-----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, WcTg2UO+DldKtcBYdpotNVqZmwH7iUqE/jP/vEyKzTuowheOEfepGC9OhPKxX61W Tl5ame7Kbx6gPbGz+clTKA== 0000711642-99-000118.txt : 19990518 0000711642-99-000118.hdr.sgml : 19990518 ACCESSION NUMBER: 0000711642-99-000118 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVII CENTRAL INDEX KEY: 0000356472 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942782037 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-11137 FILM NUMBER: 99624932 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 C/O INSIGNIA FINANCIAL GROUP 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 March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to Commission file number 0-11137 CENTURY PROPERTIES FUND XVII (Exact name of small business issuer as specified in its charter) California 94-2782037 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, Post Office 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 XVII CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 1999 Assets Cash and cash equivalents $ 2,791 Receivables and deposits 930 Restricted escrows 990 Other assets 324 Investment properties: Land $ 7,078 Buildings and related personal property 61,411 68,489 Less accumulated depreciation (33,320) 35,169 $ 40,204 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 97 Tenant security deposit liabilities 291 Accrued property taxes 469 Other liabilities 371 Mortgage notes payable 41,991 Partners' Capital (Deficit) General partner's $ (7,823) Limited partners' (75,000 units issued and outstanding) 4,808 (3,015) $ 40,204 See Accompanying Notes to Consolidated Financial Statements b) CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 1999 1998 (As Restated) Revenues: Rental income $ 3,356 $ 3,164 Other income 163 188 Total revenues 3,519 3,352 Expenses: Operating 1,153 1,288 General and administrative 69 82 Depreciation 611 571 Interest 894 863 Property taxes 198 185 Total expenses 2,925 2,989 Net income $ 594 $ 363 Net income allocated to general partner $ 70 $ 43 Net income allocated to limited partners 524 320 $ 594 $ 363 Net income per limited partnership unit $ 6.99 $ 4.27 Distribution per limited partnership unit $ 30.31 $ -- See Accompanying Notes to Consolidated Financial Statements c) CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 75,000 $ -- $75,000 $75,000 Partners' (deficit) capital at December 31, 1998 75,000 $(7,666) $ 6,557 $(1,109) Distribution to Partners -- (227) (2,273) (2,500) Net income for the three months ended March 31, 1999 -- 70 524 594 Partners' (deficit) capital at March 31, 1999 75,000 $(7,823) $ 4,808 $(3,015) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 1999 1998 (As Restated) Cash flows from operating activities: Net income $ 594 $ 363 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 611 571 Amortization of loan costs and debt discounts 355 327 Loss on disposal of property -- 36 Change in accounts: Receivables and deposits 102 404 Other assets (42) 37 Accounts payable (45) 54 Tenant security deposit liabilities 17 -- Accrued property taxes (209) (257) Other liabilities (10) (35) Net cash provided by operating activities 1,373 1,500 Cash flows from investing activities: Net withdrawals from restricted escrows 291 7 Property improvements and replacements (305) (344) Net cash used in investing activities (14) (337) Cash flows from financing activities: Payments on mortgage notes payable (99) (108) Distribution to partners (2,500) -- Net cash used in financing activities (2,599) (108) Net (decrease) increase in cash and cash equivalents (1,240) 1,055 Cash and cash equivalents at beginning of period 4,031 4,011 Cash and cash equivalents at end of period $ 2,791 $ 5,066 Supplemental disclosure of cash flow information: Cash paid for interest $ 539 $ 536 See Accompanying Notes to Consolidated Financial Statements e) CENTURY PROPERTIES FUND XVII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Century Properties Fund XVII (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. PRINCIPLES OF CONSOLIDATION The financial statements include all the accounts of the Partnership and Apartment CCG 17, L.P., which owns Cherry Creek Apartments, Apartment Creek 17, LLC, which owns Creekside Apartments and Apartment Lodge 17, LLC, which owns the The Lodge Apartments, entities in which the Partnership ultimately holds 100% interest. All intraentity balances have been eliminated. 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. ("Insignia") and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE 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 payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the three months ended March 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $176 $165 Reimbursement for services of affiliates (included in general and administrative expense and operating expense) (1) 37 48 (1) Included in "Reimbursements for services of affiliates" is approximately $4,000 in construction oversight costs for the three months ended March 31, 1998. There were no construction oversight costs for the three months ended March 31, 1999. During the three months ended March 31, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $176,000 and $165,000 for the three months ended March 31, 1999 and 1998, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $37,000 and $48,000 for the three months ended March 31, 1999 and 1998, respectively. NOTE D - DISTRIBUTION During the three months ended March 31, 1999, the Partnership paid a distribution of approximately $2,500,000 to its partners. The distribution consisted of approximately $1,811,000 from operations and approximately $689,000 from the proceeds of the refinancing of the mortgage loans encumbering Creekside Apartments and the Lodge Apartments in August 1998. As a part of the distribution paid to the general partner, a management incentive fee of approximately $181,000 is included. No distributions to the partners were made during the three month period ending March 31, 1998. NOTE E - SEGMENT REPORTING The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of five apartment complexes in Colorado, Texas, and Florida. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those described in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. 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 three months ended March 31, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 3,356 $ -- $ 3,356 Other income 153 10 163 Interest expense 894 -- 894 Depreciation 611 -- 611 General and administrative expense -- 69 69 Segment profit (loss) 653 (59) 594 Total assets 39,489 715 40,204 Capital expenditures for investment properties 305 -- 305 1998 Residential Other Totals Rental income $ 3,164 $ -- $ 3,164 Other income 152 36 188 Interest expense 863 -- 863 Depreciation 571 -- 571 General and administrative expense -- 82 82 Segment profit (loss) 409 (46) 363 Total assets 39,280 3,186 42,466 Capital expenditures for investment properties 344 -- 344 NOTE F - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint, which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that the costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense is not expected to have a material effect on the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. NOTE G - PRIOR PERIOD RESTATEMENT The Partnership's consolidated financial statements have been restated to correct an error in calculating the amortization of debt discount on the zero- coupon mortgage encumbering the Partnership's Village in The Woods Apartments property. The effect of the restatement for the three months ended March 31, 1998, was an increase in net income of approximately $77,000 which equates to an increase in net income per limited partnership unit of $.91. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 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 five apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 1999 and 1998: Average Occupancy Property 1999 1998 Cherry Creek Gardens Apartments Englewood, Colorado 98% 96% Creekside Apartments Denver, Colorado 99% 95% The Lodge Apartments Denver, Colorado 98% 97% The Village in the Woods Apartments Cypress, Texas 93% 95% Cooper's Pond Apartments Tampa, Florida 95% 95% The Managing General Partner attributes the increase in occupancy at Creekside Apartments to unusually low occupancy for the three months ended March 31, 1998, resulting from roof leaks. These leaks have been repaired and occupancy has improved as a result. Results of Operations The Partnership generated net income for the three months ended March 31, 1999 of approximately $594,000 compared to net income of approximately $363,000 for the corresponding period of 1998. The increase in net income was due to an increase in total revenues and a decrease in total expenses. Total revenue increased primarily due to an increase in rental income which was partially offset by a decrease in other income. The increase in rental income was due to increases in average occupancy at Cherry Creek Gardens Apartments, Creekside Apartments, and The Lodge Apartments, and an increase in average rental rates at all of the Partnership's investment properties. Other income decreased primarily due to reduced interest income due to lower average cash balances in interest bearing accounts. Total expenses decreased primarily due to decreases in operating expense and general and administrative expense which more than offset increases in depreciation expense and interest expense. The decrease in operating expenses was primarily due to a decrease in maintenance expenses due to fewer repair and maintenance projects at the Partnership's investment properties, decreased insurance expense due to the use of a new insurance carrier at all of the Partnership's properties and decreased advertising expenses at Cherry Creek Apartments and Village in the Woods Apartments. In addition, there was a loss on disposal of assets in 1998 that resulted from the write-off of roofs at Village in the Woods Apartments which were not fully depreciated at the time of their replacement in 1998. The decline in general and administrative fees resulted from decreases in reimbursements for services of affiliates. Included in general and administrative expenses at both March 31, 1999 and 1998 are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly communications with investors and regulatory agencies required by the Partnership Agreement are included. Depreciation expense increased due to capital improvements completed during 1998 that are now being depreciated. Interest expense increased primarily due to the increasing mortgage balance at Village in the Woods Apartments due to amortization of the debt discount on the zero-coupon mortgage encumbering the property. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At March 31, 1999, the Partnership had cash and cash equivalents of approximately $2,791,000 compared to approximately $5,066,000 at March 31, 1998. For the three months ended March 31, 1999, cash decreased by approximately $1,240,000 from the Partnership's year ended December 31, 1998. The decrease in cash and cash equivalents is due to approximately $2,599,000 of cash used in financing activities and approximately $14,000 of cash used in investing activities, which was partially offset by approximately $1,373,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements and is largely offset by withdrawals from escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted primarily of a distribution to partners and to a lesser extent of payments of principal made on the mortgages encumbering the Partnership's investment properties. The Partnership invests its working capital reserves in a money market account. 