-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n0LAYgsUJKa+v3SgqgyGmaXfJ+RO442a1PWLaSaPm3oNIhOs0jJYPZJrAVMBYD8u qkAWodIVFLK6wJx0G1V4Fg== 0000765506-94-000007.txt : 19940517 0000765506-94-000007.hdr.sgml : 19940517 ACCESSION NUMBER: 0000765506-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA SEVEN ASSOCIATES LTD PARTNERSHIP CENTRAL INDEX KEY: 0000765506 STANDARD INDUSTRIAL CLASSIFICATION: 6513 IRS NUMBER: 942970056 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14581 FILM NUMBER: 94528565 BUSINESS ADDRESS: STREET 1: 900 COTTAGE GROVE RD STREET 2: SOUTH BLDG CITY: BLOOMFIELD STATE: CT ZIP: 06002 BUSINESS PHONE: 2037266000 MAIL ADDRESS: STREET 1: 900 COTTAGE GROVE RD STREET 2: SOUTH BUILDING CITY: BLOOMFIEELD STATE: CT ZIP: 06002 10-Q 1 CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 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 0-14581 California Seven Associates Limited Partnership, a California Limited Partnership (Exact name of registrant as specified in its charter) California 94-2970056 (State of Organization) (I.R.S. Employer Identification No.) 900 Cottage Grove Road, South Building Bloomfield, Connecticut 06002 (Address of principal executive offices) Telephone Number: (203) 726-6000 Indicate by checkmark 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 California Seven Associates Limited Partnership, a California Limited Partnership Balance Sheets
March 31, December 31, 1994 1993 Assets (Unaudited) (Audited) Property and improvements, at cost: Land and land improvements $ 20,562,073 $ 20,562,073 Buildings 109,662,095 109,659,882 Furniture and fixtures 12,942,010 12,925,199 Machinery and equipment 690,956 681,295 143,857,134 143,828,449 Less accumulated depreciation 44,967,141 43,907,921 Net property and improvements 98,889,993 99,920,528 Cash and cash equivalents 944,684 1,440,476 Accounts receivable 352,989 388,172 Prepaid expenses 144,956 792 Other assets 152,703 19,040 Total $ 100,485,325 $ 101,769,008
Liabilities and Partners' Deficit Liabilities: Note and mortgages payable $ 111,983,903 $ 111,983,903 Accrued interest payable 2,065,568 1,600,118 Accounts payable and accrued expenses 687,743 446,318 Tenant security deposits 400,509 472,865 Unearned income 190,376 303,995 Deferred management fees 2,000,000 2,000,000 Fees and reimbursements payable to the General Partner and its affiliates 3,930,683 3,848,505 Other liabilities 42,877 33,957 Total liabilities 121,301,659 120,689,661 Partners' deficit: General Partner (751,411) (732,454) Limited partners (362 Class A Units and 3 Class B Units): (20,064,923) (18,188,199) Total partners' deficit (20,816,334) (18,920,653) Total $ 100,485,325 $ 101,769,008 The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership Statements of Operations For the Three Months Ended March 31, 1994 and 1993 (Unaudited)
1994 1993 Property operating revenues: Rental income $ 3,672,098 $ 4,308,080 Other 141,259 179,199 3,813,357 4,487,279 Operating expenses: Maintenance and repairs, furniture rental, insurance, and other property operations 714,316 862,543 Real estate taxes 350,730 369,209 Management fees 143,185 134,468 Property administrative 711,877 958,868 1,920,108 2,325,088 Net property revenue 1,893,249 2,162,191 Other operating costs and expenses: Depreciation and amortization 1,059,220 1,113,465 Management and administrative fees to affiliates 75,634 81,508 Partnership administrative 43,443 26,288 1,178,297 1,221,261 Net partnership operating income 714,952 940,930 Interest income 4,817 16,122 Interest expense (2,615,450) (2,615,450) Net loss $ (1,895,681) $ (1,658,398) Net loss: General Partner $ (18,957) $ (16,584) Limited partners (1,876,724) (1,641,814) $ (1,895,681) $ (1,658,398) Net loss per Class A Unit $ (5,184) $ (4,535) The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership Statements of Cash Flows For the Three Months Ended March 31, 1994 and 1993 (Unaudited)
