FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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, 1999
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 0-14528
CENTURY PENSION INCOME FUND XXIII
(Exact name of registrant as specified in its charter)
California 94-2963120
(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
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
1999 1998
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 10,884 $ 11,698
Receivables and deposits 2,077 1,699
Other assets 491 286
Mortgage loan receivable 1,137 1,137
Deferred charges 1,065 1,037
Investment properties:
Land 15,970 15,970
Buildings and related personal property 63,481 63,332
79,451 79,302
Less accumulated depreciation (25,424) (24,790)
54,027 54,512
$ 69,681 $ 70,369
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1 $ 40
Tenant security deposit liabilities 334 342
Accrued property taxes 453 675
Accrued interest - promissory notes 524 1,048
Accrued interest - notes payable 205 197
Other liabilities 342 342
Notes payable 6,856 6,856
Non-recourse promissory notes:
Principal 41,939 41,939
Deferred interest payable 38,034 37,342
Minority interest in consolidated
joint ventures 7,936 7,861
Partners' Deficit
General partner's (1,421) (1,387)
Limited partners' (95,789 units issued and
outstanding at March 31, 1999 and
December 31, 1998) (25,522) (24,886)
(26,943) (26,273)
$ 69,681 $ 70,369
Note: The balance sheet at December 31, 1998, has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
b)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 2,751 $ 2,799
Interest income on mortgage loans 13 20
Other income 243 140
Total revenues 3,007 2,959
Expenses:
Operating 795 699
General and administrative 286 271
Depreciation 634 592
Interest on notes payable 207 207
Interest to promissory note holders 1,216 1,216
Amortization of deferred charges 52 110
Property taxes 391 359
Total expenses 3,581 3,454
Loss before minority interest in joint ventures' operations (574) (495)
Minority interest in joint ventures' operations (75) (147)
Net loss $ (649) $ (642)
Net loss allocated to general partner (2%) $ (13) $ (13)
Net loss allocated to limited partners (98%) (636) (629)
$ (649) $ (642)
Net loss per limited partnership unit $ (6.64) $ (6.57)
See Accompanying Notes to Consolidated Financial Statements
c)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 95,789 $ 958 $ 47,894 $ 48,852
Partners' deficit
at December 31, 1997 95,789 $(1,284) $(21,935) $(23,219)
Distribution to general partner -- (21) -- (21)
Net loss for the three months
ended March 31, 1998 -- (13) (629) (642)
Partners' deficit
at March 31, 1998 95,789 $(1,318) $(22,564) $(23,882)
Partners' deficit
at December 31, 1998 95,789 $(1,387) $(24,886) $(26,273)
Distribution to general partner -- (21) -- (21)
Net loss for the three months
ended March 31, 1999 -- (13) (636) (649)
Partners' deficit
at March 31, 1999 95,789 $(1,421) $(25,522) $(26,943)
See Accompanying Notes to Consolidated Financial Statements
d)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net loss $ (649) $ (642)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 634 592
Amortization of deferred charges and lease commissions 117 172
Minority interest in joint ventures' operations 75 147
Deferred interest on non-recourse promissory notes 692 692
Change in accounts:
Receivables and deposits (378) (394)
Other assets (205) 46
Deferred charges 11 (5)
Accounts payable (39) 80
Tenant security deposit liabilities (8) 3
Accrued property taxes (222) 116
Other liabilities -- (47)
Accrued interest on notes payable 8 8
Accrued interest - promissory notes (524) (524)
Net cash (used in) provided by operating activities (488) 244
Cash flows from investing activities:
Property replacements and improvements (149) (201)
Lease commissions paid (156) (19)
Net cash used in investing activities (305) (220)
Cash flows used in financing activities:
Cash distributions to the general partner (21) (21)
Net (decrease) increase in cash and cash equivalents (814) 3
Cash and cash equivalents at beginning of period 11,698 9,366
Cash and cash equivalents at end of period $ 10,884 $ 9,369
Supplemental disclosure of cash flow information:
Cash paid for interest - notes payable $ 199 $ 199
Cash paid for interest - non-recourse promissory notes $ 1,048 $ 1,048
See Accompanying Notes to Consolidated Financial Statements
e)
CENTURY PENSION INCOME FUND XXIII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
Century Pension Income Fund XXIII (the "Partnership" or "Registrant") will
continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Nonrecourse
Promissory Notes had a balance of principal and deferred interest of
approximately $80,000,000 at the maturity date of February 15, 1999; however,
such amount was not paid at maturity. As a result, the Partnership is currently
in default under the Nonrecourse Promissory Notes. Fox Capital Management
Corporation ("FCMC" or the "Managing General Partner") has contacted the
indenture trustee for the Nonrecourse Promissory Notes and certain holders of
Nonrecourse Promissory Notes regarding this default. In connection with these
conversations, the Managing General Partner has proposed that a forbearance
agreement for a specific period be entered into pursuant to which the indenture
