-----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, GWVkQRnydSNVTC+v5rK1ibzjpQY4Li+9/qzshbEcoaUJGGezuTr3wFNruAXrFJ92 VZebxRESZgBkqwxhw6inGA== 0000720460-97-000005.txt : 19970329 0000720460-97-000005.hdr.sgml : 19970329 ACCESSION NUMBER: 0000720460-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-96389 FILM NUMBER: 97566216 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: PO BOX 1089 C/O INSIGNIA FINANCIAL GROUP CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: POST & HEYMANN STREET 2: 5665 NORTHSIDE DR NW CITY: ATLANTA STATE: GA ZIP: 30328 10-K 1 FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (864) 239-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Individual Investor Units and Pension Investor Notes (Title of class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days prior to the date of filing. No market for the Individual Investor Units and Pension Investor Notes exists and therefore a market value for such Units or Notes cannot be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE. PART I ITEM 1. DESCRIPTION OF BUSINESS Century Pension Income Fund XXIII (the "Registrant" or the "Partnership") was organized in June 1984, as a California limited partnership under the Uniform Limited Partnership Act of the California Corporations Code. Fox Partners V, a California general partnership, is the general partner of the Partnership. Fox Capital Management Corporation (the "Managing General Partner" or "FCMC"), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership, are the general partners of Fox Partners V. The Partnership's Registration Statement, filed pursuant to the Securities Act of 1933 (No. 2-96389), was declared effective by the Securities and Exchange Commission on July 1, 1985. The Partnership marketed its securities pursuant to its Prospectus dated July 1, 1985, which was thereafter supplemented (hereinafter the "Prospectus"). This Prospectus was filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act of 1933. Beginning in July 1985 through December 1986, the Partnership offered $50,000,000 in Individual Investor Units and $65,000,000 in Pension Investor Notes ("Nonrecourse Promissory Notes" or "Promissory Notes"). The Partnership sold Individual Investor Units and Pension Investor Notes of $47,894,500 and $41,939,000, respectively. The net proceeds of this offering were originally used to acquire interests in five business parks and two shopping centers and to fund eight mortgage loans. The principal business of the Partnership is and has been to acquire, hold for investment and ultimately sell income-producing properties, and invest in, service, and ultimately collect or dispose of mortgage loans on income-producing properties. The Partnership presently owns eight investment properties. These properties include one residential apartment complex, three shopping centers, three business parks, and an industrial building. The Partnership also owns joint venture interests in four other commercial properties. One joint venture with an affiliated partnership, in which the Partnership has a 66 2/3 percent interest, owns a shopping center. Another joint venture with an affiliated partnership, in which the Partnership has a 68 percent interest, owns three business parks. In addition, the Partnership still holds one mortgage loan receivable. See "Item 2, Description of Properties" for a description of the Partnership's properties. The Managing General Partner of the Partnership intends to maximize the operating results and, ultimately, the net realizable value of each of the Partnership's properties in order to achieve the best possible return for the investors. Such results may best be achieved through property sales, refinancings, debt restructurings or relinquishment of the assets. The Partnership intends to evaluate each of its holdings periodically to determine the most appropriate strategy for each of the assets. The Partnership has no full time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. Limited partners have no right to participate in the management or conduct of such business and affairs. NPI-AP Management, L.P. ("NPI-AP"), an affiliate of the Managing General Partner, provides day-to-day management services for the Partnership's residential investment property. Insignia Commercial Group, Inc., an affiliate of the Managing General Partner, provides day-to-day management services for Coral Palm Plaza. With respect to the Partnership's other commercial properties, management is performed by an unaffiliated third party management company. The business in which the Partnership is engaged is highly competitive, and the Partnership is not a significant factor in its industry. Each of its properties are located in or near a major urban area and, accordingly, competes for rentals not only with similar properties in its immediate area but with hundreds of similar properties throughout the urban area. Such competition is primarily on the basis of location, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar partnerships, real estate investment trusts and financial institutions) with respect to the sale of improved real properties, primarily on the basis of the prices and terms of such transactions. Change in Control On December 6, 1993, the shareholders of the Managing General Partner entered into a Voting Trust Agreement with NPI Equity Investments II, Inc. ("NPI Equity") pursuant to which NPI Equity was granted the right to vote 100% of the outstanding stock of the Managing General Partner. In addition, NPI Equity became the managing partner of FRI. The individuals who had served previously as partners of FRI and as officers and directors of the Managing General Partner contributed their general partnership interests in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests in PRA. The shareholders of the Managing General Partner and the prior partners of FRI, in their capacity as limited partners of PRA, continue to hold indirectly certain economic interests in the Partnership and such other investment limited partnerships, but have ceased to be responsible for the operation and management of the Partnership and such other partnerships. On August 10, 1994, an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo") obtained general and limited partnership interests in NPI-AP. On October 12, 1994, Apollo acquired one-third of the stock of National Property Investors, Inc. ("NPI"), the parent corporation of NPI Equity. Pursuant to the terms of the stock acquisition, Apollo was entitled to designate three of the seven directors of the Managing General Partner and NPI Equity. In addition, the approval of certain major actions on behalf of the Partnership required the affirmative vote of at least five directors of the Managing General Partner. Pursuant to a series of transactions which closed during the first half of 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control of NPI Equity and (ii) all of the issued and outstanding shares of stock of FCMC. In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and FCMC. See "Item 10" for information on the directors and executive officers of the Partnership. ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the Partnership's investments in properties: Date of Property Purchase Type of Ownership (4) Use Commerce Plaza 3/86 Fee ownership Business Park Tampa, Florida 83,000 sq. ft. Regency Centre 5/86 Fee ownership Shopping Center Lexington, Kentucky 124,000 sq. ft. Highland Park Commerce 9/86 Fee ownership Business Park Center Phase II 67,000 sq. ft. Charlotte, North Carolina Interrich Plaza 4/88 Fee ownership Business Park Richardson, Texas 53,000 sq. ft. Centre Stage Shopping Center 1/90 Fee ownership Shopping Center Norcross, Georgia 96,000 sq. ft. The Enclaves 4/91 Fee ownership subject Apartment Atlanta, Georgia to a first mortgage 268 units Sunnymead Towne Center 3/91 Fee ownership subject Shopping Center Moreno Valley, California to a first mortgage 173,000 sq. ft. Medtronics (1) 4/95 Fee ownership Industrial Irvine, California Building 35,000 sq. ft. CORAL PALM PLAZA JOINT VENTURE Coral Palm Plaza (2) 1/87 Joint venture interest Shopping Center Coral Springs, Florida 135,000 sq. ft. MINNEAPOLIS BUSINESS PARKS JOINT VENTURE Alpha Business Center (3) 5/87 Joint venture interest Business Park Bloomington, Minnesota 172,000 sq. ft. Plymouth Service Center (3) 5/87 Joint venture interest Business Park Plymouth, Minnesota 74,000 sq. ft. Westpoint Business Center (3) 5/87 Joint venture interest Business Park Plymouth, Minnesota 161,000 sq. ft. (1) Property was acquired through deed in lieu of foreclosure of a mortgage loan receivable on April 20, 1995. (2) Coral Palm Plaza is owned by a joint venture between the Partnership, which has a 66 2/3 percent interest, and an affiliated partnership. (3) Alpha Business Center, Plymouth Service Center and Westpoint Business Center are owned by a joint venture between the Partnership, which has a 68 percent interest, and an affiliated partnership. (4) The Non-Recourse Promissory Notes are secured by a deed of trust on all properties owned in fee by the Partnership and by a security interest in the joint venture interests held by the Partnership. The Partnership also holds a mortgage loan on real property. See "Item 8. Consolidated Financial Statements and Supplementary Data - Note D" for information regarding this loan. Schedule of Properties (in thousands): Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis Commerce Plaza $ 6,516 $ 1,693 5-39 SL $ 3,986 Regency Centre 14,293 3,951 5-39 SL 8,433 Highland Park II 5,799 1,859 5-39 SL 3,400 Interrich Plaza 2,779 625 5-39 SL 2,222 Centre Stage 8,295 1,702 5-39 SL 6,798 The Enclaves 10,501 1,655 5-39 SL 8,776 Sunnymead Towne 7,318 1,555 5-39 SL 10,465 Center Medtronics 1,751 72 5-39 SL 1,678 CORAL PALM JOINT VENTURE: Coral Palm Plaza 9,526 3,297 5-39 SL 13,720 MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business 10,419 2,448 5-39 SL 8,998 Center Plymouth Service 2,742 712 5-39 SL 2,384 Center Westpoint 7,398 2,035 5-39 SL 6,012 Business Center Total $ 87,337 $ 21,604 $ 76,872 See "Note A" to the financial statements included in "Item 8" for a description of the Partnership's depreciation policy. All of the Partnership's properties are pledged as collateral for the Non- Recourse Promissory Notes. In addition, Sunnymead and The Enclaves are pledged as collateral for additional financing. The Sunnymead note, with a principal balance of $10,100,000 at December 31, 1996, bore interest at 9.0 percent until November 1995 and 9.5 percent thereafter. The Enclaves note, with a principal balance of approximately $6,856,000 at December 31, 1996, bears interest at 12.0625 percent. The Enclaves note requires a balloon payment of $6,856,000 in April 2001, exclusive of deferred interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt. The mortgage notes payable are non-recourse and are secured by pledge of the applicable property and by a pledge of revenues from the respective rental properties. The Enclaves note includes prepayment penalties if repaid prior to maturity. Effective March 1, 1996, the Partnership ceased making debt service payments on the Sunnymead property and will not make such payments in the future. This decision was based on the fact that the property was operating at a deficit and the value of the property was substantially less than the loan amount. Consequently, the Partnership expects that the property will be foreclosed upon and has recorded a $2,900,000 provision for impairment of value in 1995. Upon foreclosure the Partnership would recognize an extraordinary gain on the extinguishment of debt for financial reporting purposes. SCHEDULE OF RENTAL RATES AND OCCUPANCY: Average Annual Average Rental Rates Occupancy Property 1996 1995 1996 1995 Commerce Plaza $ 7.94/sq. ft. $ 8.05/sq. ft. 97% 94% Regency Centre 9.46/sq. ft. 9.85/sq. ft. 96% 99% Highland Park II 8.49/sq. ft. 8.33/sq. ft. 93% 93% Interrich Plaza 5.36/sq. ft. 4.48/sq. ft. 64% 73% Centre Stage 8.85/sq. ft. 8.96/sq. ft. 99% 97% Sunnymead Towne Center 5.73/sq. ft. 7.09/sq. ft. 24% 91% Medtronics 8.16/sq. ft. 8.16/sq. ft. 100% 100% The Enclaves 9,003/unit 8,256/unit 95% 96% CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza $ 7.25/sq. ft. $ 6.76/sq. ft. 74% 74% MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center $ 7.45/sq. ft. $ 7.65/sq. ft. 94% 92% Plymouth Service 6.10/sq. ft. 5.88/sq. ft. 99% 93% Center Westpoint Business 6.13/sq. ft. 6.22/sq. ft. 97% 93% Center The Managing General Partner attributes the decrease in occupancy at Interrich Plaza to a major tenant vacating its space during the second quarter of 1995. Management currently is marketing the vacant space for a new tenant. Occupancy at Plymouth Service Center increased due to the move in of a new tenant occupying approximately 6% of the property during the fourth quarter of 1995. Occupancy at Westpoint Business Center increased due to the execution of leases for three new tenants during the fourth quarter of 1995. Occupancy at Sunnymead Towne Center decreased as result of a significant tenant, which occupied 98,000 square feet, vacating in 1995. During February 1996, another major tenant vacated 11,000 square feet, leaving the property approximately 25% physically occupied. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other properties in the area. The Managing General Partner believes that all of the properties are adequately insured. The multi-family residential property's lease terms are for one year or less. No individual residential property tenant leases 10% or more of the available rental space. The following is a schedule of the lease expirations for the years 1997-2006: % of Gross Number of Square Annual Annual Expirations Feet Rent Rent Commerce Plaza 1997 1 1,647 $ 15,121 2.2% 1998 1 9,523 111,419 16.4% 1999 1 6,889 58,557 8.6% 2000 1 64,186 493,120 72.7% 2001-2006 0 -- -- -- Regency Centre 1997 5 12,602 $ 121,224 10.3% 1998 5 9,204 115,914 9.9% 1999 4 9,221 131,865 11.3% 2000 5 11,229 144,670 12.3% 2001 7 14,491 193,954 16.6% 2002 0 -- -- -- 2003 2 28,931 224,977 19.2% 2004 1 32,154 239,226 20.4% 2005-2006 0 -- -- -- Highland Park II 1997 3 9,074 $ 62,868 13.8% 1998 9 22,446 176,808 38.9% 1999 3 15,277 129,809 28.6% 2000 1 2,025 18,225 4.0% 2001 1 2,276 27,829 6.1% 2002 1 2,815 38,565 8.5% 2003-2006 0 -- -- -- Interrich Plaza 1997 0 -- -- -- 1998 3 23,580 $ 134,208 74.3% 1999 1 4,730 27,198 15.0% 2000 1 3,500 19,250 10.7% 2001-2006 0 -- -- -- Centre Stage 1997 6 10,477 $ 142,884 16.7% 1998 5 11,678 125,256 14.6% 1999 0 -- -- -- 2000 1 1,080 14,580 1.7% 2001 1 2,050 23,900 2.8% 2002 1 2,727 28,692 3.8% 2003-2005 0 -- -- -- 2006 2 5,450 69,908 8.2% Medtronics 1997-1999 0 -- -- -- 2000 1 35,000 $ 285,600 100.00% 2001-2006 0 -- -- -- CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 1997 1 1,400 $ 11,199 1.4% 1998 2 15,431 140,021 17.3% 1999 0 -- -- -- 2000 6 7,150 85,146 10.5% 2001 6 11,150 146,756 18.1% 2002 2 4,300 25,626 3.2% 2003 0 -- -- -- 2004 1 9,064 83,298 10.3% 2005 2 27,412 175,942 21.7% 2006 1 21,891 142,291 17.5% MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 1997 15 47,734 $ 387,333 27.9% 1998 3 11,634 95,448 6.9% 1999 10 45,359 328,185 23.6% 2000 4 18,445 179,945 13.0% 2001 3 34,098 276,089 19.9% 2002-2006 0 -- -- -- Plymouth Service Center 1997 0 -- $ -- -- 1998 2 9,976 72,233 15.6% 1999 1 14,332 104,480 22.6% 2000 0 -- -- -- 2001 1 13,966 83,700 18.1% 2002 0 -- -- -- 2003 1 35,768 201,496 43.6% 2004-2006 0 -- -- -- Westpoint Business Center 1997 8 31,895 $ 216,075 21.6% 1998 7 23,897 155,846 15.6% 1999 10 86,278 467,310 46.6% 2000 2 2,559 19,617 2.0% 2001 1 11,048 88,274 8.8% 2002-2006 0 -- -- -- Lease expirations for Sunnymead are not included since the property is in receivership and will likely be foreclosed upon in 1997. The following schedule reflects information on tenants occupying 10% or more of the leasable square feet for each property at December 31, 1996: Annual Square Nature of Expiration Rent Per Footage Business of Lease Square Foot Commerce Plaza F.A.A. 9,523 Government 9/30/98 $11.70 Office Suntrust Service 64,186 Bank 1/31/00 7.68 Regency Center Michael's Stores 18,121 Craft Store 2/28/03 7.84 The TJX Operating Co. 32,154 Fashion 11/30/04 7.44 Discount Highland Park II First Natl. Bank 13,154 Bank 3/31/99 8.75 Applegate/Potter 6,788 Marketing 4/30/98 6.25 Interrich Plaza General Diagnostics 17,050 Electronic 11/30/98 5.67 Manufacturer Centre Stage The Kroger Co. 58,890 Grocer 3/31/11 7.64 Sunnymead Towne Center K-Mart (1) 98,471 Discount 10/31/07 $4.47 Retail Medtronics Medtronics Heart 35,000 Medical 6/30/00 8.16 Valve Products CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza Luria & Sons 21,891 Catalog 6/30/06 $6.50 Retailer Linen Supermarket 14,071 Household 10/31/98 9.00 Item Store Michael's Stores 20,000 Craft Store 2/28/05 7.50 MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center Triple J Enterprises 23,020 HVAC 9/30/01 $6.46 Supplies Plymouth Service Center Paul Robey & Assoc. 