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EX-31.1 - EXHIBIT 31.1 - CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2ccip2_ex31z1.htm
EX-31.2 - EXHIBIT 31.2 - CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2ccip2_ex31z2.htm
EX-32.1 - EXHIBIT 32.1 - CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2ccip2_ex32z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2011

 

or

 

[ ]   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 0-11723

 

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-2883067

(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)

 

(864) 239-1000

(Registrant's telephone number, including area code)

 

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. 

[X] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No

 


PART I – FINANCIAL INFORMATION

 

 

ITEM 1.     FINANCIAL STATEMENTS

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

BALANCE SHEETS

 (in thousands)

 

 

 

March 31,

December 31,

 

 

2011

2010

 

 

(Unaudited)

(Note)

 

Assets

 

 

Cash and cash equivalents

 $    127

 $    117

Receivables and deposits

      118

      122

Other assets

      157

      151

Investment in affiliated partnership (Note C)

      423

      437

Investment property:

 

 

Land

    3,660

    3,660

Buildings and related personal property

   10,403

   10,367

 

   14,063

   14,027

Less accumulated depreciation

   (5,080)

   (4,939)

 

    8,983

    9,088

 

 $  9,808

 $  9,915

 

 

 

Liabilities and Partners' Deficit

 

 

Liabilities

 

 

Accounts payable

 $     44

 $     98

Tenant security deposit liabilities

       58

       56

Distributions payable

      170

      170

Due to affiliates (Note B)

       55

       --

Accrued property taxes

      366

      302

Other liabilities

      104

      138

Mortgage note payable

   10,685

   10,724

 

   11,482

   11,488

 

 

 

Partners' Deficit

 

 

General partner

     (470)

     (469)

Limited partners

   (1,204)

   (1,104)

 

   (1,674)

   (1,573)

 

 $  9,808

 $  9,915

 

Note: The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

See Accompanying Notes to Financial Statements


 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

 

 

 

Three Months Ended

 

March 31,

 

2011

2010

Revenues:

 

 

Rental income

$  550

$  530

Other income

    93

    92

Total revenues

   643

   622

 

 

 

Expenses:

 

 

Operating

   256

   263

General and administrative

    93

    89

Depreciation

   141

   137

Interest

   175

   244

Property taxes

    65

    87

Total expenses

   730

   820

 

 

 

Loss before discontinued operations and equity in loss

 

 

  from investments

    (87)

   (198)

 

 

 

Equity in loss from investments (Note C)

    (14)

     (3)

Loss from discontinued operations (Notes A and D)

    --

   (305)

Net loss

 $ (101)

 $ (506)

 

 

 

Net loss allocated to general partner (1%)

 $   (1)

 $   (5)

Net loss allocated to Series A unit holders (99%)

   (100)

   (501)

 

 $ (101)

 $ (506)

 

 

 

Per Series A unit:

 

 

Loss before discontinued operations

 $(0.11)

 $(0.22)

Loss from discontinued operations

    --

  (0.33)

Net loss

 $(0.11)

 $(0.55)

 

See Accompanying Notes to Financial Statements


 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

 

 

 

 

 

 

Series A

 

 

Series A

General

Unit

 

 

Units

Partner

Holders

Total

 

 

 

 

 

Partners’ deficit

 

 

 

 

 at December 31, 2010

 908,499.10

   $ (469)

  $(1,104)

 $(1,573)

 

 

 

 

 

Net loss for the three

 

 

 

 

 months ended March 31, 2011

         --

       (1)

     (100)

    (101)

 

 

 

 

 

Partners’ deficit

 

 

 

 

  at March 31, 2011

 908,499.10

   $ (470)

  $(1,204)

 $(1,674)

 

See Accompanying Notes to Financial Statements


CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

March 31,

 

2011

2010

 

 

 

Cash flows from operating activities:

 

 

Net loss

 $  (101)

 $  (506)

Adjustments to reconcile net loss to net cash

 

 

provided by operating activities:

 

 

Depreciation

    141

    364

Amortization of loan costs

     10

     21

Casualty gain

     --

     (99)

Equity in loss from investments

     14

      3

Change in accounts:

 

 

Other assets

     (16)

    (260)

Receivables and deposits

      4

     13

Accounts payable

     (50)

    569

Accrued property taxes

     64

     (32)

Due to affiliates

     55

    122

Tenant security deposit liabilities

      2

      (4)

Other liabilities

     (34)

     (46)

Net cash provided by operating activities

     89

    145

 

 

 

