UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
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)
Registrant's telephone number, including area code: (203) 726-6000
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and
Related Security Holder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 12
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and
Financial Disclosure 35
PART III
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 37
Item 13. Certain Relationships and Related Transactions 38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 40
SIGNATURES 43
PART I
Item 1. Business
The registrant, California Seven Associates Limited Partnership, a
California limited partnership (the "Partnership"), was formed on January
30, 1985 under the laws of the State of California to acquire and operate
seven apartment complexes located in California. Pursuant to a private
offering, in February 1985, the Partnership sold Class B Limited
Partnership Interests for an aggregate purchase price of $500,000.
Commencing in March 1985, the Partnership sold Class A Limited Partnership
Interests (the "Units") at a price of $150,000 each (362 Units in total),
for an aggregate purchase price of $54,300,000. The selling period closed
on December 15, 1985 with $54,800,000 having been raised from a total of
526 Class A and B investors. On April 30, 1986, the Partnership filed a
General Form for Registration of Securities on Form 10 pursuant to the
Securities Act of 1934 (Registration No. 0-14581), which was amended by
Form 8 dated July 25, 1986.
The General Partner of the Partnership is CIGNA Realty Resources,
Inc.-Seventh (the "General Partner"), a Delaware corporation qualified to
do business in the States of California and Connecticut and a wholly owned
subsidiary of CIGNA Financial Partners, Inc. ("CFP"), which is in turn, a
wholly owned subsidiary of Connecticut General Corporation ("CGC"), which
is in turn, a wholly owned subsidiary of CIGNA Holdings, Inc., which is a
wholly owned subsidiary of CIGNA Corporation ("CIGNA"), a publicly held
corporation whose stock is traded on the New York Stock Exchange.
The Partnership is engaged solely in the business of real estate
investment. A presentation of information about industry segments is not
applicable.
On January 31, 1985, the Partnership acquired from IFD Properties,
Inc.-First, ("IFD-First"), an affiliate of the General Partner, fee title,
subject to a first mortgage note and seven deeds of trust, to seven
apartment complexes (the "Investment") and related site improvements in the
State of California for the aggregate purchase price, excluding acquisition
fees and expenses, of $146,000,000. During 1990, one of the seven
apartment complexes was sold. Reference is made to Item 7 for a
description of the sale.
The Partnership is in the business of owning and operating six
apartment complexes (the "Project") and related site improvements all
located in Central and Southern California. One of the six properties, the
Sherman Oaks property, was severely damaged in the January 1994 Northridge
earthquake. The Sherman Oaks property is presently not operating and is
unoccupied. The Partnership's Project is insured, inclusive of earthquake
coverage and business interruption, subject to a 5% deductible. Reference
is made to Item 7 for a description of the status of the Sherman Oaks
property and the insurance claim.
The Partnership is currently operating five properties. Of the
five properties operating, one is operated under the R&B OAKWOOD marketing
concept ("OAKWOOD") and four are operated as conventional apartment
complexes. Although one of the four conventional properties converted from
OAKWOOD during 1994, the property continues to generate revenues and
benefit from utilizing the OAKWOOD system. The OAKWOOD concept has four
components: studio, one bedroom, and two bedroom furnished apartments;
month to month, six month and one year rental agreements with a minimum
30-day stay; optional housewares package with maid service; and
middle-to-upper income level tenants who are in need of temporary housing.
The concept is established and works well with corporate clients
seeking temporary housing, relocation, and housing for new employees.
Southern California is well suited to the OAKWOOD concept as Southern
California has a sizable affluent population which frequently leases on a
short-term basis. The weakness in the Southern California economy in 1991
and 1992 had an adverse impact on occupancy and, subsequently, rental
rates, which supported the Partnership's decision to convert a portion of
the Project's operations to conventional operations.
On September 16, 1994, the Partnership filed a voluntary petition
for reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California.
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is
managing and operating its business as a debtor in possession and will
continue to do so pursuant to Sections 1107 and 1108 of the Bankruptcy Code
unless otherwise ordered by the Court. Reference is made to Item 7 for a
description of the events prior to and subsequent to the bankruptcy filing.
Although the cost to the Partnership for the Investment was an
aggregate purchase price, the General Partner allocated cost, including the
assignment fee and certain capitalized fees and expenses, to each of the
properties based on their appraised values at the time of purchase. The
allocated cost is set forth in the table below:
Purchase Price, Assignment
Name of Property Fees and Certain Capitalized No. of Year
and Location (a) Fees and Expenses (b) Units Completed
1. Amberway Apartments
Anaheim, California $15,691,572 272 1983
2. Pacifica Club
Huntington Beach,
California 17,619,662 304 1971
3. Oakwood Apartments
Los Angeles, California 22,968,097 363 1966
4. Mission Bay East
San Diego, California 42,077,743 564 1970
5. Oakwood Apartments
Sherman Oaks,
California(c) 22,442,254 372 1969
6. The Torrance Property
Torrance, California(d) 14,901,734 248 1965
7. Arbor Park Apartments
Upland, California 11,745,533 260 1971
(a) Reference is made to Item 7 and the Notes to Financial
Statements for a description of the original and current
long-term indebtedness secured by the Project in aggregate.
(b) The Partnership's total investment in the Investment was
$147,446,595, representing the purchase price of $146,000,000
and assignment fees and certain capitalized fees and expenses
of $l,446,595.
(c) The property was severely damaged by the January 17, 1994
Southern California earthquake. The property was evacuated
and is currently unoccupied.
(d) This property was sold October 25, 1990. Reference is made to
Item 7 and the Notes to Financial Statements for a description
of the sale.
The Partnership's real property investments were described in Form
8 dated July 25, 1986, under Item 3 thereof, which descriptions are hereby
incorporated by reference.
During 1994, the United States economy flourished with the recovery
which began in 1993 by adding an additional three and one half million
private sector jobs. All regions of the country realized job expansion,
although California and much of the Northeast continued to show sub-par
growth. Overall, apartment markets benefitted from the recovery with
stable performance and occupancies in the low 90s range. Rental income
rose on average 2-4% across the country during the year, with the exception
of southern California, which was flat. The short-term outlook predicts
that increased consumer confidence and economic growth will translate into
both higher levels of home ownership and stronger apartment demand. The
biggest risk to apartment markets is a long-term shift to greater home
ownership driven by an aging population combined with lower levels of
renter household formations. In general, markets with low home prices
would realize the greatest negative impact on apartment occupancies as both
property types compete for the same tenants. However, California, and in
particular the southern part of the state, is less vulnerable to the risk
of home ownership due to high housing prices and the overall weak economy.
While the median price of a home in California had dropped in recent years
in response to the recession, it is still well out of a typical renter's
economic range.
California's economy grew modestly in 1994 and is forecasted to
continue to grow in 1995 and beyond. In fact, the state's economy is seen
as having reached its bottom during mid-1994 as evidenced by the slow job
growth currently underway. Total employment in California posted modest
growth in 1994. According to the U.S. Department of Labor Bureau of Labor
Statistics (February 1995), California employment totalled 12,069,000 for
December 1994 compared with 12,052,200 for December 1993. The Los Angeles-
Long Beach area and the San Diego area both showed a slight contraction
with total employment of 3,708,900 for December 1994 versus December 1993
of 3,737,000, and 937,800 for December 1994 compared with 942,700 for
December 1993, respectively. Both Orange County and Riverside-San
Bernardino grew relatively strongly, reporting 1,130,700 in December 1994
versus 1,122,800 in December 1993 and 758,000 for December 1994 compared
with 744,000 for December 1993. While contractions within the defense and
aerospace industries will continue, growing activity in trade, tourism and
technology-based industries have filtered and will continue to filter
through the economy. In 1995, each of these areas will see job growth in
excess of 1% a year. Growth in personal and per capita income will also
continue, albeit at a slower pace than the rest of the country.
During 1994, apartment markets remained stable with minimal new
construction. While national multifamily starts in 1994 rebounded from an
eight year decline to post a 6.9% increase, this level is still 40% below
levels reached during the late 1980s. Starts in Los Angeles, at 1600, were
the lowest on record. Absorption of the existing supply continued.
Los Angeles experienced a protracted downturn in its economy from
1990 through mid-1994. Only recently have the signs of recovery been
evident in job growth. With a population of over nine million, Los Angeles
is the largest metropolitan area in the country. Los Angeles accounts for
approximately 30% of the state's total non-farm employment base. Since
1990, Los Angeles lost over 483,000 jobs or 11.6% of its total non-farm
employment base. This accounted for nearly two-thirds of the state's job
loss, underscoring the degree of economic devastation. During 1994, all
industries lost jobs with the exception of construction and services which
posted increases. The January 17, 1994 earthquake in Los Angeles spurred
job growth of 2.9% in the construction industry, creating an additional
15,000 jobs. While job loss was experienced in all other sectors, the
degree of that loss has slowed considerably. Predictions for 1995 and
beyond show growth in all sectors, particularly in services, trade,
construction and transportation. Additionally, the negative impact from
the earthquake on the entertainment and tourism industries appears to be
less than originally anticipated, as hotels, in particular, have maintained
occupancies at near pre-earthquake levels. Rebuilding from the Northridge
earthquake will continue to give the Los Angeles economy a modest boost
over the remainder of the year. Damage was estimated at 15 billion dollars
and approximately 50,000 multifamily units are still considered limited
entry or unsafe. Without the stimulus created by new building on the
construction and retail trade, the region's economy would remain flat.
The competitive submarket for the Sherman Oaks property is defined
as the area bordered by Burbank Boulevard to the north, Cold Water Canyon
Avenue to the east, Ventura Boulevard to the south, and Victory Boulevard
to the west. This is a mature and affluent market which, prior to the
earthquake, was growing at a slower pace than Los
Angeles as a whole. The
employment base for this area is heavily vested in the services (34%) and
trade (21%) industries. Multifamily vacancies in the market are close to
10% and those complexes which have rebuilt compete for an entirely new
tenant base. Very little vacant land is available for construction of new
apartments except what has become available through the demolition of
buildings damaged during the earthquake. Competition for newly refurbished
apartment units is expected to be intense as many smaller complexes will
not be able to rebuild their structures or restore their competitive
positions within the market. Sherman Oaks, if rebuilt, should be able to
command rates comparable to the market. The eight complexes which compete
with Sherman Oaks had occupancies ranging from of 90% to 98% in 1994.
Although unemployment is high in Los Angeles, the outlook for the immediate
area surrounding Sherman Oaks is one of healthy growth as rebuilding moves
forward. If rebuilt, the property would be ideally positioned to compete
effectively in this market.
The West Los Angeles property's primary market is defined as
Olympic Boulevard to the north, Overland Avenue to the east, Culver
Boulevard to the south, and Centinela Boulevard to the west. There are
approximately 40,000 apartment units competing in this submarket. This
area has experienced out migration trends in recent years in response to
the heavy job loss in California. An estimated 140,000 residents left the
Los Angeles area in 1994. With significant losses in the defense and
manufacturing industries, West Los Angeles has seen a dramatic shift in job
markets and a continuing decrease in average income levels. The commercial
and office sectors now make up 70% of the employment base. Vacancies in
the market averaged 11% in 1994. At the West Los Angeles property, the
average monthly rent is $942, down from $1,013 in 1992. The property was
88% occupied during the year. The soft market conditions have also led to
reduced rates, increased concessions, and more flexibility in credit
policies for conventional apartment units. However, experts predict that the
Los Angeles economy "bottomed out" in 1994 and the makings of a slow recovery
are underway.
The San Diego property is located in the Mission Bay area of San
Diego, the sixth largest city in the United States. This area has a
diverse employment base including defense, agriculture, aerospace and bio-
medical industries. The tourism industry also contributes to the local
economy as do the thirty-eight colleges and universities, including the
University of California at San Diego and San Diego State. The military
presence, which currently accounts for 82,000 jobs, is expected to remain
stable although these numbers are significantly lower than prior years,
reflecting downsizing in the defense industry. While economically diverse,
San Diego, like all of California, has suffered from the recession in terms
of job loss. Some submarkets are showing improvement, however, including
the San Diego property's which averaged a 4.7% vacancy rate in 1994, below
San Diego County's average of 5.9%. Rents averaged $661 per month, a level
which has essentially remained flat for the past three years. The property
has remained fairly competitive despite its age due to its desirable
location near Pacific Beach, as well as its pricing strategy of offering
rates approximately $50 lower than the newer competition. It also offers a
wide range of amenities and has undergone extensive renovations to update
its look and increase appeal. Concessions are basically the norm in the
market and the property offers a variety of lease incentives to attract and
retain tenants including $100-$300 rebates off the first month's rent for
long term leases, zero security deposits for qualified residents, and
limited rent increase programs, all geared to encourage lease signing and
renewals.
The Anaheim property is located in Anaheim, Orange County's largest
city. Throughout 1993 and the first half of 1994, jobs in the aviation,
aerospace, semi-conductor and defense industries suffered heavy losses but
a recent upsurge in new orders for airplanes show that the economy is once
again entering a period of growth. Since January 1994, approximately
17,000 new jobs entered the market with corporate profits and sales up.
