Partner does not believe that this transaction has
had or will have a material effect on the affairs and operations of the
Partnership.
Year 2000 Compliance
General Description
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 Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. To date, no material failure or erroneous results have occurred in
the Managing Agent's computer applications related to the failure to reference
the Year 2000.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
Item 7a. Market Risk Factors
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the loans. Based upon the fact that the loan
is considered impaired under Statement of Financial Accounting Standard No. 114,
"Accounting by Creditors for Impairment of a Loan", interest rate fluctuations
do not offset the recognition of income, as income is only recognized to the
extent of cash flow. Therefore, market risk factors does not offset the
Partnership's results of operations as it relates to the Loan. See "Item 8 -
Financial Statements and Supplementary Data - Note D" for further information.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at December 31, 1999, a 1% increase or decrease in
market interest rates would not have a material impact on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 1999. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximates the recorded value as of December 31,
1999.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.86%
(in thousands)
2000 $ 297
2001 323
2002 346
2003 371
2004 393
Thereafter 25,344
Total $27,074
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPTIAL INSTUTIONAL PROPERTIES
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years ended December 31,
1999, 1998, and 1997
Consolidated Statements of Changes in Partners' (Deficit) Capital for the
Years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties
We have audited the accompanying consolidated balance sheet of Consolidated
Capital Institutional Properties as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in partners' (deficit)
capital and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Institutional Properties at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 8, 2000
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
1999 1998
Assets
Cash and cash equivalents $ 11,175 $ 8,683
Receivables and deposits 1,078 985
Restricted escrows 600 1,912
Other assets 1,641 1,243
Investment in Master Loan 67,865 88,578
Less: allowance for impairment loss (17,417) (17,417)
50,448 71,161
Investment properties (Notes E and H):
Land 3,564 3,564
Buildings and related personal property 37,115 34,932
40,679 38,496
Less accumulated depreciation (9,953) (7,298)
30,726 31,198
$ 95,668 $115,182
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 108 $ 431
Tenant security deposit liabilities 574 504
Accrued property taxes -- 62
Other liabilities 627 691
Mortgage notes payable (Note E) 27,074 27,360
28,383 29,048
Partners' (Deficit) Capital
General partner (58) (96)
Limited partners (199,045.2 units issued and
outstanding) 67,343 86,230
67,285 86,134
$ 95,668 $ 115,182
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPTIAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
1999 1998 1997
Revenues:
Rental income $ 9,877 $ 9,191 $ 7,908
Interest income on investment in Master
Loan to affiliate 2,744 4,138 2,668
Reduction of provision for impairment loss -- 23,269 --
Interest income 318 410 439
Other income 606 655 593
Total revenues 13,545 37,663 11,608
Expenses:
Operating 4,150 4,856 4,929
General and administrative 531 556 433
Depreciation 2,655 2,292 1,797
Interest 1,926 751 324
Property taxes 511 632 558
Total expenses 9,773 9,087 8,041
Net income (Note C) $ 3,772 $ 28,576 $ 3,567
Net income allocated to general partner (1%) $ 38 $ 286 $ 36
Net income allocated to limited partners (99%) 3,734 28,290 3,531
$ 3,772 $ 28,576 $ 3,567
Net income per limited partnership unit $ 18.76 $ 142.12 $ 17.74
Distribution per Limited Partnership Unit $ 113.65 $ 143.58 $ 9.94
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPTIAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' (deficit) capital
at December 31, 1996 199,052.0 $ (380) $ 84,968 $ 84,588
Distributions -- (20) (1,979) (1,999)
Net income for the year ended
December 31, 1997 -- 36 3,531 3,567
Partners' (deficit) capital at
December 31, 1997 199,052.0 (364) 86,520 86,156
Distributions -- (18) (28,580) (28,598)
Abandonment of partnership units
(Note K) (6.8) -- -- --
Net income for the year
ended December 31, 1998 -- 286 28,290 28,576
Partners' (deficit) capital
at December 31, 1998 199,045.2 (96) 86,230 86,134
Distributions -- -- (22,621) (22,621)
Net income for the year ended
December 31, 1999 -- 38 3,734 3,772
Partners' (deficit) capital at
December 31, 1999 199,045.2 $ (58) $ 67,343 $ 67,285
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1999 1998 1997
Cash flows from operating activities:
Net income $ 3,772 $ 28,576 $ 3,567
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,778 2,360 1,827
Casualty loss -- 14 --
Gain on sale of land -- (19) --
Reduction of provision for impairment loss -- (23,269) --
Change in accounts:
Receivables and deposits (93) (1) 4
Other assets (513) (209) (40)
Interest receivable on Master Loan -- 604 (604)
Accounts payable (323) 267 (176)
Tenant security deposit liabilities 70 148 39
Accrued property taxes (62) 62 --
Other liabilities (64) 187 39
Net cash provided by operating activities 5,565 8,720 4,656
Cash flows from investing activities:
Property improvements and replacements (2,183) (3,239) (8,202)
Lease commissions paid -- (279) (167)
Proceeds from sale of securities
available for sale -- -- 3
Proceeds from sale of land -- 75 --
Net receipts from (deposits to) restricted
escrows 1,312 (1,846) (3)
Principal receipts on Master Loan 20,713 2,687 2,105
Net cash provided by (used in) investing activities 19,842 (2,602) (6,264)
Cash flows from financing activities:
Loan costs paid (8) (440) --
Distributions to partners (22,621) (28,598) (1,999)
Proceeds from mortgage note payable -- 23,000 --
Payments on mortgage notes payable (286) (88) (50)
Net cash used in financing activities (22,915) (6,126) (2,049)
Net increase (decrease) in cash and cash
equivalents 2,492 (8) (3,657)
Cash and cash equivalents at beginning of year 8,683 8,691 12,348
Cash and cash equivalents at end of year $ 11,175 $ 8,683 $ 8,691
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,869 $ 597 $ 311
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization: Consolidated Capital Institutional Properties (the "Partnership"
or "Registrant"), a California Limited Partnership, was formed on April 28,
1981, to lend funds through nonrecourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by, Consolidated Capital Equity Partners,
("EP"), a California general partnership in which certain of the partners were
former shareholders and former management of Consolidated Capital Equities
Corporation ("CCEC"), the former Corporate General Partner. Through December 31,
1999, the Partnership had advanced a total of approximately $180,500,000 to EP
and its successor under the Master Loan. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2011 unless terminated prior to
such date.
Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the
Corporate General Partner. In December 1988, CCEC filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's
reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General
Partner" or "CEI") acquired CCEC's General Partner interests in the Partnership
and in 15 other affiliated public Limited Partnerships (the "Affiliated
Partnerships") and replaced CCEC as Managing General Partner in all 16
partnerships.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"). EP was converted from a California General Partnership
to a California Limited Partnership, Consolidated Capital Equity Partners, L.P.
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement.
ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary
of CEI, is the sole general partner of CCEP and an affiliate of the Partnership.
