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, 2004
[ ] 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, 2004. 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.
The Partnership advanced a total of approximately $180,500,000 under the Master
Loan (as defined in "Status of the Master Loan"), which was secured by 18
apartment complexes and 4 office complexes. In 1990, the Partnership foreclosed
on one of these apartment complexes, The Loft Apartments. In addition, 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 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 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 was 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.
As a result of the foregoing, at December 31, 2004, the Partnership owned seven
apartment properties one each in North Carolina, Colorado and Kansas, four in
Florida and one multiple-use complex in Pennsylvania. See "Item 2. Properties"
below.
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.
From time to time, the Federal Bureau of Investigation, or FBI, and the United
States Department of Homeland Security issue alerts regarding potential
terrorist threats involving apartment buildings. Threats of future terrorist
attacks, such as those announced by the FBI and the Department of Homeland
Security, could have a negative effect on rent and occupancy levels at the
Partnership's properties. The effect that future terrorist activities or threats
of such activities could have on the Partnership's operations is uncertain and
unpredictable. If the Partnership were to incur a loss at a property as a result
of an act of terrorism, the Partnership could lose all or a portion of the
capital invested in the property, as well as the future revenue from the
property. In this regard, the Partnership has purchased insurance to cover acts
of terrorism. The General Partner does not anticipate that these costs will have
a negative effect on the Partnership's consolidated financial condition or
results of operations.
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, 2004, 2003 and 2002 is included in
"Item 8. Financial Statements - Note M" 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 collateralized 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 for the year ended December 31, 2003.
Interest income was recognized on the cash basis in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 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, 2004:
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
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
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, 2004.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
The Loft Apartments $ 7,826 $ 5,045 5-30 yrs S/L $ 4,233
The Sterling Apartment
Homes and Commerce
Center 39,715 19,022 5-30 yrs S/L 24,742
The Knolls 17,909 1,128 5-30 yrs S/L 16,082
Indian Creek Village 12,167 850 5-30 yrs S/L 11,535
Plantation Gardens 19,494 733 5-30 yrs S/L 18,671
Palm Lake 4,752 202 5-30 yrs S/L 4,554
The Dunes 6,998 358 5-30 yrs S/L 6,692
Regency Oaks 9,769 499 5-30 yrs S/L 9,419
$118,630 $27,837 $95,928
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, 2004.
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 2004 Rate (2) Amortized Date Maturity (1)
(in thousands) (in thousands)
The Loft Apartments
1st mortgage $ 3,983 6.95% 360 months 12/01/05 $ 3,903
The Sterling Apartment
Homes and Commerce
Center
1st mortgage 21,340 6.77% 120 months 10/01/08 19,975
The Knolls
Apartments
1st mortgage 8,908 7.78% 240 months 03/01/10 7,105
Indian Creek Village
Apartments
1st mortgage 7,877 7.83% 240 months 01/01/10 6,351
Plantation Gardens
Apartments
1st mortgage 8,733 7.83% 240 months 03/01/10 6,972
Palm Lake Apartments
1st mortgage 2,695 7.86% 240 months 02/01/10 2,158
The Dunes Apartments
1st mortgage 3,698 7.81% 240 months 02/01/10 2,960
Regency Oaks
Apartments
1st mortgage 6,866 7.80% 240 months 02/01/10 5,494
$ 64,100
Unamortized mortgage
premiums 1,668
$ 65,768 $ 54,918
(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.
(2) Fixed rate mortgages
The General Partner plans to refinance the mortgage on The Loft Apartments prior
to its maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership may risk losing the property through
foreclosure.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 2004 and 2003 for each property:
Average Annual Average
Rental Rates Occupancy
Property 2004 2003 2004 2003
The Loft Apartments $ 7,629/unit $ 7,663/unit 87% 85%
The Sterling Apartment Homes 16,982/unit 16,672/unit 93% 94%
The Sterling Commerce Center 16.02/s.f. 17.90/s.f. 79% 57%
The Knolls Apartments 7,051/unit 7,539/unit 86% 81%
Indian Creek Village Apartments 7,743/unit 7,974/unit 89% 91%
Plantation Gardens Apartments 9,163/unit 9,198/unit 93% 91%
Palm Lake Apartments 7,740/unit 7,699/unit 93% 94%
The Dunes Apartments 7,316/unit 7,202/unit 94% 92%
Regency Oaks Apartments 7,000/unit 6,728/unit 94% 95%
The General Partner attributes the increase in occupancy at The Knolls
Apartments to a reduction in average rental rates and increased marketing
efforts.
