-----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, KvYwes7hGRs9uhqKE/lE0bsVcBvO0saMPLU8rDGXpQc1Bgbd8UCWz98irvRfsTPx 7KYoPhMQ6LElAbK498jCaA== 0000711642-99-000214.txt : 19990816 0000711642-99-000214.hdr.sgml : 19990816 ACCESSION NUMBER: 0000711642-99-000214 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-14528 FILM NUMBER: 99688414 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR STREET 2: 5665 NORTHSIDE DR NW CITY: DENVER STATE: CO ZIP: 80222 10QSB 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 June 30, 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) June 30, December 31, 1999 1998 (Unaudited) (Note) Assets Cash and cash equivalents $ 26,578 $ 11,698 Receivables and deposits 1,817 1,699 Other assets 601 286 Mortgage loan receivable 1,137 1,137 Deferred charges 913 1,037 Investment properties: Land 11,447 15,970 Buildings and related personal property 47,047 63,332 58,494 79,302 Less accumulated depreciation (19,348) (24,790) 39,146 54,512 $ 70,192 $ 70,369 Liabilities and Partners' Deficit Liabilities Accounts payable $ 146 $ 40 Tenant security deposit liabilities 194 342 Accrued property taxes 359 675 Accrued interest - promissory notes 1,048 1,048 Accrued interest _ mortgage note payable 279 197 Other liabilities 196 342 Mortgage note payable 6,856 6,856 Non-recourse promissory notes: Principal 41,939 41,939 Deferred interest payable 38,725 37,342 Minority interest in consolidated joint ventures 7,886 7,861 Partners' Deficit General partner's (1,431) (1,387) Limited partners' (95,789 units issued and outstanding at June 30, 1999 and December 31, 1998) (26,005) (24,886) (27,436) (26,273) $ 70,192 $ 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 Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 2,773 $ 2,763 $ 5,524 $ 5,562 Interest income on mortgage loans 28 21 41 41 Other income 434 143 677 283 Total revenues 3,235 2,927 6,242 5,886 Expenses: Operating 739 809 1,531 1,508 General and administrative 246 251 535 522 Depreciation 562 622 1,196 1,214 Interest on notes payable 207 207 414 414 Interest to promissory note holders 1,215 1,215 2,431 2,431 Amortization of deferred charges -- 106 52 216 Property taxes 373 379 764 738 Loss on disposal of investment properties 436 -- 436 -- Total expenses 3,778 3,589 7,359 7,043 Loss before minority interest in joint ventures' operations (543) (662) (1,117) (1,157) Minority interest in joint ventures' operations 50 (99) (25) (246) Net loss $ (493) $ (761) $ (1,142) $ (1,403) Net loss allocated to general partner $ (10) $ (15) $ (23) $ (28) Net loss allocated to limited partners (483) (746) (1,119) (1,375) $ (493) $ (761) $ (1,142) $ (1,403) Net loss per limited partnership unit $ (5.04) $ (7.79) $ (11.68) $ (14.35) 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 six months ended June 30, 1998 -- (28) (1,375) (1,403) Partners' deficit at June 30, 1998 95,789 $(1,333) $(23,310) $(24,643) Partners' deficit at December 31, 1998 95,789 $(1,387) $(24,886) $(26,273) Distribution to general partner -- (21) -- (21) Net loss for the six months ended June 30, 1999 -- (23) (1,119) (1,142) Partners' deficit at June 30, 1999 95,789 $(1,431) $(26,005) $(27,436) See Accompanying Notes to Consolidated Financial Statements d) CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net loss $ (1,142) $ (1,403) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 1,196 1,214 Amortization of deferred charges and lease commissions 173 350 Minority interest in joint ventures' operations 25 246 Deferred interest on non-recourse promissory notes 1,383 1,383 Loss on disposal of investment properties 436 -- Change in accounts: Receivables and deposits (118) (152) Other assets (299) 48 Deferred charges -- 145 Accounts payable 106 (12) Tenant security deposit liabilities (148) (16) Accrued property taxes (316) 107 Other liabilities (146) (80) Accrued interest on mortgage note payable 82 16 Net cash provided by operating activities 1,232 1,846 Cash flows from investing activities: Property replacements, improvements (270) (297) Lease commissions paid (260) (292) Proceeds from sale of investment properties 14,199 -- Net cash provided by (used in) investing activities 13,669 (589) Cash flows used in financing activities: Cash distributions to the general partner (21) (21) Net increase in cash and cash equivalents 14,880 1,236 Cash and cash equivalents at beginning of period 11,698 9,366 Cash and cash equivalents at end of period $ 26,578 $ 10,602 Supplemental disclosure of cash flow information: Cash paid for