UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Exact Name of Registrant as Specified in Its Charter)
California 94-2744492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 120-2 of the Exchange Act). Yes _____ No __X__
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,212 $ 3,175
Receivables and deposits 270 493
Restricted escrows 1,112 1,114
Other assets 1,277 592
Investment in affiliated partnerships 987 894
Investment in Master Loan to affiliate 14,123 14,144
Investment properties:
Land 14,272 14,272
Buildings and related personal property 68,162 67,805
82,434 82,077
Less: Accumulated depreciation (20,177) (19,158)
62,257 62,919
$ 81,238 $ 83,331
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 500 $ 176
Tenant security deposit liabilities 682 689
Accrued property taxes 226 326
Other liabilities 1,210 1,408
Mortgage notes payable 52,353 52,649
54,971 55,248
Partners' Capital
General partner 123 125
Limited partners (199,043.2 units issued and
outstanding) 26,144 27,958
26,267 28,083
$ 81,238 $ 83,331
Note: The consolidated balance sheet at December 31, 2002 has been derived from
the audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
Revenues:
Rental income $ 4,058 $ 2,708
Other income 314 221
Total revenues 4,372 2,929
Expenses:
Operating 2,093 1,245
General and administrative 258 152
Depreciation 1,019 719
Interest 912 463
Property taxes 263 208
Total expenses 4,545 2,787
(Loss) income from operations (173) 142
Equity income from investment 350 --
Net income $ 177 $ 142
Net income allocated to general partner (1%) $ 2 $ 1
Net income allocated to limited partners (99%) 175 141
$ 177 $ 142
Net income per limited partnership unit $ 0.88 $ 0.71
Distributions per limited partnership unit $ 9.99 $ 2.27
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' capital at
December 31, 2001 199,045.2 $ 123 $ 28,214 $ 28,337
Distributions to partners -- (5) (451) (456)
Net income for the three months
ended March 31, 2002 -- 1 141 142
Partners' capital at
March 31, 2002 199,045.2 $ 119 $ 27,904 $ 28,023
Partners' capital
at December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083
Distributions to partners -- (4) (1,989) (1,993)
Net income for the three
months ended March 31, 2003 -- 2 175 177
Partners' capital
at March 31, 2003 199,043.2 $ 123 $ 26,144 $ 26,267
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net income $ 177 $ 142
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,019 719
Amortization of loan costs, lease commissions and
mortgage premiums (18) 19
Equity income from investment (350) --
Change in accounts:
Receivables and deposits 229 190
Other assets (694) (677)
Accounts payable 324 37
Tenant security deposit liabilities (7) (28)
Accrued property taxes (100) 23
Other liabilities (198) 180
Net cash provided by operating activities 382 605
Cash flows from investing activities:
Net withdrawals from restricted escrows 2 2
Property improvements and replacements (357) (105)
Principal receipts on Master Loan 15 --
Distributions from affiliated partnerships 258 --
Net cash used in investing activities (82) (103)
Cash flows from financing activities:
Distributions to partners (1,993) (456)
Payments on mortgage notes payable (258) (89)
Lease commissions, paid (12) --
Net cash used in financing activities (2,263) (545)
Net decrease in cash and cash equivalents (1,963) (43)
Cash and cash equivalents at beginning of period 3,175 922
Cash and cash equivalents at end of period $ 1,212 $ 879
Supplemental disclosure of cash flow information:
Cash paid for interest $ 934 $ 449
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), which is ultimately owned by Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002.
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also established standards for related disclosures
about products and services, geographic areas, and major customers. (See "Note
E" for detailed disclosure of the Partnership's segments).
Note B - 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 March 31, 2003, 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 three
months ended March 31, 2003 and 2002 there was no interest income recorded by
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. There was no provision for impairment loss during the three months
ended March 31, 2003 and 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 accompanying
consolidated statements of operations for the period ending March 31, 2003.
The principal balance of the Master Loan due to the Partnership totaled
approximately $14,123,000 and $14,144,000 at March 31, 2003 and December 31,
2002, 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
$440,000, and $11,769,000 for the three months ended March 31, 2003 and 2002,
respectively. Interest income is recognized on the cash basis as required by
SFAS 114. At March 31, 2003 and December 31, 2002, such cumulative unrecognized
interest totaling approximately $902,000 and $462,000 was not included in the
balance of the investment in Master Loan. 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 $23,139,000 as of March 31,
2003, which are senior to the Master Loan. This has been taken into
consideration in determining the fair value of the Master Loan.