The General Partners of EP became Limited Partners in CCEP. CHI has full
discretion with respect to conducting CCEP's business, including managing CCEP's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings. All of CEI's outstanding stock was owned by
Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged
into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a
wholly-owned subsidiary of AIMCO.
The Partnership owns and operates one apartment property and one multiple-use
building in North Carolina and Pennsylvania, respectively. Also, the Partnership
is the holder of a note receivable which is collateralized by apartment
properties located throughout the United States.
Principles of Consolidation: For the year ended December 31, 1997, the
Partnership's financial statements included the accounts of Kennedy Boulevard
Associates, I, L.P., a Pennsylvania Limited Partnership ("KBA-I, L.P.") which
is 99% owned by the Partnership, Kennedy Boulevard Associates II, L.P. a
Pennsylvania Limited Partnership ("KBA-II, L.P."), Kennedy Boulevard
Associates III, L.P. a Pennsylvania Limited Partnership ("KBA-III, L.P."),
Kennedy Boulevard Associates IV, L.P. a Pennsylvania Limited Partnership
("KBA-IV, L.P.") and Kennedy Boulevard GP I, a Pennsylvania Partnership. The
General Partners of each of the affiliated Limited and General Partnerships
are Limited Liability Corporations of which the Partnership is the sole
member. The Limited Partners of each of the affiliated limited and general
partnerships are either the Partnership or a Limited Liability Corporation of
which the Partnership is the sole member. Therefore, the Partnership
controls the affiliated Limited and General Partnerships and consolidation is
appropriate. KBA-I, L.P. holds title to The Sterling Apartment Home and
Commerce Center ("Sterling").
As of December 31, 1997, KBA-I, L.P. became 100% effectively owned by the
Registrant. All intercompany transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Allocation of Profits, Gains, and Losses: The Partnership Agreement
("Agreement") provides for net income and net losses for both financial and tax
reporting purposes to be allocated 99% to the Limited Partners and 1% to the
General Partner.
Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited
Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to
the Limited Partners by the number of Units outstanding at the beginning of the
year. Per Unit information has been computed based on 199,045.2 Units
outstanding in 1999 and 1998.
Cash and Cash Equivalents: Includes cash on hand, in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Restricted Escrows:
Replacement Reserve Account - At the time of the December 15, 1995,
refinancing of The Loft, approximately $60,000 of the proceeds were
designated for a Replacement Reserve Fund for certain capital replacements
at the property. At December 31, 1999, the balance was approximately
$96,000 and is included in restricted escrows.
In conjunction with the financing of the Sterling in September 1998, the
Partnership is required to make monthly deposits of approximately $17,000
with the mortgage company to establish and maintain a Replacement Reserve
Fund designated for repairs and replacements at the property. As of
December 31, 1999, the balance was approximately $259,000 and is included
in restricted escrows.
Repair Escrow Fund - In addition to the Replacement Reserve Fund, a Repair
Escrow Fund was established with a portion of the proceeds of the new
Sterling note to pay for certain costs of repairs to the property to be
completed within the next two years. As of December 31, 1999, the balance
in this Fund totaled approximately $245,000 and is included in restricted
escrows.
Escrows for Taxes: All escrow funds are designated for the payment of real
estate taxes and are held by the Partnership. These funds totaled approximately
$465,000 and $461,000 at December 31, 1999 and 1998, respectively, and are
included in receivables and deposits.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment and commercial properties and related personal
property. For Federal income tax purposes, the accelerated cost recovery method
is used (1) for real property over 15 years for additions prior to March 16,
1984, 18 years for additions after March 15, 1984 and before May 9, 1985, and 19
years for additions after May 8, 1985, and before January 1, 1987, and (2) for
personal property over 5 years for additions prior to January 1, 1987. As a
result of the Tax Reform Act of 1986, for additions after December 31, 1986, the
modified accelerated cost recovery method is used for depreciation of (1) real
property additions over 27 1/2 years and (2) personal property additions over 5
years.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping (see Note N).
Loan Costs: As of December 31, 1999 and 1998, loan costs of approximately
$572,000 and $564,000, respectively, less accumulated amortization of
approximately $103,000 and $46,000 respectively, are included in other assets
and are being amortized on a straight-line basis over the life of the loans.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling approximately
$572,000 and $503,000 as of December 31, 1999 and 1998, respectively, are
included in receivables and deposits. Deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on rental
payments.
Investment Properties: Investment properties consist of one apartment complex
and one multiple-use building consisting of apartment units and commercial space
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of properties that have been permanently impaired have been written down
to appraised value. No adjustments for impairment of value were recorded in the
years ended December 31, 1999, or 1998.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. The fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance.
Investment in Master Loan: In accordance with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", the allowance for credit losses related to
loans that are identified for evaluation in accordance with the Statement is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
Leases: The Partnership leases certain commercial space to tenants under various
lease terms. The leases are accounted for as operating leases in accordance with
SFAS No. 13, "Accounting for Leases". Some of the leases contain stated rental
increases during their term. For leases with fixed rental increases, rents are
recognized on a straight-line basis over the terms of the leases. For all other
leases, minimum rents are recognized over the terms of the leases.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases. In addition, the
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Concessions are charged against rental income as incurred.
Lease Commissions: Lease commissions are capitalized and included in other
assets and are being amortized using the straight-line method over the life of
the applicable lease. At December 31, 1999 and 1998, lease commissions totaled
approximately $469,000 for both years with accumulated amortization of
approximately $131,000 and $65,000, respectively.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. (See "Note L" for detailed disclosure of the Partnership's segments).
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $90,000 and $138,000 for the years ended
December 31, 1999 and 1998, respectively, were charged to operating expense as
incurred.
Reclassifications: Certain reclassifications have been made to the 1998 and
1997 information to conform to the 1999 presentation.
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 IPT merged into 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 has had or will have a material effect on the affairs and operations
of the Partnership.
Note C - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):
1999 1998 1997
Net income as reported $ 3,772 $ 28,576 $ 3,567
Add (deduct):
Deferred revenue and other liabilities (915) 155 14
Depreciation differences 471 459 266
Accrued expenses 28 3 (4)
Interest income (2,744) (4,138) (2,668)
Differences in valuation allowances -- (23,269) --
Other loss on disposition -- -- (99)
Federal taxable income $ 612 $ 1,786 $ 1,076
Federal taxable income per
limited partnership unit $ 3.04 $ 8.88 $ 5.35
The tax basis of the Partnership's assets and liabilities is approximately
$48,143,000 greater than the assets and liabilities as reported in the
consolidated financial statements at December 31, 1999.
Note D - Net Investment in Master Loan
The Partnership was formed for the benefit of its Limited Partners to lend funds
to Consolidated Capital Equity Partners, LP ("CCEP"), a California Limited
Partnership. The Partnership loaned funds to CCEP subject to a nonrecourse note
with a participation interest (the "Master Loan"). At December 31, 1999, the
recorded investment in the Master Loan was considered to be impaired under
Statement of Financial Accounting Standard No. 114 ("SFAS No. 114"), Accounting
by Creditors for Impairment of a Loan. The Partnership measures the impairment
of the loan based upon the fair value of the collateral due to the fact that
repayment of the loan is expected to be provided solely by the collateral. For
the year ended December 31, 1998, the Partnership recorded approximately
$23,269,000 in income based upon an increase in the fair value of the
collateral. No increase in the fair value of the collateral was recorded for the
year ended December 31, 1999.