14,332 Sales-Tool 5/31/99 7.29 Parts Sola Optical 13,966 Eye Doctor 9/30/01 5.99 Guyer's Builder 35,768 Building 12/31/03 5.63 Supplies Supplies Westpoint Business Center ETS Energy Tech System 18,637 Parts 8/31/99 3.55 Manufacturer Kloster Corporation 21,850 Parts 1/31/99 3.29 Manufacturer Tile by Design 21,815 Tile 7/31/99 7.38 (1) Tenant vacated in 1995 but continues to pay rent. The Partnership has ceased making debt service payments on the Sunnymead property and the Managing General Partner expects that the property will be foreclosed upon in 1997. See "Item 7. Liquidity and Capital Resources" for a further discussion. Real estate taxes (in thousands) and rates in 1996 for each property were: 1996 1996 Property Billing Rate Commerce Plaza 71 2.53% Regency Centre 84 .97% Highland Park II 45 1.26% Interrich Plaza 36 2.48% Centre Stage 98 1.44% Sunnymeade 67 1.11% The Enclaves 164 1.61% Medtronics 20 1.13% CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 195 2.71% MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 315 5.98% Plymouth Service Center 124 6.17% Westpoint Business Center 323 6.18% ITEM 3. LEGAL PROCEEDINGS The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Partnership believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The units holders of the Partnership did not vote on any matter during the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED PARTNER MATTERS The Partnership, a publicly-held limited partnership, sold 95,789 Individual Investor Units during its offering period through December 1986. As of January 1, 1997, the number of holders of Individual Investor Units was 3,047. There is no intention to sell additional Individual Investor Units nor is there an established market for these Units. Future cash distributions will depend on the levels of net cash generated from operations, property sales, refinancings, and the availability of cash reserves. No cash distributions were made to the limited partners in 1996, 1995, or 1994. Currently, the Managing General Partner is evaluating the feasibility of a distribution of cash reserves in 1997. ITEM 6. SELECTED FINANCIAL DATA The following represents selected financial data for the Partnership, for the years ended December 31, 1996, 1995, 1994, 1993, and 1992. The data should be read in conjunction with the consolidated financial statements included elsewhere herein. This data is not covered by the independent auditors' report.
For the Year Ended December 31, 1996 1995 1994 1993 1992 (in thousands except per unit data) Total revenues $ 12,282 $ 12,717 $ 11,473 $ 10,730 $ 11,102 Loss before minority interest in joint ventures' operations $ (3,258) $ (6,651) $ (9,762) $ (4,466) $ (7,330) Minority interest in joint ventures' operations (423) (507) 1,245 (107) (258) Net loss $ (3,681) $ (7,158) $ (8,517) $ (4,573) $ (7,588) Net loss per individual investor unit (1) $ (37.66) $ (73.23) $ (87.14) $ (46.79) $ (77.63) Total assets $ 78,893 $ 78,154 $ 83,300 $ 89,645 $ 91,370 Long-term obligations: Nonrecourse promissory notes: Principal $ 41,939 $ 41,939 $ 41,939 $ 41,939 $ 41,939 Deferred interest payable 31,810 29,044 26,278 23,512 20,746 Notes payable 16,956 16,956 16,947 16,902 15,674 Total $ 90,705 $ 87,939 $ 85,164 $ 82,353 $ 78,359 Cash distributions per individual investor unit $ -- $ -- $ -- $ -- $ 10.00 (1) $500 original contribution per unit, based on units outstanding during the year after giving effect to the allocation of net loss to the general partner.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations 1996 Compared to 1995 The Partnership's net loss for the year ended December 31, 1996, was approximately $3,681,000 versus a net loss of approximately $7,158,000 for the corresponding period of 1995. The operations of the Partnership were stable from 1995 to 1996. The decrease in the net loss is primarily attributable to a $2,900,000 provision for impairment of value, recorded on the Partnership's Sunnymead Towne Shopping Center ("Sunnymead") in 1995. See "Item 8. Financial Statements - Note F", for a further discussion. Also contributing to the decrease in net loss was the loss on satisfaction of a mortgage loan receivable of $978,000 recognized in 1995, as discussed in "Item 8. Financial Statements - Note D." Partially offsetting these decreases in net loss was a decrease in other income due to a lease buy-out at Coral Palm Plaza being recognized as income during 1995. General and administrative expenses increased primarily due to an increase in expense reimbursements. As noted in "Item 8. Financial Statements - Note B", the Partnership reimburses the Managing General Partner and its affiliates for its costs involved in the management and administration of all partnership activities. While overall expense reimbursements have increased for the year ended December 31, 1996, the recurring expenses subsequent to the transition efforts to the new administration are expected to more closely approximate historical levels. The increase in expense reimbursements is directly attributable to the combined transition efforts of the Greenville, South Carolina, and Atlanta, Georgia, administrative offices during the year-end close, preparation of the 1995 10-K and tax return (including the limited partner K-1's), filing of the first two quarterly reports and transition of asset management responsibilities to the new administration. Included in operating expenses is approximately $159,000 of major repairs and maintenance comprised primarily of landscaping and exterior building repairs for the year ended December 31, 1996. 1995 Compared to 1994 Operating results, before minority interest in joint ventures' operations, improved by $3,111,000 for the year ended December 31, 1995, as compared to 1994, due to an increase in revenues of $1,244,000 and a decrease in expenses of $1,867,000. Operating results improved due to increased rental revenues in excess of related operating expenses, the recognition of the lease buy-out fee, the lower provision for impairment of value and no provision for doubtful mortgage loans receivable in 1995. Operating results, before minority interest in joint ventures' operations and excluding the Medtronics property (which was acquired through deed in lieu of foreclosure in April 1995), improved by $2,869,000 due to an increase in revenues of $906,000 and a decrease in expenses of $1,963,000. Rental revenues, before minority interest in joint ventures' operations and excluding the Medtronics property, increased primarily due to increased rental rates at The Enclaves Apartments and Regency Centre and increased occupancy at Centre Stage, Alpha Business Center and Westpoint Business Center joint venture properties. These increases were partially offset by a decline in occupancy at Interrich Plaza, Commerce Plaza and Coral Palm Plaza joint venture property. Occupancy and rental rates remained relatively constant at the Partnership's remaining properties. Interest and other income increased by $573,000 due to the recognition of $699,000 of lease termination income at the Coral Palm Plaza joint venture property and an increase in interest income due to an increase in average working capital reserves available for investment and increased interest rates. The increases in interest and other income were partially offset by $185,000 of proceeds from a legal settlement at Regency Centre received during 1994. Interest income on mortgage loans declined by $163,000 due to the termination of payment by the borrower on the Medtronics mortgagee loan in October 1994. The Partnership acquired the Medtronics property through deed in lieu of foreclosure in April 1995. Expenses, before minority interest in joint ventures' operations and excluding the Medtronics property, decreased for the year ended December 31, 1995, as compared to 1994, due to having a lesser amount of non-recurring type expenses. In 1995, the Partnership incurred a loss on satisfaction of the mortgage loan receivable of $978,000 and the provision for impairment of value on the Sunnymead Towne Center property of $2,900,000. In 1994, the Partnership incurred a provision for impairment of value on the Coral Palm Plaza joint venture property of $4,500,000 and a $1,250,000 provision for doubtful mortgage loans receivable on the Medtronics mortgage loan receivable. The Partnership experienced decreases in depreciation expense of $151,000, general and administrative expenses of $30,000, and interest expense of $13,000, which were only slightly offset by an increase in operating expenses of $165,000. Depreciation expense declined due to the provision for impairment of value recorded on the Coral Palm Plaza joint venture property. General and administrative expenses decreased due to a reduction in asset management costs. Interest expense decreased due to a decrease in the amortization of deferred loan costs, which were fully amortized in 1994. All other expenses remained relatively constant. 