During the three months ended March 31, 2003 and 2002, the Partnership made no
advances to CCEP on the Master Loan. During the three months ended March 31,
2003 the Partnership received principal payments on the Master Loan of
approximately $15,000 from escrows released by the mortgage lender of Society
Park which was sold during 2002. No principal payments were received during the
three months ended March 31, 2002.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's properties for providing property management services.
The Partnership paid to such affiliates approximately $234,000 and $143,000 for
the three months ended March 31, 2003 and 2002, respectively, which is included
in operating expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $129,000 and $112,000 for the
three months ended March 31, 2003 and 2002, respectively which is included in
general and administrative expenses.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty 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 2003 and 2002, the Partnership's cost for insurance coverage and
fees associated with policy claims administration provided by AIMCO and its
affiliates is approximately $212,000 and $256,000, respectively.
Note D - Investment in Affiliated Partnerships
Ownership Investment Balance
Partnership Type of Ownership Percentage March 31, 2003
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 40
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 24
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 923
$ 987
These investments were assumed during the foreclosure of investment properties
from CCEP (see "Note B") and are accounted for on the equity method of
accounting. Distributions from the affiliated partnerships are accounted for as
a reduction of the investment balance until the investment balance is reduced to
zero. When the investment balance has been reduced to zero, subsequent
distributions received are recognized as income in the accompanying statements
of operations. During the three months ended March 31, 2003, the Partnership
received distributions of approximately $258,000 from two of the affiliated
partnerships, of which approximately $243,000 related to the sale of a property
in Consolidated Capital Growth Fund. Of this amount, approximately $236,000 was
recognized as equity income in investment once the investment balance allocated
to that property had been reduced to zero. The Partnership also recognized
equity income in investment of approximately $114,000 related to the sale of a
property in Consolidated Capital Properties IV. There were no distributions
associated with this sale.
Note E - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has two reportable segments:
residential properties and commercial 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 three months ended March 31, 2003 and 2002 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.
2003 Residential Commercial Other Totals
Rental income $ 3,800 $ 258 $ -- $ 4,058
Other income 287 27 -- 314
Interest expense 856 56 -- 912
Depreciation 977 42 -- 1,019
General and administrative
expenses -- -- 258 258
Segment profit (loss) 203 (152) 126 177
Total assets 64,477 867 15,894 81,238
Capital expenditures for
investment properties 340 17 -- 357
2002 Residential Commercial Other Totals
Rental income $ 2,445 $ 263 $ -- $ 2,708
Other income 191 29 1 221
Interest expense 406 57 -- 463
Depreciation 698 21 -- 719
General and administrative
expenses -- -- 152 152
Segment profit (loss) 373 (80) (151) 142
Total assets 27,722 1,302 26,874 55,898
Capital expenditures for
investment properties 97 8 -- 105
Note F - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the 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. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a 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 Managing
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. On April 11, 2003, notice was distributed to limited partners
providing the details 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 2. Management's Discussion and Analysis Of Financial Condition and Results
of Operations
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. The discussions of the Registrant's
business and results of operations, including forward-looking statements
pertaining to such matters, do not take into account the effects of any changes
to the Registrant's business and results of operations. Actual results may
differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation: national and local economic conditions; the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive environment in which the Registrant operates; financing risks,
including the risk that cash flows from operations may be insufficient to meet
required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment properties consist of six properties. The Sterling
is a multiple-use facility which consists of an apartment complex and commercial
space. The following table sets forth the average occupancy of the properties
for the three months ended March 31, 2003 and 2002:
Average Occupancy
Property 2003 2002
The Loft Apartments (2) 81% 94%
Raleigh, North Carolina
The Sterling Apartment Homes 91% 93%
The Sterling Commerce Center (1) 54% 54%
Philadelphia, Pennsylvania
Silverado Apartments (2), (3) 91% 96%
El Paso, Texas
The Knolls Apartments (2), (3) 82% 90%
Colorado Springs, Colorado
Indian Creek Village Apartments (4),(3) 91% 86%
Overland Park, Kansas
Tates Creek Village Apartments (3) 86% 86%
Lexington, Kentucky
(1) The General Partner attributes the low 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.
