SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
(Name of registrant as specified in its charter)
California 94-2744492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Registrant's telephone number (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes _X__ No _
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No _X__
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 2003. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. 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.
PART I
Item 1. Description of Business
General
Consolidated Capital Institutional Properties (the "Partnership" or
"Registrant") was organized on April 28, 1981, as a Limited Partnership under
the California Uniform Limited Partnership Act. On July 23, 1981, the
Partnership registered with the Securities and Exchange Commission under the
Securities Act of 1933 (File No. 2-72384) and commenced a public offering for
the sale of $200,000,000 of limited partnership units (the "Units"). The sale of
Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or
gross proceeds of $200,342,000 to the Partnership. In accordance with its
Partnership Agreement (the original partnership agreement of the Partnership
together with all amendments thereto shall be referred to as the "Agreement"),
the Partnership has repurchased and retired a total of 1,296.8 Units for a total
purchase price of $1,000,000. The Partnership may repurchase any Units, at its
absolute discretion, but is under no obligation to do so. Since its initial
offering, the Registrant has not received, nor are limited partners required to
make, additional capital contributions. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2011 unless terminated prior to
such date.
Upon the Partnership's formation in 1981, Consolidated Capital Equities
Corporation ("CCEC") was the Corporate General Partner. In 1988, through a
series of transactions, Southmark Corporation ("Southmark") acquired controlling
interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter
11 of the United States Bankruptcy Code. In 1990, as part of CCEC's
reorganization plan, ConCap Equities, Inc. ("CEI") acquired CCEC's general
partner interests in the Partnership and in 15 other affiliated public limited
partnerships (the "Affiliated Partnerships"), and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the sole
managing general partner was approved by a majority of the limited partners in
the Partnership and in each of the Affiliated Partnerships pursuant to a
solicitation of the Limited Partners dated August 10, 1990. As part of this
solicitation, the Limited Partners also approved an amendment to the Agreement
to limit changes of control of the Partnership. All of CEI's outstanding stock
was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT
was merged into Apartment Investment and Management Company ("AIMCO"). Hence,
CEI is now a wholly-owned subsidiary of AIMCO, a publicly held real estate
investment trust.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was originally formed for the benefit of its
Limited Partners (herein so called and together with the General Partner shall
be called the "Partners"), to lend funds to Consolidated Capital Equity Partners
("EP"), a California general partnership in which certain of the partners were
former shareholders and former management of CCEC, the former Corporate General
Partner of the Partnership. See "Status of the Master Loan" for a description of
the loan and settlement of EP's bankruptcy.
Through December 31, 2003, the Partnership had advanced a total of approximately
$180,500,000 to EP and its successor under the Master Loan (as defined in
"Status of the Master Loan"). EP used the proceeds from these loans to acquire
18 apartment complexes and four office complexes, which served as collateral for
the Master Loan. The Partnership acquired The Loft Apartments through
foreclosure in 1990. Prior to that time, The Loft Apartments had been collateral
on the Master Loan. The Partnership acquired a multiple-use building, The
Sterling Apartment Homes and Commerce Center ("The Sterling"), through a
deed-in-lieu of foreclosure transaction in 1995. The Sterling was also
collateral on the Master Loan. In 2002, the General Partner decided to foreclose
on the remaining properties that collateralized the Master Loan. The General
Partner began the process of foreclosure or executing deeds in lieu of
foreclosure on all the properties in CCEP. During the year ended December 31,
2002 the Partnership acquired four of the properties held by CCEP through deeds
in lieu of foreclosure. In addition, one property held by CCEP was sold in
December 2002. All these properties had been collateral on the Master Loan. The
foreclosure process on the remaining four properties held by CCEP was completed
during the fourth 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 during the years ended December 31, 2003 and 2002, respectively. For
a brief description of the properties owned by the Partnership, refer to "Item 2
- - Description of Properties".
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
Property management services are performed at the Partnership's properties by an
affiliate of the General Partner.
Risk Factors
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential and commercial properties within the
market area of the Partnership's properties. The number and quality of
competitive properties, including those residential properties which may be
managed by an affiliate of the General Partner in such market area, could have a
material effect on the rental market for the apartments and the commercial space
at the Partnership's properties and the rents that may be charged for such
apartments and space. While the General Partner and its affiliates own and/or
control a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
Laws benefiting disabled persons may result in the Partnership's incurrence of
unanticipated expenses. Under the Americans with Disabilities Act of 1990, or
ADA, all places intended to be used by the public are required to meet certain
Federal requirements related to access and use by disabled persons. Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. These
and other Federal, state and local laws may require modifications to the
Partnership's properties, or restrict renovations of the properties.
Noncompliance with these laws could result in the imposition of fines or an
award of damages to private litigants and also could result in an order to
correct any non-complying feature, which could result in substantial capital
expenditures. Although the General Partner believes that the Partnership's
properties are substantially in compliance with present requirements, the
Partnership may incur unanticipated expenses to comply with the ADA and the
FHAA.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential and
commercial properties because such properties are susceptible to the impact of
economic and other conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in "Item 7" of this Form 10-K.
Segments
Segment data for the years ended December 31, 2003, 2002 and 2001 is included in
"Item 8. Financial Statements - Note K" and is an integral part of the Form
10-K.
Status of the Master Loan
Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP
subject to a nonrecourse note with a participation interest (the "Master Loan"),
pursuant to the Master Loan Agreement dated July 22, 1981, between the
Partnership and EP. The Partnership secured the Master Loan with deeds of trust
or mortgages on real property purchased with the funds advanced, as well as by
the assignment and pledge of promissory notes from the partners of EP.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"), EP was converted from a California General Partnership
to a California Limited Partnership, Consolidated Capital Equity Partners, L.P.,
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas
corporation and wholly-owned subsidiary of CEI, is the sole General Partner of
CCEP and an affiliate of the Partnership. The General Partners of EP became
Limited Partners in CCEP. CHI had full discretion with respect to conducting
CCEP's business, including managing CCEP's properties and initiating and
approving capital expenditures and asset dispositions and refinancings.
For 1992, Excess Cash Flow was generally defined in the New Master Loan
Agreement as net cash flow from operations after third-party debt service.
Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan
Agreement to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from the Partnership to CCEP. This amendment and change in the definition
of Excess Cash Flow had the effect of reducing income on the investment in the
Master Loan by the amount of CCEP's capital expenditures since such amounts were
previously excluded from Excess Cash Flow.
Under the terms of the New Master Loan Agreement (as adopted in November 1990),
interest accrued at a fluctuating rate per annum adjusted annually on July 15 by
the percentage change in the U.S. Department of Commerce Implicit Price Deflator
for the Gross National Product subject to an interest rate ceiling of 12.5%.
Interest payments were payable quarterly in an amount equal to "Excess Cash
Flow". If such Excess Cash Flow payments were less than the current accrued
interest during the quarterly period, the unpaid interest was added to
principal, compounded annually, and was payable at the loan's maturity. If such
Excess Cash Flow payments were greater than the current accrued interest, the
excess amount was applied to the principal balance of the loan. Any net proceeds
from the sale or refinancing of any of CCEP's properties were paid to the
Partnership under the terms of the New Master Loan Agreement. The New Master
Loan Agreement matured in November 2000. The General Partner had been
negotiating with CCEP with respect to its options which included foreclosing on
the properties which collateralize the Master Loan or extending the terms of the
loan. The General Partner decided to foreclose on the properties that
collateralize the Master Loan. During the year ended December 31, 2002, the
General Partner executed deeds in lieu of foreclosure on four of the active
properties of CCEP. In addition, one property held by CCEP was sold in December
2002. The foreclosure process on the remaining four properties held by CCEP was
completed during the fourth 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 during the years ended December 31, 2003 and 2002, respectively.
Prior to the foreclosure in 2003, the principal balance of the Master Loan due
to the Partnership totaled approximately $14,123,000. This amount represented
the estimated 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 $1,520,000 and $462,000 for the years ended
December 31, 2003 and 2002, respectively. Interest income is recognized on the
cash basis in accordance with SFAS 114. The cumulative unrecognized interest
owed on the Master Loan was forgiven by the Partnership when the properties were
foreclosed on during 2003 and 2002.
Item 2. Description of Properties
The following table sets forth the Partnership's investment in real estate as of
December 31, 2003:
Date of
Property Acquisition Type of Ownership Use
The Loft Apartments 11/19/90 Fee ownership, subject to Apartment
Raleigh, NC a first mortgage 184 units
The Sterling Apartment Homes 12/01/95 Fee ownership subject to Apartment
and Commerce Center a first mortgage (1) 536 units
Philadelphia, PA Commercial
110,368 sq ft
Silverado Apartments 8/09/02 Fee ownership, subject to Apartment
El Paso, TX a first mortgage 248 units
The Knolls Apartments 8/09/02 Fee ownership, subject to Apartment
Colorado Springs, CO a first mortgage 262 units
Indian Creek Village
Apartments 8/09/02 Fee ownership, subject to Apartment
Overland Park, KS a first mortgage 274 units
Tates Creek Village
Apartments 8/13/02 Fee ownership, subject to Apartment
Lexington, KY a first mortgage 204 units
Plantation Gardens 11/10/03 Fee ownership, subject to Apartment
Apartments a first mortgage 372 units
Plantation, FL
Palm Lake 11/10/03 Fee ownership, subject to Apartment
Apartments a first mortgage 150 units
Tampa, FL
The Dunes Apartments 11/10/03 Fee ownership, subject to Apartment
Indian Harbor, FL a first mortgage 200 units
Regency Oaks 11/10/03 Fee ownership, subject to Apartment
Apartments a first mortgage 343 units
Fern Park, FL
(1) Property is held by a Limited Partnership in which the Registrant
ultimately owns a 100% interest.
Schedule of Properties:
Set forth below for each of the Partnership's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis at December 31, 2003.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
The Loft Apartments $ 7,676 $ 4,652 5-30 yrs S/L $ 4,417
The Sterling Apartment
Homes and Commerce
Center 36,426 16,849 5-30 yrs S/L 23,599
Silverado 4,863 198 5-30 yrs S/L 4,604
The Knolls 15,546 617 5-30 yrs S/L 14,862
Indian Creek Village 12,377 482 5-30 yrs S/L 11,716
Tates Creek Village 6,458 284 5-30 yrs S/L 6,075
Plantation Gardens 19,282 43 5-30 yrs S/L 18,951
Palm Lake 4,364 13 5-30 yrs S/L 4,291
The Dunes 6,882 19 5-30 yrs S/L 6,782
Regency Oaks 8,984 37 5-30 yrs S/L 8,827
$122,858 $23,194 $104,124
See "Note A" of the consolidated financial statements included in "Item 8.
Financial Statements and Supplementary Data" for a description of the
Partnership's capitalization and depreciation policies.
Schedule of Property Indebtedness:
The following table sets forth certain information relating to the mortgages
encumbering the Partnership's properties at December 31, 2003.
