UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Exact name of 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, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
2002 2001
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,560 $ 922
Receivables and deposits 507 488
Investments in affiliated partnerships 899 --
Restricted escrows 981 392
Other assets 830 604
Investment in Master Loan to affiliate 16,044 26,430
Investment properties 81,771 43,222
Less: Accumulated depreciation (18,223) (15,969)
63,548 27,253
$ 84,369 $ 56,089
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 93 $ 126
Tenant security deposit liabilities 711 566
Accrued property taxes 351 --
Other liabilities 1,284 603
Mortgage notes payable 52,935 26,457
55,374 27,752
Partners' Capital
General partner 135 123
Limited partners (199,045.2 units issued and
outstanding) 28,860 28,214
28,995 28,337
$ 84,369 $ 56,089
Note: The balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date, but does not include all
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Rental income $ 3,585 $ 2,842 $ 8,972 $ 8,444
Interest income on investment in
Master Loan to affiliate -- 576 386 3,280
Reduction of provision for impairment
loss -- -- -- 3,176
Other income 298 202 703 705
Total revenues 3,883 3,620 10,061 15,605
Operating 1,345 1,186 3,717 3,798
General and administrative 296 149 685 692
Depreciation 768 714 2,254 2,264
Interest 633 475 1,567 1,422
Property taxes 265 201 681 620
Total expenses 3,307 2,725 8,904 8,796
Income before gain on foreclosure of
real estate 576 895 1,157 6,809
Gain on foreclosure of real estate 1,831 -- 1,831 --
Net income $ 2,407 $ 895 $ 2,988 $ 6,809
Net income allocated to general
partner (1%) $ 24 $ 9 $ 30 $ 68
Net income allocated to limited
partners (99%) 2,383 886 2,958 6,741
Net income $ 2,407 $ 895 $ 2,988 $ 6,809
Net income per limited partnership
unit $ 11.97 $ 4.45 $ 14.86 $ 33.87
Distributions per limited
partnership unit $ 4.70 $ 18.65 $ 11.61 $ 74.20
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(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' capital
at December 31, 2000 199,045.2 $ 118 $ 36,898 $ 37,016
Distributions to partners -- (60) (14,769) (14,829)
Net income for the nine months
ended September 30, 2001 -- 68 6,741 6,809
Partners' capital
at September 30, 2001 199,045.2 $ 126 $ 28,870 $ 28,996
Partners' capital at
December 31, 2001 199,045.2 $ 123 $ 28,214 $ 28,337
Distributions to partners -- (18) (2,312) (2,330)
Net income for the nine months
ended September 30, 2002 -- 30 2,958 2,988
Partners' capital at
September 30, 2002 199,045.2 $ 135 $ 28,860 $ 28,995
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net income $ 2,988 $ 6,809
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on foreclosure of real estate (1,831) --
Depreciation and amortization 2,315 2,360
Reduction of provision for impairment loss -- (3,176)
Change in accounts:
Receivables and deposits (246) 679
Other assets (274) (198)
Accounts payable (33) (83)
Tenant security deposit liabilities 17 (55)
Accrued property taxes 113 68
Other liabilities 469 (120)
Net cash provided by operating activities 3,518 6,284
Cash flows from investing activities:
Net (deposits to) receipts from restricted escrows (72) 130
Property improvements and replacements (276) (173)
Principal receipts on Master Loan to affiliate 88 7,780
Distributions from affiliated partnerships 19 --
Net cash (used in) provided by investing activities (241) 7,737
Cash flows from financing activities:
Distributions to partners (2,330) (14,829)
Payments on mortgage notes payable (309) (221)
Net cash used in financing activities (2,639) (15,050)
Net increase (decrease) in cash and cash equivalents 638 (1,029)
Cash and cash equivalents at beginning of period 922 2,036
Cash and cash equivalents at end of period $ 1,560 $ 1,007
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,525 $ 1,377
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ -- $ 62
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(in thousands)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the nine months ended September 30, 2002, Silverado, The Knolls, Indian
Creek Village, and Tates Creek Village Apartments were foreclosed upon by the
Partnership. In connection with the acquisition of these properties through
foreclosure, the following accounts were adjusted by the non-cash amounts noted
below:
2002
Receivables and deposits $ (66)
Investment in Master Loan
to affiliates 10,591
Restricted escrows (517)
Other assets (13)
Investment properties (38,273)
Investments in affiliated
partnerships (918)
Tenant security deposit
liabilities 128
Accrued property taxes 238
Other liabilities 212
Mortgage notes payable 26,787
Gain on foreclosure of
real estate $ (1,831)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), which is a subsidiary of Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 2002 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
Segment Reporting: Statement of Financial Accounting Standards ("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 established standards for related disclosures about
products and services, geographic areas, and major customers. (See "Note E" for
detailed disclosure of the Partnership's segments).
Reclassifications: Certain reclassifications have been made to the 2001
information to conform to the 2002 presentation.
Note B - Net Investment in Master Loan and Gain on Foreclosure of Real Estate
The Partnership was formed for the benefit of its limited partners to lend funds
to Consolidated Capital Equity Partners ("CCEP"), a California general
partnership. The general partner of CCEP is an affiliate of the General Partner.