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 December 31, 1996, the Partnership had unrestricted cash of approximately $8,289,000 compared to approximately $6,378,000 at December 31, 1995. Net cash provided by operating activities decreased primarily as a result of the increase in other assets. Other assets increased primarily due to an increase in escrow account balances. Partially offsetting the increase in other assets was an increase in accrued interest due to payments not being made on the Sunnymead debt. Net cash used in investing activities decreased due to the satisfaction of the first mortgage encumbering the Irvine property as discussed in "Item 8. Financial Statements - Note D." Partially offsetting this pay off were proceeds from the satisfaction of a mortgage loan receivable being received in 1995. Net cash used in financing activities decreased due to a contribution from the minority interest in the joint venture during 1996 compared to distributions being paid to the joint venture partner in 1995. The Sunnymead Towne Shopping Center located in Moreno Valley, California, had a significant tenant, which occupied 98,000 square feet, vacate in 1995. During February 1996, another major tenant vacated 11,000 square feet leaving the property approximately 25% physically occupied. Based on current market conditions, the Partnership was unable to re-lease the vacant space at a rental rate sufficient to pay debt service and other operating expenses. Effective March 1, 1996, the Partnership ceased making debt service payments and does not intend to make any future payments as the value of Sunnymead is less than the debt. At December 31, 1996, the note had a principal balance of approximately $10,100,000 with accrued interest of approximately $1,366,000. The lender has notified the Partnership of its intent to foreclose on the property. The Managing General Partner does not plan to challenge the foreclosure proceedings which are expected to be concluded during 1997. In 1995, the Partnership recorded a provision for impairment of value of $2,900,000 (see "Item 8. Financial Statements - Note F"). The Partnership estimates that upon the foreclosure of Sunnymead the Partnership will record an extraordinary gain on extinguishment of debt. The property was placed in receivership on May 1, 1996. The foreclosure of Sunnymead should not significantly impact the Partnership's liquidity since Sunnymead operated at approximately breakeven on a cash flow basis during 1995. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of $6,856,000, excluding the Sunnymead indebtedness, requires interest only payments with a balloon payment due in 2001. Also, the Partnership's Non-Recourse Promissory Notes of $73,749,000, including deferred interest of $31,810,000, require minimum interest payments of 5% on principal per year and mature on February 15, 1999, at which time the Partnership will have to extend the due dates of these notes, find replacement funding, or sell properties. Future cash distributions will depend on the levels of cash generated from operations and the availability of cash reserves. No cash distributions to the limited partners were made in 1996, 1995, or 1994. Currently, the Managing General Partner is evaluating the feasibility of a distribution of cash reserves in 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CENTURY PENSION INCOME FUND XXIII LIST OF FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Operations - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements Independent Auditors' Report To the Partners Century Pension Income Fund XXIII, A California Limited Partnership Greenville, South Carolina We have audited the accompanying consolidated balance sheets of Century Pension Income Fund XXIII, A California Limited Partnership (the "Partnership") and its joint ventures and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Century Pension Income Fund XXIII, A California Limited Partnership, and its joint ventures and subsidiary as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/Imowitz Koenig & Co., LLP New York, N.Y. February 13, 1997 CENTURY PENSION INCOME FUND XXIII CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) December 31, December 31, 1996 1995 Assets Cash and cash equivalents $ 8,289 $ 6,378 Restricted cash 80 158 Receivables and other assets, net 2,011 894 Mortgage loan receivable 1,137 1,137 Deferred charges 1,643 2,169 Investment properties: Land 18,165 18,165 Buildings and related personal property 69,172 68,347 87,337 86,512 Less accumulated depreciation (21,604) (19,094) 65,733 67,418 $ 78,893 $ 78,154 Liabilities and Partners' Deficit Liabilities Deferred income, accrued expenses and other liabilities $ 1,189 $ 738 Accrued interest-promissory notes 1,048 1,048 Deferred interest-notes payable 1,499 714 Notes payable, $10,100 in default at December 31, 1996, (Note I) 16,956 16,956 Non-recourse promissory notes: Principal 41,939 41,939 Deferred interest payable 31,810 29,044 Minority interest in consolidated joint ventures 7,844 7,383 Partners' Deficit General partner's (2,206) (2,089) Limited partners' (95,789 units issued and outstanding at December 31, 1996 and December 31, 1995) (21,186) (17,579) (23,392) (19,668) $ 78,893 $ 78,154 See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1996 1995 1994 Revenues: Rental income $ 11,576 $ 11,524 $ 10,853 Interest income on mortgage loans 81 81 244 Other income 625 1,112 376 Total revenues 12,282 12,717 11,473 Expenses (including $435, $473, and $297 paid to the general partner and affiliates in 1996, 1995, and 1994): Interest to promissory note holders 4,863 4,863 4,863 Amortization 420 419 419 Operating 4,968 5,134 4,969 Provision for impairment of value -- 2,900 4,500 Depreciation 2,510 2,565 2,682 Interest on notes payable 1,744 1,729 1,742 General and administrative 1,035 780 810 Provision for doubtful mortgage loan and interest receivable -- -- 1,250 Loss on satisfaction of mortgage loan receivable -- 978 -- Total expenses 15,540 19,368 21,235 Loss before minority interest in joint ventures' operations (3,258) (6,651) (9,762) Minority interest in joint ventures' operations (423) (507) 1,245 Net loss $ (3,681) $ (7,158) $ (8,517) Net loss allocated to general partner (2%) $ (74) $ (143) $ (170) Net loss allocated to limited partners' (98%) (3,607) (7,015) (8,347) $ (3,681) $ (7,158) $ (8,517) Net loss per limited partnership unit $ (37.66) $ (73.23) $ (87.14) See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (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, 1993 95,789 $ (1,690) $ (2,217) $ (3,907) Distributions to general partner -- (43) -- (43) Net loss for the year ended December 31, 1994 -- (170) (8,347) (8,517) Partners' deficit at December 31, 1994 95,789 (1,903) (10,564) (12,467) Distributions to general partner -- (43) -- (43) Net loss for the year ended December 31, 1995 -- (143) (7,015) (7,158) Partners' deficit at December 31, 1995 95,789 (2,089) (17,579) (19,668) Distributions to general partner -- (43) -- (43) Net loss for the year ended December 31, 1996 -- (74) (3,607) (3,681) Partners' deficit at December 31, 1996 95,789 $ (2,206) $ (21,186) $ (23,392) See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1996 1995 1994 Cash flows from operating activities: Net loss $ (3,681) $ (7,158) $ (8,517) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,182 3,238 3,420 Provision for impairment of value -- 2,900 4,500 Provision for doubtful receivables 272 27 45 Provision for doubtful mortgage loans and interest receivable -- -- 1,250 Loss on satisfaction of mortgage loan receivable -- 978 -- Minority interest in joint ventures' operations 423 507 (1,245) Deferred interest added to note payable principal -- 9 39 Deferred interest on non-recourse promissory notes 2,766 2,766 2,766 Changes in accounts: Restricted cash 78 (10) 63 Receivables, deferred charges and other assets (1,535) 160 (994) Deferred income, interest, accrued expenses and other liabilities 1,236 (422) 805 Net cash provided by operating activities 2,741 2,995 2,132 Cash flows from investing activities: Cost of real estate acquired through foreclosure -- (1,114) -- Property replacements and improvements (825) (864) (1,017) Proceeds from cash investments -- -- 3,357 Proceeds from satisfaction of mortgage loan receivable -- 1,007 -- Net cash (used in) provided by investing activities (825) (971) 2,340 Cash flows from financing activities: Joint venture partner contributions 38 -- -- Joint venture partner distributions -- (805) (150) Cash distributions to the general partner (43) (43) (43) Net cash used in financing activities (5) (848) (193) Increase in cash and cash equivalents 1,911 1,176 4,279 Cash and cash equivalents at beginning of year 6,378 5,202 923 Cash and cash equivalents at end of year $ 8,289 $ 6,378 $ 5,202 Supplemental disclosure of cash flow information: Cash paid for interest - notes payable $ 893 $ 1,644 $ 1,737 Cash paid for interest - non-recourse promissory notes $ 2,097 $ 2,097 $ 2,097 Supplemental disclosure of non-cash investing and financing activities: Deferred interest added to note payable principal $ -- $ -- $ 6 Mortgage loan receivable reclassified to real estate $ -- $ 612 $ -- See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII Notes to Consolidated Financial Statements December 31, 1996 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: Century Pension Income Fund XXIII (the "Partnership"), is a limited partnership organized in 1984 under the laws of the State of California to acquire, hold for investment and ultimately sell income-producing real properties, and invest in, service, and ultimately collect or dispose of mortgage loans on income-producing real properties. The Partnership currently owns one apartment complex located in Georgia, four business parks located in Florida, North Carolina, California and Texas, and three shopping centers located in Kentucky, Georgia and California. The Partnership also holds a sixty-eight percent joint venture interest in three business parks located in Minnesota and a 66 and two thirds percent joint venture interest in a shopping center located in Florida. The general partner is Fox Partners V, a California general partnership whose general partners are Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership. The capital contributions of $47,894,500 ($500 per unit) were made by individual investor unit holders. Principles of Consolidation: The consolidated financial statements include the statements of the Partnership, its wholly-owned subsidiary which owns the Sunnymead Towne Center property 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. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Income, Loss, and Distributions: Net income, net loss, and distributions of cash of the Partnership are allocated between general and limited partners in accordance with the provisions of the partnership agreement. Mortgage Loan Receivable: Mortgage loans are stated at unpaid balances, less an allowance for loan losses. The amount of the allowance is based on the Managing General Partner's evaluation of the collectibility of the loan. Allowances from impaired loans are generally determined based on the value of underlying collateral or the present value of estimated cash flows. Loans are placed on a nonaccrual basis when a loan is specifically determined to be impaired or when, in the opinion of the Managing General Partner, there is an indication that the borrower may be unable to meet payments as they become due. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Fair Value of Financial Instruments: In the fourth quarter of 1995, the Partnership implemented "Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments," as amended by "SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to their short term nature. The estimated fair value of the Partnership's Sunnymead Towne Center long term debt and the Non-Recourse Promissory Notes is not practicable to estimate because it cannot be determined whether financing with similar terms and conditions would be available to the Partnership. The note payable and deferred interest encumbering The Enclaves Apartments has a carrying value of approximately $6,989,000 at December 31, 1996. The estimated fair value for The Enclaves debt, after discounting the scheduled payments to maturity, approximates $8,185,000. Cash and Cash Equivalents: The Partnership considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Investment Properties: Acquisition fees are capitalized as a cost of real estate. In the fourth quarter of 1995, the Partnership adopted "SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the asset's carrying amount. The impairment loss is measured by comparing the fair value of each asset to its carrying amount. Prior to the adoption of the SFAS, the Partnership's investment properties were carried at the lower of cost or net realizable value. The adoption of the SFAS had no effect on the Partnership's financial statements. Depreciation: Depreciation is computed by the straight-line method over estimated useful lives ranging from 27.5 to 39 years for buildings and improvements and five to seven years for furnishings. Leases: The Partnership generally leases apartment units for twelve-month terms or less and leases commercial units with remaining lease terms up to fifteen years. The Partnership recognizes income as earned on its leases. The Partnership recognized bad debt expense of $272,000, $27,000, and $45,000 for 1996, 1995, and 1994, respectively. Deferred Charges: Included in deferred charges are sales commissions, organization expenses and lease commissions. Sales commissions and organization expenses related to the Pension Investor Notes ("Non-Recourse Promissory Notes", "Promissory Notes" or "Notes"), are deferred and amortized by the straight-line method over the life of the Notes. Leasing commissions are deferred and amortized over the lives of the related leases. Such amortization is charged to operating expense. At December 31, 1996 and 1995, accumulated amortization of deferred charges totaled approximately $5,323,000 and $4,910,000, respectively. Income Taxes: Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 balances to conform to the 1996 presentations. NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Pursuant to a series of transactions which closed during the first half of 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI Equity is a wholly-owned subsidiary of National Property Investors, Inc. ("NPI"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and FCMC. The following transactions with affiliates of Insignia, NPI, and affiliates of NPI were incurred in 1996, 1995 and 1994: 1996 1995 1994 Property management fees (included in operating expense) $ 140 $ 104 $ 81 Reimbursement for services of affiliates (included in general and administrative and operating expenses) 184 96 95 Services relating to successful real estate tax appeals (included in operating expenses) -- 88 10 Partnership management fee (included in general and administrative expenses) 111 111 111 $ 435 $ 399 $ 297 Affiliates of the Managing General Partner performed property management services for The Enclaves during 1994, 1995 and 1996. Effective May 1, 1996, an affiliate of Insignia began performing property management services for Coral Palm Plaza. For the period from January 19, 1996, to December 31, 1996, the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. Approximately $74,000 of insurance premiums, which were paid to an affiliate of NPI, under a master insurance policy arranged for by such affiliate, are included in operating expenses for the year ended December 31, 1995. In accordance with the partnership agreement, the general partner was allocated its two percent continuing interest in the Partnership's net loss and taxable loss. 