The General Partner attributes the increase in occupancy at The Sterling
Commerce Center to the leasing during the fourth quarter of 2003 of a portion of
the space vacated in 2001 by the anchor tenant at the property.
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 2005 through the maturities
of the current leases.
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
2005 2 3,160 $ 69,603 6.24%
2006 6 21,908 333,843 29.94%
2007 3 7,347 219,156 19.65%
2008 3 4,059 86,450 7.75%
2010 3 28,094 299,870 26.89%
2011 1 8,752 106,200 9.53%
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 2004 for each property were:
Billing Rate
(in thousands)
The Loft Apartments $ 92 1.04%
The Sterling Apartment Homes and
Commerce Center 744 8.87%
The Knolls Apartments 53 5.91%
Indian Creek Village Apartments* 119 9.93%
Plantation Gardens Apartments* 351 2.25%
Palm Lake Apartments 103 2.23%
The Dunes Apartments* 129 2.30%
Regency Oaks Apartments 165 1.84%
*The Partnership is currently appealing the assessed values of the properties.
Capital Improvements:
The Loft Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$151,000 of capital improvements at The Loft Apartments, consisting primarily of
floor covering, air conditioning unit and roof replacements and fitness
equipment upgrades. These improvements were funded from operating cash flow and
replacement reserves. The Partnership regularly evaluates the capital
improvement needs of the property. While the Partnership has no material
commitments for property improvements and replacements, certain routine capital
expenditures are anticipated during 2005. Such capital expenditures will depend
on the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The Sterling Apartment Homes and Commerce Center
During the year ended December 31, 2004, the Partnership completed approximately
$3,288,000 of capital improvements at The Sterling Apartment Homes and Commerce
Center consisting primarily of costs of a redevelopment project at The Sterling
Apartment Homes, tenant improvements, structural upgrades, floor covering
replacements, interior decorating, elevator improvements and heating upgrades.
These improvements were funded from operating cash flow, advances from the
General Partner and replacement reserves. The Partnership regularly evaluates
the capital improvements needs of the property. Certain routine capital
expenditures are anticipated during 2005. The redevelopment project which began
in 2004 is scheduled to be completed during 2007. The project budget is
approximately $23,487,000. The Partnership plans to fund these redevelopment
expenditures from operating cash flow, partnership reserves and advances from
the General Partner. During the year ended December 31, 2004 approximately
$2,272,000 of redevelopment costs were incurred. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
The Knolls Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$2,363,000 of capital improvements at The Knolls Apartments consisting primarily
of costs of a redevelopment project, floor covering and appliance replacements,
parking area improvements and swimming pool decking replacement. These
improvements were funded from operating cash flow and advances from the General
Partner. The Partnership regularly evaluates the capital improvement needs of
the property. Certain routine capital expenditures are anticipated during 2005.
The redevelopment project which began in 2004 is scheduled to be completed
during 2005. The project budget is approximately $6,878,000. The Partnership
plans to fund these redevelopment expenditures from operating cash flow,
partnership reserves and advances from the General Partner. During the year
ended December 31, 2004 approximately $2,104,000 of redevelopment costs were
incurred. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Indian Creek Village Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$260,000 of capital improvements at Indian Creek Village Apartments consisting
primarily of costs related to the reconstruction of nine units damaged by a
fire, wood siding replacement, exterior painting, floor covering replacements
and parking lot resurfacing. These improvements were funded from insurance
proceeds, advances from the General Partner and operating cash flow. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements or
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as anticipated cash flow generated by the property.
Plantation Gardens Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$213,000 of capital improvements at Plantation Gardens Apartments, consisting
primarily of floor covering and appliance replacements and parking area
resurfacing. These improvements were funded from operating cash flow. The
Partnership regularly evaluates the capital improvements needs of the property.
While the Partnership has no material commitments for property improvements or
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as anticipated cash flow generated by the property.
Palm Lake Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$388,000 of capital improvements at Palm Lake Apartments consisting primarily of
roof replacement, structural improvements, parking area resurfacing, wood siding
and floor covering replacements. These improvements were funded from operating
cash flow. The Partnership regularly evaluates the capital improvement needs of
the property. While the Partnership has no material commitments for property
improvements or replacements, certain routine capital expenditures are
anticipated during 2005. Such capital expenditures will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
The Dunes Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$155,000 of capital improvements at The Dunes Apartments consisting primarily of
floor covering replacements, swimming pool decking replacement, and
reconstruction of damages to the property caused by Hurricane Jeanne. These
improvements were funded from operating cash flow. The Partnership regularly
evaluates the capital improvement needs of the property. While the Partnership
has no material commitments for property improvements or replacements, certain
routine capital expenditures are anticipated during 2005. Such capital
expenditures will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Regency Oaks Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$1,076,000 of capital improvements at Regency Oaks Apartments consisting
primarily of floor covering, air conditioning unit, roof and appliance
replacements, parking area resurfacing, major landscaping, clubhouse
renovations, structural improvements and reconstruction of damages to the
property caused by a fire and damages caused by Hurricanes Charlie and Frances.
