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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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
(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)
Registrant's telephone number (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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. Yes _X__ No _
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No _X__
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, 2002. 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
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.
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 under the
Securities Act of 1933 (File No. 2-72384) and commenced a public offering for
the sale of $200,000,000 of limited partnership units (the "Units"). The sale of
Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or
gross proceeds of $200,342,000 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, at 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, a publicly held real estate
investment trust.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was originally 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, 2002, 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, 2002, the balance of the Master
Loan, net of the allowance for possible losses, was approximately $14,144,000.
EP used the proceeds from these loans to acquire 18 apartment complexes and four
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
owns 4 apartment complexes. The Partnership acquired The Loft Apartments through
foreclosure in 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"), through a
deed-in-lieu of foreclosure transaction in 1995. The Sterling was also
collateral on the Master Loan. In 2002, the General Partner decided to foreclose
on the remaining 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 the year ended December 31, 2002 the Partnership acquired four of the
properties held by CCEP through deeds in lieu of foreclosure. In addition, one
property held by CCEP was sold in December 2002. All these properties had been
collateral on the Master Loan. The foreclosure process on the remaining four
properties held by CCEP is ongoing. For a brief description of the properties
owned by the Partnership, refer to "Item 2 - Description of Properties".
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 are performed at the Partnership's properties by an
affiliate of the General Partner.
Risk Factors
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 residential properties 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.
Laws benefiting disabled persons may result in the Partnership's incurrence of
unanticipated expenses. Under the Americans with Disabilities Act of 1990, or
ADA, all places intended to be used by the public are required to meet certain
Federal requirements related to access and use by disabled persons. Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. These
and other Federal, state and local laws may require modifications to the
Partnership's properties, or restrict renovations of the properties.
Noncompliance with these laws could result in the imposition of fines or an
award of damages to private litigants and also could result in an order to
correct any non-complying feature, which could result in substantial capital
expenditures. Although the General Partner believes that the Partnership's
properties are substantially in compliance with present requirements, the
Partnership may incur unanticipated expenses to comply with the ADA and the
FHAA.
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.
Insurance coverage is becoming more expensive and difficult to obtain. The
current insurance market is characterized by rising premium rates, increasing
deductibles, and more restrictive coverage language. Recent developments have
resulted in significant increases in insurance premiums and have made it more
difficult to obtain certain types of insurance. As an example, many insurance
carriers are excluding mold-related risks from their policy coverages, or are
adding significant restrictions to such coverage. Continued deterioration in
insurance market place conditions may have a negative effect on the
Partnership's operating results.
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.
Segments
Segment data for the years ended December 31, 2002, 2001 and 2000 is included in
"Item 8. Financial Statements - Note K" 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 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 the year ended December 31, 2002, the General Partner executed deeds in
lieu of foreclosure on four of the active properties of CCEP. In addition, one
property held by CCEP was sold in December 2002. The foreclosure process on the
remaining four properties held by CCEP is ongoing. As the deeds are executed,
title in the properties previously owned by CCEP will be transferred to the
Partnership, subject to the existing liens on such properties, including the
first mortgage loans. As a result, the Partnership will assume responsibility
for the operations of such properties.
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 has had 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, 2002:
Date of
Property Acquisition 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
Silverado Apartments 8/09/02 Fee ownership, subject to Apartment
El Paso, TX a first mortgage 248 units
The Knolls Apartments 8/09/02 Fee ownership, subject to Apartment
Colorado Springs, CO a first mortgage 262 units
Indian Creek Village
Apartments 8/09/02 Fee ownership, subject to Apartment
Overland Park, KS a first mortgage 274 units
Tates Creek Village
Apartments 8/13/02 Fee ownership, subject to Apartment
Lexington, KY a first mortgage 204 units
(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 Partnership's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis at December 31, 2002.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
The Loft Apartments $ 7,579 $ 4,258 5-30 yrs S/L $ 4,665
The Sterling Apartment
Homes and Commerce
Center 35,966 14,578 5-30 yrs S/L 24,975
Silverado 4,792 39 5-30 yrs S/L 4,727
The Knolls 15,173 111 5-30 yrs S/L 14,996
Indian Creek Village 12,228 110 5-30 yrs S/L 12,034
Tates Creek Village 6,339 62 5-30 yrs S/L 6,225
$82,077 $19,158 $67,612
See "Note A" of the consolidated financial statements included in "Item 8.
Financial Statements and Supplementary Data" for a description of the
Partnership's capitalization and depreciation policies.
Schedule of Property Indebtedness:
The following table sets forth certain information relating to the mortgages
encumbering the Partnership's properties at December 31, 2002.
Principal Principal
Balance At
December 31,
Balance
Interest Period Maturity Due At
Property 2002 Rate Amortized Date Maturity (1)
(in thousands) (in
thousands)
The Loft Apartments
1st mortgage $ 4,139 6.95% 360 months 12/01/05 $ 3,903
The Sterling
Apartment
Homes and Commerce
Center
1st mortgage 21,972 6.77% 120 months 10/01/08 19,975
Silverado Apartments
1st mortgage 3,360 7.87% 240 months 11/01/10 2,434
The Knolls
1st mortgage 9,433 7.78% 240 months 03/01/10 7,105
Indian Creek Village
1st mortgage 8,340 7.83% 240 months 01/01/10 6,351
Tates Creek Village
1st mortgage 4,017 7.78% 240 months 04/01/10 3,017
$51,261
Unamortized mortgage
premiums 1,388
$52,649 $ 42,785
(1) See "Item 8. Financial Statements and Supplementary Data - Note E" for
information with respect to the Registrant's ability to prepay these
mortgages and other specific details about the mortgages.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 2002 and 2001 for each property:
Average Annual Average
Rental Rates Occupancy
Property 2002 2001 2002 2001
The Loft Apartments $ 8,605/unit $ 8,985/unit 90% 92%
The Sterling Apartment Homes
(residential) 16,974/unit 16,476/unit 91% 95%
The Sterling Commerce Center
(commercial) 18.17/s.f. 16.73/s.f. 56% 86%
Silverado Apartments
(residential) 6,661/unit 5,988/unit 96% 91%
The Knolls Apartments
(residential) 10,106/unit 8,242/unit 88% 96%
Indian Creek Village Apartments
(residential) 9,824/unit 8,574/unit 92% 94%
Tates Creek Village Apartments
(residential) 8,615/unit 7,652/unit 90% 94%
The General Partner attributes the decrease in occupancy at The Sterling
Commerce Center to the loss of a major tenant in late December 2001. The
Partnership is actively seeking a tenant to lease the space formerly occupied by
this major tenant. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further details regarding the
loss of this tenant.
The General Partner attributes the decrease in occupancy at the Sterling
Apartment Homes, Tates Creek Village, and The Knolls Apartments to the
competitive market of the apartment industry in the properties' locations. The
increase in occupancy at Silverado Apartments is due to increased marketing
efforts.
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 properties 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 2003 through the maturities
of the current leases.
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
2003 12 21,914 336,517 38.38%
2004 4 9,611 150,409 17.16%
2005 4 5,608 116,106 13.24%
2006 1 3,838 70,440 8.04%
2007 3 7,347 203,249 23.18%
No commercial tenant leases 10% or more of the available rental space.
Real Estate Taxes and Rates:
Real estate taxes and rates in 2002 for each property were:
Billing Rate
(in thousands)
The Loft Apartments $ 88 0.99%
The Sterling Apartment Homes and
Commerce Center 740 8.82%
Silverado Apartments 186 3.00%
The Knolls Apartments 64 5.69%
Indian Creek Village Apartments 118 9.56%
Tates Creek Village Apartments 58 0.96%
Capital Improvements:
The Loft
During the year ended December 31, 2002, the Partnership completed approximately
$153,000 of capital improvements, consisting primarily of floor covering
replacements, a water submetering project, and swimming pool improvements. These
improvements were funded from operations and replacement reserves. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $55,000.
Additional improvements may be considered in 2003 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
During the year ended December 31, 2002, the Partnership completed approximately
$171,000 of capital improvements at The Sterling Apartment Homes and Commerce
Center, consisting primarily of parking area resurfacing, floor covering
replacements, electrical and heating upgrades and office computers. These
improvements were funded from operating cash flow and replacement reserves. The
Partnership is currently evaluating the capital improvements needs of the
property for the upcoming year and expects to budget approximately $161,000 for
the apartments and approximately $13,000 for the Commerce Center. Additional
improvements may be considered in 2003 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
The Partnership completed approximately $18,000 of capital improvements at
Silverado Apartments as of December 31, 2002, consisting primarily of floor
covering and appliance replacements. These improvements were funded from
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and expects to budget
approximately $639,000. Additional improvements may be considered in 2003 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
The Partnership completed approximately $173,000 of capital improvements at The
Knolls Apartments as of December 31, 2002, consisting primarily of structural
improvements, and floor covering, appliance and air conditioning unit
replacements. These improvements were funded from operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $79,000.
Additional improvements may be considered in 2003 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Indian Creek Village Apartments
The Partnership completed approximately $28,000 of capital improvements at
Indian Creek Village Apartments as of December 31, 2002, consisting primarily of
floor covering replacements. These improvements were funded from operating cash
flow. The Partnership is currently evaluating the capital improvement needs of
the property for the upcoming year and expects to budget approximately $76,000.
Additional improvements may be considered in 2003 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
The Partnership completed approximately $39,000 of capital improvements at Tates
Creek Village Apartments as of December 31, 2002, consisting primarily of floor
covering and air conditioning unit replacements. These improvements were funded
from operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and expects to budget
approximately $169,000. Additional improvements may be considered in 2003 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
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
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. (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 ordered 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 could have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. The Court
has scheduled the hearing on preliminary approval for April 4, 2003 and the
hearing on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $ 1 million toward the cost
of independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provides for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. If the Court grants preliminary approval of the proposed settlement
in April, a notice will be distributed to partners providing detail on the terms
of the proposed settlement.
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. Before completing briefing on the appeal, the parties stayed further
proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The General Partner does not anticipate that any costs to the Partnership,
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 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2002, no matter was submitted to a vote of
unitholders 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 (the "Units") aggregating $200,342,000. The
Partnership currently has 11,512 holders of record owning an aggregate of
199,043.2 Units. Affiliates of the General Partner owned 129,682.6 units or
65.15% at December 31, 2002. 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, 2000, 2001 and 2002:
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/00 - 12/31/00 $ 47,880 (1) $240.55
01/01/01 - 12/31/01 15,757 (2) 78.83
01/01/02 - 12/31/02 3,572 (3) 17.79
01/01/03 - 1/31/03 1,993 (4) 9.99
(1) Distributions were made from surplus funds, approximately $28,770,000 of
which was from the receipt of net financing and refinancing proceeds from
CCEP.
