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, 1994
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 0-14581
California Seven Associates Limited Partnership,
a California Limited Partnership
(Exact name of registrant as specified in its charter)
California 94-2970056
(State of Organization) (I.R.S. Employer Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Telephone Number: (203) 726-6000
Indicate by checkmark 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
California Seven Associates Limited Partnership,
a California Limited Partnership
Balance Sheets
March 31, December 31,
1994 1993
Assets (Unaudited) (Audited)
Property and improvements, at cost:
Land and land improvements $ 20,562,073 $ 20,562,073
Buildings 109,662,095 109,659,882
Furniture and fixtures 12,942,010 12,925,199
Machinery and equipment 690,956 681,295
143,857,134 143,828,449
Less accumulated depreciation 44,967,141 43,907,921
Net property and improvements 98,889,993 99,920,528
Cash and cash equivalents 944,684 1,440,476
Accounts receivable 352,989 388,172
Prepaid expenses 144,956 792
Other assets 152,703 19,040
Total $ 100,485,325 $ 101,769,008
Liabilities and Partners' Deficit
Liabilities:
Note and mortgages payable $ 111,983,903 $ 111,983,903
Accrued interest payable 2,065,568 1,600,118
Accounts payable and accrued expenses 687,743 446,318
Tenant security deposits 400,509 472,865
Unearned income 190,376 303,995
Deferred management fees 2,000,000 2,000,000
Fees and reimbursements payable
to the General Partner and
its affiliates 3,930,683 3,848,505
Other liabilities 42,877 33,957
Total liabilities 121,301,659 120,689,661
Partners' deficit:
General Partner (751,411) (732,454)
Limited partners (362 Class A
Units and 3 Class B Units): (20,064,923) (18,188,199)
Total partners' deficit (20,816,334) (18,920,653)
Total $ 100,485,325 $ 101,769,008
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California Limited Partnership
Statements of Operations
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
1994 1993
Property operating revenues:
Rental income $ 3,672,098 $ 4,308,080
Other 141,259 179,199
3,813,357 4,487,279
Operating expenses:
Maintenance and repairs, furniture rental,
insurance, and other
property operations 714,316 862,543
Real estate taxes 350,730 369,209
Management fees 143,185 134,468
Property administrative 711,877 958,868
1,920,108 2,325,088
Net property revenue 1,893,249 2,162,191
Other operating costs and expenses:
Depreciation and amortization 1,059,220 1,113,465
Management and administrative fees
to affiliates 75,634 81,508
Partnership administrative 43,443 26,288
1,178,297 1,221,261
Net partnership operating income 714,952 940,930
Interest income 4,817 16,122
Interest expense (2,615,450) (2,615,450)
Net loss $ (1,895,681) $ (1,658,398)
Net loss:
General Partner $ (18,957) $ (16,584)
Limited partners (1,876,724) (1,641,814)
$ (1,895,681) $ (1,658,398)
Net loss per Class A Unit $ (5,184) $ (4,535)
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California Limited Partnership
Statements of Cash Flows
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
1994 1993
Cash flows from operating activities:
Net loss $ (1,895,681) $ (1,658,398)
Adjustments to reconcile net loss
to net cash
used in operating activities:
Depreciation and amortization 1,059,220 1,113,465
Accounts receivable 35,183 (83,553)
Accrued interest payable 465,450 738,667
Accounts payable and accrued expenses 241,425 (64,962)
Fees and reimbursements payable to the
General Partner and its affiliates 82,178 87,914
Other, net (454,882) (249,035)
Net cash used in operating activities (467,107) (115,902)
Cash flows from investing activities:
Purchase of property and improvements (28,685) (102,236)
Net decrease in cash and cash equivalents (495,792) (218,138)
Cash and cash equivalents,
beginning of year 1,440,476 2,268,544
Cash and cash equivalents, end of period $ 944,684 $ 2,050,406
Supplemental disclosure of cash information:
Interest paid during period $ 2,150,000 $ 1,876,783
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California Limited Partnership
Notes to Financial Statements
(Unaudited)
Readers of this quarterly report should refer to the audited financial
statements for California Seven Associates Limited Partnership, a
California Limited Partnership ("the Partnership"), for the year ended
December 31, 1993 which are included in the Partnership's 1993 Annual
Report, as certain footnote disclosures which would substantially duplicate
those contained in such audited financial statements have been omitted from
this report.
1. Basis of Accounting
a) Basis of Presentation: The accompanying financial statements were
prepared in accordance with generally accepted accounting principles.
It is the opinion of management that the financial statements
presented reflect all the adjustments necessary for a fair
presentation of the financial condition and results of operations.
b) Cash and Cash Equivalents: Short-term investments with a maturity of
three months or less at the time of purchase are reported as cash
equivalents.
c) Other Assets: Included in other assets is approximately $120,000 of
costs incurred at the Sherman Oaks property relating to the January
1994 Southern California earthquake. These costs are part of a
pending claim with the Partnership's property insurance carrier.