(2) The General Partner attributes the decrease in occupancy at The Loft, The
Knolls, and Silverado Apartments to the competitive market of the
apartment industry in the properties' locations.
(3) The Partnership acquired these investment properties through foreclosure
during the third quarter of 2002 (see discussion below).
(4) The General Partner attributes the increase in occupancy at Indian Creek
Village Apartments to an increase in marketing outreach and promotions.
Results of Operations
The Partnership's net income for the three months ended March 31, 2003 was
approximately $177,000 compared to net income of approximately $142,000 for the
corresponding period in 2002. The increase in net income for the three months
ended March 31, 2003 as compared to the three months ended March 31, 2002 is
primarily due to an increase in total revenues and equity income from investment
partially offset by an increase in total expenses. Total revenues increased
primarily due to increases in rental income. Rental income increased largely due
to the foreclosure of four properties (Silverado, The Knolls, Indian Creek
Village, and Tates Creek Village Apartments) during August 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 during the third quarter of 2002. In addition, rental rates increased
at Sterling Apartment Homes. These increases were partially offset by reduced
occupancy at The Loft Apartments and Sterling Apartment Homes and increased bad
debt expense at The Sterling and The Loft Apartments.
The increase in equity income from investment for the three months ended March
31, 2003 is primarily due to the recognition of the Partnership's share of the
affiliated Partnership's earnings on its investment balance received from
affiliated partnerships due to the foreclosure on the four properties discussed
above. The Partnership assumed investments in three affiliated partnerships
during the foreclosure of investment properties from CCEP as discussed above.
These investments are accounted for on the equity method of accounting.
Distributions from the affiliated partnerships are accounted for as a reduction
of the investment balance until the investment balance is reduced to zero. When
the investment balance has been reduced to zero, subsequent distributions
received are recognized as income in the accompanying statements of operations.
During the three months ended March 31, 2003, the Partnership received
distributions of approximately $258,000 from two of the affiliated partnerships,
of which approximately $243,000 related to the sale of a property in
Consolidated Capital Growth Fund. Of this amount, approximately $236,000 was
recognized as equity income in investment once the investment balance allocated
to that property had been reduced to zero. The Partnership also recognized
equity income in investment of approximately $114,000 related to the sale of a
property in Consolidated Capital Properties IV. There were no distributions
associated with this sale.
Exclusive of the operations of the foreclosed properties, expenses increased due
to increases in operating expenses and general and administrative expenses.
Operating expense increased primarily due to an increase in property and
maintenance expenses. Property expenses increased due to an increase in utility
expenses at The Sterling Apartment Homes and Commerce Center and increased
contract security patrol expenses at The Sterling Commerce Center. Maintenance
expenses increased due to an increase in contract services at Sterling Apartment
Homes and a decrease in the capitalization of certain direct and indirect
project costs, primarily payroll related costs, at the properties.
General and administrative expense increased for the three months ended March
31, 2003 due to an increase in legal expenses due to costs incurred in
connection with the foreclosure mentioned above. Included in general and
administrative expenses for the three months ended March 31, 2003 and 2002 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 expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2003, the Partnership had cash and cash equivalents of
approximately $1,212,000 compared to approximately $879,000 at March 31, 2002.
Cash and cash equivalents decreased approximately $1,963,000 since December 31,
2002 due to approximately $2,263,000 and $82,000 of net cash used in financing
and investing activities, respectively, partially offset by approximately
$382,000 of cash provided by operating activities. Cash used in financing
activities consisted of distributions to partners, principal payments made on
the mortgages encumbering the Registrant's properties and lease commissions
paid. Cash used in investing activities consisted of property improvements and
replacements partially offset by distributions received from affiliated
partnerships, principal receipts on the Master Loan and net withdrawals from
escrow accounts maintained by the mortgage lenders. The Partnership invests its
working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, and local legal and regulatory requirements. The General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
The Loft
During the three months ended March 31, 2003, the Partnership completed
approximately $21,000 of capital improvements, consisting primarily of floor
covering and roof replacements. These improvements were funded from operating
cash flow. The Partnership evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional
$161,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of roof replacement, floor covering
replacement, and other building improvements. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
The Sterling
During the three months ended March 31, 2003, the Partnership completed
approximately $41,000 of capital improvements consisting primarily of floor
covering replacements and interior decoration. These improvements were funded
from operating cash flow and replacement reserves. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $120,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of floor
covering and appliance replacements, HVAC replacement and heating and electrical
upgrades. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Silverado Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $14,000 of capital improvements at Silverado Apartments consisting
primarily of floor covering replacements, and other building improvements. These
improvements were funded from operating cash flow. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $625,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of air
conditioning renovations, floor covering and appliance replacements, and
exterior painting. Additional improvements may be considered and will depend on
the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The Knolls Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $206,000 of capital improvements at The Knolls Apartments
consisting primarily of major landscaping, structural improvements and floor
covering and appliance replacements. These improvements were funded from
operating cash flow. The Partnership evaluates the capital improvement needs of
the property during the year and currently expects to complete an additional
$547,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of retaining walls, new siding and
exterior painting, floor covering replacements, and other property improvements.