(2) Consists of approximately $6,646,000 of cash from operations and
approximately $9,111,000 of cash from surplus funds, of which
approximately $1,425,000 was from the receipt of previously undistributed
net financing and refinancing proceeds from CCEP and approximately
$6,019,000 was from the receipt of net sales proceeds from CCEP.
(3) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(4) Consists of approximately $362,000 of cash from operations and
approximately $1,631,000 of cash from surplus funds which was from sales
proceeds from CCEP.
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. The Partnership's cash available for
distribution is reviewed on a monthly basis. There can be no assurance that the
Partnership will generate sufficient funds from operations, after planned
capital expenditures, to permit further distributions to its partners in 2003 or
subsequent periods. See "Item 2. Description of Properties - Capital
Improvements" for information relating to planned capital expenditures at the
properties.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,682.6 limited partnership units
in the Partnership representing 65.15% of the outstanding Units at December 31,
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 65.15% 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.
Item 6. Selected Financial Data
The following table sets forth a summary of selected 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,
2002 2001 2000 1999 1998
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Total revenues $ 14,646 $ 15,484 $ 14,193 $ 13,545 $ 14,394
Total expenses (13,159) (11,582) (10,823) (9,773) (9,087)
Reduction in provision
for impairment loss -- 3,176 14,241 -- 23,269
Net income from
continuing operations 1,487 7,078 17,611 3,772 28,576
Gain on foreclosure of
real estate 1,831 -- -- -- --
Net income $ 3,318 $ 7,078 $ 17,611 $ 3,772 $ 28,576
Net income per Limited
Partnership Unit $ 16.50 $ 35.20 $ 87.59 $ 18.76 $ 142.12
Distributions per Limited
Partnership Unit $ 17.79 $ 78.83 $ 240.55 $ 113.65 $ 143.58
Limited Partnership Units
outstanding 199,043.2 199,045.2 199,045.2 199,045.2 199,045.2
AS OF DECEMBER 31,
BALANCE SHEETS 2002 2001 2000 1999 1998
(in thousands)
Total assets $ 83,331 $ 56,089 $ 65,383 $ 95,668 $115,182
Mortgage note payable $ 52,649 $ 26,457 $ 26,762 $ 27,074 $ 27,360
The comparability of the information above has been affected by the foreclosure
on the four CCEP properties. See "Item 1. Description of Business" for further
information.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
2002 Compared to 2001
The Partnership's net income for the year ended December 31, 2002 was
approximately $3,318,000 compared to net income of approximately $7,078,000 for
the corresponding period in 2001. The decrease in net income for the year ended
December 31, 2002 as compared to the year ended December 31, 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 year ended December 31,
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 the revenues of the four foreclosed properties and by a gain
on foreclosure of real estate of approximately $1,831,000. The reduction of the
provision for impairment loss on the Master Loan was recognized in 2001 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 Apartments during the year ended December 31, 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, The Knolls, Indian Creek Village, and
Tates Creek Village Apartments) during 2002. 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. In addition, one property held by CCEP
was sold during December 2002 (see "CCEP Property Operations" for further
discussion). The foreclosure process on the remaining four properties held by
CCEP is ongoing. As the deeds are executed, title in the properties previously
owned by CCEP are 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 year ended December 31, 2002
and 2001 was approximately $1,101,000 and $622,000, respectively. This increase
in net income for the year ended December 31, 2002 is due to an increase in
total revenues partially offset by an increase in total expenses.
The increase in total revenues for the year ended December 31, 2002 is due to
increases 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, partially 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 year ended December 31, 2002 is due to the
foreclosure of the four properties and an increase in utility reimbursements at
The Sterling, partially offset by reduced interest income due to lower average
cash balances in interest bearing accounts.
Total expenses increased for the year ended December 31, 2002 due to the
foreclosure of the four properties. Exclusive of the operations of the
foreclosed properties, expenses decreased due to decreases in operating expenses
and depreciation expense partially offset by an increase in general and
administrative expenses. Operating expense decreased primarily due to a decrease
in property, amortization and maintenance expenses and management fees. Property
expenses decreased due to a decrease in salaries and related benefits and
utility expenses at Sterling Apartment Homes and utility charges at The Sterling
and The Loft Apartments. Amortization expense decreased due to the write-off in
2001 of unamortized lease commissions relating to a tenant which moved out in
December 2001 (see further discussion in 2001 compared to 2000"). Maintenance
expenses decreased due to an increase in the capitalization of certain direct
and indirect project costs, primarily payroll related costs, at the properties
(see "Item 8. Financial Statements and Supplementary Data, Note A - Organization
and Significant Accounting Policies." Management fees decreased due to reduced
rental revenue at The Sterling Apartment Homes and The Sterling Commercial
Center. 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 year ended December 31,
2002 due to an increase in the costs of services included in the management
reimbursements to the General Partner allowed under the Partnership Agreement
and legal expenses related to the foreclosures of the four properties offset by
a decrease due to the timing of an increase in the business privilege tax paid
to the city of Philadelphia.
2001 Compared to 2000
The Partnership's net income for the year ended December 31, 2001 was
approximately $7,078,000 compared to net income of approximately $17,611,000 for
the year ended December 31, 2000. The decrease in net income for the year ended
December 31, 2001 as compared to the year ended December 31, 2000 was primarily
due to the decrease in the reduction of the provision for impairment loss on the
investment in the Master Loan recognized in 2001, partially offset by an
increase in interest payments received and therefore recognized as income
related to the Master Loan. Each of these factors was caused by improved
operations at the collateral properties due to major capital projects and the
concerted effort to complete deferred maintenance items that have been ongoing
over the past few years. 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 order to fund such improvements.
Excluding the items related to the Master Loan, the Partnership's net income for
the year ended December 31, 2001 was approximately $622,000 compared to
approximately $1,370,000 for the year ended December 31, 2000. The decrease in
net income for the year ended December 31, 2001 is due to an increase in total
expenses offset by a slight increase in total revenues.
The increase in total expenses for the year ended December 31, 2001 was due to
an increase in operating and property tax expenses. Operating expenses increased
due to an increase in utility expense, primarily natural gas, at The Sterling
and to increases in salary and other related benefits at The Sterling and The
Loft Apartments. Also, the Partnership experienced a significant increase in
amortization expense due to the write-off of unamortized lease commissions
relating to a tenant which moved out in December 2001 from The Sterling (See
further discussion below). Property tax expense increased due to an increase in
the assessed value of The Sterling.
The increase in total revenues for the year ended December 31, 2001 is due to an
increase in rental and other income offset by a decrease in interest income and
property tax refunds. The increase in rental income was due to an increase in
average rental rates at The Sterling and The Loft Apartments and an increase in
occupancy at The Sterling Apartment Homes, offset by a decrease in occupancy at
The Sterling Commerce Center and a slight decrease in occupancy at The Loft
Apartments. Other income increased due to an increase in lease cancellation fees
and cable television income at The Sterling and The Loft Apartments and to
utility reimbursements and tenant deposit forfeitures at The Sterling Commerce
Center and Apartment Homes. The decrease in property tax refunds is due to The
Sterling receiving a refund of prior year tax bills which had been under appeal
during the year ending December 31, 2000. Interest income decreased due to the
release of the working capital reserve requirement (see "Item 8. Financial
Statements and Supplementary Data - Note G") which resulted in lower average
cash balances in interest bearing accounts.
In December 2001, the Partnership's most significant commercial tenant at The
Sterling Commerce Center vacated its space which represented 30.58% of the
leaseable commercial space. The Partnership filed a lawsuit against such tenant
seeking monetary damages for unpaid rent, including rent which had been abated
in favor of the tenant completing significant improvements to its space. The
Partnership accepted a settlement whereby the tenant will pay $180,000 in
satisfaction of all unpaid rent amounts due and the Partnership will accept
possession of the improvements completed by the tenant which have been valued at
approximately $498,000. The settlement was paid in 2002. Beginning in 2002,
these improvements will be depreciated over their remaining estimated useful
lives. As a result of the tenant vacating the space, the Partnership expensed
approximately $191,000 in unamortized lease commissions during 2001.
Included in general and administrative expenses for the years ended December 31,
2002 and 2001 are costs of the services provided by the General Partner as
allowed under the Partnership Agreement associated with its management of the
Partnership. Also included 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 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, 2002, the Partnership had cash and cash equivalents of
approximately $3,175,000 compared to approximately $922,000 at December 31,
2001. Cash and cash equivalents increased approximately $2,253,000 since
December 31, 2001 due to approximately $5,427,000 and $956,000 of cash provided
by operating and investing activities, respectively, partially offset by
approximately $4,130,000 of cash used in financing activities. Cash provided by
investing activities consisted of principal payments received on the Master Loan
and distributions received from investments in affiliates partially offset by
property improvements and replacements and net deposits to escrow accounts
maintained by the mortgage lenders. Cash used in financing activities consisted
of distributions to partners and principal payments made on the mortgages
encumbering the Partnership's properties. The Partnership invests its working
capital reserves in interest bearing accounts.
During the years ended December 31, 2002, 2001 and 2000, the Partnership
received approximately $1,719,000, $7,801,000 and $33,634,000, as principal
payments on the Master Loan from CCEP. Approximately $88,000 was received on
certain investments by CCEP, which were required to be transferred to the
Partnership per the Master Loan Agreement. In addition, during 2002
approximately $1,631,000 was received representing net sale proceeds from the
sale of Society Park Apartments. For 2001, approximately $357,000 was received
on certain investments by CCEP, which were required to be transferred to the
Partnership per the Master Loan Agreement. 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 received for the
refinancing of the mortgages encumbering nine of the investment properties in
2000. For 2000, approximately $238,000 was received on certain investments by
CCEP, which were required to be transferred to the Partnership per the Master
Loan Agreement. Approximately $4,526,000 was received representing net proceeds
from the sale of Shirewood and approximately $28,870,000 was received
representing net proceeds received for the refinancing of the mortgages
encumbering nine of the investment properties.
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. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
See "CCEP Property Operations" for discussion on CCEP's ability to provide
future cash flow as Master Loan debt service. 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. The Partnership is currently
evaluating the capital improvements needs of all the properties for the upcoming
year and expects to budget approximately $1,179,000 for all the apartment
complexes and approximately $13,000 for the Sterling Commerce Center. Additional
improvements may be considered in 2003 and will depend on the physical condition
of the properties as well as replacement reserves and anticipated cash flow
generated by the properties.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $52,649,000 requires monthly payments of principal
and interest, and balloon payments of approximately $3,903,000, $19,975,000 and
$18,907,000 during 2005, 2008 and 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 year ended December
31, 2002 and 2001 (in thousands, except per unit data):
Distributions
Per Limited
Aggregate Partnership Unit
01/01/00 - 12/31/00 $ 47,880 (1) $240.55
01/01/01 - 12/31/01 15,757 (2) 78.83
01/01/02 - 12/31/02 3,572 (3) 17.79
01/01/03 - 1/31/03 1,993 (4) 9.99
(1) Distributions were made from surplus funds, approximately $28,770,000 of
which was from the receipt of net financing and refinancing proceeds from
CCEP.