For the years ended December 31, 1999 and 1998, the Partnership recorded
approximately $2,744,000 and $4,138,000, respectively, of interest income based
upon "Excess Cash Flow" generated (as defined in the terms of the New Master
Loan Agreement).
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, the physical
condition of the property and other factors, or by obtaining an appraisal by an
independent third party. This methodology has not changed from that used in
prior calculations performed by the General Partner in determining the fair
value of the collateral properties. The approximate $23,269,000 reduction in the
provision for impairment loss recognized during the year ended December 31, 1998
is attributed to an increase in the net realizable value of the collateral
properties. The General Partner evaluates the net realizable value on a
semi-annual basis. The General Partner has seen a consistent increase in the net
realizable value of the collateral properties, taken as a whole, over the past
two years, 1998 and 1997. The increase is deemed to be attributable to major
capital improvement projects and the concerted effort to complete deferred
maintenance items that have been ongoing over the past few years at the various
properties. This has enabled the properties to increase their respective
occupancy levels or, in some cases, to maintain the properties' high occupancy
levels. The vast majority of this work was funded by cash flow from the
collateral properties themselves as no amounts have been borrowed on the Master
Loan or from other sources in the past few years.
The General Partner attributes the increase in the net realizable value of the
collateral properties securing the Master Loan to the increase in occupancy
and/or average rental rates. The increase in occupancy at the properties is
attributable to approximately $8,403,000 of combined capital improvements made
at most of the properties for the three years ended December 31, 1998. These
improvements were funded primarily from property operations and cash flows as
the only advances from the Partnership to CCEP totaled approximately $367,000
for 1996.
Based upon the consistent increase in net realizable value of the collateral
properties, the General Partner determined the increase to be permanent in
nature and accordingly, reduced the allowance for impairment loss on the master
loan during the year ended December 31, 1998.
Interest, calculated on the accrual basis, due to the Partnership pursuant to
the terms of the Master Loan Agreement, but not recognized in the income
statements due to the impairment of the loan, totaled approximately $36,865,000,
$32,195,000 and $30,100,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Interest income is recognized on the cash basis as allowed
under SFAS 114. At December 31, 1999 and 1998, such cumulative unrecognized
interest totaling approximately $266,861,000 and $229,995,000 was not included
in the balance of the investment in Master Loan. In addition, six of the
properties are collateralized by first mortgages totaling approximately
$22,556,000 as of December 31, 1999, which are superior to the Master Loan.
Accordingly, this fact has been taken into consideration in determining the fair
value of the Master Loan.
During the years ended December 31, 1999, 1998 and 1997, the Partnership made no
advances to CCEP on Master Loan.
During the year ended December 31, 1999, the Partnership received approximately
$20,713,000 as principal payments on the Master Loan. Approximately $163,000 of
these payments represent cash received on certain investments by CCEP, which are
required to be transferred to the Partnership per the Master Loan Agreement. In
addition, approximately $20,550,000 represents net proceeds from the sale of 444
DeHaro. Approximately $2,744,000 of interest payments were also made during the
year ended December 31, 1999.
Terms of the Master Loan Agreement
Under the terms of the Master Loan, interest accrues at a fluctuating rate per
annum adjusted annually on July 15 by the percentage change in the U.S.
Department of Commerce Implicit Price Deflator for the Gross National Product
subject to an interest rate ceiling of 12.5%. The interest rates for each of the
years ended December 31, 1999, 1998 and 1997 was 12.5%. Payments are currently
payable quarterly in an amount equal to "Excess Cash Flow", generally defined in
the Master Loan as net cash flow from operations after third-party debt service
and capital expenditures. Any unpaid interest is added to principal, compounded
annually, and is payable at the loan's maturity. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to CCIP under the terms of
the Master Loan Agreement. The Master Loan Agreement matures in November 2000.
The Partnership is currently evaluating its options as to the maturity of the
Master Loan in November 2000. The options include foreclosing on the properties
that collateralize the Master Loan or extending the terms of the loan.
The investment in Master Loan consists of the following:
As of December 31,
1999 1998
(in thousands)
Master Loan funds advanced,
at beginning of year $ 88,578 $ 91,265
Principal receipts on Master Loan (20,713) (2,687)
Master Loan funds advanced,
at end of year $ 67,865 $ 88,578
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
As of December 31,
1999 1998 1997
(in thousands)
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $17,417 $40,686 $40,686
Reduction of impairment loss -- (23,269) --
Allowance for impairment loss on Master
Loan to affiliates, end of year $17,417 $17,417 $40,686
Note E - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
The Loft Apartments $ 4,338 $ 30 6.95% 12/1/05 $ 3,903
The Sterling Apartment
Homes and Commerce
Center 22,736 149 6.77% 10/1/08 19,975
Total $ 27,074 $179 $ 23,878
The mortgage notes payable are non-recourse and are secured by pledge of the
respective properties and by pledge of revenues from the respective properties.
The notes require prepayment penalties if repaid prior to maturity. Further, the
properties may not be sold subject to existing indebtedness.
In September 1998, the Partnership obtained financing for The Sterling Apartment
Homes and Commerce Center. The new indebtedness in the amount of $23,000,000
carries a stated interest rate of 6.77% per annum and is being amortized over 30
years with a balloon payment of approximately $19,975,000, due October 1, 2008.
Monthly payments of principal and interest of approximately $149,000 commenced
November 1, 1998.
Total loan costs of $448,000 relating to the new financing have been capitalized
and are being amortized over the term of the loan.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999, are as follows (in thousands):
2000 $ 297
2001 323
2002 346
2003 371
2004 393
Thereafter 25,344
$27,074
Note F - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expense incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and its affiliates during the years ended December 31, 1999, 1998, and
1997:
1999 1998 1997
(in thousands)
Property management fees (included in
operating expense) $525 $485 $424
Reimbursement for services of affiliates
(included in operating, general
and administrative expense, other
assets and investment properties) 259 543 587
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $259,000, $543,000 and
$587,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Included in "Reimbursement for services of affiliates" for the years ended 1999,
1998 and 1997 is approximately $38,000, $33,000 and $191,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$66,000 and $167,000 of lease commissions are included for the years ended
December 31, 1998 and 1997, respectively and approximately $171,000 in loan
financing costs are included for the year ended December 31, 1998.
During the years ended December 31, 1999 , 1998 and 1997, affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates $525,000, $485,000 and $424,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999, 1998, and 1997. As a
result of these tender offers, AIMCO and its affiliates currently own 115,486.5
limited partnership units in the Partnership representing 58.02% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the General
Partner because of their affiliation with the General Partner.
