-----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, Dl2Y9rJr+uH37KJ8sTVJ8jtL945lz7FsTzPNLPhqlgoU9EwE9ymmxg5RO84IdqNC 3QW3weX3kzN4k0lozOON9g== 0000763049-98-000018.txt : 19981113 0000763049-98-000018.hdr.sgml : 19981113 ACCESSION NUMBER: 0000763049-98-000018 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 98744088 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 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 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, 1998 or [ ] TRANSITION REPORT PURSUANT TO 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) September 30, 1998 Assets Cash and cash equivalents $ 2,092 Receivables and deposits 479 Restricted escrows 212 Other assets 488 Investment properties: Land $ 7,296 Buildings and related personal property 19,811 27,107 Less accumulated depreciation (10,298) 16,809 $ 20,080 Liabilities and Partners' Deficit Liabilities Accounts payable $ 47 Other liabilities 166 Accrued property taxes 300 Tenant security deposit liabilities 80 Mortgage notes payable 19,509 Partners' (Deficit) Capital General partner $ (6,333) Limited partners (75,000 units issued and outstanding) 6,311 (22) $ 20,080 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 Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Revenues: Rental income $ 1,143 $ 1,149 $ 3,427 $ 3,422 Other income 71 78 211 240 Total revenues 1,214 1,227 3,638 3,662 Expenses: Operating 426 424 1,209 1,220 General and administrative 53 50 160 155 Depreciation 176 175 521 515 Interest 347 428 1,082 1,114 Property tax 100 95 299 290 Total expenses 1,102 1,172 3,271 3,294 Income before extraordinary item $ 112 $ 55 $ 367 $ 368 Extraordinary item-gain on extinguishment of debt -- 108 -- 108 Net income $ 112 $ 163 $ 367 $ 476 Net income allocated to general partner (9.9%) $ 11 $ 16 $ 36 $ 47 Net income allocated to limited partners (90.1%) 101 147 331 429 Net income $ 112 $ 163 $ 367 $ 476 Per limited partnership unit: Income before extraordinary item $ 1.34 $ .66 $ 4.41 $ 4.42 Extraordinary item -- 1.30 -- 1.30 Net income $ 1.34 $ 1.96 $ 4.41 $ 5.72 Surplus distributions per limited partnership unit $ 9.81 $ -- $ 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, 1997 75,000 $(6,362) $ 6,716 $ 354 Distribution to partners -- (7) (736) (743) Net income for the nine months ended September 30, 1998 -- 36 331 367 Partners' (deficit) capital at September 30, 1998 75,000 $(6,333) $ 6,311 $ (22) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PROPERTIES FUND XVIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1998 1997 Cash flows from operating activities: Net income $ 367 $ 476 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 521 515 Amortization of loan costs 27 33 Extraordinary item-gain on extinguishment of debt -- (108) Change in accounts: Receivables and deposits (375) 240 Other assets (6) (18) Accounts payable (15) (50) Other liabilities (1) (7) Accrued property taxes 5 (3) Tenant security deposit liabilities -- (24) Net cash provided by operating activities 523 1,054 Cash flows used in investing activities: Property improvements and replacements (248) (99) Net (deposits to) receipts from restricted escrows (181) 131 Net cash (used in) provided by investing activities (429) 32 Cash flows used in financing activities: Proceeds from mortgage notes payable 9,000 10,600 Repayment of mortgage notes payable (7,907) (10,132) Loan costs paid (243) (227) Payments on mortgage notes payable (134) (314) Distributions to partners (743) -- Net cash used in financing activities (27) (73) Net increase in cash and cash equivalents 67 1,013 Cash and cash equivalents at beginning of period 2,025 1,259 Cash and cash equivalents at end of period $ 2,092 $ 2,272 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,061 $ 1,048 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") 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 partner is Fox Partners. The general partners of Fox Partners are Fox Capital Management Corporation (the "Managing General Partner" or FCMC"), Fox Realty Investors ("FRI"), and Fox Partners 82. 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, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. 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, 1997. Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. Note B - 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 paid property management fees to affiliates of the Managing General Partner based upon collected gross rental revenues for property management services as noted below for the nine month periods ended September 30, 1998 and 1997, respectively. The Partnership's limited partnership agreement ("Agreement") provides for reimbursement to the Managing General Partner and its affiliates for costs incurred in connection with the administration of Partnership activities. The Managing General Partner and its affiliates received reimbursements and fees as reflected in the following table: Nine Months Ended September 30, 1998 1997 (in thousands) Property management fees (included in operating expenses) $181 $181 Reimbursement for services of affiliates (1) (included in operating, general and administrative expenses and investment properties) 117 96 (1) Included in "reimbursements for services of affiliates" for the nine