(2) Consists of approximately $6,646,000 of cash from operations and
approximately $9,111,000 of cash from surplus funds, of which
approximately $1,425,000 was from the receipt of previously undistributed
net financing and refinancing proceeds from CCEP and approximately
$6,019,000 was from the receipt of net sales proceeds from CCEP.
(3) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(4) Consists of approximately $362,000 of cash from operations and
approximately $1,631,000 of cash from surplus funds which was from sales
proceeds from CCEP.
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. The Partnership's cash
available for distribution is reviewed on a monthly basis. 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 2003 or subsequent periods.
On September 16, 2000, the Partnership sought the vote of limited partners to
amend the Partnership Agreement to eliminate the requirement for the Partnership
to maintain reserves equal to at least 5% of the limited partners' capital
contributions less distributions to limited partners and instead permit the
General Partner to determine reasonable reserve requirements of the Partnership.
The vote was sought pursuant to a Consent Solicitation that expired on October
16, 2000 at which time the amendment was approved by the requisite percent of
limited partnership interests. Upon expiration of the consent period, a total
number of 140,565.90 units had voted of which 136,767.20 units had voted in
favor of the amendment, 2,805.70 voted against the amendment and 993.00 units
abstained.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,682.6 limited partnership units
(the "Units") in the Partnership representing 65.15% of the outstanding Units at
December 31, 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 65.15% 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.
CCEP Property Operations
During the year ended December 31, 2002, CCIP foreclosed on four of the
properties that collaterized the Master Loan (see "Item 8. Financial Statements
and Supplementary Data - Note C" for further discussion). 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. In addition, one
property held by CCEP was sold in December 2002. The foreclosure process on the
remaining four properties held by CCEP is ongoing. As the deeds are executed,
title in the properties previously owned by CCEP are 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 period from March 31, 2002 to December 31, 2002, the net change in
liabilities remained constant, but was affected by a decrease in cash and cash
equivalents, 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" and the sale of Society Park Apartments
as discussed below.
On December 31, 2002, the Partnership sold Society Park, located in Tampa,
Florida, to an unaffiliated third party for net sales proceeds of approximately
$1,631,000, after payment of closing costs. The Partnership used all of the
proceeds from the sale of the property to pay down the Master Loan principal as
required by the Master Loan Agreement. The sale resulted in a gain on sale of
investment property of approximately $727,000. In conjunction with the sale, a
fee of approximately $218,000 was earned by the General Partner in accordance
with the Partnership Agreement. The fee was paid subsequent to December 31,
2002.
During the year ended December 31, 2002, 2001, and 2000 CCEP paid approximately
$1,719,000, $7,801,000, and $33,634,000 in principal payments on the Master
Loan. Approximately $88,000, $357,000, and $238,000 was paid during the years
ended December 31, 2002, 2001, and 2000, respectively, representing cash
received from distributions from three affiliated partnerships. These funds are
required to be transferred to the Partnership under the terms of the Master
Loan. In addition, during the year ended December 31, 2002 approximately
$1,631,000 was paid representing proceeds received from the sale of Society Park
Apartments. For 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 received for the refinancing of the mortgages
encumbering nine of the investment properties in 2000. For 2000, approximately
$4,526,000 was paid representing net proceeds from the sale of Shirewood and
approximately $28,870,000 was paid representing net proceeds received for the
refinancing of the mortgages encumbering nine of the investment properties.
Critical Accounting Policies and Estimates
A summary of the Partnership's significant accounting policies is included in
"Note A - Organization and Significant Accounting Policies" which is included in
the consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data". The General Partner believes that the consistent
application of these policies enables the Partnership to provide readers of the
financial statements with useful and reliable information about the
Partnership's operating results and financial condition. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires the Partnership to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements as
well as reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Judgments and assessments of
uncertainties are required in applying the Partnership's accounting policies in
many areas. 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 were recorded at fair market value at the time of the
foreclosures. 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 and
the Partnership fully reserves all balances outstanding over thirty days. 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.
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.
Investment in Master Loan to Affiliates and Interest Income Recognition
The investment in the Master Loan is evaluated for impairment based upon the
fair value of the collateral properties as the collateral is the sole basis of
repayment of the loan. The fair value of the remaining collateral properties is
based on the fair market value of those properties. If the fair value of a
collateral property increases or decreases for other than temporary conditions,
then the allowance on the Master Loan is adjusted appropriately.
The investment in the Master Loan is considered to be impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment,
interest income is recognized on the cash basis of accounting.
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, 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 impact the recognition of income, as income is only recognized to the
extent of cash flow. Therefore, market risk factors do not impact the
Partnership's results of operations as it relates to the Loan. See "Item 8 -
Financial Statements and Supplementary Data - Note C" 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, 2002, a 100 basis point increase or
decrease in market interest rates would impact Partnership income approximately
$513,000.
The following table summarizes the Partnership's debt obligations at December
31, 2002. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximates its carrying amount at December 31,
2001.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.10%
(in thousands)
2003 $ 1,043
2004 1,119
2005 5,106
2006 1,211
2007 1,305
Thereafter 41,477
Total $51,261
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Operations for the Years ended December 31,
2002, 2001 and 2000
Consolidated Statements of Changes in Partners' (Deficit) Capital for the
Years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years ended December 31,
2002, 2001 and 2000
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 sheets of Consolidated
Capital Institutional Properties as of December 31, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 31, 2003
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
2002 2001
Assets
Cash and cash equivalents $ 3,175 $ 922
Receivables and deposits 493 488
Restricted escrows 1,114 392
Other assets 592 604
Investment in affiliated partnerships (Note I) 894 --
Investment in Master Loan to affiliate (Note C) 14,144 26,430
Investment properties (Notes D and G):
Land 14,272 3,564
Buildings and related personal property 67,805 39,658
82,077 43,222
Less accumulated depreciation (19,158) (15,969)
62,919 27,253
$ 83,331 $ 56,089
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 176 $ 126
Tenant security deposit liabilities 689 566
Accrued property taxes 326 --
Other liabilities 1,408 603
Mortgage notes payable (Note D) 52,649 26,457
55,248 27,752
Partners' Capital
General partner 125 123
Limited partners (199,043.2 units issued and
outstanding) 27,958 28,214
28,083 28,337
$ 83,331 $ 56,089
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2002 2001 2000
Revenues:
Rental income $ 13,232 $ 11,305 $ 10,826
Interest income on investment in Master
Loan to affiliate (Note C) 386 3,280 2,000
Reduction of provision for impairment
loss (Note C) -- 3,176 14,241
Interest income 12 78 397
Other income 1,016 821 760
Property tax refund -- -- 210
Total revenues 14,646 18,660 28,434
Expenses:
Operating 5,649 5,168 4,570
General and administrative 836 720 711
Depreciation 3,189 2,980 3,036
Interest 2,482 1,889 1,909
Property taxes 1,003 825 597
Total expenses 13,159 11,582 10,823
Income from continuing operations 1,487 7,078 17,611
Gain on foreclosure of real estate (Note C) 1,831 -- --
Net income (Note B) $ 3,318 $ 7,078 $ 17,611
Net income allocated to general partner (1%) $ 33 $ 71 $ 176
Net income allocated to limited partners (99%) 3,285 7,007 17,435
$ 3,318 $ 7,078 $ 17,611
Per limited partnership unit:
Income from continuing operations $ 7.39 $ 35.20 $ 87.59
Gain on foreclosure of real estate 9.11 -- --
Net income per limited partnership unit $ 16.50 $ 35.20 $ 87.59
Distributions per limited partnership unit $ 17.79 $ 78.83 $ 240.55
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL 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, 1999 199,045.2 $ (58) $ 67,343 $ 67,285
Distributions to partners -- -- (47,880) (47,880)
Net income for the year
ended December 31, 2000 -- 176 17,435 17,611
Partners' capital
at December 31, 2000 199,045.2 118 36,898 37,016
Distributions to partners -- (66) (15,691) (15,757)
Net income for the year ended
December 31, 2001 -- 71 7,007 7,078
Partners' capital at
December 31, 2001 199,045.2 123 28,214 28,337
Abandonment of limited partnership
units (Note J) (2.0) -- -- --
Distributions to partners -- (31) (3,541) (3,572)
Net income for the year ended
December 31, 2002 -- 33 3,285 3,318
Partners' capital at
December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $ 3,318 $ 7,078 $ 17,611
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on foreclosure of real estate (1,831) -- --
Depreciation 3,189 2,980 3,036
Amortization of loan costs, lease commissions and
mortgage premiums 43 316 133
Reduction of provision for impairment loss -- (3,176) (14,241)
Change in accounts:
Receivables and deposits 6 518 192
Other assets (24) 78 (22)
Accounts payable 50 (63) 81
Tenant security deposit liabilities (5) (109) 101
Accrued property taxes 88 -- --
Other liabilities 593 (138) 114
Net cash provided by operating activities 5,427 7,484 7,005
Cash flows from investing activities:
Property improvements and replacements (582) (398) (1,647)
Lease commissions paid -- -- (74)
Net (deposits to) receipts from restricted escrows (205) 61 147
Principal receipts on Master Loan 1,719 7,801 33,634
Distributions from affiliated partnerships 24 -- --
Net cash provided by investing activities 956 7,464 32,060
Cash flows from financing activities:
Loan costs paid -- -- (12)
Distributions to partners (3,572) (15,757) (47,880)
Payments on mortgage notes payable (558) (305) (312)
Net cash used in financing activities (4,130) (16,062) (48,204)
Net increase (decrease) in cash and cash
equivalents 2,253 (1,114) (9,139)
Cash and cash equivalents at beginning of year 922 2,036 11,175
Cash and cash equivalents at end of year $ 3,175 $ 922 $ 2,036
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,467 $ 1,702 $ 1,992
Supplemental disclosure of non-cash transactions:
Property improvements and replacements
capitalized as part of a settlement with a
tenant that vacated its space $ -- $ 498 $ --
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
STATEMENTS OF CASH FLOWS (continued)
(in thousands)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the year ended December 31, 2002, Silverado, The Knolls, Indian Creek
Village, and Tates Creek Village Apartments were foreclosed upon by the
Partnership. In connection with the foreclosure on these properties, the
following accounts were adjusted by the non-cash amounts noted below:
2002
Receivables and deposits $ (66)
Investment in Master Loan
to affiliates 10,567
Restricted escrows (517)
Other assets 11
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
December 31, 2002
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,
2002, 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, a publicly held real estate investment trust.
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. In addition, one of the properties held
by CCEP was sold in December 2002. The foreclosure process on the remaining four
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 Partnership now owns and operates five apartment properties one each in
North Carolina, Texas, Colorado, Kansas and Kentucky and one multiple-use
complex in Pennsylvania. Also, the Partnership is the holder of the Master Loan
which is collateralized by the four remaining apartment properties of CCEP which
are located in Florida.
