-----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, N0hB9QBU5hCqW/yhZDh5F+0sW3QZNwTsnzb91p1qLl3OhzntyqvIluXRWVTi6CgN rgwyokgjC7CB8yp30F0GEg== 0000711642-99-000126.txt : 19990518 0000711642-99-000126.hdr.sgml : 19990518 ACCESSION NUMBER: 0000711642-99-000126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PENSION INCOME FUND XXIII CENTRAL INDEX KEY: 0000764543 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942963120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-96389 FILM NUMBER: 99625178 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10-Q 1 FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14528 CENTURY PENSION INCOME FUND XXIII (Exact name of registrant as specified in its charter) California 94-2963120 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CENTURY PENSION INCOME FUND XXIII CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) March 31, December 31, 1999 1998 (Unaudited) (Note) Assets Cash and cash equivalents $ 10,884 $ 11,698 Receivables and deposits 2,077 1,699 Other assets 491 286 Mortgage loan receivable 1,137 1,137 Deferred charges 1,065 1,037 Investment properties: Land 15,970 15,970 Buildings and related personal property 63,481 63,332 79,451 79,302 Less accumulated depreciation (25,424) (24,790) 54,027 54,512 $ 69,681 $ 70,369 Liabilities and Partners' Deficit Liabilities Accounts payable $ 1 $ 40 Tenant security deposit liabilities 334 342 Accrued property taxes 453 675 Accrued interest - promissory notes 524 1,048 Accrued interest - notes payable 205 197 Other liabilities 342 342 Notes payable 6,856 6,856 Non-recourse promissory notes: Principal 41,939 41,939 Deferred interest payable 38,034 37,342 Minority interest in consolidated joint ventures 7,936 7,861 Partners' Deficit General partner's (1,421) (1,387) Limited partners' (95,789 units issued and outstanding at March 31, 1999 and December 31, 1998) (25,522) (24,886) (26,943) (26,273) $ 69,681 $ 70,369 Note: The balance sheet at December 31, 1998, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements b) CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 1999 1998 Revenues: Rental income $ 2,751 $ 2,799 Interest income on mortgage loans 13 20 Other income 243 140 Total revenues 3,007 2,959 Expenses: Operating 795 699 General and administrative 286 271 Depreciation 634 592 Interest on notes payable 207 207 Interest to promissory note holders 1,216 1,216 Amortization of deferred charges 52 110 Property taxes 391 359 Total expenses 3,581 3,454 Loss before minority interest in joint ventures' operations (574) (495) Minority interest in joint ventures' operations (75) (147) Net loss $ (649) $ (642) Net loss allocated to general partner (2%) $ (13) $ (13) Net loss allocated to limited partners (98%) (636) (629) $ (649) $ (642) Net loss per limited partnership unit $ (6.64) $ (6.57) See Accompanying Notes to Consolidated Financial Statements c) CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 95,789 $ 958 $ 47,894 $ 48,852 Partners' deficit at December 31, 1997 95,789 $(1,284) $(21,935) $(23,219) Distribution to general partner -- (21) -- (21) Net loss for the three months ended March 31, 1998 -- (13) (629) (642) Partners' deficit at March 31, 1998 95,789 $(1,318) $(22,564) $(23,882) Partners' deficit at December 31, 1998 95,789 $(1,387) $(24,886) $(26,273) Distribution to general partner -- (21) -- (21) Net loss for the three months ended March 31, 1999 -- (13) (636) (649) Partners' deficit at March 31, 1999 95,789 $(1,421) $(25,522) $(26,943) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net loss $ (649) $ (642) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 634 592 Amortization of deferred charges and lease commissions 117 172 Minority interest in joint ventures' operations 75 147 Deferred interest on non-recourse promissory notes 692 692 Change in accounts: Receivables and deposits (378) (394) Other assets (205) 46 Deferred charges 11 (5) Accounts payable (39) 80 Tenant security deposit liabilities (8) 3 Accrued property taxes (222) 116 Other liabilities -- (47) Accrued interest on notes payable 8 8 Accrued interest - promissory notes (524) (524) Net cash (used in) provided by operating activities (488) 244 Cash flows from investing activities: Property replacements and improvements (149) (201) Lease commissions paid (156) (19) Net cash used in investing activities (305) (220) Cash flows used in financing activities: Cash distributions to the general partner (21) (21) Net (decrease) increase in cash and cash equivalents (814) 3 Cash and cash equivalents at beginning of period 11,698 9,366 Cash and cash equivalents at end of period $ 10,884 $ 9,369 Supplemental disclosure of cash flow information: Cash paid for interest - notes payable $ 199 $ 199 Cash paid for interest - non-recourse promissory notes $ 1,048 $ 1,048 See Accompanying Notes to Consolidated Financial Statements e) CENTURY PENSION INCOME FUND XXIII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming Century Pension Income Fund XXIII (the "Partnership" or "Registrant") will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Nonrecourse Promissory Notes had a balance of principal and deferred interest of approximately $80,000,000 at the maturity date of February 15, 1999; however, such amount was not paid at maturity. As a result, the Partnership is currently in default under the Nonrecourse Promissory Notes. Fox Capital Management Corporation ("FCMC" or the "Managing General Partner") has contacted the