For the period January 1, 1997 to August 31, 1998, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner with an insurer unaffiliated with the General Partner. An affiliate of
the General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the master policy. The agent assumed the financial obligations
to the affiliate of the General Partner which receives payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
Note G - Commitments
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents and
tenant security deposits, totaling approximately $11,746,000 were greater than
the reserve requirement of approximately $4,959,000 at December 31, 1999.
Note H - Real Estate and Accumulated Depreciation
Investment Properties Initial Cost
To Partnership
(in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
The Loft Apartments
Raleigh, NC $ 4,338 $ 1,053 $ 4,147 $ 1,843
The Sterling Apt Homes
and Commerce Center
Philadelphia, PA 22,736 2,567 12,341 18,728
$27,074 $ 3,620 $16,488 $ 20,571
Gross Amount At Which
Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
(in thousands)
The Loft $ 997 $ 6,046 $ 7,043 $ 3,219 11/19/90 5-20
The Sterling 2,567 31,069 33,636 6,734 12/01/95 5-25
Totals $3,564 $37,115 $40,679 $ 9,953
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1999 1998 1997
(in thousands)
Real Estate
Balance, real estate at beginning of year $38,496 $35,335 $28,582
Property improvements and
replacements 2,183 3,239 6,753
Property sold/written off -- (78) --
Balance, real estate at end of year $40,679 $38,496 $35,335
Accumulated Depreciation
Balance at beginning of year $ 7,298 $ 5,014 $ 3,217
Additions charged to expense 2,655 2,292 1,797
Disposals due to write-offs -- (8) --
Balance at end of year $ 9,953 $ 7,298 $ 5,014
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $41,587,000 and $39,405,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 1999 and 1998 is approximately $7,539,000 and $5,100,000,
respectively.
Note I - Revenues
Rental income on the commercial property leases is recognized on the
straight-line basis over the life of the applicable leases. Minimum future
rental income for the commercial properties subject to noncancellable operating
leases is as follows (in thousands):
Year Ending
December 31,
2000 $ 1,200
2001 1,263
2002 1,201
2003 1,050
2004 921
Thereafter 2,110
$ 7,745
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note J - Sale of Land
In July 1998, the Partnership sold approximately 55,000 square feet of land
(5.33% of the total land) at The Loft Apartments. The land was situated to the
side of the property. This resulted in a net gain of approximately $19,000 on
the sale.
Note K - Abandonment of Limited Partnership Units
In 1998, the number of Limited Partnership Units decreased by 6.8 units due to
Limited Partners abandoning their units. In abandoning his or her Limited
Partnership Units, a Limited Partner relinquishes all right, title, and interest
in the Partnership as of the date of abandonment. However, during the year of
abandonment, the Limited Partner is still allocated his or her share of net
income or loss for that year. The income or loss per Limited Partnership Unit in
the accompanying Statements of Operations is calculated based on the number of
units outstanding at the beginning of the year.
Note L - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has two reportable segments:
residential properties and commercial properties. The Partnership's property
segments consist of one apartment complex in North Carolina and one multiple use
facility consisting of apartment units and commercial space in Pennsylvania. The
Partnership rents apartment units to tenants for terms that are typically less
than twelve months. The commercial property leases space to various medical
offices, various career services facilities, and a credit union at terms ranging
from two months to fifteen years.
Measurement of segment profit and loss: The Partnership evaluates performance
based on segment profit (loss) before depreciation. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies.
Factors management used to identify the enterprise's reportable segment: The
Partnership's reportable segments are business units (investment properties)
that offer different products and services. The reportable segments are each
managed separately because they provide distinct services with different types
of products and customers.
Segment information for the years 1999, 1998 and 1997 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 $ 8,452 $ 1,425 $ -- $ 9,877
Interest income 33 5 280 318
Other income 447 159 -- 606
Interest expense 1,691 235 -- 1,926
Depreciation 2,578 77 -- 2,655
General and administrative expense -- -- 531 531
Interest Income on Investment in
Master Loan -- -- 2,744 2,744
Segment profit 772 507 2,493 3,772
Total assets 33,654 2,067 59,947 95,668
Capital expenditures for investment
properties 2,132 51 -- 2,183
1998 Residential Commercial Other Totals
Rental income $ 7,853 $ 1,338 $ -- $ 9,191
Interest income 27 6 377 410
Other income 470 155 30 655
Interest expense 751 -- -- 751
Depreciation 2,240 52 -- 2,292
General and administrative expense -- -- 556 556
Interest Income on Investment
in Master Loan -- -- 4,138 4,138
Reduction of provision for
impairment loss -- -- 23,269 23,269
Segment profit 822 496 27,258 28,576
Total assets 35,283 1,281 78,618 115,182
Capital expenditures for investment
properties 2,902 337 -- 3,239
1997 Residential Commercial Other Totals
Rental income $ 6,870 $ 1,038 $ -- $ 7,908
Interest income 26 4 409 439
Other income 456 137 -- 593
Interest expense 324 -- -- 324
Depreciation 1,782 15 -- 1,797
General and administrative expense -- -- 433 433
Interest income on investment
in Master Loan -- -- 2,668 2,668
Segment profit 717 206 2,644 3,567
Total assets 31,556 566 59,506 91,628
Capital expenditures for investment
properties 8,108 94 -- 8,202
Note M - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The General Partner filed demurrers to the amended complaint which
were heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the General Partner and its affiliates
terminated the proposed settlement. Certain plaintiffs have filed a motion to
disqualify some of the plaintiffs' counsel in the action. The General Partner
does not anticipate that costs associated with this case will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note N - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was not
material. The cumulative effect, had this change been applied to prior periods,
is not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
Note O - Distributions
Distributions from surplus cash of approximately $22,621,000 were paid to
limited partners ($113.65 per limited partnership unit) during the year ended
December 31, 1999. During the year ended December 31, 1998, the Partnership paid
approximately $21,798,000 in distributions from operations, of which $21,780,000
was paid to limited partners ($109.42 per limited partnership unit). Also,
during the year ended December 31, 1998, the Partnership paid approximately
$6,800,000 in distributions from surplus funds to limited partners ($34.16 per
limited partnership unit). Included in the 1998 amounts were payments to the
North Carolina Department of Revenue for withholding taxes related to income
generated by the Partnership's investment property located in that state.
Item 9. Changes in and Disagreements with Accountants and Financial
Disclosure
None.
PART III
Item 10. Directors, Executive Officers of the General Partner of the
Partnership
The names and ages of, as well as the positions and offices held by, the present
executive officers and directors of ConCap Equities, Inc. ("CEI") the
Partnership's General Partner as of December 31, 1999, their ages and the nature
of all positions with CEI presently held by them are as follows:
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989
to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D.
from Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO and its joint filers failed to timely file a Form 4 with respect to its
acquisition of Units.