1994 1993 Cash flows from operating activities: Net loss $ (1,895,681) $ (1,658,398) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,059,220 1,113,465 Accounts receivable 35,183 (83,553) Accrued interest payable 465,450 738,667 Accounts payable and accrued expenses 241,425 (64,962) Fees and reimbursements payable to the General Partner and its affiliates 82,178 87,914 Other, net (454,882) (249,035) Net cash used in operating activities (467,107) (115,902) Cash flows from investing activities: Purchase of property and improvements (28,685) (102,236) Net decrease in cash and cash equivalents (495,792) (218,138) Cash and cash equivalents, beginning of year 1,440,476 2,268,544 Cash and cash equivalents, end of period $ 944,684 $ 2,050,406 Supplemental disclosure of cash information: Interest paid during period $ 2,150,000 $ 1,876,783 The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership Notes to Financial Statements (Unaudited) Readers of this quarterly report should refer to the audited financial statements for California Seven Associates Limited Partnership, a California Limited Partnership ("the Partnership"), for the year ended December 31, 1993 which are included in the Partnership's 1993 Annual Report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. 1. Basis of Accounting a) Basis of Presentation: The accompanying financial statements were prepared in accordance with generally accepted accounting principles. It is the opinion of management that the financial statements presented reflect all the adjustments necessary for a fair presentation of the financial condition and results of operations. b) Cash and Cash Equivalents: Short-term investments with a maturity of three months or less at the time of purchase are reported as cash equivalents. c) Other Assets: Included in other assets is approximately $120,000 of costs incurred at the Sherman Oaks property relating to the January 1994 Southern California earthquake. These costs are part of a pending claim with the Partnership's property insurance carrier. 2. Property and Improvements and Note and Mortgages Payable At March 31, 1994 the Partnership owned six properties located in California totaling 2,135 units with leases generally for a term of one year or less. All properties are pledged as security for the long-term debt. The Partnership is currently in default on its second mortgage loan obligation and could lose its investment in property and improvements through foreclosure. The balance of the second mortgage note at March 31, 1994 was $14,000,000 plus $886,900 of accrued and unpaid interest. Although the second mortgage holder has acknowledged the default, the Partnership has not received a notice of acceleration. The Sherman Oaks property sustained extensive damage from the January 17, 1994 Southern California earthquake. The property was "red-tagged" by city inspectors which means that the property is unsafe for use. It is currently unoccupied. The Partnership's properties are covered by insurance, including earthquake (5% deductible) and business interruption. The Partnership is working with the insurance company, the first mortgage lender and the appropriate hired professionals to complete surveys and cost estimates. Estimates are expected for both the cost to repair/rebuild and to replace. The first mortgage lender has discretion as to the decision to rebuild or apply the proceeds to reduce the outstanding debt obligation. The carrying value of the Sherman Oaks property at March 31, 1994 was $17,498,496. The financial statements do not include any adjustments for possible losses resulting from the earthquake. California Seven Associates Limited Partnership, a California Limited Partnership Notes to Financial Statements - Continued (Unaudited) 3. Transactions with Affiliates Fees and other expenses required to be paid by the Partnership to the General Partner or its affiliates are as follows: Three Months Ended Unpaid at March 31, March 31, 1994 1993 1994 Interest on assignment note $ 22,000 $ 22,000 $ 462,001 Asset management fee 38,134 44,008 2,357,179 Administration and management fee -- -- 260,050 General partner's salary 37,500 37,500 787,500 Real Estate Advisory fee -- -- 518,750 Reimbursement (at cost) for out of pocket expenses 6,545 7,289 7,204 $ 104,179 $ 110,797 $4,392,684 4. Litigation In California Seven Associates, Limited Partnership , et al v. SBD Group, Inc., et al [Case no. 716034 (Superior Court of the State of California, Orange County)] Plaintiff continues to seek payment of $154,194.58 plus interest and fees from Defendant. The lawsuit stems from Defendants' refusal to forward rental payments which accrued while Plaintiff owned the property (Torrance Oakwood 20900 Anza, City of Torrance). A Mandatory Settlement Conference, followed by a jury trial has been set for July. Plaintiff intends to file a motion for Summary Judgement prior to the trial date. Plaintiffs in a suit brought against the Partnership and its General Partner [Theodore D. Cohen, et al v. California Seven Associates, et al., No. 657925 (Orange County, CA, May 16, 1991)] are class members in a federal court action in Chicago [In re VMS Securities Litigation, No. 90C2412, N.D. Ill.]