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 2003 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
The Loft Apartments
1st mortgage $ 4,064 6.95% 360 months 12/01/05 $ 3,903
The Sterling Apartment
Homes and Commerce
Center
1st mortgage 21,654 6.77% 120 months 10/01/08 19,975
Silverado Apartments
1st mortgage 3,264 7.87% 240 months 11/01/10 2,434
The Knolls
Apartments
1st mortgage 9,180 7.78% 240 months 03/01/10 7,105
Indian Creek Village
Apartments
1st mortgage 8,117 7.83% 240 months 01/01/10 6,351
Tates Creek Village
Apartments
1st mortgage 3,909 7.78% 240 months 04/01/10 3,017
Plantation Gardens
Apartments
1st mortgage 8,999 7.83% 240 months 03/01/10 6,972
Palm Lake Apartments
1st mortgage 2,777 7.86% 240 months 02/01/10 2,158
The Dunes Apartments
1st mortgage 3,812 7.81% 240 months 02/01/10 2,960
Regency Oaks
Apartments
1st mortgage 7,078 7.80% 240 months 02/01/10 5,494
$ 72,854
Unamortized mortgage
premiums 2,341
$ 75,195 $60,369
(1) See "Item 8. Financial Statements and Supplementary Data - Note D" for
information with respect to the Partnership's ability to prepay these
mortgages and other specific details about the mortgages.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 2003 and 2002 for each property:
Average Annual Average
Rental Rates Occupancy
Property 2003 2002 2003 2002
The Loft Apartments $ 8,047/unit $ 8,605/unit 85% 90%
The Sterling Apartment Homes 16,893/unit 16,974/unit 94% 91%
The Sterling Commerce Center 17.90/s.f. 18.17/s.f. 57% 56%
Silverado Apartments 5,637/unit 6,661/unit 95% 96%
The Knolls Apartments 8,294/unit 10,106/unit 81% 88%
Indian Creek Village Apartments 8,266/unit 9,824/unit 91% 92%
Tates Creek Village Apartments 7,661/unit 8,615/unit 90% 90%
Plantation Gardens Apartments 9,594/unit 9,669/unit 91% 91%
Palm Lake Apartments 8,021/unit 7,987/unit 94% 94%
The Dunes Apartments 7,676/unit 7,493/unit 92% 92%
Regency Oaks Apartments 7,260/unit 7,357/unit 95% 89%
The General Partner attributes the decrease in occupancy at The Loft Apartments
and The Knolls Apartments to the competitive market of the apartment industry in
the properties' respective locations. The increase in occupancy at The Sterling
Apartments Homes is due to improved market conditions. The increase in occupancy
at Regency Oaks Apartments is due to site improvements and improved customer
service.
The General Partner attributes the low occupancy at The Sterling Commerce Center
to the loss of a major tenant in late December 2001. During the fourth quarter
of 2003, a new tenant signed a lease and occupied a large portion of the vacant
space.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes and commercial properties in the area. The
General Partner believes that all of the properties are adequately insured. Each
apartment complex leases properties for terms of one year or less. No
residential tenant leases 10% or more of the available rental space. All of the
properties are in good physical condition, subject to normal depreciation and
deterioration as is typical for assets of this type and age.
The following is a schedule of the lease expirations of the commercial space for
The Sterling Commerce Center for the years beginning 2003 through the maturities
of the current leases.
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
2004 5 9,110 $144,861 12.32%
2005 3 4,500 90,426 7.69%
2006 6 21,908 327,730 27.87%
2007 3 7,347 217,622 18.51%
2008 3 5,315 104,532 8.89%
2010 3 28,094 290,608 24.72%
One commercial tenant (The Deveraux Foundation) leases 22.6% of available rental
space. No other commercial tenant leases 10% or more of the available space.
Real Estate Taxes and Rates:
Real estate taxes and rates in 2003 for each property were:
Billing Rate
(in thousands)
The Loft Apartments $ 91 1.03%
The Sterling Apartment Homes and
Commerce Center 743 8.85%
Silverado Apartments 143 3.03%
The Knolls Apartments 53 5.91%
Indian Creek Village Apartments 120 9.32%
Tates Creek Village Apartments 59 0.96%
Plantation Gardens Apartments 327 2.27%
Palm Lake Apartments 93 2.28%
The Dunes Apartments 136 2.34%
Regency Oaks Apartments 146 1.65%
Capital Improvements:
The Loft
During the year ended December 31, 2003, the Partnership completed approximately
$97,000 of capital improvements, consisting primarily of floor covering and roof
replacements. These improvements were funded from operating cash flow and
replacement reserves. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and expects to budget
approximately $101,000. Additional improvements may be considered in 2004 and
will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
The Sterling
During the year ended December 31, 2003, the Partnership completed approximately
$527,000 of capital improvements at The Sterling Apartment Homes and Commerce
Center, consisting primarily of floor covering replacements, air conditioning
upgrades, tenant improvements and reconstruction of two apartment units damaged
by an electrical fire. These improvements were funded from operating cash flow,
insurance proceeds, and replacement reserves. The Partnership is currently
evaluating the capital improvements needs of the property for the upcoming year
and expects to budget approximately $295,000 for the apartments and
approximately $13,000 for the Commerce Center. Additional improvements may be
considered in 2004 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 year ended December 31, 2003, the Partnership completed approximately
$72,000 of capital improvements at Silverado Apartments consisting primarily of
floor covering and appliance replacements, water heater replacements and
electrical upgrades. These improvements were funded from operating cash flow.
The Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $136,000.
Additional improvements may be considered in 2004 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The Knolls Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$372,000 of capital improvements at The Knolls Apartments consisting primarily
of major landscaping, structural improvements, floor covering and appliance
replacements and air conditioning unit upgrades. These improvements were funded
from operating cash flow and capital reserves. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year
and expects to budget approximately $144,000. Additional improvements may be
considered in 2004 and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Indian Creek Village Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$149,000 of capital improvements at Indian Creek Village Apartments consisting
primarily of floor covering and appliance replacements and structural
improvements. These improvements were funded from operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $151,000.
Additional improvements may be considered in 2004 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Tates Creek Village Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$166,000 of capital improvements at Tates Creek Village Apartments consisting
primarily of plumbing improvements, major landscaping required due to damages
caused by an ice storm and air conditioning unit and floor covering
replacements. These improvements were funded from operating cash flow and
insurance proceeds. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and expects to budget
approximately $112,000. Additional improvements may be considered in 2004 and
will depend on the physical condition of the property as well as anticipated
cash flow generated by the property.
Plantation Gardens Apartments
The Partnership completed approximately $19,000 of capital improvements at
Plantation Gardens Apartments as of December 31, 2003, consisting primarily of
floor covering replacements and electrical upgrades. These improvements were
funded from operating cash flow. The Partnership is currently evaluating the
capital improvements needs of the property for the upcoming year and expects to
budget approximately $205,000. Additional improvements may be considered in 2004
and will depend on the physical condition of the property as well as anticipated
cash flow generated by the property.
Palm Lake Apartments
The Partnership completed approximately $6,000 of capital improvements at Palm
Lake Apartments as of December 31, 2003, consisting primarily of floor covering
replacements. These improvements were funded from operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $83,000.
Additional improvements may be considered in 2004 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The Dunes Apartments
The Partnership completed approximately $6,000 of capital improvements at The
Dunes Apartments as of December 31, 2003, consisting primarily of floor covering
replacements. These improvements were funded from operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and expects to budget approximately $110,000.
Additional improvements may be considered in 2004 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Regency Oaks Apartments
The Partnership completed approximately $58,000 of capital improvements at
Regency Oaks Apartments as of December 31, 2003, consisting primarily of floor
covering replacements, structural improvements, air conditioning upgrades, and
other building improvements. These improvements were funded from operating cash
flow. The Partnership is currently evaluating the capital improvement needs of
the property for the upcoming year and expects to budget approximately $189,000.
Additional improvements may be considered in 2004 and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The additional capital improvements at the Partnership's properties will be made
only to the extent of cash available from operations and Partnership reserves.
To the extent that such budgeted capital improvements are completed, the
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action 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. In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 at least
one round of tender offers 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. On August 12, 2003, an objector
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. The General Partner is currently scheduled
to file a brief in support of the order approving settlement and entering
judgment thereto by April 23, 2004.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
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 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2003, no matter was submitted to a vote of
unitholders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 200,342
limited partnership units (the "Units") aggregating $200,342,000. The
Partnership currently has 11,454 holders of record owning an aggregate of
199,043.2 Units. Affiliates of the General Partner owned 129,695.10 units or
65.16% at December 31, 2003. No public trading market has developed for the
Units, and it is not anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 2001, 2002 and 2003:
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/01 - 12/31/01 $15,757 (1) $ 78.83
01/01/02 - 12/31/02 3,572 (2) 17.79
01/01/03 - 12/31/03 3,424 (3) 17.11
(1) Consists of approximately $6,646,000 of cash from operations and
approximately $9,111,000 of cash from surplus funds, of which
approximately $1,425,000 was from the receipt of previously undistributed
net financing and refinancing proceeds from CCEP and approximately
$6,019,000 was from the receipt of net sales proceeds from CCEP.
(2) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(3) Consists of approximately $1,793,000 of cash from operations and
approximately $1,631,000 of cash from sales proceeds from CCEP for sale of
Society Park Apartments.
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 expenditures, to permit distributions to its partners in 2004 or
subsequent periods. See "Item 2. Description of Properties - Capital
Improvements" for information relating to planned capital expenditures at the
properties.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units
(the "Units") in the Partnership representing 65.16% of the outstanding Units at
December 31, 2003. A number of these Units were acquired pursuant to tender
offers made by AIMCO or its affiliates. It is possible that AIMCO or its
affiliates will acquire additional Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. In this regard on February
20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all
units for a purchase price of $239.13 per Unit. The tender offer will expire on
April 9, 2004. 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 general partner, to the Partnership and its limited partners may come into
conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8. Financial
Statements and Supplementary Data".
FOR THE YEARS ENDED DECEMBER 31,
2003 2002 2001 2000 1999
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Total revenues $ 18,607 $ 14,646 $ 15,484 $ 14,193 $ 13,545
Total expenses (18,541) (13,159) (11,582) (10,823) (9,773)
Reduction in provision
for impairment loss -- -- 3,176 14,241 --
Income from continuing
operations 66 1,487 7,078 17,611 3,772
Gain on foreclosure of
real estate 839 1,831 -- -- --
Equity in income of 1,146 -- -- -- --
investment
Net income $ 2,051 $ 3,318 $ 7,078 $ 17,611 $ 3,772
Net income per Limited
Partnership Unit $ 10.20 $ 16.50 $ 35.20 $ 87.59 $ 18.76
Distributions per Limited
Partnership Unit $ 17.11 $ 17.79 $ 78.83 $ 240.55 $ 113.65
Limited Partnership Units
outstanding 199,043.2 199,043.2 199,045.2 199,045.2 199,045.2
AS OF DECEMBER 31,
BALANCE SHEETS 2003 2002 2001 2000 1999
(in thousands)
Total assets $105,398 $ 83,331 $ 56,089 $ 65,383 $ 95,668
Mortgage note payable $ 75,195 $ 52,649 $ 26,457 $ 26,762 $ 27,074
The comparability of the information above has been affected by the
foreclosure on the eight CCEP properties. See "Item 1. Description of
Business" for further information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item should be read in conjunction with "Item 8. Financial Statements and
Supplementary Data" and other items contained elsewhere in this report.