Unemployment in Anaheim dropped from 8% to 6.6% during the year. Walt
Disney is the city's largest employer with 10,000 on its payroll. This is
followed by the city itself employing 3,500 workers. The property is
located approximately 2 miles from downtown Anaheim in a clean, well-
established neighborhood close to major highway arteries. This market
contains eight apartment complexes totalling 1,646 units. The property's
main competition comes in the form of two class "A" complexes, the most
recent built in 1992. While the newer complexes offer greater amenities,
the property's good quality and lower rates offer an affordable
alternative. The property's average rental rate was $688 per month.
Concessions are a given in the market with most offering money off the
first month's rent as opposed to a reduced monthly rent for the term of the
lease. The Anaheim property typically offers $350 to $550 off the first
month. Since 1992, no new multifamily units have come into the market and
none are planned for 1995.
Additionally, there is no competition from single family home sales. While
the median price of a home dropped to $214,000, this is still well out of a
typical renter's range. Occupancy at the property for 1994 averaged 88%. This is
expected to improve to 92%-95% during 1995 with rents increased 2% on new
leases when possible. Concessions are expected to remain part of the
market throughout the year.
The Huntington Beach property is located in the northwest quadrant
of Orange County, two miles from the ocean in an area defined as a beach
community. Centrally located between Los Angeles and San Diego, the area
has benefitted recently from the Metro Link rail system which expanded its
service in Orange County to and from Los Angeles. The major industry
remains aerospace with major corporations such as McDonnell Douglas,
Rockwell International and Hughes Aircraft. This industry was hard hit by
the recession and has experienced continual layoffs. McDonnell Douglas
laid off 2,000 workers in 1994 alone. During 1994, however, signs of
stability were evident as job loss was down, occupancy levels stabilized,
and concessions in the market decreased. Some upward movement, however
slight, was seen in rental rates. The overall northwest market contains
approximately 136,000 units with the Huntington Beach property's submarket
containing eight complexes with 2,050 units located within a three mile
radius. The majority of these units are conventional apartments with
corporate clientele making up less than 2%. During 1992 the property
converted from OAKWOOD to conventional apartment units. During 1994 the
number of corporate units in the property was reduced from fifteen units to
eight, or less than 3% of the property's total. Pricing at the property is
in-line with the market for one bedroom units ($675 per month) and slightly
below market for two bedroom units ($817 per month versus $865 for the
competition). Concessions remain a staple of the market with most
complexes offering move-in specials of free rent up front. The property
had operated with an effective rent strategy in 1993 as opposed to free
rent upfront, however, during 1994 initiated a program offering $400 off
the first month's rent on twelve month leases. The effective rent program,
which spreads the discount over the term of the lease and thereby offering
lower monthly payments, is still in effect to those residents who prefer it
over the upfront discount. Competitive rates combined with concessions
enabled the property to have a 96% occupancy average during 1994. The
market averages 97%-99%. The ultimate effect of the orange county bankruptcy
case on taxes and services for property owners in the County are uncertain.
The Upland property is located in the southwest corner of San
Bernardino County in a rural, residential area known as the Inland Empire.
Located outside the major metropolitan areas, this region experienced a
surge of growth in the late 1980s and early 1990s in response to the high
cost of housing in Los Angeles and Orange counties. Many residents
commuted to work in Los Angeles and surrounding communities. This area is
one of the hardest hit by the recession in California and falling housing
costs in Los Angeles and Orange County spurred competition for the Inland
Empire. The closures of Norton and George Air Force bases cost the region
thousands of military and civilian jobs since 1990. An additional 3,000
jobs will be lost due to the closure of March Air Force Base in Riverside
in 1995. A Defense Finance and Accounting Service Center, however, is
expected to open soon in San Bernardino and the expansion of commercial
flights at the new San Bernardino Airport will bring new jobs into the
area. The area has been successful at replacing lost jobs posting one of
the best job growth rates in California for 1994. During 1994 the property
was 92% occupied. Average rental rates were $622 per month with
concessions a given in the market. This is situation is not expected to
improve substantially during 1995.
Approximate occupancy levels for the properties on a quarterly
basis are set forth in the table in Item 2 on the following page.
The Partnership itself has no employees; however, the unaffiliated
property managers contracted and supervised by CIGNA Investments, Inc.
("CII", formerly CIGNA Capital Advisors, Inc.) on behalf of the Partnership
maintain on-site staff. For a description of property management services
provided by CII, and the terms of transactions between the Partnership and
affiliates of the General Partner, see Item 13 and the Notes to Financial
Statements.
The following list details operating revenues for each of the
Partnership's investment properties as a percentage of the Partnership's
operating and interest revenues during 1992, 1993 and 1994:
1992 1993 1994
The Anaheim Property 11% 11% 14%
The Huntington Beach Property 13% 14% 18%
The West Los Angeles Property 21% 20% 25%
The San Diego Property 25% 26% 31%
The Sherman Oaks Property(a) 20% 20% 1%
The Upland Property 10% 9% 11%
(a)The property was severely damaged by the January 17, 1994
Southern California earthquake. The property was evacuated and is
currently unoccupied.
In all years, interest income accounted for less than 1% of
Partnership revenue.
Losses from "passive activities" (which include any rental
activity) may only offset income from "passive activities". The
Partnership is engaged in passive activities and therefore investors are
subject to these rules. Passive losses in excess of passive income are
suspended and are carried over to future years when they may be deducted
against passive income generated by the Partnership in such year (including
gain recognized on the sale of the Partnership's assets) or against passive
income derived by investors from other sources. Any suspended losses
remaining subsequent to Partnership dissolution may be used by investors to
offset ordinary income.
Item 2. Properties
The Partnership owns directly (subject to first and second mortgage
loans) the properties described in Item 1 hereof. See Notes to Financial
Statements for a description of unaffiliated management agreements. The
Partnership has engaged one of the two management companies to manage two
of the remaining six properties pursuant to the "OAKWOOD" marketing concept
(see Item 1). One of the four components of the OAKWOOD concept provides
that apartments will be leased in accordance with month-to-month,
six-month, or one-year rental agreements with a minimum 30-day stay.
Although a portion of the Project is or was operated under the OAKWOOD
concept, all of the properties have and will continue to offer furnished
and unfurnished units for conventional longer-term leases to meet total
market needs. Conventional leases are generally for a term of one year or
less.
Reference is made to Item 7 for a description of the status of the
Sherman Oaks property which was severely damaged in the Northridge
earthquake.
In the opinion of the General Partner, the Partnership's properties
continue to be adequately insured.
The following is a listing of approximate physical occupancy levels
by quarter for the Partnership's investment properties during 1990, 1991,
1992, 1993 and 1994 (a):
The The The West Los The San The Sherman The Upland
Anaheim Huntington Angeles Diego Oaks Property
Property Beach Property Property Property (b)
Property
1990
At 92% 98% 90% 73% 94% 91%
03/31
At 94% 97% 94% 71% 90% 94%
06/30
At 89% 92% 88% 85% 92% 94%
09/30
At 89% 86% 77% 78% 89% 88%
12/31
1991
At 85% 93% 87% 84% 90% 88%
03/31
At 96% 96% 95% 97% 94% 92%
06/30
At 81% 85% 84% 83% 84% 94%
09/30
At 72% 72% 74% 78% 84% 94%
12/31
1992
At 84% 83% 89% 86% 85% 91%
03/31
At 75% 89% 94% 93% 90% 94%
06/30
At 85% 89% 87% 87% 90% 87%
09/30
At 90% 85% 83% 72% 93% 92%
12/31
1993
At 91% 91% 85% 86% 87% 92%
03/31
At 96% 86% 93% 92% 88% 90%
06/30
At 94% 94% 92% 86% 88% 91%
09/30
At 91% 96% 83% 97% 84% 91%
12/31
1994
At 83% 95% 87% 84% N/A 91%
03/31
At 81% 98% 92% 93% N/A 90%
06/30
At 89% 99% 87% 95% N/A 91%
09/30
At 95% 94% 83% 92% N/A 95%
12/31
<FN>
(a)The Torrance Property was sold on October 25, 1990; therefore the
Torrance occupancy statistics have not been included in this presentation.
<FN>
(b)The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property is currently not operating and is
unoccupied.
Item 3. Legal Proceedings
On September 16, 1994, the Partnership filed a voluntary petition
for reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California.
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is
managing and operating its business as a debtor in possession and will
continue to do so pursuant to Sections 1107 and 1108 of the Bankruptcy Code
unless otherwise ordered by the Court. Reference is made to Item 7 for a
description of the events prior to and subsequent to the bankruptcy filing.
The information disclosed in "Notes to Financial Statements-Litigation",
included herein, is incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Security
Holder Matters
As of December 31, 1994, there were approximately 536 record
holders of Units, including the Initial Limited Partner, the Class A
Limited Partners, and the seven Class B Limited Partners.
The Revenue Act of 1987 adopted provisions which have an adverse
impact on investors in a "publicly traded partnership" ("PTP"). A PTP is a
partnership whose interests are traded on an established securities market
or readily tradable on a secondary market (or the substantial equivalent
thereof). Units of Registrant are not listed or quoted for trading on an
established securities exchange. However, CFP will, upon request, provide
a Limited Partner desiring to sell or transfer Units with a list of
secondary market firms which may provide a means for matching potential
sellers with potential buyers of Units, if any. Frequent sales of Units
utilizing these services could cause the Registrant to be deemed a PTP. If
Registrant were classified as a PTP, (i) Registrant may be taxed as a
corporation, or (ii) income derived from an investment in Registrant would
be treated as non-passive income. In June 1988, the IRS issued Notice
88-75 in which it established alternative safe harbors that allow interests
in a partnership to be transferred or redeemed in certain circumstances
without causing the partnership to be characterized as a PTP. One such
safe harbor, applicable to a partnership in which all interests were issued
in a private offering, exempts a partnership from PTP characterization
(regardless of how many Units in such partnership are traded) if either (A)
the partnership does not have more than 500 partners, or (B) the initial
offering price of each unit of partnership interest is at least $20,000 and
the partnership agreement provides that no unit of partnership interest may
be subdivided for resale into units smaller than a unit the initial
offering price of which would have been at least $20,000. Registrant has
more than 500 partners, and although the initial offering price of the
Units was at least $20,000, the partnership agreement does not contain a
provision prohibiting the subdivision of Units for resale into Units with a
price of less than $20,000. Thus, Registrant cannot avail itself of this
exception to potential classification as a PTP. Consequently, the
Registrant has adopted a policy prohibiting transfers of Units in secondary
market transactions unless, notwithstanding such transfers, Registrant will
satisfy at least one of the alternative safe harbors contained in the IRS
Notice. Such a restriction could impair the ability of an investor to
liquidate his investment.
The Partnership is currently operating as a going concern under
Chapter 11 of the Bankruptcy Code. It is uncertain as to the likelihood of
availability of funds for distribution. It is unlikely that the
Partnership's operations will generate any funds which would be available
for distribution in the short-term. Proceeds from the sale of the Torrance
property in 1990 were used to reduce mortgage principal and accrued
interest, thus reducing the ongoing debt service requirements of the
Partnership (see the Notes to Financial Statements). Any cash flow that is
available for distribution with respect to any year or portion thereof will
be distributed 99% to the Limited Partners and 1% to the General Partner.
Reference is made to Notes to Financial Statements for a description of
payments to the State of Connecticut on behalf of limited partners and
charged to limited partner capital accounts.
Item 6. Selected Financial Data (a)
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
December 31, 1994, 1993, 1992, 1991 and 1990
(In thousands except per Unit and footnoted information)
(not covered by Report of Independent Accountants)
1994 1993 1992 1991 1990
Total operating income $14,625 $17,926 $18,014 $18,982 $22,007
Net income (loss) (b) (3,239) (6,554) (6,386) (5,432) 6,544
Net income (loss) per unit (b)
Class A (8,859) (17,924) (17,465) (14,856) 14,566
Class B -- -- -- -- 263,570
Total assets 98,399 101,769 106,512 113,058 117,478
Long-term obligations(c) 111,984 111,984 111,984 111,984 118,544
<FN>
(a) The above selected financial data should be read in
conjunction with the financial statements and the related
notes herein. Reference is made to Notes to Financial
Statements for a description of payments to the State of
Connecticut on behalf of limited partners. These payments are
charged to limited partner capital accounts and have not been
included as part of the above presentation.
<FN>
(b) Included in 1994 is $2,000,000 extraordinary gain ($5,470 per
Class A Unit). Included in 1990 is $7,330,011 gain on sale of
property ($6,050,815 or $16,715 per Unit for Class A and
$790,711 or $263,570 per Unit for Class B) and $6,110,706 gain
on debt refinancing ($16,711 per Class A Unit).