Principles of Consolidation: The Partnership's consolidated financial statements
include the accounts of CCIP Sterling, L.P., a Pennsylvania Limited Partnership,
Kennedy Boulevard Associates II, L.P., Kennedy Boulevard Associates III, L.P.,
Kennedy Boulevard Associates IV, L.P., and Kennedy Boulevard GP I ("KBGP-I"), a
Pennsylvania Partnership. Each of the entities above except KBGP-I are
Pennsylvania limited partnerships, and the general partners of each of these
affiliated limited and general partnerships are limited liability corporations
of which the Partnership is the sole member. Therefore, the Partnership controls
these affiliated limited and general partnerships, and consolidation is
required. CCIP Sterling, L.P. holds title to The Sterling Apartment Home and
Commerce Center ("the Sterling"). All interpartnership transactions have been
eliminated.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.
Reclassifications: Certain reclassifications have been made to the 2000 and 2001
information to conform to the 2002 presentation.
Allocation of Profits, Gains, and Losses: The 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 Per Limited Partnership Unit: Net income per Limited Partnership Unit
("Unit") is computed by dividing net income 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 for 2002, 2001 and 2000
(see "Note J" for further information).
Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and
in banks. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances include approximately $3,220,000
and $840,000 at December 31, 2002 and 2001, respectively, that are maintained by
an affiliated management company on behalf of affiliated entities in cash
concentration accounts.
Restricted Escrows: At the time of the 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. Additionally, monthly
deposits are required pursuant to the mortgage agreement. At December 31, 2002
and 2001, the balance in this reserve was approximately $211,000 and $121,000,
respectively.
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, 2002
and 2001, the balance was approximately $384,000 and $271,000, respectively.
At the time of refinancing of The Knolls in September 2000, approximately
$505,000 of the proceeds were designated for a replacement reserve fund for
certain capital replacements. At December 31, 2002, the balance in the
replacement reserve fund was approximately $519,000.
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 for real property over 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. 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.
Loan Costs: As of December 31, 2002 and 2001, loan costs of approximately
$569,000 for both years less accumulated amortization of approximately $275,000
and $219,000 respectively, are included in other assets. These costs are
amortized on a straight-line method over the life of the loans. Amortization
expense was approximately $45,000 and $47,000 for the years ended December 31,
2002 and 2001, respectively, and is included in interest expense. Amortization
expense is expected to be $57,000 for each of the years 2003 through 2005 and
$45,000 for each of the years 2006 and 2007.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits 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 five apartment complexes
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. Expenditures in excess of $250 that maintain an existing asset which has
a useful life of more than one year are capitalized as capital replacement
expenditures and depreciated over the estimated useful life of the asset.
Expenditures for ordinary repairs, maintenance and apartment turnover costs are
expensed as incurred. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", 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, 2002, 2001 or 2000.
During 2001, AIMCO, an affiliate of the General Partner, commissioned a project
to study process improvement ideas to reduce operating costs. The result of the
study led to a re-engineering of business processes and eventual redeployment of
personnel and related capital spending. The implementation of these plans during
2002, accounted for as a change in accounting estimate, resulted in a refinement
of the Partnership's process for capitalizing certain direct and indirect
project costs (principally payroll related costs) and increased capitalization
of such costs by approximately $109,000 in 2002 compared to 2001.
Fair Value of Financial Instruments: 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 amounts of its financial instruments (except for long term
debt) approximate their fair values due to the short term maturity of these
instruments. The Partnership believes that the carrying amount of its long-term
debt approximates its fair market value due to the fact that the mortgages on
the foreclosed properties were recorded at their fair market value at the date
of foreclosure. The carrying amount of the Partnership's investment in the
Master Loan approximates fair value due to the fact that it has been valued
based on the fair value of the underlying collateral.
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 SFAS No. 114 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 and the
Partnership fully reserves all balances outstanding over thirty days.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases and fully reserves all
balances outstanding over thirty days. 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 both December 31, 2002 and 2001, capitalized lease
commissions totaled approximately $231,000 with accumulated amortization of
approximately $175,000 and $151,000, respectively. During the year ended
December 31, 2001, lease commissions of approximately $313,000 and accumulated
amortization of approximately $122,000 was written off as a result of the tenant
to which these lease commissions related vacating its space.
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 established standards
for related disclosures about products and services, geographic areas, and major
customers. See "Note K" for detailed disclosure of the Partnership's segments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $113,000, $67,000 and $71,000 for the years
ended December 31, 2002, 2001 and 2000, respectively, were charged to operating
expense.
Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Partnership
adopted SFAS No. 144 effective January 1, 2002. Its adoption did not have a
material effect on the financial position or results of operations of the
Partnership.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Recission of FASB Statements No. 4, 44 and 64." SFAS No. 4 "Reporting Gains and
Losses from Extinguishment of Debt," required that all gains and losses from
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and
losses from extinguishment of debt should only be classified as extraordinary if
they are unusual in nature and occur infrequently. Neither of these criteria
applies to this Partnership. SFAS 145 is effective for fiscal years beginning
after May 15, 2002. The Partnership adopted SFAS 145 effective April 1, 2002.
Its adoption did not have a material effect on the financial position or results
of operations of the Partnership.
Note B - 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 consolidated 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):
2002 2001 2000
Net income as reported $ 3,318 $ 7,078 $17,611
Add (deduct):
Deferred revenue and other liabilities 1,150 (157) 195
Depreciation differences 460 398 499
Accrued expenses (9) 7 21
Interest income 3,207 (3,280) (2,000)
Differences in valuation allowances -- (3,176) (14,241)
Gain on foreclosure (3,243) -- --
Other 1,371 90 14
Federal taxable income $ 6,254 $ 960 $ 2,099
Federal taxable income per
limited partnership unit $ 31.10 $ 4.78 $ 10.44
The following is reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
December 31,
2002 2001
Net assets as reported $ 28,083 $28,337
Land and buildings 930 433
Accumulated depreciation 3,763 3,303
Interest receivable -- 44
Syndication fees 22,500 22,500
Other 2,255 233
Net assets - Federal tax basis $ 57,531 $54,850
Note C - Net Investment in Master Loan
The Partnership was initially 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"). At December 31, 2002, the recorded
investment in the Master Loan was 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 years
ended December 31, 2002, 2001 and 2000, the Partnership recorded approximately
$386,000, $3,280,000, and $2,000,000 respectively, of interest income based upon
"Excess Cash Flow" (as defined in the terms of the New Master Loan Agreement)
generated by CCEP and paid to the Partnership.
The fair value of all of the collateral properties which on a combined basis
secure the Master Loan, 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 reduction of $3,176,000 and $14,241,000 in the
provision for impairment loss recognized during the years ended December 31,
2001 and 2000, respectively, is attributed to an increase in the net realizable
value of the collateral properties and to the payment of principal on the Master
Loan from the sales proceeds of Magnolia Trace in January 2001 and the
refinancing and financing proceeds of the collateral properties during 2000.
There was no change in the provision for impairment loss during the year ended
December 31, 2002. The General Partner evaluates the net realizable value on a
semi-annual basis or as circumstances 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.
In addition, one of the properties held by CCEP was sold in December 2002. The
foreclosure process on the remaining four 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 results of
operations of the foreclosed properties are reflected in the Statement of
Operations for the period September 1, 2002 through December 31, 2002.
The following table sets forth the Partnership's non-cash activities during the
year ended December 31, 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) (10,567)
Other assets received, net of
other liabilities assumed (6)
Gain on foreclosure of real estate $ 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 applicable 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 J".
(c) Amount represents the present value on the mortgages encumbering the
investment properties acquired through foreclosure, discounted at a rate
currently available to the Partnership.
(d) Amount represents the amount of the Master Loan associated with the four
properties acquired through foreclosure.
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):
Years Ended December 31,
2002 2001
Revenues $19,074 $26,309
Net income 3,213 8,174
Net income per limited
partnership unit $ 15.98 $ 40.66
The principal balance of the Master Loan due to the Partnership totaled
approximately $14,144,000 and $26,430,000 at December 31, 2002 and 2001,
respectively. This amount represents the fair market value of the remaining
properties held by CCEP, less the net liabilities owed by the 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 income
statements due to the impairment of the loan, totaled approximately $462,000,
$38,763,000 and $39,287,000 for the years ended December 31, 2002, 2001 and
2000, respectively. Interest income is recognized on the cash basis as required
by SFAS 114. At December 31, 2002 and 2001, such cumulative unrecognized
interest totaling approximately $462,000 and $345,024,000 was not included in
the balance of the investment in Master Loan. The cumulative unrecognized
interest owed on the Master Loan of approximately $376,239,000 was forgiven by
the Partnership during the third quarter of 2002. The remaining collateral
properties are encumbered by first mortgages totaling approximately $23,290,000
as of December 31, 2002, which are senior to the Master Loan. This has been
taken into consideration in determining the fair value of the Master Loan.
During the years ended December 31, 2002, 2001 and 2000, the Partnership made no
advances to CCEP on Master Loan.
During the years ended December 31, 2002, 2001 and 2000, the Partnership
received approximately $1,719,000, $7,801,000 and $33,634,000, as principal
payments on the Master Loan from CCEP. Approximately $88,000, $357,000 and
$238,000 was received during the years ended December 31, 2002, 2001, and 2000,
respectively, representing cash received from distributions from three
affiliated partnerships which are required to be transferred to the Partnership
per the Master Loan Agreement. In addition, during the year ended December 31,
2002, approximately $1,631,000 was received representing net proceeds from the
sale of Society Park in December 2002. During the year ended December 31, 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 received for the refinancing of the mortgages encumbering nine of the
investment properties in 2000. For 2000, approximately $4,526,000 was received
representing net proceeds from the sale of Shirewood and approximately
$28,870,000 was received representing net proceeds received for the refinancing
of the mortgages encumbering nine of the investment properties.
The investment in the Master Loan consists of the following:
As of December 31,
2002 2001
(in thousands)
Master Loan funds advanced
at beginning of year $ 26,430 $ 34,231
Foreclosure write off (10,567) --
Principal receipts on Master Loan (1,719) (7,801)
Master Loan funds advanced
at end of year $ 14,144 $ 26,430
The allowance for impairment loss on Master Loan consists of the following:
As of December 31,
2002 2001
(in thousands)
Allowance for impairment loss on Master
Loan, beginning of year $ -- $ 3,176
Reduction of impairment loss -- (3,176)
Allowance for impairment loss on Master
Loan, end of year $ -- $ --
Note D - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At
December 31,
Payment Balance
(including Interest Maturity Due At
Property 2002 2001 interest) Rate Date Maturity
(in thousands) (in (in
thousands) thousands)
The Loft Apartments
1st mortgage $ 4,139 $ 4,210 $ 30 6.95% 12/01/05 $ 3,903
The Sterling
Apartment
Homes and Commerce
Center
1st mortgage 21,972 22,247 149 6.77% 10/01/08 19,975
Silverado
1st mortgage 3,360 -- 29 7.87% 11/01/10 2,434
The Knolls
1st mortgage 9,433 -- 81 7.78% 03/01/10 7,105
Indian Creek Village
1st mortgage 8,340 -- 72 7.83% 01/01/10 6,351
Tates Creek Village
1st mortgage 4,017 -- 35 7.78% 04/01/10 3,017
$ 51,261 $ 26,457 $396 $ 42,785
Unamortized mortgage
loan premium 1,388
$52,649
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.