The Partnership loaned funds to CCEP subject to a nonrecourse note with a
participation interest (the "Master Loan"). The loans were made to, and the real
properties that secure the Master Loan were purchased and owned by CCEP. At
September 30, 2002, the recorded investment in the Master Loan is considered to
be impaired under SFAS 114 "Accounting by Creditors for Impairment of a Loan".
The Partnership measures the impairment of the loan based upon the fair value of
the collateral, as repayment of the loan is expected to be provided solely by
the collateral. For the nine months ended September 30, 2002 and 2001, the
Partnership recorded approximately $386,000 and $3,280,000, 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 all of the collateral properties which on a combined basis
secure the Master Loan, was determined by obtaining an appraisal by an
independent third party or by using the net operating income of all of the
collateral properties capitalized at a rate deemed reasonable for the type of
property adjusted for market conditions, the physical condition of each property
and other factors less the value of the first mortgage loans held on each
property which are superior to the Master Loan. 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
$3,176,000 reduction in the provision for impairment loss recognized during the
nine months ended September 30, 2001 is attributed to an increase in the net
realizable value of the collateral properties and to the payment of principal of
the Master Loan from the sales proceeds of Magnolia Trace in January 2001. There
was no change in the provision for impairment loss during the nine months ended
September 30, 2002. The General Partner evaluates the net realizable value on a
semi-annual basis or as circumstance dictate that it should be analyzed.
The Master Loan matured in November 2000. The General Partner had been
negotiating with CCEP with respect to its options which included foreclosing on
the properties which collateralize the Master Loan or extending the terms of the
loan. The General Partner has decided to foreclose on the properties that
collateralize the Master Loan. The General Partner began the process of
foreclosure or executing deeds in lieu of foreclosure during the third quarter
of 2002 on all the properties in CCEP. During August 2002, the General Partner
executed deeds in lieu of foreclosure on four of the active properties of CCEP.
The foreclosure process on the remaining five properties held by CCEP is
ongoing. As the deeds were executed, title in the properties previously owned by
CCEP were transferred to the Partnership, subject to the existing liens on such
properties, including the first mortgage loans. As a result, the Partnership
assumed responsibility for the operations of such properties.
The following table sets forth the Partnership's non-cash activities during the
nine months ended September 30, 2002 with respect to the foreclosure of
Silverado, The Knolls, Indian Creek Village and Tates Creek Village Apartments:
Investment properties (a) $ 38,273
Investments in affiliated partnerships (b) 918
Mortgage notes payable (c) (26,787)
Master loan, net of allowance (d) (10,591)
Other assets received, net of
other liabilities assumed 18
Gain on foreclosure $ 1,831
(a) Amount represents the estimated fair value of the properties. The fair
value was determined by appraisals obtained in September 2000 from an
independent third party which have been updated by management using the
net operating income of all of the collateral properties capitalized at a
rate deemed reasonable for the type of property and adjusted by management
for current market conditions, physical condition of each respective
property, and other factors.
(b) See "Note D".
(c) Amount represents the present value on the mortgages encumbering the
investment properties acquired discounted at a rate currently available to
the Partnership.
(d) Amount represents the amount of the Master Loan associated with the four
properties acquired.
Proforma results of operations assuming the foreclosure of Silverado, The
Knolls, Indian Creek Village, and Tates Creek Village Apartments occurred at
January 1, 2001 are as follows (in thousands, except per unit data):
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
Revenues $ 4,700 $ 4,987 $14,108 $18,025
Net income 357 744 865 4,221
Net income per
limited
partnership
unit $ 1.78 $ 3.74 $ 4.30 $ 21.21
The principal balance of the Master Loan due to the Partnership totaled
approximately $16,044,000 at September 30, 2002. This amount represents the fair
market value of the remaining properties. Interest, calculated on the accrual
basis, due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the consolidated statements of operations due
to the impairment of the loan, totaled approximately $31,601,000 and $31,603,000
for the nine months ended September 30, 2002 and 2001, respectively. Interest
income is recognized on the cash basis as required by SFAS 114. At September 30,
2002 and December 31, 2001, such cumulative unrecognized interest totaled
approximately $207,173,000 and $355,127,000, respectively, and was not included
in the balance of the investment in Master Loan. The cumulative unrecognized
interest on the Master Loan was forgiven by the Partnership for the properties
which were foreclosed on during the third quarter of 2002.
During the nine months ended September 30, 2002 and 2001, the Partnership
received approximately $88,000 and $7,780,000, in principal payments on the
Master Loan. Approximately $88,000 and $336,000 was received during the nine
months ended September 30, 2002 and 2001 representing cash received on certain
investments held by CCEP, which are required to be transferred to the
Partnership per the Master Loan Agreement. In addition, during the nine months
ended September 30, 2001, approximately $6,019,000 was received representing net
proceeds from the sale of Magnolia Trace and approximately $1,425,000 was
received representing additional proceeds from the refinancing of the mortgages
encumbering nine of the investment properties in 2000.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $468,000 and $459,000 for the
nine months ended September 30, 2002 and 2001, respectively, which is included
in operating expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $337,000 and $364,000 for the
nine months ended September 30, 2002 and 2001, respectively, which is included
in general and administrative expenses.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the nine months ended September
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $98,000 and $60,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note D - Investment in Affiliated Partnerships
The Partnership assumed investments in the following affiliated partnerships
during the nine months ended September 30, 2002.