<FN>
(c) Effective with the November 1, 1993 payment, the Partnership
began withholding interest payments on the second mortgage
loan obligation. Amounts shown don't include accrued and
unpaid interest on the second mortgage loan. On September 16,
1994 the Partnership filed a petition for relief under Chapter
11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California.
Under Chapter 11, claims relating to the long-term obligations
against the Partnership have been stayed while the Partnership
operates as Debtor in Possession.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership was formed on January 30, 1985 in the State of
California for the purpose of acquiring from IFD Properties, Inc.-First (an
affiliate of the General Partner) and operating seven apartment complexes
located in the state. CFP had entered into a purchase and sale agreement,
dated as of January 15, 1985, with IFD Properties, Inc.-First to acquire
the fee interest in the Investment. On January 30, 1985, CFP assigned all
its rights under the agreement to the Partnership. Pursuant to the
agreement, the Partnership acquired the Investment on January 31, 1985 for
the aggregate purchase price of $146,000,000.
The Partnership accepted title to the Investment subject to the
existing first mortgage note and the seven deeds of trust, held by The
Travelers Insurance Company ("Travelers") and in February 1985 obtained
from Brookside Savings & Loan Association, Los Angeles, California, a
nine-year second mortgage loan in the principal amount of $20,000,000. The
first mortgage note was modified in 1987 and again in 1990. In 1990, the
second mortgage was refinanced by a combination of debt forgiveness by
Brookside Savings and Loan Association, Partnership cash reserves, and a
new $14,000,000 second mortgage note. Reference is made to the Notes to
Financial Statements for a description of the mortgage debt, modifications
and refinance thereto. In conjunction with the initial modification of the
first mortgage, the Partnership established a $1 million escrow account in
the name of the lender which had earned approximately $206,000 in interest
as of the date of the second modification. As a requirement of the second
modification, $706,000 was applied to deferred interest.
In October 1990, concurrent with the second modification of the
first mortgage and second mortgage refinance, the Partnership sold the
Torrance property for a gross sales price of $20,750,000. After closing
costs, the Partnership netted approximately $19,787,000. Of that amount,
$19,000,000 was required to be paid to the first mortgage lender;
$14,000,000 was applied to principal, and $5,000,000 was applied to
deferred interest. Of the remaining amount, $730,000 was retained by the
first mortgage lender and added to the existing escrow account for funding
operating deficits and capital expenditures. Closing costs for the
Torrance sale included a real estate advisory fee of $518,750 earned by
CII, an affiliate of the General Partner. CII deferred payment of this fee
to permit the Partnership to utilize the funds for operations. The fee
remained unpaid at December 31, 1994.
At the time of the sale of the Torrance property, the Partnership
was owed some receivables from rents. The purchaser of the property
collected the rents receivable after the sale date, but refused to remit
the collection proceeds to the Partnership. The Partnership filed a
lawsuit to recover the rent payments and during 1994, reached a settlement
with SBD Group, Inc., the purchaser, for $184,257, including interest and
fees. The Partnership expects to receive the settlement proceeds in early
1995.
In April 1986, pursuant to a loan agreement, the Partnership
obtained from ContiTrade Services Corporation an 8% working capital loan in
the principal amount of $36,649,813 (of which the Partnership received loan
proceeds of $35,200,000 after deducting a $1,449,813 discount). A portion
of the loan, approximately $32,900,000, was used to repay interim
indebtedness secured in conjunction with the acquisition of the Project and
the remainder was added to Partnership cash reserves. The loan served as a
vehicle to help fund Partnership cash needs as limited partners made staged
payments on capital contributions. In 1991, virtually all the limited
partners made their last installment payment on the capital contribution
notes and, subsequently, the Partnership paid the final payment on the
working capital loan. The difference between the limited partner note
payments received and the final working capital loan payment made,
approximately $500,000, was added to reserves and used for the operational
needs of the Partnership. Reference is made to the Notes to Financial
Statements for a description of limited partner capital contributions.
The mortgage escrow account, established with the first mortgage
lender in conjunction with the debt modifications, was closed in 1992. The
Partnership withdrew $523,000 on April 13, 1992 for renovation projects at
the West Los Angeles and Sherman Oak properties. On October 23, 1992, the
remaining balance, $870,000, was
withdrawn for renovation projects at the
San Diego, Sherman Oaks, and West Los Angeles properties, and for 1992
operating deficits.
During 1992 and 1993, the Partnership committed a portion of
Partnership cash reserves for renovation projects at the West Los Angeles,
Sherman Oaks, and Mission Bay properties. In addition, as a result of
shortfalls from operations, the Partnership was utilizing cash reserves to
supplement debt service payments on the second mortgage. During 1993, the
Partnership's cash reserves were reduced to very low levels, and in
November 1993, the Partnership ceased payment on the second mortgage.
One of the Partnership's six properties, Sherman Oaks, sustained
extensive damage from the Southern California earthquake on January 17,
1994. The property was evacuated and city inspectors classified the
property as unsafe for use. The Partnership has insurance for the damage
as well as for business interruption, subject to a 5% deductible (the
"Policies").
On April 28, 1994, the Partnership received a $750,000 cash advance
on the business interruption portion of the Policies. The funds were
utilized for working capital needed for the ordinary and necessary
operations of the Project and ultimately, to fund the first mortgage debt
service.
During July 1994, a claim for $1,215,000, representing the first
six months of 1994 business interruption, was sent to the insurance company
carrying the first layer of insurance under the Policies. A short time
after the claim was sent, Travelers asserted that it has control over the
business interruption insurance proceeds as well as the property damage
proceeds. As a result, the Partnership has been delayed in receiving any
further proceeds under the Policies, including proceeds offered as
"undisputed" by the insurance company carrying the first $10,000,000 layer
of insurance. The insurance company has required Travelers' consent prior
to the payment of any insurance proceeds.
In order to determine the full extent of the business interruption
claim, the Partnership hired an accounting firm, Dempsey, Myers & Company
("Dempsey"), specializing in the analysis and preparation of business
interruption, property and fidelity claims on behalf of corporate policy
holders. On March 9, 1995, the Partnership submitted a report prepared as
of January 11, 1995 by Dempsey, representing the Partnership's business
interruption claim, to the adjuster for the insurance companies. Based on
the Dempsey report, the Partnership believes it has a justifiable business
interruption claim in the amount of $4,913,748 (prior to netting out the
$750,000 advance the Partnership has already received for business
interruption). Dempsey has estimated that after the audit of the claim by
the adjuster for the insurance companies and negotiations, the full amount
of the claim is attainable, but at a minimum $3,500,000 will be received
from the business interruption claim. Prior to and after submitting the
claim to the adjuster, the Partnership and the adjuster requested
Travelers' authorization for the adjuster to begin a review of the claim.
On March 22, 1995, Travelers consented to the adjuster reviewing the
business interruption claim.
On February 3, 1995, the insurance company carrying the first
$10,000,000 layer of coverage, offered to settle a portion of the loss
resulting from the earthquake. The insurance company requested that the
Partnership and Travelers jointly submit a "Proof of Loss" and the
insurance company would settle its portion of the loss based on the
conclusion that the magnitude of the loss will require the insurance
company to pay the full amount of its coverage. The Partnership expects
that the appropriate documents will be executed in the very near term and
the Partnership will receive an additional $9,250,000 advance which will be
invested in short term low risk investments.
Based on analysis performed by the General Partner of the research
and data prepared by various experts hired by the General Partner and the
Partnership, the General Partner concluded that it is in the best interest
of the Partnership's creditors and partners to repair/rebuild Sherman Oaks.
Travelers contends that applying net insurance and residual sales proceeds
to outstanding first mortgage debt appears to be the appropriate action.
The Partnership has been working with the City of Los Angeles
Housing Department in obtaining assistance in repairing the Sherman Oaks
property. As of March 16, 1995, the City has represented that it is
prepared to provide at least $300,000 in direct construction financing to
cover a portion of the insurance deductible. In addition, the
City, in conjunction with a guarantee which has been tentatively agreed
to between the City and
Federal National Mortgage Association, is prepared to issue tax-exempt
bonds in an amount equivalent to satisfy the deductible and the portion of
the Travelers' mortgage attributable to the Sherman Oaks property.
As a result of the low level of Partnership cash reserves, the
additional strain from the loss of one of the Partnership's larger income
producing properties, and the Partnership's inability to collect business
interruption proceeds, the Partnership experienced cash flow difficulties.
On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California.
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is
managing and operating its business as a debtor in possession and will
continue to do so pursuant to Sections 1107 and 1108 of the Bankruptcy Code
unless otherwise ordered by the Court.
The filing of the voluntary petition under Chapter 11 was the
Partnership's only available alternative while allowing the Partnership the
time and resources to repair Sherman Oaks. The Partnership's goal in the
Chapter 11 proceeding is to maximize recovery by creditors and partners by
preserving the Partnership as a viable entity with a going concern value.
During the two year period prior to the petition filing, the
Partnership made three formal attempts (including one subsequent to the
earthquake) and participated in numerous informal discussions on debt
modifications with Travelers; however, no agreement was reached despite
these efforts. Additionally, in the year prior to the petition, the
Partnership pursued non-traditional opportunities to refinance the
Partnership's debt, which generally were not considered feasible due to
loan to value constraints, questions relating to debt coverage ratios or
lack of benefit to the partners.
On September 22, 1994, the Partnership entered into a Letter
Agreement with Travelers which defines and authorizes the use of cash
collateral. The Partnership was granted use of cash collateral pursuant to
the Letter Agreement with Travelers until June 30, 1995. In addition to
using revenues generated by the Project to pay ordinary and necessary
operating expenses of the Project, the Partnership and Travelers agreed
that the Partnership would establish certain segregated cash collateral
accounts; a tenant security deposit account (equivalent to the tenant
security deposit liability), a tax and insurance account, and a Sherman
Oaks deductible account (initial deposit plus additional deposits over a
period of time not to exceed $500,000). All excess cash flow from property
operations after payment of property operating expenses, allowed capital
expenditures, and funding of agreed upon segregated cash collateral
accounts, is remitted to Travelers monthly.
As part of the Partnership's Motion for Use of Cash Collateral, the
Partnership requested all use of property that may be cash collateral in
the form of rental revenues and insurance proceeds to repair the Sherman
Oaks property. Travelers objected to the use of cash collateral for the
repair of Sherman Oaks, asserting that its interest in Sherman Oaks would
not be adequately protected. On October 17, 1994, the Court held a status
hearing in connection with the use of cash collateral to repair Sherman
Oaks and the Court set a trial for February 1 and 2, 1995. On February 1,
1995, the Court held a hearing on the use of cash collateral to repair
Sherman Oaks and denied the Partnership's Motion without prejudice after
determining that the issue should be decided in the context of the
confirmation of the Partnership's plan of reorganization.
On or about December 6, 1994, Travelers commenced a declaratory
action against the Partnership, claiming that the second lien holder,
Congen Properties, Inc., is an insider as defined under 11 U.S.C. Sec. 101.
The Partnership filed an answer to the Complaint denying that Congen
Properties, Inc. is an insider as that term is defined in the Bankruptcy
Code. Congen Properties Inc., also filed an answer denying that it is an
insider as defined in the Code. A status hearing was held on February 21,
1995, and after arguments by counsel, the Court set the discovery deadline
and scheduled the continued status conference both for May 22, 1995.
On or about January 30, 1995, Travelers filed a Motion for Relief
from the Automatic Stay. The Partnership filed an Opposition to the
Motion. A hearing was held on February 21, 1995. After hearing arguments
by counsel, the court set a date for a final evidentiary hearing on
Travelers' Motion for Relief from Stay for April 18, 1995.
The settlement between the Partnership and SBD Group, Inc.,
regarding collection of rents recorded as accounts receivable when the
Partnership sold from the Torrance property, has been approved by the
Court. The Partnership is in the process of collecting the settlement.
On March 17, 1995 the Partnership filed its proposed Plan of
Reorganization under Chapter 11 of the Bankruptcy Code dated March 16,
1995, together with a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code. On March 17, 1995, the Court set the hearing on the
Partnership's Disclosure Statement for April 18, 1995. The Partnership's
period for soliciting acceptances to the plan expires on June 7, 1995,
unless otherwise extended by the Court. Reference is made to Part IV, Item
14, Exhibits, for a complete copy of the Partnership's Proposed Plan of
Reorganization dated March 16, 1995.
The Partnership plans to pursue confirmation of the Plan of
Reorganization. The outcome of this effort is unknown at this time.
Although every effort is being made to preserve the Partnership as a going
concern, the possibility remains that the Partnership will cease its
operations causing the complete loss of the ownership interests held by the
partners.
If the Partnership's effort to reorganize is unsuccessful, the
Partnership will likely lose the Project through foreclosure with no cash
available to Partners. A foreclosure would result in an income allocation
to the Partners; although, if a limited partner's ownership interest in the
Partnership is the partner's only passive activity and the limited partner
and has been suspending passive loss allocations as required by the Tax
Reform Act of 1986, the suspended losses available are estimated to be more
than the potential foreclosure income allocation, resulting in an available
net loss. In a year in which the Project is disposed of and the
Partnership dissolved, any cumulative suspended loss will be available for
use by a limited partner to offset ordinary income.