indenture trustee for the Nonrecourse Promissory Notes and certain holders of Nonrecourse Promissory Notes regarding this default. In connection with these conversations, the Managing General Partner has proposed that a forbearance agreement for a specific period be entered into pursuant to which the indenture trustee will agree not to exercise its rights with respect to the Partnership's properties while the Partnership markets its properties for sale. The Managing General Partner believes it is unlikely that the sale of the Partnership's assets will generate sufficient proceeds to pay off the Nonrecourse Promissory Notes in full. If the Partnership is unsuccessful in negotiating a forbearance or other agreement with the indenture trustee or if the Partnership cannot sell its properties for sufficient value, it is likely that the Partnership will lose its properties through foreclosure. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Partnership be unable to continue as a going concern. NOTE B - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Managing General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-K for the year ended December 31, 1998. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership and two joint ventures in which the Partnership has a controlling interest. An affiliated partnership owns the minority interest in these joint ventures. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. NOTE C - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE D - 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. The following transactions with the Managing General Partner and/or its affiliates were incurred during the three months ended March 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expense) $ 30 $ 38 Reimbursement for services of affiliates (1) (included in general and administrative and operating expenses) 63 60 Partnership management fee (included in general and administrative expenses) 55 55 (1) Included in "Reimbursements for services of affiliates" for the three months ended March 31, 1998 is approximately $1,000 in reimbursements for construction oversight costs. There were no such reimbursements for the three months ended March 31, 1999. During the three months ended March 31, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from the Partnership's residential property as compensation for providing property management services. The Partnership paid to such affiliates approximately $30,000 and $29,000 for the three months ended March 31, 1999 and 1998, respectively. For the three months ended March 31, 1998, an affiliate of the Managing General Partner was entitled to receive varying percentages of gross receipts from the Partnership's Coral Palm Plaza property for providing property management services. The Partnership paid to such affiliate approximately $9,000 for the three months ended March 31, 1998. Since October 1, 1998 (the effective date of the Insignia Merger) these services have been provided for Coral Palm Plaza by an unrelated party. For the Partnership's remaining commercial properties, these services were provided by an unrelated party for the three months ended March 31, 1999 and 1998. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $63,000 and $60,000 for the three months ended March 31, 1999 and 1998, respectively. On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554 of the Partnership's 1985 Nonrecourse Promissory Notes and 1,270 of the Partnership's 1986 Nonrecourse Promissory Notes from a noteholder for $600 per note. In each of the three months ended March 31, 1999 and 1998, the general partner received a cash distribution of approximately $43,000, which was equal to two percent of cash distributions to the Promissory Note holders. The partnership management fee and partnership management incentive are limited by the Partnership Agreement to ten percent of cash available for distribution before interest payments to the Promissory Note holders and the partnership management fee. NOTE E - SEGMENT INFORMATION Description of the types of products and services from which the reportable segments derive their revenues: The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of one apartment complex located in Atlanta, Georgia. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consists of three business parks located in Florida, North Carolina and Texas, one industrial building located in California, and two shopping centers located in Kentucky and Georgia. In addition, the Partnership also owns controlling interests in two joint ventures, which properties include three business parks located in Minnesota and a shopping center located in Florida. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's annual report on Form 10-K for the year ended December 31, 1998. Factors management used to identify the Partnership's reportable segments: The Partnership's reportable segments consist of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three months ended March 31, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes partnership administration related items and income and expense not allocated to reportable segments. 