United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-11934
CENTURY PROPERTIES FUND XVIII
(Exact name of small business issuer as specified in its charter)
California 94-2834149
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTURY PROPERTIES FUND XVIII
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 86
Receivables and deposits 22
Restricted escrows 192
Other assets 200
Investment property:
Land $ 6,218
Buildings and related personal property 12,331
18,549
Less accumulated depreciation (8,367) 10,182
$ 10,682
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 160
Other liabilities 140
Accrued property taxes 239
Tenant security deposit liabilities 40
Due to affiliates 392
Mortgage note payable 9,728
Partners' (Deficiency) Capital
General partner $ (5,336)
Limited partners (75,000 units issued and
outstanding) 5,319 (17)
$ 10,682
See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVIII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 458 $ 563 $ 1,391 $ 1,730
Other income 83 79 230 190
Total revenues 541 642 1,621 1,920
Expenses:
Operating 338 275 891 791
General and administrative 36 69 163 208
Depreciation 123 118 366 356
Interest 190 190 568 574
Property tax 83 56 239 228
Total expenses 770 708 2,227 2,157
Loss from continuing operations (229) (66) (606) (237)
Income from discontinued
operations -- 111 -- 204
Net (loss) income $ (229) $ 45 $ (606) $ (33)
Net (loss) income allocated to
general partner (9.9%) $ (23) $ 4 $ (60) $ (3)
Net (loss) income allocated to
limited partners (90.1%) (206) 41 (546) (30)
$ (229) $ 45 $ (606) $ (33)
Per limited partnership unit:
Loss from continuing operations $ (2.75) $ (0.79) $ (7.28) $ (2.85)
Income from discontinued
operations -- 1.33 -- 2.45
Net (loss) income per limited
partnership unit $ (2.75) $ 0.54 $ (7.28) $ (0.40)
Distributions per limited
partnership unit $ -- $ 3.70 $ -- $ 5.19
See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVIII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 75,000 $ -- $75,000 $75,000
Partners' (deficiency) capital
at December 31, 2003 75,000 $(5,276) $ 5,865 $ 589
Net loss for the nine months
ended September 30, 2004 -- (60) (546) (606)
Partners' (deficiency) capital
at September 30, 2004 75,000 $(5,336) $ 5,319 $ (17)
See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVIII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (606) $ (33)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation 366 667
Amortization of loan costs 26 45
Change in accounts:
Receivables and deposits 12 14
Other assets (73) (79)
Accounts payable 74 (6)
Tenant security deposit liabilities 1 23
Due to affiliates 5 --
Accrued property taxes (75) (31)
Other liabilities 60 65
Net cash (used in) provided by operating
activities (210) 665
Cash flows from investing activities:
Property improvements and replacements (560) (223)
Net deposits to restricted escrows (31) (14)
Net cash used in investing activities (591) (237)
Cash flows from financing activities:
Advances from affiliates 372 --
Loan costs paid (63) --
Distributions to partners -- (393)
Payments on mortgage notes payable (105) (200)
Net cash provided by (used in) financing
activities 204 (593)
Net decrease in cash and cash equivalents (597) (165)
Cash and cash equivalents at beginning of period 683 716
Cash and cash equivalents at end of period $ 86 $ 551
Supplemental disclosure of cash flow information:
Cash paid for interest $ 480 $ 905
At September 30, 2004 and 2003, accounts payable and property improvements and
replacements were adjusted by approximately $52,000 and $7,000, respectively.
See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVIII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Century
Properties Fund XVIII (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-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The Partnership's general partner is Fox Partners. The
general partners of Fox Partners are Fox Capital Management Corporation ("FCMC"
or the "Managing General Partner"), Fox Realty Investors ("FRI") and Fox
Partners 82. The Managing General Partner, as well as the managing general
partner of FRI, are affiliates of Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. In the opinion of the
Managing General Partner, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 2004
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2004. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2003.