At December 31, 1994, the Partnership had cash and cash equivalents
classified as cash collateral used for the operations of the Project
totalling $(149,946) (including outstanding checks). In addition, cash and
cash equivalents as of December 31, 1994 include amounts the Partnership is
required to maintain in segregated cash collateral accounts for security
deposits, taxes and insurance, and the Sherman Oaks deductible. The
balance of theses accounts at December 31, 1994 were $467,777, $374,095,
and $351,931, respectively. The Partnership had unencumbered cash and cash
equivalents at December 31, 1994 of $147,158.
On March 1, 1995, at 3:40 a.m., there was a fire at the West Los
Angeles property. The Los Angeles Fire Department investigator determined
probable cause as electrical, which began in a wall or ceiling. The fire
was contained to the sauna, men's dressing room, and the apartment located
directly above the sauna. There were no injuries or causalities as a
result of the fire. Repairs were estimated at approximately $100,000 and
repairs were underway within a few days. The Partnership's insurance
covers fire damage subject to a $5,000 deductible.
Results of Operations
Results, exclusive of the Sherman Oaks property, improved in 1994.
The Partnership's net property revenue, exclusive of the Sherman Oaks,
increased 8% in 1994 to approximately $7,821,000 over approximately
$7,254,000 in 1993.
The West Los Angeles OAKWOOD posted an approximately $126,000, or
8%, increase in net property revenue in 1994. The property collected
$38,058 and $85,341 of tax refunds relating to the 1992-1993 and 1993-1994
fiscal tax years, respectively. The assessed value has been decreased
approximately 28% for the 1994-1995 fiscal year. A rate increase and less
corporate rate discounting resulted in an approximate $5,000 increase to
rental revenue.
Property operating expenses decreased as a result of a
reduced level of necessary repairs and maintenance and a significant drop
in utilities. Partially offsetting the decrease was a higher insurance
premium and increased furniture rental.
At Arbor Park, net property revenue increased approximately
$85,000, or 11%, in 1994. The increase was the result of lower property
taxes from a 25% reduction in the 1994-1995 assessed property value. In
addition, the property received $31,203 and $34,907 of tax refunds for the
1992-1993 and 1993-1994 fiscal tax years, respectively. Property operating
expenses decreased, as 1993 included a painting project. The expense
savings were partially offset by higher insurance expense and an increase
in carpet and vinyl replacements.
An increase in rental income at Pacifica Club, as a result of
higher average occupancy in 1994, coupled with a decrease in expenses, led
to an increase in net property revenue of approximately $251,000 or 18%.
Repairs and maintenance, payroll costs, advertising and real estate tax
expenses all posted decreases and insurance expense increased.
The partial conversion from OAKWOOD operations to conventional
operations decreased expenses at Mission Bay East, resulting in increased
net property revenue of approximately $119,000, or 5%, in 1994. Increases
in insurance expense, utilities and repairs and maintenance expenses were
more than offset by decreased administrative expenses. Although average
occupancy was higher, rental income decreased slightly, as conventional
rates are usually set below corporate rates.
At Amberway, rental income decreased in 1994, partially offset by
expense savings. Property operating expenses decreased, as 1993 included a
painting project and repairs for damage caused by heavy rains. The expense
savings were partially offset by higher insurance premiums. Overall, net
property revenue dropped by $14,000, or 1%.
Results - 1994 Compared with 1993
The Sherman Oaks property was severely damaged by the Southern
California earthquake on January 17, 1994. The property was evacuated and
city inspectors classified the property as unsafe for use. The property is
not operating and is unoccupied. As a result, the property generated
virtually no revenue and has incurred only necessary operating expenses and
expenses directly related to the earthquake. Sherman Oaks' results for the
year ended December 31, 1994, as compared with 1993, were affected as
follows: Rental income decreased approximately $3,295,000, other income
decreased approximately, $110,000, property operating expenses decreased
approximately $581,000, real estate taxes decreased approximately $157,000
and property administrative expenses decreased approximately $704,000. The
following discussion has been limited to the Partnership's five remaining
operating properties.
Total 1994 rental income, exclusive of Sherman Oaks, was
$13,972,863 compared with $13,880,354 for 1993. Increased rental income at
West Los Angeles was attributable to increased average occupancy and less
corporate rate discounting. Mission Bay East posted a decrease of
approximately $13,000, as conventional rates are lower than corporate
rates. Rental income at Pacifica Club increased approximately $196,000 as
the result of higher average occupancy. At Arbor Park, increases in rates
and average occupancy led to an approximate $24,000 increase. Lower
average occupancy at Amberway resulted in an approximate $119,000 decrease.
Other income decreased in total for the year ended December 31,
1994, as compared with 1993, due to one-time redecorating fees received
from a new laundry contract in 1993 of $38,000, $40,000, and $30,000 at
Amberway, Pacifica Club, and Arbor Park, respectively. In addition, 1993
included an offsetting $66,000 adjustment for accounts receivable at
Amberway as a result of a management company change (certain accounts
receivable were recorded as revenue when collected and the adjustment
recorded negated the revenue effect).
Overall, property operating expenses decreased for the year ended
December 31, 1994, as compared to 1993. Amberway and West Los Angeles
posted lower maintenance and repair expenses due, in part, to costs in the
first quarter of 1993 from damages caused by heavy rains. Routine
maintenance and repair expenses decreased at both West Los Angeles and
Pacifica Club, in part, due to a rehab performed in past years. In 1993
nonrecurring painting projects were completed at Amberway and Arbor Park at
a cost of approximately $69,000 and $71,000, respectively. West Los Angeles
posted a $43,000 savings in utilities. Offsetting the decreases was an
increase in utilities at Mission Bay East, 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 will not charge back certain utilities to its
non-corporate tenants. Additionally, Mission Bay East and Arbor Park had
increased non-routine maintenance for carpet replacements, faucets, and
vinyl. At Amberway, non-routine maintenance expenses increased for pool
repairs, draperies and linoleum replacement. At West Los Angeles,
furniture rental expense increased. Insurance expense increased
approximately $95,000 for the five properties in total.
Property taxes decreased for the year ended December 31, 1994, as
compared to 1993, due to successful property tax appeals. Assessed values
decreased for fiscal year 1995 (July 1, 1994 to June 30, 1995) at all the
properties. Property tax refunds were received at West Los Angeles,
Pacifica Club and Arbor Park for fiscal year 1993 (July 1, 1992 to June 30,
1993). Property tax refunds were also received at West Los Angeles and
Arbor Park for fiscal year 1994 (July 1, 1993 to June 30, 1994). The
decreases were partially offset by consulting fees paid for the tax appeals
and a tax refund received at Mission Bay East in 1993.
The increase in management fees for the year ended December 31,
1994, as compared to 1993, was due to incentive management fees earned at
Mission Bay East, West Los Angeles and Pacifica Club in 1994. In 1993,
Mission Bay East earned an incentive management fee.
The decrease in property administrative expense for the year ended
December 31, 1994, as compared with 1993, was the result of a reduction of
OAKWOOD related costs at Mission Bay East. The property had savings
primarily in payroll and advertising costs. Although conventional type
advertising increased with the conversion, OAKWOOD related advertising
dropped for the year. Property administrative expenses decreased at
Pacifica Club due to savings in payroll related costs and advertising.
The decrease in interest income for the year ended December 31,
1994, as compared with 1993, was due to the decrease in the average cash
balance invested.
Amortization decreased for the year ended December 31, 1994, as
compared with 1993, due to deferred loan costs becoming fully amortized
during 1993. Partially offsetting the decrease was an increase in
depreciation from major additions in 1992 and 1993.
Results - 1993 Compared with 1992
Total 1993 rental income was $17,266,927 compared to $17,476,053 in
1992. The 1993 rental income decline of $209,126 or 1.2% was primarily the
result of continued weakness in the Southern California economy and
increased competition, both of which have had an adverse impact on
occupancy and, subsequently, rental rates. These factors have combined to
support the Partnership's decision to convert a number of the properties to
conventional apartments and unfurnish more units at the remaining OAKWOOD
properties to maintain occupancy and market share.
The West Los Angeles and Sherman Oaks properties have traditionally
had the highest percentage of corporate rental activity and, therefore,
were the hardest hit by the slowdown in corporate rentals in the prior
year. The decision to discount rates and unfurnish some of the units has
helped to stabilize occupancy.
Throughout the first three quarters of the year, Sherman Oaks was
able to maintain approximately the same rental income level, down only
$42,000 through September; however, decreased demand in the fourth quarter
resulted in a decrease to rental income of $111,000 for the year. The West
Los Angeles property showed some improvement for
the current year fourth
quarter versus the 1992 fourth quarter, but revenues were still down
$139,000 compared to the prior year due to the depressed economy. Higher
fourth quarter occupancy at Mission Bay East, due to strong corporate
demand, resulted in a $50,000 increase in rental income over the twelve
month period.
At the conventional properties, rental income decreased at Pacifica
Club and Arbor Park and increased at Amberway for the year ended December
31, 1993, as compared to 1992. Rental income at Pacifica Club has dropped
$62,000 for the year and Arbor Park's revenue fell $82,000, both the result
of lower rates. These decreases were offset by a $134,000 increase at
Amberway due to increased rates and higher average occupancy. Occupancy
has been stabilizing and has improved from the prior year at both Pacifica
Club and Amberway.
Other income increased for the year ended December 31, 1993, as
compared with 1992, due mainly to $49,000, $52,000 and $35,000 of
redecorating fees received resulting from new laundry contracts at
Amberway, Pacifica Club and Arbor Park, respectively.
The increase in property operating expenses for the year ended
December 31, 1993, as compared with 1992, was partially due to increased
furniture rental expense at West Los Angeles and Sherman Oaks resulting
from the decision to rent rather than purchase replacement furniture as
part of the rehabilitation projects. Repairs and maintenance expenses
increased in the first quarter at West Los Angeles, Sherman Oaks, and
Amberway as a result of damage incurred from the heavy rains in Southern
California in early 1993. Painting projects were completed at Amberway and
Arbor Park to enhance curb appeal. In addition, repairs and maintenance
increased at Sherman Oaks due to pipe damage. Utilities increased at each
of the properties except Amberway due to increases in utility rates and the
conversion to more conventional apartments.
Property taxes are down for the year ended December 31, 1993, as
compared with 1992, due to a $49,604 property tax refund received for
Mission Bay East for fiscal year 1993 (July 1, 1992 to June 30, 1993), as
well as decreased assessments at Mission Bay East and Pacifica Club.
Base management fees were generally lower due to overall decreases
in revenue. However, the decrease was offset by an incentive management
fee of approximately $46,000 earned for Mission Bay East in 1993 compared
to an incentive fee of $36,000 earned in 1992 for Sherman Oaks.
The decrease in property administrative expense for the year ended
December 31, 1993, as compared with 1992, was the result of reduced
corporate administrative expenses at the three remaining OAKWOOD properties
and also at the converted properties. Cost cutting efforts at each of the
Partnership's properties also contributed to lower administrative expenses.
These decreases were partially offset by an increase in bad debts at
Amberway and increased payroll related expenses at Arbor Park.
The decrease in interest income in 1993 as compared with 1992 was
due to the decrease in the average cash balance invested as a result of
cash flow deficits. In addition, during 1992 the cumulative balance in the
mortgage escrow account was withdrawn to fund capital improvement projects.
Depreciation increased for the year ended December 31, 1993, as
compared with 1992, due to the additions associated with the rehabilitation
projects at the three OAKWOOD properties. Amortization decreased for the
year ended December 31, 1993, as compared with 1992 due to deferred loan
costs becoming fully amortized during 1993.
Inflation
Since inflation has been at a low rate during 1994, 1993 and 1992,
the effect inflation and changing prices have had on current revenue and
income from operations has been minimal.
Inflation in future periods may increase rental rates (from leases
to new tenants or renewals of leases to existing tenants) assuming no major
changes in normal market conditions. At the same time, it is anticipated
that property operating expenses will be similarly affected. Assuming no
major changes in occupancy levels, increases in rental income are expected
to cover inflation driven increases in the cost of operating the Project
and property taxes. Inflation may also result in capital appreciation of
the Project over a period of time as rental rates and development costs
increase.
Item 8. Financial Statements and Supplementary Data
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
Index
Page
Report of Independent Accountants 22
Financial Statements:
Balance Sheets, December 31, 1994 and 1993 23
Statements of Operations, For the Years Ended December 31, 1994,
1993 and 1992 24
Statements of Partners' Deficit, For the Years Ended December 31,
1994, 1993 and 1992 25
Statements of Cash Flows, For the Years Ended December 31, 1994,
1993 and 1992 26
Notes to Financial Statements 27
Schedules not filed:
All schedules other than those indicated in the index have been
omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes.
