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 June 30, 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)
June 30, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 602 $ 3,175
Receivables and deposits 341 493
Restricted escrows 1,150 1,114
Other assets 1,273 592
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 68,474 67,805
82,746 82,077
Less: Accumulated depreciation (21,168) (19,158)
61,578 62,919
$ 80,054 $ 83,331
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 264 $ 176
Tenant security deposit liabilities 688 689
Accrued property taxes 269 326
Other liabilities 924 1,408
Mortgage notes payable 52,024 52,649
54,169 55,248
Partners' Capital
General partner 119 125
Limited partners (199,043.2 units issued and
outstanding) 25,766 27,958
25,885 28,083
$ 80,054 $ 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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Rental income $ 4,103 $ 2,679 $ 8,161 $ 5,387
Interest income on investment in
Master Loan to affiliate -- 386 -- 386
Other income 353 184 667 405
Casualty gain 25 -- 25 --
Total revenues 4,481 3,249 8,853 6,178
Operating 2,008 1,127 4,101 2,372
General and administrative 269 237 527 389
Depreciation 1,010 767 2,029 1,486
Interest 916 471 1,828 934
Property taxes 310 208 573 416
Total expenses 4,513 2,810 9,058 5,597
(Loss) income from operations $ (32) $ 439 $ (205) $ 581
Equity in income from investment -- -- 350 --
Net (loss) income $ (32) $ 439 $ 145 $ 581
Net (loss) income allocated to general
partner (1%) $ -- $ 4 $ 1 $ 6
Net (loss) income allocated to limited
partners (99%) (32) 435 144 575
$ (32) $ 439 $ 145 $ 581
Net (loss) income per limited
partnership unit $ (0.16) $ 2.19 $ 0.72 $ 2.89
Distributions per limited
partnership unit $ 1.75 $ 4.64 $ 11.74 $ 6.91
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 -- (10) (1,375) (1,385)
Net income for the six months
ended June 30, 2002 -- 6 575 581
Partners' capital at
June 30, 2002 199,045.2 $ 119 $ 27,414 $ 27,533
Partners' capital
at December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083
Distributions to partners -- (7) (2,336) (2,343)
Net income for the six
months ended June 30, 2003 -- 1 144 145
Partners' capital
at June 30, 2003 199,043.2 $ 119 $ 25,766 $ 25,885
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $ 145 $ 581
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,029 1,486
Amortization of loan costs, lease commissions and
mortgage premiums (30) 28
Casualty gain (25) --
Equity in income from investment (350) --
Change in accounts:
Receivables and deposits 158 125
Other assets (684) (431)
Accounts payable 88 --
Tenant security deposit liabilities (1) (52)
Accrued property taxes (57) 46
Other liabilities (484) 65
Net cash provided by operating activities 789 1,848
Cash flows from investing activities:
Net deposits to restricted escrows (36) (25)
Property improvements and replacements (737) (102)
Insurance proceeds received 73 --
Principal receipts on Master Loan to affiliate 15 --
Distributions from affiliated partnerships 258 --
Net cash used in investing activities (427) (127)
Cash flows from financing activities:
Distributions to partners (2,343) (1,385)
Payments on mortgage notes payable (554) (172)
Lease commissions paid (38) --
Advances from general partner 32 --
Repayment of advances from general partner (32) --
Net cash used in financing activities (2,935) (1,557)
Net (decrease) increase in cash and cash equivalents (2,573) 164
Cash and cash equivalents at beginning of period 3,175 922
Cash and cash equivalents at end of period $ 602 $ 1,086
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,040 $ 905
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 and six
month periods ended June 30, 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).
Reclassifications: Certain reclassifications have been made to the 2002
information to conform to the 2003 presentation.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to variable interests held
before February 1, 2003, FIN 46 will apply beginning July 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on net earnings, the
Partnership cannot make any definitive conclusion until it completes its
evaluation.
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"). The loans were made to, and the
real properties that secure the Master Loan were purchased and are owned by,
CCEP.
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 expected to
be completed during the third quarter of 2003. 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
three and six month periods ending June 30, 2003.
At June 30, 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 six months ended June 30, 2003 there was no interest
income recorded by the Partnership. For the six months ended June 30, 2002 the
Partnership recorded approximately $386,000 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. There was no provision for impairment loss during the six months
ended June 30, 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 principal balance of the Master Loan due to the Partnership totaled
approximately $14,123,000 and $14,144,000 at June 30, 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
$881,000, and $23,528,000 for the six months ended June 30, 2003 and 2002,
respectively. Interest income is recognized on the cash basis as required by
SFAS 114. At June 30, 2003 and December 31, 2002, such cumulative unrecognized
interest totaling approximately $1,343,000 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 $22,977,000 as of June 30,
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 six months ended June 30, 2003 and 2002, the Partnership made no
advances to CCEP on the Master Loan. During the six months ended June 30, 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 six months
ended June 30, 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 $453,000 and $286,000 for
the six months ended June 30, 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 $248,000 and $225,000 for the
six months ended June 30, 2003 and 2002, respectively which is included in
general and administrative expenses.