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. In each of the years ended December 31, 1996, 1995 and 1994, the general partner received $43,000 of cash distributions, which were equal to 2 percent of cash distributions to Promissory Note holders. NOTE C - RESTRICTED CASH Restricted cash at December 31, 1996 and 1995, represents cash partially securing the Sunnymead Towne Center note payable, which is restricted as to its use pursuant to a court approved reorganization plan and the modified note agreements (see "Note M"). NOTE D - MORTGAGE LOANS RECEIVABLE The Partnership entered into various agreements with the borrowers on two of the Partnership's second mortgage loans receivable, which were cross collateralized and in default. The properties are located in Irvine ("Irvine") and Costa Mesa, California ("Costa Mesa"). The borrower on the Irvine property had terminated payments on the mortgage loan receivable in October 1994, and in January 1995, a court appointed receiver was placed on the Irvine property. As a result, on April 20, 1995, the Partnership acquired the Irvine property through a deed in lieu of foreclosure and satisfied the existing first mortgage encumbering the property in the principal amount (including expenses) of approximately $1,114,000. On May 31, 1995, the receiver on the Irvine property was dismissed. The Partnership commenced operating the property on June 1, 1995. The mortgage loan receivable, net of the previously recorded provision for impairment of value of $1,250,000, has been reclassified as real estate in 1995. The mortgagor of the Costa Mesa property assumed $400,000 of the principal amount of the debt encumbering the Irvine property resulting in an aggregate outstanding principal balance of $1,137,000. The Partnership extended the maturity date of the loan on the Costa Mesa property to March 31, 2000. Monthly payments to the Partnership remain the same. Upon the sale of the Costa Mesa property, the Partnership will be entitled to contingent interest of 50% of the amount received in excess of the current debt. In July 1995, the Partnership lost its second mortgage interest on 1726 M Street when the first mortgagee foreclosed on this property. In 1992, the Partnership fully reserved for this contingency. In April 1995, the Partnership received $1,007,000 in full satisfaction of its mortgage loan receivable on the Warren, Michigan property. The property had been classified as an in-substance foreclosure property. The Partnership accepted the discounted settlement because it determined that, based upon projected future operational cash flow of the property, and the cost of litigation, it appeared likely that a substantial portion of contractual obligations would not be collected. The Partnership recorded a $978,000 loss on satisfaction of a mortgage loan receivable. In 1992 a $1,850,000 provision for uncollectable mortgage and interest receivable had been recorded. Interest income on mortgage loans totaled $81,000, $81,000 and $244,000 for 1996, 1995, and 1994, respectively. NOTE E - JOINT VENTURES The Partnership has investments in two consolidated joint ventures as follows: Coral Palm Plaza Joint Venture On January 23, 1987, the Partnership acquired a 66.67% ownership interest in Coral Palm Plaza Joint Venture ("Coral Palm"), a joint venture with Century Pension Income Fund XXIV, a California Limited Partnership ("CPIF XXIV") and an affiliate of FCMC and FRI. Also, on January 23, 1987, Coral Palm Plaza Joint Venture acquired the Coral Palm Plaza, a shopping center located in Coral Springs, Florida. The Partnership reflects its interest in the Coral Palm Plaza Joint Venture utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's financial statements (intercompany accounts are eliminated). Summary financial information for Coral Palm Plaza Joint Venture is as follows (in thousands): December 31, 1996 1995 Total assets $ 7,301 $ 6,690 Total liabilities (468) (345) Total ventures' equity $ 6,833 $ 6,345 Years ending December 31, 1996 1995 Total revenues $ 1,183 $ 1,656 Total expenses (807) (853) Net income $ 376 $ 803 Minneapolis Business Parks Joint Venture On April 30, 1987, the Partnership acquired a 68% ownership interest in Minneapolis Business Parks Joint Venture, a joint venture with CPIF XXIV. On May 5, 1987, Minneapolis Business Parks Joint Venture acquired Alpha Business Center located in Bloomington, Minnesota; Plymouth Service Center located in Plymouth, Minnesota, and Westpoint Business Center located in Plymouth, Minnesota. The Partnership reflects its interest in the Minneapolis Business Parks Joint Venture utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's financial statements (intercompany accounts are eliminated). Summary financial information for Minneapolis Business Park Joint Venture is as follows (in thousands): December 31, 1996 1995 Total assets $17,412 $16,459 Total liabilities (176) (157) Total ventures' equity $17,236 $16,302 Years ending December 31, 1996 1995 Total revenues $ 3,136 $ 2,881 Total expenses (2,202) (2,133) Net income $ 934 $ 748 NOTE F - PROVISION FOR IMPAIRMENT OF VALUE A significant tenant at the Partnership's Sunnymead Towne Center property, that occupied 98,000 square feet (approximately 57% of leasable space), vacated during late 1995 as part of the retail chain's national downsizing. The Partnership did not anticipate being able to re-lease the space at a rental rate sufficient to cover debt service and operating costs. Based on the sum of projected future operating cash flows the Partnership determined that the loss in value was not temporary and recorded an impairment write down of $2,900,000. The property has not been re-leased, a receiver has been appointed and the Partnership expects to lose this property through foreclosure (see "Note M"). In December 1994, a significant tenant that had occupied 27,000 square feet (20% of leasable space) at Coral Palm Plaza moved out. The Partnership, at that time, was not confident that it could re-lease the space quickly or at favorable terms. Based on the sum of projected future operating cash flows the Partnership determined that the loss in value was not temporary and recorded an impairment write down at of $4,500,000 at December 31, 1994. During June 1995, the Partnership was able to re-lease 20,000 square feet of the unoccupied space on comparable terms and re-leased the remaining 7,000 square feet during September 1995. In accordance with SFAS 121 the Partnership did not write up the value of the property at that time. NOTE G - TERMINATION AGREEMENTS WITH FORMER TENANTS In December 1994, the Partnership accepted a lease buy-out of $800,000 from a significant tenant at the Partnership's 66.67% owned joint venture property, which was received in 1995. During 1995, management re-leased all of the unoccupied space, on similar terms, and recognized the remaining portion of the lease buy-out in the amount of $699,000 as other income. In October 1995, the Partnership accepted a lease buy-out and termination agreement with a former tenant at the Partnership's Coral Palm Plaza property. The $300,000 termination payment, has been deferred and is being amortized into income on a straight-line basis over the remaining three years of the former tenant's lease. NOTE H - NON-RECOURSE PROMISSORY NOTES The Non-Recourse Promissory Notes are secured by a deed of trust on all properties owned in fee by the Partnership and its wholly owned subsidiary, by a secured interest in the joint venture interests held by the Partnership, and by a pledge of the note and of the deed of trust on the real properties underlying the mortgage loans made by the Partnership. The Notes were issued in two series. The "1985 Series Notes," in the amount of $33,454,000, bear