-----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, HhOLR5Lxd42z/9ja8OHrum2cuu18AkdmMzywqAkfTf5S0hAb0zhL2ygD/Y/JWQjp q8Nb8TDUeaITe7EqbxOPzw== 0000765506-95-000006.txt : 19951108 0000765506-95-000006.hdr.sgml : 19951108 ACCESSION NUMBER: 0000765506-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951107 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA SEVEN ASSOCIATES LTD PARTNERSHIP CENTRAL INDEX KEY: 0000765506 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [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: 95587739 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 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 check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No Part I - Financial Information
California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Balance Sheets September 30, December 31, 1995 1994 Assets (Unaudited) (Audited) Property and improvements, at cost: Land and land improvements $20,563,613 $20,562,073 Buildings 110,155,335 109,890,874 Furniture and fixtures 13,134,944 13,030,382 Machinery and equipment 808,548 765,087 144,662,440 144,248,416 Less accumulated depreciation 51,275,658 48,128,827 Net property and improvements 93,386,782 96,119,589 Cash and cash equivalents 3,146,767 1,191,015 Partial cash settlement - earthquake insurance 9,337,772 -- Accounts receivable 202,274 488,885 Prepaid expenses and other assets 86,449 599,166 Total $106,160,044 $98,398,655 Liabilities and Partners' Deficit Liabilities: Liabilities not subject to compromise: Accounts payable and accrued expenses $752,120 $357,719 Tenant security deposits 503,529 472,898 Unearned income 59,057 79,046 Earthquake insurance - partial settlement unapplied 9,250,000 -- 10,564,706 909,663 Postpetition liabilities subject to compromise: Fees and reimbursements payable to the General Partner and its affiliates 400,633 102,832 Prepetition liabilities subject to compromise: Note and mortgages payable 111,983,903 111,983,903 Accrued interest payable 2,560,559 2,560,559 Accounts payable and accrued expenses 877,395 923,957 Fees and reimbursements payable to the general partner and its affiliates 4,078,563 4,078,563 119,500,420 119,546,982 Total liabilities 130,465,759 120,559,477 Partners' deficit: General Partner (786,295) (764,846) Limited partners (362 Class A Units and 3 Class B Units): (23,519,420) (21,395,976) Total partners' deficit (24,305,715) (22,160,822) Total $106,160,044 $98,398,655 The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 Property operating revenues: Rental income $3,626,104 $3,453,951 $10,740,399 $10,494,327 Other 116,181 134,495 347,301 392,773 3,742,285 3,588,446 11,087,700 10,887,100 Property operating expenses: Maintenance and repairs, furniture rental, insurance, and other property operations 722,816 672,782 2,186,070 2,128,261 Real estate taxes 274,442 304,901 777,189 999,417 Management fees 125,701 128,676 381,294 410,366 Property administrative 710,755 688,427 2,096,833 2,041,655 1,833,714 1,794,786 5,441,386 5,579,699 Net property revenue 1,908,571 1,793,660 5,646,314 5,307,401 Other operating costs and expenses: Depreciation 1,044,025 1,060,874 3,146,831 3,176,392 Management and administrative fees to affiliates 74,907 65,635 223,191 220,731 Partnership administrative 19,866 27,808 62,582 110,381 Net cost (recovery) on business interruption insurance 55,658 88,877 180,897 (376,592) 1,194,456 1,243,194 3,613,501 3,130,912 Net partnership operating income 714,115 550,466 2,032,813 2,176,489 Interest income 11,851 5,340 32,702 13,533 Interest expense (contractual interest of $2,615,450 and $7,846,350 for the three and nine months ended September 30, 1995, respectively) (1,874,229)(2,179,542) (4,167,547) (7,410,442) Net loss before reorganization items (1,148,263)(1,623,736) (2,102,032) (5,220,420) Reorganization items: Interest income 9,347 -- 111,120 -- United States Trustee fees (5,000) (800) (15,000) (800) Professional fees (51,881) (354,397) (138,981) (354,397) Net loss $(1,195,797) $(1,978,933) $(2,144,893) $(5,575,617) Net loss: General Partner $(11,958) $ (19,789) $(21,449) $(55,756) Limited partners (1,183,839) (1,959,144) (2,123,444) (5,519,861) $(1,195,797) $(1,978,933) $(2,144,893)$(5,575,617) Net loss per Class A Unit: $(3,270) $(5,412) $(5,866) $ (15,248) The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Statements of Cash Flows For the Nine Months Ended September 30, 1995 and 1994 (Unaudited) 1995 1994 Cash flows from operating activities: Net loss $(2,144,893) $(5,575,617) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 3,146,831 3,176,392 Accounts receivable 286,611 23,663 Accounts payable and accrued expenses 376,225 933,274 Other, net 435,587 916,411 Liabilities subject to compromise 251,239 -- Net cash provided by (used in) operating activities 2,351,600 (525,877) Cash flows from investing activities: Purchase of property and improvements (394,884) (192,520) Cash flows from financing activities: Cash distribution to limited partners (964) (2,343) Net increase (decrease) in cash and cash equivalents 1,955,752 (720,740) Cash and cash equivalents, beginning of year 1,191,015 1,440,476 Cash and cash equivalents, end of period $3,146,767 $719,736 Supplemental disclosure of cash information: Accrued purchase of property and improvements $19,140 $-- Interest paid during period $4,167,547 $6,450,001 Fees paid in connection with reorganization $105,415 $ 355,197 The Notes to Financial Statements are an integral part of these statements.