months ended September 30, 1998 and 1997, is approximately $2,000 per year in reimbursements for construction oversight costs. As well, $18,000 in loan costs were paid for the nine months ended September 30, 1998. These loan costs have been capitalized and are being amortized over the term of the loan. For the period from January 1, 1997 to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner, which receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. On December 17, 1997, an affiliate of the Managing General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 30,000 of the outstanding units of limited partnership interest ("units") in the Partnership, at $70.00 per Unit, net to the seller in cash. On January 30, 1998, the Purchaser acquired an additional 5,260 units pursuant to this tender offer. Note C - Refinancing In August 1998, the Partnership refinanced the mortgage indebtedness encumbering Overlook Point Apartments. The total indebtedness refinanced was approximately $7,907,000. The new indebtedness, in the principal amount of $9,000,000, carries a stated interest rate of 6.33% per annum and is being amortized over 30 years, with a balloon payment due September 1, 2005. The proceeds from the refinancing enabled the Partnership to pay-off its previous first mortgage note. As a condition of the loan, the Partnership was required to deposit approximately $99,000 into a repair escrow fund in order to pay the costs of certain repairs on the property over the next twelve months. In September 1997, the Partnership refinanced the mortgage indebtedness encumbering Oak Run Apartments. The total indebtedness refinanced was approximately $10,132,000. The new indebtedness, in the principal amount of $10,600,000, carries a stated interest rate of 7.36% per annum and is being amortized over 30 years, with a balloon payment due October 1, 2004. The proceeds from the refinancing enabled the Partnership to pay-off its previous first mortgage note and a participating note held by a former lender. As a result of the refinancing, the Partnership recognized a net gain of approximately $108,000 upon extinguishment of the debt. This gain is due to the write-off of $133,000 in unamortized loan costs and due to $241,000 in debt forgiveness as a result of the participating note holder accepting a reduced pay-off. In order to obtain the new loan on Oak Run Apartments, the lender required that the property be conveyed to a single purpose entity. As a result, the property was conveyed from the Partnership to Oak Run, L.L.C., a South Carolina limited liability company. The Partnership is the sole owner of Oak Run, L.L.C. For the nine months ended September 1998 and 1997, total loan costs of $243,000 and $227,000, respectively, relating to the refinancings have been capitalized and are being amortized over the terms of each of the respective loans. Note D - Transfer of Control; Subsequent Event On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and 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 of the Insignia Merger, AIMCO acquired control of the Managing General Partner. In addition, AIMCO also acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"), the entity which controls the Managing General Partner. Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan of Merger pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT Merger and has granted an irrevocable limited proxy to unaffiliated representatives of IPT to vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and its agreement, the vote of no other holder of IPT is required to approve the merger. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 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, 1998 and 1997: Average Occupancy Property 1998 1997 Oak Run Apartments (1) Dallas, Texas 92% 97% Overlook Point Apartments Salt Lake City, Utah 93% 93% (1) The decrease in occupancy at Oak Run Apartments is a result of a surplus of newer properties with nicer interior and amenities in the immediate submarket. The Partnership's net income for the nine months ended September 30, 1998, was approximately $367,000, of which approximately $112,000 was reported in the third quarter. The Partnership's net income for the corresponding periods in 1997 was approximately $476,000 and $163,000, respectively. The decrease in net income is attributable to the gain on extinguishment of debt in 1997. Despite decreases in average occupancy at both investment properties, rental income increased for the nine months ended September 30, 1998, due to an increase in average rental rates. For the three months ended September 30, 1998, rental income decreased slightly primarily due to a decrease in average occupancy at Oak Run Apartments, as discussed above. Other income decreased due to the decrease in income from corporate units and deposit forfeitures at Overlook Point Apartments. A company that was relocating used the apartment complex for short term, temporary housing during 1997. This decrease in other income was partially offset by an increase in interest income due to the Partnership carrying higher cash balances in 1998. Interest expense decreased for the three and nine months ended September 30, 1998, as compared to the three and nine months ended September 30, 1997, due to the refinancing of the mortgage indebtedness encumbering Oak Run Apartments in September 1997. In addition, the mortgage indebtedness encumbering Overlook Point Apartments was refinanced in August, 1998 contributing to the decrease in interest expense for the three months ended September 1998. Included in operating expenses for the nine months ended September 30, 1998, is approximately $16,000 of major repairs and maintenance mainly comprised of parking lot repairs and window coverings. Included in operating expenses for the nine months ended September 30, 1997, was approximately $41,000 of major repairs and maintenance mainly comprised of exterior building repairs, major landscaping, window coverings, and swimming pool repairs. 