In accordance with the Statement of Accounting Standards ("SFAS") No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statement of operations reflect the operations of
Overlook Point Apartments, which was sold October 31, 2003, as income from
discontinued operations.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the Managing General Partner and
its affiliates for the management and administration of all Partnership
activities. The Partnership Agreement provides for (i) payments to affiliates
for services and (ii) reimbursement of certain expenses incurred by affiliates
on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $79,000 and
$173,000 for the nine months ended September 30, 2004 and 2003, respectively,
which is included in operating expenses and income from discontinued operations.
An affiliate of the Managing General Partner charged reimbursement of
accountable administrative expenses amounting to approximately $84,000 and
$121,000 for the nine months ended September 30, 2004 and 2003, respectively,
which is included in general and administrative expenses. At September 30, 2004,
approximately $18,000 of reimbursements for services were accrued by the
Partnership and are included in due to affiliates on the accompanying
consolidated balance sheet.
As compensation for the services rendered in managing the Partnership, the
Managing General Partner is entitled to receive a Partnership Management Fee
equal to 9% of distributions from operations as defined in the Partnership
Agreement. During the nine months ended September 30, 2004 and 2003, no amounts
were paid to the Managing General Partner as there were no distributions in 2004
and the 2003 distributions were made from cumulative undistributed sales and
refinancing proceeds.
An affiliate of the Managing General Partner has made available to the
Partnership a credit line of up to $150,000 per property owned by the
Partnership. During the nine months ending September 30, 2004, an affiliate of
the Managing General Partner agreed to advance funds in excess of the $150,000
line of credit to fund operating expenses of Oak Run Apartments and costs
associated with obtaining a new mortgage on the property. During the nine months
ended September 30, 2004 approximately $372,000 was advanced for these purposes.
At September 30, 2004 the outstanding balance was approximately $374,000
including accrued interest. Interest accrues at the prime rate plus 2% (6.75% at
September 30, 2004). Interest expense amounted to approximately $2,000 for the
nine months ended September 30, 2004. Subsequent to September 30, 2004, an
affiliate of the Managing General Partner loaned the Partnership approximately
$1,855,000 which was used to help repay the existing mortgage (see Note C -
Subsequent Event).
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers' compensation, property casualty and vehicle
liability. The Partnership insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2004 and
2003, the Partnership was charged by AIMCO and its affiliates approximately
$40,000 and $66,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Subsequent Event
On October 1, 2004, the Partnership obtained a mortgage of $8,500,000 on its
sole investment property, Oak Run Apartments, located in Dallas, Texas. The
existing mortgage of approximately $9,728,000 matured on October 1, 2004 and was
repaid with proceeds from the new mortgage and an additional loan of
approximately $1,855,000, which was funded by an affiliate of the Partnership's
managing general partner ("Affiliate Loan") to cover closing costs and the
deficiency between the existing mortgage payoff amount and the new mortgage. The
Affiliate Loan is a demand note that bears interest at the prime rate plus 2%.
The new mortgage requires monthly payments of interest beginning on November 1,
2004 until the loan matures October 1, 2007, with interest being equal to the
average of London Interbank Offered Rates for a term of one month plus 285 basis
points (minimum rate of 4.69%). In conjunction with the mortgage note, the
Partnership paid approximately $30,000 to enter into an interest rate cap
agreement, which limited the Partnership's exposure to interest rate increases.
Under this interest rate cap agreement, the Partnership's interest rate on the
amounts owed to GMAC Commercial Mortgage will be no higher than 6.00%.
Adjustments to the initial amount paid are recognized in interest expense. In
addition the new mortgage requires monthly escrow deposits for taxes, insurance
and replacement reserves. As a condition of making the new mortgage, the lender
required an affiliate of the Partnership to guarantee the obligations and
liabilities of the Partnership with respect to the new mortgage.
Note D - Contingencies
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 Managing 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 Managing 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 Managing 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 Managing General Partner or its affiliates will charge the
Partnerships in connection with this litigation and imposes limits on the class
counsel fees and costs in this litigation. On April 11, 2003, notice was
distributed to limited partners providing the details of the proposed
settlement.
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 Managing 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 Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
The Managing 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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. 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 Managing 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.