2. Property and Improvements and Note and Mortgages Payable
At March 31, 1994 the Partnership owned six properties located in
California totaling 2,135 units with leases generally for a term of one
year or less. All properties are pledged as security for the long-term
debt.
The Partnership is currently in default on its second mortgage loan
obligation and could lose its investment in property and improvements
through foreclosure. The balance of the second mortgage note at March 31,
1994 was $14,000,000 plus $886,900 of accrued and unpaid interest.
Although the second mortgage holder has acknowledged the default, the
Partnership has not received a notice of acceleration.
The Sherman Oaks property sustained extensive damage from the January
17, 1994 Southern California earthquake. The property was "red-tagged" by
city inspectors which means that the property is unsafe for use. It is
currently unoccupied. The Partnership's properties are covered by
insurance, including earthquake (5% deductible) and business interruption.
The Partnership is working with the insurance company, the first mortgage
lender and the appropriate hired professionals to complete surveys and cost
estimates. Estimates are expected for both the cost to repair/rebuild and
to replace. The first mortgage lender has discretion as to the decision to
rebuild or apply the proceeds to reduce the outstanding debt obligation.
The carrying value of the Sherman Oaks property at March 31, 1994 was
$17,498,496. The financial statements do not include any adjustments for
possible losses resulting from the earthquake.
California Seven Associates Limited Partnership,
a California Limited Partnership
Notes to Financial Statements - Continued
(Unaudited)
3. Transactions with Affiliates
Fees and other expenses required to be paid by the Partnership to the
General Partner or its affiliates are as follows:
Three Months Ended Unpaid at
March 31, March 31,
1994 1993 1994
Interest on assignment note $ 22,000 $ 22,000 $ 462,001
Asset management fee 38,134 44,008 2,357,179
Administration and management fee -- -- 260,050
General partner's salary 37,500 37,500 787,500
Real Estate Advisory fee -- -- 518,750
Reimbursement (at cost) for
out of pocket expenses 6,545 7,289 7,204
$ 104,179 $ 110,797 $4,392,684
4. Litigation
In California Seven Associates, Limited Partnership , et al v. SBD
Group, Inc., et al [Case no. 716034 (Superior Court of the State of
California, Orange County)] Plaintiff continues to seek payment of
$154,194.58 plus interest and fees from Defendant. The lawsuit stems from
Defendants' refusal to forward rental payments which accrued while
Plaintiff owned the property (Torrance Oakwood 20900 Anza, City of
Torrance). A Mandatory Settlement Conference, followed by a jury trial has
been set for July. Plaintiff intends to file a motion for Summary
Judgement prior to the trial date.
Plaintiffs in a suit brought against the Partnership and its General
Partner [Theodore D. Cohen, et al v. California Seven Associates, et al.,
No. 657925 (Orange County, CA, May 16, 1991)] are class members in a
federal court action in Chicago [In re VMS Securities Litigation, No.
90C2412, N.D. Ill.]. On July 20, 1993 defendants filed a motion requesting
that The California suit be permanently enjoined on the grounds that the
settlement of the VMS class actions released plaintiff's claims. The
likelihood of an unfavorable outcome or the extent of any possible
liability cannot be assessed at this time.
5. Subsequent Event
On April 29, 1994, the Partnership received a partial advance of
$750,000 from the insurance company relative to the business interruption
coverage on the earthquake damaged Sherman Oaks property.
California Seven Associates Limited Partnership,
a California Limited Partnership
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1994, the Partnership had $944,684 in cash and cash
equivalents which is to be used for working capital and for payment of
accrued liabilities. The Partnership's accrued liabilities at March 31,
1994 include the April 4, 1994 first mortgage debt service payment of
$716,667 and tenant security deposits of $400,000. On April 4, 1994, the
Partnership made the monthly first mortgage payment and on April 10, 1994,
the Partnership paid the second installment of property taxes for the
fiscal year July 1993 to June 1994 of approximately $584,265. (As
allowed by law, the Partnership has been able to defer payment of real
estate taxes for the earthquake damaged property, Sherman Oaks.) The
Partnership collected sufficient rents in April to fund the property tax
payments due as well as payment of monthly recurring operating expenses.
On April 29, 1994, the Partnership received a $750,000 advance from the
insurance company on the earthquake damaged property's business
interruption policy. On May 2, 1994, the Partnership made the monthly
first mortgage debt service payment of $716,667.
