-----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, E+7I839MI2DpnaSuyZifpdhQ8owLU9OWou09xXaFT5c+frj1i0QeokJfxpPSEEhx cO5FpVgIrTVfAHKapDnp0A== 0000711642-99-000220.txt : 19990816 0000711642-99-000220.hdr.sgml : 19990816 ACCESSION NUMBER: 0000711642-99-000220 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XIX CENTRAL INDEX KEY: 0000705752 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942887133 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-11935 FILM NUMBER: 99689744 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U. S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended 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 0-11935 CENTURY PROPERTIES FUND XIX (Exact name of small business issuer as specified in its charter) California 94-2887133 (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 XIX CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 2,913 Receivables and deposits 1,265 Restricted escrows 309 Other assets 709 Investment properties: Land $ 11,635 Buildings and related personal property 85,843 97,478 Less accumulated depreciation (44,457) 53,021 $58,217 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 205 Tenant security deposits payable 312 Accrued property taxes 617 Due to former affiliate 270 Other liabilities 603 Mortgage notes payable 60,095 Partners' (Deficit) Capital General partner's $ (9,202) Limited partners' (89,292 units issued and outstanding) 5,317 (3,885) $58,217 See Accompanying Notes to Consolidated Financial Statements b) CENTURY PROPERTIES FUND XIX CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Revenues: Rental income $4,021 $3,846 $8,089 $7,642 Other income 179 228 362 437 Total revenues 4,200 4,074 8,451 8,079 Expenses: Operating 1,329 1,614 2,598 3,053 General and administrative (117) 76 189 157 Depreciation 749 731 1,488 1,456 Interest 1,230 1,244 2,463 2,491 Property tax 301 290 599 612 Total expenses 3,492 3,955 7,337 7,769 Net income $ 708 $ 119 $1,114 $ 310 Net income allocated to general partner $ 84 $ 15 $ 131 $ 37 Net income allocated to limited partners 624 104 983 273 $ 708 $ 119 $1,114 $ 310 Net income per limited partnership unit $ 6.99 $ 1.16 $11.01 $ 3.06 Distributions per limited partnership unit $ -- $20.01 $39.23 $20.01 See Accompanying Notes to Consolidated Financial Statements c) CENTURY PROPERTIES FUND XIX CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 89,292 $ -- $ 89,292 $ 89,292 Partners' (deficit) capital at December 31, 1998 89,292 $(9,034) $ 7,837 $ (1,197) Distribution paid to partners -- (299) (3,503) (3,802) Net income for the six months ended June 30, 1999 -- 131 983 1,114 Partners' (deficit) capital at June 30, 1999 89,292 $(9,202) $ 5,317 $ (3,885) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PROPERTIES FUND XIX CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 1,114 $ 310 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 1,488 1,456 Amortization 57 61 Change in accounts: Receivables and deposits (150) (186) Other assets (77) 56 Accounts payable (8) (9) Tenant security deposits payable -- 24 Accrued property taxes 56 192 Other liabilities 38 (512) Net cash provided by operating activities 2,518 1,392 Cash flows from investing activities: Property improvements and replacements (569) (568) Net (deposits to) withdrawals from restricted escrows (57) 142 Net cash used in investing activities (626) (426) Cash flows from financing activities: Payment on mortgage notes payable (315) (311) Proceeds from long-term borrowings -- 270 Distributions to partners (3,802) (1,824) Loan costs paid -- (21) Net cash used in financing activities (4,117) (1,886) Net decrease in cash and cash equivalents (2,225) (920) Cash and cash equivalents at beginning of period 5,138 4,787 Cash and cash equivalents at end of period $ 2,913 $ 3,867 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,407 $ 2,934 Supplemental information on noncash financing activity: Conversion of accrued interest to principal $ -- $ 154 See Accompanying Notes to Consolidated Financial Statements e) CENTURY PROPERTIES FUND XIX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Century Properties Fund XIX (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Fox Capital Management Corporation, a California corporation, ("FCMC" or the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three 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 Registrant's financial statements include the accounts of Misty Woods CPF 19, LLC, a wholly owned subsidiary. All significant intercompany transactions have been eliminated. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company, a publicly traded real estate investment trust ("AIMCO"), with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES The Registrant 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 certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the Managing General Partner and its affiliates were incurred during the six month periods ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating $429 $405 expenses) Reimbursement for services of affiliates 85 85 (included in general and administrative and operating expenses and investment properties) Partnership management fee 228 -- 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 all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $429,000 and $405,000 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 $85,000 for both the six month periods ended June 30, 1999 and 1998, including approximately $4,000 and $3,000 of construction oversight reimbursements in 1999 and 1998, respectively. Pursuant to the Partnership Agreement, for managing the affairs of the Partnership, the general partner is entitled to receive a Partnership management fee equal to 10% of the Partnership's adjusted cash from operations as distributed. Approximately $228,000 in Partnership management fees were paid along with the distribution from operations made during the six months ended June 30, 1999. During the three months ended June 30, 1999, the fee was correctly accounted for as a distribution to the General Partner, per the Partnership Agreement. No fees were paid during the six months ended June 30, 1998 as the entire distribution during this period was from sales proceeds. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced a tender offer to purchase up to 26,900.39 (30.13% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $230 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,204.00 units. As a result, AIMCO and its affiliates currently own 32,319.66 units of limited partnership interest in the Partnership representing 36.20% 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 - MORTGAGE NOTES PAYABLE On January 29, 1998, the Managing General Partner successfully negotiated a modification of the terms of the mortgages encumbering McMillan Place, which had been in default since January 20, 1997. The total future cash payments of the modified loans exceed the carrying value of the loans as of the date of modification. Consequently, interest on the restructured debt is being recorded at an effective rate of 9.15% for the first mortgage and 4.47% for the second mortgage which are the rates required to equate the present value of the total future cash payments under the new terms with the carrying amount of the loans at the date of modification. Accrued interest and late charges to the effective date were paid on the first mortgage and approximately $86,000 was transferred from the second mortgage balance to the first mortgage balance increasing the first mortgage to approximately $10,219,000. The first mortgage requires interest only payments, at a rate of 9.15% through October 31, 2001, and for the final year, at a fixed rate of 325 basis points plus the annualized yield on United States Treasury non-callable bonds having a one year maturity, as determined at November 1, 2001 for the next loan year. In addition, any excess cash as defined in the modified loan agreement is required to be remitted to the mortgage holder by January 20 of each year to be applied to outstanding principal and interest. Additional interest is required to be paid upon maturity of the note equal to 50% of the appreciated fair market value of McMillan Place as defined in the note agreement. The Partnership was required to pay $270,000 of accrued interest on the second mortgage. In addition, an affiliate of the Managing General Partner was required to pay an additional $270,000 on behalf of the Partnership which was applied to accrued interest on the second mortgage. The remaining accrued interest on the second mortgage of approximately $154,000 was added to principal. The second mortgage balance of approximately $2,207,000 consists of a non-interest bearing portion of $800,000, which is due at the maturity date of October 31, 2002, and an interest bearing portion. The interest bearing portion has a stated interest rate of 9.15% and an effective rate of 4.47%. Under the terms of the modified mortgages, the Partnership is no longer restricted from making distributions to its partners from cash from operations generated by the Partnership's properties other than McMillan Place. The Partnership is still prohibited, however, from making distributions from cash from operations derived from McMillan Place. NOTE E - DISTRIBUTION During the first six months of 1999, the Partnership distributed approximately $3,802,000 (approximately $3,053,000 to limited partners, $39.23 per limited partnership unit). Approximately $2,052,000 of the distribution was from operations and approximately $1,522,000 was from the sale of Parkside Village Apartments in May 1993. During the first six months of 1998, the Partnership distributed approximately $1,824,000 (approximately $1,787,000 to limited partners, $20.01 per limited partnership unit) from sale proceeds for Parkside Village Apartments in May 1993. NOTE F - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of eight apartment complexes located in the Southeast and Southwest. 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 of the Partnership as described in 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 (in thousands) is shown in the tables below. The "Other" Column includes partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 8,089 $ -- $ 8,089 Other income 327 35 362 Interest expense 2,463 -- 2,463 Depreciation 1,488 -- 1,488 General and administrative expense -- 189 189 Segment profit (loss) 1,268 (154) 1,114 Total assets 57,296 921 58,217 Capital expenditures for investment properties 569 -- 569 1998 Residential Other Totals Rental income $ 7,642 $ -- $ 7,642 Other income 344 93 437 Interest expense 2,491 -- 2,491 Depreciation 1,456 -- 1,456 General and administrative expense -- 157 157 Segment profit (loss) 374 (64) 310 Total assets 57,877 2,992 60,869 Capital expenditures for investment properties 568 -- 568 NOTE G - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that 