These improvements were funded from operating cash flow and insurance proceeds.
The Partnership regularly evaluates the capital improvement needs of the
property. While the Partnership has no material commitments for property
improvements or replacements, certain routine capital expenditures are
anticipated during 2005. Such capital expenditures will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
Silverado Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$8,000 of capital improvements at Silverado Apartments, consisting primarily of
floor covering replacements. These improvements were funded from operating cash
flow. The property was sold to a third party on March 31, 2004.
Tates Creek Village Apartments
During the year ended December 31, 2004, the Partnership completed approximately
$28,000 of capital improvements at Tates Creek Village Apartments consisting
primarily of floor covering replacements. These improvements were funded from
operating cash flow. The property was sold to a third party on June 28, 2004.
Capital improvements at the Partnership's properties will be incurred only if
cash is available from operations or from Partnership reserves. To the extent
that 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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. 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 (the "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. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the General Partner and its affiliates filed a response brief in
support of the settlement and the judgment thereto. The plaintiffs have also
filed a brief in support of the settlement. On June 4, 2004, Objector filed a
reply to the briefs submitted by the General Partner and Plaintiffs. In addition
both the Objector and plaintiffs filed briefs in connection with the second
appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending
appeals. With regard to the settlement and judgment entered thereto, the Court
of Appeals vacated the trial court's order and remanded to the trial court for
further findings on the basis that the "state of the record is insufficient to
permit meaningful appellate review". With regard to the second appeal, the Court
of Appeals reversed the order requiring the Objector to pay referee fees.
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.
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in an action in the United
States District Court, District of Columbia. The plaintiffs have styled their
complaint as a collective action under the Fair Labor Standards Act ("FLSA") and
seek 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, plaintiffs allege 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 defendants have filed an
answer to the amended complaint denying the substantive allegations. Discovery
relating to the certification of the collective action has concluded and
briefing on the matter is underway. Although the outcome of any litigation is
uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome
will have a material adverse effect on its financial condition or results of
operations. Similarly, the General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2004, 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 8,883 holders of record owning an aggregate of
199,043.2 Units. Affiliates of the General Partner owned 145,195.60 units or
72.95% at December 31, 2004. 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, 2002, 2003 and 2004:
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/02 - 12/31/02 $ 3,572 (1) $ 17.79
01/01/03 - 12/31/03 3,424 (2) 17.11
01/01/04 - 12/31/04 4,132 (3) 20.76
(1) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(2) 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.
(3) Consists of approximately $39,000 of cash from operations and
approximately $4,093,000 of cash from sales proceeds from the sale of
Silverado Apartments in March 2004 and the sale of Tates Creek Village
Apartments in June 2004.
Future cash distributions will depend on the levels of cash generated from
operations, and the timing of debt maturities, refinancings, and/or property
sales. The Partnership's cash available for distribution is reviewed on a
monthly basis. There can be no assurance that the Partnership will generate
sufficient funds from operations, after planned capital expenditures, to permit
distributions to its partners in 2005 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 145,195.60 Units in the Partnership
representing 72.95% of the outstanding Units at December 31, 2004. 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. 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 72.95% of the outstanding Units, AIMCO
and its affiliates are in a position to control all such 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,
2004 2003 2002 2001 2000
STATEMENTS OF OPERATIONS (Restated) (Restated)
(in thousands, except per unit data)
Total revenues $ 24,123 $ 15,817 $ 13,556 $ 15,484 $ 14,193
Total expenses (23,931) (15,978) (12,360) (11,582) (10,823)
Reduction in provision
for impairment loss -- -- -- 3,176 14,241
Income (loss) from
continuing
operations 192 (161) 1,196 7,078 17,611
(Loss) income from
discontinued
operations (1,113) 227 291 -- --
Gain on sale of discontinued
operations 1,716 -- -- -- --
Gain on foreclosure of
real estate 156 839 1,831 -- --
Equity in income of investment 558 1,146 -- -- --
Net income $ 1,509 $ 2,051 $ 3,318 $ 7,078 $ 17,611
Net income per Limited
Partnership Unit $ 7.51 $ 10.20 $ 16.50 $ 35.20 $ 87.59
Distributions per Limited
Partnership Unit $ 20.76 $ 17.11 $ 17.79 $ 78.83 $ 240.55
Limited Partnership Units
outstanding 199,043.2 199,043.2 199,043.2 199,045.2 199,045.2
AS OF DECEMBER 31,
BALANCE SHEETS 2004 2003 2002 2001 2000
(in thousands)
Total assets $ 96,104 $105,398 $ 83,331 $ 56,089 $ 65,383
Mortgage notes payable $ 65,768 $ 75,195 $ 52,649 $ 26,457 $ 26,762
The comparability of the information above has been affected by the
foreclosure of the eight CCEP properties. See "Item 1. Description of
Business" for further information.