To the Partners of
California Seven Associates
Limited Partnership
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of
California Seven Associates Limited Partnership at December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 3 to
the financial statements, on September 16, 1994 the Partnership filed a
petition for relief under Chapter 11 of the federal bankruptcy laws. As
discussed in Note 4, the Sherman Oaks property was severely damaged
by an earthquake. The property is not operating and is
currently unoccupied. These conditions raise substantial doubt about the
Partnership's ability to continue as a going concern. The Partnership's
plans in regard to these matters are described in Notes 3, 4 and 11.
The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
PRICE WATERHOUSE LLP
Hartford, Connecticut
March 30, 1995
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
Property and improvements, at cost:
Land and land improvements $20,562,073 $20,562,073
Buildings 109,890,874 109,659,882
Furniture and fixtures 13,030,382 12,925,199
Machinery and equipment 765,087 681,295
144,248,416 143,828,449
Less accumulated depreciation 48,128,827 43,907,921
Net property and improvements 96,119,589 99,920,528
Cash and cash equivalents 1,191,015 1,440,476
Accounts receivable 488,885 388,172
Prepaid expenses and other assets 599,166 19,832
Total $98,398,655 $101,769,008
Liabilities and Partners' Deficit
Liabilities:
Liabilities not subject to compromise:
Accounts payable and accrued expenses $357,719 $480,275
Tenant security deposits 472,898 472,865
Unearned income 79,046 303,995
909,663 1,257,135
Postpetition liabilities subject to compromise:
Fees and reimbursement payable to the General
Partner and its affiliates 102,832 --
Prepetition liabilities subject to compromise:
Note and mortgages payable 111,983,903 111,983,903
Accrued interest payable 2,560,559 1,600,118
Accounts payable and accrued expenses 923,957 --
Deferred management fees -- 2,000,000
Fees and reimbursement payable to the
General Partner and its affiliates 4,078,563 3,848,505
119,546,982 119,432,526
Total liabilities 120,559,477 120,689,661
Partners' deficit:
General Partner (764,846) (732,454)
Limited partners (362 Class A
Units and 3 Class B Units) (21,395,976) (18,188,199)
Total partners' deficit (22,160,822) (18,920,653)
Total $98,398,655 $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
(Debtor in Possession)
Statements of Operations
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Property operating revenues:
Rental income $14,063,949 $17,266,927 $17,476,053
Other 561,014 659,373 538,404
14,624,963 17,926,300 18,014,457
Property operating expenses:
Maintenance and repairs, furniture rental,
insurance, and other property operations 2,854,709 3,484,288 3,061,562
Real estate taxes 1,025,137 1,401,422 1,462,483
Management fees 672,578 595,936 593,330
Property administrative 2,723,703 3,739,022 4,126,168
7,276,127 9,220,668 9,243,543
Net property revenue 7,348,836 8,705,632 8,770,914
Other operating costs and (income) expenses:
Depreciation and amortization 4,220,906 4,411,344 4,390,850
Management and administrative fees to affiliates 296,032 329,118 330,964
Partnership administrative 124,672 109,978 115,422
Net recovery on business interruption insurance(299,540) -- --
4,342,070 4,850,440 4,837,236
Net partnership operating income 3,006,766 3,855,192 3,933,678
Interest income 19,875 52,585 141,897
Interest expense (contractual interest of $10,461,800
in 1994) (7,908,417) (10,461,800) (10,461,800)
Net loss before extraordinary gain
and reorganization items (4,881,776) (6,554,023) (6,386,225)
Reorganization items:
Interest income 1,768 -- --
United States Trustee fees (4,800) -- --
Professional fees (354,397) -- --
Net loss before extraordinary gain (5,239,205) (6,554,023) (6,386,225)
Extraordinary gain-deferred management fees 2,000,000 -- --
Net loss $(3,239,205) $(6,554,023) $(6,386,225)
Loss before extraordinary gain:
General Partner $(52,392) $(65,540) $(63,862)
Limited partners (5,186,813) (6,488,483) (6,322,363)
$(5,239,205) $(6,554,023) $(6,386,225)
Net loss:
General Partner $(32,392) $(65,540) $(63,862)
Limited partners (3,206,813) (6,488,483) (6,322,363)
$(3,239,205) $(6,554,023) $(6,386,225)
Loss before extraordinary gain per Class A Unit $(14,328) $(17,924) $(17,465)
Net loss per Class A Unit: $(8,859) $(17,924) $(17,465)
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
Statements of Partners' Deficit
For the Years Ended December 31, 1994, 1993 and 1992
General Limited Partners
Partner Class A Class B Original Total
Balance, December 31, 1991 $(603,052) $(5,362,985) $-- $(4,623) $(5,970,660)
Cash distributions -- (14,223) -- -- (14,223)
Net loss (63,862) (6,322,363) -- -- (6,386,225)
Balance, December 31, 1992 (666,914) (11,699,571) -- (4,623) (12,371,108)
Cash distributions -- (2,343) -- -- (2,343)
Contribution - note payment -- 6,821 -- -- 6,821
Net loss (65,540) (6,488,483) -- -- (6,554,023)
Balance, December 31, 1993 (732,454) (18,183,576) -- (4,623) (18,920,653)
Cash distributions -- (964) -- -- (964)
Net loss (32,392) (3,206,813) -- -- (3,239,205)
Balance, December 31, 1994 $(764,846) $(21,391,353) $-- $(4,623) $(22,160,822)
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
Statements of Cash Flows
For the Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Cash flows from operating activities:
Net loss $(3,239,205) $(6,554,023) $(6,386,225)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary gain - deferred management fees (2,000,000) -- --
Depreciation and amortization 4,220,906 4,411,344 4,390,850
Accounts receivable (100,713) 3,809 395,768
Accounts payable and accrued expenses (121,177) 32,311 107,313
Other, net (804,250) 1,974,032 (305,951)
Liabilities subject to compromise 2,217,288 -- --
Net cash provided by (used in)
operating activities 172,849 (132,527) (1,798,245)
Cash flows from investing activities:
Purchase of property and improvements (419,967) (696,040) (653,346)
Receipts from mortgage escrow account -- -- 1,392,647
Net cash provided by (used in)
investing activities (419,967) (696,040) 739,301
Cash flows from financing activities:
Cash distribution to limited partners (2,343) (6,322) (7,901)
Proceeds from partners' capital contributions -- 6,821 --
Net cash provided by (used in)
financing activities (2,343) 499 (7,901)
Net decrease in cash and cash equivalents (249,461) (828,068) (1,066,845)
Cash and cash equivalents, beginning of year 1,440,476 2,268,544 3,335,389
Cash and cash equivalents, end of year $1,191,015 $1,440,476 $2,268,544
Supplemental disclosure of cash information:
Interest paid during year $6,947,976 $9,213,683 $11,090,467
Fees paid in connection with reorganization $355,447 $-- $--
<FN>
The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership,
a California limited partnership
(Debtor in Possession)
Notes to Financial Statements
1. Organization and Basis of Accounting
California Seven Associates Limited Partnership, a California
limited partnership, (the "Partnership") was formed to acquire and operate
apartment complexes located in California.
The General Partner of the Partnership is CIGNA Realty Resources,
Inc. - Seventh (the "General Partner"), a Delaware corporation qualified to
do business in the States of California and Connecticut and an indirect
wholly owned subsidiary of CIGNA Corporation.
On September 16, 1994, the Partnership filed a voluntary petition
for reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California.
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is
managing and operating its business as a debtor in possession and will
continue to do so pursuant to Sections 1107 and 1108 of the Bankruptcy Code
unless otherwise ordered by the Court.
The Partnership's records are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles for
financial reporting purposes and are adjusted for federal income tax
reporting. The net effect of the adjustments as of December 31, 1994, 1993
and 1992, principally relating to differences in depreciation methods and
accounting for capital transactions and limited partner capital
contribution notes receivable, are summarized as follows:
1994 1993 1992
Financial Tax Financial Tax Financial Tax
Reporting Reporting Reporting Reporting Reporting Reporting
Total assets $98,398,655 $68,092,407 $101,769,008 $73,208,025 $106,511,500 $79,679,623
Partners' deficit:
General Partner (764,846) (20,779,181) (732,454) (20,703,414) (666,914) (18,450,516)
Limited partners:
Class A (21,391,353)(30,371,092) (18,183,576) (25,236,476) (11,699,571)(19,277,177)
Class B -- (1,227,911) -- (1,227,911) -- (1,227,911)
Original (4,623) (9,842) (4,623) (9,842) (4,623) (9,842)
Net loss: (a)
General Partner (32,392) (75,767) (65,540) (2,252,898) (63,862) (3,658,495)
Limited partners:
Class A (3,206,813) (5,133,652) (6,488,483) (5,956,956) (6,322,363) (4,472,686)
Net loss
per Class A Unit: (a) (8,859) (14,182) (17,924) (16,456) (17,465) (12,356)
<FN>
(a) Included in 1994 is $2,000,000 extraordinary gain ($5,470 per Class A Unit)
for financial reporting and tax reporting.
2. Summary of Significant Accounting Policies
a) Property and Improvements: Property and improvements are carried
at cost less accumulated depreciation. The cost represents the initial
purchase price and subsequent capitalized costs, including certain
acquisition expenses. Depreciation on property and improvements is
calculated on the straight-line method based on the estimated useful
lives of the various components (5 to 30 years). Repair and maintenance
expenses are charged to operations as incurred.
As a result of inherent changes in market values of real estate
property and improvements, the Partnership reviews potential impairment
annually. The undiscounted future cash flows for each property, as
estimated by the Partnership, is compared to the carrying value. If the
carrying value is greater than the sum of the estimated future undiscounted
cash flows, and deemed permanent, an impairment loss is recorded.
In November 1993, the Financial Accounting Standards Board issued a
Proposed Statement of Financial Accounting Standards, "Accounting for the
Impairment of Long-Lived Assets". Under the Proposed Statement, entities
should continue to compare the sum of the expected undiscounted future net
cash flows to the carrying amount of the asset. If an impairment exists,
the loss shall be measured as the amount by which the carrying value of the
asset exceeds the fair value of the asset. Fair value of the asset shall
be measured by its market value if an active market for that asset exists.
If no market price is available, a forecast of expected discounted future
net cash flows should be used. The discount rate applied should be
commensurate with the risk involved. The effective date of a final
statement is fiscal years beginning after June 15, 1995. The effect of the
Proposed Statement on the financial position and results of operations of
the Partnership in the year of adoption can not be reasonably estimated.
b) Cash and Cash Equivalents: Short-term investments with a maturity
of three months or less at the time of purchase are generally reported as
cash equivalents. At December 31, 1994 the Partnership had cash and cash
equivalents classified as cash collateral used for operations of the
properties totalling $(149,946) (including outstanding checks). In
addition, at December 31, 1994, cash and cash equivalents include amounts
the Partnership is required to maintain in segregated cash collateral
accounts for security deposits, taxes and insurance and the Sherman Oaks
deductible. The balances of these accounts at December 31, 1994 were
$467,777, $374,095 and $351,931, respectively. The Partnership had
unencumbered cash and cash equivalents at December 31, 1994 of $147,158.
c) Prepaid Expenses and Other Assets: Prepaid expenses at December
31, 1994, consist of prepaid insurance at each property. Other assets at
December 31, 1994 and 1993 consist of utility deposits at various
properties.
d) Partners' Deficit: Offering costs comprised of sales commissions
and other issuance expenses have been charged to the partners' capital
accounts as incurred.
e) Income Taxes: No provision for income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership.
f) Basis of Presentation: Certain amounts in the 1993 and 1992
financial statements have been reclassified to conform with 1994
presentation.
3. Petition for Relief Under Chapter 11
On September 16, 1994, the Partnership filed a petition for relief
under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California. Under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the Federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-Possession. These claims
are reflected in the accompanying balance sheets as "prepetition
liabilities subject to compromise."
Additional claims may arise subsequent to the filing date resulting
from the rejection of executory contracts and from the determination by the
Court of allowed claims for contingencies and other disputed amounts.
Claims secured against the Partnership's assets are stayed, although the
holders of such claims have the right to move the court for relief from the
stay. Secured claims are secured by liens on the Partnership's property
and improvements.
On September 22, 1994, the Partnership entered into a Letter
Agreement with the first mortgage lender which defines and authorized the
use of cash collateral. The Partnership was granted use of collateral
pursuant to the Letter Agreement until June 30, 1995. All excess cash flow
from property operations after payment of property operating expenses,
allowed capital expenditures, and funding of agreed upon segregated cash
collateral accounts, is remitted to the first mortgage lender monthly.
As part of the Partnership's Motion for Use of Cash Collateral, the
Partnership requested all use of property that may be cash collateral in
the form of rental revenues and insurance proceeds to repair the Sherman
Oaks property. On February 1, 1995, the Court held a hearing on the use of
cash collateral to repair Sherman Oaks and denied the Partnership's Motion
without prejudice after determining that the issue should be decided in the
context of the confirmation of the Partnership's plan of reorganization.