Additional improvements may be considered and will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
Indian Creek Village Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $37,000 of capital improvements at Indian Creek Village Apartments
consisting primarily of floor covering replacements. These improvements were
funded from operating cash flow. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $105,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of floor
covering replacements, exterior painting and air conditioning upgrades.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Tates Creek Village Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $38,000 of capital improvements at Tates Creek Village Apartments
consisting primarily of floor covering and air conditioning unit replacements.
These improvements were funded from operating cash flow. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $131,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of roof replacement, floor covering and appliance replacements, air
conditioning unit replacements, and replacement of the hot water heater holding
tank. Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserve and anticipated cash
flow generated by the property.
The additional capital improvements at the Partnership's properties will be made
only to the extent of cash available from operations and Partnership reserves.
To the extent that such budgeted capital improvements are completed, the
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Registrant. The mortgage indebtedness
of approximately $52,353,000 requires monthly payments of principal and interest
and balloon payments of approximately $3,903,000, $19,975,000 and $18,907,000 on
December 1, 2005, October 1, 2008 and during 2010, respectively. The General
Partner will attempt to refinance such indebtedness and/or sell the properties
prior to such maturity dates. If the properties cannot be refinanced or sold for
a sufficient amount, the Partnership may risk losing such properties through
foreclosure.
The Partnership distributed the following amounts during the three months ended
March 31, 2003 and 2002 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2003 Unit March 31, 2002 Unit
Operations $ 362 $ 1.80 $ 456 $ 2.27
Sale (1) 1,631 8.19 -- --
$1,993 $ 9.99 $ 456 $ 2.27
(1) From the sale of Society Park Apartments owned by CCEP and received as a
principal payment on the Master Loan.
The Registrant's cash available for distribution is reviewed on a monthly basis.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations, after planned
capital improvement expenditures, to permit further distributions to its
partners during the remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,734.1 limited partnership units
in the Partnership representing 65.18% of the outstanding Units at March 31,
2003. 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 65.18% of the outstanding
Units, AIMCO is in a position to control all voting decisions with respect to
the Registrant. Although the General Partner owes fiduciary duties to the
limited partners of the Partnership, the General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the General
Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the General Partner to AIMCO,
as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost less accumulated depreciation, unless
considered impaired, and the investment properties foreclosed upon in the third
quarter of 2002 are recorded at their fair market value at the time of the
foreclosure. 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 outstanding balances 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.
CCEP Property Operations
During the year ended December 31, 2002, CCIP foreclosed on four of the
properties that collaterized the Master Loan (see "Item 1. Financial Statements
- - Note B" 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 January 1, 2003 to March 31, 2003, the net change in
liabilities remained constant, but was affected by an increase in cash and cash
equivalents, tenant security deposit liabilities, accrued property taxes and
Master Loan and interest payable and decreases in other liabilities, mortgage
notes payable and accounts 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 27, 2002, the Partnership sold Society Park Apartments, 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. 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 during the three
months ended March 31, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks associated with its Master Loan.
Receipts (interest income) on the Loan are based upon the operations and cash
flow of the underlying investment properties that collateralize the Master Loan.
Both the income and expenses of operating the investment properties are subject
to factors outside the Partnership's control, such as an oversupply of similar
properties resulting from overbuilding, increases in unemployment or population
shifts, reduced availability of permanent mortgage financing, changes in zoning
laws or changes in the patterns or needs of users. The investment properties are
also susceptible to the impact of economic and other conditions outside of the
control of the Partnership as well as being affected by current trends in the
market area in which they operate. In this regard, the General Partner of the
Partnership closely monitors the performance of the properties collateralizing
the loans. Because the Master Loan is considered impaired under Statement of
Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment
of a Loan", interest rate fluctuations do not affect the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not affect the Partnership's results of operations as it relates to
the Master Loan.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at March 31, 2003, a 100 basis point increase or
decrease in market interest rates would not have a material impact on the
Partnership.