In addition, as a result of the sales of Silverado Apartments and Tates Creek
Village Apartments to third parties on March 31, 2004 and June 28, 2004,
respectively, and in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, the information above for the years ending December 2003 and
2002 has been restated to reflect the operations of Silverado and Tates Creek
Village Apartments as (loss) income from discontinued operations. These two
properties were acquired by the Partnership during 2002, so the information for
the years ended December 31, 2001 and 2000 was not impacted.
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
2004 Compared to 2003
The Partnership's net income for the year ended December 31, 2004 was
approximately $1,509,000 compared to net income of approximately $2,051,000 for
the corresponding period in 2003. The decrease in net income for the year ended
December 31, 2004 as compared to the year ended December 31, 2003 is due to an
increase in loss from discontinued operations, a decrease in equity in income
from investment and a decrease in gain on foreclosure of real estate recorded in
2004 as discussed below, partially offset by the increase in income from
continuing operations and a gain on sale of Silverado and Tates Creek Village
Apartments during the year ended December 31, 2004 as discussed below.
The decrease in equity in income from investment for the year ended December 31,
2004 is due to a decrease in the recognition of the Partnership's share of
distributions received and recognized as earnings from affiliated partnerships
in excess of investment balance during the year ended December 31, 2004. The
Partnership assumed investments in three affiliated partnerships during the
foreclosure of investment properties from Consolidated Capital Equity Properties
("CCEP") as discussed below. 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 year ended December 31, 2004,
the Partnership recognized approximately $558,000 in equity in income from
investment primarily related to its allocated share of the gain on sale of three
properties in Consolidated Capital Properties IV, an affiliated limited
partnership in which the Partnership held a general partner interest. There was
no distribution associated with these sales. During the year ended December 31,
2003, the Partnership received approximately $1,048,000 in distributions from
two of the investments. Approximately $1,015,000 of the distribution related to
the sale of three properties in Consolidated Capital Growth Fund, an affiliated
limited partnership in which the Partnership held a general partner interest. 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 related to the sale of a property in
Consolidated Capital Properties IV. There was no distribution associated with
this sale.
On March 31, 2004, the Partnership sold Silverado Apartments, located in El
Paso, Texas, to a third party for $6,650,000. After payment of closing costs,
the net sales proceeds received by the Partnership were approximately
$6,169,000. The Partnership used a portion of the proceeds to repay the mortgage
encumbering the property of approximately $3,248,000. The sale resulted in a
gain on sale of investment property of approximately $1,510,000 during the year
ended December 31, 2004. In addition, the Partnership recorded a loss on early
extinguishment of debt of approximately $685,000 as a result of prepayment
penalties paid partially offset by the write off of the unamortized mortgage
premium which is included in loss from discontinued operations. Pursuant to the
Partnership Agreement and in conjunction with the sale, a disposition fee of
approximately $333,000 was earned by and paid to the General Partner during the
year ended December 31, 2004.
On June 28, 2004, the Partnership sold Tates Creek Village Apartments, located
in Lexington, Kentucky, to a third party for $6,980,000. After payment of
closing costs, the net sales proceeds received by the Partnership were
approximately $6,420,000. The Partnership used a portion of the proceeds to
repay the mortgage encumbering the property of approximately $3,851,000. The
sale resulted in a gain on sale of investment property of approximately $206,000
during the year ended December 31, 2004. In addition, the Partnership recorded a
loss on early extinguishment of debt of approximately $476,000 as a result of
prepayment penalties paid, partially offset by the write off of the unamortized
mortgage premium which is included in loss from discontinued operations.