California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) 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, 1994 which are included in the Partnership's 1994 Annual Report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. 1. Organization and Basis of Accounting a) Organization: On September 16, 1994, the Partnership filed a voluntary petition for bankruptcy protection under Chapter 11 of Title 11, United States Code. The Partnership's Chapter 11 bankruptcy reorganization case is currently pending in the United States Bankruptcy Court for the Central District of California. The Partnership's goal is to maximize recovery by creditors and partners by preserving the Partnership as a viable entity with a going concern value. The financial statements do not include any adjustments relating to the recoverability of reported asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty. b) 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. Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation. c) 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. At September 30, 1995 the Partnership had cash and cash equivalents classified as cash collateral used in the operations of the properties and payment to the first mortgage lender totalling $813,252. In addition, at September 30, 1995, cash and cash equivalents include amounts the Partnership is required to maintain in segregated cash collateral accounts for security deposits, taxes and insurance, and the Sherman Oaks deductible. The balances of these accounts at September 30, 1995 were $488,105, $1,089,733 and $505,692, respectively. The Partnership had unencumbered cash and cash equivalents at September 30, 1995 of $249,985. 2. Petition for Relief Under Chapter 11 On September 16, 1994, the Partnership filed a petition for relief under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Central District of California. Under Chapter 11, payment of certain claims by the Debtor in existence prior to the filing of the petitions for relief under the Federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor in Possession. These claims are reflected in the accompanying balance sheets as prepetition liabilities. Additional claims may arise subsequent to the filing date resulting from the rejection of executory contracts and from the determination by the Court of allowed claims for contingencies and other disputed amounts. Claims secured against the Partnership's assets are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured by liens on the Partnership's property and improvements. On September 22, 1994, the Partnership entered into a Letter Agreement with the first mortgage lender which defines and authorizes the use of cash collateral. The Partnership was granted use of collateral pursuant to the Letter Agreement until November 30, 1995. All excess cash flow from property operations after payment of property operating expenses, allowed capital expenditures, and funding of agreed upon segregated cash collateral accounts, is remitted to the first mortgage lender monthly. As part of the Partnership's Motion for Use of Cash Collateral, the Partnership requested all use of property that may be cash collateral in the form of rental revenues and insurance proceeds to repair the Sherman Oaks property. On February 1, 1995, the Court held a hearing on the use of cash collateral to repair Sherman Oaks and denied the Partnership's Motion without prejudice after determining that the issue should be decided in the context of the confirmation of the Partnership's plan of reorganization. On or about December 6, 1994, the first mortgage lender commenced a declaratory action against the Partnership, claiming that the second lien holder is an insider as defined under 11 U.S.C. Sec. 101. The Partnership filed an answer to the Complaint denying that the second lien holder is an insider as that term is defined in the Bankruptcy Code. A status hearing was held on February 21, 1995 which resulted in a discovery deadline and continued status hearing date of May 22, 1995. A continued hearing is pending with the Court. On or about January 30, 1995, the first mortgage lender filed a Motion for Relief from the Automatic Stay. The Partnership filed an Opposition to the Motion. At the hearing held on February 21, 1995, the court set April 18, 1995 as the final evidentiary hearing. After hearing arguments and representations of counsel, the Court continued the hearing to July 12, 1995 and then to August 9, 1995. At the Continued Confirmation Hearing on August 9, 1995, the Court allowed The Travelers Insurance Company limited