Results of Operations
2003 Compared to 2002
The Partnership's net income for the year ended December 31, 2003 was
approximately $2,051,000 compared to net income of approximately $3,318,000 for
the corresponding period in 2002. The decrease in net income for the year ended
December 31, 2003 as compared to the year ended December 31, 2002 is primarily
due to an increase in total expenses, a decrease in gain on foreclosure of real
estate and a decrease in interest payments received and therefore recognized on
the Master Loan partially offset by an increase in total revenues and an
increase in equity in income of investment. Interest income on investment in
Master Loan is only recognized to the extent that actual cash is received. The
receipt of cash was dependent on the corresponding cash flow of the properties
which secured the Master Loan.
The decrease in gain on foreclosure of real estate and the increase in total
expenses is largely due to the acquisition at a foreclosure sale of four
properties (Plantation Gardens, Palm Lake, The Dunes and Regency Oaks
Apartments) during November 2003 and 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 collateralized the Master Loan or
extending the terms of the Master Loan. The General Partner decided to foreclose
on the properties that collateralized the Master Loan. The General Partner began
the process of foreclosure or executing deeds in lieu of foreclosure during 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. The
foreclosure process on the remaining four properties held by CCEP was completed
during the fourth 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 during the fourth quarter of 2003 and the third quarter of 2002,
respectively.
In November 2003, the Partnership acquired the four remaining properties held by
CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes
Apartments, and Palm Lake Apartments. These properties were sold at a
foreclosure sale due to CCEP's inability to repay the Master Loan and accrued
interest. An affiliate of the General Partner advanced the Partnership
approximately $31,278,000 in order to purchase these properties at the sale.
Approximately $523,000 was retained by the court for its costs and was
capitalized as acquisition costs by the Partnership and will be amortized over
the estimated useful life of the properties. The advance bore interest at prime
plus 2% and the Partnership paid approximately $114,000 in interest expense for
the period the loan was outstanding during 2003. The Partnership acquired the
properties previously held by CCEP subject to the existing liens on the
properties including the first mortgage loans. As a result of the acquisition of
these remaining four properties that were held by CCEP, the Partnership
recognized a gain on foreclosure of approximately $839,000 which was the excess
of the actual fair market value of the properties at the time of the foreclosure
sale over the value of the Master Loan balance collateralized by the properties.
CCIP intends to continue to operate these properties as residential apartment
complexes.
Exclusive of the items related to the Master Loan, the gain on foreclosure of
real estate, and the operations of the foreclosed properties, the Partnership
recognized net income for the year ended December 31, 2003 of approximately
$122,000 compared to net income of approximately $461,000 for the corresponding
period in 2002. The decrease in net income for the year ended December 31, 2003
as compared to the year ended December 31, 2002 is primarily due to an increase
in total expenses and a decrease in total revenues.
Total expenses, exclusive of the foreclosed properties, increased during the
year ended December 31, 2003 primarily due to increases in operating expenses
and general and administrative expenses partially offset by a decrease in
depreciation expense. Operating expense increased during the year ended December
31, 2003 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 and contract security patrol expenses at
The Sterling Apartment Homes. Maintenance expenses increased due to an increase
in contract services at Sterling Apartment Homes and The Loft Apartments.
Depreciation expense decreased during the year ended December 31, 2003 due to
capital improvements and replacements becoming fully depreciated during the past
year at The Sterling.
The increase in general and administrative expenses for the year ended December
31, 2003 is primarily due to an increase in the costs of services included in
the management reimbursements to the General Partner as allowed under the
Partnership Agreement and professional fees associated with the management of
the Partnership's properties. Also included in general and administrative
expense for the year ended December 31, 2003 are costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement.
The decrease in total revenues, exclusive of the foreclosed properties, during
the year ended December 31, 2003 is primarily due to a decrease in rental income
and other income. Rental income decreased 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 concession related expenses at The Sterling Apartment Homes.
These decreases were partially offset by an increase in occupancy at The
Sterling Apartment Homes and Commerce Center. 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 year ended December 31, 2003 is due
to the recognition of the Partnership's share of distributions received and
recognized as earnings from affiliated partnerships in excess of investment
balance. The Partnership assumed investments in three affiliated partnerships
during the foreclosure of investment properties from CCEP as discussed above.
These investments are accounted for on the equity method of accounting.
Distributions from the affiliated partnerships are accounted for as a reduction
of the investment balance until the investment balance is reduced to zero. When
the investment balance has been reduced to zero, subsequent distributions
received are recognized as income in the accompanying statements of operations.
During the years ended December 31, 2003 and 2002, the Partnership received
approximately $1,048,000 and $23,000, respectively, in distributions from two of
the partnerships. Approximately $1,015,000 of the distributions related to the
sale of three of the properties in Consolidated Capital Growth Fund. Of this
amount, approximately $984,000 was recognized as equity in income from
investment once the investment balance allocated to those properties had been
reduced to zero. The Partnership also recognized equity in income from
investment of approximately $162,000 which included the allocation of gain from
the sale of a property in Consolidated Capital Properties IV. There was no
distribution associated with this sale.
2002 Compared to 2001
The Partnership's net income for the year ended December 31, 2002 was
approximately $3,318,000 compared to net income of approximately $7,078,000 for
the corresponding period in 2001. The decrease in net income for the year ended
December 31, 2002 as compared to the year ended December 31, 2001 is primarily
due to the $3,176,000 reduction of the provision for impairment loss on the
investment in the Master Loan recognized during the year ended December 31,
2001, a decrease of approximately $2,894,000 in interest payments received and
therefore recognized on the Master Loan, and an increase in total expenses
partially offset by the revenues of the four foreclosed properties and by a gain
on foreclosure of real estate of approximately $1,831,000. The reduction of the
provision for impairment loss on the Master Loan was recognized in 2001 due to
an increase in the net realizable value of the collateral properties and the
payment of principal on the Master Loan from the sales proceeds of Magnolia
Trace Apartments during the year ended December 31, 2001. The General Partner
evaluated the net realizable value on a semi-annual basis or when circumstances
dictated that it should be analyzed. Interest income on investment in Master
Loan is only recognized to the extent that actual cash is received. The receipt
of cash is dependent on the corresponding cash flow of the properties which
secure the Master Loan. The gain on foreclosure of real estate was due to the
foreclosure of four properties (Silverado, The Knolls, Indian Creek Village, and
Tates Creek Village Apartments) during 2002. The Master Loan matured in November
2000. The General Partner had been negotiating with CCEP with respect to its
options which included foreclosing on the properties which collateralize the
Master Loan or extending the terms of the loan. The General Partner decided to
foreclose on the properties that collateralize the Master Loan. The General
Partner began the process of foreclosure or executing deeds in lieu of
foreclosure during 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). As the
deeds are executed, title in the properties previously owned by CCEP are
transferred to the Partnership, subject to the existing liens on such
properties, including the first mortgage loans. As a result, the Partnership
assumed responsibility for the operations of such properties.
Excluding the items related to the Master Loan, and the gain on foreclosure of
real estate, the Partnership's net income for the year ended December 31, 2002
and 2001 was approximately $1,101,000 and $622,000, respectively. This increase
in net income for the year ended December 31, 2002 is due to an increase in
total revenues partially offset by an increase in total expenses.
The increase in total revenues for the year ended December 31, 2002 is due to
increases in rental income and other income. The increase in rental income is
due to the addition of the four foreclosed properties and increased rental rates
at Sterling Apartment Homes and Sterling Commercial Center, partially offset by
a decrease in occupancy at The Sterling Commerce Center and The Sterling
Apartment Homes and a decrease in average rental rates at The Loft Apartments.
The increase in other income for the year ended December 31, 2002 is due to the
foreclosure of the four properties and an increase in utility reimbursements at
The Sterling, partially offset by reduced interest income due to lower average
cash balances in interest bearing accounts.
Total expenses increased for the year ended December 31, 2002 due to the
foreclosure of the four properties. Exclusive of the operations of the
foreclosed properties, expenses decreased due to decreases in operating expenses
and depreciation expense partially offset by an increase in general and
administrative expenses. Operating expense decreased primarily due to a decrease
in property, amortization and maintenance expenses and management fees. Property
expenses decreased due to a decrease in salaries and related benefits and
utility expenses at Sterling Apartment Homes and utility charges at The Sterling
and The Loft Apartments. Amortization expense decreased due to the write-off in
2001 of unamortized lease commissions relating to a tenant which moved out in
December 2001. Maintenance expenses decreased due to an increase in the
capitalization of certain direct and indirect project costs, primarily payroll
related costs, at the properties (see "Item 8. Financial Statements and
Supplementary Data, Note A - Organization and Significant Accounting Policies".)
Management fees decreased due to reduced rental revenue at The Sterling
Apartment Homes and The Sterling Commercial Center. Depreciation expense
decreased due to capital improvements and replacements becoming fully
depreciated during the past year at The Sterling.
General and administrative expense increased for the year ended December 31,
2002 due to an increase in the costs of services included in the management
reimbursements to the General Partner allowed under the Partnership Agreement
and legal expenses related to the foreclosures of the four properties offset by
a decrease due to the timing of an increase in the business privilege tax paid
to the city of Philadelphia.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of this
plan, the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, the General Partner may use rental
concessions and rental rate reductions to offset softening market conditions,
accordingly, there is no guarantee that the General Partner will be able to
sustain such a plan.
Capital Resources and Liquidity
At December 31, 2003, the Partnership had cash and cash equivalents of
approximately $2,417,000 compared to approximately $3,175,000 at December 31,
2002. Cash and cash equivalents decreased approximately $758,000 since December
31, 2002 due to approximately $4,750,000 and $628,000 of cash used in financing
and investing activities, respectively, partially offset by approximately
$4,620,000 of cash provided by operating activities. Cash used in financing
activities consisted of distributions to partners, principal payments made on
the mortgages encumbering the Partnership's properties, lease commissions paid
and repayment of advances from the general partner, partially offset by advances
from the general partner. Cash used in investing activities consisted of
property improvements and replacements partially offset by distributions
received from affiliated partnerships, insurance proceeds, principal receipts on
the Master Loan and net withdrawals from escrow accounts maintained by the
mortgage lenders. The Partnership invests its working capital reserves in
interest bearing accounts.
During the years ended December 31, 2003, 2002 and 2001, the Partnership
received approximately $15,000, $1,719,000 and $7,801,000 in principal payments
on the Master Loan. Approximately $88,000 and $357,000 was received during the
years ended December 31, 2002 and 2001, respectively, representing cash received
from distributions from three affiliated partnerships which were required to be
transferred to the Partnership under the terms of the Master Loan. In addition,
during the years ended December 31, 2003 and 2002 approximately $15,000 and
$1,631,000 was received representing proceeds received from the sale of Society
Park Apartments. For 2001, approximately $6,019,000 was received representing
net proceeds from the sale of Magnolia Trace and approximately $1,425,000 was
received representing additional proceeds received for the refinancing of the
mortgages encumbering nine of the investment properties in 2000.
