-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NreGv1POnk5jEDClGYeNUlByQYvRjuYFvYdm4md1eiHWrH9P049Gq1NDVkxPAOrA sm/HaFg8golRGXUsHaZzGw== 0000711642-99-000275.txt : 19991115 0000711642-99-000275.hdr.sgml : 19991115 ACCESSION NUMBER: 0000711642-99-000275 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVI CENTRAL INDEX KEY: 0000351931 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942704651 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10435 FILM NUMBER: 99747027 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________to _________ Commission file number 0-10435 CENTURY PROPERTIES FUND XVI (Exact name of small business issuer as specified in its charter) California 94-2704651 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CENTURY PROPERTIES FUND XVI CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 1999 Assets Cash and cash equivalents $ 697 Receivables and deposits 349 Other assets 219 Restricted escrows 71 Investment properties: Land $ 1,409 Buildings and related personal property 14,408 15,817 Less accumulated depreciation (8,188) 7,629 $ 8,965 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 33 Accrued property taxes 190 Tenant security deposit liabilities 50 Other liabilities 136 Mortgage notes payable 7,286 Partners' (Deficit) Capital: General partners $ (3,817) Limited partners (130,000 units issued and outstanding) 5,087 1,270 $ 8,965 See Accompanying Notes to Consolidated Financial Statements b) CENTURY PROPERTIES FUND XVI CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues: Rental income $ 748 $ 714 $ 2,220 $ 2,135 Other income 28 33 82 94 Total revenues 776 747 2,302 2,229 Expenses: Operating 287 335 845 999 General and administrative 54 39 174 138 Depreciation 129 127 384 369 Interest 152 153 457 460 Property taxes 64 59 193 160 Total expenses 686 713 2,053 2,126 Net income $ 90 $ 34 $ 249 $ 103 Net income allocated to general partners (6.9%) $ 6 $ 2 $ 17 $ 7 Net income allocated to limited partners (93.1%) 84 32 232 96 $ 90 $ 34 $ 249 $ 103 Net income per limited partnership unit $ 0.64 $ 0.25 $ 1.78 $ 0.74 See Accompanying Notes to Consolidated Financial Statements c) CENTURY PROPERTIES FUND XVI CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 130,000 $ -- $65,000 $65,000 Partners' (deficit) capital at December 31, 1998 130,000 $ (3,834) $ 4,855 $ 1,021 Net income for the nine months ended September 30, 1999 -- 17 232 249 Partners' (deficit) capital at September 30, 1999 130,000 $ (3,817) $ 5,087 $ 1,270 See Accompanying Notes to Consolidated Financial Statements d) CENTURY PROPERTIES FUND XVI CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income $ 249 $ 103 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 384 369 Amortization of loan costs 24 24 Change in accounts: Receivables and deposits 21 (5) Other assets (10) (11) Accounts payable (23) (29) Accrued property taxes (55) (62) Tenant security deposit liabilities (1) 5 Other liabilities 27 9 Net cash provided by operating activities 616 403 Cash flows from investing activities: Property improvements and replacements (253) (489) Net withdrawals from restricted escrows 29 48 Net cash used in investing activities (224) (441) Cash flows used in financing activities: Payments on mortgage notes payable (61) (56) Net increase (decrease) in cash and cash equivalents 331 (94) Cash and cash equivalents at beginning of period 366 459 Cash and cash equivalents at end of period $ 697 $ 365 Supplemental disclosure of cash flow information: Cash paid for interest $ 433 $ 436 See Accompanying Notes to Consolidated Financial Statements e) CENTURY PROPERTIES FUND XVI NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Century Properties Fund XVI (the "Partnership" or the "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Partnership's general partners are Fox Capital Management Corporation (the "Managing General Partner" or "FCMC") and Fox Realty Investors ("FRI"). The Managing General Partner and the managing general partner of FRI are subsidiaries of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. In the opinion of the Managing General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. Principles of Consolidation The Partnership's financial statements include the accounts of the Partnership and its wholly owned subsidiaries. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into AIMCO, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner and the managing general partner of FRI. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with affiliates of the Managing General Partner were paid during the nine months ended September 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $114 $111 Reimbursement for services of affiliates (included in investment properties and general and administrative and operating expenses) 76 100 During the nine months ended September 30, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from both of the Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $114,000 and $111,000 for the nine months ended September 30, 1999 and 1998, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $76,000 and $100,000 for the nine months ended September 30, 1999 and 1998, respectively. Included in these expenses for both of the nine month periods ended September 30, 1999 and 1998, is approximately $2,000 and $21,000, respectively, in