In accordance with the Partnership Agreement, the General Partner advanced the
Partnership approximately $32,000 for expenses at four of the Partnership's
properties during the six months ended June 30, 2003. This advance was repaid in
full prior to June 30, 2003. Interest was charged at the prime rate plus 2% and
amounted to less than $1,000 for the six months ended June 30, 2003. There were
no loans from the General Partner or associated interest expense during the six
months ended June 30, 2002.
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 the six months ended June 30, 2003 and 2002, the Partnership was
charged by AIMCO and its affiliates approximately $212,000 and $256,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note D - Investment in Affiliated Partnerships
The Partnership has investments in the following affiliated partnerships:
Ownership Investment Balance
Partnership Type of Ownership Percentage June 30, 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 six months ended June 30, 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 in income from investment once the investment balance
allocated to that property had been reduced to zero. The Partnership also
recognized equity in income from 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 and six months ended June 30, 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.
For the three months ended
June 30, 2003 Residential Commercial Other Totals
Rental income $ 3,860 $ 243 $ -- $ 4,103
Other income 324 29 -- 353
Interest expense 860 56 -- 916
Depreciation 968 42 -- 1,010
General and administrative expense -- -- 269 269
Segment profit (loss) 391 (154) (269) (32)
For the six months ended
June 30, 2003 Residential Commercial Other Totals
Rental income $ 7,660 $ 501 $ -- $ 8,161
Other income 611 56 -- 667
Equity in income from investment -- -- 350 350
Interest expense 1,716 112 -- 1,828
Depreciation 1,945 84 -- 2,029
General and administrative expense -- -- 527 527
Segment profit (loss) 628 (306) (177) 145
Total assets 63,855 881 15,318 80,054
Capital expenditures 681 55 -- 736
For the three months ended
June 30, 2002 Residential Commercial Other Totals
Rental income $ 2,396 $ 283 $ -- $ 2,679
Other income 157 26 1 184
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 414 57 -- 471
Depreciation 701 66 -- 767
General and administrative expense -- -- 237 237
Segment profit (loss) 392 (103) 150 439
For the six months ended
June 30, 2002 Residential Commercial Other Totals
Rental income $ 4,841 $ 546 $ -- $ 5,387
Other income 348 55 2 405
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 820 114 -- 934
Depreciation 1,399 87 -- 1,486
General and administrative expense -- -- 389 389
Segment profit (loss) 765 (183) (1) 581
Total assets 27,158 1,187 26,827 55,172
Capital expenditures 90 12 -- 102
Note F - Casualty Gain
During the six months ended June 30, 2003, there was a casualty gain of
approximately $25,000 recorded at The Sterling Apartment Home related to an
electrical fire that damaged two units. This gain was the result of the receipt
of insurance proceeds of approximately $73,000, net of the write off of net
fixed assets of approximately $48,000.
Note G - 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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought 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 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 opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 six months ended June 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
The Loft Apartments (2) 80% 92%
Raleigh, North Carolina
The Sterling Apartment Homes 92% 91%
The Sterling Commerce Center (1) 55% 55%
Philadelphia, Pennsylvania
Silverado Apartments (2), (4) 93% 96%
El Paso, Texas
The Knolls Apartments (2), (4) 83% 93%
Colorado Springs, Colorado
Indian Creek Village Apartments (3),(4) 91% 89%
Overland Park, Kansas
Tates Creek Village Apartments (4) 88% 88%
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
Apartments, The Knolls Apartments, and Silverado Apartments to the
competitive market of the apartment industry in the properties' respective
locations.
(3) The General Partner attributes the increase in occupancy at Indian Creek
Village Apartments to an increase in marketing outreach and promotions.
(4) The Partnership acquired these investment properties through foreclosure
during the third quarter of 2002 (see discussion below).
Results of Operations
The Partnership's net income for the six months ended June 30, 2003 was
approximately $145,000 compared to net income of approximately $581,000 for the
corresponding period in 2002. The Partnership recognized a net loss for the
three months ended June 30, 2003 of approximately $32,000 compared to net income
of approximately $439,000 for the corresponding period in 2002. The decrease in
net income for the three and six months ended June 30, 2003 as compared to the
three and six months ended June 30, 2002 is primarily due to an increase in
total expenses and a decrease of approximately $386,000 in interest payments
received and therefore recognized on the Master Loan partially offset by an
increase in total revenues and the recognition of equity in income from
investment. 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.
Total expenses 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 expected to
be completed during the third quarter of 2003. 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.