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 Partnership and to comply with
Federal, state, and local legal and regulatory requirements. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The General Partner monitors developments in the area of legal and regulatory
compliance and is studying new federal laws, including the Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance
measures with regard to governance, disclosure, audit and other areas. In light
of these changes, the Partnership expects that it will incur higher expenses
related to compliance, including increased legal and audit fees. The Partnership
is currently evaluating the capital improvements needs of all its properties for
the upcoming year. The minimum amount to be budgeted is expected to be
approximately $1,526,000 for all the apartment complexes and approximately
$13,000 for the Sterling Commerce Center. Additional improvements may be
considered in 2004 and will depend on the physical condition of the properties
as well as replacement reserves and anticipated cash flow generated by the
properties.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering the Partnership's properties of approximately
$75,195,000 requires monthly payments of principal and interest, and balloon
payments of approximately $3,903,000, $19,975,000 and $36,491,000 during 2005,
2008 and 2010, respectively. The General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
may risk losing such properties through foreclosure.
The Partnership distributed the following amounts during the years ended
December 31, 2001, 2002 and 2003 (in thousands, except per unit data):
Distributions
Per Limited
Aggregate Partnership Unit
01/01/01 - 12/31/01 $15,757 (1) $ 78.83
01/01/02 - 12/31/02 3,572 (2) 17.79
01/01/03 - 12/31/03 3,424 (3) 17.11
(1) Consists of approximately $6,646,000 of cash from operations and
approximately $9,111,000 of cash from surplus funds, of which
approximately $1,425,000 was from the receipt of previously undistributed
net financing and refinancing proceeds from CCEP and approximately
$6,019,000 was from the receipt of net sales proceeds from CCEP.
(2) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(3) Consists of approximately $1,793,000 of cash from operations and
approximately $1,631,000 of cash from sales proceeds from CCEP for sale of
Society Park Apartments.
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 any distributions to its partners
during 2004 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
December 31, 2003. A number of these Units were acquired pursuant to tender
offers made by AIMCO or its affiliates. It is possible that AIMCO or its
affiliates will acquire additional Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. In this regard on February
20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all
units for a purchase price of $239.13 per Unit. The tender offer will expire on
April 9, 2004. 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 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.
During the years ended December 31, 2003, 2002 and 2001 CCEP paid approximately
$15,000, $1,719,000 and $7,801,000 in principal payments on the Master Loan.
Approximately $88,000 and $357,000 was paid during the years ended December 31,
2002 and 2001, respectively, representing cash received from distributions from
three affiliated partnerships. These funds were required to be transferred to
the Partnership under the terms of the Master Loan. In addition, during the
years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was
paid representing proceeds received from the sale of Society Park Apartments.
For 2001, approximately $6,019,000 was paid representing net proceeds from the
sale of Magnolia Trace and approximately $1,425,000 was paid representing
additional proceeds received for the refinancing of the mortgages encumbering
nine of the investment properties in 2000.
Critical Accounting Policies and Estimates
A summary of the Partnership's significant accounting policies is included in
"Note A - Organization and Significant Accounting Policies" which is included in
the consolidated financial statements in "Item 8. Financial Statements and
Supplementary Data". The General Partner believes that the consistent
application of these policies enables the Partnership to provide readers of the
financial statements with useful and reliable information about the
Partnership's operating results and financial condition. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires the Partnership to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements as
well as reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Judgments and assessments of
uncertainties are required in applying the Partnership's accounting policies in
many areas. The Partnership believes that of its significant accounting
policies, the following may involve a higher degree of judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost less accumulated depreciation, unless
considered impaired, and the investment properties foreclosed upon in the third
quarter of 2002 and fourth quarter of 2003 were recorded at fair market value at
the time of the foreclosures. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include, but are not limited
to, 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 impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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 was evaluated for impairment based upon the
fair value of the collateral properties as the collateral was the sole basis of
repayment of the loan. The fair value of the remaining collateral properties was
based on the fair market value of those properties. If the fair value of a
collateral property increased or decreased for other than temporary conditions,
then the allowance on the Master Loan was adjusted appropriately.
The investment in the Master Loan was considered to be impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment,
interest income was recognized on the cash basis of accounting.
Item 7a. Market Risk Factors
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at December 31, 2003, a 100 basis point increase or
decrease in market interest rates would impact Partnership income approximately
$513,000.
The following table summarizes the Partnership's debt obligations at December
31, 2003. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximates its carrying amount at December 31,
2003.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.29%
(in thousands)
2004 $ 1,763
2005 5,835
2006 1,999
2007 2,157
2008 22,192
Thereafter 38,908
Total $72,854
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Operations for the Years ended December 31,
2003, 2002 and 2001
Consolidated Statements of Changes in Partners' Capital for the Years
ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the Years ended December 31,
2003, 2002 and 2001
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Institutional Properties as of December 31, 2003 and 2002, and the
related consolidated statements of operations, changes in partners' capital, and
cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Institutional Properties at December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 27, 2004
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
2003 2002
Assets
Cash and cash equivalents $ 2,417 $ 3,175
Receivables and deposits 404 493
Restricted escrows 922 1,114
Other assets 999 592
Investment in affiliated partnerships (Note H) 992 894
Investment in Master Loan to affiliate (Note C) -- 14,144
Investment properties (Notes D and F):
Land 22,780 14,272
Buildings and related personal property 100,078 67,805
122,858 82,077
Less accumulated depreciation (23,194) (19,158)
99,664 62,919
$105,398 $ 83,331
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 211 $ 176
Tenant security deposit liabilities 964 689
Accrued property taxes 564 326
Other liabilities 1,499 1,408
Due to affiliates (Note E) 255 --
Mortgage notes payable (Note D) 75,195 52,649
78,688 55,248
Partners' Capital
General partner 128 125
Limited partners (199,043.2 units issued and
outstanding) 26,582 27,958
26,710 28,083
$105,398 $ 83,331
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2003 2002 2001
Revenues:
Rental income $ 17,209 $ 13,232 $ 11,305
Interest income on investment in Master
Loan to affiliate (Note C) -- 386 3,280
Reduction of provision for impairment
loss (Note C) -- -- 3,176
Other income 1,381 1,028 899
Casualty gain (Note J) 17 -- --
Total revenues 18,607 14,646 18,660
Expenses:
Operating 8,334 5,649 5,168
General and administrative 1,151 836 720
Depreciation 4,056 3,189 2,980
Interest 3,884 2,482 1,889
Property taxes 1,116 1,003 825
Total expenses 18,541 13,159 11,582
Income from operations 66 1,487 7,078
Gain on foreclosure of real estate (Note C) 839 1,831 --
Equity in income of investment (Note H) 1,146 -- --
Net income (Note B) $ 2,051 $ 3,318 $ 7,078
Net income allocated to general partner (1%) $ 21 $ 33 $ 71
Net income allocated to limited partners (99%) 2,030 3,285 7,007
$ 2,051 $ 3,318 $ 7,078
Per limited partnership unit:
Income from operations $ 0.33 $ 7.39 $ 35.20
Gain on foreclosure of real estate 4.17 9.11 --
Equity in income of investment 5.70 -- --
Net income per limited partnership unit $ 10.20 $ 16.50 $ 35.20
Distributions per limited partnership unit $ 17.11 $ 17.79 $ 78.83
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' capital
at December 31, 2000 199,045.2 118 36,898 37,016
Distributions to partners -- (66) (15,691) (15,757)
Net income for the year ended
December 31, 2001 -- 71 7,007 7,078
Partners' capital at
December 31, 2001 199,045.2 123 28,214 28,337
Abandonment of limited partnership
units (Note I) (2.0) -- -- --
Distributions to partners -- (31) (3,541) (3,572)
Net income for the year ended
December 31, 2002 -- 33 3,285 3,318
Partners' capital at
December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083
Distributions to partners -- (18) (3,406) (3,424)
Net income for the year ended
December 31, 2003 -- 21 2,030 2,051
Partners' capital at
December 31, 2003 199,043.20 128 26,582 26,710
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2003 2002 2001
Cash flows from operating activities:
Net income $ 2,051 $ 3,318 $ 7,078
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on foreclosure of real estate (839) (1,831) --
Depreciation 4,056 3,189 2,980
Amortization of loan costs, lease commissions and
Mortgage premiums (68) 43 316
Equity in income of investment (1,146) -- --
Reduction of provision for impairment loss -- -- (3,176)
Casualty gain (17) -- --
Change in accounts:
Receivables and deposits 347 6 518
Other assets (90) (24) 78
Accounts payable (146) 50 (63)
Tenant security deposit liabilities (6) (5) (109)
Accrued property taxes (328) 88 --
Due to affiliates 912 -- --
Other liabilities (106) 593 (138)
Net cash provided by operating activities 4,620 5,427 7,484
Cash flows from investing activities:
Property improvements and replacements (1,472) (582) (398)
Acquisition costs paid (523) -- --
Insurance proceeds received 112 -- --
Net receipts from (deposits to) restricted escrows 192 (205) 61
Principal receipts on Master Loan 15 1,719 7,801
Distributions from affiliated partnerships 1,048 24 --
Net cash (used in) provided by investing activities (628) 956 7,464
Cash flows from financing activities:
Distributions to partners (3,424) (3,572) (15,757)
Payments on mortgage notes payable (1,128) (558) (305)
Lease commissions paid (198) -- --
Advances from general partner 31,498 -- --
Repayment of advances from general partner (31,498) -- --
Net cash used in financing activities (4,750) (4,130) (16,062)
Net (decrease) increase in cash and cash
equivalents (758) 2,253 (1,114)
Cash and cash equivalents at beginning of year 3,175 922 2,036
Cash and cash equivalents at end of year $ 2,417 $ 3,175 $ 922
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,135 $ 2,467 $ 1,702
Supplemental disclosure of non-cash transactions:
Property improvements and replacements
capitalized as part of a settlement with a
tenant that vacated its space $ -- $ -- $ 498
See Accompanying Notes to Consolidated Financial Statements
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the year ended December 31, 2003, Plantation Gardens, Palm Lake, The
Dunes and Regency Oak Apartments were purchased at a foreclosure sale by the
Partnership.
During the year ended December 31, 2002, Silverado, The Knolls, Indian Creek
Village, and Tates Creek Village Apartments were foreclosed upon by the
Partnership. In connection with the transactions above, the following accounts
were adjusted by the non-cash amounts in 2003 and 2002, as follows:
2003 2002
Receivables and deposits $ (258) $ (66)
Investment in Master Loan
to affiliates 14,129 10,567
Restricted escrows -- (517)
Other assets (205) 11
Investment properties (38,901) (38,273)
Investments in affiliated
partnerships -- (918)
Accounts payable 181 --
Tenant security deposit
liabilities 281 128
Accrued property taxes 566 238
Due to affiliates (657) --
Other liabilities 197 212
Mortgage notes payable 23,828 26,787
Gain on foreclosure of
real estate $ (839) $ (1,831)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
Note A - Organization and Significant Accounting Policies
Organization: Consolidated Capital Institutional Properties (the "Partnership"
or "Registrant"), a California Limited Partnership, was formed on April 28,
1981, to lend funds through nonrecourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by, Consolidated Capital Equity Partners,
("EP"), a California general partnership in which certain of the partners were
former shareholders and former management of Consolidated Capital Equities
Corporation ("CCEC"), the former Corporate General Partner. Through December 31,
2003, the Partnership had advanced a total of approximately $180,500,000 to EP
and its successor under the Master Loan. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2011 unless terminated prior to
such date.
Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the
Corporate General Partner. In December 1988, CCEC filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's
reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General
Partner" or "CEI"), acquired CCEC's General Partner interests in the Partnership
and in 15 other affiliated public Limited Partnerships (the "Affiliated
Partnerships") and replaced CCEC as Managing General Partner in all 16
partnerships.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"). EP was converted from a California General Partnership
to a California Limited Partnership, Consolidated Capital Equity Partners, L.P.
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement.
ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary
of CEI, is the sole general partner of CCEP and an affiliate of the Partnership.
The General Partners of EP became Limited Partners in CCEP. CHI has full
discretion with respect to conducting CCEP's business, including managing CCEP's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings. All of CEI's outstanding stock was owned by
Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged
into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a
wholly-owned subsidiary of AIMCO, a publicly held real estate investment trust.
The General Partner began the process of foreclosure or executing deeds in lieu
of foreclosure during 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 was completed during the fourth 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 Partnership now owns and operates nine apartment properties one each in
North Carolina, Texas, Colorado, Kansas and Kentucky, four in Florida and one
multiple-use complex in Pennsylvania.
Principles of Consolidation: The Partnership's consolidated financial statements
include the accounts of CCIP Sterling, L.P., a Pennsylvania Limited Partnership,
Kennedy Boulevard Associates II, L.P., Kennedy Boulevard Associates III, L.P.,
Kennedy Boulevard Associates IV, L.P., and Kennedy Boulevard GP I ("KBGP-I"), a
Pennsylvania Partnership. Each of the entities above except KBGP-I are
Pennsylvania limited partnerships, and the general partners of each of these
affiliated limited and general partnerships are limited liability corporations
of which the Partnership is the sole member. Therefore, the Partnership controls
these affiliated limited and general partnerships, and consolidation is
required. CCIP Sterling, L.P. holds title to The Sterling Apartment Home and
Commerce Center ("the Sterling"). All interpartnership transactions have been
eliminated.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications: Certain reclassifications have been made to the 2001 and 2002
information to conform to the 2003 presentation.
Allocation of Profits, Gains, and Losses: The Agreement provides for net income
and net losses for both financial and tax reporting purposes to be allocated 99%
to the Limited Partners and 1% to the General Partner.
Net Income Per Limited Partnership Unit: Net income per Limited Partnership Unit
("Unit") is computed by dividing net income allocated to the Limited Partners by
the number of Units outstanding at the beginning of the year. Per Unit
information has been computed based on 199,043.2 Units for 2003 and 2002 and
199,045.2 Units for 2001 (see "Note I" for further information).
Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and
in banks. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances include approximately $2,246,000
and $3,098,000 at December 31, 2003 and 2002, respectively, that are maintained
by an affiliated management company on behalf of affiliated entities in cash
concentration accounts.
Restricted Escrows: At the time of the 1995 refinancing of The Loft,
approximately $60,000 of the proceeds were designated for a Replacement Reserve
Fund for certain capital replacements at the property. Additionally, monthly
deposits are requiredpursuant to the mortgage agreement. At December 31, 2003
and 2002, the balance in this reserve was approximately $159,000 and $211,000,
respectively.
In conjunction with the financing of the Sterling in September 1998, the
Partnership is required to make monthly deposits of approximately $17,000 with
the mortgage company to establish and maintain a Replacement Reserve Fund
designated for repairs and replacements at the property. As of December 31, 2003
and 2002, the balance was approximately $470,000 and $384,000, respectively.
At the time of refinancing of The Knolls in September 2000, approximately
$505,000 of the proceeds were designated for a replacement reserve fund for
certain capital replacements. At December 31, 2003 and 2002 the balance in the
replacement reserve fund was approximately $293,000 and $519,000, respectively.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment and commercial properties and related personal
property. For Federal income tax purposes, the accelerated cost recovery method
is used for real property over 18 years for additions after March 15, 1984 and
before May 9, 1985, and 19 years for additions after May 8, 1985, and before
January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after
December 31, 1986, the modified accelerated cost recovery method is used for
depreciation of (1) real property additions over 27 1/2 years and (2) personal
property additions over 5 years.
Loan Costs: As of December 31, 2003 and 2002, loan costs of approximately
$569,000 for both years less accumulated amortization of approximately $332,000
and $275,000 respectively, are included in other assets. These costs are
amortized by the straight-line method over the life of the loans. Amortization
expense was approximately $57,000 and $56,000 for the years ended December 31,
2003 and 2002, respectively, and is included in interest expense. Amortization
expense is expected to be approximately $57,000 for each of the years 2004 and
2005 and approximately $45,000 for each of the years 2006 and 2007 and
approximately $33,000 for 2008.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on rental payments.
Investment Properties: Investment properties consist of nine apartment complexes
and one multiple-use building consisting of apartment units and commercial space
and are stated at cost or at fair market value as determined at the time of the
foreclosures in 2002 and 2003. Acquisition fees are capitalized as a cost of
real estate. Expenditures in excess of $250 that maintain an existing asset
which has a useful life of more than one year are capitalized as capital
replacement expenditures and depreciated over the estimated useful life of the
asset. Expenditures for ordinary repairs, maintenance and apartment turnover
costs are expensed as incurred.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
Partnership records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. Costs of properties that have been
permanently impaired have been written down to appraised value. No adjustments
for impairment of value were recorded in the years ended December 31, 2003, 2002
or 2001.
During 2001, AIMCO, an affiliate of the General Partner, commissioned a project
to study process improvement ideas to reduce operating costs. The result of the
study led to a re-engineering of business processes and eventual redeployment of
personnel and related capital spending. The implementation of these plans during
2002, accounted for as a change in accounting estimate, resulted in a refinement
of the Partnership's process for capitalizing certain direct and indirect
project costs (principally payroll related costs) and increased capitalization
of such costs by approximately $109,000 in 2002 compared to 2001.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended by SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amounts of its financial instruments (except for long term
debt) approximate their fair values due to the short term maturity of these
instruments. The Partnership believes that the carrying amount of its long-term
debt approximates its fair market value. The mortgages on the foreclosed
properties were recorded at their fair market value at the date of foreclosure.
The carrying amount of the Partnership's investment in the Master Loan at
December 31, 2002 approximates fair value due to the fact that it has been
valued based on the fair value of the underlying collateral.
Investment in Master Loan: In accordance with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", the allowance for credit losses related to
loans that are identified for evaluation in accordance with SFAS No. 114 is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
Leases: The Partnership leases certain commercial space to tenants under various
lease terms. The leases are accounted for as operating leases in accordance with
SFAS No. 13, "Accounting for Leases". Some of the leases contain stated rental
increases during their term. For leases with fixed rental increases, rents are
recognized on a straight-line basis over the terms of the leases. For all other
leases, minimum rents are recognized over the terms of the leases and the
Partnership fully reserves all balances outstanding over thirty days.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned. The Partnership evaluates all
accounts receivable from residents and establishes an allowance, after the
application of security deposits, for accounts greater than 30 days past due on
current tenants and all receivables due from former tenants. In addition, the
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Any concessions given at the inception of the lease are amortized over the
life of the lease.
Lease Commissions: Lease commissions are capitalized and included in other
assets and are being amortized using the straight-line method over the life of
the applicable lease. At December 31, 2003 and 2002, capitalized lease
commissions totaled approximately $379,000 and $231,000, respectively, with
accumulated amortization of approximately $154,000 and $175,000, respectively.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also established standards
for related disclosures about products and services, geographic areas, and major
customers. See "Note K" for detailed disclosure of the Partnership's segments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $273,000, $113,000 and $67,000 for the years
ended December 31, 2003, 2002 and 2001, respectively, were charged to operating
expense.
Note B - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):
2003 2002 2001
Net income as reported $ 2,051 $ 3,318 $ 7,078
Add (deduct):
Deferred revenue and other liabilities 67 1,150 (157)
Depreciation differences 306 460 398
Accrued expenses 22 (9) 7
Interest income 1,975 3,207 (3,280)
Differences in valuation allowances -- -- (3,176)
Gain on foreclosure (839) (3,243) --
Other 456 1,371 90
Federal taxable income $ 4,038 $ 6,254 $ 960
Federal taxable income per
limited partnership unit $ 20.08 $ 31.10 $ 4.78
The following is reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
December 31,
2003 2002
Net assets as reported $ 26,710 $ 28,083
Land and buildings 410 930
Accumulated depreciation 4,050 3,763
Syndication fees 22,500 22,500
Other 4,466 2,255
Net assets - Federal tax basis $ 58,136 $ 57,531
Note C - Net Investment in Master Loan
The Partnership was initially formed for the benefit of its limited partners to
lend funds to Consolidated Capital Equity Partners ("CCEP"), a California
general partnership. The general partner of CCEP is an affiliate of the General
Partner. The Partnership loaned funds to CCEP subject to a nonrecourse note with
a participation interest (the "Master Loan"). The loans were made to, and the
real properties that secured the Master Loan were purchased and owned by, CCEP.
For the years ended December 31, 2002 and 2001 the Partnership recorded
approximately $386,000 and $3,280,000, respectively, of interest income based
upon "Excess Cash Flow" (as defined in the terms of the New Master Loan
Agreement) generated by CCEP and paid to the Partnership. No excess cash flow
was generated or paid by CCEP during the year ended December 31, 2003.
The fair value of all of the collateral properties which on a combined basis
secured 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.
The approximate reduction of $3,176,000 in the provision for impairment loss
recognized during the year ended December 31, 2001 was attributed to an increase
in the net realizable value of the collateral properties and to a payment of
principal on the Master Loan from the sales proceeds of Magnolia Trace in
January 2001. There was no change in the provision for impairment loss during
the years ended December 31, 2003 and 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 collateralized the Master Loan or extending the terms of
the Master 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 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. On November 10, 2003
the Partnership acquired the remaining four properties held by CCEP through a
foreclosure sale. 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, during the
years ended December 2003 and 2002, the Partnership assumed responsibility for
the operations of such properties. The results of operations of the foreclosed
properties are reflected in the accompanying consolidated statements of
operations for the period ended September 1, 2002 through December 31, 2003 and
November 10, 2003 through December 31, 2003, respectively.
