-----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, AZ+fy0XJgzCKvpDpERFcmBekQpSKRqhCzA7fgE0g82dZrV1+/IbskudaMPlFF3Oa Xuc+9Q9rLuL0XCprJxuHKA== 0000950148-97-001563.txt : 19970526 0000950148-97-001563.hdr.sgml : 19970526 ACCESSION NUMBER: 0000950148-97-001563 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970602 FILED AS OF DATE: 19970523 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY HILLCRESTE APARTMENT INVESTORS L P CENTRAL INDEX KEY: 0000835596 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 954166241 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 033-22857 FILM NUMBER: 97613831 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 DEF 14A 1 DEF 14A 1 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. 1) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. A CALIFORNIA LIMITED PARTNERSHIP (Name of Registrant As Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: .............................................................. 2) Aggregate number of securities to which transaction applies: .............................................................. 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined) .............................................................. 4) Proposed maximum aggregate value of transaction: .............................................................. 5) Total fee paid: .............................................................. [ ] Fee paid previously with preliminary materials. [X] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: $8,000 .............................................................. 2) Form, Schedule or Registration Statement No.: Schedule 14A .............................................................. 3) Filing Party: Everest HillCreste Investors, LLC .............................................................. 4) Date Filed: December 9, 1996 .............................................................. 2 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. 9090 WILSHIRE BOULEVARD, SUITE 201 BEVERLY HILLS, CALIFORNIA 90211 June 2, 1997 Dear Unitholder: In our prior communication, dated January 9, 1997 (the "January Mailgram"), the undersigned, National Partnership Investments Corp. ("NAPICO"), as managing general partner of Century HillCreste Apartment Investors, L.P. (the "Partnership"), advised you that the proposal by Everest Hillcreste Investors LLC ("Everest") to purchase the Partnership's primary asset, the apartment complex known as the HillCreste (the "Property") for $40 million was less than the Property's appraised value of $46.9 million as of February 1996, and that four other, non-binding purchase proposals had been received for prices ranging from $40.2 million to $44.7 million, each subject to various contingencies and conditions. The January Mailgram also informed you that the Special Limited Partner has under the terms of the Amended and Restated Agreement of limited partnership (the "Partnership Agreement"), a right of first refusal to acquire the Property for the proposed sales price and terms (the "Right of First Refusal"). Subsequently, Everest increased its offer by $7 million to $47 million (the "Everest Proposal"). Additionally, the Partnership has since received (a) a report from an independent real estate appraisal firm that the Property's current market value is approximately $47 million and (b) a non-binding proposal from one of the four prior offerees proposing to increase its offer to purchase the Property to $47.4 million. The Property was originally acquired by the Partnership in 1988 for approximately $72,500,000 including acquisition and other fees and expenses of the Partnership's offering. According to the last two independent appraisals, the Property's appraised value increased approximately $100,000 from early 1996 to early 1997. As previously reported, the Partnership is completing the privatization of the streets and alleys providing access to the Property and the construction of security fencing with controlled entrances. No assurance can be given as to whether or not the Property's value will increase in the future, or at what rate the Property's value will change. In light of the foregoing, NAPICO makes no recommendation as to the Everest Proposal. NAPICO believes that the Southern California real estate market is only now beginning to improve and that in its opinion this is not the right time to market the Property. However, if a 3 Limited Partners of Century HillCreste Apartment Investors, L.P. June 2, 1997 Page 2 majority-in-interest of the Limited Partners demonstrate their desire to cause the Property to be sold now for its appraised value pursuant to the Everest Proposal, NAPICO will not oppose their desire. NAPICO has been informed that its affiliate, the Special Limited Partner, plans, subject to obtaining reasonable financing, to exercise the aforementioned Right of First Refusal in the event the Everest Proposal is approved. NAPICO is subject to a conflict of interest with respect to the Everest Proposal and the Special Limited Partner's Right of First Refusal. The Partnership's prospectus provides that NAPICO will attempt to resolve any matter involving a conflict of interest in a manner which is consistent with its fiduciary responsibilities and, in its judgment, is fair and reasonable to the Unitholders and in accordance with the Partnership's investment objectives. The prospectus provides that the Partnership's investment objectives include attempting to achieve long-term appreciation in the value of the Property for distribution upon sale. It is unclear if or when this long-term objective can be achieved, and NAPICO cannot give any assurance as to the future value of the Property. We have enclosed a copy of the Partnership's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The Report