-----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, VtEdhS5VAzJW84ThgycOEQ3EZz+AjkHy7Fyd8XZin/EFeE7JWUjWE23LeIamro1d AWp0FCrLojYLJYYexQ6ZOQ== 0000711642-03-000083.txt : 20030328 0000711642-03-000083.hdr.sgml : 20030328 20030328150136 ACCESSION NUMBER: 0000711642-03-000083 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES GROWTH FUND XXII CENTRAL INDEX KEY: 0000740156 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942939418 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13418 FILM NUMBER: 03624751 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 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY PROPERTIES FUND XXI DATE OF NAME CHANGE: 19840918 10KSB 1 cpf22.txt CPF22 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-13418 CENTURY PROPERTIES GROWTH FUND XXII (Name of small business issuer in its charter) California 94-2939418 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Limited Partnership Units (Title of class) 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___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $19,770,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2002. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, do not take into account the effects of any changes to the Registrant's business and results of operations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. PART I Item 1. Description of Business General Century Properties Growth Fund XXII (the "Partnership" or "Registrant") was organized in August 1984, as a California limited partnership under the Uniform Limited Partnership Act of the California Corporations Code. Fox Partners IV, a California general partnership, is the general partner of the Partnership. The general partners of Fox Partners IV are Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California corporation, Fox Realty Investors ("FRI"), a California general partnership, and Fox Partners 84, a California general partnership. The managing general partner of FRI is NPI Equity Investments II, Inc., a Florida Corporation ("NPI Equity"). The Managing General Partner and NPI Equity are subsidiaries of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2010, unless terminated prior to such date. The principal business of the Partnership is to hold for investment and ultimately sell income-producing multi-family residential properties. Beginning in September 1984 through June 1986, the Partnership offered $120,000,000 in Limited Partnership Units and sold units having an initial cost of $82,848,000. The net proceeds of this offering were used to acquire eleven income-producing real estate properties. The Partnership's original property portfolio was geographically diversified with properties acquired in eight states. The Partnership's acquisition activities were completed in September 1986 and since then the principal activity of the Partnership has been managing its portfolio. The Partnership continues to operate eight residential properties. One property was acquired by the lender through foreclosure in 1992, one property was sold in 1995 and one property was sold in 2001. Since its initial offering, the Partnership has not received, nor are the limited partners required to make, additional capital contributions. The Partnership has no full-time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. The non-managing general partners and the limited partners have no right to participate in the management or conduct of such business and affairs. An affiliate of the Managing General Partner provides day-to-day management services for the Partnership's investment properties. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner, in such market area could have a material effect on the rental market for the apartments at the Partnership's properties and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Managing General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. Insurance coverage is becoming more expensive and difficult to obtain. The current insurance market is characterized by rising premium rates, increasing deductibles, and more restrictive coverage language. Recent developments have resulted in significant increases in insurance premiums and have made it more difficult to obtain certain types of insurance. As an example, many insurance carriers are excluding mold-related risks from their policy coverages, or are adding significant restrictions to such coverage. Continued deterioration in insurance market place conditions may have a negative effect on the Partnership's operating results. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Item 2. Description of Properties The following table sets forth the Partnership's investments in properties: Date of Property Purchase Type of Ownership Use Wood Creek Apartments 5/84 Fee ownership subject to Apartment Mesa, Arizona first mortgage (1) 432 units Plantation Creek Apartments 6/84 Fee ownership subject to Apartment Atlanta, Georgia first mortgage (1) 484 units Four Winds Apartments 9/85 Fee ownership subject to Apartment Overland, Kansas first mortgage (1) 350 units Copper Mill Apartments 9/86 Fee ownership subject to Apartment Richmond, Virginia first mortgage (1) 192 units Cooper's Pointe Apartments 11/85 Fee ownership subject to Apartment Charleston, South Carolina first mortgage (1) 192 units Autumn Run Apartments 6/86 Fee ownership subject to Apartment Naperville, Illinois first mortgage 320 units Promontory Point Apartments 10/85 Fee ownership subject to Apartment Austin, Texas first mortgage (1) 252 units Hampton Greens Apartments 12/85 Fee ownership subject to Apartment Dallas, Texas first mortgage (1) 309 units (1) Property is held by a limited partnership in which the Partnership owns a 100% interest.
Schedule of Properties Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis at December 31, 2002.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Wood Creek $ 17,964 $ 9,535 5-30 yrs S/L $ 3,190 Plantation Creek 29,326 16,382 5-30 yrs S/L 5,148 Four Winds 18,658 9,342 5-30 yrs S/L 4,531 Copper Mill 10,070 5,105 5-30 yrs S/L 4,269 Cooper's Pointe 8,092 4,545 5-30 yrs S/L 1,340 Autumn Run 18,733 9,785 5-30 yrs S/L 4,181 Promontory Point 13,302 6,438 5-30 yrs S/L 3,427 Hampton Greens 12,789 6,504 5-30 yrs S/L 3,433 $128,934 $ 67,636 $ 29,519
See "Note A" to the consolidated financial statements included in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies. On July 31, 2001, the Partnership sold Stoney Creek Apartments to an unrelated third party for net proceeds of approximately $14,130,000 after payment of closing costs. The Partnership recognized a gain on the sale of the investment property of approximately $6,852,000 for the year ended December 31, 2001. Approximately $6,651,000 of the net proceeds were used to repay the mortgage encumbering the property. The Partnership recognized a loss on early extinguishment of debt of approximately $953,000 as a result of a prepayment penalty of approximately $853,000 for the early repayment of the mortgage encumbering the property and approximately $100,000 of unamortized loan costs being written off. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Partnership's properties.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2002 Rate Amortized Date Maturity (1) (in thousands) (in thousands) Wood Creek $11,933 7.93% 30 yrs 2/2006 $11,319 Plantation Creek 14,709 7.93% 30 yrs 2/2006 13,952 Four Winds 8,962 7.93% 30 yrs 2/2006 8,489 Copper Mill 5,632 7.88% 30 yrs 1/2006 5,347 Cooper's Pointe 3,924 7.88% 30 yrs 1/2006 3,725 Autumn Run 12,759 7.02% 20 yrs 10/2021 -- Promontory Point 3,809 7.04% 30 yrs 5/2008 3,442 Hampton Greens 5,355 7.88% 30 yrs 1/2006 5,084 Total $67,083 $51,358