. On July 20, 1993 defendants filed a motion requesting that The California suit be permanently enjoined on the grounds that the settlement of the VMS class actions released plaintiff's claims. The likelihood of an unfavorable outcome or the extent of any possible liability cannot be assessed at this time. 5. Subsequent Event On April 29, 1994, the Partnership received a partial advance of $750,000 from the insurance company relative to the business interruption coverage on the earthquake damaged Sherman Oaks property. California Seven Associates Limited Partnership, a California Limited Partnership Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources At March 31, 1994, the Partnership had $944,684 in cash and cash equivalents which is to be used for working capital and for payment of accrued liabilities. The Partnership's accrued liabilities at March 31, 1994 include the April 4, 1994 first mortgage debt service payment of $716,667 and tenant security deposits of $400,000. On April 4, 1994, the Partnership made the monthly first mortgage payment and on April 10, 1994, the Partnership paid the second installment of property taxes for the fiscal year July 1993 to June 1994 of approximately $584,265. (As allowed by law, the Partnership has been able to defer payment of real estate taxes for the earthquake damaged property, Sherman Oaks.) The Partnership collected sufficient rents in April to fund the property tax payments due as well as payment of monthly recurring operating expenses. On April 29, 1994, the Partnership received a $750,000 advance from the insurance company on the earthquake damaged property's business interruption policy. On May 2, 1994, the Partnership made the monthly first mortgage debt service payment of $716,667. The Partnership's cash flow from operations after debt service and capital improvements has been in a continual deficit position. As a result of cash flow deficits and the lack of investor equity, the Partnership began withholding payment of debt service on its second mortgage beginning November 1, 1993 and remains in default at March 31, 1994. The Partnership intends to limit capital expenditures to those needed for safety and structural integrity. Any additional capital expenditures will be limited to those which can be funded from property operations after first mortgage debt service. The General Partner has estimated 1994 operations to be sufficient to cover first mortgage debt service and necessary capital expenditures, exclusive of Sherman Oaks normal property operations, but inclusive of collections representing reimbursement for loss of operations (net operating income) from business interruption insurance. Dependant on the timing of the insurance reimbursement, the General Partner may have to take further steps to preserve the Partnership's cash. The Partnership continues to face increasing risk of losing the properties through foreclosure as the second mortgage remains in default and the General Partner takes steps to maintain the precariously low level of Partnership reserves. Even if an agreement is reached with the second mortgage leader to remedy the default, the uncertainty surrounding the earthquake and satisfaction of the requirements of the first mortgage remain unresolved. As decisions are made to repair/rebuild or apply insurance proceeds to the outstanding first mortgage obligation, cash flow and Partnership reserves will be impacted. At the present time, the Partnership's reserves will not allow funding of the 5% deductible needed to rebuild, possibly subjecting the properties to foreclosure. If the insurance proceeds are applied to the outstanding balance of the first mortgage, the remaining five operating properties may be unable to generate sufficient cash flow to service the remaining first mortgage obligation. The amount of insurance proceeds that will be available and the first mortgage lender's decision as to the application of the proceeds are unknown at this time. The General Partner will continue to pursue alternatives to restructure and extend the mortgage debt. Regardless of how future events transpire, it is unlikely that any debt restructuring or market improvement will be sufficient to materially improve the outlook for limited partners. Under any potential scenario, the likelihood of any cash being available for investors at wrap- up is doubtful. California Seven Associates Limited Partnership, a California Limited