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. At September 30, 1998, the Partnership had cash and cash equivalents of approximately $2,092,000, as compared to approximately $2,272,000 at September 30, 1997. Cash and cash equivalents increased approximately $67,000 and $1,013,000 for the nine month periods ended September 30, 1998 and 1997, respectively. Net cash provided by operating activities decreased for the nine months ended September 30, 1998, as compared to the nine months ended September 30, 1997, due to the decrease in net income as discussed above and an increase in receivables and deposits. Receivables and deposits increased due to an increase in funds escrowed for insurance and property taxes relating to the refinancings at both properties. Net cash used in investing activities for the nine months ended September 30, 1998, increased as a result of the following property improvement and replacement expenditures: conversion of a tennis court into a sport court at Overlook Point Apartments, an ongoing balcony replacement project at Oak Run Apartments and replacement of lighting systems at both properties. The increase in deposits to restricted escrows is due to increased deposits to a Repair Escrow Fund at Overlook Point Apartments and to a Replacement Reserve Fund at Oak Run Apartments as required by a condition of the refinancings at both properties. Cash used in financing activities is attributed to the surplus distribution to partners of $743,000 during the third quarter of 1998. Offsetting this use was proceeds of $9,000,000 from the refinancing of Overlook Point Apartments as noted below. The decrease in payments on mortgage notes payable for the nine months ended September 30, 1998, as compared to the same period in 1997, is due to the refinancing of the indebtedness at Oak Run Apartments in September 1997. During 1997, principal payments were also being made on the participating note to the former lender, as discussed below. In August 1998, the Partnership refinanced the mortgage indebtedness encumbering Overlook Point Apartments. The total indebtedness refinanced was approximately $7,907,000. The new indebtedness, in the principal amount of $9,000,000, carries a stated interest rate of 6.33% per annum and is being amortized over 30 years, with a balloon payment due September 1, 2005. The proceeds from the refinancing enabled the Partnership to pay-off its previous first mortgage note. As a condition of the loan, the Partnership was required to deposit approximately $99,000 into a Repair Escrow Fund in order to pay the costs of certain repairs on the property over the next twelve months. In September 1997, the Partnership refinanced the mortgage indebtedness encumbering Oak Run Apartments. The total indebtedness refinanced was approximately $10,132,000. The new indebtedness, in the principal amount of $10,600,000, carries a stated interest rate of 7.36% per annum and is being amortized over 30 years, with a balloon payment due October 1, 2004. The proceeds from the refinancing enabled the Partnership to pay-off its previous first mortgage note and a participating note held by a former lender. As a result of the refinancing, the Partnership recognized a net gain of approximately $108,000 upon extinguishment of the debt. This gain is due to the write-off of $133,000 in unamortized loan costs and due to $241,000 in debt forgiveness as a result of the participating note holder accepting a reduced pay-off. In order to obtain the new loan on Oak Run Apartments, the lender required that the property be conveyed to a single purpose entity. As a result, the property was conveyed from the Partnership to Oak Run, L.L.C., a South Carolina limited liability company. The Partnership is the sole owner of Oak Run, L.L.C. 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 Partnership and to comply with federal, state and local legal and regulatory requirements. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The Managing General Partner is currently assessing the need for capital improvements at each of the Partnership's properties. To the extent that additional capital improvements are required, the Partnership's distributable cash flow, if any, may be adversely affected. The mortgage indebtedness of $19,509,000 is amortized over thirty years with balloon payments of $9,728,000 and $8,170,000 due in October 2004 and September 2005, respectively. The Managing General Partner will attempt to refinance such indebtedness or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. A cash distribution of $743,000 was declared during the second quarter of 1998 and paid in July 1998. No cash distributions were made during the first nine months of 1997. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, 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 to permit distributions to its partners in 1998 or subsequent periods. On December 17, 1997, an affiliate of the Managing General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 30,000 of the outstanding units of limited partnership interest ("units") in the Partnership, at $70.00 per Unit, net to the seller in cash. On January 30, 1998, the Purchaser acquired an additional 5,260 units pursuant to this tender offer. Transfer of Control; Subsequent Event On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and 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 of the Insignia Merger, AIMCO acquired control of the Managing General Partner. In addition, AIMCO also acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"), the entity which controls the Managing General Partner. Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan of Merger pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT Merger and has granted an irrevocable limited proxy to unaffiliated representatives of IPT to vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and its agreement, the vote of no other holder of IPT is required to approve the merger. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. Year 2000 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 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 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. 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 are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Managing Agent and the Partnership. STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT The Managing Agent's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date, the Managing Agent has fully completed its assessment of all information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phase on both hardware and software systems. Assessments are continuing in regards to embedded systems in operating equipment. The Managing Agent anticipates having all phases complete by June 1, 1999. In addition to the areas the Partnership is relying on the Managing Agent to verify compliance with, the Partnership has certain operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. The focus of the Managing General Partner was to the security systems, elevators, heating-ventilation-air-conditioning systems, telephone systems and switches, and sprinkler systems. The Managing General Partner is currently engaged in the identification of all non-compliant operational systems, and is in the process of estimating the costs associated with any potential modifications or replacements needed to such systems in order for them to be Year 2000 compliant. It is not expected that such costs would have a material adverse affect upon the operations of the Partnership. RISK ASSOCIATED WITH THE YEAR 2000 The Managing General Partner believes that the Managing Agent has an effective program in place to resolve the Year 2000 issue in a timely manner and has appropriate contingency plans in place for critical applications that could affect the Partnership's operations. To date, the Managing General Partner is not aware of any external agent with a Year 2000 issue that would materially impact the Partnership's results of operations, liquidity or capital resources. However, the Managing General Partner has no means of ensuring that external agents will be Year 2000 compliant. The Managing General Partner does not believe that the inability of external agents to complete their Year 2000 resolution 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. Other Certain items discussed in this quarterly report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements speak only as of the date of this quarterly report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 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 to acquire limited partnership units, the management of partnerships 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, plaintiffs have recently filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which are scheduled to be heard on January 8, 1999. The Managing General Partner believes the action to be without merit, and intends to vigorously defend it. 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"). The complaint names as defendants Insignia, several Insignia Affiliates alleged to be managing partners of the Subject Partnerships, the Partnership and the Managing General Partner. Plaintiffs allege that they have requested from, but have been denied by each of the Subject Partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the limited partner units of each of the Subject Partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase limited partner units in many of the Subject Partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the Subject Partnerships are organized. Plaintiffs seek compensatory, punitive and treble damages. The Managing General Partner filed an answer to the complaint on September 15, 1998. The Managing General Partner believes the claims to be without merit and intends to defend the action vigorously. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Partnership believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, results of operations or liquidity of the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits required by Item 601 of Regulation S-B: Refer to Exhibit Index in this report. b) Reports on Form 8-K filed during the third quarter of 1998: None. 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 XVIII By: FOX PARTNERS, Its General Partner By: Fox Capital Management Corporation, Its Managing General Partner By: /s/Patrick Foye Patrick Foye Executive Vice President By: /s/ Timothy R. Garrick Timothy R. Garrick Vice President - Accounting (Duly Authorized Officer) Date: November 12, 1998 EXHIBIT INDEX S-K Reference Number Description 10.1 Multi-Family Note between Century Properties Fund XVIII, L.P., a California limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, dated August 24, 1998,. 27 Financial Data Schedule EX-27 2
5 This schedule contains summary financial information extracted from Century Properties Fund XVIII 1998 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000704271 CENTURY PROPERTIES FUND XVIII 1,000 9-MOS DEC-31-1998 SEP-30-1998 2,092 0 0 0 0 0 27,107 (10,298) 20,080 0 19,509 0 0 0 (22) 20,080 0 3,638 0 0 3,271 0 1,082 0 0 0 0 0 0 367 4.41 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-10.1 3 MULTIFAMILY NOTE (MULTISTATE) US $9,000,000.00 August 24, 1998 FOR VALUE RECEIVED, the undersigned ("BORROWER") jointly and severally (if more than one) promises to pay to the order of NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership the principal sum of Nine Million Dollars (US $9,000,000.00), with interest on the unpaid principal balance at the annual rate of six 33/100 percent (6.33%). 1. DEFINED TERMS. As used in this Note, (i) the term "LENDER" means the holder of this Note, and (ii) the term "INDEBTEDNESS" means the principal of, interest on, or any other amounts due at any time under, this Note, the Security Instrument or any other Loan Document, including prepayment premiums, late charges, default interest, and advances to protect the security of the Security Instrument under Section 12 of the Security Instrument. "Event of Default" and other capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Security Instrument. 2. ADDRESS FOR PAYMENT. All payments due under this Note shall be payable at 8411 Preston Road, Suite 680, Dallas, Texas 75225 or such other place as may be designated by written notice to Borrower from or on behalf of Lender. 3. PAYMENT OF PRINCIPAL AND INTEREST. Principal and interest shall be paid as follows: (a) Unless disbursement of principal is made by Lender to Borrower on the first day of the month, interest for the period beginning on the date of disbursement and ending on and including the last day of the month in which such disbursement is made shall be payable simultaneously with the execution of this Note. Interest under this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. (b) Consecutive monthly installments of principal and interest, each in the amount of Fifty five thousand eight hundred eight-three and 67/100 Dollars (US $55,883.67), shall be payable on the first day of each month beginning on October 1, 1998, until the entire unpaid principal balance evidenced by this Note is fully paid. Any accrued interest remaining past due for 30 days or more shall be added to and become part of the unpaid principal balance and shall bear interest at the rate or rates specified in this Note, and any reference below to "accrued interest" shall refer to accrued interest which has not become part of the unpaid principal balance. Any remaining principal and interest shall be due and payable on September 1, 2005 or on any earlier date on which the unpaid principal balance of this Note becomes due and payable, by acceleration or otherwise (the "MATURITY DATE"). The unpaid principal balance shall continue to bear interest after the Maturity Date at the Default Rate set forth in this Note until and including the date on which it is paid in full. (c) Any regularly scheduled monthly installment of principal and interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due. 4. APPLICATION OF PAYMENTS. If at any time Lender receives, from Borrower or otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable at such time, Lender may apply that payment to amounts then due and payable in any manner and in any order determined by Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction. 5. SECURITY. The Indebtedness is secured, among other things, by a multifamily mortgage, deed to secure debt or deed of trust dated as of the date of this Note (the "SECURITY INSTRUMENT"), and reference is made to the Security Instrument for other rights of Lender as to collateral for the Indebtedness. 6. ACCELERATION. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, the prepayment premium payable under Paragraph 10, if any, and all other amounts payable under this Note and any other Loan Document shall at once become due and payable, at the option of Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate regardless of any prior forbearance. 