The following table sets forth the Partnership's non-cash activities during the
years ended December 31, 2003 and 2002 with respect to the foreclosures of
Plantation Gardens, Palm Lake, The Dunes and Regency Oak Apartments in 2003 and
Silverado, The Knolls, Indian Creek Village and Tates Creek Village Apartments
in 2002, respectively:
2003 2002
Investment properties (a) $ 38,901 $ 38,273
Investments in affiliated partnerships (b) -- 918
Mortgage notes payable (c) (23,828) (26,787)
Master loan, net of allowance (d) (14,129) (10,567)
Other assets received, net of
other liabilities assumed (105) (6)
Gain on foreclosure of real estate $ 839 $ 1,831
(a) Amount represents the estimated fair value of the properties. The fair
value was determined by appraisals obtained in September 2000 from an
independent third party which have been updated by management using the
net operating income of all of the collateral properties capitalized at a
rate deemed reasonable for the type of property and adjusted by management
for current market conditions, physical condition of each respective
property, and other factors.
(b) See "Note H".
(c) Amount represents the present value of the mortgages encumbering the
investment properties acquired through foreclosure, discounted at a rate
currently available to the Partnership.
(d) Amount represents the amount of the Master Loan associated with the four
properties acquired.
In November 2003, the Partnership acquired the four remaining properties held by
CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes
Apartments, and Palm Lake Apartments. These properties were sold at a
foreclosure sale due to CCEP's inability to repay the Master Loan and accrued
interest. An affiliate of the General Partner advanced the Partnership
approximately $31,278,000 in order to purchase these properties at the sale.
Approximately $523,000 was retained by the court for its costs and was
capitalized as acquisition costs by the Partnership and will be amortized over
the estimated useful lives of the properties. The advance bore interest at prime
plus 2% and the Partnership paid approximately $114,000 in interest expense for
the period the loan was outstanding during 2003. The Partnership acquired the
properties previously held by CCEP subject to the existing liens on the
properties including the first mortgage loans. As a result of the acquisition of
these remaining four properties that were held by CCEP, the Partnership
recognized a gain on foreclosure of approximately $839,000 which was the excess
of the actual fair market value of the properties at the time of the foreclosure
sale over the value of the Master Loan balance collateralized by the properties.
CCIP intends to continue to operate these properties as residential apartment
complexes.
Proforma results of operations assuming the foreclosure of Silverado, The
Knolls, Indian Creek Village, and Tates Creek Village Apartments occurred at
January 1, 2001 and assuming the acquisition of Plantation Gardens, Palm Lake,
The Dunes and Regency Oaks Apartments occurred at January 1, 2002 are as follows
(in thousands, except per unit data):
Years Ended December 31,
2003 2002 2001
Revenues $ 26,191 $ 27,472 $ 26,309
Expenses (22,512) (23,597) (18,135)
Net income 3,679 3,875 8,174
Net income per limited
partnership unit $ 18.30 $ 19.27 $ 40.66
Prior to the acquisition of the four remaining properties held by CCEP at a
foreclosure sale, the principal balance of the Master Loan due to the
Partnership totaled approximately $14,144,000 at December 31, 2002. This amount
represented the fair market value of the remaining properties held by CCEP at
December 31, 2002, 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 $1,520,000, $462,000, and
$38,763,000 for the years ended December 31, 2003, 2002, and 2001 respectively.
Interest income is recognized on the cash basis as required by SFAS 114. At
December 31, 2003 and December 31, 2002, such cumulative unrecognized interest
totaled approximately $1,982,000 and $462,000 and was not included in the
balance of the investment in Master Loan. The cumulative unrecognized interest
owed on the Master Loan was forgiven by the Partnership when the properties were
foreclosed on or acquired at a foreclosure sale during the years ended December
31, 2003 and 2002. During the years ended December 31, 2003, 2002 and 2001, the
Partnership made no advances to CCEP on the Master Loan.
During the years ended December 31, 2003, 2002 and 2001, the Partnership
received approximately $15,000, $1,719,000 and $7,801,000 as principal payments
on the Master Loan from CCEP. Approximately $88,000 and $357,000 was received
during the years ended December 31, 2002 and 2001, respectively, representing
cash received from distributions from three affiliated partnerships which were
required to be transferred to the Partnership per the Master Loan Agreement. In
addition, during the years ended December 31, 2003 and 2002, approximately
$15,000 and $1,631,000 was received representing net proceeds from the sale of
Society Park in December 2002. During the year ended December 31, 2001,
approximately $6,019,000 was received representing net proceeds from the sale of
Magnolia Trace and approximately $1,425,000 was received representing additional
proceeds received for the refinancing of the mortgages encumbering nine of the
investment properties in 2000.
The investment in the Master Loan consists of the following:
As of December 31,
2003 2002
(in thousands)
Master Loan funds advanced
at beginning of year $ 14,144 $ 26,430
Foreclosure write off (14,129) (10,567)
Principal receipts on Master Loan (15) (1,719)
Master Loan funds advanced at end of year $ -- $ 14,144
Note D - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
Principal
Balance At Monthly Monthly
December 31, Payment Balance
(including Interest Maturity Due At
Property 2003 2002 interest) Rate Date Maturity
(in thousands) (in thousands) (in thousands)
The Loft Apartments
1st mortgage $ 4,064 $ 4,139 $ 30 6.95% 12/01/05 $ 3,903
The Sterling
Apartment
Homes and Commerce
Center
1st mortgage 21,654 21,972 149 6.77% 10/01/08 19,975
Silverado Apartments
1st mortgage 3,264 3,360 29 7.87% 11/01/10 2,434
The Knolls Apartments
1st mortgage 9,180 9,433 81 7.78% 03/01/10 7,105
Indian Creek Village
Apartments
1st mortgage 8,117 8,340 72 7.83% 01/01/10 6,351
Tates Creek Village
Apartments
1st mortgage 3,909 4,017 35 7.78% 04/01/10 3,017
Plantation Gardens
Apartments
1st mortgage 8,999 -- 80 7.83% 03/01/10 6,972
Palm Lake Apartments
1st mortgage 2,777 -- 25 7.86% 02/01/10 2,158
The Dunes Apartments
1st mortgage 3,812 -- 34 7.81% 02/01/10 2,960
Regency Oaks
Apartments
1st mortgage 7,078 -- 63 7.80% 02/01/10 5,494
$72,854 $ 51,261
Unamortized mortgage
loan premium 2,341 1,388
$75,195 $ 52,649 $598 $60,369
The mortgage notes payable are non-recourse and are secured by pledge of the
respective properties and by pledge of revenues from the respective properties.
The notes require prepayment penalties if repaid prior to maturity. Further, the
properties may not be sold subject to existing indebtedness.
The carrying amount of the Partnership's long term debt approximates its fair
value due to the fact that the mortgages on the foreclosed properties were
recorded at their fair value. The fair value of the mortgages was determined
based upon the incremental borrowing rate available to the Partnership at the
time of foreclosure. The mortgage premium of approximately $2,341,000 is net of
accumulated amortization of approximately $191,000. The mortgage premiums are
being amortized over the remaining lives of the loans. Amortization expense is
included in interest expense on the consolidated statements of operations.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 2003, are as follows (in thousands):
Mortgage Note
2004 $ 1,763
2005 5,835
2006 1,999
2007 2,157
2008 22,192
Thereafter 38,908
Total $72,854
Note E - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $948,000,
$695,000 and $640,000 for the years ended December 31, 2003, 2002 and 2001,
respectively, which is included in operating expense. Approximately $34,000 was
payable to the General Partner at December 31, 2003 and is included in "Due to
affiliates" on the accompanying consolidated balance sheet.
An affiliate of the General Partner charged reimbursement of accountable
administrative expenses amounting to approximately $717,000, $454,000 and
$332,000 for the years ended December 31, 2003, 2002 and 2001, respectively
which is included in general and administrative expenses and investment
properties. Approximately $221,000 was payable at December 31, 2003 and is
included in "Due to Affiliates" on the accompanying balance sheet. For the years
ended December 31, 2003 and 2002, the first three quarters were based on
estimated amounts and in the fourth quarter of 2003, the reimbursement of
accountable administrative expenses was adjusted based on actual costs (see
"Note L"). Included in these amounts are fees related to construction management
services provided by an affiliate of the General Partner of approximately
$45,000 and $7,000 for the years ended December 31, 2003 and 2002, respectively.
There were no construction management fees for the year ended December 31, 2001.
The construction management fees are calculated based on a percentage of current
year additions to investment properties.
In accordance with the Partnership Agreement, the General Partner advanced the
Partnership approximately $220,000 for expenses at four of the Partnership's
properties during the year ended December 31, 2003. This advance was repaid in
full prior to December 31, 2003. Interest was charged at the prime rate plus 2%
and amounted to less than $1,000 for the year ended December 31, 2003.
In November 2003, an affiliate of the General Partner advanced the Partnership
approximately $31,278,000. The advance was repaid prior to the year ended
December 31, 2003. Interest was charged at the prime rate plus 2% and amounted
to approximately $114,000 during the year ended December 31, 2003. There were no
loans from the General Partner or associated interest expense during the years
ended December 31, 2002 and 2001.
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 years ended December 31, 2003 and 2002, the Partnership was
charged by AIMCO and its affiliates approximately $212,000 and $256,000 for
insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units
(the "Units") in the Partnership representing 65.16% of the outstanding Units at
December 31, 2003. A number of these Units were acquired pursuant to tender
offers made by AIMCO or its affiliates. It is possible that AIMCO or its
affiliates will acquire additional Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. In this regard on February
20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all
units for a purchase price of $239.13 per Unit. The tender offer will expire on
April 9, 2004. 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 general partner, to the Partnership and its limited partners may come into
conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
Note F - Investment Properties and Accumulated Depreciation
Investment Properties Initial Cost
To Partnership
(in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
The Loft Apartments $ 4,064 $ 1,053 $ 4,147 $ 2,476
The Sterling Apt Homes
and Commerce Center 21,654 2,567 12,341 21,518
Silverado Apartments 3,264 966 3,807 90
The Knolls Apartments 9,180 4,318 10,682 546
Indian Creek Village 8,117 3,975 8,225 177
Apartments
Tates Creek Village 3,909 1,449 4,851 158
Apartments
Plantation Gardens
Apartments 8,999 4,046 15,217 19
Palm Lake Apartments 2,777 989 3,369 6
The Dunes Apartments 3,812 1,449 5,427 6
Regency Oaks Apartments 7,078 2,024 6,902 58
Total $72,854 $22,836 $74,968 $ 25,054
Gross Amount At Which Carried
At December 31, 2003
(in thousands)
Buildings
And
Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
(in thousands)
The Loft $ 997 $ 6,679 $ 7,676 $ 4,652 11/19/90 5-30
The Sterling 2,567 33,859 36,426 16,849 12/01/95 5-30
Silverado 966 3,897 4,863 198 08/09/02 5-30
The Knolls 4,318 11,228 15,546 617 08/09/02 5-30
Indian Creek Village 3,975 8,402 12,377 482 08/09/02 5-30
Tates Creek Village 1,449 5,009 6,458 284 08/13/02 5-30
Plantation Gardens 4,046 15,236 19,282 43 11/10/03 5-30
Palm Lake 989 3,375 4,364 13 11/10/03 5-30
The Dunes 1,449 5,433 6,882 19 11/10/03 5-30
Regency Oaks 2,024 6,960 8,984 37 11/10/03 5-30
Totals $22,780 $100,078 $122,858 $23,194
Reconciliation of "investment properties and accumulated depreciation":
Years Ended December 31,
2003 2002
(in thousands)
Real Estate
Balance, real estate at beginning of year $82,077 $43,222
Acquisition of properties through
Foreclosure 39,424 38,273
Property improvements and
Replacements 1,472 582
Property disposition (115) --
Balance, real estate at end of year $122,858 $82,077
Accumulated Depreciation
Balance at beginning of year $ 19,158 $15,969
Additions charged to expense 4,056 3,189
Property dispositions (20) --
Balance at end of year $ 23,194 $19,158
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 2003 and 2002, is approximately $123,268,000 and $83,007,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 2003 and 2002 is approximately $19,144,000, and $15,395,000,
respectively.