The Partnership is unaware of any other 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.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the Managing 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2004 and 2003.
Average Occupancy
Property 2004 2003
Oak Run Apartments 79% 91%
Dallas, Texas
Occupancy at Oak Run Apartments decreased as a result of changes in the criteria
used to accept new tenants. The changes were instituted in an effort to attract
and maintain more desirable tenants which will then help to control operating
expenses.
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 business plan of
the Partnership, the Managing 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 expenses. As part of this plan, the Managing 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 Managing General Partner may use rental
concessions and rental rate reductions to offset softening market conditions,
accordingly, there is no guarantee that the Managing 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.
Results of Operations
The Partnership's net loss for the nine months ended September 30, 2004 was
approximately $606,000 compared to a net loss for the nine months ended
September 30, 2003 of approximately $33,000. The Partnership's net loss for the
three months ended September 30, 2004 was approximately $229,000 compared to net
income for the three months ended September 30, 2003 of approximately $45,000.
The increase in net loss for both the three and nine months ended September 30,
2004 is due to a decrease in income from discontinued operations and an increase
in loss from continuing operations. In accordance with Statement of Accounting
Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", the accompanying consolidated statement of operations
reflect the operations of Overlook Point Apartments as income from discontinued
operations due to the sale of the property in October 2003. The results of the
property's operations for the three and nine months ended September 30, 2003 are
included in income from discontinued operations of approximately $111,000 and
$204,000, respectively, which include revenues of approximately $558,000 and
$1,565,000, respectively.
The Partnership's loss from continuing operations for the three and nine months
ended September 30, 2004 was approximately $229,000 and $606,000, respectively,
compared to a loss from continuing operations for the three and nine months
ended September 30, 2003 of approximately $66,000 and $237,000, respectively.
The increase in loss from continuing operations for both the three and nine
months ended September 30, 2004 was due to a decrease in total revenues and an
increase in total expenses.
Total revenues decreased due to a decrease in rental income partially offset by
an increase in other income. Rental income decreased due to a decrease in
occupancy at Oak Run Apartments discussed above and an increase in bad debt and
concession expenses. Other income increased due to increases in lease
cancellation fees and cleaning and damage fees offset by a decrease in late
charges at Oak Run Apartments.
Total expenses increased for both the three and nine months ended September 30,
2004 due to increases in operating and property tax expenses partially offset by
a decrease in general and administrative expense. Depreciation and interest
expense remained relatively constant for the comparable periods. Operating
expense increased due to increases in property and maintenance expenses
partially offset by decreases in administrative and management fee expenses.
Property expense increased due to an increase in utility costs and leasing
personnel costs. Maintenance expense increased due to increases in landscaping
supplies, contract painting and contract decorating costs. Administrative
expenses decreased due to a decrease in property legal fees as a result of the
settlement of a civil case in the prior year. Management fees decreased as a
result of the decrease in rental income on which such fees are based. Property
tax expense increased due to an increase in the property tax rate by the local
taxing authorities.
General and administrative expenses decreased as a result of the sale of
Overlook Apartments during 2003 which resulted in a decrease in accountable
reimbursements paid to an affiliate of the Managing General Partner in
accordance with the Partnership Agreement. Also included in general and
administrative expenses are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $86,000 compared to approximately $551,000 at September 30, 2003.
Cash and cash equivalents decreased approximately $597,000 from December 31,
2003 due to approximately $591,000 and $210,000 of cash used in investing and
operating activities, respectively, partially offset by approximately $204,000
of cash provided by financing activities. Cash used in investing activities
consisted of property improvements and replacements and net deposits to
restricted escrows maintained by the mortgage lender. Cash provided by financing
activities consisted of advances from an affiliate partially offset by principal
payments made on the mortgage encumbering the Partnership's property and the
payment of loan costs. The Partnership invests its working capital reserves in
interest bearing accounts.
An affiliate of the Managing General Partner has made available to the
Partnership a credit line of up to $150,000 per property owned by the
Partnership. During the nine months ending September 30, 2004, an affiliate of
the Managing General Partner agreed to advance funds in excess of the $150,000
line of credit to fund operating expenses of Oak Run Apartments and costs
associated with obtaining a new mortgage on the property. During the nine months
ended September 30, 2004 approximately $372,000 was advanced for these purposes.