7. LATE CHARGE. If any monthly amount payable under this Note or under the Security Instrument or any other Loan Document is not received by Lender within ten (10) days after the amount is due, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5%) of such amount. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the loan evidenced by this Note (the "LOAN"), and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Paragraph 8. 8. DEFAULT RATE. So long as (a) any monthly installment under this Note remains past due for 30 days or more, or (b) any other Event of Default has occurred and is continuing, interest under this Note shall accrue on the unpaid principal balance from the earlier of the due date of the first unpaid monthly installment or the occurrence of such other Event of Default, as applicable, at a rate (the "DEFAULT RATE") equal to the lesser of 4 percentage points above the rate stated in the first paragraph of this Note or the maximum interest rate which may be collected from Borrower under applicable law. If the unpaid principal balance and all accrued interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued interest shall bear interest from the Maturity Date at the Default Rate. Borrower also acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, that, during the time that any monthly installment under this Note is delinquent for more than 30 days, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities, and that it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any monthly installment under this Note is delinquent for more than 30 days or any other Event of Default has occurred and is continuing, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan. 9. LIMITS ON PERSONAL LIABILITY. (a) Except as otherwise provided in this Paragraph 9, Borrower shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Mortgaged Property and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower. (b) Borrower shall be personally liable to Lender for the repayment of a portion of the Indebtedness equal to zero percent (0%) of the unpaid principal balance of this Note, plus any other amounts for which Borrower has personal liability under this Paragraph 9. (c) In addition to Borrower's personal liability under Paragraph 9(b), Borrower shall be personally liable to Lender for the repayment of a further portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of (1) failure of Borrower to pay to Lender upon demand after an Event of Default all Rents to which Lender is entitled under Section 3(a) of the Security Instrument and the amount of all security deposits collected by Borrower from tenants then in residence; (2) failure of Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument; or (3) failure of Borrower to comply with Section 14(d) or (e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports. (d) For purposes of determining Borrower's personal liability under Paragraph 9(b) and Paragraph 9(c), all payments made by Borrower or any guarantor of this Note with respect to the Indebtedness and all amounts received by Lender from the enforcement of its rights under the Security Instrument shall be applied first to the portion of the Indebtedness for which Borrower has no personal liability. (e) Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default: (1) Borrower's acquisition of any property or operation of any business not permitted by Section 33 of the Security Instrument; (2) a Transfer (including, but not limited to, a lien or encumbrance) that is an Event of Default under Section 21 of the Security Instrument, other than a Transfer consisting solely of the involuntary removal or involuntary withdrawal of a general partner in a limited partnership or a manager in a limited liability company; or (3) fraud or written material misrepresentation by Borrower or any officer, director, partner, member or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender. (f) In addition to any personal liability for the Indebtedness, Borrower shall be personally liable to Lender for (1) the performance of all of Borrower's obligations under Section 18 of the Security Instrument (relating to environmental matters); (2) the costs of any audit under Section 14(d) of the Security Instrument; and (3) any costs and expenses incurred by Lender in connection with the collection of any amount for which Borrower is personally liable under this Paragraph 9, including fees and out of pocket expenses of attorneys and expert witnesses and the costs of conducting any independent audit of Borrower's books and records to determine the amount for which Borrower has personal liability. (g) To the extent that Borrower has personal liability under this Paragraph 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to Lender under this Note, the Security Instrument, any other Loan Document or applicable law. For purposes of this Paragraph 9, the term "MORTGAGED PROPERTY" shall not include any funds that (1) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar judicial proceeding. 