(1) See "Item 7. Financial Statements - Note C" for information with respect to the Partnership's ability to prepay these loans and other specific details about the loans. On September 7, 2001, the Partnership refinanced the mortgage note payable encumbering Autumn Run Apartments. The refinancing replaced mortgage indebtedness of approximately $9,100,000 with a new mortgage of $13,125,000. The new mortgage carries a stated interest rate of 7.02% compared to a stated rate of 7.33% on the old mortgage. Payments of principal and interest are due on the first day of each month until the loan matures on October 1, 2021 at which time the loan is scheduled to be fully amortized. Loan costs capitalized for the refinancing were approximately $241,000 of which approximately $131,000 was paid to the Managing General Partner in accordance with the terms of the Partnership Agreement. The Partnership recorded a loss on early extinguishment of debt of approximately $31,000 as a result of unamortized loan costs being written off. Schedule of Rental Rates and Occupancy Average annual rental rates and occupancy for 2002 and 2001 for each property:
Average Annual Average Rental Rates Occupancy (per unit) Property 2002 2001 2002 2001 Wood Creek (1) $ 7,702 $ 7,868 84% 95% Plantation Creek (2) 9,068 9,891 84% 90% Four Winds 8,376 8,614 96% 94% Copper Mill 9,224 9,138 96% 97% Cooper's Pointe (3) 7,702 8,101 93% 90% Autumn Run 9,714 10,330 92% 93% Promontory Point (4) 7,988 8,691 87% 90% Hampton Greens 6,537 6,843 92% 90%
(1) The decrease in occupancy at Wood Creek Apartments is due to road construction in the surrounding area as well as increased competition in the Mesa market. (2) The decrease in occupancy at Plantation Creek Apartments is due to a slower economy in the area during the year ended December 31, 2002 versus the comparable period of 2001. (3) The increase in occupancy at Cooper's Pointe is due to an aggressive marketing program implemented by the property management team and a slight decrease in average rental rates. (4) The decrease in occupancy at Promontory Point Apartments is primarily due to a fire that caused damage to 24 units in January 2002. The damaged units became available for rent during July 2002. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases units for terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates Real estate taxes and rates in 2002 for each property were: 2002 2002 Billing Rate (in thousands) Wood Creek $202 1.18% Plantation Creek 296 3.63% Four Winds 187 1.08% Copper Mill 91 0.94% Cooper's Pointe 127 1.64% Autumn Run 373 6.89% Promontory Point 272 2.69% Hampton Greens 240 2.80% Capital Expenditures Wood Creek The Partnership completed approximately $179,000 in capital expenditures at Wood Creek Apartments during the year ended December 31, 2002, consisting primarily of air conditioning upgrades, and floor covering and appliance replacements. These improvements were funded from operating cash flow, insurance proceeds and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $130,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Plantation Creek The Partnership completed approximately $341,000 in capital expenditures at Plantation Creek Apartments during the year ended December 31, 2002, consisting primarily of floor covering and appliance replacements, structural improvements and countertops. These improvements were funded from replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $145,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Four Winds The Partnership completed approximately $306,000 in capital expenditures at Four Winds Apartments during the year ended December 31, 2002, consisting primarily of water heater replacements, furniture and fixtures, floor covering and appliance replacements, major landscaping and exterior painting. These improvements were funded from replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $100,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Copper Mill The Partnership completed approximately $74,000 in capital expenditures at Copper Mill Apartments during the year ended December 31, 2002, consisting primarily of floor covering replacements, air conditioning upgrades, and maintenance equipment. These improvements were funded from replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $58,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Cooper's Pointe The Partnership completed approximately $119,000 in capital expenditures at Cooper's Pointe Apartments during the year ended December 31, 2002, consisting primarily of floor covering replacements, water submetering and air conditioning upgrades. These improvements were funded from replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $58,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Autumn Run The Partnership completed approximately $211,000 in capital expenditures at Autumn Run Apartments during the year ended December 31, 2002, consisting primarily of air conditioning upgrades, appliance and floor covering replacements, structural improvements and roof replacements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $96,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property and anticipated cash flow generated by the property. Promontory Point The Partnership completed approximately $1,042,000 in capital expenditures at Promontory Point Apartments during the year ended December 31, 2002, consisting primarily of building improvements, appliance and floor covering replacements, and major landscaping. These improvements were funded from insurance proceeds, replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $76,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Hampton Greens The Partnership completed approximately $85,000 in capital expenditures at Hampton Greens Apartments during the year ended December 31, 2002, consisting primarily of floor covering replacements, plumbing fixtures, air conditioning and swimming pool improvements. These improvements were funded from replacement reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $77,000. Additional improvements may be considered during 2003 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Item 3. 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. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action 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, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek 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 filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Managing General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Managing General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties could have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action described below. The Court has scheduled the hearing on preliminary approval for April 4, 2003 and the hearing on final approval for June 2, 2003. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $ 1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the Managing General Partner has also agreed to make a tender offer to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provides for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. If the Court grants preliminary approval of the proposed settlement in March, a notice will be distributed to partners providing detail on the terms of the proposed settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. Before completing briefing on the appeal, the parties stayed further proceedings in the appeal pending the Court's review of the terms of the proposed settlement described above. The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases 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 4. Submission of Matters to a Vote of Security Holders The unit holders of the Partnership did not vote on any matter during the quarter ended December 31, 2002. PART II Item 5. Market for the Partnership Equity and Related Partner Matters The Partnership, a publicly-held limited partnership, offered and sold 82,848 limited partnership units (the "Units") aggregating $82,848,000. The Partnership currently has 3,175 holders of record owning an aggregate of 82,848 Units at December 31, 2002. Affiliates of the Managing General Partner owned 46,312.50 Units or 55.90% at December 31, 2002. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The Partnership distributed the following amounts during the years ended December 31, 2002 and 2001 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2002 Unit December 31, 2001 Unit Operations $ 1,915 $ 20.39 $ 3,944 $ 41.98 Refinancing (1) -- -- 3,657 43.26 Sale (2) -- -- 6,626 78.38 $ 1,915 $ 20.39 $14,227 $163.62