On or about December 6, 1994, the first mortgage lender commenced a
declaratory action against the Partnership, claiming that the second lien
holder is an insider as defined under 11 U.S.C. Sec. 101. The Partnership
filed an answer to the Complaint denying that the second lien holder is an
insider as that term is defined in the Bankruptcy Code. A status hearing
was held on February 21, 1995, and after arguments by counsel, the Court
set the discovery deadline and scheduled the continued status conference
both for May 22, 1995.
On or about January 30, 1995, the first mortgage lender filed a
Motion for Relief from the Automatic Stay. The Partnership filed an
Opposition to the Motion. A hearing was held on February 21, 1995. After
hearing arguments by counsel, the court set a date for a final evidentiary
hearing on the Motion for Relief from Stay for April 18, 1995.
On March 17, 1995 the Partnership filed its proposed Plan of
Reorganization under Chapter 11 of the Bankruptcy Code dated March 16,
1995, together with a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code. On March 17, 1995, the Court set the hearing on the
Partnership's Disclosure Statement for April 18, 1995. The Partnership's
period for soliciting acceptances to the plan expires on June 7, 1995,
unless otherwise extended by the Court.
4. Property and Improvements
At December 31, 1994, the Partnership owned five operating
apartment properties located in California totalling 1,763 units with leases
generally for a term of one year or less. The Partnership owns a sixth
property with 372 apartment units which was not operating and was
unoccupied at December 31, 1994. All properties are pledged as security
for the mortgages payable.
The Sherman Oaks was severely damaged by the January 17, 1994
Southern California earthquake. The property is not operating and is
currently unoccupied. The Partnership's properties are covered by
insurance, including earthquake and business interruption; although the
policy carries a 5% deductible.
On April 28, 1994, the Partnership received a $750,000 advance on
the business interruption policy for the earthquake damaged property.
Included in the income statement as "Net recovery on business interruption"
for the year ended December 31, 1994 is the insurance advance less costs
specifically associated with the earthquake. All other income statement
lines for 1994 as they relate to the Sherman Oaks property, only include
activity related to the period from January 1, 1994 to January 16, 1994, or
fixed operating expenses unrelated to the earthquake, if applicable. The
income statement does not include any other amounts relating to the pending
claim with the insurance company for 1994 operations.
On March 9, 1995, the Partnership submitted a report, prepared as
of January 11, 1995, representing the Partnership's business interruption
claim, in the amount of $4,913,748 (prior to netting out the $750,000
advance the Partnership has already received for business interruption).
Of February 3, 1995, the insurance company carrying the first
$10,000,000 layer of earthquake insurance coverage, offered to settle a
portion of the loss resulting from the earthquake. The insurance company
requested that the Partnership and the first mortgage lender (as a named
additional insured) jointly submit a "Proof of Loss" and the insurance
company would settle its portion of the loss based on the conclusion that
the magnitude of the loss will require the insurance company to pay the
full amount of its coverage. The Partnership expects that the appropriate
documents will be executed in the second quarter of 1995 and the
Partnership will receive an additional $9,250,000 advance.
5. Notes, Mortgages and Loan Modifications
The following table summarizes outstanding debt as of December 31,
1994 and 1993:
1994 1993
First mortgage loan (including cumulative
deferred interest of $11,433,903 at
December 31, 1994 and 1993). $97,433,903 $97,433,903
Second mortgage loan 14,000,000 14,000,000
Assignment note, which bears interest at 16%
per annum, payable to an affiliate of the
General Partner. As of December 31, 1994,
the balance remained deferred and unpaid. 550,000 550,000
Total notes and mortgages payable $111,983,903 $111,983,903
Although the first and second mortgages payable represent secured
claims under the bankruptcy proceedings, there is uncertainty as to whether
the claims are undersecured or will be impaired under a plan of
reorganization. The mortgages payable, therefore, are classified as
liabilities subject to compromise in the accompanying balance sheet.
Interest expense will be recorded postpetition to the extent paid during
the proceeding. The Partnership has entered into a cash collateral
agreement with the first mortgage lender which calls for the payment of
cash flow from operations, rents less operating expenses and capital, on a
monthly basis.
Partnership property is held subject to a first mortgage loan from
the Travelers Insurance Company, with an original principal balance of
$100,000,000. Interest thereon initially accrued and compounded at 12.75%
per annum. Pursuant to an eighteen month payment modification agreement
negotiated during 1987, interest only payments calculated at 10% were due
monthly through January 1, 1989. The difference between the pay rate and
the coupon rate accumulated as deferred interest. Interest was charged on
accumulated deferred interest at 12.75% per annum. In conjunction with the
modification, a $1 million escrow account was established in the name of
the lender, to provide the lender additional collateral to secure the
Partnership's obligations under the loan.
Effective with the August 1, 1989 payment, a temporary arrangement
reduced monthly payments to interest only at 10.5% and then to 10%
effective with the May 1, 1990 payment. The differences between the
negotiated rates and the coupon rate of 12.75% continued to accrue.
In October 1990, simultaneously with the sale of the Torrance
property, the Partnership completed a permanent modification of the first
mortgage loan. Terms included a reduced interest rate from the coupon of
12.75% to 10%, an extension of the due date from December 1993 to May 1995
and a fixing of deferred interest at $17,140,361 as of May 1, 1990 with no
additional interest accruals on deferred interest. As an additional
requirement of the modification, $14,000,000 of the sales proceeds from the
Torrance property was used to reduce the principal and $5,000,000 was used
to reduce the deferred interest balance. No gain or loss was recorded on
the first mortgage modification. In addition, $706,458 of the escrow
account, including accumulated interest of $206,458, was applied against
the deferred interest balance. Also, as part of the Torrance property
sale, $730,000 of the sales proceeds was required to be deposited in the
escrow account to be used for operating deficits and capital expenditures.
The Partnership property was also held subject to a $20,000,000
variable rate second mortgage loan scheduled to mature on December 31,
1993. The interest rate was adjusted monthly to 2% above the Five Year
Treasury Constant Matrix Index as published by the Federal Reserve Board
(the "current accrual rate"). Pursuant to debt modification agreements
signed in 1987 and 1989, interest only payments, calculated at 8.64%, were
due monthly from August 1, 1987 until January 1, 1990. Beginning February
1, 1990, interest only payments calculated at 9% were due monthly until
maturity. The difference between interest accruing on the note and
interest paid during this period was deferred. During the term of the
mortgage, the interest rate could not exceed 17.5% per annum.
On October 26, 1990, the Partnership refinanced its $20,000,000
second mortgage loan. At the time of the refinance, the Partnership owed
Brookside Savings $20,310,706 of principal, including deferred interest,
and $419,328 of unpaid current interest payable. The Partnership
maintained a $200,000 debt escrow account for the benefit of Brookside
Savings, established as a result of the 1987 debt modification agreement.
The Partnership negotiated a discounted payoff with Brookside Savings for
$14,419,328 plus forfeiture of the debt escrow account of $200,000. The
Partnership utilized the proceeds from a new second mortgage of $14,000,000
plus $419,328 of Partnership cash reserves to pay off the Brookside Savings
mortgage. The second mortgage lender is Congen Properties, Inc., an
indirectly owned subsidiary of CIGNA Corporation. The difference between
the payoff amount, including the escrow account, and the total amounts
outstanding netted a $6,110,706 extraordinary gain from debt forgiveness in
the 1990 Statement of Operations. The term of the replacement second
mortgage require monthly interest only payments at 12.67% with a maturity
date concurrent with the first mortgage, as modified.
Effective November 1, 1993, the Partnership began withholding the
interest payment on the second mortgage note.
6. Limited Partner Capital
The initial Limited Partner contributed $100 to the capital of the
Partnership. Pursuant to a private offering, the Partnership sold Limited
Partnership Interests to seven Class B Limited Partners for an aggregate
purchase price of $500,000. The Partnership also sold 362 Class A
partnership Units at a Unit price of $150,000 each ($54,300,000 in total).
Of these Units, 1.5 Units were purchased for cash, 14.4 Units were
purchased pursuant to a three-year note option and 346.1 Units were
purchased pursuant to a seven-year note option. The three and seven-year
note options provided for the sale of Units upon receipt at subscription of
$45,000 and $18,343 per Unit, respectively, with the balance due of
$105,000 and $131,657 per Unit, respectively, being evidenced by a secured
recourse promissory note bearing interest at the rate of 12% per annum.
Interest payments were due in semi-annual installments on each March 1 and
December 1, beginning on December 1, 1985. In the fourth quarter of 1993,
the investor note receivable balance of $6,821 on .333 unit was collected.
During 1991, the State of Connecticut enacted new income tax
legislation, a part of which effects partnerships. The portfolio income
allocations made by the Partnership to the limited partners are considered
Connecticut based income and subject to Connecticut tax. On July 14, 1994,
the Partnership paid the tax due on its 1993 Form CT-G State of Connecticut
Group Income Tax Return. The Partnership has elected to pay the tax due on
the limited partners' share of portfolio income and, therefore, paid tax
due of $2,343 directly to the State of Connecticut. The Partnership also
accrued the 1994 estimated payment of $964 as of December 31, 1994. These
amounts were treated as reductions of partners' capital and reported as
distributions in the accompanying financial statements.
7. Transactions with Affiliates
Fees and other expenses incurred by the Partnership to the General
Partner or its affiliates during the years ended December 31, 1994, 1993
and 1992 are as follows:
1994 1993 1992
Interest on assignment note $62,333 $88,000 $88,000
Asset management fee 146,032 179,118 180,964
General partner salary 150,000 150,000 150,000
Reimbursement (at cost) for
out-of-pocket expenses 40,417 30,508 34,906
Payment of all fees and expenses, other than reimbursement for
out-of-pocket expenses, has been deferred by the General Partner and its
affiliates.
8. Management Agreements
On January 31, 1985, the Partnership entered into a Management
Agreement with R & B Apartment Management Company ("R & B"). The term of
the agreement was approximately ten years with provisions to extend the
term as defined in the Management Agreement.
In 1991, the Management Agreement was renegotiated for the five
remaining OAKWOOD format properties and one conventional property. For the
OAKWOOD properties, a base amount was set up using 1991 as a base year.
For 1992 to 1995, the fee was to be 5% provided R&B achieved a 5% annual
growth in net operating income from the 1991 base. If the annual growth
target was not met, R&B would only receive a 3% fee. In 1991, the base net
operating income was not reached and R&B's fee was reduced by 40% to 3% of
the gross rental receipts. For the conventional property, the Upland
property, the fee was set at 4% of gross revenues.
On May 1, 1992, the Huntington Beach and Anaheim properties were
converted from the OAKWOOD concept to conventional apartment operations.
The Property management fee for the Huntington Beach property had been
changed to 3% of gross receipts plus an additional 1% incentive fee based
on certain revenue and expense goals. The Partnership also renegotiated
the management fee on the remaining Oakwood properties, West Los Angeles,
Sherman Oaks and San Diego, to an incentive base fee of 3% of gross
receipts with the potential for an additional 1% if net operating income
objectives are met.
On May 1, 1992, in conjunction with the Anaheim property's
conversion, R&B was replaced as the property manager by Maxim Management
Group, formerly known as Prometheus Management Group. The management fee
is 3% of gross receipts plus an additional 1% incentive based on certain
revenue and expense goals.
For the period between 1985 and 1989, a portion of the annual
management fee earned by R&B was subject to deferral based on certain
operating results. The deferral maximum of $2,000,000 was reached in 1989.
During 1994, R&B released the Partnership from the deferred management fee
obligation.
9. Partnership Agreement
Generally, distribution of operating cash flow, allocations of net
income or losses from operations, and loss on dispositions, as reported on
the Partnership's Federal income tax returns, will be allocated 99% to the
Limited Partners and 1% to the General Partner.
All allocations among the Limited Partners of net income or loss
will be made in the proportion that the capital contribution made or
required to be made by each Limited Partner bears to the total capital
contributions made or required to be made by all Limited Partners except as
noted in the Partnership Agreement Section 6(e) and 6(f).
In general, gains from dispositions shall be allocated first to the
Class B Limited Partners in proportion to their respective negative capital
accounts and then to the other Partners in proportion to their respective
negative capital accounts. Thereafter, gains from dispositions shall be
allocated in accordance with Partnership Agreement Section 6(g)(i) through
(iv).
Proceeds from capital transactions will be distributed generally to
each Limited Partner equivalent to aggregate capital contributions; then,
to each Limited Partner, equal to 8% per annum of his aggregate capital
contribution; then, to the General Partner equivalent to its aggregate
capital contribution; then, of the balance, 75% to the Limited Partners and
25% to the General Partner.
Paragraph 6(u) of the Partnership Agreement limits the allocation
of losses recognized for Federal income tax purposes to partners where such
allocation would cause their negative capital account to be in excess of
their share of minimum gain as defined in such paragraph. Those losses not
allocated to the Limited Partners are allocated to the General Partner.