1999 Residential Commercial Other Totals Rental income $ 620 $ 2,131 $ -- $ 2,751 Other income 11 173 72 256 Interest expense 207 -- 1,216 1,423 Amortization of deferred costs -- -- 52 52 Depreciation 87 547 -- 634 General and administrative expense -- -- 286 286 Minority interest in joint ventures' operations -- (75) -- (75) Segment profit (loss) 44 789 (1,482) (649) Total assets 6,756 36,119 26,806 69,681 Capital expenditures for investment properties 22 127 -- 149 1998 Residential Commercial Other Totals Rental income $ 576 $ 2,223 $ -- $ 2,799 Other income 9 62 89 160 Interest expense 207 -- 1,216 1,423 Amortization of deferred costs -- -- 110 110 Depreciation 85 507 -- 592 General and administrative expense -- -- 271 271 Minority interest in joint ventures' operations -- 147 -- 147 Segment profit (loss) 56 789 (1,487) (642) Total assets 9,093 53,598 6,848 69,539 Capital expenditures for investment properties 28 173 -- 201 NOTE F - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et. al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-Q contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-Q and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's remaining investment properties consist of one apartment complex, four business parks and two shopping centers, as well as three business parks and a shopping center owned by two consolidated joint ventures between the Partnership and an affiliated partnership. The following table sets forth the average physical occupancy of each of the Partnership's investment properties, as well as for the joint venture properties, for the three months ended March 31, 1999 and 1998: Average Occupancy Property 1999 1998 Commerce Plaza 100% 100% Tampa, Florida Regency Centre 99% 88% Lexington, Kentucky Highland Park III 91% 90% Charlotte, North Carolina Interrich Plaza 96% 100% Richardson, Texas Centre Stage Shopping Center 97% 99% Norcross, Georgia The Enclaves 99% 95% Atlanta, Georgia Medtronics 100% 100% Irvine, California CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 61% 69% Coral Springs, Florida MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 87% 95% Bloomington, Minnesota Plymouth Service Center 100% 100% Plymouth, Minnesota Westpoint Business Center 93% 92% Plymouth, Minnesota The Managing General Partner attributes the increase in occupancy at Regency Centre to an expanding local economy creating a demand for retail space in the area which resulted in three tenants, occupying approximately 12% of the total square footage, signing leases since March 31, 1998. Occupancy at Interrich Plaza decreased due to a tenant not renewing its lease. Occupancy at the Enclaves increased due to a more aggressive marketing campaign at the property. Occupancy at Coral Palm Plaza decreased as a result of the three tenants vacating the property during 1998. Occupancy at Alpha Business Center decreased as a result of several tenants not renewing their leases. Results of Operations The Partnership's loss before minority interest in joint ventures' operations was approximately $574,000 for the three months ended March 31, 1999 compared to approximately $495,000 for the corresponding period in 1998. The increase in loss is attributable to an increase in total expenses which more than offset an increase in total revenues. The increase in total expenses is primarily attributable to increases in operating, depreciation, and property tax expenses and, to a lesser extent, an increase in general and administrative expense. These increases were partially offset by a decrease in amortization of deferred charges. The increase in operating expense is attributable to increases in property and maintenance expenses attributable to normal fluctuations in utilities, salaries and maintenance costs. The increase in depreciation is the result of an increase in depreciable assets placed in service over the last twelve months. Property tax expense increased for the three months ended March 31, 1999 due to a reduction of the 1998 property tax expense for the Coral Palm Plaza property resulting from a successful appeal of 1997 property taxes. The increase in general and administrative expense for the three months ended March 31, 1999 is primarily attributable to increased legal fees related to negotiations in connection with the Nonrecourse Promissory Notes (see further discussion below). Included in general and administrative expenses at both March 31, 1999 and 1998 are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. The decrease in amortization of deferred charges is due to the fact that partnership level deferred charges became fully amortized during the three month period ended March 31, 1999. Interest expense remained consistent for both three month periods. The increase in total revenues is attributable to an increase in other income partially offset by a decrease in rental and mortgage interest income. The increase in other income is primarily due to a lease buyout fee received from a tenant at Medtronics. Rental income decreased primarily due to bad debt recognized at the Coral Palm Plaza property related to the decline in the physical occupancy at the property (see discussion above) and due to a decrease in tenant reimbursements at a number of the Partnership's commercial properties. The decrease in mortgage interest is attributable to the timing of receipts. The net loss for the three months ended March 31, 1999 was approximately $649,000 compared to approximately $642,000 for the same period of 1998. Partially offsetting the increase in overall net loss for the three months ended March 31, 1999 was a decrease in minority interest in joint ventures' operations from approximately $147,000 at March 31, 1998 to approximately $75,000 at March 31, 1999. The Partnership owns a majority interest in two joint