Item 11. Executive Compensation
No remuneration was paid to the General Partner nor any of its directors and
officers during the quarter ended December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, as of December 31, 1999, no person was known to CEI to
own of record or beneficially more than 5% of the Units of the Partnership:
Name and Address Number of Units Percentage
Insignia Properties, L.P.
(an affiliate of AIMCO) 50,572.4 25.41%
Reedy River Properties, L.L.C.
(an affiliate of AIMCO) 28,832.5 14.48%
Cooper River Properties, L.L.C.
(an affiliate of AIMCO) 11,365.6 5.71%
AIMCO Properties, L.P.
(an affiliate of AIMCO) 24,716.0 12.42%
Reedy River Properties, Cooper River Properties LLC and Insignia Properties
LP are indirectly ultimately owned by AIMCO. AIMCO Properties, LP is
ultimately controlled by AIMCO. With the exception of AIMCO Properties,
L.P., the business address of these affiliates is 55 Beattie Place,
Greenville, SC 20602. The business address for AIMCO Properties, L.P., is
2000 South Colorado Blvd., Denver, Colorado 80222.
(b) Beneficial Owners of Management
Except as described in Item 12(a) above, neither CEI nor any of the directors,
officers or associates of CEI own any Units of the Partnership of record or
beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of December 31, 1999, the following entity was known to CEI to be the
beneficial owner of more than 5% of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS UNITS OF TOTAL
Insignia Properties Trust
55 Beattie Place
P.O. Box 1089
Greenville, SC 29602 100,000 100%
Effective February 26, 1999 Insignia Properties Trust merged into AIMCO with
AIMCO being the surviving corporation. As a result, AIMCO ultimately acquired a
100% interest in Insignia Properties Trust.
Item 13. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expense incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and its affiliates during the years ended December 31, 1999, 1998, and
1997:
1999 1998 1997
(in thousands)
Property management fees $525 $485 $424
Reimbursement for services of affiliates 259 543 587
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $259,000, $543,000 and
$587,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Included in "Reimbursement for services of affiliates" for the years ended 1999,
1998 and 1997 is approximately $38,000, $33,000 and $191,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$66,000 and $167,000 of lease commissions are included for the years ended
December 31, 1998 and 1997, respectively and approximately $171,000 in loan
financing costs are included for the year ended December 31, 1998.
During the years ended December 31, 1999 , 1998 and 1997, affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates $525,000, $485,000 and $424,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999, 1998, and 1997. As a
result of these tender offers, AIMCO and its affiliates currently own 115,486.5
limited partnership units in the Partnership representing 58.02% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the General
Partner because of their affiliation with the General Partner.
For the period January 1, 1997 to August 31, 1998, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner with an insurer unaffiliated with the General Partner. An affiliate of
the General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the master policy. The agent assumed the financial obligations
to the affiliate of the General Partner which receives payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements Consolidated Capital Equity Partners,
L.P.
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Partners' (Deficit)
Capital for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Schedules
All schedules are omitted because they are not required, are
not applicable or the financial information is included in the
financial statements or notes thereto.
3. Exhibits
(a) See Exhibit index
(b) None.
EXHIBIT INDEX
S-K Reference Document Description
3 Certificates of Limited Partnership, as amended to date.
(Incorporated by reference to the Annual Report on Form
19-K for the year ended December 31, 1991 ("1991 Annual
Report")).
10.1 Amended Loan Agreement dated November 15, 1990 (the "Effective
Date"), by and between the Partnership and EP (Incorporated by
reference to the Annual Report of Form 10-K for the year ended
December 31, 1990 ("1990 Annual Report")).
10.2 Assumption Agreement as of the Effective Date, by and between
EP and CCEP (Incorporated by reference to the 1990 Annual
Report).
10.3 Assignment of Claims as of the Effective Date, by and between
the Partnership and EP (Incorporated by reference to the 1990
Annual Report).
10.4 Assignment of Partnership Interests in Western Can, Ltd.,
by and between EP and CCEP (Incorporated by reference to
the 1990 Annual Report).
10.5 Bill of Sale and Assignment dated October 23, 1990, by and
between CCEP and ConCap Services Company (Incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.6 Assignment and Assumption Agreement dated October 23, 1990, by
and between CCMLP and Metro ConCap, Inc. (300 series of
Property Management contracts), (Incorporated by reference to
the 1990 Annual Report).
10.7 Construction Management Cost Reimbursement Agreement dated
January 1, 1991, by and between the Partnership and Metro
ConCap, Inc. (Incorporated by reference to the 1991 Annual
Report).
10.8 Investor Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990).
10.9 Assignment and Assumption Agreement (Investor Services
Agreement) dated October 23, 1990 by and between CCEC and
ConCap Services Company (Incorporated by reference to the 1990
Annual Report).
10.10 Letter of Notice dated December 20, 1991, from Partnership
Services, Inc. ("PSI") to the Partnership regarding the change
in ownership and dissolution of ConCap Services Company
whereby PSI assumed the Investor Services Agreement.
(Incorporated by reference to the 1991 Annual Report).
10.11 Financial Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990).
10.12 Assignment and Assumption Agreement (Financial Services
Agreement) dated October 23, 1990 by and between CCEC and
ConCap Capital Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.13 Letter of Notice dated December 20, 1991, from PSI to the
Partnership regarding the change in ownership and dissolution
of ConCap Capital Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference to the 1991
Annual Report).
10.14 Property Management Agreement No. 503 dated February 16,
1993, by and between the Partnership, New Carlton House
Partners, Ltd. and Coventry Properties, Inc. (Incorporated
by reference to the Annual Report on Form 10-K for the year
ended December 31, 1992).
10.15 Property Management Agreement No. 508 dated June 1, 1993,
by and between the Partnership and Coventry Properties,
Inc.
10.16 Assignment and Assumption Agreement as to Certain Property
Management Services dated November 17, 1993, by and between
Coventry Properties, Inc. and Partnership Services, Inc.
10.17 Multifamily Note dated November 30, 1995 between
Consolidated Capital Institutional Properties, a California
limited partnership, and Lehman Brothers Holdings, Inc.
d/b/a Lehman Capital, A Division of Lehman Brothers
Holding, Inc.
10.18 Contract of Sale for Northlake Quadrangle, Tucker, Georgia,
Consolidated Capital Equity Partners, L.P, and SPIVLL
Management and Investment Company dated December 17, 1997,
filed in Form 10-Q for the quarter ended September 30, 1998.
10.19 First Amendment to Contract of Sale for Northlake Quadrangle,
Tucker, Georgia, between Consolidated Capital Equity Partners,
L.P., and SPIVLL Management and Investment Company dated April
16, 1998, filed in Form 10-Q for the quarter ended September
30, 1998.
10.20 Mortgage and Security Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.21 Repair Escrow Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.22 Replacement Reserve and Security Agreement between Kennedy
Boulevard Associates I, L.P., and Lehman Brothers Holdings,
Inc., dated August 25, 1998, securing The Sterling
Apartment Home and Commerce Center filed in Form 10-Q for
the quarter ended September 30, 1998.