The Partnership's cash flow from operations after debt service and
capital improvements has been in a continual deficit position. As a result
of cash flow deficits and the lack of investor equity, the Partnership
began withholding payment of debt service on its second mortgage beginning
November 1, 1993 and remains in default at March 31, 1994. The Partnership
intends to limit capital expenditures to those needed for safety and
structural integrity. Any additional capital expenditures will be limited
to those which can be funded from property operations after first mortgage
debt service. The General Partner has estimated 1994 operations to be
sufficient to cover first mortgage debt service and necessary capital
expenditures, exclusive of Sherman Oaks normal property operations, but
inclusive of collections representing reimbursement for loss of operations
(net operating income) from business interruption insurance. Dependant on
the timing of the insurance reimbursement, the General Partner may have to
take further steps to preserve the Partnership's cash.
The Partnership continues to face increasing risk of losing the
properties through foreclosure as the second mortgage remains in default
and the General Partner takes steps to maintain the precariously low level
of Partnership reserves. Even if an agreement is reached with the second
mortgage leader to remedy the default, the uncertainty surrounding the
earthquake and satisfaction of the requirements of the first mortgage
remain unresolved.
As decisions are made to repair/rebuild or apply insurance proceeds to
the outstanding first mortgage obligation, cash flow and Partnership
reserves will be impacted. At the present time, the Partnership's reserves
will not allow funding of the 5% deductible needed to rebuild, possibly
subjecting the properties to foreclosure. If the insurance proceeds are
applied to the outstanding balance of the first mortgage, the remaining
five operating properties may be unable to generate sufficient cash flow to
service the remaining first mortgage obligation. The amount of insurance
proceeds that will be available and the first mortgage lender's decision as
to the application of the proceeds are unknown at this time. The General
Partner will continue to pursue alternatives to restructure and extend the
mortgage debt. Regardless of how future events transpire, it is unlikely
that any debt restructuring or market improvement will be sufficient to
materially improve the outlook for limited partners. Under any potential
scenario, the likelihood of any cash being available for investors at wrap-
up is doubtful.
California Seven Associates Limited Partnership,
a California Limited Partnership
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Results of Operations
The Sherman Oaks property sustained extensive damage from the Southern
California earthquake on January 17, 1994, following which the property was
evacuated and city inspectors classified the property as unsafe for use.
As a result, the property has generated little revenue for the first
quarter and has had a substantial decrease in operating expenses. Results
for the three months ended March 31, 1994, as compared with the same period
in 1993, were as follows: rental income decreased approximately $778,000, other
income decreased approximately $18,000, property operating expenses
decreased approximately $119,000 and property administrative expenses
decreased approximately $134,000. The following analytical comments have
been limited to the Partnership's five other properties for the first three
months year over year.
The weakness in the Southern California economy and increased
competition, both of which have had an adverse impact on occupancy and,
subsequently, rental rates, have combined to support the Partnership's
decision to convert a number of the properties to conventional apartments,
unfurnish more units at the remaining OAKWOOD properties, and to switch to
an effective rent strategy to maintain occupancy and market share. The
strategies appeared to have worked in 1993; occupancy percentages were
restored and stabilized and rental rates began to pick back up slightly.
Results have improved considerably for the first quarter of 1994.
Exclusive of the Sherman Oaks property, net property revenues (property
level revenues less property level operating expenses) have increased to
$2,097,000, a 15% increase from 1993's first quarter result of $1,821,000
and a 22% increase from 1993's fourth quarter result of $1,720,000.
Effective January 1, 1994, Mission Bay East converted from OAKWOOD
operations to conventional apartment operations. Although the property
ended the quarter with a drop in occupancy percentage, average occupancy
for the quarter included some leftover corporate rentals which, combined
with expense savings from the conversion, helped boost net property
revenue for the first quarter 1994 by 12% compared to the first quarter of
1993 and 16% compared to the fourth quarter of 1993. The Partnership
currently has one remaining property operating as an OAKWOOD. The West Los
Angeles OAKWOOD posted a 42% increase in net property revenue compared to
the first quarter of 1993 and a 17% increase compared to the fourth quarter
of 1993. Increases are attributable to increased average occupancy
percentages, less discounting on corporate rental rates and lower expenses,
including a drop in repairs and maintenance and worker compensation
insurance.
At the property's other conventionally run apartment properties, Arbor
Park, Amberway and Pacifica Club, results have improved from a combination
of increased revenues and decreased expenses. Arbor Park's results were
flat compared to the first quarter of 1993 but were up 123% from the fourth
quarter 1993 as a result of large drop non-routine maintenance coupled with
other expense savings. Amberway's net property revenue was up 4% and 15%
for the first quarter of 1994 compared with the first and fourth quarters
of 1993, respectively. The first quarter of 1993 includes a $38,000 non-
recurring laundry contract fee. Generally revenue decreases from a
continued softening in the market were more than offset by drops in
maintenance and repair accounts. Pacifica Club's net property revenue
increased 14% and 10% for the first quarter 1994 when compared with the
first and fourth quarters of 1993, respectively. When comparing first
quarter 1994 to 1993, the increase is attributable to increase in average
occupancy percentages. For the comparison to the previous quarter, fourth
quarter of 1993, the increase is attributable to savings in expenses such
as repair and maintenance and payroll related costs.