Estimated
Ownership Net Realizable
Partnership Type of Ownership Percentage Value
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 47
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 27
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 825
$ 899
These investments were assumed during the foreclosure of investment properties
from CCEP (see "Note B") and are accounted for on the equity method of
accounting. Subsequent to the foreclosure, the Partnership received a
distribution of approximately $19,000 from one of the affiliated partnerships.
Note E - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of five apartment complexes located in North Carolina, Texas, Colorado, Kansas,
and Kentucky, and one multiple-use facility consisting of apartment units and
commercial space located in Pennsylvania. The Partnership rents apartment units
to tenants for terms that are typically twelve months or less. The commercial
property leases space to various medical offices, various career services
facilities and a credit union at terms ranging from two months to fifteen years.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit before
depreciation. The accounting policies of the reportable segments are the same as
those described in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the three and nine months ended September 30, 2002 and
2001 is shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segments.
For the three months ended
September 30, 2002 Residential Commercial Other Totals
Rental income $ 3,307 $ 278 $ -- $ 3,585
Other income 264 31 3 298
Interest expense 576 57 -- 633
Depreciation 722 46 -- 768
General and administrative expense -- -- 296 296
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit 948 (79) 1,538 2,407
For the nine months ended
September 30, 2002 Residential Commercial Other Totals
Rental income $ 8,148 $ 824 $ -- $ 8,972
Other income 612 86 5 703
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 1,396 171 -- 1,567
Depreciation 2,121 133 -- 2,254
General and administrative expense -- -- 685 685
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit 1,713 (262) 1,537 2,988
Total assets 65,451 1,078 17,840 84,369
Capital expenditures 257 19 -- 276
For the three months ended
September 30, 2001 Residential Commercial Other Totals
Rental income $ 2,462 $ 380 $ -- $ 2,842
Other income 132 66 4 202
Interest income on investment
in Master Loan -- -- 576 576
Interest expense 417 58 -- 475
Depreciation 692 22 -- 714
General and administrative expense -- -- 149 149
Segment profit 390 74 431 895
For the nine months ended
September 30, 2001 Residential Commercial Other Totals
Rental income $ 7,277 $ 1,167 $ -- $ 8,444
Other income 471 226 8 705
Interest income on investment
in Master Loan -- -- 3,280 3,280
Reduction of provision for
impairment loss -- -- 3,176 3,176
Interest expense 1,249 173 -- 1,422
Depreciation 2,195 69 -- 2,264
General and administrative expense -- -- 692 692
Segment profit 827 210 5,772 6,809
Total assets 28,744 1,540 26,730 57,014
Capital expenditures 209 26 -- 235
Note F - 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. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its 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, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
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 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 court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as order by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
The Partnership's investment properties consist of six properties. The Sterling
is a multiple-use facility which consists of an apartment complex and commercial
space. The following table sets forth the average occupancy of the properties
for the nine months ended September 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
The Loft Apartments 92% 92%
Raleigh, North Carolina
The Sterling Apartment Homes (1) 91% 94%
The Sterling Commerce Center (1) 55% 89%
Philadelphia, Pennsylvania
Silverado Apartments (2) 96% 93%
El Paso, Texas
The Knolls Apartments (2) 92% 96%
Colorado Springs, Colorado
Indian Creek Village Apartments (2) 93% 94%
Overland Park, Kansas
Tates Creek Village Apartments (2) 96% 94%
Lexington, Kentucky
(1) The Sterling Apartments Homes and Commerce Center ("The Sterling") is a
multiple-use facility which consists of an apartment complex and
commercial space.
(2) The Partnership acquired these investment properties through foreclosure
during the third quarter of 2002 (see discussion below).
The decrease in occupancy at The Sterling Apartment Homes is due to the
competitive market of the apartment industry in the Philadelphia area. The
decrease in occupancy at The Sterling Commerce Center is due to the loss of a
major tenant in December 2001. The Partnership is actively seeking a tenant to
lease the space formerly occupied by this major tenant. The decrease in
occupancy at The Knolls is due to tight market conditions in Colorado Springs,
Colorado.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2002 was
approximately $2,988,000 compared to net income of approximately $6,809,000 for
the corresponding period in 2001. The Partnership recorded net income of
approximately $2,407,000 for the three months ended September 30, 2002 compared
to net income of approximately $895,000 for the corresponding period in 2001.