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 various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. Capital improvements planned for each of the Partnership's properties are detailed below. Cherry Creek Gardens Apartments During the three months ended March 31, 1999, the Partnership completed approximately $14,000 of capital improvements at the property, consisting primarily of floor covering replacement. These improvements were funded from the Partnership's reserves and operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $179,000 of capital improvements over the near term. Capital improvements planned for 1999 consist of carpet and vinyl replacement, electrical upgrades, landscaping, and other structural improvements. These improvements are budgeted for, but are not limited to, approximately $249,000. Creekside Apartments During the three months ended March 31, 1999, the Partnership completed approximately $24,000 of capital improvements at the property, consisting primarily of appliances and floor covering replacement. These improvements were funded from the Partnership's reserves and operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $695,000 of capital improvements over the near term. Capital improvements planned for 1999 consist of water heaters, appliances, plumbing upgrades, carpet and vinyl replacement and other structural improvements. These improvements are budgeted for, but are not limited to, approximately $577,000. The Lodge Apartments During the three months ended March 31, 1999, the Partnership completed approximately $19,000 of capital improvements at the property, consisting primarily of pool repairs and floor covering replacement. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $474,000 of capital improvements over the near term. Capital improvements planned for 1999 consist of carpet and vinyl replacement, parking lot improvements, swimming pool repairs and other structural upgrades. These improvements are budgeted for, but not limited to, approximately $323,000. The Village in the Woods Apartments During the three months ended March 31, 1999, the Partnership completed approximately $177,000 of capital improvements at the property, consisting primarily of balcony replacements, roof replacement, sidewalk and curb improvements, appliances, floor covering replacement and other structural improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $362,000 of capital improvements over the near term. Capital improvements planned for 1999 consist of air conditioning units, carpet replacement, parking lot repairs, electrical upgrades, landscaping and roof replacement. These improvements are budgeted for, but are not limited to, approximately $445,000. Cooper's Pond Apartments During the three months ended March 31, 1999, the Partnership completed approximately $71,000 of capital improvements at the property, consisting primarily of landscaping, appliances, floor covering replacement and other structural improvements. These improvements were funded from the Partnership's reserves and operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $517,000 of capital improvements over the near term. Capital improvements planned for 1999 consist of carpet replacement, landscaping, grounds lighting, parking lot repairs, pool repairs, appliances and other structural upgrades. These improvements are budgeted for, but are not limited to, approximately $546,000. 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 Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $41,991,000, net of discount, is amortized over varying periods with maturity dates ranging from July 1999 at Cooper's Pond Apartments to September 2008 at all the other properties. Although there can be no assurance that it will be able to do so, the Managing General Partner believes it will be able to refinance the debt maturing in July 1999. 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 Partnership may risk losing such properties through foreclosure. During the three months ended March 31, 1999, the Partnership paid a distribution of approximately $2,500,000 to its partners. The distribution consisted of approximately $1,811,000 ($21.30 per limited partnership unit) from operations and approximately $689,000 ($9.01 per Limited Partnership unit) from the proceeds of the refinancing of the mortgage loans encumbering Creekside Apartments and the Lodge Apartments in August 1998. As a part of the distribution paid to the general partner, a management incentive fee of approximately $181,000 is included. No distributions were made to the partners during the three month period ending March 31, 1998. Future cash distributions will depend on the levels of net cash generated from operations, timing of debt maturities, refinancings and property sales and the availability of cash reserves. The Partnership's distribution policy will be reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital improvements to permit further distributions to its partners in 1999 or subsequent periods. 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 mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of March 31, 1999, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by July 31, 1999. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 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 the testing process is expected to be completed by July 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by July 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 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. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by July 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of March 31, 1999 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of March 31, 1999 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by August 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint, which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that the costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense is not expected to have a material effect on the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended March 31, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PROPERTIES FUND XVII By: Fox Capital Management Corporation, Its Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: May 14, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Properties Fund XVII 1999 First Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000356472 CENTURY PROPERTIES FUND XVII 1,000 3-MOS DEC-31-1999 MAR-31-1999 2,791 0 0 0 0 0 68,489 33,320 40,204 0 41,991 0 0 0 (3,015) 40,204 0 3,519 0 0 2,925 0 894 0 0 0 0 0 0 594 6.99 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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