At September 30, 2004 the outstanding balance was approximately $374,000
including accrued interest. Interest accrues at the prime rate plus 2% (6.75% at
September 30, 2004). Interest expense amounted to approximately $2,000 for the
nine months ended September 30, 2004. Subsequent to September 30, 2004, an
affiliate of the Managing General Partner loaned the Partnership approximately
$1,855,000 which was used to help repay the existing mortgage (as discussed
below).
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 Managing 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. Capital improvements planned for the
Partnership's property are detailed below.
During the nine months ended September 30, 2004 the Partnership completed
approximately $612,000 of capital improvements at Oak Run Apartments consisting
primarily of parking lot resurfacing, plumbing fixtures, structural upgrades,
exterior painting and appliances and floor covering replacements. These
improvements were funded from operations and replacement reserves. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete approximately $36,000 of additional
capital improvements during the remainder of 2004. 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 additional capital expenditures planned will be incurred only to the extent
of cash available from operations and Partnership reserves. To the extent that
such budgeted capital improvements are completed, the Partnership's
distributable cash flow, if any, may be adversely affected at least in the short
term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering Oak Run Apartments of approximately $9,728,000 at
September 30, 2004 matured on October 1, 2004.
On October 1, 2004, the Partnership obtained a mortgage of $8,500,000 on its
sole investment property, Oak Run Apartments, located in Dallas, Texas. The
existing mortgage of approximately $9,728,000 matured on October 1, 2004 and was
repaid with proceeds from the new mortgage and an additional loan of
approximately $1,855,000, which was funded by an affiliate of the Partnership's
managing general partner ("Affiliate Loan") to cover closing costs and the
deficiency between the existing mortgage payoff amount and the new mortgage. The
Affiliate Loan is a demand note that bears interest at the prime rate plus 2%.
The new mortgage requires monthly payments of interest beginning on November 1,
2004 until the loan matures October 1, 2007, with interest being equal to the
average of London Interbank Offered Rates for a term of one month plus 285 basis
points (minimum rate of 4.69%). In conjunction with the mortgage note, the
Partnership paid approximately $30,000 to enter into an interest rate cap
agreement, which limited the Partnership's exposure to interest rate increases.
Under this interest rate cap agreement, the Partnership's interest rate on the
amounts owed to GMAC Commercial Mortgage will be no higher than 6.00%.
Adjustments to the initial amount paid are recognized in interest expense. In
addition the new mortgage requires monthly escrow deposits for taxes, insurance
and replacement reserves. As a condition of making the new mortgage, the lender
required an affiliate of the Partnership to guarantee the obligations and
liabilities of the Partnership with respect to the new mortgage.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003. (in thousands, except per unit data):
Nine Months Ended Per Limited Nine Months Ended Per Limited
September 30, Partnership September 30, Partnership
2004 Unit 2003 Unit
Sale and
Refinancing (1) $ -- $ -- $ 393 $ 5.19
(1) From prior cumulative undistributed sale and refinancing proceeds.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing and/or property sale. 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 required
capital improvements expenditures to permit any distributions to its partners
during the remainder of 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 42,694.50 limited partnership units
(the "Units") in the Partnership representing 56.93% of the total outstanding
Units at September 30, 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, unit holders holding a majority of the Units are entitled
to take action with respect to a variety of matters, which include, but are not
limited to, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General Partner. As a result of its ownership of 56.93%
of the total outstanding Units, AIMCO and its affiliates are in a position to
influence all voting decisions with respect to the Registrant. AIMCO IPLP, L.P.,
formerly Insignia Properties L.P. ("IPLP"), an affiliate of AIMCO and the
Managing General Partner indirectly, had agreed for the benefit of non-tendering
unit holders, that it would vote the 21,513 Units acquired in January 1996: (i)
against any increase in compensation payable to the Managing General Partner or
to affiliates; and (ii) on all other matters submitted by it or its affiliates,
in proportion to the votes cast by non-tendering unit holders. Except for the
foregoing, no other limitations are imposed on IPLP's, AIMCO's or any of their
affiliates right to vote each Unit acquired. Although the Managing General
Partner owes fiduciary duties to the limited partners of the Partnership, the
Managing General Partner also owes fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the Managing General Partner, as
managing general partner, to the Partnership and its limited partners may come
into conflict with the duties of the Managing General Partner to AIMCO as its
sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the
Partnership to make estimates and assumptions. The Partnership believes that of
its significant accounting policies, the following may involve a higher degree
of judgment and complexity.