The following table summarizes the Partnership's debt obligations at March 31,
2003. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of March 31, 2003.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.11%
(in thousands)
2003 $ 785
2004 1,119
2005 5,106
2006 1,211
2007 1,305
Thereafter 41,477
Total $ 51,003
ITEM 4. Controls and Procedures
The principal executive officer and principal financial officer of the General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and procedures are adequate. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In March 1998, several putative 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 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. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a 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 Managing
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. On April 11, 2003, notice was distributed to limited partners
providing the details 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.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
S-K Reference
Number Description
EXHIBIT 3.1 Certificate of Limited
Partnership, as amended to date
(Exhibit 3 to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1991, is incorporated
herein by reference).
EXHIBIT 3.2 Agreement of Limited Partnership,
incorporated by reference to the
Registration Statement of the
Registrant (File No. 2-72384) filed
April 23, 1981, as amended to date.
EXHIBIT 3.3 Fee Owner's Limited Partnership
Agreement dated November 14, 1990
(incorporated by reference to the 1990
Annual Report).
EXHIBIT 99 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
EXHIBIT 99.1 Consolidated Capital Equity Partners, L.P.,
unaudited financial statements for the three months
ended March 31, 2003 and 2002
b) Reports on Form 8-K filed during the quarter ended March 31,
2003:
Current Report on Form 8-K dated December 27, 2002, and filed
January 13, 2003 disclosing the sale of Society Park
Apartments to an unrelated party.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President and
Chief Accounting Officer
Date: May 15, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 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 quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 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 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Consolidated Capital
Institutional Properties (the "Partnership"), for the quarterly period ended
March 31, 2003 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: May 15, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 15, 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.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
March 31, 2003 and 2002
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
March 31, December 31,
2003 2002
Assets
Cash and cash equivalents $ 1,031 $ 963
Receivables and deposits 196 264
Other assets 74 90
Investment properties 38,500 38,500
39,801 39,817
Liabilities
Accounts payable 191 338
Tenant security deposit liabilities 295 272
Due to affiliates 908 929
Accrued property taxes 195 --
Other liabilities 536 876
Mortgage notes payable 23,139 23,290
Master Loan and interest payable 14,537 14,112
39,801 39,817
Net liabilities in liquidation $ -- $ --
Note: The Statement of Net Liabilities in Liquidation at December 31, 2002 has
been derived from the audited financial statements at that date but does
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See Accompanying Notes to Financial Statements
Exhibit 99.1 (continued)
statement of changes in net liabilities in liquidation
(in thousands)
Period from January 1, 2003 to March 31, 2003
Net liabilities in liquidation at December 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 68
Decrease in receivables and deposits (68)
Decrease in other assets (16)
Decrease in accounts payable 147
Increase in tenant security deposit liabilities (23)
Decrease in due to affiliates 21
Increase in accrued taxes (195)
Decrease in other liabilities 340
Decrease in mortgage notes payable 151
Increase in Master Loan and interest payable (425)
Net liabilities in liquidation at March 31, 2003 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
Period from
January 1, 2002 to
March 31, 2002
(restated)
Revenues:
Rental income $ 1,874
Other income 275
Total revenues 2,149
Expenses:
Operating 898
General and administrative 228
Depreciation 263
Property taxes 167
Interest 12,252
Total expenses 13,808
Loss from continuing operations (11,659)
Income from discontinued operations 217
Net loss $(11,442)
Net loss allocated to general partner (1%) $ (114)
Net loss allocated to limited partners (99%) (11,328)
$(11,442)
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
Partners' deficit at
December 31, 2001 $ (4,054) $(401,304) $(405,358)
Net loss for the three months
ended March 31, 2002 (114) (11,328) (11,442)
Partners' deficit
at March 31, 2002 $ (4,168) $(412,632) $(416,800)
Adjustment to liquidation basis
(Note E) 416,800
Net liabilities in liquidation
at March 31, 2002 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Period from
January 1, 2002 to
March 31,2002
Cash flows from operating activities:
Net loss $(11,442)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 604
Change in accounts:
Receivables and deposits 56
Other assets (430)
Accounts payable 36
Accrued property taxes 114
Other liabilities 163
Accrued interest on Master Loan 11,769
Net cash provided by operating activities 870
Cash flows from investing activities:
Property improvements and replacements (617)
Net deposits to restricted escrows (10)