includes the Partnership's audited financial statements for the twelve-month periods ended December 31, 1995 and 1996. The Report also includes, among other things, information concerning the Partnership's quarterly distributions for 1996, current occupancy and operational information for the Property, improvements being made to the Property, and a discussion of certain litigation recently instituted against NAPICO and certain of its affiliates. Sincerely, National Partnership Investments Corp., Managing General Partner Charles H. Boxenbaum Bruce E. Nelson Chairman of the Board President 4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1996 Commission File Number 33-22857 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. A CALIFORNIA LIMITED PARTNERSHIP I.R.S. Employer Identification No. 95-4166241 9090 WILSHIRE BOULEVARD, SUITE 201, BEVERLY HILLS, CALIFORNIA 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or 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] 5 AMENDMENT NO. 1 The undersigned registrant hereby amends the following items, financial statements exhibits or other portions of its Annual Report on Form 10-K for the year ended December 31, 1996 as set forth in the following pages attached hereto: Item 5 Page 4 Item 2 PROPERTIES Included life of fixed assets and depreciation method. Item 5 Page 7 Item 6 SELECTED FINANCIAL DATA Added effective annual rental per unit and average occupancy percentage. Item 6 Page 17 Note 1 IMPAIRMENT OF LONG-LIVED ASSETS The effects and date of Adoption of SFAS 121 is now disclosed Item 8 Page 18 Note 2 RENTAL PROPERTY The footnote now discloses that the rental property is being carried at cost. Item 9 Page 19 Note 3 MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER The last paragraph in footnote 3 referring to payments under the Memorandum of Understanding has been changed to delete the words "or to be made" in order to clarify this. Item 10 Page 19 Note 3 MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER The following sentence is included in third paragraph. "This amount has been reflected as a reduction in the carrying amount of the Property." SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Century HillCreste Apartment Investors, L.P. -------------------------------------------- Registrant Bob Schafer -------------------------------------------- Vice President and Corporate Controller 6 PART I. ITEM 1. BUSINESS: Century HillCreste Apartment Investors, L.P. (the "Partnership") is a California limited partnership formed on June 6, 1988, with National Partnership Investments Corp. ("NAPICO", or the "Managing General Partner") and HillCreste Properties Inc. (the "Non-Managing General Partner") as the General Partners. The business of the Partnership is conducted primarily by the Managing General Partner as the Partnership has no employees of its own. The Partnership issued 7,258,000 depository units (each depository unit being entitled to the beneficial interest of a limited partnership interest) on October 26, 1988 to investors (the "Limited Partners") for a total amount raised of $72,580,000, through a public offering. Concurrent with the issuance of the depository units, the Partnership purchased a 315-unit luxury apartment complex in the Century City area of Los Angeles (the "Property") from an affiliate of the Managing General Partner for a purchase price of $68,548,000. In order to complete the purchase of the Property, the seller, an affiliate of the Managing General Partner (the "Seller" or the "Special Limited Partner") purchased a 10 percent special limited partnership interest in the Partnership for $6,855,000. The Partnership Agreement provides that the 10 percent special limited partnership interest is subordinate to the other Limited Partners' specified priority return in the case of distributions of net cash flow from operations, plus the other Limited Partners' return of capital in the case of net sales or refinancing distribution proceeds. Casden Investment Corporation ("CIC"), an affiliate of the Seller, owns all of the outstanding common stock of NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden, Henry C. Casden and Brian D. Goldberg. DA Group Holdings Inc. owns all of the stock of HillCreste Properties, Inc. Mayer Management Inc., an affiliate of the Managing General Partner, managed the Property from the date of its purchase through December 31, 1995. For the period through January 31, 1995, Mayer Management Inc. was paid a fee of 5 percent of the collected revenues of the Property for its management services and, for the period from February 1, 1995 through December 31, 1995, the fee payable to Mayer Management Inc. was reduced to 3 percent of the Property's revenues. On January 1, 1996, property management was transferred to an unaffiliated property management agent, who manages the Property for a fee of 3 percent of rental revenues. The management fee paid to the applicable property manager was $177,320, $181,375, and $273,130 in 1996, 1995 and 1994, respectively. The Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the lack of liquidity for this type of investment. These risks include, without limitation, changes in general economic conditions, adverse local market conditions due to over-building or a decrease in employment or neighborhood values, changes in supply or demand of competing properties in the area, changes in interest rates and the availability and terms of permanent mortgage funds which may render the sale or refinancing of the Property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates, federal or local economic or rent controls, and the occurrence of uninsured losses, such as earthquakes, floods or riots (however, the Property is partially insured for losses from earthquakes), or other factors beyond the control of