Cash flows from investing activities:

 

 

Property improvements and replacements

     (40)

    (524)

Insurance proceeds received

     --

     99

Net cash used in investing activities

     (40)

    (425)

 

 

 

Cash flows from financing activities:

 

 

Advances from affiliate

     --

    435

Principal payments on mortgage notes payable

     (39)

    (152)

Net cash (used in) provided by financing activities

     (39)

    283

 

 

 

Net increase in cash and cash equivalents

     10

      3

Cash and cash equivalents at beginning of period

    117

    377

 

 

 

Cash and cash equivalents at end of period

$   127

$   380

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest

$   165

$   406

 

 

 

Supplemental disclosure of non-cash activities:

 

 

Property improvements and replacements included in

 

 

  accounts payable

$    10

$    48

 

Included in property improvements and replacements for the three months ended March 31, 2011 and 2010 are approximately $14,000 and $26,000, respectively, of property improvements and replacements, which were included in accounts payable at December 31, 2010 and 2009, respectively.

 

See Accompanying Notes to Financial Statements


CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note A – Basis of Presentation

 

The accompanying unaudited financial statements of Consolidated Capital Institutional Properties/2, LP (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

The Partnership Agreement provides that the Partnership is to terminate on December 31, 2013 unless terminated prior to that date. The Partnership Agreement also provides that the term of the Partnership cannot be extended beyond the termination date.

 

The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.

 

The accompanying statement of operations for the three months ended March 31, 2010 has been restated to reflect the operations of Glenbridge Manor Apartments as loss from discontinued operations due to its sale on September 9, 2010. In addition, the accompanying statement of operations for the three months ended March 31, 2010 reflects the operations of Windemere Apartments as income from discontinued operations due to its sale on August 6, 2009.

 

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three months ended March 31, 2010 (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2010

 

 

 

 

 

 

Windemere

Glenbridge 

 

 

Apartments

Manor Apartments

Total

 

 

 

 

Revenues

   $  --

$   943

 $   943

Expenses

      --

  (1,347)

  (1,347)

Casualty gain

      99

     --

      99

Income (loss) from discontinued

 

 

 

  operations

   $  99

 $  (404)

 $  (305)

 

Certain reclassifications have been made to the 2010 balances to conform to the 2011 presentation.

 

Note B – Transactions with Affiliated Parties

 

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. 

 

Affiliates of the General Partner receive 5% of gross receipts from the Partnership’s properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $31,000 and $79,000 for the three months ended March 31, 2011 and 2010, respectively, which are included in operating expenses and loss from discontinued operations.

 

An affiliate of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $59,000 for each of the three months ended March 31, 2011 and 2010, which is included in general and administrative expenses and investment property. The portion of these reimbursements included in investment property for the three months ended March 31, 2011 and 2010 are construction management services provided by an affiliate of the General Partner of approximately $4,000 and less than $1,000, respectively. At March 31, 2011, the Partnership owed approximately $55,000 for accountable administrative expenses, which is included in due to affiliates. No such amounts were owed at December 31, 2010. Subsequent to March 31, 2011, the Partnership paid the outstanding amount.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the General Partner, advanced the Partnership approximately $435,000 during the three months ended March 31, 2010 to fund operations at Glenbridge Manor Apartments. No such advances were received during the three months ended March 31, 2011. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review the market rate adjustment quarterly. Interest expense was approximately $63,000 for the three months ended March 31, 2010. The Partnership repaid the outstanding advance balance and accrued interest during the third quarter of 2010 with proceeds from the sale of Glenbridge Manor Apartments. At March 31, 2011 and December 31, 2010, no amounts were due. The Partnership may receive additional advances of funds from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability.  The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner.  During the three months ended March 31, 2011, the Partnership was charged by AIMCO and its affiliates approximately $13,000 for hazard insurance coverage and fees associated with policy claims administration.  Additional charges will be incurred by the Partnership during 2011 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $199,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2010.

 

Note C - Investment in Affiliated Partnership

 

The Partnership has an investment in the following affiliated partnership:

 

 

 

 

Investment Balance at

 

Type of

Ownership

March 31,

December 31,

Partnership

Ownership

Percentage

2011

2010

 

 

 

(in thousands)

(in thousands)

Consolidated

 

 

 

 

  Capital

  Special Limited

 

 

 

   Properties IV

Partner

1.86%

$  423

$  437

 

This investment is accounted for using the equity method of accounting. Distributions from the affiliated partnership are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations.  During the three months ended March 31, 2011 and 2010, the Partnership recognized equity in loss from the operating results of the investment of approximately $14,000 and $3,000, respectively.