Net cash used in investing activities (627)
Cash flows from financing activities:
Principal payments on notes payable (323)
Loan costs paid (36)
Net cash used in financing activities (359)
Net decrease in cash and cash equivalents (116)
Cash and cash equivalents at beginning of period 1,321
Cash and cash equivalents at end of period $ 1,205
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,068
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 and to foreclose or to execute a deed in lieu of foreclosure on the
investment properties held by the Partnership. The Master Loan matured in
November 2000. The Partnership does not have the means to satisfy its obligation
under the Master Loan. No other sources of additional financing have been
identified by the Partnership, nor does ConCap Holdings, Inc. (the "General
Partner") have any other plans to remedy the liquidity problems the Partnership
is experiencing. Upon completion of the foreclosures or execution of the deeds
in lieu of foreclosure, the Partnership will cease to exist as a going concern,
and it will be dissolved. The General Partner is ultimately owned by Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its consolidated financial statements at
March 31, 2002, to the liquidation basis of accounting. Consequently, assets
have been valued at estimated net realizable value and liabilities are presented
at their estimated settlement amounts, including estimated costs associated with
completing the liquidation and estimated operations of the investment
properties. The valuation of assets and liabilities requires many estimates and
assumptions. There are substantial uncertainties in completing the liquidation.
The actual realization of assets and settlement of liabilities could be higher
or lower than amounts indicated and is based upon estimates of the General
Partner as of the date of the consolidated financial statements.
Note B - Master Loan and Accrued Interest Payable
The General Partner 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 three months ended March 31, 2003, the Partnership paid a principal
payment on the Master Loan of approximately $15,000. No Payments were made
during the three months ended March 31, 2002.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's properties for providing property management services.
The Partnership paid to such affiliates approximately $101,000 and $231,000 for
the three months ended March 31, 2003 and 2002, respectively, which is included
in operating expenses and loss from discontinued operations.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides for
an annual fee, payable in monthly installments, to an affiliate of the General
Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates approximately $66,000 for both the three
month periods ended March 31, 2003 and 2002, which is included in general and
administrative expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $48,000 and $148,000 for the
three months ended March 31, 2003 and 2002, 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 $3,000 and $39,000 for the
three months ended March 31, 2003 and 2002, 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 Partnership
paid the General Partner a fee of $218,000 during the three months ended March
31, 2003 as compensation for its role in the sale. This fee was included in gain
on sale of discontinued operations at December 31, 2002.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP pursuant to the
Master Loan which is described more fully in the 2001 annual report. There were
no interest payments made during the three months ended March 31, 2003 and 2002.
There were no advances on the Master Loan during the three months ended March
31, 2003 or 2002. There were also no principal payments made on the Master Loan
during the three months ended March 31, 2002. A $15,000 principal payment was
made on the Master Loan during the three months ended March 31, 2003.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty 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 2003 and 2002, the Partnership's cost for insurance coverage and
fees associated with policy claims administration provided by AIMCO and its
affiliates is approximately $103,000 and $155,000.
Note D - Sale of Property
On December 27, 2002, the Partnership sold Society Park Apartments, 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 during the three
months ended March 31, 2003.
Note E - Adjustment to Liquidation Basis of Accounting
At March 31, 2002, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $416,800,000 which is included in the Statement of
Changes in Partners' Deficit/Net Liabilities In Liquidation. The adjustments are
summarized as follows:
Increase in
Net Assets
(in thousands)
Adjustment of book value of property and
improvements to estimated net realizable value $ 75,868
Adjustment for estimated net realizable value of
investment in affiliated partnerships 1,371
Adjustment of master loan and accrued interest to
estimated settlement amount 341,159
Adjustment of other assets and liabilities, net (1,598)
Decrease in net liabilities $416,800
Note F - Investment in Affiliated Partnerships
The Partnership had investments in the following affiliated partnerships:
Ownership Investment Balance
Partnership Type of Ownership Percentage at March 31, 2003
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 40
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 24
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 923
$ 987
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 B").