Partnership Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations The Sherman Oaks property sustained extensive damage from the Southern California earthquake on January 17, 1994, following which the property was evacuated and city inspectors classified the property as unsafe for use. As a result, the property has generated little revenue for the first quarter and has had a substantial decrease in operating expenses. Results for the three months ended March 31, 1994, as compared with the same period in 1993, were as follows: rental income decreased approximately $778,000, other income decreased approximately $18,000, property operating expenses decreased approximately $119,000 and property administrative expenses decreased approximately $134,000. The following analytical comments have been limited to the Partnership's five other properties for the first three months year over year. The weakness in the Southern California economy and increased competition, both of which have had an adverse impact on occupancy and, subsequently, rental rates, have combined to support the Partnership's decision to convert a number of the properties to conventional apartments, unfurnish more units at the remaining OAKWOOD properties, and to switch to an effective rent strategy to maintain occupancy and market share. The strategies appeared to have worked in 1993; occupancy percentages were restored and stabilized and rental rates began to pick back up slightly. Results have improved considerably for the first quarter of 1994. Exclusive of the Sherman Oaks property, net property revenues (property level revenues less property level operating expenses) have increased to $2,097,000, a 15% increase from 1993's first quarter result of $1,821,000 and a 22% increase from 1993's fourth quarter result of $1,720,000. Effective January 1, 1994, Mission Bay East converted from OAKWOOD operations to conventional apartment operations. Although the property ended the quarter with a drop in occupancy percentage, average occupancy for the quarter included some leftover corporate rentals which, combined with expense savings from the conversion, helped boost net property revenue for the first quarter 1994 by 12% compared to the first quarter of 1993 and 16% compared to the fourth quarter of 1993. The Partnership currently has one remaining property operating as an OAKWOOD. The West Los Angeles OAKWOOD posted a 42% increase in net property revenue compared to the first quarter of 1993 and a 17% increase compared to the fourth quarter of 1993. Increases are attributable to increased average occupancy percentages, less discounting on corporate rental rates and lower expenses, including a drop in repairs and maintenance and worker compensation insurance. At the property's other conventionally run apartment properties, Arbor Park, Amberway and Pacifica Club, results have improved from a combination of increased revenues and decreased expenses. Arbor Park's results were flat compared to the first quarter of 1993 but were up 123% from the fourth quarter 1993 as a result of large drop non-routine maintenance coupled with other expense savings. Amberway's net property revenue was up 4% and 15% for the first quarter of 1994 compared with the first and fourth quarters of 1993, respectively. The first quarter of 1993 includes a $38,000 non- recurring laundry contract fee. Generally revenue decreases from a continued softening in the market were more than offset by drops in maintenance and repair accounts. Pacifica Club's net property revenue increased 14% and 10% for the first quarter 1994 when compared with the first and fourth quarters of 1993, respectively. When comparing first quarter 1994 to 1993, the increase is attributable to increase in average occupancy percentages. For the comparison to the previous quarter, fourth quarter of 1993, the increase is attributable to savings in expenses such as repair and maintenance and payroll related costs. California Seven Associates Limited Partnership a Califorinia Limited Partnership Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Average occupancy at West Los Angeles for the three months ended March 31, 1994 was 91%, as compared with 88% for the same period in 1993. The increase in average occupancy coupled with less corporate rate discounting increased rental income approximately $64,000 for the three months ended March 31, 1994, as compared with the same period in 1993. At Mission Bay East, leftover corporate business contributed approximately $40,000 to the increase in rental income and rental