Pursuant to the Partnership Agreement and in conjunction with the sale, a
disposition fee of approximately $349,000 was earned by and paid to the General
Partner during the year ended December 31, 2004.
As a result of the sales of Silverado Apartments and Tates Creek Village
Apartments to third parties during the year ended December 31, 2004 and in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statements of operations, at "Item 8. Financial
Statements and Supplementary Data", for the years ended December 31, 2003 and
2002 have been restated as of January 1, 2002 to reflect the operations of
Silverado Apartments and Tates Creek Village Apartments as income from
discontinued operations of approximately $227,000 and $291,000 for the years
ended December 31, 2003 and 2002, including revenues of approximately $2,790,000
and $1,090,000, respectively.
The Partnership recognized income from continuing operations for the year ended
December 31, 2004 of approximately $192,000 compared to a loss from continuing
operations of approximately $161,000 for the corresponding period in 2003. The
increase in income from continuing operations for the year ended December 31,
2004, is due to an increase in total revenues partially offset by an increase in
total expenses. The increases in total revenues and 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.
These properties were acquired at a foreclosure sale due to CCEP's inability to
repay the Master Loan to the Partnership and accrued interest. 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. The
foreclosure process on the above 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. During the year ended December 31,
2004 the Partnership recognized a gain on foreclosure of real estate of
approximately $156,000. The gain on the foreclosure was primarily the result of
CCEP's remaining funds being sent to the Partnership as a final payment on the
Master Loan. CCEP's remaining funds were primarily a refund of reimbursement of
accountable administrative expenses from an affiliate of the General Partner.
During the year ended December 31, 2003 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.
For the year ended December 31, 2004, the four properties foreclosed in 2003 had
income of approximately $188,000, which includes revenues of approximately
$8,587,000 compared to income of approximately $107,000, which includes revenues
of approximately $683,000, for the corresponding period of 2003. Excluding the
operations of the properties foreclosed in 2003, the Partnership's net income
from continuing operations, including equity income from investment, for the
year ended December 31, 2004 was approximately $562,000 compared to net income
from continuing operations, including equity income from investment, for the
year ended December 31, 2003 of approximately $878,000. The decrease in net
income from continuing operations for the year ended December 31, 2004 as
compared to the year ended December 31, 2003 is due to a decrease in equity
income from investment, as discussed above, and an increase in total expenses
partially offset by an increase in total revenues.
Total expenses, exclusive of the properties foreclosed in 2003, increased during
the year ended December 31, 2004 primarily due to an increase in operating and
property tax expenses, partially offset by decreases in interest, depreciation
and general and administrative expenses. Operating expenses increased primarily
due to an increase in property expenses. Property expenses increased primarily
due to an increase in utility expenses at The Sterling Commerce Center, The
Sterling Apartment Homes, The Knolls Apartments and Indian Creek Village
Apartments and an increase in salaries and other related benefits at The Knolls,
The Loft and Indian Creek Village Apartments and The Sterling Commerce Center.
Property tax expense increased primarily due to a prior year tax reduction
recorded during 2003 at Indian Creek Village Apartments. Interest expense
decreased due to principal payments made on the mortgage notes encumbering the
Partnership's properties and a decrease in interest paid for advances from the
General Partner. Depreciation expense decreased due to assets becoming fully
depreciated at The Sterling Apartment Homes.
General and administrative expenses decreased for the year ended December 31,
2004 primarily due to the timing of the payment of a business privilege tax paid
to the city of Philadelphia during the year ended December 31, 2003, and reduced
legal fees associated with the foreclosures of the properties held by CCEP
during 2003 and a decrease in the costs of services included in the management
reimbursements to the General Partner as allowed under the Partnership
Agreement. Also included in general and administrative expenses for the years
ended December 31, 2004 and 2003 are costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement.
Total revenues increased for the year ended December 31, 2004 due to an increase
in rental and other income partially offset by a decrease in casualty gain (as
discussed below). Rental income increased due to increases in occupancy at The
Sterling Commerce Center, The Loft Apartments and The Knolls Apartments and
increased average rental rates at The Sterling Apartment Homes, partially offset
by reduced average rental rates at The Sterling Commerce Center and The Loft,
The Knolls and Indian Creek Village Apartments and reduced occupancy at The
Sterling Apartment Homes and Indian Creek Village Apartments.
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 net
fixed assets of approximately $48,000.