11 Statement regarding computation of Net Income per Limited
Partnership Unit (Incorporated by reference to Note A of
Item 8 - Financial Statements of this Form 10-K)
16 Letter, dated August 12, 1992, from Ernst & Young to the
Securities and Exchange Commission regarding change in
certifying accountant. (Incorporated by reference to Form 8-K
dated August 6, 1992).
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle.
27 Financial Data Schedule containing summary financial
information extracted from the balance sheet and statement of
operations which is qualified in its entirety by reference to
such financial statements.
28.1 Fee Owner's Limited Partnership Agreement dated November 14,
1990 (Incorporated by reference to the 1990 Annual Report).
99.1 Audited Financial Statements of Consolidated Capital Equity
Partners, L.P. for the years ended December 31, 1999 and
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES
By: ConCap Equities, Inc.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Senior Vice President and
Controller
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the date indicated.
/s/Patrick J. Foye Date: March 30, 2000
Patrick J. Foye
Executive Vice President and Director
/s/Martha L. Long Date: March 30, 2000
Martha L. Long
Senior Vice President and Controller
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
ConCap Equities, Inc.
General Partner of Consolidated Capital Institutional Properties
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note N of Notes to the Consolidated Financial Statements of Consolidated Capital
Institutional Properties included in its Form 10-KSB for the year ended December
31, 1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
TABLE OF CONTENTS
December 31, 1999
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Partners' Deficit for the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners, L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners, L.P. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Equity Partners, L.P. at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note A to
the consolidated financial statements, the Partnership has incurred operating
losses, suffers from inadequate liquidity, has an accumulated deficit and is
unable to repay the Master Loan balance, which matures in 2000. These conditions
raise substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
As discussed in Note J to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 8, 2000
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
1999 1998
Assets
Cash and cash equivalents $ 2,865 $ 1,992
Receivables and deposits 1,359 1,282
Restricted escrows 718 759
Other assets 761 1,262
Investment properties (Notes F and H):
Land 8,290 9,237
Buildings and related personal property 85,969 95,236
94,259 104,473
Less accumulated depreciation (71,592) (77,251)
22,667 27,222
$ 28,370 $ 32,517
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 493 $ 353
Tenant security deposit liabilities 466 573
Accrued property taxes 435 245
Other liabilities 555 590
Mortgage notes (Note F) 22,556 22,855
Master loan and interest payable 334,840 318,688
359,345 343,304
Partners' Deficit
General partner (3,310) (3,108)
Limited partners (327,665) (307,679)
(330,975) (310,787)
$ 28,370 $ 32,517
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPTIAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1999 1998 1997
(Restated) (Restated)
Revenues:
Rental income $ 17,832 $ 17,432 $ 16,607
Other income 1,430 1,490 1,276
Total revenues 19,262 18,922 17,883
Expenses:
Operating 8,275 8,627 9,477
General and administrative 654 680 644
Depreciation 4,812 4,592 4,405
Property taxes 1,244 1,133 1,126
Interest 41,263 38,009 34,512
Total expenses 56,248 53,041 50,164
Loss from continuing operations (36,986) (34,119) (32,281)
Income (loss) from discontinued
operations 178 428 (276)
Gain on sale of discontinued
operations 16,630 425 --
Net loss $(20,178) $(33,266) $(32,557)
Net loss allocated to general partner (1%) $ (202) $ (333) $ (326)
Net loss allocated to limited partners (99%) (19,976) (32,933) (32,231)
$(20,178) $(33,266) $(32,557)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPTIAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
General Limited
Partners Partners Total
Partners' deficit
at December 31, 1996 $(2,449) $(242,488) $(244,937)
Net loss for the year ended
December 31, 1997 (326) (32,231) (32,557)
Partners' deficit at
December 31, 1997 (2,775) (274,719) (277,494)
Distributions -- (27) (27)
Net loss for the year
ended December 31, 1998 (333) (32,933) (33,266)
Partners' deficit at
December 31, 1998 (3,108) (307,679) (310,787)
Distributions (10) (10)
Net loss for the year ended
December 31, 1999 (202) (19,976) (20,178)
Partners' deficit
at December 31, 1999 $ (3,310) $(327,665) $(330,975)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
1999 1998 1997
Cash flows from operating activities:
Net loss $(20,178) $(33,266) $(32,557)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on disposal of property -- 28 13
Depreciation and amortization 5,381 5,500 5,414
Gain on sale of discontinued operations (16,630) (425) --
Change in accounts:
Receivables and deposits (77) (41) 398
Other assets (199) 27 (124)
Accounts payable 140 (73) (372)
Tenant security deposit liabilities (107) (16) 9
Accrued property taxes 190 139 (198)
Other liabilities (35) 7 151
Accrued interest on Master Loan 36,865 31,592 30,752
Net cash provided by operating activities 5,350 3,472 3,486
Cash flows from investing activities:
Property improvements and replacements (3,902) (2,015) (2,425)
Lease commissions paid (144) (57) (176)
Proceeds from sale of investment property 20,550 2,106 --
Net withdrawals from restricted escrows 41 39 622
Distributions from investments
in limited partnership -- -- 336
Net cash provided by (used in)
investing activities 16,545 73 (1,643)
Cash flows from financing activities:
Principal payments on Master Loan (20,713) (2,687) (2,105)
Principal payments on notes payable (299) (278) (260)
Distributions to partners (10) (27) --
Net cash used in financing activities (21,022) (2,992) (2,365)
Net increase (decrease) in cash and cash
Equivalents 873 553 (522)
Cash and cash equivalents at beginning of year 1,992 1,439 1,961
Cash and cash equivalents at end of year $ 2,865 $ 1,992 $ 1,439
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,348 $ 6,341 $ 3,682
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note A - Going Concern
The Partnership's financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership continues to incur
operating losses, suffers from inadequate liquidity, has an accumulated deficit
and is unable to repay the Master Loan balance, which matures in November 2000.
The Partnership realized a net loss of approximately $20,178,000 for the year
ended December 31, 1999. This was due primarily to a loss from continuing
operations of approximately $36,986,000 offset by the recognition of a gain on
the sale of discontinued operations of approximately $16,630,000 relating to the
sale of the Partnership's last commercial property. The General Partner expects
the Partnership to continue to incur losses from operations.
The Partnership's indebtedness to CCIP under the Master Loan of approximately
$334,840,000, including accrued interest, matures in November 2000. The
Partnership has not received notice as to the maturity of the Master Loan. The
holder of the note has two options, which include foreclosing on the properties
that collateralize the Master Loan or extending the term of the note. Currently,
the Partnership does not have the means with which to satisfy this obligation.
No other sources of additional financing have been identified by the
Partnership, nor does the general partner have any other plans to remedy the
liquidity problems the Partnership is currently experiencing. At December 31,
1999, partners' deficit was approximately $330,975,000.