venture operations with an affiliated partnership. The decrease in minority interest is primarily due to a decrease in net income for both of the joint ventures. The decrease in net income for Coral Palm Plaza Joint Venture for the three months ended March 31, 1999 is primarily due to the occupancy-related issues and the increase in property tax expense as discussed above. The decrease in net income for Minneapolis Business Parks Joint Venture for the three months ended March 31, 1999 as compared to the same period of 1998 is primarily attributable to an increase in depreciation expense as a result of depreciable assets placed in service over the last twelve months. Also contributing to the decrease in net income is an increase in operating expenses primarily due to increased maintenance expense at the joint venture's properties during the three months ended March 31, 1999. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At March 31, 1999, the Partnership had cash and cash equivalents of approximately $10,884,000 compared to approximately $9,369,000 at March 31, 1998. The net decrease in cash and cash equivalents for the three months ended March 31, 1999 from the Partnership's year ended December 31, 1998 was approximately $814,000. This decrease is due to approximately $488,000 of net cash used in operating activities, approximately $305,000 of cash used in investing activities, and approximately $21,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements and payment of lease commissions. Cash used in financing activities consisted of cash distributed to the general partner. The Partnership invests its working capital reserves in money market accounts. The Partnership's Enclaves property is secured by mortgage indebtedness of approximately $6,856,000, which requires interest only payments with a balloon payment due in 2001. In addition, in order to finance the purchase of its properties, the Partnership sold Nonrecourse Pension Investor Notes with an aggregate original principal amount of $41,939,000 (the "Notes"). Pursuant to the terms of the Notes, the Partnership was required to pay interest at a rate of 5% per annum on the Notes, and accrue the additional 5% (1986 Notes) and 7% (1985 Notes) per annum due on the Notes. The Notes are secured by all of the Partnership's properties. The Nonrecourse Promissory Notes had a balance of principal and deferred interest of approximately $80,000,000 at the maturity date of February 15, 1999; however, such amount was not paid at maturity. As a result, the Partnership is currently in default under the Nonrecourse Promissory Notes. The Managing General Partner has contacted the indenture trustee for the Nonrecourse Promissory Notes and certain holders of Nonrecourse Promissory Notes regarding this default. In connection with these conversations, the Managing General Partner has proposed that a forbearance agreement for a specific period be entered into pursuant to which the indenture trustee will agree not to exercise its rights with respect to the Partnership's properties while the Partnership markets its properties for sale. There can be no assurance, however, that a forbearance agreement will be entered into or, if entered into, that the Partnership can sell its properties or as to the net sales proceeds generated. The Managing General Partner believes it is unlikely that the sale of the Partnership's assets will generate sufficient proceeds to pay off the Nonrecourse Promissory Notes in full. If the Partnership is unsuccessful in negotiating a forbearance or other agreement with the indenture trustee or if the Partnership cannot sell its properties for sufficient value, it is likely that the Partnership will lose its properties through foreclosure. If the properties are foreclosed upon, the Partnership would be dissolved, any available cash would be distributed and limited partners would lose their investment in the Partnership. It is expected that the Partnership would recognize a gain for tax purposes if the properties were foreclosed upon. In light of the pending maturity of the Notes, no distributions were made to the limited partners for the three months ended March 31, 1999 or 1998. In accordance with the Partnership Agreement, the general partner received cash distributions equal to 2% of the interest payments on the Nonrecourse Promissory Notes (approximately $21,000) during each of the three months ended March 31, 1999 and 1998. The three commercial properties in Minneapolis Business Park Joint Venture are under contract for sale. The sale, which is subject to the purchaser's due diligence and other customary conditions, is expected to close during the second quarter of 1999. However, there can be no assurance that the sale will be consummated. Capital improvements planned for each of the Partnership's properties are detailed below. Additional capital expenditures will be incurred only if cash is available from operations. Commerce Plaza During the three months ended March 31, 1999, the Partnership expended approximately $31,000 for capital improvements at Commerce Plaza consisting primarily of tenant improvements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $87,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $41,000. Regency Centre During the three months ended March 31, 1999, the Partnership completed approximately $23,000 for tenant improvements at Regency Centre which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $127,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $48,000. Highland Park III During the three months ended March 31, 1999, the Partnership completed approximately $41,000 of tenant improvements at Highland Park III which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $243,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $110,000. Interrich Plaza During the three months ended March 31, 1999, the Partnership did not complete any capital or tenant improvements at Interrich Plaza. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $79,000 of capital improvements over the near term. Budgeted capital improvements for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $16,000. Centre Stage During the three months ended March 31, 1999, the Partnership expended approximately $6,000 for tenant improvements at Centre Stage which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $131,000 of capital improvements over the near term. Budgeted capital improvements for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $17,000. The Enclaves During the three months ended March 31, 1999, the Partnership expended approximately $22,000 for capital improvements at The Enclaves consisting primarily of floor covering and appliance replacements. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $1,020,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited, landscaping, carpet replacement and roof repairs, which are expected to cost approximately $477,000. Medtronics During the three months ended March 31, 1999, the Partnership did not complete any capital or tenant improvements at Medtronics. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $23,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $426,000. Coral Palm Plaza During the three months ended March 31, 1999, the Partnership did not complete any capital or tenant improvements at Coral Palm Plaza. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $80,000. Alpha Business Center During the three months ended March 31, 1999, the Partnership did not complete any capital or tenant improvements at Alpha Business Center. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements and signage replacement, which are expected to cost approximately $195,000. Plymouth Service Center During the three months ended March 31, 1999, the Partnership did not complete any capital or tenant improvements at Plymouth Service Center. There are no capital improvements currently budgeted for 1999 for this property. Westpoint Business Center During the three months ended March 31, 1999, the Partnership expended approximately $26,000 for capital improvements at West Point Business Center consisting of tenant improvements and appliance and carpet replacements, which were funded from operating cash flow. Capital improvements budgeted for 1999 include, but are not limited to, building and tenant improvements, which are expected to cost approximately $194,000. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1998 and 1999, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1999, the mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of March 31, 1999, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by July 31, 1999. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 1999, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and the testing process is expected to be completed by July 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by July 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1998, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by July 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of March 31, 1999 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of March 31, 1999 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by August 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. The Partnership is exposed to changes in interest rates primarily as a result of its borrowing activities used to maintain liquidity and fund business operations. To mitigate the impact of fluctuations in U.S. interest rates, the Partnership maintains its debt as fixed rate in nature by borrowing on a long-term basis. Based on interest rates at March 31, 1999, a 1% increase or decrease in market interest rates would not have a material impact on the Partnership. The following table summarizes the Partnership's debt obligations at December 31, 1998, the Partnership's latest fiscal year end. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximated the recorded value as of December 31, 1998. Principal amount by expected maturity: Long term debt Fixed Rate Debt Average Interest Rate 1999 $41,939 11.60% 2000 -- -- 2001 6,856 12.06% Thereafter -- -- Total $48,795 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et. al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended March 31, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURY PENSION INCOME FUND XXIII By: Fox Partners V Its General Partner By: Fox Capital Management Corporation Its Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: May 17, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Pension Income Fund XXIII 1999 First Quarter 10-Q and is qualified in its entirety by reference to such 10-Q filing. 0000764543 CENTURY PENSION INCOME FUND XXIII 1,000 3-MOS DEC-31-1999 MAR-31-1999 10,884 0 0 0 0 0 79,451 (25,424) 69,681 0 48,153 0 0 0 (26,943) 69,681 0 3,007 0 0 3,581 0 1,423 0 0 0 0 0 0 (649) (6.64) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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