relief from the automatic stay to file its Notice of Default in accordance with California state law. The continued hearing on the Motion for Relief from the Automatic Stay was set for September 26, 1995 and then continued to October 18, 1995. On March 17, 1995, the Partnership filed its proposed Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated March 16, 1995, together with a Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code. On March 17, 1995, the Court set the hearing on the Partnership's Disclosure Statement for April 18, 1995. On April 17, 1995, the Partnership filed with the Bankruptcy Court certain Non-material Amendments to the Disclosure Statement. On April 18, 1995, the Bankruptcy Court held a hearing and acted upon the approval of the Partnership's Disclosure Statement together with the Non-material Amendments. After considering the Disclosure Statement and the Non-material Amendments thereto, the Court ruled that certain additional information should be included in the Partnership's Disclosure Statement. The Court required the Partnership to file an Amended Disclosure Statement which the Court approved without further hearing. The Partnership filed its Amended Disclosure Statement and Amended Plan of Reorganization (the "Plan") on May 4, 1995. On May 15, 1995, the Partnership mailed all impaired creditors, limited partners, and parties in interest a copy of the Amended Disclosure Statement and Plan, along with a ballot for voting and other notices. All classes of creditors, limited partners and parties in interest impaired under the Plan voted to accept the plan except Class 1, the first mortgage lender, Travelers Insurance Co. Pursuant to the order approving the Amended Disclosure Statement, the Court set July 12, 1995 as the confirmation hearing for the Partnership's Plan. Subsequently, a stipulation was agreed to and approved by the Court to bifurcate the confirmation hearing to allow additional pleadings. Nonfeasibility issues were scheduled to be heard on July 12, 1995 and all feasibility related issues would be heard by the Court on August 9, 1995. As a result of the hearing on July 12, 1995, the Court ruled on certain nonfeasibility related objections and issues raised by Travelers Insurance Company, including pricing of interest rates. Based on the Court's rulings, the Partnership proposed a Third Modification to the Plan. On August 9, 1995, the Court considered the Plan, the proposed Third Modification and all other evidence in support of the confirmation of the Plan, as well as the objections and related filings filed by the Travelers Insurance Company in support of its objections. The Court found that the Travelers Insurance Company did not have sufficient advance notice and disclosure regarding the proposed Third Modification to the Plan. Therefore, the Court denied the Plan to allow the Partnership to incorporate the Third Modification to the Plan into a new plan of reorganization, the Second Amended Plan. The Second Amended Plan is essentially the Plan incorporating the Third Modification. The Court set a schedule of time requirements for the Partnership to file a Second Disclosure Statement and Amended Plan which would allow appropriate time for notice. The Court set a combined hearing on the adequacy of the Partnership's Second Disclosure Statement and Confirmation of the Second Amended Plan for September 26, 1995. On August 25, 1995, the Partnership filed and served its Second Amended Plan of Reorganization and a Second Disclosure Statement. The Partnership's Second Disclosure Statement was approved on September 26, 1995. The Court held the Confirmation hearing on September 26, 1995 and continued the hearing to October 18, 1995. The Confirmation hearing was concluded on October 18, 1995, although the Court has not yet rendered a ruling on the Second Amended Plan of Reorganization. The Court has not disclosed a date in which the decision will be communicated. 3. Property and Improvements and Note and Mortgages Payable At June 30, 1995, the Partnership owned five operating apartment properties located in California totaling 1,763 units with leases generally for a term of one year or less. The Partnership owns a sixth property with 372 apartment units which was not operating and was unoccupied at September 30, 1995. All properties are pledged as security for the long-term debt. Although the first and second mortgages payable represent secured claims under the bankruptcy proceedings, there is uncertainty as to whether the claims are undersecured or will be impaired under a plan of reorganization. The mortgages payable, therefore, are classified as liabilities subject to compromise in the accompanying balance sheet. Interest expense will be recorded postpetition to the extent paid during the proceeding. The Partnership has entered into a cash collateral agreement with the first mortgage lender which calls for the payment of cash flow from operations, rents less operating expenses and capital, on a monthly basis. The Sherman Oaks property was severely