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 as discussed above. 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. 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.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment properties,
interest rates on mortgage loans, costs incurred to operate the investment
properties, general economic conditions and weather. As part of the ongoing
business plan of the Partnership, the General Partner monitors the rental market
environment of its investment properties to assess the feasibility of increasing
rents, maintaining or increasing occupancy levels and protecting the Partnership
from increases in expenses. As part of this plan, the General Partner attempts
to protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, 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. Further,
a number of factors that are outside the control of the Partnership, such as the
local economic climate and weather, can adversely or positively affect the
Partnership's financial results.
Capital Resources and Liquidity
At December 31, 2004, the Partnership had cash and cash equivalents of
approximately $955,000 compared to approximately $2,417,000 at December 31,
2003. Cash and cash equivalents decreased approximately $1,462,000 since
December 31, 2003 due to approximately $12,029,000 of cash used in financing
activities, partially offset by approximately $6,631,000 and $3,936,000 of cash
provided by investing and operating activities, respectively. Cash used in
financing activities consisted of principal payments made on the mortgages
encumbering the Partnership's properties, repayment of the mortgage notes
payable as a result of the sale of Silverado and Tates Creek Village Apartments,
prepayment penalties paid, distributions to partners and lease commissions paid,
partially offset by advances from affiliates. Cash provided by investing
activities consisted of proceeds from the sale of Silverado and Tates Creek
Village Apartments, insurance proceeds received, receipts on the Master Loan and
net receipts from restricted escrow accounts maintained by the mortgage lenders,
partially offset by property improvements and replacements. The Partnership
invests its working capital reserves in interest bearing accounts.
During the year ended December 31, 2004, the Partnership received approximately
$156,000 from CCEP as the final payment on the Master Loan. During the years
ended December 31, 2003 and 2002, the Partnership received approximately $15,000
and $1,719,000 in principal payments on the Master Loan. Approximately $88,000
was received during the year ended December 31, 2002, 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.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The General Partner monitors
developments in the area of legal and regulatory compliance. For example, 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. The Partnership regularly evaluates the capital improvements needs
of all its properties for the upcoming year. Certain routine capital
expenditures are anticipated during 2005. In addition, the Partnership has
material commitments to complete rehabilitation projects at The Sterling
Apartment Homes and The Knolls Apartments. The budget for these two projects for
2005 is approximately $17,016,000. Such capital expenditures will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties. It is anticipated that a
substantial portion of the costs associated with the redevelopment projects will
be funded from advances from affiliates of the General Partner. Other capital
expenditures will be incurred only if cash is available from operations and
Partnership reserves. To the extent that capital improvements are completed, the
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering the Partnership's properties of approximately
$65,768,000 requires monthly payments of principal and interest, and balloon
payments of approximately $3,903,000, $19,975,000 and $31,040,000 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, 2002, 2003 and 2004 (in thousands, except per unit data):
Distributions
Per Limited
Aggregate Partnership Unit
01/01/02 - 12/31/02 $ 3,572 (1) $ 17.79
01/01/03 - 12/31/03 3,424 (2) 17.11
01/01/04 - 12/31/04 4,132 (3) 20.76
(1) Consists of approximately $3,098,000 of cash from operations and
approximately $474,000 of cash from surplus funds.
(2) 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.
(3) Consists of approximately $39,000 of cash from operations and
approximately $4,093,000 of cash from sales proceeds from the sale of
Silverado Apartments in March 2004 and the sale of Tates Creek Village
Apartments in June 2004.
Future cash distributions will depend on the levels of cash generated from
operations, and the timing of debt maturities, refinancings, and/or property
sales. The Partnership's cash available for distribution is reviewed on a
monthly basis. There can be no assurance that the Partnership will generate
sufficient funds from operations, after planned capital improvement
expenditures, to permit any distributions to its partners during 2005 or
subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 145,195.60 limited partnership units
(the "Units") in the Partnership representing 72.95% of the outstanding Units at
December 31, 2004. 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. 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 72.95% of the
outstanding Units, AIMCO and its affiliates are in a position to control all
such 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 year ended December 31, 2004, the Partnership received approximately
$156,000 from CCEP as the final payment on the Master Loan. During the years
ended December 31, 2003 and 2002, the Partnership received approximately $15,000
and $1,719,000 in principal payments on the Master Loan. Approximately $88,000
was received during the year ended December 31, 2002, 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.
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 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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 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, 2004, a 100 basis point increase or
decrease in market interest rates would impact Partnership income by
approximately $513,000.