trustee will agree not to exercise its rights with respect to the Partnership's
properties while the Partnership markets its properties for sale. The Managing
General Partner believes it is unlikely that the sale of the Partnership's
assets will generate sufficient proceeds to pay off the Nonrecourse Promissory
Notes in full. If the Partnership is unsuccessful in negotiating a forbearance
or other agreement with the indenture trustee or if the Partnership cannot sell
its properties for sufficient value, it is likely that the Partnership will lose
its properties through foreclosure. These conditions raise substantial doubt
about the Partnership's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Partnership
be unable to continue as a going concern.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Partnership
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of 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 month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Partnership's annual report on Form 10-K for
the year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include all of the accounts of the
Partnership and two joint ventures in which the Partnership has a controlling
interest. An affiliated partnership owns the minority interest in these joint
ventures. All significant intercompany transactions and balances have been
eliminated.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
NOTE C - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing 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 as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Managing General Partner and/or its affiliates were incurred during the three
months ended March 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expense) $ 30 $ 38
Reimbursement for services of affiliates (1)
(included in general and administrative
and operating expenses) 63 60
Partnership management fee (included in
general and administrative expenses) 55 55
(1) Included in "Reimbursements for services of affiliates" for the three
months ended March 31, 1998 is approximately $1,000 in reimbursements for
construction oversight costs. There were no such reimbursements for the
three months ended March 31, 1999.
During the three months ended March 31, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from the
Partnership's residential property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$30,000 and $29,000 for the three months ended March 31, 1999 and 1998,
respectively. For the three months ended March 31, 1998, an affiliate of the
Managing General Partner was entitled to receive varying percentages of gross
receipts from the Partnership's Coral Palm Plaza property for providing property
management services. The Partnership paid to such affiliate approximately
$9,000 for the three months ended March 31, 1998. Since October 1, 1998 (the
effective date of the Insignia Merger) these services have been provided for
Coral Palm Plaza by an unrelated party. For the Partnership's remaining
commercial properties, these services were provided by an unrelated party for
the three months ended March 31, 1999 and 1998.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $63,000 and
$60,000 for the three months ended March 31, 1999 and 1998, respectively.
On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554
of the Partnership's 1985 Nonrecourse Promissory Notes and 1,270 of the
Partnership's 1986 Nonrecourse Promissory Notes from a noteholder for $600 per
note.
In each of the three months ended March 31, 1999 and 1998, the general partner
received a cash distribution of approximately $43,000, which was equal to two
percent of cash distributions to the Promissory Note holders. The partnership
management fee and partnership management incentive are limited by the
Partnership Agreement to ten percent of cash available for distribution before
interest payments to the Promissory Note holders and the partnership management
fee.
NOTE E - SEGMENT INFORMATION
Description of the types of products and services from which the reportable
segments derive their revenues: The Partnership has two reportable segments:
residential properties and commercial properties. The Partnership's residential
property segment consists of one apartment complex located in Atlanta, Georgia.
The Partnership rents apartment units to tenants for terms that are typically
twelve months or less. The commercial property segment consists of three
business parks located in Florida, North Carolina and Texas, one industrial
building located in California, and two shopping centers located in Kentucky and
Georgia. In addition, the Partnership also owns controlling interests in two
joint ventures, which properties include three business parks located in
Minnesota and a shopping center located in Florida.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segments are the
same as those of the Partnership as described in the Partnership's annual report
on Form 10-K for the year ended December 31, 1998.
Factors management used to identify the Partnership's reportable segments: The
Partnership's reportable segments consist of investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the three months ended March 31, 1999 and 1998 is shown
in the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to reportable
segments.