The carrying amount of the Partnership's long term debt approximates its fair
value due to the fact that the mortgages on the foreclosed properties were
recorded at their fair value. The fair value of the mortgages as determined
based upon the incremental borrowing rate available to the Partnership at the
time of foreclosure. The mortgage premium of approximately $1,388,000 is net of
accumulated amortization of approximately $37,000. The mortgage premiums are
being amortized over the remaining lives of the loans. Amortization expense is
included in interest expense on the consolidated statements of operations.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 2002, are as follows (in thousands):
Mortgage Note
2003 $ 1,043
2004 1,119
2005 5,106
2006 1,211
2007 1,305
Thereafter 41,477
Total $51,261
Note E - 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 all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $695,000,
$640,000 and $580,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, which is included in operating expense.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $454,000, $332,000 and
$510,000 for the years ended December 31, 2002, 2001 and 2000, 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 years ended December 31, 2002
and 2001, the Partnership paid AIMCO and its affiliates approximately $256,000
and $60,000 for insurance coverage and fees associated with policy claims
administration.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,682.6 limited partnership units
(the "Units") in the Partnership representing 65.15% of the outstanding Units at
December 31, 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 65.15% 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.
Note F - Commitments
Until October 17, 2000, the Partnership was required by the Partnership
Agreement to maintain working capital reserves for contingencies of not less
than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the
event expenditures were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. On September 16, 2000, the Partnership sought the vote of limited
partners to amend the Partnership Agreement to eliminate the requirement for the
Partnership to maintain reserves equal to at least 5% of the limited partner's
capital contributions less distributions to limited partners and instead permit
the General Partner to determine reasonable reserve requirements of the
Partnership. The vote was sought pursuant to a Consent Solicitation that expired
on October 16, 2000 at which time the amendment was approved by the requisite
percent of limited partnership interests. Upon expiration of the consent period,
a total number of 140,565.90 units had voted of which 136,767.20 units had voted
in favor of the amendment, 2,805.70 voted against the amendment and 993.00 units
abstained.
Note G - Investment Properties 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 $ 4,139 $ 1,053 $ 4,147 $ 2,379
The Sterling Apt Homes
and Commerce Center 21,972 2,567 12,341 21,058
Silverado 3,360 966 3,807 18
The Knolls 9,433 4,318 10,682 173
Indian Creek Village 8,340 3,975 8,225 28
Tates Creek Village 4,017 1,449 4,851 39
Total $51,261 $14,328 $44,053 $ 23,695
Gross Amount At Which Carried
At December 31, 2002
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
(in thousands)
The Loft $ 997 $ 6,582 $ 7,579 $ 4,258 11/19/90 5-30
The Sterling 2,567 33,399 35,966 14,578 12/01/95 5-30
Silverado 966 3,826 4,792 39 08/09/02 5-30
The Knolls 4,318 10,855 15,173 111 08/09/02 5-30
Indian Creek
Village 3,975 8,253 12,228 110 08/09/02 5-30
Tates Creek
Village 1,449 4,890 6,339 62 08/13/02 5-30
Totals $14,272 $67,805 $82,077 $19,158
Reconciliation of "investment properties and accumulated depreciation":
Years Ended December 31,
2002 2001
(in thousands)
Real Estate
Balance, real estate at beginning of year $43,222 $42,326
Acquisition of properties through
Foreclosure 38,273 --
Property improvements and
Replacements 582 896
Balance, real estate at end of year $82,077 $43,222
Accumulated Depreciation
Balance at beginning of year $15,969 $12,989
Additions charged to expense 3,189 2,980
Balance at end of year $19,158 $15,969
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 2002 and 2001, is approximately $83,007,000 and $43,655,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 2002 and 2001 is approximately $15,395,000, and $12,666,000,
respectively.
Note H - Commercial Leases
In December 2001, the Partnership's most significant commercial tenant at The
Sterling Commerce Center vacated its space which represented 30.58% of the
leaseable commercial space. The Partnership filed a lawsuit against such tenant
seeking monetary damages for unpaid rent, including rent which had been abated
in favor of the tenant completing significant improvements to its space. The
Partnership accepted a settlement whereby the tenant paid $180,000 in
satisfaction of all unpaid rent amounts due and the Partnership accepted
possession of the
Note H - Commercial Leases (continued)
improvements completed by the tenant which were valued at approximately
$498,000. The settlement amount was paid in 2002. Beginning in 2002, these
improvements are being depreciated over their remaining estimated useful lives.
As a result of the tenant vacating the space, the Partnership expensed
approximately $191,000 in unamortized lease commissions during the year ending
December 31, 2001.
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,
2003 $ 646
2004 509
2005 334
2006 270
2007 138
$ 1,897
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note I - Investment in Affiliated Partnerships
The Partnership assumed investments in the following affiliated partnerships
during the year ended December 31, 2002.
Investment
Ownership At
Partnership Type of Ownership Percentage December 31, 2002
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% 820
$ 894
These investments were assumed during the foreclosure of investment properties
from CCEP (see "Note C") and are accounted for on the equity method of
accounting. Subsequent to the foreclosure, the Partnership received a
distribution of approximately $24,000 from one of the affiliated partnerships.
Note J - Abandonment of Limited Partnership Units
During the year ended December 31, 2002, the number of Limited Partnership Units
decreased by 2 units due to limited partners abandoning their units. In
abandoning his or her Limited Partnership Unit(s), a limited partner
relinquishes all right, title, and interest in the partnership as of the date of
abandonment. However, the limited partner is allocated his or her share of net
income or loss for that year. The income or loss per Limited Partnership Unit in
the accompanying consolidated statements of operations is calculated based on
the number of units outstanding at the beginning of the year. There were no such
abandonments in 2001 or 2000.
Note K - Subsequent Distribution
Subsequent to December 31, 2002, the Partnership distributed approximately
$1,993,000 (approximately $1,989,000 paid to the limited partners or $9.99 per
limited partnership unit). Approximately $362,000 (approximately $359,000 paid
to the limited partners or $1.80 per limited partnership unit) was from
operations and approximately $1,631,000 was paid to the limited partners
(approximately $8.19 per limited partnership unit) from the receipt of sale
proceeds from CCEP upon the sale of Society Park Apartments.
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 property. The Partnership's property
segments consist of five apartment complexes one each in North Carolina, Texas,
Colorado, Kansas, and Kentucky 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, career service
facilities, and retail shops at terms ranging from month to month to five 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 ending December 31, 2002, 2001 and 2000 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.
2002 Residential Commercial Other Totals
Rental income $12,123 $ 1,109 $ -- $13,232
Interest income 7 1 4 12
Other income 899 117 -- 1,016
Interest expense 2,254 228 -- 2,482
Depreciation 3,012 177 -- 3,189
General and administrative expenses -- -- 836 836
Interest income on investment
in Master Loan -- -- 386 386
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit 2,257 (324) 1,385 3,318
Total assets 65,550 862 16,919 83,331
Capital expenditures for investment
Properties 560 22 -- 582
2001 Residential Commercial Other Totals
Rental income $ 9,782 $ 1,523 $ -- $11,305
Interest income 58 8 12 78
Other income 539 282 -- 821
Interest expense 1,659 230 -- 1,889
Depreciation 2,890 90 -- 2,980
General and administrative expenses -- -- 720 720
Interest income on investment
in Master Loan -- -- 3,280 3,280
Reduction of provision for impairment
loss -- -- 3,176 3,176
Segment profit 1,285 49 5,744 7,078
Total assets 27,896 1,213 26,980 56,089
Capital expenditures for investment
properties 372 524 -- 896
2000 Residential Commercial Other Totals
Rental income $ 9,298 $ 1,528 $ -- $10,826
Interest income 98 24 275 397
Other income 520 239 1 760
Interest expense 1,673 236 -- 1,909
Depreciation 2,952 84 -- 3,036
General and administrative expenses -- -- 711 711
Interest Income on Investment in
Master Loan -- -- 2,000 2,000
Reduction of provision for
impairment loss -- -- 14,241 14,241
Segment profit 1,424 381 15,806 17,611
Total assets 32,276 1,853 31,254 65,383
Capital expenditures for investment
properties 1,596 51 -- 1,647
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. (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 ordered 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 could have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. The Court
has scheduled the hearing on preliminary approval for April 4, 2003 and the
hearing on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $ 1 million toward the cost
of independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provides for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. If the Court grants preliminary approval of the proposed settlement
in April, a notice will be distributed to partners providing detail on the terms
of the proposed settlement.
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. Before completing briefing on the appeal, the parties stayed further
proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The General Partner does not anticipate that any costs to the Partnership,
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.