interest - notes payable $ 398 $ 398 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 entered into a forbearance agreement subsequent to June 30, 1999, for a specific period 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. Under the terms of the forbearance agreement, the Partnership transfers its excess cash flow and cash from the sale of its investment properties to the indenture trustee. The indenture trustee will determine the amount of funds, after reserves and trustee fees, to be paid to the noteholders. In conjunction with the forbearance agreement closing, the Partnership made an approximately $18,820,000 payment on the Notes to the indenture trustee consisting of approximately $9,715,000 of the Partnership's share of the proceeds from the sale of the Minneapolis Business Park Joint Venture investment properties and approximately $9,105,000 of excess cash flow. 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 cannot sell its properties for sufficient value, it is likely that the Partnership will lose its properties through delivery to auctioneer. 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 and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-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 six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expense) $ 63 $ 81 Reimbursement for services of affiliates (included in general and administrative, and operating expenses) 95 125 Partnership management fee (included in general and administrative expenses) 55 55 During the six months ended June 30, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from the Partnership's residential property as compensation for providing property management services. The Partnership paid to such affiliates approximately $63,000 and $60,000 for the six months ended June 30, 1999 and 1998, respectively. For the six months ended June 30, 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 $21,000 for the six months ended June 30, 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 six months ended June 30, 1999 and 1998. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $95,000 and $125,000 for the six months ended June 30, 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 six months ended June 30, 1999 and 1998, the general partner received a cash distribution of approximately $21,000, 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 - SALE OF INVESTMENT PROPERTIES On June 1, 1999, Minneapolis Business Park Joint Venture ("Minneapolis"), a joint venture in which the Partnership has a controlling interest, sold Alpha Business Center, Plymouth Service Center, and Westpoint Service Center, to an unaffiliated third party for net sales proceeds of approximately $14,199,000 after payment of closing costs. The Partnership's share of the net sales proceeds is approximately $9,655,000 and the minority holder's share is approximately $4,544,000, which was distributed subsequent to June 30, 1999. Minneapolis realized a loss of approximately $436,000 on the sale during the second quarter of 1999. The Partnership's share of the loss on the sale is approximately $296,000 and the minority holder's share is approximately $140,000, which was allocated to the minority holder through the minority interest in joint ventures' operations during the second quarter of 1999. The sales transactions are summarized as follows (amounts in thousands): Net sale price, net of selling costs $ 14,199 Net real estate (1) (14,423) Net other assets (212) Loss on sale of real estate $ (436) (1) Net of accumulated depreciation of approximately $6,638,000. The following pro-forma information reflects the operations of the Partnership for the six months ended June 30, 1999 and 1998, as if Alpha Business Center, Plymouth Service Center, and Westpoint Service Center had been sold January 1, 1998. 1999 1998 (in thousands, except per unit data) Revenues $ 4,689 $ 4,212 Net loss (1,180) (1,822) Income per limited partnership unit (12.07) (18.64) NOTE F - 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 a controlling interest in one joint venture whose property includes a shopping center located in Florida. The Partnership also owns a controlling interest in one joint venture whose properties were sold June 1, 1999. 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 six months ended June 30, 1999 and 1998, is shown in the tables below (in thousands). The "Other" column includes partnership administration related items and income and expense not allocated to reportable segments.