1999
Residential Commercial Other Totals
Rental income $ 620 $ 2,131 $ -- $ 2,751
Other income 11 173 72 256
Interest expense 207 -- 1,216 1,423
Amortization of deferred costs -- -- 52 52
Depreciation 87 547 -- 634
General and administrative expense -- -- 286 286
Minority interest in joint ventures'
operations -- (75) -- (75)
Segment profit (loss) 44 789 (1,482) (649)
Total assets 6,756 36,119 26,806 69,681
Capital expenditures for investment
properties 22 127 -- 149
1998
Residential Commercial Other Totals
Rental income $ 576 $ 2,223 $ -- $ 2,799
Other income 9 62 89 160
Interest expense 207 -- 1,216 1,423
Amortization of deferred costs -- -- 110 110
Depreciation 85 507 -- 592
General and administrative expense -- -- 271 271
Minority interest in joint ventures'
operations -- 147 -- 147
Segment profit (loss) 56 789 (1,487) (642)
Total assets 9,093 53,598 6,848 69,539
Capital expenditures for investment
properties 28 173 -- 201
NOTE F - 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. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's remaining investment properties consist of one apartment
complex, four business parks and two shopping centers, as well as three business
parks and a shopping center owned by two consolidated joint ventures between the
Partnership and an affiliated partnership. The following table sets forth the
average physical occupancy of each of the Partnership's investment properties,
as well as for the joint venture properties, for the three months ended March
31, 1999 and 1998:
Average
Occupancy
Property 1999 1998
Commerce Plaza 100% 100%
Tampa, Florida
Regency Centre 99% 88%
Lexington, Kentucky
Highland Park III 91% 90%
Charlotte, North Carolina
Interrich Plaza 96% 100%
Richardson, Texas
Centre Stage Shopping Center 97% 99%
Norcross, Georgia
The Enclaves 99% 95%
Atlanta, Georgia
Medtronics 100% 100%
Irvine, California
CORAL PALM PLAZA JOINT VENTURE:
Coral Palm Plaza 61% 69%
Coral Springs, Florida
MINNEAPOLIS BUSINESS PARKS
JOINT VENTURE:
Alpha Business Center 87% 95%
Bloomington, Minnesota
Plymouth Service Center 100% 100%
Plymouth, Minnesota
Westpoint Business Center 93% 92%
Plymouth, Minnesota
The Managing General Partner attributes the increase in occupancy at Regency
Centre to an expanding local economy creating a demand for retail space in the
area which resulted in three tenants, occupying approximately 12% of the total
square footage, signing leases since March 31, 1998. Occupancy at Interrich
Plaza decreased due to a tenant not renewing its lease. Occupancy at the
Enclaves increased due to a more aggressive marketing campaign at the property.
Occupancy at Coral Palm Plaza decreased as a result of the three tenants
vacating the property during 1998. Occupancy at Alpha Business Center decreased
as a result of several tenants not renewing their leases.
Results of Operations
The Partnership's loss before minority interest in joint ventures' operations
was approximately $574,000 for the three months ended March 31, 1999 compared to
approximately $495,000 for the corresponding period in 1998. The increase in
loss is attributable to an increase in total expenses which more than offset an
increase in total revenues. The increase in total expenses is primarily
attributable to increases in operating, depreciation, and property tax expenses
and, to a lesser extent, an increase in general and administrative expense.
These increases were partially offset by a decrease in amortization of deferred
charges. The increase in operating expense is attributable to increases in
property and maintenance expenses attributable to normal fluctuations in
utilities, salaries and maintenance costs. The increase in depreciation is the
result of an increase in depreciable assets placed in service over the last
twelve months. Property tax expense increased for the three months ended March
31, 1999 due to a reduction of the 1998 property tax expense for the Coral Palm
Plaza property resulting from a successful appeal of 1997 property taxes. The
increase in general and administrative expense for the three months ended March
31, 1999 is primarily attributable to increased legal fees related to
negotiations in connection with the Nonrecourse Promissory Notes (see further
discussion below). Included in general and administrative expenses at both
March 31, 1999 and 1998 are management reimbursements to the Managing General
Partner allowed under the Partnership Agreement. In addition, costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are also
included. The decrease in amortization of deferred charges is due to the fact
that partnership level deferred charges became fully amortized during the three
month period ended March 31, 1999. Interest expense remained consistent for
both three month periods.
The increase in total revenues is attributable to an increase in other income
partially offset by a decrease in rental and mortgage interest income. The
increase in other income is primarily due to a lease buyout fee received from a
tenant at Medtronics. Rental income decreased primarily due to bad debt
recognized at the Coral Palm Plaza property related to the decline in the
physical occupancy at the property (see discussion above) and due to a decrease
in tenant reimbursements at a number of the Partnership's commercial properties.
The decrease in mortgage interest is attributable to the timing of receipts.