damaged by the January 17, 1994 Southern California earthquake. The property is not operating and is currently unoccupied. The Partnership's properties are covered by insurance, including earthquake and business interruption; although the policy carries a 5% deductible. On April 28, 1994, the Partnership received a $750,000 advance on the business interruption policy for the earthquake damaged property. The Partnership recorded the advance as income, "Net recovery on business interruption insurance", for the year ended December 31, 1994. "Net cost (recovery) on business interruption insurance" represents costs specifically associated with the earthquake. All other income statement lines relating to the Sherman Oaks property include only the activity related to the period from January 1, 1994 to January 16, 1994, or fixed operating expenses unrelated to the earthquake, if applicable. On March 9, 1995, the Partnership submitted a report, prepared as of January 11, 1995, representing the Partnership's business interruption claim. The claim adjuster and the Partnership's representatives have agreed on the components and the amount of the claim, which was submitted to the applicable insurance companies for approval. The income statement does not include any amounts relating to the pending claim with the insurance company. The Partnership received $2,200,000 in business interruption insurance proceeds on October 27, 1995. Of February 3, 1995, the insurance company carrying the first $10,000,000 layer of earthquake insurance coverage offered to settle a portion of the loss resulting from the earthquake. The appropriate documents were executed in the second quarter of 1995 and on April 26, 1995, the Partnership received a partial insurance settlement of $9,250,000. The application of the insurance proceeds to the outstanding first mortgage payable or repair of the Sherman Oaks property will be decided by the Court as part of the Plan of Reorganization confirmation process.
4. Transactions with Affiliates Fees and other expenses incurred by the Partnership related to the General Partner or its affiliates are as follows: Three Months Ended Nine Months Ended Unpaid at September 30, September 30, September 30, 1995 1994 1995 1994 1995 Interest on assignment note(a) $ -- $18,333 $ -- $ 62,333 $502,334 Asset management fee 37,407 28,135 110,691 108,231 2,575,768 Administration and management fee -- -- -- -- 260,050 General partner's salary 37,500 37,500 112,500 112,500 1,012,500 Real Estate Advisory fee -- -- -- -- 518,750 Reimbursement (at cost) for out of pocket expenses 9,704 6,767 31,044 22,443 68,562 Reorganization item: Professional fees 33,102 -- 43,566 -- 43,566 $117,713 $90,735 $297,801 $305,507 $4,981,530 a) Postpetition interest is recorded to the extent it is paid. Contractual interest on assignment note was $22,000 and $66,000 for the three and nine months ended September 30, 1995, respectively.
5. Litigation [Theodore D. Cohen, et al v. California Seven Associates, et al., No. 657925 (Orange County, CA, May 16, 1991)] Plaintiffs in suit brought against the Partnership and its General Partner are members of the class participating in a federal court action in Chicago [In re VMS Securities Litigation, No. 90 c 2412, N.D. Ill.] which concluded in a settlement. Defendant filed a Motion for Summary Judgment which was granted. Plantiffs have requested additional time for filing an appeal. The likelihood of an unfavorable outcome or the extent of any possible liability cannot be assessed at this time. 6. Going Concern The Partnership's Plan of Reorganization, which contemplates repairing the Sherman Oaks property, is pending with the Court. The outcome of the confirmation of the Plan of Reorganization is unknown at this time. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Although every effort is being made to preserve the Partnership as a going concern, the possibility remains that the Partnership will cease its operations causing the complete loss of the ownership interest held by the partners. If the Partnership's effort to reorganize is unsuccessful, the Partnership will likely lose the properties and improvements through foreclosure with no cash available to partners. As a result of a foreclosure, the Partnership would record extraordinary income on relief of indebtedness. California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources On September 16, 1994, the Partnership filed a voluntary petition under Chapter 11 of the Federal bankruptcy laws in the United States Bankruptcy Court for the District of California. Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is managing and operating its business as a debtor in possession and will continue to do so pursuant to Sections 1107 and 1108 of the Bankruptcy Code unless otherwise ordered by the Court. On February 3, 1995, the insurance company carrying the first $10,000,000 layer of earthquake insurance coverage, offered to settle a portion of the loss resulting from the earthquake. The appropriate documents were executed in the second quarter of 1995 and on April 26, 1995, the Partnership received a partial insurance settlement of $9,250,000. The application of the insurance proceeds to the outstanding first mortgage payable or repair of the Sherman Oaks property will be decided by the Court as part of the Plan confirmation process. On March 9, 1995, the Partnership submitted a report, prepared as of January 11, 1995, representing the Partnership's business interruption claim. The claim adjuster and the Partnership's representatives have agreed on the components and the amount of the claim, which was submitted to the applicable insurance companies for approval. The income statement does not include any amounts relating to the pending claim with the insurance company. The Partnership received $2,200,000 in business interruption insurance proceeds on October 27, 1995. On or about January 30, 1995, the first mortgage lender filed a Motion for Relief from the Automatic Stay. The Partnership filed an Opposition to the Motion. At the hearing held on February 21, 1995, the court set April 18, 1995 as the final evidentiary hearing. After hearing arguments and representations of counsel, the Court continued the hearing to July 12, 1995 and then to August 9, 1995. At the Continued Confirmation Hearing on August 9, 1995, the Court allowed The Travelers Insurance Company limited relief from the automatic stay to file its Notice of Default in accordance with California state law. The continued hearing on the Motion for Relief from the Automatic Stay was set for September 26, 1995 and then continued to October 18, 1995. On March 17, 1995, the Partnership filed its proposed Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated March 16, 1995, together with a Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code. On March 17, 1995, the Court set the hearing on the Partnership's Disclosure Statement for April 18, 1995. On April 17, 1995, the Partnership filed with the Bankruptcy Court certain Non-material Amendments to the Disclosure Statement. On April 18, 1995, the Bankruptcy Court held a hearing and acted upon the approval of the Partnership's Disclosure Statement together with the Non-material Amendments. After considering the Disclosure Statement and the Non-material Amendments thereto, the Court ruled that certain additional information should be included in the Partnership's Disclosure Statement. The Court required the Partnership to file an Amended Disclosure Statement which the Court approved without further hearing. The Partnership filed its Amended Disclosure Statement and Amended Plan of Reorganization (the "Plan") on May 4, 1995. On May 15, 1995, the Partnership mailed all impaired creditors, limited partners, and parties in interest a copy of the Amended Disclosure Statement and Plan, along with a ballot for voting and other notices. All classes of creditors, limited partners and parties in interest impaired under the Plan voted to accept the plan except Class 1, the first mortgage lender, Travelers Insurance Co. Pursuant to the order approving the Amended Disclosure Statement, the Court set July 12, 1995 as the confirmation hearing for the Partnership's Plan. Subsequently, a stipulation was agreed to and approved by the Court to bifurcate the confirmation hearing to allow additional pleadings. Nonfeasibility issues were scheduled to be heard on July 12, 1995 and all feasibility related issues would be heard by the Court on August 9, 1995. As a result of the hearing on July 12, 1995, the Court ruled on certain nonfeasibility related objections and issues raised by Travelers Insurance Company, including pricing of interest rates. Based on the Court's rulings, the Partnership proposed a Third Modification to the Plan. On August 9, 1995, the Court considered the Plan, the proposed Third Modification and all other evidence in support of the confirmation of the Plan, as well as the objections and related filings filed by the Travelers Insurance Company in support of its objections. The Court found that the Travelers Insurance Company did not have sufficient advance notice and disclosure regarding the proposed Third Modification to the Plan. Therefore, the Court denied the Plan to allow the Partnership to incorporate the Third Modification to the Plan into a new plan of reorganization, the Second Amended Plan. The Second Amended Plan is essentially the Plan incorporating the Third Modification. The Court set a schedule of time requirements for the Partnership to file a Second Disclosure Statement and Amended Plan which would allow appropriate time for notice. The Court set a combined hearing on the adequacy of the Partnership's Second Disclosure Statement and Confirmation of the Second Amended Plan for September 26, 1995. On August 25, 1995, the Partnership filed and served its Second Amended Plan of Reorganization and a Second Disclosure Statement. The Partnership's Second Disclosure Statement was approved on September 26, 1995. The Court held the Confirmation hearing on September 26, 1995 and continued the