1999 Residential Commercial Other Totals Rental income $ 1,223 $ 4,301 $ -- $ 5,524 Interest income on mortgage loans -- -- 41 41 Other income 26 298 353 677 Interest expense 414 -- 2,431 2,845 Amortization of deferred costs -- -- 52 52 Depreciation 175 1,021 -- 1,196 General and administrative expense -- -- 535 535 Loss on sale of investment properties -- 436 -- 436 Minority interest in joint ventures' operations -- (25) -- (25) Segment profit (loss) 114 1,368 (2,624) (1,142) Total assets 6,864 11,095 52,233 70,192 Capital expenditures for investment properties 52 218 -- 270
1998 Residential Commercial Other Totals Rental income $ 1,159 $ 4,403 $ -- $ 5,562 Interest income on mortgage loans -- -- 41 41 Other income 22 34 227 283 Interest expense 414 -- 2,431 2,845 Amortization of deferred costs -- -- 216 216 Depreciation 171 1,043 -- 1,214 General and administrative expense -- -- 522 522 Minority interest in joint ventures' operations -- (246) -- (246) Segment profit (loss) 90 1,408 (2,901) (1,403) Total assets 8,891 49,278 11,779 69,948 Capital expenditures for investment properties 64 233 -- 297
NOTE G - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-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 one shopping center owned by one consolidated joint venture 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 six months ended June 30, 1999 and 1998: Average Occupancy Property 1999 1998 Commerce Plaza 100% 100% Tampa, Florida Regency Centre 99% 90% Lexington, Kentucky Highland Park III 93% 90% Charlotte, North Carolina Interrich Plaza 95% 100% Richardson, Texas Centre Stage Shopping Center 97% 96% Norcross, Georgia The Enclaves 97% 94% Atlanta, Georgia Medtronics 100% 100% Irvine, California CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 62% 69% Coral Springs, Florida 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 Highland Park III increased due to 2,275 square feet of space being leased to a new tenant. 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. Results of Operations The Partnership's loss before minority interest in the joint ventures' operations was approximately $1,117,000 for the six months ended June 30, 1999, compared to approximately $1,157,000 for the corresponding period in 1998. The Partnership's loss before minority interest in the joint ventures' operations was approximately $543,000 for the three months ended June 30, 1999, compared to approximately $662,000 for the corresponding period in 1998. The decrease in loss is attributable to an increase in total revenues which more than offset an increase in total expenses. The increase in total revenues is attributable to an increase in other income partially offset by a decrease in rental 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 expense 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 increase in total expenses is primarily attributable to increases in property tax expenses in addition to the loss on the disposal of the investment properties in the Minneapolis Business Park Joint Venture (see discussion below). These increases were partially offset by a decrease in amortization of deferred charges. Property tax expense increased for the six months ended June 30, 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 decrease in amortization of deferred charges is due to the fact that partnership level deferred charges became fully amortized during the six month period ended June 30, 1999. Interest expense remained consistent for both six month periods. The net loss for the six months ended June 30, 1999 was approximately $1,142,000 compared to approximately $1,403,000 for the same period of 1998. The net loss for the three months ended June 30, 1999, was approximately $493,000 compared to approximately $761,000 for the same period in 1998. The minority interest in joint ventures' operations decreased from approximately $246,000 at June 30, 1998, to approximately $25,000 at June 30, 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 Coral Palm Joint Venture and the sale of Minneapolis Business Park Joint Venture. The decrease in net income for Coral Palm Plaza Joint Venture for the six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 1999. Included in general and administrative expenses at both June 30, 1999 and 1998, are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. On June 1, 1999, Minneapolis Business Park Joint Venture ("Minneapolis"), a joint venture in which the Partnership has a controlling interest, sold Alpha Business Center, Plymouth Service Center, and Westpoint Service Center, to an unaffiliated third party for net sales proceeds of approximately $14,199,000 after payment of closing costs. The Partnership's share of the net sales proceeds is approximately $9,655,000 and the minority holder's share is approximately $4,544,000, which was distributed subsequent to June 30, 1999. Minneapolis realized a loss of approximately $436,000 on the sale during the second quarter of 1999. The Partnership's share of the loss on the sale is approximately $296,000 and the minority holder's share is approximately $140,000, which was allocated to the minority holder through the minority interest in joint ventures' operations during the second quarter of 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 June 30, 1999, the Partnership