Paragraph 6(v) contains minimum gain charge back and qualified
income offset provisions in accordance with Treasury Regulation
1.704-1T(b)(4)(iv)(e), - 1T(b)(4)(iv)(h)(4), and - 1(b)(2)(ii)(d).
10. 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)] The Partnership won a judgement against the
Defendants in the amount of $152,309, plus interest. Defendants filed a
Motion for Reconsideration, asking the Court to review its prior ruling,
which resulted in a reversal of this judgement. The parties have reached a
settlement which provides payment of $118,352 to the Partnership plus
interest of $41,016 and fees of $24,889. The lawsuit was commenced as a
result of Defendants refusal to forward rent payments which accrued while
the Partnership owned the property (Torrance Oakwood 20900 Anza, City of
Torrance).
[Theodore D. Cohen, et al v. California Seven Associates, et al.,
No. 657925 (Orange County, CA, May 16, 1991)] Plaintiffs in suit brought
against the Partnership and its General Partner are members of the class
participating in a federal court action in Chicago [In re VMS Securities
Litigation, No. 90 c 2412, N.D. Ill.] which has concluded in a settlement,
of which plaintiffs have been notified. Defendant has filed a Motion for
Summary Judgment. The likelihood of an unfavorable outcome or the extent
of any possible liability cannot be assessed at this time.
11. Going Concern
The Partnership plans to pursue confirmation of the Plan of
Reorganization, which contemplates repairing the Sherman Oaks property.
The outcome of this effort is unknown at this time. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties. Although every effort is being made to
preserve the Partnership as a going concern, the possibility remains that
the Partnership will cease its operations causing the complete loss of the
ownership interest held by the partners.
If the Partnership's effort to reorganize is unsuccessful, the
Partnership will likely lose the properties and improvements through
foreclosure with no cash available to partners. As a result of a
foreclosure, the Partnership would record extraordinary income on relief of
indebtedness.
California Seven Associates Limited Partnership SCHEDULE III
(a California limited partnership)
(Debtor in Possession)
Real Estate and Accumulated Depreciation
December 31, 1994
Costs
Initial Cost to Partnership (B) Capitalized
Subsequent to
Description of Acquisition
Apartment Land, Building
Complexes by Improvements
Property Land and Land Furniture and and Furniture Accumulated
Location Encumbrances(A) Improvements Buildings Fixtures & Fixtures Depreciation (E)
Anaheim, CA $2,858,000 $11,327,356 $1,506,216 $536,906 $5,685,249
Huntington
Beach, CA 2,663,000 13,705,763 1,250,899 1,644,254 6,683,868
West Los
Angeles, CA 4,000,000 17,818,823 1,149,274 2,424,935 8,220,336
San Diego, CA 5,939,000 34,160,345 1,978,398 3,361,419 14,987,439
Sherman
Oaks, CA 3,908,000 17,411,273 1,122,981 2,283,441 7,772,613
Upland, CA 1,140,000 9,724,577 880,956 1,452,600 4,779,322
Total $111,983,903 $20,508,000 $104,148,137 $7,888,724 $11,703,555 $ $48,128,827
Gross Amount at Which Carried at Close of Period (C)(D)
Life on Which
Depreciation
in Latest
Statement of
Land and Land Building and Furniture and Machinery and Date of Date Operations is
Description Improvements Improvements Fixtures Equipment Total Construction Acquired Computed
Anaheim, CA $2,865,938 $11,396,131 $1,938,160 $28,249 $16,228,478 1983 01/31/85 5-30 years
Huntington
Beach, CA 2,680,932 14,573,787 1,894,359 114,838 19,263,916 1971 01/31/85 5-30 years
West Los
Angeles, CA 4,000,000 19,040,047 2,174,792 178,193 25,393,032 1966 01/31/85 5-30 years
San Diego, CA 5,945,739 35,553,353 3,674,786 265,284 45,439,162 1970 01/31/85 5-30 years
Sherman
Oaks, CA 3,924,740 18,740,934 1,958,599 101,422 24,725,695 1969 01/31/85 5-30 years
Upland, CA 1,144,724 10,586,622 1,389,686 77,101 13,198,133 1971 01/31/85 5-30 years
Total 20,562,073 $109,890,874 $13,030,382 $765,087 $144,248,416
<FN>
(A) Reference is made to the Notes to Financial Statements.
<FN>
(B) The cost to the Partnership represents the initial purchase price of properties including the assignment fee and certain
capitalized fees and expenses.
<FN>
(C) The aggregate cost of real estate owned at December 31, 1994 for federal income tax purposes is $144,253,112
<FN>
(D) Reconciliation of real estate owned:
Description 1994 1993 1992
Balance at beginning of period $143,828,449 $143,132,409 $142,479,063
Additions during period 419,967 696,040 653,346
Balance at end of period $144,248,416 $143,828,449 $143,132,409
<FN>
(E) Reconciliation of accumulated depreciation:
Description 1994 1993 1992
Balance at beginning of period $43,907,921 $39,695,623 $35,569,851
Additions during period 4,220,906 4,212,298 4,125,772
Balance at end of period $48,128,827 $43,907,921 $39,695,623
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership, CIGNA Realty Resources,
Inc.-Seventh, a Delaware corporation, is an indirectly, wholly owned
subsidiary of CIGNA Corporation, a publicly held corporation whose stock is
traded on the New York Stock Exchange. The General Partner has
responsibility for and control over the affairs of the Partnership.
The directors and executive officers of the General Partner as of
February 28, 1994 are as follows:
Name Office Served Since
R. Bruce Albro Director May 2, 1988
Philip J. Ward Director May 2, 1988
John Wilkinson Director September 7, 1993
John D. Carey President, Controller September 7, 1993,
September 4, 1990
Verne E. Blodgett Vice President, Counsel April 2, 1990
Joseph W. Springman Vice President, Assistant SecretarySeptember 7,
1993
David C. Kopp Secretary September 29, 1989
Michael M. Sinisgalli Treasurer August 1, 1994
There is no family relationship among any of the foregoing
directors or officers. There are no arrangements or understandings between
or among said officers or directors and any other person pursuant to which
any officer or director was selected as such.
The foregoing directors and officers are also officers and/or
directors of various affiliated companies of CIGNA Realty Resources, Inc. -
Seventh, including CIGNA Financial Partners, Inc. (the parent of CIGNA
Realty Resources, Inc. - Seventh), CIGNA Investments, Inc., CIGNA
Corporation (the parent of CIGNA Investments, Inc.), and Connecticut
General Corporation (the parent of CIGNA Financial Partners, Inc.).
The business experience of each of the directors and executive
officers of the General Partner of the Partnership is as follows:
R. BRUCE ALBRO - DIRECTOR
Mr. Albro, age 52, a Senior Managing Director of CIM, joined
Connecticut General's Investment Operations in 1971 as a Securities Analyst
in Paper, Forest Products, Building and Machinery. Subsequently, he served
as a Research Department Unit Head, as an Assistant Portfolio Manager, then
as Director of Equity Research and a member of the senior staff of CIGNA
Investment Management Company and as a Portfolio Manager in the Fixed
Income area. He then headed the Marketing and Merchant Banking area for
CII. Prior to his current assignment of Division Head, Portfolio
Management Division, he was an insurance portfolio manager, and prior to
that, he was responsible for Individual Investment Product Marketing. In
addition, Mr. Albro currently serves as President of the CIGNA Funds Group
and other CIGNA affiliated mutual funds. Mr. Albro received a Master of
Arts degree in Economics from the University of California at Berkeley and
a Bachelor of Arts degree in Economics from the University of Massachusetts
at Amherst.
PHILIP J. WARD - DIRECTOR
Mr. Ward, age 46, is Senior Managing Director and Division Head of
CIGNA Investment Management (CIM), in charge of the Real Estate Investment
Division of CIM. He was appointed to that position in December 1985. Mr.
Ward joined Connecticut General's Mortgage and Real Estate Department in
1971 and became an officer in 1976. Since joining the company he has held
real estate investment assignments in Mortgage and Real Estate Production
and in Portfolio Management. Prior to his current position, Mr. Ward held
assignments in CIGNA Investments Inc., responsible for the Real Estate
Production area, CIGNA Realty Advisors, Inc. and Congen Realty Advisory
Company, all wholly-owned subsidiaries of CIGNA Corporation and/or
Connecticut General. Mr. Ward has held various positions with the General
Partner. His experience includes all forms of real estate investments,
with recent emphasis on acquisitions and joint ventures. Mr. Ward is a
1970 graduate of Amherst College with a Bachelor of Arts degree in
Economics. He is a member of the Society of Industrial and Office
Realtors, the National Association of Industrial and Office Parks, the
Urban Land Institute and the International Council of Shopping Centers. He
is a member of the Board of Directors of DeBartolo Realty Corporation and
Cadillac Fairview, Inc.
JOHN WILKINSON - DIRECTOR
Mr. Wilkinson, age 51, is Senior Vice President and Chief Financial
Officer of the CIGNA Individual Insurance Division. He was appointed to
that position in January 1992. Mr. Wilkinson joined the company in 1970
and became an officer in 1978. In 1981 he joined CIGNA Individual
Financial Services Division (now CIGNA Individual Insurance) and was
appointed Vice President in 1988 in that Division. Mr. Wilkinson continued
to work in the Insurance Marketing area as Vice President until he was
appointed to his current position. Mr. Wilkinson is a 1965 graduate of the
U.S. Naval Academy. He is a Registered Principal of CIGNA Financial
Advisors, Inc., a Fellow of the Society of Actuaries, a member of the
American Academy of Actuaries, a Chartered Life Underwriter and Chartered
Financial Counsellor.
JOHN D. CAREY - PRESIDENT, CONTROLLER
Mr. Carey, age 31, joined CIGNA in 1990. Prior to joining CIGNA,
he held the position of manager at KPMG Peat Marwick in the audit
department and was a member of the Real Estate Focus Group. His experience
includes accounting and financial reporting for public and private real
estate limited partnership syndications. Mr. Carey is a graduate of
Central Connecticut State University with a Bachelor of Science Degree and
is a Certified Public Accountant.
VERNE E. BLODGETT - VICE PRESIDENT, COUNSEL
Mr. Blodgett, age 57, is an Assistant General Counsel of CIGNA
Corporation. He joined Connecticut General Life Insurance Company in 1975
as an investment attorney and has held various positions in the Legal
Division of Connecticut General Life Insurance Company prior to his
appointment as Assistant General Counsel in 1981. Mr. Blodgett received a
Bachelor of Arts degree from Yale University and graduated with honors from
the University of Connecticut School of Law. He is a member of the Connecticut
and the American Bar Associations.
JOSEPH W. SPRINGMAN - VICE PRESIDENT, ASSISTANT SECRETARY
Mr. Springman, age 53, is Managing Director and department head
responsible for asset management. He joined CIGNA's Real Estate operations
in 1970. He has held positions as an officer or director of several real
estate affiliates of CIGNA. His past real estate assignments have included
Development and Engineering, Property Management, Director, Real Estate
Operations, Portfolio Management and Vice President, Real Estate
Production. Prior to assuming his asset management post, Mr. Springman was
responsible for production of real estate and mortgage investments. He
received a Bachelor of Science degree from the U.S. Naval Academy.
DAVID C. KOPP - SECRETARY
Mr. Kopp, age 49, is Secretary of CII, Corporate Secretary of
Connecticut General Life Insurance Company and Assistant Corporate
Secretary and Assistant General Counsel, Insurance and Investment Law of
CIGNA Corporation. He also serves as an officer of various other CIGNA
Companies. He joined Connecticut General Life Insurance Company in 1974 as
a commercial real estate attorney and held various positions in the Legal
Department of Connecticut General Life Insurance Company prior to his
appointment as Corporate Secretary in 1977. Mr. Kopp is an honors graduate
of Northern Illinois University and served on the law review at the
University of Illinois College of Law. He is a member of the Connecticut
Bar Association and is Past President of the Hartford Chapter, American
Society of Corporate Secretaries.
MICHAEL M. SINISGALLI - TREASURER
Michael M. Sinisgalli, age 36, is Assistant Director, Treasury
Process Management of CIGNA Corporation. In this capacity his
responsibilities include the analysis, design and management of treasury
processes supporting insurance divisions. Michael joined CIGNA in 1991
after having been with Bank of New England since 1983. He served in a
variety of Cash Management positions, being appointed in 1990 as Assistant
Vice President, Cash Management Sales/Marketing. A graduate of Central
Connecticut State University (B.S., Business Administration, 1981), Mr.
Sinisgalli is a Certified Cash Manager and a member of Connecticut Cash
Manager Association.
Item 11. Executive Compensation
Officers and directors of the General Partner receive no current or
proposed direct compensation from the Partnership in such capacities.
However, certain officers and directors of the General Partner received
compensation from the General Partner and/or its affiliates (but not from
the Partnership) for services performed for various affiliated entities,
which may include services performed for the Partnership, but such
compensation was not material in the aggregate.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to own beneficially
more than 5% of the outstanding Units of interest of the Partnership.
There exists no arrangement, known to the Partnership, the
operation of which may at a subsequent date result in a change in control
of the Partnership.