 

Note D – Casualty Events

 

During 2008, Glenbridge Manor Apartments experienced significant ground movement causing damage to two buildings, water pipes and sewer lines. These two buildings, containing 17 units, the office, clubhouse and fitness center, were evacuated. One of the buildings containing 12 units was demolished, and another building was partially demolished. A third building experienced minor ground movement, which required approximately $60,000 to repair. The total damages are approximately $7,456,000, of which approximately $2,904,000 relates to buildings, approximately $4,353,000 relates to demolition, land improvements and reconstruction, and approximately $199,000 relates to lost rents. The reconstruction completed involved repairs to damaged buildings and common areas and ground restoration. The Partnership did not reconstruct the demolished buildings. During the year ended December 31, 2009, the Partnership received approximately $4,932,000 of insurance proceeds to cover the damages, and approximately $199,000 to cover lost rents. During the year ended December 31, 2009, the Partnership recognized a casualty gain of approximately $2,686,000 due to the receipt of insurance proceeds, partially offset by the net write off of undepreciated damaged assets of approximately $2,246,000. During the third quarter of 2010, the Partnership received additional proceeds of approximately $29,000. The Partnership and affiliates had pursued litigation against the architect, general contractor, soils engineer and retaining wall contractor to recover damages. During the second quarter of 2010, the Partnership and affiliates settled the case for $5,300,000 with amounts received from the architect, general contractor, soils engineer and retaining wall contractor. The Partnership received reimbursement of approximately $3,038,000 during the year ended December 31, 2010 for its attorneys’ fees related to this case. The remaining settlement proceeds were reimbursed to AIMCO’s risk pool for the insurance proceeds previously paid to the Partnership.

 

In September 2008, Windemere Apartments sustained damage from Hurricane Ike.  The damages were approximately $1,284,000, including clean up costs of approximately $634,000. During the year ended December 31, 2009, the Partnership received insurance proceeds of approximately $650,000 to cover the damages and approximately $259,000 for clean up costs. The Partnership recognized a casualty gain of approximately $220,000 due to receipt of insurance proceeds, offset by the net write off of undepreciated damaged assets of approximately $430,000. During the three months ended March 31, 2010, the Partnership received additional proceeds of approximately $99,000 which are included in loss from discontinued operations.

 

Note E – Fair Value of Financial Instruments

 

Financial Accounting Standards Board Accounting Standards Codification Topic 825, “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 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 amount of its financial instruments (except for the mortgage note payable) approximates its fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its mortgage note payable by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, mortgage notes payable.  At March 31, 2011, the fair value of the Partnership's mortgage note payable at the Partnership's incremental borrowing rate approximated its carrying value.

 

Note F – Contingencies

 

The Partnership is unaware of any pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

 

Environmental

 

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials  present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the improper management of these materials on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be responsible for environmental liabilities or costs associated with its property.


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the Partnership’s ability to maintain current or meet projected occupancy, rental rates and property operating results and the effect of redevelopments. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond the Partnership’s control, including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions, including the pace of job growth and the level of unemployment; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.

 

The Partnership's investment property consists of one apartment complex. The following table sets forth the average occupancy of the property for the three months ended March 31, 2011 and 2010:

 

 

Average Occupancy

Property

2011

2010

 

 

 

Highcrest Townhomes

98%

98%

Wood Ridge, Illinois

 

 

 

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing plan of the Partnership, the General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors which are outside the control of the Partnership such as the local economic climate and weather can adversely or positively impact the Partnership’s financial results.

 

Results of Operations

 

The Partnership’s net loss for the three months ended March 31, 2011 was approximately $101,000, compared to approximately $506,000 for the three months ended March 31, 2010. The statement of operations for the three months ended March 31, 2010 has been restated to reflect the operations of Glenbridge Manor Apartments as loss from discontinued operations due to its sale on September 9, 2010. In addition, the accompanying statement of operations for the three months ended March 31, 2010 reflects the operations of Windemere Apartments as income from discontinued operations due to its sale on August 6, 2009.