interest at 12 percent per annum, and the "1986 Series Notes," in the amount of $8,485,000, bear interest at ten percent per annum, except that portions of the interest may be deferred, provided the Partnership makes minimum interest payments of 5% on the unpaid principal balance. The deferred interest does not accrue additional interest. The Notes are due February 15, 1999. In accordance with the Partnership Agreement and the Trust Indenture, upon the sale, repayment or other disposition of any Partnership property or Partnership mortgage loan, 98 percent of the resulting distributable cash proceeds is first allocated to the payment of Promissory Notes until such Notes and related accumulated deferred interest payable are repaid and, thereafter, the cash proceeds are distributed to the Partnership's general partner, Individual Unit holders, and Note holders. Note holders are also entitled to the payment of residual interest after specified payments to the general partner and Individual Unit holders as set forth in the Trust Indenture, but it appears no residual interest will be paid. NOTE I - MORTGAGE NOTES PAYABLE The Sunnymead Towne Shopping Center ("Sunnymead") located in Moreno Valley, California and The Enclaves Apartments ("Enclaves") complex located in Atlanta, Georgia were the only properties pledged as collateral for notes payable at December 31, 1996. The Sunnymead note, with a principal balance of $10,100,000, bore interest at 9.0 percent until November 1995 and 9.5 percent thereafter. The Enclaves note, with a principal balance of approximately $6,856,000, bears interest at 12.0625 percent. The Enclaves note requires a balloon payment of $6,856,000 in April 2001, exclusive of deferred interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt. Principal payments at December 31, 1996, are required as follows (in thousands): 1997 $ 10,100 1998 0 1999 0 2000 0 2001 6,856 Total $ 16,956 The mortgage notes payable are non-recourse and are secured by pledge of the Partnership's properties and by a pledge of revenues from the respective rental properties. The Enclaves note includes prepayment penalties if repaid prior to maturity. Included in the required principal payments schedule are payments due on the Sunnymead note as the debt, with an original balloon payment due in the year 2000, is currently in default. Effective March 1, 1996, the Partnership ceased making debt service payments on the Sunnymead property and will not make such payments in the future. Consequently, the Partnership expects that the property will be foreclosed upon. The Partnership recorded a $2,900,000 provision for impairment of value in 1995 (see "Note F"). Upon foreclosure the Partnership would recognize an extraordinary gain on the extinguishment of debt for financial reporting purposes. NOTE J - MINIMUM FUTURE RENTAL REVENUES Minimum future rental revenues from operating leases having non-cancelable lease terms in excess of one year at December 31, 1996, are as follows (in thousands): 1997 $ 6,435 1998 5,520 1999 4,112 2000 2,894 2001 2,112 Thereafter 7,553 Total $ 28,626 Future minimum rental payments related to Sunnymead are not included since the property is in receivership and will likely be foreclosed upon in 1997 (see "Note M" for a further discussion). Amortization of deferred leasing commissions totaled $252,000, $254,000, and $224,000 for 1996, 1995, and 1994, respectively, and are included in operating expenses. NOTE K - INCOME TAXES A reconciliation of the net loss per the financial statements to the net taxable loss to partners is as follows (in thousands, except unit data): 1996 1995 1994 Net loss as reported $ (3,681) $ (7,158)$ (8,517) Add (deduct): Provision for impairment of value -- 2,900 4,500 Provision for doubtful mortgage loans and interest receivable -- -- 1,250 Loss on satisfaction of mortgage receivable -- 978 -- Original issue discount (936) (641) 740 Deferred income (453) (425) 791 Depreciation differences (393) (295) (122) Long-term capital loss -- (7,980) -- Bad debt expense 236 -- (62) Interest expense capitalized 4 52 21 Minority interest in joint ventures' operations 24 181 (1,815) Interest accrual (114) (118) (105) Federal taxable loss $ (5,313) $ (12,506)$ (3,319) Federal taxable loss per limited partnership unit $ (54) $ (128)$ (34) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): 1996 1995 1994 Net liabilities as reported $ (23,392) $ (19,668) $ (12,467) Differences resulted from: Sales commissions and organization expenses 6,558 6,558 6,558 Original issue discount 4,101 5,037 5,786 Provision for doubtful mortgage loans interest receivable -- -- 4,999 Provision for impairment of value 9,991 9,991 7,091 Deferred income (53) 400 825 Acquisition costs expensed (21) (21) (21) Depreciation (3,047) (2,654) (2,359) Payments credited to rental properties 2,111 2,111 2,111 Foreclosure of mortgage loan receivable -- -- 1,895 Minority interest in joint ventures' operations(3,509) (3,533) (3,714) Capitalized expense 486 486 486 Interest expense capitalized 202 198 146 Bad debt expense 290 54 54 Interest accrual 674 788 906 Other 485 485 485 Net (liabilities) assets-Federal tax basis $ (5,124) $ 232 $ 12,781 NOTE L - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (IN THOUSANDS)
Initial Cost to Partnership Net Cost Building and Capitalized Related (written down) Encumbrances Personal Subsequent to Description (1) Land Property Acquisition PARTNERSHIP: Commerce Plaza $ -- $ 1,604 $ 4,188 $ 724 Regency Centre -- 3,123 10,398 772 Highland Park - Phase II -- 654 4,849 296 Interrich Plaza -- 587 1,833 359 Centre Stage Shopping -- 1,300 6,588 407 Center The Enclaves Apartments 6,856 1,901 7,603 997 Medtronics -- 345 1,381 25 Sunnymead Towne Center 10,100 2,512 7,452 (2,646) JOINT VENTURES: Coral Palm Plaza -- 5,009 11,046 (6,529) Alpha Business Center -- 3,199 6,735 485 Plymouth Service Center -- 475 2,306 (39) Westpoint Business Center -- 1,166 5,987 245 Total $ 16,956 $ 21,875 $ 70,366 $ (4,904) (1) The Non-Recourse Promissory notes are secured by a deed of trust on all properties owned in fee by the Partnership and by a security interest in the joint venture interests held by the Partnership.
Gross Amount at which carried at December 31, 1996 Buildings and Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years PARTNERSHIP: Commerce Plaza $ 1,604 $ 4,912 $ 6,516 $ 1,693 3/86 5-39 years Regency Centre 3,111 11,182 14,293 3,951 5/86 5-39 years Highland Park - Phase II 619 5,180 5,799 1,859 9/86 5-39 years Interrich Plaza 587 2,192 2,779 625 4/88 5-39 years Centre Stage Shopping Center 1,300 6,995 8,295 1,702 1/90 5-39 years The Enclaves Apartments 1,901 8,600 10,501 1,655 4/91 5-39 years Medtronics 345 1,406 1,751 72 4/95 5-39 years Sunnymead Towne Center 1,781 5,537 7,318 1,555 3/91 5-39 years JOINT VENTURES: Coral Palm Plaza 2,393 7,133 9,526 3,297 1/87 5-39 years Alpha Business Center 3,002 7,417 10,419 2,448 5/87 5-39 years Plymouth Service Center 420 2,322 2,742 712 5/87 5-39 years Westpoint Business Center 1 ,102 6,296 7,398 2,035 5/87 5-39 years Total $ 18,165 $ 69,172 $ 87,337 $ 21,604