reimbursements for construction oversight costs. On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner, commenced a tender offer to purchase up to 37,586.25 units of limited partnership interest in the Partnership (approximately 28.91% of the total outstanding units) for a purchase price of $54 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,381.00 units. As a result, AIMCO and its affiliates currently own 52,055.68 units of limited partnership interest in the Partnership representing approximately 40.04% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO (see "Note E - Legal Proceedings"). NOTE D - SEGMENT REPORTING Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties, consisting of two apartment complexes, one of which is located in Tampa, Florida and the other in Houston, Texas. The Partnership rents apartment units to people for terms that are typically twelve months or less. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those of the Partnership as described in the summary of significant accounting policies in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the nine month periods ended September 30, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 2,220 $ -- $ 2,220 Other income 74 8 82 Interest expense 457 -- 457 Depreciation 384 -- 384 General and administrative expense -- 174 174 Segment profit (loss) 415 (166) 249 Total assets 8,690 275 8,965 Capital expenditures 253 -- 253 1998 Residential Other Totals Rental income $ 2,135 $ -- $ 2,135 Other income 80 14 94 Interest expense 460 -- 460 Depreciation 369 -- 369 General and administrative expense -- 138 138 Segment profit (loss) 227 (124) 103 Total assets 8,451 306 8,757 Capital expenditures 489 -- 489 NOTE E - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Note B - Transfer of Control"). The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the Managing General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The Managing General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 1999 and 1998: Average Occupancy Property 1999 1998 Ralston Place 96% 95% (formerly The Landings Apartments) Tampa, Florida Woods of Inverness Apartments 98% 97% Houston, Texas Results of Operations The Registrant's net income for the nine months ended September 30, 1999 was approximately $249,000 as compared to approximately $103,000 for the corresponding period in 1998. The Registrant's net income for the three months ended September 30, 1999 was approximately $90,000 as compared to net income of approximately $34,000 for the three months ended September 30, 1998. Net income increased for both the three and nine months ended September 30, 1999 as a result of an increase in total revenues and a decrease in total expenses. The increase in total revenues is primarily attributable to an increase in rental income as a result of increases in occupancy and average annual rental rates at both investment properties as well as a decrease in rental concessions offered at Woods of Inverness Apartments. Total expenses decreased primarily due to reductions in operating expenses, which were partially offset by increases in general and administrative, depreciation and property tax expenses. Interest expense remained relatively constant for the comparable periods. Operating expenses decreased due to reductions in maintenance and insurance expense. Maintenance expense decreased primarily due to the completion of a landscaping project and exterior building and tennis court repairs at Woods of Inverness Apartments, and the completion of exterior building improvements and parking lot repairs at Ralston Place during the nine months ended September 30, 1998. Insurance expense decreased due to a refund of prior premiums paid at Woods of Inverness Apartments upon cancellation of the prior policy and reduced premiums at both properties due to a change in insurance carriers late in 1998. The increase in general and administrative expenses is primarily due to increased legal costs as a result of the settlement of a legal proceeding in the first quarter of 1999. The increase in depreciation expense is the result of the amounts spent on capital improvements and replacements during the fourth quarter of 1998 and the nine months ended September 30, 1999. Property taxes increased resulting from an increase in the assessment value of Woods of Inverness Apartments. Included in general and administrative expense for both of the nine month periods ended September 30, 1999 and 1998 are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 1999, the Registrant had cash and cash equivalents of approximately $697,000 as compared to approximately $365,000 at September 30, 1998. Cash and cash equivalents increased approximately $331,000 for the period ended September 30, 1999 from the Registrant's fiscal year end. The increase in cash and cash equivalents is due to approximately $616,000 of cash provided by operating activities, partially offset by approximately $224,000 of cash used in investing activities and approximately $61,000 of cash used in financing activities. Cash used in investing activities consisted of capital improvements and replacements and was partially offset by net withdrawals from restricted escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Registrant's properties. The Registrant invests its working capital reserves in money market accounts. An affiliate of the Managing General Partner has made available to the Partnership a credit line of up to $150,000 per property owned by the Partnership. The Partnership has no outstanding amounts due under this line of credit. Based on present plans, the Managing General Partner does not anticipate the need to borrow in the near future. Other than cash and cash equivalents, the line of credit is the Partnership's only unused source of liquidity. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for the Partnership's properties are detailed below. Woods of Inverness: Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that Woods of Inverness Apartments requires approximately $246,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $205,000 for 1999 at this property which include certain of the required improvements and consist of air conditioning and electrical upgrades, flooring replacements, and swimming pool, parking lot and fencing improvements. As of September 30, 1999, the Partnership has spent approximately $83,000 on capital improvements at Woods of Inverness Apartments, consisting primarily of fencing and flooring replacements, structural improvements, roof replacement, landscaping, and swimming pool and parking lot improvements. These improvements were funded from cash flow and replacement reserves. Ralston Place: Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that Ralston Place requires approximately $337,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $341,000 for 1999 at this property which include certain of the required improvements and consist of a roof replacement project, structural improvements, appliance replacements and landscaping. As of September 30, 1999, the Partnership has spent approximately $170,000 on capital improvements at Ralston Place, consisting primarily of roofing replacement, recreational facility enhancements, grounds lighting, structural improvements, and flooring and appliance replacements. These improvements were funded from cash flow and replacement reserves. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $7,286,000 is amortized over 360 months with a balloon payment of approximately $6,618,000 due January 1, 2006. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. The Partnership did not make any distributions to its partners during 1999 and 1998. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. The Partnership's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after planned capital expenditures, to permit distributions to its partners during the remainder of 1999 or subsequent periods. Tender Offer On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner, commenced a tender offer to purchase up to 37,586.25 units of limited partnership interest in the Partnership (approximately 28.91% of the total outstanding units) for a purchase price of $54 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,381.00 units. As a result, AIMCO and its affiliates currently own 52,055.68 units of limited partnership interest in the Partnership representing approximately 40.04% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO (see "Item I - Financial Statements, Note E - Legal Proceedings"). Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of September 30, 1999, had virtually completed this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October 1999. During 1998, the Managing agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded virtually all of the server operating systems. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated virtually no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent was virtually completed by September 30, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of September 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent has banking relationships with three major financial institutions, all of which have designated their compliance. The Managing Agent has updated data transmission standards with all of the financial institutions. All financial institutions have communicated that they are Year 2000 compliant and accordingly no accounts were required to be moved from the existing financial institutions. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date, the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expenses and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Part I _ Financial Information, Item 1. Financial Statements, Note B _ Transfer of Control"). The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the Managing General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The Managing General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended September 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the Partnership caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PROPERTIES FUND XVI By: FOX CAPITAL MANAGEMENT CORPORATION Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: November 11, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Properties Fund XVI 1999 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000351931 CENTURY PROPERTIES FUND XVI 1,000 9-MOS DEC-31-1999 SEP-30-1999 697 0 0 0 0 0 15,817 8,188 8,965 0 7,286 0 0 0 1,270 8,965 0 2,302 0 0 2,053 0 457 0 0 0 0 0 0 249 1.78 0 Registrant has an un classified balance sheet. Multiplier is 1.
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