The following table summarizes the Partnership's debt obligations at December
31, 2004. The interest rates represent the weighted-average rates. The fair
value of the Partnership's long term debt at the Partnership's incremental
borrowing rate is approximately $68,183,000.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.67%
(in thousands)
2005 $ 5,579
2006 1,750
2007 1,887
2008 21,900
2009 1,753
Thereafter 31,231
Total $64,100
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
LIST OF FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the Years ended December 31,
2004, 2003 and 2002
Consolidated Statements of Changes in Partners' Capital for the Years
ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years ended December 31,
2004, 2003 and 2002
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
The Partners
Consolidated Capital Institutional Properties
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Institutional Properties as of December 31, 2004 and 2003, and the
related consolidated statements of operations, changes in partners' deficit, and
cash flows for each of the three years in the period ended December 31, 2004.
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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to perform an
audit of the Partnership's internal control over financial reporting. Our audit
included consideration of internal controls over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Partnership's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
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, 2004 and 2003, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 21, 2005
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
2004 2003
Assets
Cash and cash equivalents $ 955 $ 2,417
Receivables and deposits 1,155 404
Restricted escrows 662 922
Other assets 989 999
Investment in affiliated partnerships (Note I) 1,550 992
Investment properties (Notes D and F):
Land 20,365 22,780
Buildings and related personal property 98,265 100,078
118,630 122,858
Less accumulated depreciation (27,837) (23,194)
90,793 99,664
$ 96,104 $105,398
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 1,499 $ 211
Tenant security deposit liabilities 825 964
Accrued property taxes 100 564
Other liabilities 1,229 1,499
Due to affiliates (Note E) 2,596 255
Mortgage notes payable (Note D) 65,768 75,195
72,017 78,688
Partners' Capital
General partner 143 128
Limited partners (199,043.2 units issued and
outstanding) 23,944 26,582
24,087 26,710
$ 96,104 $105,398
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2004 2003 2002
Revenues: (Restated) (Restated)
Rental income $ 22,035 $ 14,622 $ 12,209
Interest income on investment in Master
Loan to affiliate (Note C) -- -- 386
Other income 2,088 1,170 961
Casualty gain (Note L) -- 25 --
Total revenues 24,123 15,817 13,556
Expenses:
Operating 11,352 6,877 5,173
General and administrative 857 1,151 836
Depreciation 5,163 3,674 3,088
Interest 4,630 3,361 2,299
Property taxes 1,662 915 964
Casualty losses (Note L) 267 -- --
Total expenses 23,931 15,978 12,360
Income (loss) from continuing operations 192 (161) 1,196
(Loss) income from discontinued operations
(Notes A & G) (1,113) 227 291
Gain on sale of discontinued operations (Note G) 1,716 -- --
Gain on foreclosure of real estate (Note C) 156 839 1,831
Equity in income from investment (Note I) 558 1,146 --
Net income (Note B) $ 1,509 $ 2,051 $ 3,318
Net income allocated to general partner (1%) $ 15 $ 21 $ 33
Net income allocated to limited partners (99%) 1,494 2,030 3,285
$ 1,509 $ 2,051 $ 3,318
Per limited partnership unit:
Income (loss) from continuing operations $ 0.97 $ (0.80) $ 5.94
(Loss) income from discontinued operations (5.54) 1.13 1.45
Gain on sale of discontinued operations 8.54 -- --
Gain on foreclosure of real estate 0.77 4.17 9.11
Equity in income of investment 2.77 5.70 --
Net income per limited partnership unit $ 7.51 $ 10.20 $ 16.50
Distributions per limited partnership unit $ 20.76 $ 17.11 $ 17.79
See Accompanying Notes to 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, 2001 199,045.2 123 28,214 28,337
Abandonment of limited partnership
units (Note K) (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 199,043.2 128 26,582 26,710
Distributions to partners -- -- (4,132) (4,132)
Net income for the year ended
December 31, 2004 -- 15 1,494 1,509
Partners' capital at
December 31, 2004 199,043.2 $ 143 $ 23,944 $ 24,087
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2004 2003 2002
Cash flows from operating activities:
Net income $ 1,509 $ 2,051 $ 3,318
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on foreclosure of real estate (156) (839) (1,831)
Depreciation 5,300 4,056 3,189
Amortization of loan costs, lease commissions and
mortgage premiums (190) (68) 43
Equity in income from investment (558) (1,146) --
Gain on sale of discontinued operations (1,716) -- --
Loss on early extinguishment of debt 1,161 -- --
Casualty loss (gain) 267 (17) --
Change in accounts:
Receivables and deposits (539) 347 6
Other assets (111) (90) (24)
Accounts payable (108) (146) 50
Tenant security deposit liabilities (139) (6) (5)
Accrued property taxes (464) (328) 88
Due to affiliates (50) 912 --
Other liabilities (270) (106) 593
Net cash provided by operating activities 3,936 4,620 5,427
Cash flows from investing activities:
Net proceeds from sale of discontinued operations 12,589 -- --
Property improvements and replacements (6,658) (1,472) (582)
Acquisition costs paid -- (523) --
