-----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, LM9XcT14fe2RcO5zV0tv4S+mPQgvPLBEs8bOfJCoFAB9r79iseBd5kOa40djfPXM 1/9Nl1U+qGIVQXr4fYrSTQ== 0000711642-99-000180.txt : 19990810 0000711642-99-000180.hdr.sgml : 19990810 ACCESSION NUMBER: 0000711642-99-000180 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVIII CENTRAL INDEX KEY: 0000704271 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942834149 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-11934 FILM NUMBER: 99681524 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 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 0-11934 CENTURY PROPERTIES FUND XVIII (Exact name of small business issuer as specified in its charter) California 94-2834149 (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 XVIII CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 1,168 Receivables and deposits 358 Restricted escrows 165 Other assets 384 Investment properties: Land $ 7,296 Buildings and related personal property 20,089 27,385 Less accumulated depreciation (10,826) 16,559 $ 18,634 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 20 Other liabilities 190 Accrued property taxes 229 Tenant security deposit liabilities 74 Mortgage notes payable 19,351 Partners' (Deficit) Capital General partner $ (6,310) Limited partners (75,000 units issued and outstanding) 5,080 (1,230) $ 18,634 See Accompanying Notes to Consolidated Financial Statements b) CENTURY PROPERTIES FUND XVIII CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 1,202 $ 1,137 $ 2,409 $ 2,284 Other income 57 69 122 140 Total revenues 1,259 1,206 2,531 2,424 Expenses: Operating 395 399 779 783 General and administrative 94 48 149 107 Depreciation 186 174 353 345 Interest 352 367 701 735 Property tax 114 97 232 199 Total expenses 1,141 1,085 2,214 2,169 Net income $ 118 $ 121 $ 317 $ 255 Net income allocated to general partner (9.9%) $ 11 $ 12 $ 31 $ 25 Net income allocated to limited partners (90.1%) 107 109 286 230 $ 118 $ 121 $ 317 $ 255 Net income per limited partnership unit $ 1.42 $ 1.45 $ 3.81 $ 3.07 Distributions per limited partnership unit $ -- $ 9.81 $ 9.91 $ 9.81 See Accompanying Notes to Consolidated Financial Statements c) CENTURY PROPERTIES FUND XVIII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (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 $(6,334) $ 5,537 $ (797) Distributions to partners -- (7) (743) (750) Net income for the six months ended June 30, 1999 -- 31 286 317 Partners' (deficit) capital at June 30, 1999 75,000 $(6,310) $ 5,080 $(1,230) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PROPERTIES FUND XVIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 317 $ 255 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 353 345 Amortization of loan costs 33 18 Change in accounts: Receivables and deposits 143 (157) Other assets (14) 14 Accounts payable (1) (13) Other liabilities 13 (11) Accrued property taxes (119) (95) Tenant security deposit liabilities (12) (6) Net cash provided by operating activities 713 350 Cash flows from investing activities: Property improvements and replacements (242) (174) Net withdrawals from (deposits to) restricted escrows 76 (80) Net cash used in investing activities (166) (254) Cash flows from financing activities: Distributions to partners (750) -- Payments on mortgage notes payable (106) (93) Net cash used in financing activities (856) (93) Net (decrease) increase in cash and cash equivalents (309) 3 Cash and cash equivalents at beginning of period 1,477 2,025 Cash and cash equivalents at end of period $1,168 $2,028 Supplemental disclosure of cash flow information: Cash paid for interest $ 668 $ 717 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY Distribution payable was adjusted approximately $743,000 at June 30, 1998 in connection with the July 1998 distribution payment to the partners. See Accompanying Notes to Consolidated Financial Statements e) CENTURY PROPERTIES FUND XVIII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Century Properties Fund XVIII (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. The Partnership's general partners are Fox Capital Management Corporation (the "Managing General Partner" or "FCMC"), Fox Realty Investors ("FRI") and Fox Partners 82. The Managing General Partner as well as the managing general partner of FRI is a subsidiary 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 six month periods ended June 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 year ended December 31, 1998. Principles of Consolidation: The Partnership's financial statements include the accounts of the Partnership and its wholly-owned subsidiary. 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 payments were made to the Managing General Partner and affiliates during the six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 127 $ 120 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) 63 67 During the six months ended June 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 $127,000 and $120,000 for the six months ended June 30, 1999 and 1998, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $63,000 and $67,000 for the six months ended June 30, 1999 and 1998, respectively. Included in these costs is approximately $6,000 and $2,000 in reimbursements for construction oversight costs for the six months ended June 30, 1999 and 1998, respectively. On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced a tender offer to purchase up to 21,747.56 (29.00% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 894.00 units. As a result, AIMCO and its affiliates currently own 27,835.50 units of limited partnership interest in the Partnership representing 37.11% 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. 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 in Salt Lake City, Utah and Dallas, Texas. The Partnership rents apartment units to tenants 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 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 six months ended June 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 $ 2,409 $ -- $ 2,409 Other income 106 16 122 Interest expense 701 -- 701 Depreciation 353 -- 353 General and administrative expense -- 149 149 Segment profit (loss) 450 (133) 317 Total assets 17,999 635 18,634 Capital expenditures 242 -- 242 1998 Residential Other Totals Rental income $ 2,284 $ -- $ 2,284 Other income 96 44 140 Interest expense 735 -- 735 Depreciation 345 -- 345 General and administrative expense -- 107 107 Segment profit (loss) 318 (63) 255 Total assets 17,655 1,890 19,545 Capital expenditures 174 -- 174 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 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 have 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 costs associated with this case, if any, 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 six months ended June 30, 1999 and 1998: Average Occupancy Property 1999 1998 Oak Run Apartments Dallas, Texas 92% 92% Overlook Point Apartments Salt Lake City, Utah 96% 93% The Managing General Partner attributes the increase in occupancy at Overlook Point Apartments to more aggressive marketing efforts. Results of Operations The Partnership's net income for the six months ended June 30, 1999 was approximately $317,000 as compared to approximately $255,000 for the same period in 1998. The Partnership's net income for the three months ended June 30, 1999 was approximately $118,000 as compared to approximately $121,000 for the same period in 1998. The increase in net income for the six months ended June 30, 1999 from the corresponding period in 1998 was due an increase in total revenues, which was partially offset by an increase