income at Pacifica Club increased approximately $40,000 as the result of higher average occupancy. The other income decrease for the three months ended March 31, 1994, as compared with the same period in 1993, was due to redecorating fees received from a new laundry contract at Amberway in the first quarter of 1993. The decrease in property operating expenses for the three months ended March 31, 1994, as compared with the same period in 1993, was due to a $32,000 and a $52,000 decrease in repair and maintenance expenses in the first quarter of 1994 at West Los Angeles and Amberway as a result of damage incurred from the heavy rains in Southern California in early 1993. Also, a painting project was in progress at Amberway during the first quarter of 1993. These decreases were partially offset by an $18,000 and a $12,000 increase in non-routine maintenance expense at Mission Bay East and Pacifica Club, respectively, related to carpet replacements and other repairs. Mission Bay East had a $20,000 increase to utilities as a result of lower reimbursements for various utilities from corporate tenants. As the property converts to conventional operations from OAKWOOD, utilities will increase as the Partnership is not allowed to charge back certain utilities to its non-corporate tenants. West Los Angeles posted a $5,000 increase to furniture rental to accommodate leasing activity. Property taxes are down for the three months ended March 31, 1994, as compared with 1993, due to decreased assessments at Mission Bay East and Pacifica Club. The decrease in property administrative expense for the three months ended March 31, 1994, as compared with the same period in 1993, was the result of a reduction of OAKWOOD related costs at Mission Bay East as the result of the conversion from OAKWOOD operations to conventional operations. The property saved $40,000 in payroll related direct and indirect costs. Although conventional type advertising increased with the conversion, OAKWOOD related advertising dropped, for a net decrease of $9,000. West Los Angeles and Pacifica Club experienced significant savings in payroll related costs; $32,000 and $8,000, respectively. West Los Angeles saved approximately $20,000 of the $32,000 on workers compensation insurance. The decrease in interest income for the three months ended March 31, 1994, as compared with the same period in 1993, was due to the decrease in the average cash balance invested as a result of cash flow deficits. Amortization decreased for the three months ended March 31, 1994, as compared with 1993, due to deferred loan costs becoming fully amortized during 1993. Offsetting the decrease partially was an increase in depreciation from major additions in 1992 and 1993. California Seven Associates Limited Partnership, a California Limited Partnership Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Occupancy The following is a listing of approximate occupancy levels by quarter for the Partnership's investment properties during 1994 and 1993:
1993 1994 At 3/31 At 6/30 At 9/30 At 12/31 At 3/31 The Anaheim Property 91% 96% 94% 91% 83% The Huntington Beach Property 91% 86% 94% 96% 95% The West Los Angeles Property 85% 93% 92% 83% 87% The San Diego Property 86% 92% 86% 97% 84% The Sherman Oaks Property (a) 87% 88% 88% 84% N/A The Upland Property 92% 90% 91% 91% 91% (a) The property was severely damaged by the January 17, 1994 Southern California earthquake. The property was evacuated and considered unsafe for use. Therefore, occupancy is not applicable for 1994.
Part II - Other Information Item 1. Legal Proceedings The information included in the "Notes to Financial Statements, Note 4. Litigation" on page 6 of the Partnership's March 31, 1994 Financial Statements, is incorporated by reference. Item 3. Defaults by the Partnership on its Senior Securities The information included in the "Notes to Financial Statements, Note 2. Property and Improvements and Note and Mortgages Payable" on page 5 of the Partnership's March 31, 1994 Financial Statements is incorporated by reference. Item 6. Exhibits and Reports on Form 8-K (b) No Form 8-Ks were filed during the three months ended March 31, 1994. 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. California Seven Associates Limited Partnership, a California Limited Partnership By: CIGNA Realty Resources, Inc. - Seventh, General Partner Date: May 15, 1994 By: /s/ John D. Carey John D. Carey, President and Controller (Principal Executive Officer) (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----