The net loss for the three months ended March 31, 1999 was approximately
$649,000 compared to approximately $642,000 for the same period of 1998.
Partially offsetting the increase in overall net loss for the three months ended
March 31, 1999 was a decrease in minority interest in joint ventures' operations
from approximately $147,000 at March 31, 1998 to approximately $75,000 at March
31, 1999. The Partnership owns a majority interest in two joint venture
operations with an affiliated partnership. The decrease in minority interest is
primarily due to a decrease in net income for both of the joint ventures. The
decrease in net income for Coral Palm Plaza Joint Venture for the three months
ended March 31, 1999 is primarily due to the occupancy-related issues and the
increase in property tax expense as discussed above. The decrease in net income
for Minneapolis Business Parks Joint Venture for the three months ended March
31, 1999 as compared to the same period of 1998 is primarily attributable to an
increase in depreciation expense as a result of depreciable assets placed in
service over the last twelve months. Also contributing to the decrease in net
income is an increase in operating expenses primarily due to increased
maintenance expense at the joint venture's properties during the three months
ended March 31, 1999.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. 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, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 1999, the Partnership had cash and cash equivalents of
approximately $10,884,000 compared to approximately $9,369,000 at March 31,
1998. The net decrease in cash and cash equivalents for the three months ended
March 31, 1999 from the Partnership's year ended December 31, 1998 was
approximately $814,000. This decrease is due to approximately $488,000 of net
cash used in operating activities, approximately $305,000 of cash used in
investing activities, and approximately $21,000 of cash used in financing
activities. Cash used in investing activities consisted of property improvements
and replacements and payment of lease commissions. Cash used in financing
activities consisted of cash distributed to the general partner. The
Partnership invests its working capital reserves in money market accounts.
The Partnership's Enclaves property is secured by mortgage indebtedness of
approximately $6,856,000, which requires interest only payments with a balloon
payment due in 2001. In addition, in order to finance the purchase of its
properties, the Partnership sold Nonrecourse Pension Investor Notes with an
aggregate original principal amount of $41,939,000 (the "Notes"). Pursuant to
the terms of the Notes, the Partnership was required to pay interest at a rate
of 5% per annum on the Notes, and accrue the additional 5% (1986 Notes) and 7%
(1985 Notes) per annum due on the Notes. The Notes are secured by all of the
Partnership's properties. The Nonrecourse Promissory Notes had a balance of
principal and deferred interest of approximately $80,000,000 at the maturity
date of February 15, 1999; however, such amount was not paid at maturity. As a
result, the Partnership is currently in default under the Nonrecourse Promissory
Notes. The Managing General Partner has contacted the indenture trustee for the
Nonrecourse Promissory Notes and certain holders of Nonrecourse Promissory Notes
regarding this default. In connection with these conversations, the Managing
General Partner has proposed that a forbearance agreement for a specific period
be entered into pursuant to which the indenture trustee will agree not to
exercise its rights with respect to the Partnership's properties while the
Partnership markets its properties for sale. There can be no assurance,
however, that a forbearance agreement will be entered into or, if entered into,
that the Partnership can sell its properties or as to the net sales proceeds
generated. The Managing General Partner believes it is unlikely that the sale
of the Partnership's assets will generate sufficient proceeds to pay off the
Nonrecourse Promissory Notes in full. If the Partnership is unsuccessful in
negotiating a forbearance or other agreement with the indenture trustee or if
the Partnership cannot sell its properties for sufficient value, it is likely
that the Partnership will lose its properties through foreclosure. If the
properties are foreclosed upon, the Partnership would be dissolved, any
available cash would be distributed and limited partners would lose their
investment in the Partnership. It is expected that the Partnership would
recognize a gain for tax purposes if the properties were foreclosed upon.
In light of the pending maturity of the Notes, no distributions were made to the
limited partners for the three months ended March 31, 1999 or 1998. In
accordance with the Partnership Agreement, the general partner received cash
distributions equal to 2% of the interest payments on the Nonrecourse Promissory
Notes (approximately $21,000) during each of the three months ended March 31,
1999 and 1998.
The three commercial properties in Minneapolis Business Park Joint Venture are
under contract for sale. The sale, which is subject to the purchaser's due
diligence and other customary conditions, is expected to close during the second
quarter of 1999. However, there can be no assurance that the sale will be
consummated.
Capital improvements planned for each of the Partnership's properties are
detailed below. Additional capital expenditures will be incurred only if cash
is available from operations.