The general partner expects revenues from the eleven investment properties will
be sufficient over the next twelve months to meet all property operating
expenses, mortgage debt service requirements and capital expenditure
requirements. However, these cash flows will be insufficient to repay to CCIP
the Master Loan balance, including accrued interest, in the event it is not
renegotiated.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Note B - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Equity Partners ("EP"), a California general
partnership, was formed on June 24, 1981, to engage in the business of
acquiring, operating and holding equity investments in income-producing real
estate properties. The operations of EP were financed substantially through
nonrecourse notes (the "Master Loan") from Consolidated Capital Institutional
Properties ("CCIP"), a California limited partnership. These notes are secured
by the real estate properties owned by EP. The General Partner of CCIP is ConCap
Equities, Inc. ("CEI"), a Delaware corporation. In November 1990, EP's general
partners executed a new partnership agreement (the "New Partnership Agreement")
in conjunction with the bankruptcy settlement discussed below whereby EP
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners, L.P. ("CCEP" or the "Partnership").
Pursuant to the New Partnership Agreement, ConCap Holding, Inc. ("CHI"), a Texas
corporation, a wholly-owned subsidiary of CEI, became the General Partner of
CCEP, and the former General Partners of EP became Limited Partners of CCEP. CHI
has full discretion with respect to conducting CCEP's business, including
managing CCEP's properties and initiating and approving capital expenditures and
asset dispositions and refinancings. All of CEI's outstanding stock was owned by
Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged
into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a
wholly-owned subsidiary of AIMCO (See "Note C" - Transfer of Control). The
Partnership Agreement provides that the Partnership is to terminate on December
31, 2011 unless terminated prior to such date.
Principles of Consolidation: As of December 31, 1998, CCEP owned a 75% interest
in a limited partnership ("Western Can, Ltd.") which owns 444 De Haro, an office
building in San Francisco, California. No minority interest liability was
reflected, as of December 31, 1998, for the 25% minority interest because
Western Can, Ltd. has a net capital deficit and no minority liability existed
with respect to CCEP. In May 1999, a limited partner in Western Can, Ltd.
withdrew in connection with a settlement with CCEP pursuant to which the partner
was paid $1,350,000 by CCEP. This settlement effectively terminated Western Can
Ltd. as CCEP became the sole limited partner. In September 1999, 444 DeHaro was
sold (see "Note D - Discontinued Segment").
Allocation of Profits, Gains, and Losses: Pursuant to the Partnership Agreement,
net income and net losses for both financial and tax reporting purposes are
allocated 99% to the Limited Partners and 1% to the General Partner.
Cash and Cash Equivalents: Includes cash on hand, in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling $456,000 (1999)
and $575,000 (1998) are included in receivables and deposits. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on rental payments.
Restricted Escrows:
Replacement Reserve Account - At the time of the December 15, 1995
refinancing of several of the properties, approximately $375,000 of the
proceeds were designated for a Replacement Reserve Fund for certain
capital replacements (as defined in the Replacement Reserve Agreement) at
Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek
Village and Tates Creek Village. At December 31, 1999 and 1998, the
balance in the Replacement Reserve Fund was approximately $718,000 and
$759,000, respectively.
Escrows for Taxes: These funds totaling $675,000 (1999) and $517,000 (1998),
held by the Partnership and the mortgage holder, are designated for the payment
of real estate taxes and are included in receivables and deposits.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 years.
Effective January 1, 1999 the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (Note J).
Loan Costs: Loan costs of approximately $779,000 (1999) and approximately
$781,000 (1998), less accumulated amortization of approximately $316,000 (1999)
and $240,000 (1998), are included in other assets and are being amortized on a
straight-line basis over the life of the loans.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs were approximately $408,000, $382,000 and $394,000 for the
years ended December 31, 1999, 1998 and 1997, respectively, and are included in
operating expense.
Investment Properties: Investment properties consist of eleven (11) apartment
complexes at December 31, 1999 and are stated at cost. During 1999 the one
commercial building was sold. Acquisition fees are capitalized as a cost of real
estate. In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of properties that have been permanently impaired have been written down
to appraised value. No adjustments for impairment of value were recorded in the
years ended December 31, 1999, 1998, or 1997.
Leases: CCEP leased certain commercial space to tenants under various lease
terms. The leases were accounted for as operating leases in accordance with SFAS
No. 13 "Accounting for Leases". Some of the leases contain stated rental
increases during their term. For leases with fixed rental increases, rents are
recognized on a straight-line basis over the terms of the leases. For all other
leases, minimum rents are recognized over the terms of the leases. The
Partnership's remaining commercial property was sold in September 1999 (see Note
D).
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases. In addition, the
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Concessions are charged against rental income as incurred.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31, 1998
lease commissions totaled approximately $784,000 with accumulated amortization
of approximately $463,000. Lease commissions are included in other assets. As a
result of the sale during 1999 of the Partnership's only remaining commercial
property all remaining unamortized lease commissions were written off.
Income Taxes: No provision has been made in the financial statements for Federal
income taxes because, under current law, no Federal income taxes are paid
directly by CCEP. The Partners are responsible for their respective shares of
CCEP's net income or loss. CCEP reports certain transactions differently for tax
than for financial statement purposes.
The tax basis of CCEP's assets and liabilities is approximately $268,278,000
greater than the assets and liabilities as reported in the financial statements
at December 31, 1999.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. The fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance.
Reclassifications: Certain reclassifications have been made to the 1997 and
1998 information to conform to the 1999 presentation.
Note C - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into 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 has had or will have a material effect on the affairs and operations
of the Partnership.
Note D - Discontinued Segment
In September 1999, 444 DeHaro located in San Francisco, California was sold to
an unaffiliated third party for approximately $23,250,000. In conjunction with
the sale, a fee of approximately $698,000 was paid to the General Partner in
accordance with the Partnership Agreement. After payment of closing expenses and
the fee to the General Partner, the net proceeds received by the Partnership
were approximately $20,550,000. The sale of the property resulted in a gain on
sale of discontinued operations of approximately $16,630,000 after writing off
the undepreciated value of the property and CCEP's investment in Western Can,
Ltd. (See "Note A. Principles of Consolidation). As required by the terms of the
Master Loan Agreement (see "Note D"), the Partnership remitted $20,550,000 of
the net sale proceeds to CCIP representing principal payments on the Master
Loan.
In April 1998, CCEP sold Northlake Quadrangle to an unrelated third party for a
contract price of $2,325,000. The Partnership received net proceeds of
approximately $2,106,000 after payment of closing costs. The proceeds were
remitted to CCIP to pay down the Master Loan, as required by the Master Loan
Agreement.
444 DeHaro was the only remaining property in the commercial segment of the
Partnership. Due to the sale of this property, the results of operations of the
property have been classified as "Income from Discontinued Operations" for the
years ended December 31, 1999, 1998, and 1997 and the gain on sale of the
property is reported as "Gain from sale of discontinued operations". Revenues
from discontinued operations were approximately $1,472,000, $2,345,000 and
$2,338,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
Note E - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
1999 and December 31, 1998, are approximately $334,840,000 and $318,688,000
respectively.