Exclusive of the item related to the Master Loan and the operations of the
foreclosed properties, the Partnership recognized net income for the six months
ended June 30, 2003 of approximately $22,000 compared to net income of
approximately $195,000 for the corresponding period in 2002. The Partnership's
net loss for the three months ended June 30, 2003 was approximately $241,000
compared to net income of approximately $53,000 for the corresponding period in
2002. The decrease in net income for the six months ended June 30, 2003 as
compared to the six months ended June 30, 2002 is primarily due to an increase
in total expenses and a decrease in total revenues partially offset by equity in
income from investment. The decrease in net income for the three months ended
June 30, 2003 as compared to the three months ended June 30, 2002 is primarily
due to a decrease in total revenues and an increase in total expenses.
Total expenses increased during the three and six months ended June 30, 2003
primarily due to increases in operating expenses and general and administrative
expenses partially offset by a decrease in depreciation expense. Operating
expenses 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 partially offset by a decrease
in salaries and other related benefits at The Sterling Apartment Homes.
Maintenance expenses increased primarily due to an increase in contract services
at Sterling Apartment Homes and The Loft Apartments. Depreciation expense
decreased during the three and six months ended June 30, 2003 due to capital
improvements and replacements becoming fully depreciated during the past year at
The Sterling.
General and administrative expense increased for the three and six months ended
June 30, 2003 due to the timing of the payment of a business privilege tax paid
to the city of Philadelphia during the six months ended June 30, 2003. Included
in general and administrative expenses for the three and six months ended June
30, 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.
Excluding the operations of the foreclosed properties and items related to the
Master Loan, the decrease in total revenues during the three and six months
ended June 30, 2003 is primarily due to a decrease in rental income, and other
income partially offset by a casualty gain at The Sterling Apartment Homes (as
discussed in Item 1. Financial Statements "Note F"). Rental income decreased for
both periods primarily due to a decrease in rental rates at Sterling Apartment
Homes and Commerce Center and The Loft Apartments and a decrease in occupancy at
The Loft Apartments. The decrease is also due to an increase in bad debt expense
and concession related expenses at The Sterling Apartment Homes and Commerce
Center and The Lofts Apartments. These decreases were partially offset by an
increase in occupancy at The Sterling Apartment Homes. The decrease in other
income is primarily due to a decrease in utility reimbursements at The Sterling
Apartment Homes.
The equity in income from investment for the six months ended June 30, 2003 is
primarily due to the recognition of the Partnership's earnings on its
investments in affiliated partnerships assumed 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
six months ended June 30, 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 in
income from investment once the investment balance allocated to that property
had been reduced to zero. The Partnership also recognized equity in income from
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.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2003, the Partnership had cash and cash equivalents of approximately
$602,000 compared to approximately $1,086,000 at June 30, 2002. Cash and cash
equivalents decreased approximately $2,573,000 since December 31, 2002 due to
approximately $2,935,000 and $427,000 of net cash used in financing and
investing activities, respectively, partially offset by approximately $789,000
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, lease commissions paid and repayment of
advances from general partner, slightly offset by advances from general partner.
Cash used in investing activities consisted of property improvements and
replacements and net deposits to escrow accounts maintained by the mortgage
lenders partially offset by distributions received from affiliated partnerships,
insurance proceeds and principal receipts on the Master Loan. 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 six months ended June 30, 2003, the Partnership completed
approximately $49,000 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 $15,000
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 Apartment Homes and Commerce Center
During the six months ended June 30, 2003, the Partnership completed
approximately $240,000 of capital improvements consisting primarily of floor
covering replacements and air conditioning upgrades. 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 $79,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of additional 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 six months ended June 30, 2003, the Partnership completed
approximately $27,000 of capital improvements at Silverado 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
$65,000 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 six months ended June 30, 2003, the Partnership completed
approximately $289,000 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
$19,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of 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 six months ended June 30, 2003, the Partnership completed
approximately $76,000 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 $50,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of additional
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 six months ended June 30, 2003, the Partnership completed
approximately $56,000 of capital improvements at Tates Creek Village Apartments
consisting primarily of plumbing improvements 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 $24,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of additional floor covering and appliance replacements
and air conditioning unit replacements. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserve and anticipated cash flow generated by the property.
The additional capital improvements at the Partnership's properties will be made
only to the extent of cash available from operations and Partnership reserves.
To the extent that such budgeted capital improvements are completed, the
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 $52,024,000 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 six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Operations $ 712 $ 3.55 $ 999 $ 4.97
Sale (1) 1,631 8.19 -- --
Surplus (2) -- -- 386 1.94
$2,343 $11.74 $1,385 $ 6.91
(1) From the sale of Society Park Apartments owned by CCEP and received as a
principal payment on the Master Loan.