The decrease in net income for the nine months ended September 30, 2002 as
compared to the nine months ended September 30, 2001 is primarily due to the
$3,176,000 reduction of the provision for impairment loss on the investment in
the Master Loan recognized during the nine months ended September 30, 2001, a
decrease of approximately $2,894,000 in interest payments received and therefore
recognized on the Master Loan, and an increase in total expenses partially
offset by a gain on foreclosure of real estate of $1,831,000. The reduction of
the provision for impairment loss on the Master Loan was recognized due to an
increase in the net realizable value of the collateral properties and the
payment of principal on the Master Loan from the sales proceeds of Magnolia
Trace during the nine months ended September 30, 2001. The General Partner
evaluates the net realizable value on a semi-annual basis or when circumstances
dictate that it should be analyzed. Interest income on investment in Master Loan
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. The gain on foreclosure of real estate was due to the
foreclosure of four properties (Silverado Apartments, The Knolls Apartments,
Indian Creek Apartments, and Tates Creek Village Apartments). The Master Loan
matured in November 2000. The General Partner had been negotiating with CCEP
with respect to its options which included foreclosing on the properties which
collateralize the Master Loan or extending the terms of the loan. The General
Partner decided to foreclose on the properties that collateralize the Master
Loan. The General Partner began the process of foreclosure or executing deeds in
lieu of foreclosure during the third quarter of 2002 on all the properties in
CCEP. During August 2002, the General Partner executed deeds in lieu of
foreclosure on four of the active properties of CCEP. The foreclosure process on
the remaining five properties held by CCEP is ongoing. As the deeds were
executed, title in the properties previously owned by CCEP were transferred to
the Partnership, subject to the existing liens on such properties, including the
first mortgage loans. As a result, the Partnership assumed responsibility for
the operations of such properties.
Excluding the items related to the Master Loan, and the gain on foreclosure of
real estate, the Partnership's net income for the nine months ended September
30, 2002 and 2001 was approximately $771,000 and $353,000, respectively. For the
three months ended September 30, 2002 and 2001, the Partnership had net income
of approximately $576,000 and $319,000, respectively. The increase in income for
the three and nine month periods ended September 30, 2002 is due to an increase
in total revenues which more than offset an increase in total expenses.
The increase in total revenues for the nine months ended September 30, 2002 is
due to increases in rental income. The increase in total revenue for the three
months ended September 30, 2002 is due to an increase in rental income and other
income. The increase in rental income is due to the addition of the four
foreclosed properties and increased rental rates at Sterling Apartment Homes and
Sterling Commercial Center offset by a decrease in occupancy at The Sterling
Commerce Center and The Sterling Apartment Homes and a decrease in average
rental rates at The Loft Apartments. The increase in other income for the three
months ended September 30, 2002 is due to the foreclosure of the four properties
and an increase in utility reimbursements at The Sterling.
Total expenses increased for the three and nine month periods ended September
30, 2002 due to the foreclosure of the four properties. Exclusive of the
foreclosure, expenses decreased due to decreases in operating expense and
depreciation expense. For the three months ended September 30, 2002 these
decreases were partially offset by an increase in general and administrative
expense. Operating expense decreased primarily due to a decrease in property and
maintenance expenses. Property expense decreased due to a decrease in salaries
and related benefits and utility expenses at The Loft Apartments and The
Sterling. Depreciation expense decreased due to capital improvements and
replacements becoming fully depreciated during the past year at The Sterling.
General and administrative expense increased for the three month period ended
September 30, 2002 due to the timing of an increase in the payment of a business
privilege tax paid to the city of Philadelphia and an increase in the costs of
services included in the management reimbursements to the General Partner
allowed under the Partnership Agreement. Also included in general and
administrative expenses for the three and nine months ended September 30, 2002
and 2001 are costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2002, the Partnership had cash and cash equivalents of
approximately $1,560,000 compared to approximately $1,007,000 at September 30,
2001. Cash and cash equivalents increased approximately $638,000 since December
31, 2001 due to approximately $3,518,000 of cash provided by operating
activities partially offset by approximately $2,639,000 and $241,000 of cash
used in financing and investing activities, respectively. Cash used in financing
activities consisted of distributions to partners and principal payments made on
the mortgages encumbering the Partnership's properties. Cash used in investing
activities consisted of property improvements and replacement and net deposits
to escrow accounts maintained by the mortgage lenders partially offset by
principal payments received on the Master Loan and distributions received from
investments in affiliates. The Partnership invests its working capital reserves
in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local, legal and regulatory requirements. The General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Registrant's properties are detailed below.
The Loft
The Partnership budgeted approximately $114,000 for capital improvements during
2002 consisting of floor covering replacements, water submetering and swimming
pool improvements. During the nine months ended September 30, 2002, the
Partnership completed approximately $72,000 of capital improvements, consisting
primarily of floor covering replacements and swimming pool improvements. These
improvements were funded from operating cash flow and replacement reserves.
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
The Partnership budgeted approximately $1,697,000 for capital improvements
during 2002 consisting primarily of window replacement and, to a lesser extent,
appliance and floor covering replacements. During the nine months ended
September 30, 2002, the Partnership completed approximately $161,000 of capital
improvements consisting primarily of parking area resurfacing, office computers,
floor covering replacements and electrical and heating upgrades. These
improvements were funded from operating cash flow and replacement reserves.
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.
Silverado Apartments
Approximately $3,000 is budgeted for the fourth quarter of 2002 for capital
improvements at Silverado Apartments, consisting primarily of floor covering
replacements, appliance replacements, and plumbing improvements. The Partnership
completed approximately $4,000 of capital improvements at Silverado Apartments
as of September 30, 2002, consisting primarily of miscellaneous fixed assets.