in total expenses. Net income for the three months ended June 30, 1999 decreased slightly over the corresponding period in 1998 primarily due to an increase in total expenses, which was more than offset by an increase in total revenues. Total revenues increased for both periods primarily due to an increase in rental income. The increase in rental income is attributable to an increase in average annual rental rates at both investment properties and an increase in average occupancy at Overlook Point Apartments. Total expenses increased primarily due to an increase in general and administrative and property tax expenses, which was partially offset by a decrease in interest expense. General and administrative expenses increased primarily due to the first time payment of a Corporation Franchise Tax to the state of Texas by Oak Run, LLC, a limited liability corporation wholly-owned by the Partnership. In addition, legal costs increased due to the settlement of the Everest Case in the first quarter of 1999. Property tax expense increased due to an increase in the assessment value of Oak Run Apartments. Interest expense decreased as the result of refinancing the mortgage encumbering Overlook Point Apartments in August 1998, which decreased the interest rate on the debt. All other expense items remained relatively constant for the comparable periods. Included in general and administrative expense at both June 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 June 30, 1999, the Registrant had cash and cash equivalents of approximately $1,168,000 as compared to approximately $2,028,000 at June 30, 1998. Cash and cash equivalents decreased approximately $309,000 for the six month period ended June 30, 1999 from the Registrant's fiscal year end. The decrease in cash and cash equivalents is due primarily to approximately $856,000 of cash used in financing activities and approximately $166,000 of cash used in investing activities, which more than offset approximately $713,000 of cash provided by operating activities. Cash used in financing activities consisted primarily of distributions to partners, and to a lesser extent, payments of principal made on the mortgages encumbering the Partnership's properties. Cash used in investing activities consisted of capital improvements and replacements, partially offset by net withdrawals from restricted escrows maintained by the mortgage lender. 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. At the present time, 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 both of the Registrant's properties are detailed below. Overlook Point: Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on the interior improvements, it is estimated that Overlook Point requires approximately $293,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $364,000 for 1999 at this property, which include certain of the required capital improvements and consist of parking lot improvements, roof and flooring replacements and structural repairs. As of June 30, 1999, the Partnership has spent approximately $116,000 on capital improvements at Overlook Point, primarily consisting of flooring replacement, landscaping, roof repairs, interior decorating, building improvements, swimming pool and parking lot repairs, air conditioning upgrades and appliance replacements. These improvements were funded from cash flow and replacement reserves. Oak Run Apartments: Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on the interior improvements, it is estimated that Oak Run Apartments requires approximately $125,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $316,000 for 1999 at this property, which include certain of the required capital improvements and consist primarily of parking lot improvements, structural repairs, interior decorating and carpet replacement. As of June 30, 1999, the Partnership has spent approximately $126,000 on capital improvements at Oak Run Apartments, primarily consisting of painting, interior decorating, swimming pool repairs and flooring, drapery and appliance replacement. These improvements were funded from cash flow and replacement reserves. The additional capital improvements planned will be incurred only to the extent of cash available from operations and 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 $19,351,000 is amortized over thirty years with balloon payments of $8,127,000 and $9,728,000 due on October 2004, and September 2005, respectively. The Managing General Partner may 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. The Registrant made a cash distribution of approximately $750,000 from surplus funds, of which approximately $743,000 was paid to limited partners ($9.91 per limited partnership unit) during the six months ended June 30, 1999. A cash distribution of approximately $743,000 was declared during the second quarter of 1998 and paid from surplus fund in July 1998, of which approximately $736,000 was paid to limited partners ($9.81 per limited partnership unit). Subsequent to the quarter ended June 30, 1999, the Managing General Partner approved and paid a distribution of approximately $450,000 from surplus funds, of which approximately $446,000 was paid to limited partners ($5.95 per limited partnership unit). 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 Registrant's distribution policy will be reviewed on a quarterly basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations, after planned capital improvement expenditures, to permit any additional distributions to its partners in 1999 or subsequent periods. Tender Offer On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced a tender offer to purchase up to 21,747.56 (29.00% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 894.00 units. As a result, AIMCO and its affiliates currently own 27,835.50 units of limited partnership interest in the Partnership representing 37.11% 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. 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 June 30, 1999, had completed approximately 90% 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 September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. 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 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. 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 no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 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 June 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 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 July, 1999. The Managing Agent has updated data transmission standards with all of the 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 September 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 $2.9 million ($0.7 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 have 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 costs associated with this case, if any, will be material to 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 filed Form 8-K: None during the quarter ended June 30, 1999. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PROPERTIES FUND XVIII By: Fox Partners, Its General Partner By: Fox Capital Management Corporation, Its Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: August 6, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Properties Fund XVIII Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000704271 CENTURY PROPERTIES FUND XVIII 1,000 6-MOS DEC-31-1999 JUN-30-1999 1,168 0 0 0 0 0 27,385 10,826 18,634 0 19,351 0 0 0 (1,230) 18,634 0 2,531 0 0 2,214 0 701 0 0 0 0 0 0 317 3.81 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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