Note G - Commercial Leases
In December 2001, the Partnership's most significant commercial tenant at The
Sterling Commerce Center vacated its space which represented 30.58% of the
leaseable commercial space. The Partnership filed a lawsuit against such tenant
seeking monetary damages for unpaid rent, including rent which had been abated
in favor of the tenant completing significant improvements to its space. The
Partnership accepted a settlement whereby the tenant paid $180,000 in
satisfaction of all unpaid rent amounts due and the Partnership accepted
possession of the improvements completed by the tenant which were valued at
approximately $498,000. The settlement amount was paid in 2002. Beginning in
2002, these improvements are being depreciated over their remaining estimated
useful lives. As a result of the tenant vacating the space, the Partnership
expensed approximately $191,000 in unamortized lease commissions during the year
ending December 31, 2001.
Rental income on the commercial property leases is recognized by the
straight-line method over the life of the applicable leases. Minimum future
rental income for the commercial properties subject to noncancellable operating
leases is as follows (in thousands):
Year Ending
December 31,
2004 $ 1,041
2005 887
2006 737
2007 551
2008 394
2009 320
2010 242
$ 4,172
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note H - Investment in Affiliated Partnerships
The Partnership assumed investments in the following affiliated partnerships
during the year ended December 31, 2003.
Investment
Ownership At December 31,
Partnership Type of Ownership Percentage 2003 2002
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 14 $ 47
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 30 27
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 948 820
$ 992 $ 894
These investments were assumed during the foreclosure of investment properties
from CCEP (see "Note C") and are accounted for on the equity method of
accounting. 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 years ended December 31, 2003 and 2002, the
Partnership received approximately $1,048,000 and $23,000, respectively, in
distributions from two of the partnerships. Approximately $1,015,000 of the
distributions related to the sale of three of the properties in Consolidated
Capital Growth Fund. Of this amount, approximately $984,000 was recognized as
equity in income from investment once the investment balance allocated to those
properties had been reduced to zero. The Partnership also recognized equity in
income from investment of approximately $162,000 which included the allocation
of gain from the sale of a property in Consolidated Capital Properties IV. There
was no distribution associated with this sale.
At December 31, 2003, the unamortized excess of the Partnership's investment
over the historical cost of the underlying net assets of the investees was
approximately $6,369,000, which has been attributed to the fair values of the
investees underlying properties and is being depreciated over their useful
lives. The aggregate market value of the Partnership's investments is
approximately $661,000 at December 31, 2003.
Note I - Abandonment of Limited Partnership Units
During the year ended December 31, 2002, the number of Limited Partnership Units
decreased by 2 units due to limited partners abandoning their units. In
abandoning his or her Limited Partnership Unit(s), a limited partner
relinquishes all right, title, and interest in the partnership as of the date of
abandonment. However, the limited partner is allocated his or her share of net
income or loss for that year. The income or loss per Limited Partnership Unit in
the accompanying consolidated statements of operations is calculated based on
the number of units outstanding at the beginning of the year. There were no such
abandonments in 2003 or 2001.
Note J - Casualty Gain
During the year ended December 31, 2003, there was a casualty gain of
approximately $25,000 recorded at The Sterling Apartment Homes 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
undepreciated fixed assets of approximately $48,000.
During the year ended December 31, 2003, there was a casualty loss of
approximately $8,000 recorded at Tates Creek Village Apartments related to an
ice storm which resulted in major landscaping damage. The loss was the result of
the receipt of insurance proceeds of approximately $39,000, net of the write off
of undepreciated fixed assets of approximately $47,000.
Note K - 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 nine apartment complexes one each in North Carolina, Texas,
Colorado, Kansas, and Kentucky, four in Florida, 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 seven years.
Measurement of segment profit and loss: The Partnership evaluates performance
based on segment profit (loss) before depreciation. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies.
Factors management used to identify the enterprise's reportable segment: The
Partnership's reportable segments are business units (investment properties)
that offer different products and services. The reportable segments are each
managed separately because they provide distinct services with different types
of products and customers.
Segment information for the years ending December 31, 2003, 2002 and 2001 is
shown in the tables below (in thousands). The "Other" Column includes
partnership administration related items and income and expense not allocated to
reportable segments.
2003 Residential Commercial Other Totals
Rental income $16,092 $ 1,117 $ -- $17,209
Other income 1,281 115 2 1,398
Equity in income of investment -- -- 1,146 1,146
Interest expense 3,545 225 114 3,884
Depreciation 3,888 168 -- 4,056
General and administrative expenses -- -- 1,151 1,151
Gain on foreclosure of real estate -- -- 839 839
Segment profit (loss) 1,824 (495) 722 2,051
Total assets 102,425 1,121 1,852 105,398
Capital expenditures for investment
properties 1,195 277 -- 1,472
2002 Residential Commercial Other Totals
Rental income $12,123 $ 1,109 $ -- $13,232
Other income 906 118 4 1,028
Interest expense 2,254 228 -- 2,482
Depreciation 3,012 177 -- 3,189
General and administrative expenses -- -- 836 836
Interest income on investment
in Master Loan -- -- 386 386
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit (loss) 2,257 (324) 1,385 3,318
Total assets 65,550 862 16,919 83,331
Capital expenditures for investment
Properties 560 22 -- 582
2001 Residential Commercial Other Totals
Rental income $ 9,782 $ 1,523 $ -- $11,305
Other income 597 290 12 899
Interest expense 1,659 230 -- 1,889
Depreciation 2,890 90 -- 2,980
General and administrative expenses -- -- 720 720
Interest income on investment
in Master Loan -- -- 3,280 3,280
Reduction of provision for impairment
Loss -- -- 3,176 3,176
Segment profit 1,285 49 5,744 7,078
Total assets 27,896 1,213 26,980 56,089
Capital expenditures for investment
properties 372 524 -- 896
Note L - Fourth-Quarter Adjustment
The Partnership's policy is to record management reimbursements to the General
Partner as allowed under the Partnership Agreement on a quarterly basis, using
estimated financial information furnished by an affiliate of the General
Partner. For the first three quarters of 2003, these reimbursements of
accountable administrative expenses were based on estimated amounts. During the
fourth quarter of 2003, the Partnership recorded an adjustment to management
reimbursements to the General Partner of approximately $221,000 due to a
difference in the estimated costs and the actual costs incurred. The actual
management reimbursements to the General Partner for the year ended December 31,
2003 were approximately $672,000, as compared to the estimated management
reimbursements to the General Partner for the nine months ended September 30,
2003 of approximately $337,000.
Note M - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action 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. In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 at least
one round of tender offers 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. On August 12, 2003, an objector
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. The General Partner is currently scheduled
to file a brief in support of the order approving settlement and entering
judgment thereto by April 23, 2004.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
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
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
Note N - Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
1st 2nd 3rd 4th
2003 Quarter Quarter Quarter Quarter Total
Total revenues $4,372 $4,481 $4,630 $5,124 $18,607
Total expenses 4,545 4,513 4,337 5,146 18,541
(Loss) income from continuing
Operations (173) (32) 293 (22) 66
Gain on foreclosure of real
estate -- -- -- 839 839
Equity in income of investment 350 -- 748 48 1,146
Net income (loss) $ 177 $ (32) $ 1,041 $ 865 $ 2,051
Net income allocated
to General Partner (1%) $ 2 $ -- $ 10 $ 9 $ 21
Net income (loss) allocated
to Limited Partners (99%) 175 (32) 1,031 856 2,030
$ 177 $ (32) $ 1,041 $ 865 $ 2,051
Net income (loss) per limited
partnership unit $ 0.88 $ (0.16) $ 5.18 $ 4.30 $ 10.20
Distributions per limited
partnership unit $ 9.99 $ 1.75 $ 5.37 $ -- $ 17.11
1st 2nd 3rd 4th
2002 Quarter Quarter Quarter Quarter Total
Total revenues $2,929 $3,249 $3,883 $4,585 $14,646
Total expenses 2,787 2,810 3,307 4,255 13,159
Income from continuing
operations 142 439 576 330 1,487
Gain on foreclosure of real
estate -- -- 1,831 -- 1,831
Net income $ 142 $ 439 $ 2,407 $ 330 $ 3,318
Net income allocated
to General Partner (1%) $ 1 $ 4 $ 24 $ 4 $ 33
Net income allocated
to Limited Partners (99%) 141 435 2,383 326 3,285
$ 142 $ 439 $ 2,407 $ 330 $ 3,318
Net income per limited
partnership unit $ 0.71 $ 2.19 $ 11.97 $ 1.63 $ 16.50
Distributions per limited
partnership unit $ 2.27 $ 4.64 $ 4.70 $ 6.18 $ 17.79
1st 2nd 3rd 4th
2001 Quarter Quarter Quarter Quarter Total
Revenues:
Rental, interest and
other income $ 3,075 $ 3,030 $ 3,044 $ 3,055 $ 12,204
Interest income on
investment in Master Loan 1,900 804 576 -- 3,280
Reduction of provision for
impairment loss 3,176 -- -- -- 3,176
Total revenues 8,151 3,834 3,620 3,055 18,660
Total expenses 2,945 3,126 2,725 2,786 11,582
Net income $ 5,206 $ 708 $ 895 $ 269 $ 7,078
Net income allocated
to General Partner (1%) $ 52 $ 7 $ 9 $ 3 $ 71
Net income allocated
to Limited Partners (99%) 5,154 701 886 266 7,007
$ 5,206 $ 708 $ 895 $ 269 $ 7,078
Net income per limited
partnership unit $ 25.89 $ 3.52 $ 4.45 $ 1.34 $ 35.20
Distributions per limited
partnership unit $ 39.02 $ 16.53 $ 18.65 $ 4.63 $ 78.83
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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
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
fourth quarter of 2003 that have materially affected, or are reasonably likely
to materially affect, the Partnership's internal control over financial
reporting.
PART III
Item 10. Directors, Executive Officers of the General Partner of the
Partnership
The names and ages of, as well as the positions and offices held by, the present
officers and directors of ConCap Equities, Inc. ("CEI") the Partnership's
General Partner as of December 31, 2003, their ages and the nature of all
positions with CEI presently held by them are as follows:
Peter K. Kompaniez 59 Director
Martha L. Long 44 Director and Senior Vice President
Harry G. Alcock 41 Executive Vice President
Miles Cortez 60 Executive Vice President, General Counsel
and Secretary
Patti K. Fielding 40 Executive Vice President
Paul J. McAuliffe 47 Executive Vice President and Chief
Financial Officer
Thomas M. Herzog 41 Senior Vice President and Chief Accounting
Officer
Peter K. Kompaniez has been Director of the General Partner since February
2004. Mr. Kompaniez has been Vice Chairman of the Board of Directors of
AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez
has also served as Chief Operating Officer of NHP Incorporated after it was
acquired by AIMCO in December 1997. Effective April 1, 2004, Mr. Kompaniez
resigned as President of AIMCO. Mr. Kompaniez will continue in his role as
Director of the General Partner and Vice Chairman of AIMCO's Board and will
serve AIMCO on a variety of special and ongoing projects in an operating
role.