Note N - Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
1st 2nd 3rd 4th
2002 Quarter Quarter Quarter Quarter Total
Total revenues $2,929 $3,249 $3,883 $4,585 $14,646
Total expenses 2,787 2,810 3,307 4,255 13,159
Income from continuing
operations 142 439 576 330 1,487
Gain on foreclosure of real
estate -- -- 1,831 -- 1,831
Net income $ 142 $ 439 $ 2,407 $ 330 $ 3,318
Net income allocated
to General Partner (1%) $ 1 $ 4 $ 24 $ 4 $ 33
Net income allocated
to Limited Partners (99%) 141 435 2,383 326 3,285
$ 142 $ 439 $ 2,407 $ 330 $ 3,318
Net income per limited
partnership unit $ 0.71 $ 2.19 $ 11.97 $ 1.63 $ 16.50
Distributions per limited
partnership unit $ 2.27 $ 4.64 $ 4.70 $ 6.18 $ 17.79
1st 2nd 3rd 4th
2001 Quarter Quarter Quarter Quarter Total
Revenues:
Rental, interest and
other income $ 3,075 $ 3,030 $ 3,044 $ 3,055 $ 12,204
Interest income on
investment in Master Loan 1,900 804 576 -- 3,280
Reduction of provision for
impairment loss 3,176 -- -- -- 3,176
Total revenues 8,151 3,834 3,620 3,055 18,660
Total expenses 2,945 3,126 2,725 2,786 11,582
Net income $ 5,206 $ 708 $ 895 $ 269 $ 7,078
Net income allocated
to General Partner (1%) $ 52 $ 7 $ 9 $ 3 $ 71
Net income allocated
to Limited Partners (99%) 5,154 701 886 266 7,007
$ 5,206 $ 708 $ 895 $ 269 $ 7,078
Net income per limited
partnership unit $ 25.89 $ 3.52 $ 4.45 $ 1.34 $ 35.20
Distributions per limited
partnership unit $ 39.02 $ 16.53 $ 18.65 $ 4.63 $ 78.83
1st 2nd 3rd 4th
2000 Quarter Quarter Quarter Quarter Total
Revenues:
Rental, interest and
other income $ 2,846 $ 2,963 $ 3,066 $ 3,108 $ 11,983
Interest income on
investment in Master Loan -- 1,000 1,000 -- 2,000
Reduction of provision for
impairment loss -- -- 14,241 -- 14,241
Property tax refund -- -- 210 -- 210
Total revenues 2,846 3,963 18,517 3,108 28,434
Total expenses 2,621 2,736 2,816 2,650 10,823
Net income $ 225 $ 1,227 $ 15,701 $ 458 $ 17,611
Net income allocated
to General Partner (1%) $ 2 $ 12 $ 157 $ 5 $ 176
Net income allocated
to Limited Partners (99%) 223 1,215 15,544 453 17,435
$ 225 $ 1,227 $ 15,701 $ 458 $ 17,611
Net income per limited
partnership unit $ 1.12 $ 6.10 $ 78.09 $ 2.28 $ 87.59
Distributions per limited
partnership unit $ 27.54 $ 5.97 $ 31.17 $ 175.87 $ 240.55
Item 9. Changes in and Disagreements with Accountants on Accounting 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 director of ConCap Equities, Inc. ("CEI") the
Partnership's General Partner as of December 31, 2002, their ages and the nature
of all positions with CEI presently held by them are as follows:
Name Age Position
Patrick J. Foye 45 Executive Vice President and Director
Paul J. McAuliffe 46 Executive Vice President and Chief
Financial Officer
Thomas C. Novosel 44 Senior Vice President and Chief Accounting
Officer
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, where he is responsible for continuous improvement,
acquisitions of partnership securities, consolidation of minority interests, and
corporate and other acquisitions. Prior to joining AIMCO, Mr. Foye was a Merger
and Acquisitions Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP from 1989 to 1998.
Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer
of the General Partner since April 1, 2002. Mr. McAuliffe has served as
Executive Vice President of AIMCO since February 1999 and Chief Financial
Officer of AIMCO since October 1999. From May 1996 until he joined AIMCO, Mr.
McAuliffe was Senior Managing Director of Secured Capital Corp.
Thomas C. Novosel has been Senior Vice President and Chief Accounting Officer of
the General Partner since April 1, 2002. Mr. Novosel has served as Senior Vice
President and Chief Accounting Officer of AIMCO since April 2000. From October
1993 until he joined AIMCO, Mr. Novosel was a partner at Ernst & Young LLP,
where he served as the director of real estate advisory services for the
southern Ohio Valley area offices but did not work on any assignments related to
AIMCO or the Partnership.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The executive officers and director of the General Partner fulfill the
obligations of the Audit Committee and oversee the Partnership's financial
reporting process on behalf of the General Partner. Management has the primary
responsibility for the financial statements and the reporting process including
the systems of internal controls. In fulfilling its oversight responsibilities,
the executive officers and director of the General Partner reviewed the audited
financial statements with management including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the consolidated
financial statements.
The executive officers and director of the General Partner reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States, their judgments as to the quality, not
just the acceptability, of the Partnership's accounting principles and such
other matters as are required to be discussed with the audit committee or its
equivalent under auditing standards generally accepted in the United States. In
addition, the Partnership has discussed with the independent auditors the
auditors' independence from management and the Partnership including the matters
in the written disclosures required by the Independence Standards Board and
considered the compatibility of non-audit services with the auditors'
independence.
The executive officers and director of the General Partner discussed with the
Partnership's independent auditors the overall scope and plans for their audit.
In reliance on the reviews and discussions referred to above, the executive
officers and director of the General Partner have approved the inclusion of the
audited financial statements in the Form 10-K for the year ended December 31,
2002 for filing with the Securities and Exchange Commission.
The General Partner has reappointed Ernst & Young LLP as independent auditors to
audit the financial statements of the Partnership for the 2003 fiscal year. Fees
for 2002 were annual audit services of approximately $58,000 and non-audit
services (principally tax-related) of approximately $20,000.
Item 11. Executive Compensation
No remuneration was paid to the General Partner nor its director or officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, no persons or entity is known by the General Partner to
own beneficially more than 5% of the outstanding 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) 38,912.1 19.55%
Reedy River Properties, Cooper River Properties LLC and Insignia Properties LP
are indirectly ultimately owned by AIMCO. Their business addresses are 55
Beattie Place, Greenville, SC 20602.
AIMCO Properties, LP is ultimately controlled by AIMCO. Its business address is
4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.
(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, 2002, 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 expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $695,000,
$640,000 and $580,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, which is included in operating expense.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $454,000, $332,000 and
$510,000 for the years ended December 31, 2002, 2001 and 2000, 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 years ended December 31, 2002
and 2001, the Partnership paid AIMCO and its affiliates approximately $256,000
and $60,000 for insurance coverage and fees associated with policy claims
administration.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,682.6 limited partnership units
(the "Units") in the Partnership representing 65.15% of the outstanding Units at
December 31, 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 65.15% 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.
PART IV
Item 14. 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 annual 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.
Item 15. 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.
Statement of Net Liabilities in Liquidation at December 31,
2002
Statement of Changes in Net Liabilities in Liquidation for the
period March 31, 2002 to December 31, 2002
Balance Sheet as of December 31, 2001
Statements of Operations for the period January 1,
2002 to March 31, 2002 and for the Years Ended December 31,
2001 and 2000
Statements of Changes in Partners' Deficit(Capital)/Net
Liabilities in Liquidation for the period January
1, 2002 to March 31, 2002 and for the Years Ended December 31,
2001 and 2000
Statements of Cash Flows for the period January 1,
2002 to March 31, 2002 and for the Years Ended December 31,
2001 and 2000
Notes to 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 attached.
(b) Reports on Form 8-K filed during the fourth quarter of 2002:
None.
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/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President and
Chief Accounting Officer
Date: March 31, 2003
In accordance with the Exchange Act, 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 Executive Vice President Date: March 31, 2003
Patrick J. Foye and Director
/s/Thomas C. Novosel Senior Vice President Date: March 31, 2003
Thomas C. Novosel and Chief Accounting Officer
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this annual report on Form 10-K of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual 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: March 31, 2003
/s/Patrick J. Foye
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 annual report on Form 10-K of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual 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: March 31, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer of
ConCap Equities, Inc., equivalent
of the chief financial officer of the
Partnership
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).
10.5 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).
10.20Mortgage 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.
10.21Repair 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.
10.22Replacement 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.
10.23 Third Amendment to the Limited Partnership Agreement filed as
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
10.24 Fourth Amendment to the Limited Partnership Agreement filed as
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
11 Statement regarding computation of Net Income per Limited
Partnership Unit (Incorporated by reference to "Note A" of
Item 8. Financial Statements and Supplementary Data - in this
Form 10-K)
28.1 Fee Owner's Limited Partnership Agreement dated November 14,
1990 (Incorporated by reference to the 1990 Annual Report).
99 Certification of the Chief Executive Officer and Chief Financial Officer.
99.1 Audited Financial Statements of Consolidated Capital Equity Partners, L.P.
for the years ended December 31, 2002 and 2001.
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 Annual Report on Form 10-K of Consolidated Capital
Institutional Properties (the "Partnership"), for the year ended December 31,
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.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: March 31, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: March 31, 2003
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.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
TABLE OF CONTENTS
December 31, 2002
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Statement of Net Liabilities in Liquidation - December 31, 2002
Statement of Changes in Net Liabilities in Liquidation - for the period
April 1, 2002 to December 31, 2002.
Balance Sheet as of December 31, 2001
Statements of Operations for the Three Months Ended March 31, 2002, and
the Years Ended December 31, 2001 and 2000
Statements of Changes in Partners' Deficit/Net Liabilities in Liquidation
- Three Months Ended March 31, 2002 and Years Ended December 31, 2001 and
2000
Statements of Cash Flows for the Three Months Ended March 31, 2002 and the
Years Ended December 31, 2001 and 2000
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners, L.P.
We have audited the accompanying statement of net liabilities in liquidation of
Consolidated Capital Equity Partners, L.P. as of December 31, 2002 and the
related statement of changes in net liabilities in liquidation for the period
from April 1, 2002 to December 31, 2002. We have also audited the statements of
operations, changes in partners' deficit, and cash flows for the period from
January 1, 2002 to March 31, 2002. In addition, we have audited the balance
sheet as of December 31, 2001 and the statements of operations, changes in
partners' deficit, and cash flows for each of the two years in the period ended
December 31, 2001. 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.
As more fully described in Note A, effective March 31, 2002, the General Partner
approved a plan to liquidate the Partnership. As a result, the Partnership has
changed its basis of accounting as of March 31, 2002 from a going concern basis
to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net liabilities in liquidation of Consolidated
Capital Equity Partners, L.P. at December 31, 2002, the changes in net
liabilities in liquidation for the period from April 1, 2002 to December 31,
2002, the financial position at December 31, 2001, and the results of its
operations and its cash flows for the period from January 1, 2002 to March 31,
2002, and for each of the two years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States
applied on the basis described in the preceding paragraph.
As discussed in Note A to the Financial Statements, in 2002 the Partnership
adopted Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" and Statement of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64."
As a result, the accompanying financial statements for the period from January
1, 2002 to March 31, 2002 and the years ended December 31, 2001 and 2000,
referred to above, have been restated to conform to the presentation adopted in
2002 in accordance with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 31, 2003
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
December 31, 2002
Assets
Cash and cash equivalents $ 963
Receivables and deposits 264
Other assets 90
Investment properties (Notes D and F) 38,500
39,817
Liabilities
Accounts payable 338
Tenant security deposit liabilities 272
Due to affiliate 929
Other liabilities 876
Mortgage notes payable (Note D) 23,290
Master Loan and interest payable (Note C) 14,112
39,817
Net liabilities in liquidation $ --
See Accompanying Notes to Financial Statements
Exhibit 99.1 (continued)
statement of changes in net liabilities in liquidation
(in thousands)
Period from April 1, 2002 to December 31, 2002
Net liabilities in liquidation at March 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Decrease in cash and cash equivalents (242)
Increase in receivables and deposits 40
Decrease in restricted escrows (625)
Decrease in other assets (252)
Decrease in investment in affiliated partnerships (1,371)
Decrease in investment properties (56,160)
Increase in accounts payable (24)
Decrease in tenant security deposit liabilities 168
Increase in due to affiliates (929)
Decrease in accrued taxes 370
Increase in other liabilities (149)
Decrease in mortgage notes payable 31,221
Decrease in Master Loan and interest payable 27,953
Net liabilities in liquidation at December 31, 2002 $ --
EXHIBIT 99.1 (Continued)
CAPITAL EQUITY PARTNERS, L.P.