These improvements were funded from operating cash flow. 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 Knolls Apartments
Approximately $23,000 is budgeted for the fourth quarter of 2002 for capital
improvements at The Knolls Apartments, consisting primarily of floor covering
replacements, and structural improvements. The Partnership completed
approximately $20,000 of capital improvements at The Knolls Apartments as of
September 30, 2002, consisting primarily of sewer upgrades and air conditioning
unit replacements. These improvements were funded from operating cash flow.
Additional improvements may be considered and will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
Indian Creek Village Apartments
Approximately $14,000 is budgeted for the fourth quarter of 2002 for capital
improvements at Indian Creek Village Apartments, consisting primarily of floor
covering, appliance, and air conditioning unit replacements. The Partnership
completed approximately $7,000 of capital improvements at Indian Creek Village
Apartments as of September 30, 2002, consisting primarily of floor covering
replacements. 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.
Tates Creek Village Apartments
Approximately $14,000 is budgeted for the fourth quarter of 2002 for capital
improvements at Tates Creek Village Apartments, consisting primarily of floor
covering and cabinets. The Partnership completed approximately $12,000 of
capital improvements at Tates Creek Village Apartments as of September 30, 2002,
consisting primarily of floor covering and air conditioning unit replacements.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserve and anticipated cash
flow generated by the property.
The additional capital improvements at the Partnership's properties will be made
only to the extent of cash available from operations and Partnership reserves.
To the extent that such budgeted capital improvements are completed, the
Registrant's distributable cash flow, if any, may be adversely affected at least
in the short term.
The Partnership'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 $52,935,000 requires monthly payments of principal
and interest and balloon payments of approximately $3,903,000, $19,975,000 and
$18,907,000 on December 1, 2005, October 1, 2008 and during 2010, respectively.
The General Partner will attempt to refinance such indebtedness and/or sell the
properties prior to such maturity dates. If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership may risk losing such properties
through foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine months Per Nine months Per
Ended Limited Ended Limited
September 30, Partnership September 30, Partnership
2002 Unit 2001 Unit
Operations $1,856 $ 9.23 $ 6,003 $29.86
Surplus (1) 474 2.38 8,826 44.34
$2,330 $11.61 $14,829 $74.20
(1) Consists of receipt of principal and interest payments on the Master Loan
from operations of the collateral properties.
The Registrant's cash available for distribution is reviewed on a monthly basis.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations, after planned
capital improvement expenditures, to permit further distributions to its
partners during the remainder of 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,581 limited partnership units
(the "Units") in the Partnership representing 65.10% of the outstanding Units at
September 30, 2002. A number of these Units were acquired pursuant to tender
offers made by AIMCO or its affiliates. It is possible that AIMCO or its
affiliates will acquire additional units of limited partnership interest in the
Partnership in exchange for cash or a combination of cash and units in the
operating partnership of AIMCO either through private purchases or tender
offers. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters which
would include voting on certain amendments to the Partnership Agreement and
voting to remove the General Partner. As a result of its ownership of 65.10% of
the outstanding Units, AIMCO is in a position to control all voting decisions
with respect to the Registrant. Although the General Partner owes fiduciary
duties to the limited partners of the Partnership, the General Partner also owes
fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of
the General Partner, as managing general partner, to the Partnership and its
limited partners may come into conflict with the duties of the General Partner
to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost less accumulated depreciation, unless
considered impaired, and the investment properties foreclosed upon in the third
quarter of 2002 are recorded at fair market value. If events or circumstances
indicate that the carrying amount of a property may be impaired, the Partnership
will make an assessment of its recoverability by estimating the undiscounted
future cash flows, excluding interest charges, of the property. If the carrying
amount exceeds the aggregate future cash flows, the Partnership would recognize
an impairment loss to the extent the carrying amount exceeds the fair value of
the property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
CCEP Property Operations
CCIP has foreclosed on four of the properties that collaterize the Master Loan
(see "Results of Operations"). During the third quarter of 2002, CCIP began the
process of foreclosure or executing deeds in lieu of foreclosure. During August
2002, the General Partner executed deeds in lieu of foreclosure on four of the
active properties of CCEP. The foreclosure process on the remaining five
properties held by CCEP is ongoing. As the deeds were executed, title in the
properties previously owned by CCEP were vested in CCIP, subject to the existing
liens on the properties including the first mortgage loans. When CCEP no longer
has title to any properties, it will be dissolved.
As a result of the decision to liquidate, CCEP changed its basis of accounting
for its financial statements at March 31, 2002, to the liquidation basis of
accounting. Consequently, assets have been valued at estimated net realizable
value and liabilities are presented at their estimated settlement amounts. The
valuation of assets and liabilities necessarily requires many estimates and
assumptions and there are substantial uncertainties in carrying out the
liquidation. The actual realization of assets and settlement of liabilities
could be higher or lower than amounts indicated and is based upon estimates of
the General Partner of CCEP as of the date of the consolidated financial
statements.