(1) From the refinancing of Autumn Run Apartments in 2001. (2) From the sale of Stoney Creek Apartments in 2001. Future cash distributions will depend on the levels of cash generated from operations, the availability of cash reserves, the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit distributions to its partners in 2003 or subsequent periods. AIMCO and its affiliates owned 46,312.50 limited partnership units (the "Units") in the Partnership representing 55.90% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 55.90% of the outstanding Units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. With respect to 17,023.50 Units, such affiliates are required to vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by non-tendering unitholders. Except for the foregoing, no other limitations are imposed on such affiliates' ability to influence voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying consolidated statements of operations have been restated as of January 1, 2001 to reflect the operations of Stoney Creek Apartments as a loss from discontinued operations due to its sale in July 2001. The Partnership recognized a loss from discontinued operations of approximately $723,000 on revenues of approximately $1,428,000 for the year ended December 31, 2001. Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Recission of FASB Statements No. 4, 44 and 64." SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently, neither of which applies to the Partnership. As a result, the accompanying consolidated statements of operations have been restated for the year ended December 31, 2001 to reflect the losses on early extinguishment of debt of approximately $953,000 at Stoney Creek Apartments and approximately $31,000 at Autumn Run Apartments in loss from discontinued operations and interest expense, respectively, rather than as an extraordinary item. On July 31, 2001, the Partnership sold Stoney Creek Apartments to an unrelated third party for net proceeds of approximately $14,130,000 after payment of closing costs. The Partnership recognized a gain on the sale of discontinued operations of approximately $6,852,000 as of December 31, 2001. Approximately $6,651,000 of the net proceeds were used to repay the mortgage encumbering the property. The Partnership recognized a loss on early extinguishment of debt of approximately $953,000 as a result of a prepayment penalty of approximately $853,000 for the early repayment of the mortgage encumbering the property and approximately $100,000 of unamortized loan costs being written off. The loss on early extinguishment of debt is included in the loss from discontinued operations for the year ended December 31, 2001. The Partnership recognized a loss from continuing operations of approximately $225,000 for the year ended December 31, 2002 compared to income from continuing operations of approximately $1,281,000 for the year ended December 31, 2001. The increase in the loss from continuing operations was due to an increase in total expenses and a decrease in total revenues. The increase in total expenses was due to increases in operating, depreciation, interest and property tax expenses slightly offset by a decrease in general and administrative expense. Operating expense increased due to an increase in utility costs, especially at Plantation Creek Apartments and Autumn Run Apartments, an increase in property administration costs at Plantation Creek Apartments and increases in hazard insurance premiums at seven of the Partnership's investment properties. Partially offsetting these increases was a decrease in maintenance expense as a result of the capitalization of certain direct and indirect project costs, primarily payroll related costs, at the properties (see "Item 7. Financial Statements, Note A - Organization and Significant Accounting Policies"). Depreciation expense increased due to property improvements and replacements placed into service during the past twelve months. Interest expense increased due to the refinancing of the mortgage note payable encumbering Autumn Run Apartments in September 2001 which created a higher average debt balance during 2002. Property tax expense increased due to an additional billing in 2002 by the local taxing authorities related to the 2001 tax year at Cooper's Pointe Apartments and increases in the assessed values at Four Winds Apartments, Autumn Run Apartments and Promontory Point Apartments. General and administrative expense decreased due to a decrease in professional fees associated with the management of the Partnership. The decrease in total revenues was due to a decrease in rental income offset by an increase in other income and the casualty gains recognized at Promontory Point Apartments and Wood Creek Apartments. Rental income decreased due to a decrease in occupancy and average rental rates at five and seven of the Partnership's investment properties, respectively, and an increase in bad debt expense, primarily at Wood Creek Apartments and Plantation Creek Apartments. Other income increased primarily due to an increase in lease cancellation fees and utility reimbursements at seven of the Partnership's investment properties and an increase in late charges at Plantation Creek Apartments. During the year ended December 31, 2002, the Partnership recorded a net casualty gain of approximately $544,000 which was the result of a $531,000 casualty gain recorded at Promontory Point Apartments and a $13,000 casualty gain recorded at Wood Creek Apartments. The casualty gain at Promontory Point Apartments related to a fire in January 2002 which caused damage to 24 units of the complex. The gain was a result of the receipt of insurance proceeds of approximately $746,000 offset by approximately $215,000 of undepreciated fixed assets being written off. The casualty gain at Wood Creek Apartments related to a water main break in July 2001 which caused damage to one unit of the complex. During 2001, the Partnership recognized a casualty gain of approximately $46,000 due to the receipt of insurance proceeds of approximately $71,000 offset by approximately $25,000 of undepreciated property improvements and replacements being written off. During the year ended December 31, 2002, the final insurance proceeds were received and the Partnership recognized an additional casualty gain of $13,000. During the year ended December 31, 2001, a casualty gain of approximately $74,000 was recorded at Stoney Creek Apartments. The casualty gain related to roof damage caused by a hailstorm in 2000. The gain was a result of the receipt of insurance proceeds of approximately $104,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off. This casualty gain is included in the loss from discontinued operations in the consolidated statement of operations. Included in general and administrative expenses are reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Capital Resources and Liquidity At December 31, 2002, the Partnership had cash and cash equivalents of approximately $1,288,000 compared to approximately $1,448,000 at December 31, 2001, a decrease of approximately $160,000. The decrease is due to approximately $2,740,000 and $1,906,000 of cash used in financing and investing activities, respectively, partially offset by approximately $4,486,000 of cash provided by operating activities. Cash used in financing activities consisted of cash distributions to partners and principal payments made on the mortgages encumbering the Partnership's investment properties slightly offset by advances received from an affiliate of the Managing General Partner. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrows slightly offset by the receipt of insurance proceeds. 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. During the year ended December 31, 2002, an affiliate of the Managing General Partner agreed to advance funds in excess of the $150,000 line of credit to fund operating expenses of Plantation Creek Apartments and advanced $329,000 for this purpose. At December 31, 2002, the outstanding balance was approximately $333,000, including accrued interest. The advance was repaid in full subsequent to December 31, 2002. Based on present plans, the Managing General Partner does not anticipate the need to borrow additional funds in the 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. The Managing General Partner monitors developments in the area of legal and regulatory compliance and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. The Partnership is currently evaluating the capital improvement needs of the properties for the upcoming year and expects to budget approximately $740,000. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. On September 7, 2001, the Partnership refinanced the mortgage note payable encumbering Autumn Run Apartments. The refinancing replaced mortgage indebtedness of approximately $9,100,000 with a new mortgage of $13,125,000. The new mortgage carries a stated interest rate of 7.02% compared to a stated rate of 7.33% on the old mortgage. Payments of principal and interest are due on the first day of each month until the loan matures on October 1, 2021 at which time the loan is scheduled to be fully amortized. At December 31, 2002 the balance of this mortgage is approximately $12,759,000. The Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. Exclusive of Autumn Run, the Partnership's indebtedness of approximately $54,324,000 is amortized over varying periods with balloon payments of $47,916,000 and $3,442,000 due in 2006 and 2008, respectively. The Managing General Partner will attempt to refinance such remaining indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire December 31, 2010. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. The Partnership distributed the following amounts during the years ended December 31, 2002 and 2001 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2002 Unit December 31, 2001 Unit Operations $ 1,915 $ 20.39 $ 3,944 $ 41.98 Refinancing (1) -- -- 3,657 43.26 Sale (2) -- -- 6,626 78.38 $ 1,915 $ 20.39 $14,227 $163.62
(1) From the refinancing of Autumn Run Apartments in 2001. (2) From the sale of Stoney Creek Apartments in 2001. Future cash distributions will depend on the levels of cash generated from operations, the availability of cash reserves, the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit distributions to its partners in 2003 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 46,312.50 limited partnership units (the "Units") in the Partnership representing 55.90% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 55.90% of the outstanding Units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. With respect to 17,023.50 Units, such affiliates are required to vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by non-tendering unitholders. Except for the foregoing, no other limitations are imposed on such affiliates' ability to influence voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Significant Accounting Policies" which is included in the consolidated financial statements in "Item 7. Financial Statements". The Managing General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned and the Partnership fully reserves all balances outstanding over thirty days. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. Item 7. Financial Statements CENTURY PROPERTIES GROWTH FUND XXII LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheet - December 31, 2002 Consolidated Statements of Operations - Years ended December 31, 2002 and 2001 Consolidated Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2002 and 2001 Consolidated Statements of Cash Flows - Years ended December 31, 2002 and 2001 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Century Properties Growth Fund XXII We have audited the accompanying consolidated balance sheet of Century Properties Growth Fund XXII as of December 31, 2002, and the related consolidated statements of operations, changes in partners' (deficit) capital, and cash flows for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Century Properties Growth Fund XXII at December 31, 2002, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, in 2002 the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and No. 145, "Rescission of FASB Statements No. 4, 44 and 64". As a result, the accompanying consolidated financial statements for 2001, referred to above, have been restated to conform to the presentation adopted in 2002 in accordance with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 14, 2003 CENTURY PROPERTIES GROWTH FUND XXII CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 2002
Assets Cash and cash equivalents $ 1,288 Receivables and deposits 1,324 Restricted escrows 463 Other assets 982 Investment properties (Notes C and D): Land $ 12,707 Buildings and related personal property 116,227 128,934 Less accumulated depreciation (67,636) 61,298 $ 65,355 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 216 Tenant security deposit liability 349 Accrued property taxes 1,260 Due to affiliate (Note B) 333 Other liabilities 746 Mortgage notes payable (Note C) 67,083 Partners' (Deficit) Capital General partner $ (8,031) Limited partners (82,848 units issued and outstanding) 3,399 (4,632) $ 65,355 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES GROWTH FUND XXII CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2002 2001 (Restated) Revenues: Rental income $17,480 $19,115 Other income 1,746 1,475 Casualty gains (Note F) 544 46 Total revenues 19,770 20,636 Expenses: Operating 7,417 7,037 General and administrative 493 596 Depreciation 4,735 4,589 Interest 5,400 5,327 Property taxes 1,950 1,806 Total expenses 19,995 19,355 (Loss) income from continuing operations (225) 1,281 Loss from discontinued operations -- (723) Gain on sale of discontinued operations -- 6,852 Net (loss) income $ (225) $ 7,410 Net (loss) income allocated to general partner $ (27) $ 1,066 Net (loss) income allocated to limited partners (198) 6,344 $ (225) $ 7,410 Per limited partnership unit: (Loss) income from continuing operations $ (2.39) $ 13.64 Loss from discontinued operations -- (7.70) Gain on sale of discontinued operations -- 70.63 Net (loss) income $ (2.39) $ 76.57 Distributions per limited partnership unit $ 20.39 $163.62 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES GROWTH FUND XXII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 82,848 $ -- $ 82,848 $ 82,848 Partners' (deficit) capital at December 31, 2000 82,848 $(8,173) $ 12,498 $ 4,325 Distributions paid to partners -- (671) (13,556) (14,227) Net income for the year ended December 31, 2001 -- 1,066 6,344 7,410 Partners' (deficit) capital at December 31, 2001 82,848 (7,778) 5,286 (2,492) Distributions paid to partners -- (226) (1,689) (1,915) Net loss for the year ended December 31, 2002 -- (27) (198) (225) Partners' (deficit) capital at December 31, 2002 82,848 $(8,031) $ 3,399 $ (4,632) See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES GROWTH FUND XXII CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2002 2001 Cash flows from operating activities: Net (loss) income $ (225) $ 7,410 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 4,735 4,853 Bad debt 740 431 Amortization of loan costs 185 200 Gain on sale of