BALANCE SHEET
(in thousands)
December 31,
2001
Assets
Cash and cash equivalents $ 1,321
Receivables and deposits 280
Restricted escrows 615
Other assets 1,514
Investment properties (Notes D and F):
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 (Note D) 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
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Period From
January 1, 2002 to
For the Years Ended
March 31, December 31,
2002 2001 2000
(restated) (restated) (restated)
Revenues:
Rental income $ 1,874 $ 7,732 $ 7,317
Other income 275 1,303 923
Total revenues 2,149 9,035 8,240
Expenses:
Operating 898 3,936 3,704
General and administrative 228 883 746
Depreciation 263 1,669 2,233
Property taxes 167 697 660
Interest 12,252 44,010 42,361
Loss on early extinguishment of
debt (Note D) -- -- 680
Total expenses 13,808 51,195 50,384
Loss from continuing operations (11,659) (42,160) (42,144)
Income from discontinued operations (Note G) 217 893 1,530
Gain on sale of discontinued
operations (Note G) -- 4,377 3,121
Net loss $(11,442) $(36,890) $(37,493)
Net loss allocated to general
partner (1%) $ (114) $ (369) $ (375)
Net loss allocated to limited
partners (99%) (11,328) (36,521) (37,118)
$(11,442) $(36,890) $(37,493)
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT/NET LIABILITIES IN LIQUIDATION
(in thousands)
General Limited
Partners Partners Total
Partners' deficit at
December 31, 1999 $(3,310) $(327,665) $(330,975)
Net loss for the year ended
December 31, 2000 (375) (37,118) (37,493)
Partners' deficit at
December 31, 2000 (3,685) (364,783) (368,468)
Net loss for the year
ended December 31, 2001 (369) (36,521) (36,890)
Partners deficit at
December 31, 2001 (4,054) (401,304) (405,358)
Net loss for the period from
January 1, 2002 to
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 A) 416,800
Net liabilities in liquidation
of March 31, 2002 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(in thousands)
Period From
January 1, 2002 to
Years Ended
March 31, December 31,
2002 2001 2000
Cash flows from operating activities:
Net loss $(11,442) $(36,890) $(37,493)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 604 3,306 4,920
Loss on early extinguishment of debt -- -- 1,410
Gain on sale of discontinued operation -- (4,377) (3,121)
Change in accounts:
Receivables and deposits 56 648 431
Other assets (430) 45 27
Accounts payable 36 (132) (83)
Tenant security deposit liabilities -- (45) 19
Accrued property taxes 114 38 (217)
Other liabilities 163 (22) 121
Accrued interest on Master Loan 11,769 38,763 39,287
Net cash provided by operating activities 870 1,334 5,301
Cash flows from investing activities:
Property improvements and replacements (617) (2,952) (4,210)
Proceeds from sale of discontinued operation -- 6,019 4,526
Net (deposits to) withdrawals from restricted escrows (10) 152 (49)
Net cash (used in) provided by investing
activities (627) 3,219 267
Cash flows from financing activities:
Principal payments on Master Loan -- (7,801) (33,634)
Principal payments on mortgage notes payable (323) (1,226) (385)
Proceeds from financing/refinancing -- -- 56,200
Repayment of mortgage notes payable -- -- (22,311)
Debt extinguishment costs -- -- (1,007)
Loan costs paid (36) (99) (1,402)
Net cash used in financing activities (359) (9,126) (2,539)
Net (decrease) increase in cash and cash equivalents (116) (4,573) 3,029
Cash and cash equivalents at beginning of period 1,321 5,894 2,865
Cash and cash equivalents at end of period $ 1,205 $ 1,321 $ 5,894
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,068 $ 7,617 $ 4,032
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ -- $ 249 $ --
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
Note A - Basis of Presentation
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 to foreclose or to execute deeds 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. CCIP executed deeds in lieu of foreclosure during the third
quarter of 2002 on four of the active properties of the Partnership. Upon
completion of the foreclosure process on the remaining four properties held by
the Partnership, the Partnership will cease to exist as a going concern, and it
will be dissolved.
As a result of the decision to liquidate the Partnership, the Partnership
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, 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.
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 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, a publicly held real estate investment trust.
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2011, unless terminated prior to such date.
Allocation of Profits, Gains, and Losses: Pursuant to the New 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: Cash and cash equivalents includes cash on hand and
in banks. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances included approximately $874,000 and
$1,180,000 at December 31, 2002 and 2001, respectively, that are maintained by
an affiliated management company on behalf of affiliated entities in cash
concentration accounts.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits 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.
Depreciation: Depreciation was 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 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. 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. No
depreciation was recorded subsequent to March 31, 2002 due to the conversion to
the liquidation basis of accounting.
Loan Costs: Loan costs were being amortized using the straight-line method over
the lives of the respective loans. At March 31, 2002, these loan costs were
written off in the adjustment to liquidation basis because the Partnership
determined that these intangible assets no longer have value.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs were approximately $289,000, $333,000 and $385,000 for the
years ended December 31, 2002, 2001 and 2000, respectively, and are included in
operating expense.
Investment Properties: Investment properties consist of four apartment complexes
and were stated at cost. Acquisition fees were capitalized as a cost of real
estate. Expenditures in excess of $250 that maintained an existing asset which
had a useful life of more than one year were capitalized as capital replacement
expenditures and depreciated over the estimated useful life of the asset.
Expenditures for ordinary repairs, maintenance and apartment turnover costs were
expensed as incurred. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Partnership recorded impairment losses on long-lived
assets used in operations when events and circumstances indicated that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets were 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 during
the three months ended March 31, 2002 or the years ended December 31, 2001 or
2000. As a result of the Partnership adopting the liquidation basis of
accounting, the investment properties were adjusted to their estimated net
realizable value at March 31, 2002. The effect of adoption was to increase the
carrying value of the investment properties by approximately $75,868,000.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases and fully
reserves all balances outstanding over thirty days. 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.
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 $20,979,000 less than and $354,253,000 greater than
the assets and liabilities as reported in the financial statements at December
31, 2002 and 2001, respectively.
Fair Value of Financial Instruments: 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 amounts of its financial instruments (except for long term
debt) approximate their fair values 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.
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 established standards
for related disclosures about products and services, geographic areas, and major
customers. As defined in SFAS 131, the Partnership has only one reportable
segment.
Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Partnership
adopted SFAS No. 144 effective January 1, 2002. As a result, the accompanying
statements of operations have been restated for the three months ended March 31,
2002, and the years ended December 31, 2001 and 2000 to reflect the operations
of Society Park Apartments and Magnolia Trace Apartments and Shirewood Townhomes
as income from discontinued operations.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Recission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and
Losses from Extinguishment of Debt," required that all gains and losses from
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and
losses from extinguishment of debt should only be classified as extraordinary if
they are unusual in nature and occur infrequently. Neither of these criteria
applies to the Partnership. SFAS 145 is effective for fiscal years beginning
after May 15, 2002. The Partnership adopted SFAS 145 effective April 1, 2002. As
a result, the accompanying statement of operations for 2000 has been restated to
reflect the loss on extinguishment of debt from the refinancing of the
Partnership's properties in operations rather than as an extraordinary item.
Note C - Master Loan and Accrued Interest Payable
The General Partner had been in negotiations with CCIP with respect to its
options which included 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. In addition, one of the properties held by the
Partnership was sold in December 2002. The foreclosure process on the remaining
four properties held by CCEP is ongoing. As the deeds are executed, title in the
properties previously owned by the Partnership are vested in CCIP, subject to
the existing liens on the properties including the first mortgage loans. As a
result, during the year ended December 31, 2002, CCIP assumed responsibility for
the operations of the foreclosed 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 years ended December 31, 2002, 2001, and 2000, CCEP paid
approximately $1,719,000, $7,801,000, and $33,634,000 in principal payments on
the Master Loan. Approximately $88,000, $357,000, and $238,000 was paid during
the years ended December 31, 2002, 2001, and 2000 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 year ended
December 31, 2002, approximately $1,631,000 was paid representing proceeds
received from the sale of Society Park Apartments. For 2001, approximately
$6,019,000 was paid representing net proceeds from the sale of Magnolia Trace
Apartments and approximately $1,425,000 was paid representing additional
proceeds received for the refinancing of the mortgages encumbering nine of the
investment properties in 2000. For 2000, approximately $4,526,000 was paid
representing net proceeds from the sale of Shirewood Townhomes and approximately
$28,870,000 was received representing net proceeds received for the refinancing
of the mortgages encumbering nine of the investment properties. There were no
advances on the Master Loan during the years ended December 31, 2002, 2001 or
2000. See Notes D and G for details concerning the refinancings and the sales of
Society Park Apartments, Magnolia Trace Apartments, and Shirewood Townhomes
Apartments, respectively.
Note D - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 2002 Interest Rate Date Maturity
(in
thousands)
Palm Lake
1st Mortgage $ 2,853 $ 25 7.86% 02/01/10 $ 2,158
Plantation Gardens
1st Mortgage 9,245 80 7.83% 03/01/10 6,972
Regency Oaks
1st Mortgage 7,274 63 7.80% 02/01/10 5,494
The Dunes
1st Mortgage 3,918 34 7.81% 02/01/10 2,960
Total $ 23,290 $ 202 $17,584
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 senior to the Master Loan.
Prepayment penalties are required if repaid prior to maturity. Further, the
properties may not be sold subject to existing indebtedness.
On September 29, 2000, the Partnership refinanced the mortgage encumbering The
Dunes Apartments. The refinancing replaced indebtedness of approximately
$1,945,000 with a new mortgage in the amount of $4,120,000. The new mortgage
carries a stated interest rate of 7.81%. Interest on the old mortgage was 6.95%.
Principal and interest payments are due monthly until the loan matures on
February 1, 2010 at which time a balloon payment of approximately $2,960,000 is
due. Total capitalized loan costs were approximately $111,000 during the year
ended December 31, 2000. Approximately $10,000 of additional loan costs were
capitalized during the year ended December 31, 2001. The Partnership recognized
a loss on the early extinguishment of debt of approximately $134,000 due to the
write-off of unamortized loan costs and a prepayment penalty.
On September 29, 2000, the Partnership refinanced the mortgage encumbering Palm
Lake Apartments. The refinancing replaced indebtedness of approximately
$1,653,000 with a new mortgage in the amount of $3,000,000. The new mortgage
carries a stated interest rate of 7.86%. Interest on the old mortgage was 6.95%.
Principal and interest payments are due monthly until the loan matures on
February 1, 2010 at which time a balloon payment of approximately $2,158,000 is
due. Total capitalized loan costs were approximately $93,000 during the year
ended December 31, 2000.