(2) Consists of receipt of interest payment on the Master Loan from operations
of the collateral properties.
The Partnership'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 129,695.10 limited partnership units
(the "Units") in the Partnership representing 65.16% of the outstanding Units at
June 30, 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 in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Pursuant to the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters that would include, but are not limited to, voting on certain amendments
to the Partnership Agreement and voting to remove the General Partner. As a
result of its ownership of 65.16% of the outstanding Units, AIMCO and its
affiliates are in a position to control all voting decisions with respect to the
Partnership. 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.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to variable interests held
before February 1, 2003, FIN 46 will apply beginning July 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on net earnings, the
Partnership cannot make any definitive conclusion until it completes its
evaluation.
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 were 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. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
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 expected to be completed during the third quarter of 2003. 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 June 30, 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 six
months ended June 30, 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 June 30, 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 June 30,
2003. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of June 30, 2003.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.12%
(in thousands)
2003 $ 520
2004 1,118
2005 5,105
2006 1,210
2007 1,304
Thereafter 41,490
Total $ 50,747
ITEM 4. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of 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, has evaluated
the effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, 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 concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought 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 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 opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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 31.1 Certification of equivalent of
Chief Executive Officer pursuant to
Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of equivalent of
Chief Financial Officer pursuant to
Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99 Consolidated Capital Equity Partners,
L.P., unaudited financial statements
for the three and six months ended
June 30, 2003 and 2002.
b) Reports on Form 8-K filed during the quarter ended June 30, 2003:
None.
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: August 13, 2003
Exhibit 31.1
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 13, 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 32.1
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
June 30, 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: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
June 30, 2003 and 2002
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(in thousands)
June 30, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 988 $ 963
Receivables and deposits 206 264
Other assets 274 90
Investment properties 38,500 38,500
39,968 39,817
Liabilities
Accounts payable 183 338
Tenant security deposit liabilities 302 272
Due to affiliates 970 929
Accrued property taxes 390 --
Other liabilities 167 876
Mortgage notes payable 22,977 23,290
Master Loan and interest payable 14,979 14,112
39,968 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 (continued)
STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
Period from January 1, 2003 to June 30, 2003
Net liabilities in liquidation at December 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 25
Decrease in receivables and deposits (58)
Increase in other assets 184
Decrease in accounts payable 155
Increase in tenant security deposit liabilities (30)
Increase in due to affiliates (41)
Increase in accrued taxes (390)
Decrease in other liabilities 709
Decrease in mortgage notes payable 313
Increase in Master Loan and interest payable (867)
Net liabilities in liquidation at June 30, 2003 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99 (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 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' DEFICIT/NET LIABILITIES IN LIQUIDATION
(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 (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 deeds in lieu of foreclosure on the
investment properties held by the Partnership. The Master Loan matured in
November 2000. The Partnership did not have the means with which to satisfy its
obligation under the Master Loan. No other sources of additional financing have
been identified by the Partnership, nor did ConCap Holdings, Inc. (the "General
Partner") have any other plans to remedy the liquidity problems the Partnership
was experiencing. CCIP executed deeds in lieu of foreclosure during the third
quarter of 2002 on four of the active properties of the Partnership. In
addition, one of the properties was sold in December 2002. The foreclosure
process on the remaining four properties held by the Partnership is expected to
be completed during the third quarter of 2003. 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 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 financial statements.
Note B - Master Loan and Accrued Interest Payable
The Master Loan principal and interest payable balance at June 30, 2003 is
approximately $14,979,000.
Terms of Master Loan Agreement
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 expected to be completed during the third
quarter of 2003. 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 CCEP no longer has title to any properties, the
Partnership 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 six months ended June 30, 2003, the Partnership paid a principal
payment on the Master Loan of approximately $15,000. No principal payments were
made during the six months ended June 30, 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 $205,000 and $458,000 for
the six months ended June 30, 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 $65,000 and $115,000 for the
six months ended June 30, 2003 and 2002, respectively, which is included in
general and administrative expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $142,000 and $264,000 for the
six months ended June 30, 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 $29,000 and $47,000 for the
six months ended June 30, 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 six months ended June 30,
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 2002 annual report. There were
no interest payments made during the six months ended June 30, 2003. A $386,000
interest payment was made on the Master Loan during the six months ended June
30, 2002.
There were no advances on the Master Loan during the six months ended June 30,
2003 or 2002. There were also no principal payments made on the Master Loan
during the six months ended June 30, 2002. A $15,000 principal payment was made
on the Master Loan during the six months ended June 30, 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 the six months ended June 30, 2003 and 2002, the Partnership
paid AIMCO and its affiliates approximately $103,000 and $155,000, respectively,
for insurance coverage and fees associated with policy claims administration.
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 six
months ended June 30, 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