 

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three months ended March 31, 2010 (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2010

 

 

 

 

 

 

Windemere

Glenbridge 

 

 

Apartments

Manor Apartments

Total

 

 

 

 

Revenues

   $  --

$   943

 $   943

Expenses

      --

  (1,347)

  (1,347)

Casualty gain

      99

     --

      99

Income (loss) from discontinued

 

 

 

  operations

   $  99

 $  (404)

 $  (305)

 

During 2008, Glenbridge Manor Apartments experienced significant ground movement causing damage to two buildings, water pipes and sewer lines. These two buildings, containing 17 units, the office, clubhouse and fitness center, were evacuated. One of the buildings containing 12 units was demolished, and another building was partially demolished. A third building experienced minor ground movement, which required approximately $60,000 to repair. The total damages are approximately $7,456,000, of which approximately $2,904,000 relates to buildings, approximately $4,353,000 relates to demolition, land improvements and reconstruction, and approximately $199,000 relates to lost rents. The reconstruction completed involved repairs to damaged buildings and common areas and ground restoration. The Partnership did not reconstruct the demolished buildings. During the year ended December 31, 2009, the Partnership received approximately $4,932,000 of insurance proceeds to cover the damages, and approximately $199,000 to cover lost rents. During the year ended December 31, 2009, the Partnership recognized a casualty gain of approximately $2,686,000 due to the receipt of insurance proceeds, partially offset by the net write off of undepreciated damaged assets of approximately $2,246,000. During the third quarter of 2010, the Partnership received additional proceeds of approximately $29,000. The Partnership and affiliates had pursued litigation against the architect, general contractor, soils engineer and retaining wall contractor to recover damages. During the second quarter of 2010, the Partnership and affiliates settled the case for $5,300,000 with amounts received from the architect, general contractor, soils engineer and retaining wall contractor. The Partnership received reimbursement of approximately $3,038,000 during the year ended December 31, 2010 for its attorneys’ fees related to this case. The remaining settlement proceeds were reimbursed to AIMCO’s risk pool for the insurance proceeds previously paid to the Partnership.

 

In September 2008, Windemere Apartments sustained damage from Hurricane Ike.  The damages were approximately $1,284,000, including clean up costs of approximately $634,000. During the year ended December 31, 2009, the Partnership received insurance proceeds of approximately $650,000 to cover the damages and approximately $259,000 for clean up costs. The Partnership recognized a casualty gain of approximately $220,000 due to receipt of insurance proceeds, offset by the net write off of undepreciated damaged assets of approximately $430,000. During the three months ended March 31, 2010, the Partnership received additional proceeds of approximately $99,000 which are included in loss from discontinued operations.

 

The Partnership’s loss before discontinued operations for the three months ended March 31, 2011 was approximately $101,000, compared to loss before discontinued operations of approximately $201,000 for the three months ended March 31, 2010. The decrease in loss before discontinued operations is due to a decrease in total expenses and an increase in total revenues.

 

Total expenses decreased due to decreases in interest and property tax expenses.  Operating, general and administrative and depreciation expenses remained relatively constant for the comparable periods.  Interest expense decreased primarily due to a decrease in interest expense on advances from an affiliate of the General Partner as a result of the payoff of the outstanding advance balance with proceeds from the sale of Glenbridge Manor Apartments during the third quarter of 2010.  Property tax expense decreased primarily due to a decrease in the assessed value of Highcrest Townhomes.

 

Included in general and administrative expenses for the three months ended March 31, 2011 and 2010 are management reimbursements charged by the General Partner as allowed under the Partnership Agreement, 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 due to an increase in rental income. Other income remained relatively constant for the comparable periods. The increase in rental income is due to an increase in the average rental rate and a decrease in bad debt expense at Highcrest Townhomes.

 

The equity in loss from investments for the three months ended March 31, 2011 and 2010 is due to the recognition of the Partnership’s share of loss on its investment in an affiliated partnership. This investment is accounted for under the equity method of accounting. Distributions from the affiliated partnership 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 statements of operations. No distributions were received during the three months ended March 31, 2011 or 2010.

 

Liquidity and Capital Resources

 

At March 31, 2011, the Partnership had cash and cash equivalents of approximately $127,000, compared with approximately $117,000 at December 31, 2010.  The increase in cash and cash equivalents of approximately $10,000 is due to approximately $89,000 of cash provided by operating activities, partially offset by approximately $40,000 and $39,000 of cash used in investing and financing activities, respectively.  Cash used in investing activities consisted of property improvements and replacements.  Cash used in financing activities consisted of principal payments made on the mortgage encumbering the Partnership’s investment property.

 

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 property 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.  Capital improvements planned for the Partnership's property are detailed below.

 

During the three months ended March 31, 2011, the Partnership completed approximately $36,000 of capital improvements at Highcrest Townhomes, consisting primarily of water heater upgrades and floor covering replacement. These improvements were funded from operations. 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 the remainder of 2011. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Capital expenditures 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.