Commerce Plaza
During the three months ended March 31, 1999, the Partnership expended
approximately $31,000 for capital improvements at Commerce Plaza consisting
primarily of tenant improvements. These improvements were funded from operating
cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $87,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
tenant improvements which are expected to cost approximately $41,000.
Regency Centre
During the three months ended March 31, 1999, the Partnership completed
approximately $23,000 for tenant improvements at Regency Centre which were
funded from operating cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that the property requires approximately $127,000 of capital improvements over
the near term. Capital improvements budgeted for 1999 include, but are not
limited to, tenant improvements, which are expected to cost approximately
$48,000.
Highland Park III
During the three months ended March 31, 1999, the Partnership completed
approximately $41,000 of tenant improvements at Highland Park III which were
funded from operating cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that the property requires approximately $243,000 of capital improvements over
the near term. Capital improvements budgeted for 1999 include, but are not
limited to, tenant improvements, which are expected to cost approximately
$110,000.
Interrich Plaza
During the three months ended March 31, 1999, the Partnership did not complete
any capital or tenant improvements at Interrich Plaza. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $79,000
of capital improvements over the near term. Budgeted capital improvements for
1999 include, but are not limited to, tenant improvements which are expected to
cost approximately $16,000.
Centre Stage
During the three months ended March 31, 1999, the Partnership expended
approximately $6,000 for tenant improvements at Centre Stage which were funded
from operating cash flow. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $131,000 of capital improvements over the near
term. Budgeted capital improvements for 1999 include, but are not limited to,
tenant improvements, which are expected to cost approximately $17,000.
The Enclaves
During the three months ended March 31, 1999, the Partnership expended
approximately $22,000 for capital improvements at The Enclaves consisting
primarily of floor covering and appliance replacements. These improvements were
funded from operating cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that the property requires approximately $1,020,000 of capital improvements over
the near term. Capital improvements budgeted for 1999 include, but are not
limited, landscaping, carpet replacement and roof repairs, which are expected to
cost approximately $477,000.
Medtronics
During the three months ended March 31, 1999, the Partnership did not complete
any capital or tenant improvements at Medtronics. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $23,000
of capital improvements over the near term. Capital improvements budgeted for
1999 include, but are not limited to, tenant improvements which are expected to
cost approximately $426,000.
Coral Palm Plaza
During the three months ended March 31, 1999, the Partnership did not complete
any capital or tenant improvements at Coral Palm Plaza. Capital improvements
budgeted for 1999 include, but are not limited to, tenant improvements, which
are expected to cost approximately $80,000.
Alpha Business Center
During the three months ended March 31, 1999, the Partnership did not complete
any capital or tenant improvements at Alpha Business Center. Capital
improvements budgeted for 1999 include, but are not limited to, tenant
improvements and signage replacement, which are expected to cost approximately
$195,000.
Plymouth Service Center
During the three months ended March 31, 1999, the Partnership did not complete
any capital or tenant improvements at Plymouth Service Center. There are no
capital improvements currently budgeted for 1999 for this property.
Westpoint Business Center
During the three months ended March 31, 1999, the Partnership expended
approximately $26,000 for capital improvements at West Point Business Center
consisting of tenant improvements and appliance and carpet replacements, which
were funded from operating cash flow. Capital improvements budgeted for 1999
include, but are not limited to, building and tenant improvements, which are
expected to cost approximately $194,000.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1998 and 1999, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1999, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers, routers and
desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
March 31, 1999, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1999, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and the testing process is
expected to be completed by July 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1998, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest
earned on the Partnership's cash and cash equivalents as well as interest paid
on its indebtedness. As a policy, the Partnership does not engage in speculative
or leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. To mitigate the impact of fluctuations in U.S.
interest rates, the Partnership maintains its debt as fixed rate in nature by
borrowing on a long-term basis. Based on interest rates at March 31, 1999, a 1%
increase or decrease in market interest rates would not have a material impact
on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 1998, the Partnership's latest fiscal year end. The interest rates
represent the weighted-average rates. The fair value of the debt obligations
approximated the recorded value as of December 31, 1998.
Principal amount by expected maturity:
Long term debt Fixed Rate Debt Average Interest Rate
1999 $41,939 11.60%
2000 -- --
2001 6,856 12.06%
Thereafter -- --
Total $48,795
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. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K: None filed during the quarter ended March
31, 1999.
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.
CENTURY PENSION INCOME FUND XXIII
By: Fox Partners V
Its General Partner
By: Fox Capital Management Corporation
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: May 17, 1999