During the three months ended September 30, 2002, the change in net liabilities
remained constant, but was affected by an increase in cash and cash equivalents
due to the operating cash generated by the Partnership's investment properties
and decreases in restricted escrows, investment in affiliated partnerships,
investment properties, mortgage notes payable and Master Loan and interest
payable due to the foreclosure of four of the investment properties held by CCEP
as discussed in "Results of Operations".
During the nine months ended September 30, 2002 and 2001, CCEP paid
approximately $88,000 and $7,780,000 in principal payments on the Master Loan.
Approximately $88,000 and $336,000 was received during the nine months ended
September 30, 2002 and 2001, respectively, representing cash received on certain
investments. These funds are required to be transferred to the Partnership under
the terms of the Master Loan. In addition, during the nine months ended
September 30, 2001 approximately $6,019,000 was received representing net
proceeds from the sale of Magnolia Trace and approximately $1,425,000 was
received representing additional proceeds from the refinancing of the mortgages
encumbering nine of the investment properties in 2000. These amounts were paid
from the sales proceeds of one of CCEP's investment properties and on certain
investments by CCEP, which are required to be transferred to the Partnership per
the Master Loan Agreement.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside the Partnership's control, such as an
oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area in which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the Loan. 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 affect the recognition of income, as income is only recognized to the
extent of cash flow. Therefore, market risk factors do not affect the
Partnership's results of operations as it relates to the Loan.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at September 30, 2002, a 100 basis point increase or
decrease in market interest rates would impact the net income of the Partnership
by approximately $500,000.
The following table summarizes the Partnership's debt obligations at September
30, 2002. The interest rate represent the weighted-average rate. The fair value
of the debt obligations approximated the recorded value as of September 30,
2002.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.29%
(in thousands)
2002 $ 249
2003 1,042
2004 1,118
2005 5,105
2006 1,210
Thereafter 44,211
Total $ 52,935
ITEM 4. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unitholders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its 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, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
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 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 court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as order by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
S-K Reference
Number Description
EXHIBIT 3.1 Certificate of Limited
Partnership, as amended to date
(Exhibit 3 to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1991, is incorporated
herein by reference).
EXHIBIT 3.2 Agreement of Limited Partnership,
incorporated by reference to the
Registration Statement of the
Registrant (File No. 2-72384) filed
April 23, 1981, as amended to date.
EXHIBIT 3.3 Fee Owner's Limited Partnership
Agreement dated November 14, 1990
(incorporated by reference to the 1990
Annual Report).
EXHIBIT 99 Certification of Chief Executive
Officer and Chief Financial Officer
EXHIBIT 99.1 Consolidated Capital Equity Partners,
L.P., unaudited financial statements
for the nine months ended September
30, 2002 and 2001.
b. Reports on Form 8-K during the quarter ended September 30, 2002:
Current Report on Form 8-K dated August 4, 2002 and
filed on August 23, 2002 disclosing the acquisition
through execution of deeds in lieu of foreclosure of
four properties owned by Consolidated Capital Equity
Properties.
SIGNATURES
Pursuant to the requirements 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/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President and
Chief Accounting Officer
Date: November 19, 2002
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Patrick J. Foye
Executive Vice President of ConCap
Equities, Inc., equivalent of the chief
executive officer of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities, Inc.,
equivalent of the chief financial officer of
the Partnership
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Consolidated Capital
Institutional Properties (the "Partnership"), for the quarterly period ended
September 30, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), Patrick J. Foye, as the equivalent of the chief
executive officer of the Partnership, and Paul J. McAuliffe, as the equivalent
of the chief financial officer of the Partnership, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
_____________________
Name: Patrick J. Foye
Date: November 13, 2002
_____________________
Name: Paul J. McAuliffe
Date: November 13, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
September 30, 2002 and 2001
EXHIBIT 99.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
September 30, 2002
Assets
Cash and cash equivalents $ 1,628
Receivables and deposits 258
Other assets 245
Investment properties 44,000
46,131
Liabilities
Accounts payable 120
Tenant security deposit liabilities 320
Accrued property taxes 650
Other liabilities 457
Mortgage notes payable 28,540
Master Loan and interest payable 16,044
46,131
Net liabilities in liquidation $ --
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
2001
(Note)
Assets
Cash and cash equivalents $ 1,321
Receivables and deposits 280
Restricted escrows 615
Other assets 1,514
Investment properties:
Land 6,904
Building and related personal property 80,399
87,303
Less accumulated depreciation (68,315)
18,988
$ 22,718