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 eight apartment complexes. The following table sets forth the average occupancy of the properties for each of the six months ended June 30, 1999 and 1998: Average Occupancy Property 1999 1998 Sunrunner Apartments St. Petersburg, Florida 95% 96% Misty Woods Apartments Charlotte, North Carolina 94% 90% McMillan Place Apartments Dallas, Texas 97% 95% Vinings Peak Apartments Atlanta, Georgia 95% 92% Wood Lake Apartments Atlanta, Georgia 95% 93% Plantation Crossing Atlanta, Georgia 95% 93% Greenspoint Apartments Phoenix, Arizona 95% 93% Sandspoint Apartments Phoenix, Arizona 93% 95% The Managing General Partner attributes the increase at Misty Woods to an improved local market and increased marketing efforts. The increase at Vinings Peak is the result of increased lease renewals due to increased resident retention efforts. The Partnership realized net income of approximately $1,114,000 and $310,000 for the six month periods ended June 30, 1999 and 1998, respectively. For the three month periods ended June 30, 1999 and 1998, the Partnership realized net income of approximately $708,000 and $119,000, respectively. The increase in net income for both the three and six month periods is attributable to an increase in total revenues and a decrease in total expenses. The increase in total revenues is attributable to an increase in rental income partially offset by a decrease in other income. The increase in rental income is the result of increased rental rates at all the Partnership's properties and increased occupancy at the majority of the Partnership's properties. The decrease in other income is primarily due to a decrease in average cash balances held in interest- bearing accounts. The decrease in total expenses is primarily attributable to a decrease in operating expense. The decrease in operating expenses is largely the result of decreased maintenance expense. The decrease in maintenance expense is primarily due to the completion of landscaping at Vinings Peak Apartments, Plantation Crossing Apartments, and Wood Lake Apartments and the completion of exterior building improvements at Sunrunner Apartments. The decrease in general and administrative expense during the three months ended June 30, 1999, is primarily due to the Partnership Management fee paid during the first quarter being correctly accounted for as a distribution to the General Partner. Included in general and administrative expenses for the six months ended June 30, 1999 and 1998, are reimbursements to the Managing General Partner allowed under the Partnership Agreement 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 expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 1999, the Registrant had cash and cash equivalents of approximately $2,913,000 as compared to approximately $3,867,000 at June 30, 1998. For the six months ended June 30, 1999, cash and cash equivalents decreased approximately $2,225,000 from the Registrant's year ended December 31, 1998. The decrease in cash and cash equivalents is due to approximately $626,000 of cash used in investing activities and approximately $4,117,000 of cash used in financing activities partially offset by approximately $2,518,000 of cash provided by operating activities. Net cash used in investing activities consisted of capital improvements and replacements and net deposits to restricted escrows maintained by the mortgage lender. Net cash used in financing activities consisted primarily of a distribution to partners discussed below and payments of principal made on the mortgages encumbering the Registrant's properties. The Partnership invests its working capital reserves in money market accounts. An affiliate of the Managing General Partner has made available to the Partnership a credit line of up to $150,000 per property owned by the Partnership. The Partnership has no outstanding amounts due under this line of credit. Based on present plans, the Managing General Partner does not anticipate the need to borrow in the near future. Other than cash and cash equivalents, the line of credit is the Partnership's only unused source of liquidity. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Partnerships properties are detailed below. Sunrunner Apartments During the six months ended June 30, 1999, the Partnership completed approximately $27,000 of capital improvements consisting primarily of carpet and vinyl replacement, appliance replacements and lighting improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $150,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $198,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacements, landscaping, swimming pool repairs, roof replacements, appliances and building improvements. Misty Woods Apartments During the six months ended June 30, 1999, the Partnership completed approximately $83,000 of capital improvements consisting primarily of carpet and vinyl replacement, pool repairs, and building improvements. These improvements were funded from replacement reserves and operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $356,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $372,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacement, countertop replacement, landscaping, exterior painting, parking lot repairs, swimming pool repairs and roof replacements. McMillian Place Apartments During the six months ended June 30, 1999, the Partnership completed approximately $40,000 of capital improvements consisting primarily of carpet and vinyl replacements, and pool repairs. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $232,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $284,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacement, fencing, grounds lighting, landscaping, exterior painting, parking lot improvements and swimming pool repairs. Vinings Peak Apartments During the six months ended June 30, 1999, the Partnership completed approximately $52,000 of capital improvements consisting primarily of carpet and vinyl replacement, repairs to recreation facilities, and appliances. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $62,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $124,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacements, parking lot improvements, roof replacements, appliances and building improvements. Plantation Crossing Apartments During the six months ended June 30, 1999, the Partnership completed approximately $52,000 of capital improvements consisting primarily of carpet and vinyl replacement, appliances and building improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $452,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $431,000 for 1999 at this property which include certain of the required improvements and consist of interior and exterior building improvements. Wood Lake Apartments During the six months ended June 30, 1999, the Partnership completed approximately $60,000 of capital improvements consisting primarily of clubhouse renovations, parking lost repairs, carpet and vinyl replacement, and exterior painting. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $64,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $108,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacement, parking lot improvements and roof replacement. Greenspoint Apartments During the six months ended June 30, 1999, the Partnership completed approximately $113,000 of capital improvements consisting primarily of carpet and vinyl replacement, water heaters and building improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $220,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $273,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacement, plumbing improvements, structural improvements, parking lot repairs, swimming pool repairs and roof replacements. Sands Point Apartments During the six months ended June 30, 1999, the Partnership completed approximately $142,000 of capital improvements consisting primarily of parking lot repairs and resurfacing, building improvements, carpet and vinyl replacement, and pool repairs. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $197,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to capital improvements of approximately $310,000 for 1999 at this property which include certain of the required improvements and consist of carpet and vinyl replacement, HVAC replacements, electrical improvements, fencing, landscaping, exterior painting, parking lot improvements, roof replacements, structural improvements and swimming pool repairs. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $60,095,000, net of discount, is amortized over varying periods with required balloon payments ranging from January 2003 to January 2006. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If any property cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such property through foreclosure. The Registrant was prohibited from making distributions form the operations of the Registrant until the mortgages encumbering McMillan Place were satisfied. However, under the terms of the debt restructuring obtained on McMillan Place on January 29, 1998, the Registrant is now permitted to make distributions from the operations of the Registrant's other investment properties. During the first six months of fiscal 1999, the Partnership made a distribution of approximately $3,802,000 (approximately $3,503,000 to limited partners, $39.23 per limited partner unit) consisting of approximately $2,280,000 from operations and approximately $1,522,000 from sale proceeds for Parkside Village Apartments, which was sold in May 1993. During the first six months of 1998, the Partnership distributed approximately $1,824,000 (approximately $1,787,000 to limited partners, $20.01 per limited partnership unit) from sale proceeds for Parkside Village Apartments in May 1993. The Registrant's distribution policy is reviewed on a semi-annual basis. 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. There can be no assurance, however, that the Registrant will generate sufficient funds from operations to permit further distributions to its partners in 1999 or subsequent periods. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the 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 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 Form 8-K: None filed during the quarter ended June 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PROPERTIES FUND XIX By: FOX PARTNERS II, 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 13, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Properties Fund XIX 1999 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000705752 CENTURY PROPERTIES FUND XIX 1,000 6-MOS DEC-31-1999 JUN-30-1999 2,913 0 0 0 0 0 97,478 44,457 58,217 0 60,095 0 0 0 3,885 58,217 0 8,451 0 0 0 0 2,463 0 0 0 0 0 0 1,114 39.23 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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