10. VOLUNTARY AND INVOLUNTARY PREPAYMENTS. (a) A prepayment premium shall be payable in connection with any prepayment made under this Note as provided below: (1) Borrower may voluntarily prepay all of the unpaid principal balance of this Note on the last Business Day of a calendar month if Borrower has given Lender at least 30 days prior notice of its intention to make such prepayment. Such prepayment shall be made by paying (A) the amount of principal being prepaid, (B) all accrued interest, (C) all other sums due Lender at the time of such prepayment, and (D) the prepayment premium calculated pursuant to Schedule A. For all purposes including the accrual of interest, any prepayment received by Lender on any day other than the last calendar day of the month shall be deemed to have been received on the last calendar day of such month. For purposes of this Note, a "BUSINESS DAY" means any day other than a Saturday, Sunday or any other day on which Lender is not open for business. Borrower shall not have the option to voluntarily prepay less than all of the unpaid principal balance. (2) Upon Lender's exercise of any right of acceleration under this Note, Borrower shall pay to Lender, in addition to the entire unpaid principal balance of this Note outstanding at the time of the acceleration, (A) all accrued interest and all other sums due Lender, and (B) the prepayment premium calculated pursuant to Schedule A. (3) Any application by Lender of any collateral or other security to the repayment of any portion of the unpaid principal balance of this Note prior to the Maturity Date and in the absence of acceleration shall be deemed to be a partial prepayment by Borrower, requiring the payment to Lender by Borrower of a prepayment premium. The amount of any such partial prepayment shall be computed so as to provide to Lender a prepayment premium computed pursuant to Schedule A without Borrower having to pay out-of-pocket any additional amounts. (b) Notwithstanding the provisions of Paragraph 10(a), no prepayment premium shall be payable with respect to (A) any prepayment made no more than thirty (30) days before the Maturity Date, or (B) any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument. (c) Schedule A is hereby incorporated by reference into this Note. (d) Any permitted or required prepayment of less than the unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless Lender agrees otherwise in writing. (e) Borrower recognizes that any prepayment of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth on Schedule A represents a reasonable estimate of the damages Lender will incur because of a prepayment. (f) Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the Loan, and acknowledges that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions. 11. COSTS AND EXPENSES. Borrower shall pay all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding. 12. FORBEARANCE. Any forbearance by Lender in exercising any right or remedy under this Note, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender. 13. WAIVERS. Presentment, demand, notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by Borrower and all endorsers and guarantors of this Note and all other third party obligors. 14. LOAN CHARGES. If any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower in connection with the Loan is interpreted so that any interest or other charge provided for in any Loan Document, whether considered separately or together with other charges provided for in any other Loan Document, violates that law, and Borrower is entitled to the benefit of that law, that interest or charge is hereby reduced to the extent necessary to eliminate that violation. The amounts, if any, previously paid to Lender in excess of the permitted amounts shall be applied by Lender to reduce the unpaid principal balance of this Note. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower has been violated, all Indebtedness that constitutes interest, as well as all other charges made in connection with the Indebtedness that constitute interest, shall be deemed to be allocated and spread ratably over the stated term of the Note. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest so computed is uniform throughout the stated term of the Note. 15. COMMERCIAL PURPOSE. Borrower represents that the Indebtedness is being incurred by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes. 16. COUNTING OF DAYS. Except where otherwise specifically provided, any reference in this Note to a period of "days" means calendar days, not Business Days. 17. GOVERNING LAW. This Note shall be governed by the law of the jurisdiction in which the Land is located. 18. CAPTIONS. The captions of the paragraphs of this Note are for convenience only and shall be disregarded in construing this Note. 19. NOTICES. All notices, demands and other communications required or permitted to be given by Lender to Borrower pursuant to this Note shall be given in accordance with Section 31 of the Security Instrument. 20. CONSENT TO JURISDICTION AND VENUE. Borrower agrees that any controversy arising under or in relation to this Note shall be litigated exclusively in the jurisdiction in which the Land is located (the "PROPERTY JURISDICTION"). The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. 21. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL. ATTACHED SCHEDULES. THE FOLLOWING SCHEDULES ARE ATTACHED TO THIS NOTE: |X | SCHEDULE A PREPAYMENT PREMIUM (REQUIRED) |X | SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE IN WITNESS WHEREOF, Borrower has signed and delivered this Note or has caused this Note to be signed and delivered by its duly authorized representative. BORROWER: CENTURY PROPERTIES FUND XVIII, a California limited partnership By: FOX PARTNERS, a California general partnership, General Partner By: Fox Capital Management Corporation, a California corporation, Managing General Partner By: /s/ Robert D. Long Jr. Robert D. Long, Jr., Vice President Borrower's Social Security/Employer ID Number 94-2834149 SCHEDULE A PREPAYMENT PREMIUM Any prepayment premium payable under Paragraph 10 of this Note shall be computed as follows: (a) If the prepayment is made between the date of this Note and the date that is seventy-eight (78) months after the first day of the first calendar month following the date of this Note (the "YIELD MAINTENANCE PERIOD"), the prepayment premium shall be the greater of: (i) 1.0% of the unpaid principal balance of this Note; or (ii) the product obtained by multiplying: (A) the amount of principal being prepaid, by (B) the excess (if any) of the Monthly Note Rate over the Assumed Reinvestment Rate, by (C) the Present Value Factor. For purposes of subparagraph (ii), the following definitions shall apply: MONTHLY NOTE RATE: one-twelfth (1/12) of the annual interest rate of the Note, expressed as a decimal calculated to five digits. PREPAYMENT DATE: in the case of a voluntary prepayment, the date on which the prepayment is made; in any other case, the date on which Lender accelerates the unpaid principal balance of the Note. ASSUMED REINVESTMENT RATE: one-twelfth (1/12) of the yield rate as of the date 5 Business Days before the Prepayment Date, on the 5.625% U.S. Treasury Security due May 1, 2005, as reported in The Wall Street Journal, expressed as a decimal calculated to five digits. In the event that no yield is published on the applicable date for the Treasury Security used to determine the Assumed Reinvestment Rate, Lender, in its discretion, shall select the non-callable Treasury Security maturing in the same year as the Treasury Security specified above with the lowest yield published in The Wall Street Journal as of the applicable date. If the publication of such yield rates in The Wall Street Journal is discontinued for any reason, Lender shall select a security with a comparable rate and term to the Treasury Security used to determine the Assumed Reinvestment Rate. The selection of an alternate security pursuant to this Paragraph shall be made in Lender's discretion. PRESENT VALUE FACTOR: the factor that discounts to present value the costs resulting to Lender from the difference in interest rates during the months remaining in the Yield Maintenance Period, using the Assumed Reinvestment Rate as the discount rate, with monthly compounding, expressed numerically as follows: 1 1(1+ARR) ARR N = number of months remaining in Yield Maintenance Period ARR = Assumed Reinvestment Rate (b) If the prepayment is made after the expiration of the Yield Maintenance Period but more than ninety (90) days before the Maturity Date, the prepayment premium shall be 1.0% of the unpaid principal balance of this Note. SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE The foregoing Multifamily Note is hereby modified in the following respects: A. The final sentence of Paragraph 9(a) is amended to read as follows: This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower in accordance with the applicable guaranty. B. Clause (3) of Paragraph 9(c) is modified to read as follows: (3) failure of Borrower to comply with Section 14(e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports. C. In clause (3) of Paragraph 9(e), "fraud or written material misrepresentation" is changed to "fraud or intentional, written material misrepresentation." D. Paragraph 9(f) is modified to read as follows: (f) In addition to any personal liability for the Indebtedness, Borrower shall be personally liable to Lender for (1) the performance of all of Borrower's obligations under Section 18 of the Security Instrument (relating to environmental matters) and (2) any costs and expenses incurred by Lender in connection with the collection of any amount for which Borrower is personally liable under this Paragraph 9, including reasonable fees and out of pocket expenses of attorneys and expert witnesses and the costs of conducting any independent audit of Borrower's books and records to determine the amount for which Borrower has personal liability. The personal liability of Borrower with respect to its obligations under Section 18 of the Security Instrument with respect to such obligations shall not exceed $1,000,000 in the aggregate. E. Section 10(b) is modified to read as follows: (b) Notwithstanding the provisions of Paragraph 10(a), no prepayment premium shall be payable with respect to (A) any prepayment made no more than 90 days before the Maturity Date, (B) any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument or (C) any amounts disbursed by Lender under Section 12 of the Security Instrument. F. The phrase "default under this Note" in Paragraph 11 is changed to "Event of Default as defined in Section 22 of the Security Instrument." G. Clause (1) of Paragraph 9(e) shall not apply. No other modifications are made to the Note. /s/ RL BORROWER'S INITIALS -----END PRIVACY-ENHANCED MESSAGE-----