hearing to October 18, 1995. The Confirmation hearing was concluded on October 18, 1995, although the Court has not yet rendered a ruling on the Second Amended Plan of Reorganization. The Court has not disclosed a date in which the decision will be communicated. The outcome of the confirmation of the Second Amended Plan of Reorganization is unknown at this time. Although every effort is being made to preserve the Partnership as a going concern, the possibility remains that the Partnership will cease its operations causing the complete loss of the ownership interests held by the partners. If the Partnership's effort to reorganize is unsuccessful, the Partnership will likely lose the Project through foreclosure with no cash available to Partners. A foreclosure would result in an income allocation to the Partners approximating ending capital balances at the time of foreclosure ($83,912 per $150,000 Class A limited partner unit at December 31, 1994); although, if a limited partner's ownership interest in the Partnership is the partner's only passive activity and the limited partner has been suspending passive loss allocations as required by the Tax Reform Act of 1986, the suspended losses available are estimated to be more than the potential foreclosure income allocation, resulting in an available net loss. In a year in which the Project is disposed of and the Partnership dissolved, any cumulative suspended loss will be available for use by a limited partner to offset ordinary income. Results of Operations During 1994, the apartment submarkets in which the Partnership's properties operate remained stable in terms of occupancy percentages and new construction. Absorption of existing units continued and rental rates began to increase slightly. Contributing to the Partnership's improved net property revenue results (property level revenues less property level operating expenses) for 1994, as compared with 1993, was a decrease in OAKWOOD related costs due to the conversion of Mission Bay East from OAKWOOD operations to conventional apartments effective January 1, 1994. When adjusted for Sherman Oaks activity, net property revenues for the three months ended September 30, 1995 increased approximately 1% as compared with the second quarter and 3% as compared with the first quarter of 1995. A slight decrease of property revenues was offset by decreased property level expenses in the third quarter. The Sherman Oaks property was severely damaged by the Southern California earthquake on January 17, 1994. The property was evacuated and city inspectors classified the property as unsafe for use. The property is not operating and is unoccupied. As a result, the property generated no revenue in 1995, and only a nominal amount in 1994, and has incurred only necessary operating expenses and expenses related to the earthquake since. Sherman Oaks' results for the nine months ended September 30, 1995, as compared with the same period in 1994, were affected as follows: Rental income decreased approximately $91,000, other income decreased approximately $9,000, property operating expenses decreased approximately $93,000, real estate taxes decreased approximately $147,000, management fees decreased approximately $34,000 and property administrative expenses decreased approximately $64,000. For the three months ended September 30, 1995, Sherman Oaks' results, as compared with the same period in 1994, were affected as follows: Property operating expenses decreased approximately $6,000, real estate taxes decreased approximately $22,000, management fees decreased approximately $10,000 and property administrative expenses decreased approximately $3,000. The following analytical comments have been limited to the Partnership's five operating properties. Rental income at Mission Bay East increased approximately $178,000 for the nine months ended September 30, 1995, as compared with the same period in 1994 as a result of higher average occupancy. The year-to-date increase in rental income at Mission Bay East was net of a decrease in rental income in the first quarter of 1995 compared with 1994, as 1994 included leftover corporate business, which generally commands higher rates, subsequent to the property's conversion from OAKWOOD. At Amberway, higher average occupancy for the three and nine months led to an increase in rental income of approximately $55,000 and $149,000, respectively. Average occupancy at West Los Angeles was approximately 11% and 4% higher for the three and nine months, respectively, as compared with the same periods in 1994, resulting in increased rental income of approximately $94,000 and $132,000 for the three and nine months, respectively. A slight decrease in average occupancy at Pacifica Club led to a decrease in rental income of approximately $11,000 and $40,000 for the three and nine months ended September 30, 1995, respectively. Rental income at Arbor Park decreased approximately $26,000 and $82,000 for the three and nine months as a result of soft market conditions and lower average occupancy. Other