Impairment of Long-Lived Assets
Investment property is recorded at cost, less accumulated depreciation, unless
considered impaired. 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 property. These factors include, but are not limited
to, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
asset.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. 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 Managing General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Managing General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing 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 Managing 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 Managing 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 Managing General Partner or its affiliates will charge the
Partnerships in connection with this litigation and imposes limits on the class
counsel fees and costs in this litigation. On April 11, 2003, notice was
distributed to limited partners providing the details of the proposed
settlement.
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 Managing 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 Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
The Managing 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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. 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 Managing 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.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
ITEM 6. EXHIBITS
See Exhibit Index attached.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTURY PROPERTIES FUND XVIII
By: Fox Partners
General Partner
By: Fox Capital Management Corporation
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 11, 2004
CENTURY PROPERTIES FUND XVIII
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.5 Master Indemnity Agreement Incorporated by reference to
Form 8-K filed by Insignia Financial Group, Inc. with the
Securities and Exchange Commission on September 1, 1995.
3.4 Agreement of Limited Partnership Incorporated by reference
to Exhibit A to the Prospectus of the Registrant dated
November 5, 1982, as revised December 30, 1982, and after
supplemented contained in the Registrant's Agreement on
Form S-11 (Reg. No. 2-78495).
10.4 Purchase and Sale Contract between Century Properties Fund
XVIII and Rohnert Crossbrook Associates, dated August 15, 2003
for sale of Overlook Apartments. Incorporated by reference to
the Registrant's Form 8-K dated October 13, 2003.
10.5 Reinstatement and Amendment to Purchase and Sale Contract
between Century Properties Fund XVIII and Rohnert Crossbrook
Associates, dated September 24, 2003 for sale of Overlook
Apartments. Incorporated by reference to the Registrant's Form
8-K dated October 13, 2003.
10.6 Second Amendment to Purchase and Sale Contract between Century
Properties Fund XVIII and Rohnert Crossbrook Associates, dated
October 3, 2003 for sale of Overlook Apartments. Incorporated
by reference to the Registrant's Form 8-K dated October 13,
2003.
10.7 Loan Agreement dated September 30, 2004 between Oak Run, L.P.,
a South Carolina limited partnership and GMAC Commercial
Mortgage Bank. Incorporated by reference to the Registrant's
Form 8-K dated October 1, 2004.
10.8 Promissory Note dated September 30, 2004 between Oak Run L.P.,
a South Carolina limited partnership and GMAC Commercial
Mortgage Bank. Incorporated by reference to the Registrant's
Form 8-K dated October 1, 2004.
10.9 Guaranty dated September 30, 2004 by AIMCO Properties, L.P.,
for the benefit of GMAC Commercial Mortgage Bank. Incorporated
by reference to the Registrant's Form 8-K dated October 1,
2004.
31.1 Certification of equivalent of Chief Executive Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Century Properties
Fund XVIII;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 11, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of Fox Capital
Management Corporation, equivalent of the
chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Century Properties
Fund XVIII;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 11, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of Fox Capital Management
Corporation, equivalent of the chief
financial officer of the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Century Properties
Fund XVIII (the "Partnership"), for the quarterly period ended September 30,
2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the Chief Executive Officer
of the Partnership, and Stephen B. Waters, as the equivalent of the Chief
Financial Officer of the Partnership, each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Martha L. Long
Name: Martha L. Long
Date: November 11, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 11, 2004
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.