discontinued operations -- (6,852) Loss on early extinguishment of debt -- 984 Casualty gain (544) (120) Change in accounts: Receivables and deposits (577) (137) Other assets (7) 6 Accounts payable (59) (122) Tenant security deposit liability 54 (105) Accrued property taxes 45 100 Due to affiliate 4 -- Other liabilities 135 (228) Net cash provided by operating activities 4,486 6,420 Cash flows from investing activities: Property improvements and replacements (2,473) (2,593) Net (deposits to) withdrawals from restricted escrows (192) 259 Insurance proceeds received 759 175 Net proceeds from sale of discontinued operations -- 14,130 Net cash (used in) provided by investing activities (1,906) 11,971 Cash flows from financing activities Principal payments on mortgage notes payable (1,154) (761) Distributions paid to partners (1,915) (14,227) Advances from affiliate 329 -- Debt extinguishment costs -- (853) Proceeds from refinancing -- 13,125 Loan costs paid -- (241) Repayment of mortgage notes payable -- (15,751) Net cash used in financing activities (2,740) (18,708) Net decrease in cash and cash equivalents (160) (317) Cash and cash equivalents at beginning of year 1,448 1,765 Cash and cash equivalents at end of year $ 1,288 $ 1,448 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,514 $ 5,446 Supplemental information of non-cash activity: Property improvements and replacements included in accounts payable $ -- $ 116 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES GROWTH FUND XXII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 Note A - Organization and Significant Accounting Policies Organization Century Properties Growth Fund XXII (the "Partnership" or "Registrant") is a California Limited Partnership organized in August 1984 to acquire and operate residential apartment complexes. The Partnership's general partner is Fox Partners IV, a California general partnership. The general partners of Fox Partners IV are Fox Capital Management Corporation (the "Managing General Partner" or "FCMC"), a California corporation, Fox Realty Investors ("FRI"), a California general partnership, and Fox Associates 84, a California general partnership. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The directors and officers of the Managing General Partner also serve as executive officers of AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2010 unless terminated prior to such date. The Partnership commenced operations on September 25, 1984. The capital contributions of $82,848,000 ($1,000 per unit) were made by the limited partners. The Partnership currently operates eight apartment properties in seven states. Principles of Consolidation The Partnership's consolidated financial statements include the accounts of Wood Creek CPGF 22, L.P., Plantation Creek CPGF 22, L.P., Four Winds CPGF 22, L.P., Cooper's Point CPGF 22, L.P., Hampton Greens CPGF 22, L.P., Century Stoney Greens, L.P. and Copper Mill CPGF 22, L.P. The Partnership owns a 100% interest in each of these partnerships. The Partnership has the ability to control the major operating and financial policies of these partnerships. All interpartnership transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Profits, Gains, Losses and Distributions Profits, gains, losses and distributions of the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. Profits and losses, not including gains from property dispositions, are allocated as follows: a) first, 10% to the general partner, and b) remainder allocated two percent to the general partner and 98% to the limited partners. Any gain from property dispositions shall be allocated as follows: a) first, to the general partner in an amount equal to distributions to the general partner from proceeds of property dispositions or refinancings; b) until the general partner no longer has a deficit balance in its capital account, 12% to the general partner and 88% to the limited partners, and c) remainder to the limited partners. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at a borrowing rate currently available to the Partnership, is approximately $70,642,00. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances included approximately $1,176,000 at December 31, 2002 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Replacement Reserve Escrow The Partnership maintains replacement reserve escrows at seven of its eight properties to fund replacement, refurbishment or repairs of improvements to the property pursuant to the mortgage note documents. As of December 31, 2002, the balance in these accounts is approximately $463,000, which includes interest. Loan Costs At December 31, 2002, loan costs of approximately $1,980,000 are included in other assets in the accompanying balance sheet and are being amortized by the straight-line method over the life of the loan. At December 31, 2002, accumulated amortization is approximately $1,182,000. Amortization of loan costs is included in interest expense in the accompanying consolidated statements of operations. Amortization expense is expected to be $186,000 for each of the years 2003, 2004 and 2005; $39,000 in 2006 and $13,000 in 2007. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on rental payments. Leases The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases and fully reserves all balances outstanding over thirty days. In addition, the Managing General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Investment Properties Investment properties consist of eight apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. Expenditures in excess of $250 that maintain an existing asset which has a useful life of more than one year are capitalized as capital replacement expenditures and depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of properties that have been permanently impaired have been written down to appraised value. No adjustments for impairment of value were recorded in the years ended December 31, 2002 or 2001. During 2001, AIMCO, an affiliate of the Managing General Partner, commissioned a project to study process improvement ideas to reduce operating costs. The result of the study led to a re-engineering of business processes and eventual redeployment of personnel and related capital spending. The implementation of these plans during 2002, accounted for as a change in accounting estimate, resulted in a refinement of the Partnership's process for capitalizing certain direct and indirect project costs (principally payroll related costs) and increased capitalization of such costs by approximately $202,000 in 2002 compared to 2001. Segment Reporting SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. Advertising The Partnership expenses the costs of advertising as incurred. Advertising costs of approximately $374,000 and $350,000 for the years ended December 31, 2002 and 2001, respectively, were charged to operating expense. Recent Accounting Pronouncements Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying consolidated statements of operations have been restated as of January 1, 2001 to reflect the operations of Stoney Creek Apartments as a loss from discontinued operations due to its sale in July 2001. The Partnership recognized a loss from discontinued operations of approximately $723,000 on revenues of approximately $1,428,000 for the year ended December 31, 2001. Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Recission of FASB Statements No. 4, 44 and 64." SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently, neither of which applies to the Partnership. As a result, the accompanying consolidated statements of operations have been restated for the year ended December 31, 2001 to reflect the losses on early extinguishment of debt of approximately $953,000 at Stoney Creek Apartments and approximately $31,000 at Autumn Run Apartments in loss from discontinued operations and interest expense, respectively, rather than as an extraordinary item. 