Martha L. Long has been a Director and Senior Vice President of the General
Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and
has served in various capacities. From 1998 to 2001, Ms. Long served as Senior
Vice President and Controller of AIMCO and the General Partner. During 2002 and
2003, Ms. Long served as Senior Vice President of Continuous Improvement for
AIMCO.
Harry G. Alcock was appointed Executive Vice President of the General Partner in
February 2004 and has been Executive Vice President and Chief Investment Officer
of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice
President of AIMCO from July 1996 to October 1997, when he was promoted to
Senior Vice President-Acquisitions where he served until October 1999. Mr.
Alcock has had responsibility for acquisition and financing activities of AIMCO
since July 1994.
Miles Cortez was appointed Executive Vice President, General Counsel and
Secretary of the General Partner in February 2004 and of AIMCO in August 2001.
Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay
Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through
September 2001.
Patti K. Fielding was appointed Executive Vice President - Securities and Debt
of the General Partner in February 2004 and of AIMCO in February 2003. Ms.
Fielding previously served as Senior Vice President - Securities and Debt of
AIMCO from January 2000 to February 2003. Ms. Fielding is responsible for
securities and debt financing and the treasury department. Ms. Fielding joined
AIMCO in February 1997 and served as Vice President - Tenders, Securities and
Debt until January 2000.
Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer
of the General Partner since April 2002. Mr. McAuliffe has served as Executive
Vice President of AIMCO since February 1999 and was appointed Chief Financial
Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr.
McAuliffe was Senior Managing Director of Secured Capital Corp.
Thomas M. Herzog was appointed Senior Vice President and Chief Accounting
Officer of the General Partner in February 2004 and of AIMCO in January 2004.
Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate,
serving as Chief Accounting Officer & Global Controller from April 2002 to
January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior
to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990
until 2000, including a two-year assignment in the real estate national office.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The board of directors of the General Partner does not have a separate audit
committee. As such, the board of directors of the General Partner fulfills the
functions of an audit committee. The board of directors has determined that
Martha L. Long meets the requirement of an "audit committee financial expert".
The directors and officers of the General Partner with authority over the
Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code
of ethics that applies to such directors and officers that is posted on AIMCO's
website (www.AIMCO.com). AIMCO's website is not incorporated by reference to
this filing.
Item 11. Executive Compensation
No remuneration was paid to the General Partner nor its director or officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, no persons or entity is known by the General Partner to
own beneficially more than 5% of the outstanding Units of the Partnership:
Name and Address Number of Units Percentage
AIMCO IPLP, L.P.
(an affiliate of AIMCO) 50,572.4 25.41%
Reedy River Properties, L.L.C.
(an affiliate of AIMCO) 28,832.5 14.48%
Cooper River Properties, L.L.C.
(an affiliate of AIMCO) 11,365.6 5.71%
AIMCO Properties, L.P.
(an affiliate of AIMCO) 38,924.6 19.56%
Reedy River Properties, Cooper River Properties LLC and AIMCO IPLP, L.P. are
indirectly ultimately owned by AIMCO. Their business addresses are 55
Beattie Place, Greenville, SC 20602.
AIMCO Properties, LP is ultimately controlled by AIMCO. Its business address
is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.
(b) Beneficial Owners of Management
Except as described in Item 12(a) above, neither CEI nor any of the directors,
officers or associates of CEI own any Units of the Partnership of record or
beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of December 31, 2003, the following entity was known to CEI to be the
beneficial owner of more than 5% of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS UNITS OF TOTAL
Insignia Properties Trust
55 Beattie Place
P.O. Box 1089
Greenville, SC 29602 100,000 100%
Effective February 26, 1999, Insignia Properties Trust merged into AIMCO with
AIMCO being the surviving corporation. As a result, AIMCO ultimately acquired a
100% interest in Insignia Properties Trust.
Item 13. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $948,000,
$695,000 and $640,000 for the years ended December 31, 2003, 2002 and 2001,
respectively, which is included in operating expense. Approximately $34,000 was
payable to the General Partner at December 31, 2003 and is included in "Due to
affiliates" on the accompanying consolidated balance sheet.
An affiliate of the General Partner charged reimbursement of accountable
administrative expenses amounting to approximately $717,000, $454,000 and
$332,000 for the years ended December 31, 2003, 2002 and 2001, respectively
which is included in general and administrative expenses and investment
properties. Approximately $221,000 was payable at December 31, 2003 and is
included in "Due to Affiliates" on the accompanying balance sheet. For the years
ended December 31, 2003 and 2002, the first three quarters were based on
estimated amounts and in the fourth quarter of 2003, the reimbursement of
accountable administrative expenses was adjusted based on actual costs (see
"Note L"). Included in these amounts are fees related to construction management
services provided by an affiliate of the General Partner of approximately
$45,000 and $7,000 for the years ended December 31, 2003 and 2002, respectively.
There were no construction management fees for the year ended December 31, 2001.
The construction management fees are calculated based on a percentage of current
year additions to investment properties.
In accordance with the Partnership Agreement, the General Partner advanced the
Partnership approximately $220,000 for expenses at four of the Partnership's
properties during the year ended December 31, 2003. This advance was repaid in
full prior to December 31, 2003. Interest was charged at the prime rate plus 2%
and amounted to less than $1,000 for the year ended December 31, 2003.
In November 2003, an affiliate of the General Partner advanced the Partnership
approximately $31,278,000. The advance was repaid prior to the year ended
December 31, 2003. Interest was charged at the prime rate plus 2% and amounted
to approximately $114,000 during the year ended December 31, 2003. There were no
loans from the General Partner or associated interest expense during the years
ended December 31, 2002 and 2001.
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 years ended December 31, 2003 and 2002, the Partnership was
charged by AIMCO and its affiliates approximately $212,000 and $256,000 for
insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units
(the "Units") in the Partnership representing 65.16% of the outstanding Units at
December 31, 2003. A number of these Units were acquired pursuant to tender
offers made by AIMCO or its affiliates. It is possible that AIMCO or its
affiliates will acquire additional Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. In this regard on February
20, 2004, AIMCO Properties, L.P. commenced a tender offer to acquire any and all
units for a purchase price of $239.13 per Unit. The tender offer will expire on
April 9, 2004. 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 general partner, to the Partnership and its limited partners may come into
conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
PART IV
Item 14. Principal Accounting Fees and Services
The General Partner has reappointed Ernst & Young LLP as independent auditors to
audit the financial statements of the Partnership for 2004.
Audit Fees. The Partnership paid to Ernst & Young LLP audit fees of
approximately $62,000 and $58,000 for 2003 and 2002, respectively.
Tax Fees. The Partnership paid to Ernst & Young LLP fees for tax services for
2003 and 2002 of approximately $32,000 and $20,000, respectively.
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
1. Schedules
All schedules are omitted because they are not required, are
not applicable or the financial information is included in the
financial statements or notes thereto.
2. Exhibits
(a) See Exhibit Index attached.
(b) Reports on Form 8-K filed during the fourth quarter of 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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President
and Chief Accounting Officer
Date: March 30, 2004
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/Peter K. Kompaniez Director Date: March 30, 2004
Peter K. Kompaniez
/s/Martha L. Long Director and Senior Vice Date: March 30, 2004
Martha L. Long President
/s/Thomas M. Herzog Senior Vice President Date: March 30, 2004
Thomas M. Herzog and Chief Accounting Officer
EXHIBIT INDEX
S-K Reference Document Description
3 Certificates of Limited Partnership, as amended to date.
(Incorporated by reference to the Annual Report on Form
10-K for the year ended December 31, 1991 ("1991 Annual
Report")).
10.1 Amended Loan Agreement dated November 15, 1990 (the "Effective
Date"), by and between the Partnership and EP (Incorporated by
reference to the Annual Report of Form 10-K for the year ended
December 31, 1990 ("1990 Annual Report")).
10.2 Assumption Agreement as of the Effective Date, by and between
EP and CCEP (Incorporated by reference to the 1990 Annual
Report).
10.3 Assignment of Claims as of the Effective Date, by and between
the Partnership and EP (Incorporated by reference to the 1990
Annual Report).
10.5 Bill of Sale and Assignment dated October 23, 1990, by and
between CCEP and ConCap Services Company (Incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.20 Mortgage and Security Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.21 Repair Escrow Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.22 Replacement Reserve and Security Agreement between Kennedy
Boulevard Associates I, L.P., and Lehman Brothers Holdings,
Inc., dated August 25, 1998, securing The Sterling
Apartment Home and Commerce Center filed in Form 10-Q for
the quarter ended September 30, 1998.
10.23 Third Amendment to the Limited Partnership Agreement filed as
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
10.24 Fourth Amendment to the Limited Partnership Agreement filed as
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
10.28 Form of Amended Order Setting Foreclosure Sale Date pursuant
to amending the foreclosure date filed on September 25, 2003
(Schedules and supplemental materials to this exhibit filed
herewith have been omitted but will be provided to the
Securities and Exchange Commission upon request).*
10.29 Form of Certificate of Sale as to Property "1" pursuant to
sale of Palm Lake Apartments to CCIP Palm Lake, L.L.C.
filed October 28, 2003.*
10.30 Form of Certificate of Sale as to Property "2" pursuant to
sale of Regency Oaks Apartments to CCIP Regency Oaks,
L.L.C. filed October 28, 2003.*
10.31 Form of Certificate of Sale as to Property "3" pursuant to
sale of The Dunes Apartments (formerly known as Society Park
East Apartments) to CCIP Society Park East, L.L.C.
filed October 28, 2003.*
10.32 Form of Certificate of Sale as to Property "4" pursuant to
sale of Plantation Gardens Apartments to CCIP Plantation
Gardens, L.L.C. filed October 28, 2003.*
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.
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.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
*Filed as exhibits 10.28 through 10.31 in the Registrant's
Quarterly Form 10-Q for the quarter ended September 30, 2003
incorporated herein by reference.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this annual report on Form 10-K 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: March 30, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of ConCap
Equities, Inc., equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Thomas M. Herzog, certify that:
1. I have reviewed this annual report on Form 10-K 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: March 30, 2004
/s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief
Accounting 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 Annual Report on Form 10-K of Consolidated Capital
Institutional Properties (the "Partnership"), for the year end December 31, 2003
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Martha L. Long, as the equivalent of the chief executive officer of
the Partnership, and Thomas M. Herzog, 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/Martha L. Long
Name: Martha L. Long
Date: March 30, 2004
/s/Thomas M. Herzog
Name: Thomas M. Herzog
Date: March 30, 2004
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.