had cash and cash equivalents of approximately $26,578,000 compared to approximately $10,602,000 at June 30, 1998. The net increase in cash and cash equivalents for the six months ended June 30, 1999, from the Partnership's year ended December 31, 1998, was approximately $14,880,000. This increase is due to approximately $1,232,000 of net cash provided by operating activities, approximately $13,669,000 of cash provided by investing activities, slightly offset by approximately $21,000 of cash used in financing activities. Cash provided by investing activities consisted of proceeds received from the sale of investment properties partially offset by 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 entered into a forbearance agreement subsequent to June 30, 1999 for a specific period 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. Under the terms of the forbearance agreement, the Partnership transfers its excess cash flow and cash from the sale of its investment properties to the indenture trustee. The indenture trustee will determine the amount of funds, after reserves and trustee fees, to be paid to the noteholders. In conjunction with the forbearance agreement closing, the Partnership made an approximately $18,820,000 payment on the Notes to the indenture trustee consisting of approximately $9,715,000 of the Partnership's share of the proceeds from the sale of the Minneapolis Business Park Joint Venture investment properties and approximately $9,105,000 of excess cash flow. There can be no assurance, however, 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 selling its properties for sufficient value, it is likely that the Partnership will lose its properties through delivery to auctioneer. If the properties are delivered to auctioneer, the Partnership would be dissolved, any available cash would be distributed to the noteholders and the 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 delivered to auctioneer. In light of the maturity of the Notes, no distributions were made to the limited partners for the six months ended June 30, 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 six months ended June 30, 1999 and 1998. 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 six months ended June 30, 1999, the Partnership expended approximately $85,000 for capital improvements at Commerce Plaza consisting primarily of building improvements and 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $41,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. Regency Centre During the six months ended June 30, 1999, the Partnership completed approximately $17,000 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $48,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. Highland Park III During the six months ended June 30, 1999, the Partnership completed approximately $44,000 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $110,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. Interrich Plaza During the six months ended June 30, 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $16,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. Centre Stage During the six months ended June 30, 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $17,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. The Enclaves During the six months ended June 30, 1999, the Partnership expended approximately $52,000 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $477,000 for 1999 at this property which include certain of the required improvements and consist of landscaping, carpet replacement and roof repairs. Medtronics During the six months ended June 30, 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 next several years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $426,000 for 1999 at this property which include certain of the required improvements and consist of tenant improvements. Coral Palm Plaza During the six months ended June 30, 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 six months ended June 30, 1999, the Partnership expended approximately $34,000 for building and tenant improvements at Alpha Business Center. This property was sold on June 1, 1999. Westpoint Business Center During the six months ended June 30, 1999, the Partnership expended approximately $32,000 for capital improvements at West Point Business Center consisting of tenant improvements. This property was sold on June 1, 1999. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 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 June 30, 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. 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) Current Report on Form 8-K filed on June 15, 1999 disclosing the sale of the three properties owned by Minneapolis Business Park Joint Venture. 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: August 13, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Century Pension Income Fund XXIII 1999 Second Quarter 10-QSB and is qualified in its entirety by referene to such 10-QSB filing. 0000764543 CENTURY PENSION INCOME FUND XXIII 1,000 6-MOS DEC-31-1999 JUN-30-1999 26,578 0 0 0 0 0 58,494 (19,348) 70,192 0 48,795 0 0 0 (27,436) 70,192 0 6,242 0 0 4,514 0 2,845 0 0 0 0 0 0 (1,142) (11.68) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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