California Seven Associates Limited Partnership
a Califorinia Limited Partnership
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Average occupancy at West Los Angeles for the three months ended March
31, 1994 was 91%, as compared with 88% for the same period in 1993. The
increase in average occupancy coupled with less corporate rate discounting
increased rental income approximately $64,000 for the three months ended
March 31, 1994, as compared with the same period in 1993. At Mission Bay
East, leftover corporate business contributed approximately $40,000 to the
increase in rental income and rental income at Pacifica Club increased
approximately $40,000 as the result of higher average occupancy.
The other income decrease for the three months ended March 31, 1994, as
compared with the same period in 1993, was due to redecorating fees
received from a new laundry contract at Amberway in the first quarter of
1993.
The decrease in property operating expenses for the three months ended
March 31, 1994, as compared with the same period in 1993, was due to a
$32,000 and a $52,000 decrease in repair and maintenance expenses in the
first quarter of 1994 at West Los Angeles and Amberway as a result of
damage incurred from the heavy rains in Southern California in early 1993.
Also, a painting project was in progress at Amberway during the first
quarter of 1993. These decreases were partially offset by an $18,000 and a
$12,000 increase in non-routine maintenance expense at Mission Bay East and
Pacifica Club, respectively, related to carpet replacements and other
repairs. Mission Bay East had a $20,000 increase to utilities as a result
of lower reimbursements for various utilities from corporate tenants. As
the property converts to conventional operations from OAKWOOD, utilities
will increase as the Partnership is not allowed to charge back certain
utilities to its non-corporate tenants. West Los Angeles posted a $5,000
increase to furniture rental to accommodate leasing activity.
Property taxes are down for the three months ended March 31, 1994, as
compared with 1993, due to decreased assessments at Mission Bay East and
Pacifica Club.
The decrease in property administrative expense for the three months
ended March 31, 1994, as compared with the same period in 1993, was the
result of a reduction of OAKWOOD related costs at Mission Bay East as the
result of the conversion from OAKWOOD operations to conventional
operations. The property saved $40,000 in payroll related direct and
indirect costs. Although conventional type advertising increased with the
conversion, OAKWOOD related advertising dropped, for a net decrease of
$9,000. West Los Angeles and Pacifica Club experienced significant savings
in payroll related costs; $32,000 and $8,000, respectively. West Los
Angeles saved approximately $20,000 of the $32,000 on workers compensation
insurance.
The decrease in interest income for the three months ended March 31,
1994, as compared with the same period in 1993, was due to the decrease in
the average cash balance invested as a result of cash flow deficits.
Amortization decreased for the three months ended March 31, 1994, as
compared with 1993, due to deferred loan costs becoming fully amortized
during 1993. Offsetting the decrease partially was an increase in
depreciation from major additions in 1992 and 1993.
California Seven Associates Limited Partnership,
a California Limited Partnership
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Occupancy
The following is a listing of approximate occupancy levels by quarter
for the Partnership's investment properties during 1994 and 1993:
1993 1994
At 3/31 At 6/30 At 9/30 At 12/31 At 3/31
The Anaheim Property 91% 96% 94% 91% 83%
The Huntington Beach Property 91% 86% 94% 96% 95%
The West Los Angeles Property 85% 93% 92% 83% 87%
The San Diego Property 86% 92% 86% 97% 84%
The Sherman Oaks Property (a) 87% 88% 88% 84% N/A
The Upland Property 92% 90% 91% 91% 91%
<FN>
(a) The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property was evacuated and considered unsafe
for use. Therefore, occupancy is not applicable for 1994.
Part II - Other Information
Item 1. Legal Proceedings
The information included in the "Notes to Financial Statements, Note 4.
Litigation" on page 6 of the Partnership's March 31, 1994 Financial
Statements, is incorporated by reference.
Item 3. Defaults by the Partnership on its Senior Securities
The information included in the "Notes to Financial Statements, Note 2.
Property and Improvements and Note and Mortgages Payable" on page 5 of the
Partnership's March 31, 1994 Financial Statements is incorporated by
reference.
Item 6. Exhibits and Reports on Form 8-K
(b) No Form 8-Ks were filed during the three months ended March 31, 1994.
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.
California Seven Associates Limited Partnership,
a California Limited Partnership
By: CIGNA Realty Resources, Inc. - Seventh,
General Partner
Date: May 15, 1994 By: /s/ John D. Carey
John D. Carey, President and Controller
(Principal Executive Officer)
(Principal Accounting Officer)