Insurance proceeds received 284 112 --
Net receipts from (deposits to) restricted escrows 260 192 (205)
Receipts on Master Loan 156 15 1,719
Distributions from affiliated partnerships -- 1,048 24
Net cash provided by (used in) investing activities 6,631 (628) 956
Cash flows from financing activities:
Distributions to partners (4,132) (3,424) (3,572)
Payments on mortgage notes payable (1,655) (1,128) (558)
Repayment of mortgage note payable (7,099) -- --
Prepayment penalties (1,527) -- --
Lease commissions paid (7) (198) --
Advances from general partner 2,391 31,498 --
Repayment of advances from general partner -- (31,498) --
Net cash used in financing activities (12,029) (4,750) (4,130)
Net (decrease) increase in cash and cash equivalents (1,462) (758) 2,253
Cash and cash equivalents at beginning of year 2,417 3,175 922
Cash and cash equivalents at end of year $ 955 $ 2,417 $ 3,175
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,087 $ 4,135 $ 2,467
Supplemental disclosure of non-cash activity:
Property improvements and replacements
in accounts payable $ 1,272 $ -- $ --
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
STATEMENTS OF CASH FLOWS (continued)
(in thousands)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the year ended December 31, 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, 2004
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 secured 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. The Partnership had
advanced a total of approximately $180,500,000 to EP and its successor under the
Master Loan.
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, was 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. 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. During 2004 the Partnership sold two of its
investment properties. The Partnership Agreement provides that the Partnership
is to terminate on December 31, 2011 unless terminated prior to such date.
The Partnership now owns and operates seven apartment properties one each in
North Carolina, Colorado and Kansas, 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 2002 and 2003
information to conform to the 2004 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 2004 and 2003 and
199,045.2 Units for 2002 (see "Note K" 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 $794,000 and
$2,246,000 at December 31, 2004 and 2003, 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, 2004
and 2003, the balance in this reserve was approximately $103,000 and $159,000,
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, 2004
and 2003, the balance was approximately $264,000 and $470,000, 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, 2004 and 2003 the balance in the
replacement reserve fund was approximately $295,000 and $293,000, 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 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.
Deferred Costs: As of December 31, 2004 and 2003, loan costs of approximately
$569,000 for both years less accumulated amortization of approximately $389,000
and $332,000 respectively, are included in other assets. The loan costs are
amortized over the terms of the related loan agreements. Amortization expense
was approximately $57,000 for both the years ended December 31, 2004 and 2003
and is included in interest expense. Amortization expense is expected to be
approximately $57,000 for 2005, approximately $45,000 for each of the years 2006
and 2007 and approximately $33,000 for 2008.
Leasing commissions and other direct costs incurred in connection with
successful leasing efforts are deferred and amortized over the terms of the
related leases. Amortization of these costs is included in operating expenses.
At December 31, 2004 and 2003, capitalized lease commissions totaled
approximately $386,000 and $379,000, respectively, with accumulated amortization
of approximately $159,000 and $154,000, respectively.
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 seven 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. The Partnership capitalizes all expenditures in excess
of $250 that clearly relate to the acquisition and installation of real and
personal property components. These expenditures include costs incurred to
replace existing property components, costs incurred to add a material new
feature to a property, and costs that increase the useful life or service
potential of a property component. These capitalized costs are depreciated over
the 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. No adjustments for impairment of value
were recorded in the years ended December 31, 2004, 2003 or 2002.
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 estimates fair value by discounting future cash
flows using a discount rate commensurate with that currently believed to be
available to the Partnership for similar term, fully amortizing long term debt.
The fair value of the Partnership's long term debt at the Partnership's
incremental borrowing rate is approximately $68,183,000.
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 will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 M" for detailed disclosure of the Partnership's segments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $449,000, $273,000 and $113,000 for the years
ended December 31, 2004, 2003 and 2002, respectively, were charged to operating
expense and (loss) income from discontinued operations.
Discontinued Operations: As a result of the sales of Silverado Apartments and
Tates Creek Village Apartments to third partie