Approximately $7,000 of additional loan costs were capitalized during the year
ended December 31, 2001. The Partnership recognized a loss on the early
extinguishment of debt of approximately $118,000 due to the write-off of
unamortized loan costs and a prepayment penalty.
On September 29, 2000, the Partnership refinanced the mortgage encumbering Tates
Creek Village Apartments. The refinancing replaced indebtedness of approximately
$2,455,000 with a new mortgage in the amount of $4,225,000. The new mortgage
carried a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%.
Principal and interest payments were due monthly until the loan matured on April
1, 2010 at which time a balloon payment of approximately $3,017,000 was due.
Total capitalized loan costs were approximately $101,000 during the year ended
December 31, 2000. Approximately $13,000 of additional loan costs were
capitalized during the year ended December 31, 2001. The Partnership recognized
a loss on the early extinguishment of debt of approximately $155,000 due to the
write-off of unamortized loan costs and a prepayment penalty. This property was
foreclosed by CCIP during the year ended December 31, 2002. See "Note C" for
further discussion.
On September 29, 2000, the Partnership financed a mortgage encumbering Society
Park Apartments. The mortgage debt totaled $5,330,000. The mortgage carries a
stated interest rate of 7.80%. Principal and interest payments were due monthly
until the loan matures on February 1, 2010 at which time a balloon payment of
approximately $3,828,000 was due. Total capitalized loan costs were
approximately $154,000 during the year ended December 31, 2000. Approximately
$8,000 of additional loan costs were capitalized during the year ended December
31, 2001. This property was sold in December 2002. See "Note G" for further
discussion.
On September 29, 2000, the Partnership financed a mortgage encumbering Regency
Oaks Apartments. The mortgage debt totaled $7,650,000. The mortgage carries a
stated interest rate of 7.80%. Principal and interest payments are due monthly
until the loan matures on February 1, 2010 at which time a balloon payment of
approximately $5,494,000 is due. Total capitalized loan costs were approximately
$209,000 during the year ended December 31, 2000. Approximately $13,000 of
additional loan costs were capitalized during the year ended December 31, 2001.
On October 3, 2000, the Partnership refinanced the mortgage encumbering
Plantation Gardens Apartments. The refinancing replaced indebtedness of
approximately $6,704,000 with a new mortgage in the amount of $9,700,000. The
new mortgage carries a stated interest rate of 7.83%. Interest on the old
mortgage was 6.95%. Principal and interest payments are due monthly until the
loan matures on March 1, 2010 at which time a balloon payment of approximately
$6,972,000 is due. Total capitalized loan costs were approximately $219,000
during the year ended December 31, 2000. Approximately $13,000 of additional
loan costs were capitalized during the year ended December 31, 2001. The
Partnership recognized a loss on the early extinguishment of debt of
approximately $428,000 due to the write-off of unamortized loan costs and a
prepayment penalty.
On October 3, 2000, the Partnership refinanced the mortgage encumbering Indian
Creek Apartments. The refinancing replaced indebtedness of approximately
$4,438,000 with a new mortgage in the amount of $8,750,000. The new mortgage
carries a stated interest rate of 7.83%. Interest on the old mortgage was 6.95%.
Principal and interest payments were due monthly until the loan matures on
January 1, 2010 at which time a balloon payment of $6,351,000 was due. Total
capitalized loan costs were approximately $190,000 during the year ended
December 31, 2000. Approximately $13,000 of additional loan costs were
capitalized during the year ended December 31, 2001. The Partnership recognized
a loss on the early extinguishment of debt of approximately $260,000 due to the
write-off of unamortized loan costs and a prepayment penalty. This property was
foreclosed by CCIP during the year ended December 31, 2002. See "Note C" for
further discussion.
On October 3, 2000, the Partnership financed a mortgage encumbering Silverado
Apartments. The new mortgage is in the amount of $3,525,000. The new mortgage
carries a stated interest rate of 7.87%. Principal and interest payments were
due monthly until the loan matures on November 1, 2010 at which time a balloon
payment of approximately $2,434,000 was due. Total capitalized loan costs were
approximately $107,000 during the year ended December 31, 2000. Approximately
$9,000 of additional loan costs were capitalized during the year ended December
31, 2001. This property was foreclosed by CCIP during the year ended December
31, 2002. See "Note C" for further discussion.
On October 11, 2000, the Partnership refinanced the mortgage encumbering The
Knolls Apartments. The refinancing replaced indebtedness of approximately
$5,116,000 with a new mortgage in the amount of $9,900,000. The new mortgage
carries a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%.
Principal and interest payments were due monthly until the loan matures on March
1, 2010 at which time a balloon payment of approximately $7,105,000 was due.
Total capitalized loan costs were approximately $218,000 during the year ended
December 31, 2000. Approximately $13,000 of additional loan costs were
capitalized during the year ended December 31, 2001. The Partnership recognized
a loss on the early extinguishment of debt of approximately $315,000 due to the
write-off of unamortized loan costs and a prepayment penalty. This property was
foreclosed by CCIP during the year ended December 31, 2002. See "Note C" for
further discussion.
Included in the loan costs capitalized associated with the above transactions
was a 1% fee of approximately $560,000 paid in 2000 to the General Partner in
accordance with the terms of the Partnership Agreement.
Principal payments on mortgage notes payable are due as follows (in thousands):
Years Ending December 31,
2003 $ 624
2004 675
2005 729
2006 788
2007 852
Thereafter 19,622
$23,290
Note E - 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 New Partnership Agreement provides for (i) certain payments to affiliates
for services and (ii) reimbursement of certain expenses incurred by affiliates
for services.
Affiliates of the General Partner are 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 approximately
$729,000, $964,000 and $985,000 for the years ended December 31, 2002, 2001 and
2000, respectively which is included in operating expense.
The Partnership is also required to pay an investment advisory fee to 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 $107,000, $214,000 and $179,000 for the years
ended December 31, 2002, 2001 and 2000, respectively which is included in
general and administrative expense.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $321,000, $1,486,000 and
$548,000 for the years ended December 31, 2002, 2001 and 2000, 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 $86,000, $990,000 and $112,000 for the years ended December 31,
2002, 2001 and 2000, 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 Society Park in December 2002, the General
Partner earned a fee of $218,000 in compensation for its role in the sale. The
fee was paid subsequent to December 31, 2002. In connection with the sale of
Magnolia Trace in 2001 and Shirewood Townhomes in 2000 the General Partner was
paid a fee of $206,000 and $133,000, respectively, in compensation for its role
in the sales.
In connection with the refinancing of each of its mortgages and the financing of
its unencumbered investment properties during 2000, the Partnership paid to the
General Partner fees totaling $560,000 for its role in the transactions. These
fees were capitalized as loan costs. These loan costs were written off in the
adjustment to liquidation basis. See "Note A" for further discussion.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP. Such interest
payments totaled approximately $386,000, $3,280,000 and $2,000,000 for the years
ended December 31, 2002, 2001 and 2000, respectively. There were no advances
during 2002, 2001 or 2000. Principal payments totaling $1,719,000, $7,801,000
and $33,634,000 were made during the years ended December 31, 2002, 2001 and
2000, respectively.
In accordance with the Partnership Agreement, an affiliate of the General
Partner loaned the Partnership approximately $19,000 during 2002 to cover
operating expenses at The Dunes and Plantation Gardens Apartments. The entire
balance was repaid during the year ended December 31, 2002. Interest was charged
at the prime rate plus 2% and amounted to less than $1,000 for the year ended
December 31, 2002. There were no loans from the General Partner or associated
interest expense during the years ended December 31, 2001 and 2000.
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 years ended December 31, 2002
and 2001, the Partnership paid AIMCO and its affiliates approximately $155,000
and $259,000 for insurance coverage and fees associated with policy claims
administration.
Note F - Investment Properties and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following
(dollar amounts in thousands):
Building
December 31, 2002 & Related
Personal Accumulated Depreciable
Description Land Property Total Depreciation Life-Years
Palm Lake $ 308 $ 3,992 $ 4,300 $ -- (1) (1)
Plantation Gardens 7,982 11,318 19,300 -- (1) (1)
Regency Oaks 521 8,779 9,300 -- (1) (1)
The Dunes 489 5,111 5,600 -- (1) (1)
Total $ 9,300 $29,200 $38,500 $ --
(1) As a result of adopting the liquidation of accounting, the gross carrying
value of the properties were adjusted to their net realizable value and
will not be depreciated further.
Building
December 31, 2001 & Related
Personal Accumulated Depreciable
Description Land Property Total Depreciation Life-Years
Indian Creek Village $ 1,041 $ 9,454 $10,495 $ 8,202 5-18
The Knolls 647 8,700 9,347 6,832 5-18
Palm Lake 272 5,394 5,666 4,512 5-18
Plantation Gardens 1,958 14,949 16,907 13,315 5-18
Regency Oaks 521 12,254 12,775 10,333 5-18
Silverado 628 5,590 6,218 4,700 5-18
Society Park 966 9,691 10,657 8,561 5-18
The Dunes 489 6,090 6,579 4,992 5-18
Tates Creek Village 382 8,277 8,659 6,868 5-18
Total $ 6,904 $80,399 $87,303 $68,315
Note G - Sale of Investment Properties
On December 31, 2002, the Partnership sold Society Park, located in Tampa,
Florida, to an unaffiliated third party for net sales proceeds of approximately
$1,631,000, after payment of closing costs. The Partnership used all of the
proceeds from the sale of the property to pay down the Master Loan principal as
required by the Master Loan Agreement. The sale resulted in a gain on sale of
investment property of approximately $727,000. In conjunction with the sale, a
fee of approximately $218,000 was earned by the General Partner in accordance
with the Partnership Agreement. The fee was paid subsequent to December 31,
2002.
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 to pay down the Master Loan
principal as required by the Master Loan Agreement. The sale resulted in a gain
on sale of investment property 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.
On July 21, 2000 the Partnership sold Shirewood Townhomes, located in
Shreveport, Louisiana, to an unaffiliated third party for net sales proceeds of
approximately $4,526,000, after payment of closing costs. The Partnership used
all of the proceeds from the sale of the property to pay down the Master Loan
principal as required by the Master Loan Agreement. The sale resulted in a gain
on sale of investment property of approximately $3,121,000. In conjunction with
the sale, a fee of approximately $133,000 was paid to the General Partner in
accordance with the Partnership Agreement.
Note H - 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 year ended December 31, 2002 these
investments were assigned to CCIP as part of the foreclosure process of the
assets of CCEP (see "Note A").
Note I - Selected Annual Financial Data (unaudited)
Year Ended December 31, 2001 (restated)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Revenues $ 2,178 $ 2,285 $ 2,717 $ 1,855 $ 9,035
Expenses 12,941 12,901 12,995 12,358 51,195
Gain sale of discontinued
operations 4,377 -- -- -- 4,377
Income from discontinued
operations 158 184 255 296 893
Net loss $ (6,228) $(10,432) $(10,023) $(10,207) $(36,890)