the General Partners. The lack of liquidity of real estate investments generally will impair the ability of the Partnership to respond promptly to changing circumstances. In addition, these risks are magnified as the Partnership has only one rental property and is not able to spread these risks over different geographic regions. The Property suffered substantial damage as a result of the January 17, 1994 Northridge Earthquake. The repair work required as a result of the earthquake damage was completed in 1995. Additionally, certain improvements are being made to the Property, including the privatization of certain streets and alleys providing access to the Property and the installation of security fencing with controlled entrances. See Item 7 below for more detailed information. The Partnership's principal objectives are to (i) provide quarterly cash distributions, (ii) preserve and protect capital, and (iii) achieve long-term appreciation in the value of the Property for distribution upon sale. In addition, although the 2 7 Partnership acquired the Property for an all-cash purchase price, the Partnership may seek to obtain mortgage financing for the Property. Such financing, if accomplished, could permit the Partnership to distribute to the Limited Partners a substantial portion of their invested capital. There can be no assurance that any of these objectives will be achieved. On April 25, 1996, Everest Century Investors, LLC commenced a tender offer for up to 355,650 of the Partnership's outstanding units for $2.75 per unit. Following the tender offer, certain other investors contacted the Limited Partners and offered to purchase units at prices up to $4.25 per unit. The Partnership has not made any recommendation with regard to the tender offers. In December 1996, Everest HillCreste Investors, LLC, an affiliate of Everest Century Investors, LLC, ("Everest") commenced a proxy solicitation of the Limited Partners seeking to obtain sufficient votes in order to (a) authorize Everest to notify the General Partners on behalf of Limited Partners to call for a special meeting of the Limited Partners, and (b) adopt a resolution at such meeting approving Everest's proposal to purchase the Property for $40 million subject to certain material conditions. On January 9, 1997, the Managing General Partner advised the limited partners that the proposed purchase price was less than the Property 's appraised value of $46.9 million as of February 1996, and that four other, non-binding purchase proposals had been received for prices ranging from $40.2 million to $44.7 million, each subject to various contingencies and conditions. The Managing General Partner also informed the limited partners that Casden Properties, an affiliate of the Managing General Partner and the Special Limited Partner of the Partnership, has under the terms of the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), a right of first refusal to acquire the Property for the proposed sales price and terms (the "Right of First Refusal"). Subsequently, Everest has increased its offer by $7 million to $47 million (the "Everest Proposal"). Additionally, the Partnership has since received (a) a report from an independent real estate appraisal firm that the Property's current market value is approximately $47 million and (b) a non-binding proposal from one of the four prior offerees proposing to increase its offer to purchase the Property to $47.4 million. The Managing General Partner makes no recommendation as to the Everest Proposal. The Managing General Partner has been informed that its affiliate, the Special Limited Partner, plans, subject to obtaining reasonable financing, to exercise the aforementioned Right of First Refusal in the event the Everest Proposal is approved. 3 8 The following is a schedule of the occupancy status of the Property as of December 31, 1996:
No. of Units Percentage of Name & Location Units Occupied Total Units --------------- ------ -------- ------------- HillCreste Apartments Los Angeles, California 315 299 95%
ITEM 2. PROPERTIES: The Partnership holds an interest in one residential apartment complex. Depreciation is reported using the straight-line method over the estimated useful lives of the buildings and equipment as follows: Buildings 35 years Furniture and equipment 5 years The units are rented to individual tenants, primarily on a month-to-month basis. In the opinion of management of the Partnership, the Property is adequately covered by insurance. See Items 1 and 7 above and Schedule for additional information pertaining to this Property. ITEM 3. LEGAL PROCEEDINGS: The Managing General Partner, NAPICO, is a plaintiff or defendant in several lawsuits, which are unrelated to the Partnership. In addition, the Partnership is involved in the actions described below: Securities and Exchange Commission The staff of the Securities and Exchange Commission (the "Commission") informed the Partnership and NAPICO in August, 1995 that it intends to recommend that the Commission institute a civil action and/or administrative proceeding against the Partnership, NAPICO and others that would be based, in part, on allegations that certain of the Partnership's financial statements in 1991, 1992 and 1993 should have characterized certain current assets deposited in the master disbursement account of the Partnership's property management company as accounts receivable from a related party rather than as cash. The Partnership and NAPICO strenuously disagree with the staff's contentions, which have not yet been considered by the Commission. Moreover, in the opinion of NAPICO, any action that might result from the staff's recommendation is not likely to have a material adverse effect on the Partnership. J/B Lawsuit On February 13, 1997, J/B Investment Partners ("J/B") filed an action