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 527
Tenant security deposit liabilities 440
Accrued property taxes 256
Other liabilities 564
Mortgage notes 54,834
Master loan and interest payable (Note C) 371,455
428,076
Partners' Deficit
General partner (4,054)
Limited partners (401,304)
(405,358)
$ 22,718
Note: The balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date, but does not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Nine Months
Ended Ended
March 31, September 30, September 30,
2002 2001 2001
(restated) (restated)
Revenues:
Rental income $ 3,877 $ 4,093 $ 12,417
Other income 494 690 1,584
Total revenues 4,371 4,783 14,001
Expenses:
Operating 1,839 2,174 5,929
General and administrative 228 216 609
Depreciation 564 504 2,564
Property taxes 307 333 928
Interest 12,875 11,579 34,996
Total expenses 15,813 14,806 45,026
Loss from continuing operations (11,442) (10,023) (31,025)
Loss from discontinued operations -- -- (35)
Gain on sale of discontinued
operations (Note D) -- -- 4,377
Net loss $(11,442) $(10,023) $(26,683)
Net loss allocated to general partner (1%) $ (114) $ (100) $ (267)
Net loss allocated to limited partners (99%) (11,328) (9,923) (26,416)
$(11,442) $(10,023) $(26,683)
See Accompanying Notes to Consolidated Financial Statements
d)
Exhibit 99.1 (continued)
CONSOLIDATED statement of changes in net liabilities in liquidation
(Unaudited)
(in thousands)
Three Months Ended September 30, 2002
Net liabilities in liquidation at March 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 423
Increase in receivables and deposits 34
Decrease in restricted escrows (625)
Decrease in other assets (97)
Decrease in investment in affiliated partnerships (1,371)
Decrease in investment properties (50,660)
Decrease in accounts payable 194
Decrease in tenant security deposit liabilities 120
Increase in accrued taxes (280)
Decrease in other liabilities 270
Decrease in mortgage notes payable 25,971
Decrease in Master Loan and interest payable 26,021
Net liabilities in liquidation at September 30, 2002 $ --
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
Partners' deficit at
December 31, 2000 $ (3,685) $(364,783) $(368,468)
Net loss for the nine months
ended September 30, 2001 (267) (26,416) (26,683)
Partners' deficit
at September 30, 2001 $ (3,952) $(391,199) $(395,151)
Partners' deficit
at December 31, 2001 $ (4,054) $(401,304) $(405,358)
Net loss for the three months
ended March 31, 2002 (114) (11,328) (11,442)
Partners' deficit at
March 31, 2002 $ (4,168) $(412,632) $(416,800)
Adjustment to liquidation basis
(Note E) 416,800
Net liabilities in liquidation
of March 31, 2002 $ --
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
f)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Nine Months
Ended Ended
March 31, September 30,
2002 2001
Cash flows from operating activities:
Net loss $(11,442) $(26,683)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 604 2,724
Gain on sale of discontinued operations -- (4,377)
Change in accounts:
Receivables and deposits 56 747
Other assets (430) (124)
Accounts payable 36 (182)
Tenant security deposit liabilities -- (24)
Accrued property taxes 114 684
Other liabilities 163 (15)
Accrued interest on Master Loan 11,769 28,323
Net cash provided by operating activities 870 1,073
Cash flows from investing activities:
Property improvements and replacements (617) (2,449)
Proceeds from sale of investment property -- 6,019
Net deposits to restricted escrows (10) (74)
Net cash (used in) provided by investing activities (627) 3,496
Cash flows from financing activities:
Principal payments on Master Loan -- (7,780)
Principal payments on notes payable (323) (911)
Loan costs paid (36) (99)
Net cash used in financing activities (359) (8,790)
Net decrease in cash and cash equivalents (116) (4,221)
Cash and cash equivalents at beginning of period 1,321 5,894
Cash and cash equivalents at end of period $ 1,205 $ 1,673
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,068 $ 6,542
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ -- $ 122
See Accompanying Notes to Consolidated Financial Statements
g)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
On March 31, 2002, Consolidated Capital Equity Partners, L.P. ("the Partnership"
or "CCEP") adopted the liquidation basis of accounting as a result of the
Partnership receiving notification from Consolidated Capital Investment
Partners, L.P. ("CCIP"), the holder of the nonrecourse note ("Master Loan") and
a related party, of its intention to exercise its remedy under the Master Loan
agreement and to foreclose or to execute a deed in lieu of foreclosure on the
investment properties held by the Partnership. The Master Loan matured in
November 2000. The Partnership does not have the means to satisfy its obligation
under the Master Loan. No other sources of additional financing have been
identified by the Partnership, nor does ConCap Holdings, Inc. (the "General
Partner") have any other plans to remedy the liquidity problems the Partnership
is experiencing. Upon completion of the foreclosures or execution of the deeds
in lieu of foreclosure, the Partnership will cease to exist as a going concern,
and it will be dissolved. The General Partner is ultimately owned by Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its consolidated financial statements at
March 31, 2002, to the liquidation basis of accounting. Consequently, assets
have been valued at estimated net realizable value and liabilities are presented
at their estimated settlement amounts, including estimated costs associated with
completing the liquidation and estimated operations of the investment
properties. The valuation of assets and liabilities requires many estimates and
assumptions. There are substantial uncertainties in completing the liquidation.
The actual realization of assets and settlement of liabilities could be higher
or lower than amounts indicated and is based upon estimates of the General
Partner as of the date of the consolidated financial statements.