 

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 Highcrest Townhomes of approximately $10,685,000 is being amortized over 360 months and requires a balloon payment of approximately $9,414,000 in 2017. The General Partner may attempt to refinance the indebtedness encumbering the property and/or sell the property prior to termination of the Partnership. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing the property through foreclosure.

 

There were no distributions made by the Partnership during the three months ended March 31, 2011 and 2010. Future cash distributions will depend on the levels of cash generated from operations and the timing of the debt maturity, property sale and/or refinancing. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after planned capital expenditures, to permit any distributions to its partners in 2011 or subsequent periods.

 

Other

 

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 574,447.25 limited partnership units (the "Units") in the Partnership representing 63.23% of the outstanding Units at March 31, 2011. 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, Unit holders holding a majority of the Units are entitled to take action with respect to a variety of matters that 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 63.23% 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.

 

Critical Accounting Policies and Estimates

 

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Impairment of Long-Lived Assets

 

Investment property is stated at its fair market value at the time of foreclosure in 2002, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

 

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment property.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could cause an impairment of the Partnership’s asset.

 

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. 

 

ITEM 4.     CONTROLS AND PROCEDURES

 

(a)   Disclosure Controls and Procedures.

 

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

(b)   Changes in Internal Control Over Financial Reporting.

 

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 


PART II - OTHER INFORMATION

 

 

ITEM 6.     EXHIBITS

 

See Exhibit Index.

 

The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

  • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

  • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

  • may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

 

  • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 


SIGNATURES

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

 

 

 

By:   ConCap Equities, Inc.

 

      General Partner

 

 

Date: May 17, 2011

By:   /s/Steven D. Cordes

 

      Steven D. Cordes

 

      Senior Vice President

 

 

Date: May 17, 2011

By:   /s/Stephen B. Waters

 

      Stephen B. Waters

 

      Senior Director of Partnership Accounting

 


CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, LP

 

EXHIBIT INDEX

 

 

Exhibit Number    Description of Exhibit

 

3.1           Certificates of Limited Partnership, as amended to date.

 

3.2           Fourth Amendment to the amended and restated limited partnership agreement of CCIP/2 dated January 8, 2002 (Incorporated by reference to the annual report on Form 10-KSB for the year ended December 31, 2004).

 

3.3           Fifth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated March 19, 2008. Incorporated by reference to the Registrant's Current Report on Form 8-K dated April 30, 2008.

 

3.4           Sixth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated April 30, 2008. Incorporated by reference to the Registrant's Current Report on Form 8-K dated April 30, 2008.

 

3.5           Seventh Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated May 8, 2008, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009.

 

3.6           Eighth Amendment to the amended and restated limited partnership agreement of Consolidated Capital Institutional Properties/2, LP, dated December 30, 2008. (Incorporated by reference to the Registrant’s Annual Report on Form 10K for the year ended December 31, 2008).

 

 

 10.33         Assignment of Partnership Rights and Distributions between Consolidated Capital Equity Partners/Two, L.P., a California limited partnership and Consolidated Capital Institutional Properties/2, a California limited partnership (Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 22, 2002).

 

10.34         Agreement for Conveyance of Real Property, including exhibits thereto, between Consolidated Capital Equity Partners/Two, L.P., a California limited partnership and Consolidated Capital Institutional Properties/2, a California limited partnership (Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 22, 2002).

 

10.37         Multifamily Note, dated September 28, 2007 between CCIP/2 Highcrest L.L.C., a Delaware limited liability company, and Capmark Bank, a Utah industrial bank. (Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 28, 2007).

 

10.38         Multifamily Mortgage, Assignment of Rents and Security Agreement, dated September 28, 2007 between CCIP/2 Highcrest, L.L.C., a Delaware limited liability company, and Capmark Bank, a Utah industrial bank. (Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 28, 2007).

 

10.44         Agreement for Purchase and Sale and Joint Escrow Instructions between CCIP/2 Village Brooke, L.L.C., a Delaware limited liability company, and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated July 12, 2010 (incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 12, 2010).

 

10.45         First Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between CCIP/2 Village Brooke, L.L.C., a Delaware limited liability company, and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated July 15, 2010 (incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 15, 2010).

 

10.46         Second Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between CCIP/2 Village Brooke, L.L.C., a Delaware limited liability company, and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated July 20, 2010 (incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 20, 2010).

 

31.1          Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2          Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1          Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.