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 Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the Managing General Partner are entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $980,000 and $1,147,000 for the years ended December 31, 2002 and 2001, respectively, which is included in operating expenses and loss from discontinued operations. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $342,000 and $983,000 for the years ended December 31, 2002 and 2001, respectively, which is included in general and administrative expenses and investment properties. Included in these amounts are fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $170,000 and $817,000 for the years ended December 31, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current additions to investment properties. In accordance with the Partnership Agreement, the Managing General Partner received a partnership management incentive allocation equal to ten percent of net and taxable income and losses and cash distributions. The Managing General Partner was also allocated its two percent continuing interest in the Partnership's net and taxable income and losses and cash distributions after the above allocation of the Partnership management incentive. The Partnership management incentive associated with the distributions paid during the year ended December 31, 2002 and 2001 was approximately $192,000 and $394,000, respectively, and is included in distributions paid to the general partner. 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. During the year ended December 31, 2002, an affiliate of the Managing General Partner agreed to advance funds in excess of the $150,000 line of credit to fund operating expenses of Plantation Creek Apartments and advanced $329,000 for this purpose. At December 31, 2002, the outstanding balance was approximately $333,000, including accrued interest. The advance was repaid in full subsequent to December 31, 2002. There were no outstanding amounts due under this line of credit at December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $302,000 and $214,000, respectively, for insurance coverage and fees associated with policy claims administration. AIMCO and its affiliates owned 46,312.50 limited partnership units (the "Units") in the Partnership representing 55.90% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 55.90% of the outstanding Units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. With respect to 17,023.50 Units, such affiliates are required to vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by non-tendering unitholders. Except for the foregoing, no other limitations are imposed on such affiliates' ability to influence voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. Note C - Mortgage Notes Payable The principal terms of mortgage notes payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2002 Interest Rate Date Maturity (in thousands) (in thousands) Wood Creek $11,933 $ 94 7.93% 2/2006 $11,319 Plantation Creek 14,709 116 7.93% 2/2006 13,952 Four Winds 8,962 71 7.93% 2/2006 8,489 Copper Mill 5,632 44 7.88% 1/2006 5,347 Cooper's Pointe 3,924 31 7.88% 1/2006 3,725 Autumn Run 12,759 102 7.02% 10/2021 -- Promontory Point 3,809 27 7.04% 5/2008 3,442 Hampton Greens 5,355 42 7.88% 1/2006 5,084 Total $67,083 $527 $51,358
The mortgage notes payable are non-recourse and are secured by a pledge of the Partnership's rental properties and by a pledge of revenues from the respective rental properties. Certain of the notes include prepayment penalties if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2002, are as follows (in thousands): 2003 $ 1,129 2004 1,279 2005 1,380 2006 48,453 2007 514 Thereafter 14,328 $67,083 On September 7, 2001, the Partnership refinanced the mortgage note payable encumbering Autumn Run Apartments. The refinancing replaced mortgage indebtedness of approximately $9,100,000 with a new mortgage of $13,125,000. The new mortgage carries a stated interest rate of 7.02% compared to a stated rate of 7.33% on the old mortgage. Payments of approximately $102,000 are due on the first day of each month until the loan matures on October 1, 2021 at which time the loan is scheduled to be fully amortized. Loan costs capitalized for the refinancing were approximately $241,000 of which approximately $131,000 was paid to the Managing General Partner in accordance with the terms of the Partnership Agreement. The Partnership recorded a loss on early extinguishment of debt of approximately $31,000 as a result of unamortized loan costs being written off. The loss is included in interest expense for the year ended December 31, 2001. Note D - Real Estate and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Net Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Wood Creek $11,933 $ 2,130 $ 13,440 $ 2,394 Plantation Creek 14,709 2,653 20,827 5,846 Four Winds 8,962 1,363 14,288 3,007 Copper Mill 5,632 933 8,061 1,076 Cooper's Pointe 3,924 513 6,696 883 Autumn Run 12,759 1,462 14,957 2,314 Promontory Point 3,809 1,690 10,129 1,483 Hampton Greens 5,355 2,086 9,474 1,229 Total $67,083 $12,830 $ 97,872 $18,232
Gross Amount At Which Carried At December 31, 2002 (in thousands)
Buildings And Related Personal Accumulated Year of Depreciable Description Land Property Total Depreciation Construction Life-Years (in thousands) Wood Creek $ 2,117 $ 15,847 $ 17,964 $ 9,535 1985 5-30 Plantation Creek 2,655 26,671 29,326 16,382 1978 5-30 Four Winds 1,357 17,301 18,658 9,342 1987 5-30 Copper Mill 929 9,141 10,070 5,105 1987 5-30 Cooper's Pointe 510 7,582 8,092 4,545 1986 5-30 Autumn Run 1,458 17,275 18,733 9,785 1987 5-30 Promontory Point 1,595 11,707 13,302 6,438 1984 5-30 Hampton Greens 2,086 10,703 12,789 6,504 1986 5-30 Total $12,707 $116,227 $128,934 $67,636
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2002 2001 (in thousands) Investment Properties Balance at beginning of year $127,041 $139,114 Property improvements and replacements 2,357 2,709 Disposal of property (464) (119) Sale of investment property -- (14,663) Balance at end of year $128,934 $127,041 Accumulated Depreciation Balance at beginning of year $ 63,150 $ 65,771 Additions charged to expense 4,735 4,853 Disposal of property (249) (64) Sale of investment property -- (7,410) Balance at end of year $ 67,636 $ 63,150 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2002 and 2001, is approximately $125,998,000 and $124,399,000, respectively. The accumulated depreciation for Federal income tax purposes at December 31, 2002 and 2001, is approximately $96,479,000 and $91,615,000, respectively. Note E - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net (loss) income and Federal taxable (loss) income (in thousands, except per unit data): 2002 2001 Net (loss) income as reported $ (225) $ 7,410 Add (deduct): Depreciation differences (129) (694) Change in prepaid rent 209 (68) Gain on sale (544) 3,479 Other (55) (205) Federal taxable income $ (744) $ 9,922 Federal taxable income per limited partnership unit $ (7.92) $105.02 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): 2002 Net liabilities as reported $ (4,632) Land and buildings (2,937) Accumulated depreciation (28,843) Syndication 12,427 Other 548 Net liabilities - Federal tax basis $(23,437) Note F - Casualty Gains During the year ended December 31, 2002, the Partnership recorded a net casualty gain of approximately $544,000 which was the result of a $531,000 casualty gain recorded at Promontory Point Apartments and a $13,000 casualty gain recorded at Wood Creek Apartments. The casualty gain at Promontory Point Apartments related to a fire in January 2002 which caused damage to 24 units of the complex. The gain was a result of the receipt of insurance proceeds of approximately $746,000 offset by approximately $215,000 of undepreciated fixed assets being written off. The casualty gain at Wood Creek