Note B - Master Loan and Accrued Interest Payable
The General Partner has been in negotiations with CCIP with respect to its
options which include CCIP foreclosing on the properties in CCEP which
collateralize the Master Loan or extending the terms of the Master Loan. CCIP
decided to foreclose on the properties that collaterize the Master Loan. CCIP
began the process of executing deeds in lieu of foreclosure during the third
quarter of 2002 on all the investment properties of the Partnership. During
August 2002 the General Partner executed deeds in lieu of foreclosure on four of
the active properties of CCEP. The foreclosure process on the remaining five
properties held by CCEP is ongoing. As the deeds are executed, title in the
properties previously owned by the Partnership were vested in CCIP, subject to
the existing liens on the properties including the first mortgage loans. As a
result, during the nine months ended September 30, 2002, CCIP assumed
responsibility for the operations of such properties. When the Partnership no
longer has title to any properties, it will be dissolved.
Until the process of foreclosure or executing deeds in lieu of foreclosure on
all the properties currently held by CCEP is completed, interest will accrue on
the Master Loan 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, and compounded annually. 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.
During the nine months ended September 30, 2002 and 2001, CCEP paid
approximately $88,000 and $7,780,000 in principal payments on the Master Loan.
Approximately $88,000 and $336,000 was paid during the nine months ended
September 30, 2002 and 2001, respectively, representing cash received on certain
investments. These funds are required to be transferred to CCIP under the terms
of the Master Loan. In addition, during the nine months ended September 30, 2001
approximately $6,019,000 was paid representing net proceeds from the sale of
Magnolia Trace and approximately $1,425,000 was paid representing additional
proceeds from the refinancing of the mortgages encumbering nine of the
investment properties in 2000. These amounts were paid from the sales proceeds
of one of CCEP's investment properties and on certain investments by CCEP, which
are required to be transferred to CCIP per the Master Loan Agreement.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's properties for providing property management services.
The Partnership paid to such affiliates approximately $620,000 and $695,000 for
the nine months ended September 30, 2002 and 2001, respectively, which is
included in operating expenses and loss from discontinued operations.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides for
an annual fee, payable in monthly installments, to an affiliate of the General
Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates approximately $164,000 for each of the nine
month periods ended September 30, 2002 and 2001, which is included in general
and administrative expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $386,000 and $1,169,000 for
the nine months ended September 30, 2002 and 2001, respectively, which is
included in general and administrative expenses and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the General Partner of approximately $60,000 and
$858,000 for the nine months ended September 30, 2002 and 2001, respectively.
The construction management service fees are calculated based on a percentage of
current year additions to investment properties.
In connection with the sale of Magnolia Trace in January 2001, the Partnership
paid the General Partner a fee of $206,000 in compensation for its role in the
sale. This Partnership fee is included in gain on sale of discontinued
operations.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP pursuant to the
Master Loan which is described more fully in the 2001 annual report. Such
interest payments totaled approximately $386,000 and $3,280,000 for the nine
months ended September 30, 2002 and 2001, respectively.
There were no advances on the Master Loan during the nine months ended September
30, 2002 or 2001. During the nine months ended September 30, 2002 and 2001, CCEP
paid approximately $88,000 and $7,780,000, respectively, to CCIP as principal
payments on the Master Loan.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the nine months ended September
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $224,000 and $259,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Note D - Sale of Property
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2001 to reflect the operations of Magnolia Trace as loss from
discontinued operations. The Partnership recognized a loss from discontinued
operations for the nine months ended September 30, 2001 of approximately $35,000
on revenues of approximately $39,000.
On January 19, 2001, the Partnership sold Magnolia Trace, located in Baton
Rouge, Louisiana, to an unaffiliated third party for net sales proceeds of
approximately $6,019,000, after payment of closing costs. The Partnership used
all of the proceeds from the sale of the property as a payment on the Master
Loan principal as required by the Master Loan Agreement. The sale resulted in a
gain on sale of discontinued operations of approximately $4,377,000. In
conjunction with the sale, a fee of approximately $206,000 was paid to the
General Partner in accordance with the Partnership Agreement.
Note E - Adjustment to Liquidation Basis of Accounting
At March 31, 2002, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $416,800,000 which is included in the Statement of
Changes in Partners' Deficit/Net Liabilities In Liquidation. The adjustments are
summarized as follows:
Increase in
Net Assets
(in thousands)
Adjustment of book value of property and
improvements to estimated net realizable value $ 75,868
Adjustment for estimated net realizable value of
investment in affiliated partnerships 1,371
Adjustment of master loan and accrued interest to
estimated settlement amount 341,159
Adjustment of other assets and liabilities, net (1,598)
Decrease in net liabilities $416,800
Note F - Investment in Affiliated Partnerships
The Partnership had investments in the following affiliated partnerships:
Estimated
Ownership Net Realizable
Partnership Type of Ownership Percentage Value
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 47
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 27
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 844
$ 918
Prior to the adoption of the liquidation basis of accounting, the Partnership
did not recognize an investment in these affiliated partnerships in its
consolidated financial statements as these investment balances had been reduced
to zero as a result of the receipt of distributions from the affiliated
partnerships in prior periods exceeding the investment balance of the
Partnership. However, due to the adoption of the liquidation basis of
accounting, the investments in these affiliated partnerships were valued at
their estimated fair value and included in the Consolidated Statement of Net
Liabilities in Liquidation. During the three months ended September 30, 2002
these investments were assigned to CCIP as part of the foreclosure process of
the assets of CCEP (see "Note B").