Terms of the Master Loan Agreement
Under the terms of the Master Loan, interest accrues at a fluctuating rate per
annum, adjusted annually on July 15 by the percentage change in the U.S.
Department of Commerce Implicit Price Deflator for the Gross National Product,
subject to an interest rate ceiling of 12.5%. Payments are currently payable
quarterly in an amount equal to "Excess Cash Flow", generally defined in the
Master Loan as net cash flow from operations after third-party debt service and
capital expenditures. Any unpaid interest is added to principal, compounded
annually, and is payable at the loan's maturity. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to CCIP under the terms of
the Master Loan Agreement. The Master Loan Agreement matures in November 2000.
The Partnership has not received notice as to the maturity of the Master Loan.
The holder of the note has two options which include foreclosing on the
properties that collateralize the Master Loan or extending the terms of the
note.
During the year ended December 31, 1999, CCEP paid approximately $20,713,000 as
principal payments on the Master Loan. Approximately $163,000 was from cash
received on certain investments by CCEP, which are required to be transferred to
CCIP per the Master Loan Agreement, and the remaining $20,550,000 resulted from
the receipt of net sale proceeds from 444 DeHaro and there were no advances on
the Master Loan for the years ended December 31, 1999, 1998 and 1997.
Note F - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in
thousands)
Indian Creek Village
1st Mortgage $ 4,486 $ 31 6.95% 12/01/05 $ 4,036
The Knolls
1st Mortgage 5,177 36 6.95% 12/01/05 4,659
Palm Lake
1st Mortgage 1,670 12 6.95% 12/01/05 1,503
Plantation Gardens
1st Mortgage 6,776 47 6.95% 12/01/05 6,097
Society Park East
1st Mortgage 1,966 14 6.95% 12/01/05 1,769
Tates Creek Village
1st Mortgage 2,481 17 6.95% 12/01/05 2,233
Total $ 22,556 $20,297
The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. The mortgage notes are superior to the Master Loan.
Prepayment penalties are required if repaid prior to maturity. Further, the
properties may not be sold subject to existing indebtedness.
Summary of Maturities
Principal payments on mortgage notes payable are due as follows (in thousands):
Years Ending December 31,
2000 $ 320
2001 343
2002 367
2003 394
2004 422
Thereafter 20,710
$22,556
Note G - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates for
services. The following payments were made to the General Partner and its
affiliates during the years ended December 31, 1999, 1998, and 1997:
1999 1998 1997
(in thousands)
Property management fees (included in
operating expense) $ 968 $ 1,042 $1,032
Investment advisory fees (included in
general and administrative expense) 179 174 182
Reimbursement for services of affiliates
(included in operating, general
and administrative expense, and
investment properties) 373 346 565
During the years ended December 31, 1999 , 1998 and 1997 affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's residential properties for providing property management services.
The Partnership paid to such affiliates $968,000, $945,000 and $906,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. For the nine months
ended September 30, 1998 and the year ended December 31, 1997, affiliates of the
General Partner were entitled to receive varying percentages of gross receipts
from all the Partnership's commercial properties for providing property
management services. The Partnership paid to such affiliates $97,000 and
$126,000 for the nine months ended September 30, 1998 and for the year ended
December 31, 1997, respectively. Effective October 1, 1998 (the effective date
of the Insignia Merger), these services for the commercial properties were
provided by an unrelated party.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides for
an annual fee, payable in monthly installments, to an affiliate of the General
Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates $179,000, $174,000 and $182,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $373,000, $346,000 and
$565,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Included in the expense for the years ended December 31, 1999, 1998 and 1997 is
approximately $33,000, $28,000, and $78,000 in reimbursements for construction
oversight costs and approximately $16,000 and $139,000 of lease commissions for
the years ended December 31, 1998, and 1997, respectively. There were no lease
commissions paid to affiliates of the General Partner for the year ended
December 31, 1999.
In connection with the sale of 444 DeHaro in 1999 and Northlake Quadrangle in
1998 the General Partner was entitled to a fee of $698,000 and $102,000,
respectively, in compensation for its role in the sale.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties ("CCIP") pursuant to the Master Loan Agreement (the
"Master Loan"). Such interest payments totaled approximately $2,744,000,
$4,742,000, and $2,064,000 for the years ended December 31, 1999, 1998, and
1997, respectively. There were no advances during 1997, 1998 and 1999. During
the year ended December 31, 1999, CCEP paid approximately $20,713,000 to CCIP as
principal payments on the Master Loan. Approximately $163,000 was from cash
received on certain investments by CCEP, which are required to be transferred to
CCIP as per the Master Loan Agreement and the remaining $20,550,000 resulted
from the receipt of net sale proceeds from the sale of 444 DeHaro.
During the year ended December 31, 1998, CCEP paid approximately $2,687,000 to
CCIP as principal payments on the Master Loan. Cash received on certain
investments by CCEP, which are required to be transferred to CCIP per the Master
Loan Agreement, accounted for approximately $285,000. Approximately $296,000 was
due to excess cash flow payments paid to CCIP as stipulated by the Master Loan
Agreement. Approximately $2,106,000 was due to receipt of sale proceeds from the
sale of Northlake Quadrangle.
During the year ended December 31, 1997, CCEP paid approximately $2,105,000 to
CCIP as principal payments on the Master Loan. Cash received on certain
investments by CCEP, which are required to be transferred to CCIP per the Master
Loan Agreement, accounted for approximately $462,000. Approximately $643,000 was
due to excess cash flow payments paid to CCIP as stipulated by the Master Loan
Agreement. CCEP also paid an additional $1,000,000 to CCIP as principal payment
on the Master Loan.
For the period January 1, 1997 to August 31, 1998, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner with an insurer unaffiliated with the General Partner. An affiliate of
the General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the master policy. The agent assumed the financial obligations
to the affiliate of the General Partner which receives payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following
(dollar amounts in thousands):
Building
& Related
Personal Accumulated Depreciable
Description Land Property Total Depreciation Life-Years
Indian Creek Village $ 1,041 $ 9,133 $10,174 $ 7,315 5-18
The Knolls 647 7,771 8,418 6,127 5-18
Palm Lake 272 4,857 5,129 3,963 5-18
Plantation Gardens 1,958 13,733 15,691 11,947 5-18
Regency Oaks 521 10,639 11,160 9,052 5-18
Magnolia Trace 892 6,199 7,091 5,206 5-18
Shirewood Townhomes 494 6,479 6,973 5,393 5-18
Silverado 628 4,924 5,552 4,378 5-18
Society Park 966 8,890 9,856 7,684 5-18
Society Park East 489 5,709 6,198 4,288 5-18
Tates Creek Village 382 7,635 8,017 6,239 5-18
Total $ 8,290 $85,969 $94,259 $71,592
Note I - Year 2000
General Description
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 Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
Note J - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was to
increase income by approximately $502,000. The cumulative effect, had this
change been applied to prior periods, is not material. The accounting principle
change will not have an effect on cash flow, funds available for distribution or
fees payable to the General Partner and affiliates.