Reconciliation of "Investment Properties and Accumulated Depreciation": Years Ended December 31, 1996 1995 1994 Investment Properties Balance at beginning of year $ 86,512 $ 88,807 $ 92,290 Property improvements 825 864 1,017 Property acquired through deed in lieu of foreclosure of mortgage loan receivable -- 1,726 -- Provision for impairment of value -- (2,900) (4,500) Satisfaction of mortgage receivable on property classified as in-substance foreclosure property -- (1,985) -- Balance at end of year $ 87,337 $ 86,512 $ 88,807 Accumulated Depreciation Balance at beginning of year $ 19,094 $ 16,529 $ 13,847 Additions charged to expense 2,510 2,565 2,682 Balance at end of year $ 21,604 $ 19,094 $ 16,529 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1996 and 1995, is $101,522,000 and $100,693,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 and 1995, is $24,650,000 and $21,747,000. NOTE M - SUNNYMEAD TOWNE SHOPPING CENTER The Sunnymead Towne Shopping Center located in Moreno Valley, California, had a significant tenant, which occupied 98,000 square feet, vacate in 1995. During February 1996, another major tenant vacated 11,000 square feet, leaving the property approximately 25% physically occupied. Effective March 1, 1996, the Partnership ceased making debt service payments and does not intend to make any future payments as the value of Sunnymead is estimated at less than the debt. At December 31, 1996, the note had a principal balance of $10,100,000 with accrued interest of approximately $1,366,000. The lender has notified the Partnership of its intent to foreclose on the property. The Managing General Partner does not plan to challenge the foreclosure proceedings which are expected to be concluded during 1997. The Partnership estimates that upon the foreclosure of Sunnymead the Partnership will record an extraordinary gain on extinguishment of debt. The property was placed in receivership on May 1, 1996. In 1995, a $2,900,000 provision for impairment of value was recorded on the Sunnymead property. The Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, the decline in value was other than temporary and recovery of the carrying value was not likely. Accordingly, the property's carrying value was reduced to an amount equal to its estimated fair value. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with Imowitz Koenig & Co., LLP regarding the 1996 or 1995 audits of the Partnership's financial statements. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership does not have any officers or directors. The managing general partner of the Partnership, Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. The names of the directors and executive officers of the Managing General Partner as of December 31, 1996, their ages and nature of all positions with FCMC presently held by them are as follows: Name Age Position William H. Jarrard, Jr. 50 President and Director Ronald Uretta 41 Vice President and Treasurer John K. Lines 37 Vice President and Secretary Kelley M. Buechler 39 Assistant Secretary William H. Jarrard, Jr. has been President and Director of the Managing General Partner since June 1996 and Managing Director - Partnership Administration of Insignia Financial Group, Inc. ("Insignia") since January 1991. Mr. Jarrard served as Managing Director-Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Vice President and Treasurer of the Managing General Partner since June 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has served as Insignia's Chief Operating Officer. He also served as Insignia's Secretary from January 1992 to June 1994 and as Chief Financial Officer from January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as the Chief Financial Officer and Controller of Metropolitan Asset Group. John K. Lines has been Vice President and Secretary of the Managing General Partner since June 1996, Insignia's General Counsel since June 1994, and General Counsel and Secretary since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation, West Palm Beach, Florida. From October 1991 until May 1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was an attorney with Squire Sanders & Dempsey, Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of the Managing General Partner since June 1996 and Assistant Secretary of Insignia since 1991. ITEM 11. EXECUTIVE COMPENSATION No direct form of compensation or remuneration was paid by the Partnership to any officer or director of the Managing General Partner. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. However, reimbursements and other payments have been made to the Partnership's Managing General Partner and its affiliates, as described in "Item 13". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Partnership is a limited partnership and has no officers or directors. The Managing General Partner has discretionary control over most of the decisions made by or for the Partnership in accordance with the terms of the Partnership Agreement. The directors and officers of the Managing General Partner and its affiliates, as a group do not own any of the Partnership voting securities. There is no person known to the Partnership who owns beneficially or of record more than five percent of the voting securities of the Partnership. There are no arrangements known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No transactions have occurred between the Partnership and any officer or director of the Managing General Partner. 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 payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Pursuant to a series of transactions which closed during the first half of 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI Equity is a wholly-owned subsidiary of National Property Investors, Inc. ("NPI"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and FCMC. The following transactions with affiliates of Insignia, NPI, and affiliates of NPI were incurred in 1996, 1995 and 1994: 1996 1995 1994 Property management fees (included in operating expense) $ 140 $ 104 $ 81 Reimbursement for services of affiliates (included in general and administrative and operating expenses) 184 96 95 Services relating to successful real estate tax appeals (included in operating expenses) -- 88 10 Partnership management fee (included in general and administrative expenses) 111 111 111 $ 435 $ 399 $ 297 Affiliates of the Managing General Partner performed property management services for The Enclaves during 1994, 1995 and 1996. Effective May 1, 1996, an affiliate of Insignia began performing property management services for Coral Palm Plaza. For the period from January 19, 1996, to December 31, 1996, the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. Approximately $74,000 of insurance premiums, which were paid to an affiliate of NPI, under a master insurance policy arranged for by such affiliate, are included in operating expenses for the year ended December 31, 1995. In accordance with the partnership agreement, the general partner was allocated its two percent continuing interest in the Partnership's net loss and taxable loss. 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. In each of the years ended December 31, 1996, 1995 and 1994, the general partner received $43,000 of cash distributions, which were equal to 2 percent of cash distributions to Promissory Note holders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)(2) Consolidated Financial Statements and Consolidated Financial Statement Schedules: See "Item 8" of the Form 10-K for Consolidated Financial Statements of the Partnership, Notes thereto, and Consolidated Financial Statement Schedules. (A Table of Contents to Consolidated Financial Statements and Consolidated Financial Statement Schedules is included in "Item 8" and incorporated herein by reference.) (a) (3) Exhibits: See Exhibit Index contained herein (b) Reports on Form 8-K: None filed during the fourth quarter of 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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/ William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director Date: March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/William H. Jarrard, Jr. President and March 27, 1997 William H. Jarrard Director /s/Ronald Uretta Vice President and March 27, 1997 Ronald Uretta Treasurer Exhibit Index 2. NPI Stock Purchase Agreement, dated as of August 17, 1995, incorporated by reference to the Partnership's Current Report on Form 8-K dated August 17, 1995. 3.4. Agreement of Limited Partnership incorporated by reference to Exhibit A to the Prospectus of the Partnership dated July 1, 1985, and thereafter supplemented contained in the Partnership's Registration Statement on Form S-11 (Reg. No 2-96389) 16. Letter from the Partnership's former Independent Auditor dated April 27, 1994, incorporated by reference to exhibit 10 to the Partnership's Current Report on Form 8-K dated April 22, 1994. 27. Financial Data Schedule EX-27 2
5 This schedule contains summary financial information extracted from Century Pension Income Fund XXIII 1996 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000764543 CENTURY PENSION INCOME FUND XXIII 1,000 12-MOS DEC-31-1996 DEC-31-1996 8,289 0 0 0 0 0 87,337 21,604 78,893 0 41,939 0 0 0 (23,392) 78,893 0 12,282 0 0 15,540 0 6,607 0 0 0 0 0 0 (3,681) (37.66) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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