income decreased for the three and nine months ended September 30, 1995, as compared with the same periods in 1994, due primarily to decreased laundry revenue and cleaning fees earned at Arbor Park. Property operating expenses increased for the three and nine months ended September 30, 1995, as compared to the same periods of the previous year. Insurance expense increased approximately $83,000 and $247,000 for the three and nine months, respectively, for the five operating properties. Other operating expense increases for the three and nine months resulted from costs of termite treatments at Pacifica Club and utility increases at Mission Bay East, West Los Angeles and Arbor Park. Partially offsetting increases in operating expenses for the three and nine months was a decrease in furniture rental and earthquake related repairs and maintenance expenses at West Los Angeles. Once the leases expire on rented furniture, the property exercises the $1 purchase option, with replacement on an as needed basis as part of capital purchases. Decreases in corporate apartment expenses at Amberway were offset by increases in repair and maintenance for carpet, vinyl and blinds. Property taxes decreased for the three and nine months ended September 30, 1995, as compared with the same periods in 1994, due to a decrease in assessed value from successful property tax appeals at each of the Partnership's properties. The increase in property administrative expense for the three and nine months ended September 30, 1995, as compared with the same periods in 1994, was the result of higher payroll and related costs. In addition, an increase in the amount of advertising at West Los Angeles and Arbor Park was partially offset by a decrease in advertising at Pacifica Club and Amberway for the nine month period. The decrease in partnership administrative expense for the three and nine months ended September 30, 1995, as compared with the same periods in 1994, was due primarily to a decrease in legal fees incurred. The increase in interest income for the three and nine months ended September 30, 1995, as compared with the same periods in 1994, was due to the increase in interest rates coupled with higher average cash balances. California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Occupancy The following is a listing of approximate physical occupancy levels by quarter for the Partnership's investment properties: 1994 1995 At 3/31 At 6/30 At 9/30 At 12/31 At 3/31 At 6/30 At 9/30 The Anaheim Property 83% 81% 89% 95% 92% 93% 93% The Huntington Beach Property 95% 98% 99% 94% 94% 97% 95% The West Los Angeles Property 87% 92% 87% 83% 91% 97% 94% The San Diego Property 84% 93% 95% 92% 95% 94% 95% The Sherman Oaks Property (a) N/A N/A N/A N/A N/A N/A N/A The Upland Property 91% 90% 91% 95% 85% 87% 90% (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 the periods presented.
California Seven Associates Limited Partnership, a California Limited Partnership (Debtor in Possession) Part II - Other Information Item 1. Legal Proceedings The information included in the "Notes to Financial Statements, Note 5. Litigation" on page 8 of the Partnership's September 30, 1995 Financial Statements, is incorporated by reference. The information included in the "Notes to Financial Statements, Note 2. Petition for Relief Under Chapter 11" on page 5 of the Partnership's September 30, 1995 Financial Statements, is incorporated by reference. Item 2. Changes in the Rights of the Partnership Security Holders (b) On September 16, 1994, the Partnership filed a petition for relief under Chapter 11 of the Federal bankruptcy laws. The voluntary reorganization action may provide for a reorganization of the debt and equity structure of the Partnership business which may change the rights and form of the equity interests of the Partnership. Item 3. Defaults by the Partnership on its Senior Securities On September 16, 1994, the Partnership filed a petition for relief under Chapter 11 of the Federal bankruptcy laws. On the filing date, the Partnership was in default on its second mortgage loan obligation. Although the second mortgage holder had acknowledged the default, the Partnership did not receive a notice of acceleration. Due to the Chapter 11 proceedings, claims secured against the Partnership assets are stayed. The balance of the second mortgage note at September 30, 1995 was $14,000,000 plus $1,699,892 of accrued and unpaid interest. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule (b) No Form 8-Ks were filed during the three months ended September 30, 1995. 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: November 7, 1995 By: /s/ John D. Carey John D. Carey, President and Controller (Principal Executive Officer) (Principal Accounting Officer) EX-27 2 ARTICLE 5 FDS FOR 3RD QUARTER 10-Q 1995
5 DEC-31-1995 SEP-30-1995 9-MOS 3146767 0 202274 0 0 0 144662440 51275658 106160044 0 111983903 0 0 0 0 106160044 0 11087700 0 5441386 3613501 0 4167547 0 0 (2144893) 0 0 0 (2144893) 0 0
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