As of February 28, 1994, the individual directors and the directors
and officers, as a group, of the General Partner beneficially owned Partnership
Units and shares of the common stock of CIGNA, the indirect
parent of the General Partner, as set forth in the following table:
Units Shares
Beneficially Beneficially Percent
Name Owned(a) Owned(b) of Class
R. Bruce Albro (c) 0 6,076 *
Philip J. Ward (d) 0 17,680 *
John Wilkinson (e) 0 13,753 *
All directors and officers
Group (8) (f) 0 43,984 *
* Less than 1% of class
[FN]
(a) No officer or director of the General Partner possesses a right to
acquire beneficial ownership of additional Units of interest of the
Partnership.
[FN]
(b) The directors and officers have sole voting and investment power
over all the shares of CIGNA common stock they own beneficially.
[FN]
(c) Shares beneficially owned includes options to acquire 3,920 shares
and 2,156 shares which are restricted as to disposition.
[FN]
(d) Shares beneficially owned includes options to acquire 10,985 shares
and 2,274 shares which are restricted as to disposition.
[FN]
(e) Shares beneficially owned includes options to acquire 11,251 shares
and 2,027 shares which are restricted as to disposition.
[FN]
(f) Shares beneficially owned by directors and officers include 28,511
shares of CIGNA common stock which may be acquired upon exercise of
stock options and 10,026 shares which are restricted as to
disposition.
Item 13. Certain Relationships and Related Transactions
In consideration for the assignment to the Partnership of the right
to acquire the Project pursuant to the agreement of sale, the Partnership
paid CFP the sum of $l,400,000, $300,000 of which was paid to CFP during
1985 in cash from the first available cash of the Partnership, which was
the Partners' Capital Contributions, and $l,100,000 of which was paid
by executing and delivering to CFP an assignment note. The assignment note
bears interest at 16.0% per annum. Interest earned during 1994 totaled
$62,333. Interest earned since 1989 of $502,333 remained unpaid at
December 31, 1994. The principal balance of $550,000 has been deferred by
CFP and remains unpaid and is included in the notes and mortgages payable
of the accompanying financial statements.
The Partnership and CFP have entered into an agreement (the
"Partnership Administration and Management Service Agreement") pursuant to
which CFP performs administrative and management services for the
Partnership for an aggregate fee (the "Partnership Administration and
Management Fee") of $543,000, representing one percent (l.0%) of the equity
raised from the Class A Limited Partners. This fee was to be paid over the
course of the seven-year investor note option which concluded in 1991. The
Partnership Administration and Management Fee was for monitoring the
payments of the Limited Partners on the Limited Partners' notes. The
amounts due for 1990 and 1991 of $260,050 remained unpaid at December 31,
1994.
In addition, pursuant to the Partnership Administration and
Management Services Agreement, the Partnership paid a salary to the General
Partner of $200,000 in 1985 and $150,000 annually thereafter for managing
the day-to-day operations of the Partnership and for performing
administrative services for the Partnership, including, without limitation,
mailing tax information to the Limited Partners, and soliciting their
consents when required under the Limited Partnership Agreement and other
investor communications, managing the Partnership's banking arrangements,
balancing the Partners' capital accounts, filing the Partnership's tax
returns, and exposing its assets to creditors as a general partner. In
1994, the General Partner earned a salary of $150,000. The amounts due for
1989 through 1994 of $900,000 remained unpaid at December 31, 1994.
The Partnership has entered into an agreement with CFP (the"Partnership
Incentive Management Agreement") pursuant to which CFP will
attempt to maximize cash flow to the Limited Partners by increasing
revenues and minimizing expenses. Pursuant to the Partnership Incentive
Management Agreement, commencing in 1991, CFP will be paid an annual fee
(the "Incentive Management Fee") of nine percent (9.0%) of the cash flow,
but only to the extent that actual cash flow exceeds projected cash flow.
It is not expected that any such fee will be paid.
Pursuant to an agreement between the Partnership and CII (the "Real
Estate Advisory Services Agreement"), on the sale of the Project, CII will
receive a real estate advisory fee equal to 3.5% of the gross sales price
of the property, from which amount third party brokerage commissions to the
extent of one percent (l.0%) may be paid. In 1990, CII earned a 2.5% real
estate advisory fee on the gross sales price of the Torrance Property. The
amount of the fee was $518,750 (which remained unpaid at December 31,
1994).
The Partnership has entered into an asset management agreement (the
"Asset Management Agreement") with CII pursuant to which CII performs
certain functions relating to the supervision of the management of the
assets of the Partnership and supervision of unaffiliated property
management companies. For these services, CII will receive a fee (the
"Asset Management Fee") equal to two percent (2.0%) per annum of gross
revenue for the years 1985-1990 (inclusive) and one percent (l.0%) per
annum of gross revenues thereafter. CII earned $146,032 for its services
in 1994. At December 31, 1994 the Partnership owed CII $2,465,077 for the
1987 through 1994 fees.
The General Partner and its affiliates may be reimbursed for their
direct expenses incurred in the offering, organization and administration
of the Partnership. In 1994, the General Partner and its affiliates were due
reimbursement for such out of pocket administrative expenses in the
amount of $40,417 of which $2,030 was unpaid as of December 31, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements. See Index to Financial
Statements in Item 8.
2. Financial Statement Schedules
(a) Real Estate and Accumulated Depreciation. See Index to
Financial Statements in Item 8.
3. Exhibits
2.1 Plan of Reorganization under Chapter 11 of the
Bankruptcy Code for California Seven Associates Limited
Partnership, Debtor and Debtor in Possession, Proposed
by the Debtor dated March 16, 1994.
3.1 Form 8, Amendment No. 1 to Form 10 Registration
Statement dated July 25, 1986.
3.2 Certificate of Limited Partnership of California Seven
Associates Limited Partnership, dated January 30, 1985,
incorporated by reference to Exhibit 3.1 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
3.3 Second Amended and Restated Limited Partnership
Agreement of California Seven Associates Limited
Partnership, dated as of February 14, 1985,
incorporated by reference to Exhibit 3.2 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
4.1 Form of Seven-Year Negotiable Promissory Note of the
Class A Limited Partner, incorporated by reference to
Exhibit 4.2 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
4.2 Second Amended and Restated Limited Partnership
Agreement defining the rights of the Limited Partners,
dated as of February 14, 1985 (See pp. 3-18 - 3-26 of
Exhibit 3.2), incorporated by reference to Exhibit 4.6
to Form 10 Registration Statement under the Securities
Act of 1934, File No. 0-13458.
10.1 Mortgage Note from IFD Properties, Inc.-First to The
Travelers Insurance Company, as Mortgagee, dated as of
December 20, 1984, incorporated by reference to Exhibit
10.1 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.2 Deed of Trust from IFD Properties, Inc.-First to The
Travelers Insurance Company, dated as of December 20,
1984, relating to the Los Angeles Property,
incorporated by reference to Exhibit 10.2 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.3 Security Agreement between IFD Properties, Inc.-First
and The Travelers Insurance Company, dated as of
December 20, 1984, incorporated by reference to Exhibit
10.3 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.4 Purchase and Sale Agreement between IFD Properties,
Inc.-First and CIGNA Financial Partners, Inc., dated as
of January 15, 1985, incorporated by reference to
Exhibit 10.4 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.5 Assignment and Assumption Agreement between CIGNA
Financial Partners, Inc. and the Registrant, dated
January 30, 1985, incorporated by reference to Exhibit
10.5 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.6 Transfer and Assignment Agreement between CIGNA
Financial Partners, Inc. and the Registrant, dated
January 30, 1985, incorporated by reference to Exhibit
10.6 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.7 Mortgage Note from the Registrant to Brookside Savings
& Loan Association, as Mortgagee, dated February 15,
1985, incorporated by reference to Exhibit 10.7 to Form
10 Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.8 Deed of Trust and Assignment of Rents from the
Registrant to Brookside Savings & Loan Association,
dated February 15, 1985, incorporated by reference to
Exhibit 10.8 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.9 Real Estate Advisory Services Agreement between the
Registrant and CIGNA Capital Advisers, Inc., dated as
of February 1, 1985, incorporated by reference to
Exhibit 10.9 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.10
Promissory Note from the Registrant to CIGNA Financial Partners,
Inc., dated as of January 30, 1985, incorporated by reference to
Exhibit 10.10 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.11
Partnership Administration and Management Services Fee Agreement
between the Registrant and CIGNA Financial Partners, Inc., dated as
of March 1, 1985, incorporated by reference to Exhibit 10.13 to
Form 10 Registration Statement under the Securities Act of 1934,
File No. 0-13458.
10.12
Agreement between the Registrant and CIGNA Financial Partners,
Inc., dated as of December 1, 1985, incorporated by reference to
Exhibit 10.14 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.13
Incentive Management Agreement between the Registrant and CIGNA
Financial Partners, Inc., dated as of March 1, 1985, incorporated
by reference to Exhibit 10.15 to Form 10 Registration Statement
under the Securities Act of 1934, File No. 0-13458.
10.14
Asset Management Agreement between the Registrant and CIGNA Capital
Advisers, Inc., dated as of March 1, 1985, incorporated by
reference to Exhibit 10.16 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.15
Organization Agreement between the Registrant and CIGNA Financial
Partners, Inc., dated as of March 1, 1985, incorporated by
reference to Exhibit 10.17 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.16
Working Capital Loan Arrangement Agreement between the Registrant
and CIGNA Financial Partners, Inc., dated as of March 1, 1985,
incorporated by reference to Exhibit 10.18 to Form 10 Registration
Statement under the Securities Act of 1934, File No. 0-13458.
10.17
Management Agreement between IFD Properties, Inc.-First and R&B
Enterprises, dated as of January 30, 1985, incorporated by
reference to Exhibit 10.19 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.18
Assignment and Assumption of Management Agreement between IFD
Properties, Inc.-First and the Registrant, dated January 31, 1985,
incorporated by reference to Exhibit 10.20 to Form 10 Registration
Statement under the Securities Act of 1934, File No. 0-13458.
10.19
Inducement Agreement between Industrial Indemnity Company and the
Registrant, incorporated by reference to Exhibit 10.21 to Form 10
Registration Statement under the Securities Act of 1934, File No.
0-13458.
10.20
Surety Bonds of Industrial Indemnity Company, incorporated by
reference to Exhibit 10.22 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.21 Indemnification Agreement between the Registrant, CIGNA Realty
Resources, Inc.,-Seventh and Industrial Indemnity Company, dated
March 21, 1986, incorporated by reference to Exhibit 10.23 to Form
10 Registration Statement under the Securities Act of 1934, File
No. 0-13458.
10.22
Loan Agreement between the Registrant and ContiTrade Services
Corporation, dated as of April 10, 1986, incorporated by reference
to Exhibit 10.24 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.23
Promissory Note from the Registrant to ContiTrade Services
Corporation, dated as of April 10, 1986, incorporated by reference
to Exhibit 10.25 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.24
Pledge and Assignment Agreement between the Registrant and
ContiTrade Services Corporation, dated as of April 10, 1986,
incorporated by reference to Exhibit 10.26 to Form 10 Registration
Statement under the Securities Act of 1934, File No. 0-13458.
10.25
Letter Agreement between the Registrant and ContiTrade Services
Corporation, dated as of April 10, 1986, incorporated by reference
to Exhibit 10.27 to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.26
Modification Agreement between the Registrant, IFD Properties,
Inc.-First and The Travelers Insurance Company, dated as of August
1, 1987, incorporated by reference to Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987.
10.27
Security Agreement between the Registrant and The Travelers
Insurance Company, effective as of August 1, 1987, incorporated by
reference to Exhibit 10.27 to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987.
10.28
Agreement for purchase and sale dated October 26, 1990 between the
Registrant and SBD Group Inc. for the sale of the Registrant's
Torrance Property, incorporated by reference to Exhibit 10.28 to
Registrants Annual Report on Form 10Q for the quarterly period
ended September 30, 1990.
10.29
Second Note Modification Agreement between IFD Properties, Inc.,
-First, the Registrant and the Travelers Insurance Company, dated
May 1, 1990.
10.30
Promissory Note between the Registrant and Congen Properties, Inc.
as Mortgagee, dated October 26, 1990.
27 Financial Data Schedules
(b) No reports on Form 8-K were filed during the last quarter of
the fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 1995 By: /s/ John D. Carey
John D. Carey, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and
on the date indicated.
/s/ Philip J. Ward Date: March 31, 1994
Philip J. Ward, Director
/s/ R. Bruce Albro Date: March 31, 1994
R. Bruce Albro, Director
/s/ John Wilkinson Date: March 31, 1994
John Wilkinson, Director
/s/ John D. Carey Date: March 31, 1994
John D. Carey, President, Controller
(Principal Executive Officer)
(Principal Accounting Officer)
/s/ Michael M. Sinisgalli Date: March 31, 1994
Michael M. Sinisgalli, Treasurer
(Principal Financial Officer)