Apartments related to a water main break in July 2001 which caused damage to one unit of the complex. During 2001, the Partnership recognized a casualty gain of approximately $46,000 due to the receipt of insurance proceeds of approximately $71,000 offset by approximately $25,000 of undepreciated property improvements and replacements being written off. During the year ended December 31, 2002, the final insurance proceeds were received and the Partnership recognized an additional casualty gain of $13,000. During the year ended December 31, 2001, a net casualty gain of approximately $74,000 was recorded at Stoney Creek Apartments. The casualty gain related to roof damage caused by a hailstorm in 2000. The gain was a result of the receipt of insurance proceeds of approximately $104,000 offset by approximately $30,000 of undepreciated property improvements and replacements being written off. This casualty gain is included in the loss from discontinued operations on the accompanying consolidated statement of operations. Note G - Sale of Investment Property On July 31, 2001, the Partnership sold Stoney Creek Apartments to an unrelated third party for net proceeds of approximately $14,130,000 after payment of closing costs. The Partnership recognized a gain on the sale of discontinued operations of approximately $6,852,000 as of December 31, 2001. Approximately $6,651,000 of the net proceeds were used to repay the mortgage encumbering the property. The Partnership recognized a loss on early extinguishment of debt of approximately $953,000 as a result of a prepayment penalty of approximately $853,000 for the early repayment of the mortgage encumbering the property and approximately $100,000 of unamortized loan costs being written off. The loss on early extinguishment of debt is included in the loss from discontinued operations for the year ended December 31, 2001. The loss from discontinued operations for the year ended December 31, 2002 includes revenues of approximately $1,428,000 from Stoney Creek Apartments. Note H - 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. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action 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, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek 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 filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Managing General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Managing General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties could have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action described below. The Court has scheduled the hearing on preliminary approval for April 4, 2003 and the hearing on final approval for June 2, 2003. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $ 1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the Managing General Partner has also agreed to make a tender offer to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provides for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. If the Court grants preliminary approval of the proposed settlement in March, a notice will be distributed to partners providing detail on the terms of the proposed settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. Before completing briefing on the appeal, the parties stayed further proceedings in the appeal pending the Court's review of the terms of the proposed settlement described above. The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases 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 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act Century Properties Growth Fund XXII (the "Partnership" or the "Registrant") has no officers or directors. The general partner of the Partnership is Fox Partners IV, a California general partnership. The managing general partner of Fox Partners IV is Fox Capital Management Corporation, ("FCMC" or the "Managing General Partner"). The names and ages of, as well as the positions and offices held by, the present executive officers and director of FCMC are set forth below. The Managing General Partner manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. There are no family relationships between or among any officers or directors. Name Age Position Patrick J. Foye 45 Executive Vice President and Director Paul J. McAuliffe 46 Executive Vice President and Chief Financial Officer Thomas C. Novosel 44 Senior Vice President and Chief Accounting Officer Patrick J. Foye has been Executive Vice President and Director of the Managing General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998, where he is responsible for continuous improvement, acquisitions of partnership securities, consolidation of minority interests, and corporate and other acquisitions. Prior to joining AIMCO, Mr. Foye was a Merger and Acquisitions Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the Managing General Partner since April 1, 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and Chief Financial Officer of AIMCO since October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas C. Novosel has been Senior Vice President and Chief Accounting Officer of the Managing General Partner since April 1, 2002. Mr. Novosel has served as Senior Vice President and Chief Accounting Officer of AIMCO since April 2000. From October 1993 until he joined AIMCO, Mr. Novosel was a partner at Ernst & Young LLP, where he served as the director of real estate advisory services for the southern Ohio Valley area offices but did not work on any assignments related to AIMCO or the Partnership. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Managing General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the Managing General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Managing General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Managing General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under auditing standards generally accepted in the United States. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Managing General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Managing General Partner have approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2002 for filing with the Securities and Exchange Commission. The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2003. Fees for 2002 were audit services of approximately $60,000 and non-audit services (principally tax-related) of approximately $27,000. Item 10. Executive Compensation Neither the director nor any of the officers of the Managing General Partner received any remuneration from the Registrant. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units of the Registrant as of December 31, 2002. Entity Number of Units Percentage Insignia Properties, LP 17,341.5 20.93% (an affiliate of AIMCO) IPLP Acquisition I, LLC 5,459.0 6.59% (an affiliate of AIMCO) Market Ventures, LLC 45.0 0.05% (an affiliate of AIMCO) AIMCO Properties, LP 23,467.0 28.33% (an affiliate of AIMCO) Insignia Properties, LP, IPLP Acquisition I, LLC and Market Ventures, LLC are indirectly ultimately owned by AIMCO. Their business addresses are 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties, LP is indirectly ultimately controlled by AIMCO. Its business address is Stanford Place 3, 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80222. No director or officer of the Managing General Partner owns any Units. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursements of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the Managing General Partner are entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $980,000 and $1,147,000 for the years ended December 31, 2002 and 2001, respectively, which is included in operating expenses and loss from discontinued operations. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $342,000 and $983,000 for the years ended December 31, 2002 and 2001, respectively, which is included in general and administrative expenses and investment properties. Included in these amounts are fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $170,000 and $817,000 for the years ended December 31, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current additions to investment properties. In accordance with the Partnership Agreement, the Managing General Partner received a partnership management incentive allocation equal to ten percent of net and taxable income and losses and cash distributions. The Managing General Partner was also allocated its two percent continuing interest in the Partnership's net and taxable income and losses and cash distributions after the above allocation of the Partnership management incentive. The Partnership management incentive associated with the distributions paid during the year ended December 31, 2002 and 2001 was approximately $192,000 and $394,000, respectively, and is included in distributions paid to the general partner. 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. During the year ended December 31, 2002, an affiliate of the Managing General Partner agreed to advance funds in excess of the $150,000 line of credit to fund operating expenses of Plantation Creek Apartments and advanced $329,000 for this purpose. At December 31, 2002, the outstanding balance was approximately $333,000, including accrued interest. The advance was repaid in full subsequent to December 31, 2002. There were no outstanding amounts due under this line of credit at December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the year ended December 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $302,000 and $214,000, respectively, for insurance coverage and fees associated with policy claims administration. AIMCO and its affiliates owned 46,312.50 limited partnership units (the "Units") in the Partnership representing 55.90% of the outstanding Units at December 31, 2002. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 55.90% of the outstanding Units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. With respect to 17,023.50 Units, such affiliates are required to vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by non-tendering unitholders. Except for the foregoing, no other limitations are imposed on such affiliates' ability to influence voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2002: None. ITEM 14. Controls and Procedures The principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have, within 90 days of the filing date of this annual report, evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the Partnership's internal controls since the date of evaluation. The Partnership does not believe any significant deficiencies or material weaknesses exist in the Partnership's internal controls. Accordingly, no corrective actions have been taken. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PROPERTIES GROWTH FUND XXII By: FOX PARTNERS IV, General Partner By: FOX CAPITAL MANAGEMENT CORPORATION, Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: March 27, 2003 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/Patrick J. Foye Executive Vice President Date: March 27, 2003 Patrick J. Foye and Director /s/Thomas C. Novosel Senior Vice President Date: March 27, 2003 Thomas C. Novosel and Chief Accounting Officer CERTIFICATION I, Patrick J. Foye, certify that: 1. I have reviewed this annual report on Form 10-KSB of Century Properties Growth Fund XXII; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/Patrick J. Foye Patrick J. Foye Executive Vice President of Fox Capital Management Corporation, equivalent of the chief executive officer of the Partnership CERTIFICATION I, Paul J. McAuliffe, certify that: 1. I have reviewed this annual report on Form 10-KSB of Century Properties Growth Fund XXII; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/Paul J. McAuliffe Paul J. McAuliffe Executive Vice President and Chief Financial Officer of Fox Capital Management Corporation, equivalent of the chief financial officer of the Partnership CENTURY PROPERTIES GROWTH FUND XXII EXHIBIT INDEX Exhibit Number Description of Exhibit 2.1 NPI, Inc. Stock Purchase Agreement, dated as of August 17, 1995, incorporated by reference to the Partnership's Current Report on Form 8-K dated August 17, 1995. 2.2 Partnership Units Purchase Agreement dated as of August 17, 1995, incorporated by reference to Exhibit 2.1 to Form 8-K filed by Insignia Financial Group, Inc. ("Insignia") with the Securities and Exchange Commission on September 1, 1995. 2.3 Management Purchase Agreement dated as of August 17, 1995, incorporated by reference to Exhibit 2.2 to Form 8-K filed by Insignia with the Securities and Exchange Commission on September 1, 1995. 2.4 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT shown as Exhibit 2.1 in Current Report on Form 8-K dated October 1, 1998). 2.5 Master Indemnity Agreement dated as of August 17, 1995, incorporated by reference to Exhibit 2.5 to Form 8-K filed by Insignia with the Securities and Exchange Commission on September 1, 1995. 3.4 Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of the Partnership dated September 20, 1983, as amended on June 13, 1989, and as thereafter supplemented contained in the Partnership's Registration Statement on Form S-11 (Reg. No. 2-79007). 10.1 Promissory Note dated December 27, 1994 from Century Stoney Greens, L.P. to USL Capital Corporation ("USL") in the principal amount of $30,000,000 incorporated by reference to the Registrant's Form 10-K for the year ended December 31, 1994 10.2 Form of Deed of Trust, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement by CSG to Howard E. Schreiber, Trustee for the benefit of USL incorporated by reference to the Registrant's Form 10-K for the year ended December 31, 1994. 10.3 Form of Promissory Note from the Registrant to Secore Financial Corporation ("Secore") relating to the refinancing of each of Cooper's Pointe, Copper Mill, Four Winds, Hampton Greens, Plantation Creek, Stoney Creek, and Wood Creek incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995. 10.4 Form of Mortgage/Deed of Trust and Security Agreement from the Registrant to Secore relating to the refinancing of each of Cooper's Pointe, Copper Mill, Four Winds, Hampton Greens, Plantation Creek, Stoney Creek and Wood Creek incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995. 10.7 Promissory Note dated March 31, 1998, by and between the Partnership and Lehman Brothers Holding, Inc. for Promontory Point incorporated by reference to Exhibit 10.3 on the Partnership's quarterly report on Form 10-QSB for the quarter ended March 31, 1998. 10.8 Contract of Sale between Registrant and Stoney Creek, LLC, a Texas Limited Liability Company, effective July 31, 2001, regarding the sale of Stoney Creek Apartments. Filed with the Form 10-QSB for the quarter ended June 30, 2001 and incorporated herein. 10.9 Amendment to Contract of Sale between Registrant and Stoney Creek, LLC, a Texas Limited Liability Company, effective July 31, 2001, regarding the sale of Stoney Creek Apartments. Filed with the Form 10-QSB for the quarter ended June 30, 2001 and incorporated herein. 10.10 Multifamily Note for Autumn Run dated September 6, 2001, by and between Century Properties Growth Fund XXII, a California limited partnership, and GMAC Commercial Mortgage Corporation, a California corporation. Filed with the Form 10-QSB for the quarter ended September 30, 2001 and incorporated herein. 99 Certification of Chief Executive Officer and Chief Financial Officer Exhibit 99 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of Century Properties Growth Fund XXII (the "Partnership"), for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Patrick J. Foye Name: Patrick J. Foye Date: March 27, 2003 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: March 27, 2003 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----