in the Los Angeles Superior Court (the "J/B Lawsuit"), against the Managing General Partner and its directors, and Casden Properties and certain of its affiliates (collectively, the "Defendants"). The J/B Lawsuit is styled as a class action brought against the Defendants on behalf of all limited partners of the Partnership, and a derivative action brought on behalf of the Partnership itself. The Partnership is named as a "nominal defendant." The complaint in the J/B Lawsuit contains four causes of action: (a) breach of fiduciary duty; (b) breach of contract; (c) unjust enrichment; and (d) equitable relief. The alleged wrongdoing of the Defendants as set forth in the J/B Lawsuit relates to the following issues: 1. J/B alleges misappropriation and misuse of Partnership funds which were the subject of a previous lawsuit (the "Prior Lawsuit") filed in the Los Angeles Superior Court in June 1995 by HillCreste Properties, Inc., the non-managing general partner of the Partnership (the "Non-Managing General Partner"). The Managing General Partner vigorously denied these allegations, and without admission of any wrongdoing the Prior Lawsuit was settled by a Memorandum of Understanding executed in August 1995, with final settlement documentation executed in 4 9 April 1996, at which time the Prior Lawsuit was dismissed with prejudice as to all defendants. Additionally, J/B alleges that the Defendants have wrongfully caused the Partnership to pay legal fees on behalf of the Managing General Partner or certain of its affiliates relating to a regulatory investigation discussed above. 2. J/B alleges that the Defendants have failed to explore transactions that would maximize the value of the limited partners' investment in the Partnership, including the four unsolicited offers to purchase the Property, implementation of an auction process regarding the potential sale of the Property and obtaining financing with respect to the Property. 3 J/B alleges that the January 1997 letter from the Managing General Partner to the Limited Partners contained misleading statements about the original Everest proxy solicitation and about the Special Limited Partner's Right of First Refusal. Specifically, J/B contends that the January letter failed to disclose the Managing General Partner's advice and opinions regarding the response of the Limited Partners to the original Everest offer and contained misstatements about certain provisions of the Partnership Agreement pertaining to actions permitted or required to be taken by the Limited Partners of the Partnership. J/B states that the Limited Partners are not authorized, by vote of a majority-in-interest or otherwise, to bind, compel, or require the Partnership to enter into any contract for the sale of the Property, including the proposed sales contract with Everest. In other words, J/B asserts that the Everest Proposal cannot be implemented as proposed because it is beyond the Limited Partners' authority under the Partnership Agreement. Consequently, J/B claims that the conditions to the Special Limited Partner's Right of First Refusal to purchase the Property for a price and on terms equal to those contained in the Everest Proposal cannot under the Partnership Agreement be fulfilled, and, therefore, no such Right of First Refusal could be exercised. J/B seeks damages in the J/B Lawsuit in a unspecified amount and equitable relief, including, among other things, a declaration judgment as to whether or not there exists a Right of First Refusal. The Managing General Partner strenuously disputes all of the accusations of wrongdoing against it and its affiliates alleged in the J/B Lawsuit, and defends the existence and integrity of the Right of First Refusal, which was an integral and material part of the financial structure of the Partnership and was disclosed to the Limited Partners, in the prospectus at the time of the original sale of units in the Partnership. The Managing General Partner further intends to vigorously defend the settlement of the Prior Lawsuit. It appears that J/B purchased or was assigned certain rights with respect to 200 units in the Partnership in or about 1995. It is not yet known whether J/B or plaintiff's class action counsel is connected with, directly or indirectly, parties sponsoring the original Everest proxy or the revised Everest Proposal, or other third parties who have expressed interest in acquiring the Property. The Special Limited Partnership has advised the Managing General Partner and the Non-Managing General Partner that the Right of First Refusal was a material inducement to the Special Limited Partner's sale of the Property to the Partnership, its purchase of a subordinated special limited partnership interest in the Partnership for $6,855,000, and its agreement to provide the Partnership with a Minimum Distribution Guarantee pursuant to which the Special Limited Partner paid a total of approximately $13,130,000 to the Partnership to support distributions to the Limited Partners. If, as a result of the J/B Lawsuit or otherwise, the Special Limited Partner is not entitled to exercise the Right of First Refusal with respect to the Everet Proposal or in response to other similar situations, the Special Limited Partner believes that it would be entitled to return of its investment and all sums paid under the Minimum Distribution Guarantee, together with interest thereon. Moreover, the settlement of the Prior Lawsuit was reached after extensive negotiations with the Non-Managing General Partner which negotiated on behalf of the Partnership a binding and conclusive settlement. If, as a result of the J/B Lawsuit or otherwise, the settlement of the Prior Lawsuit is set aside, the Managing General Partner and its affiliates would seek a return of all funds paid to the Partnership as a result of such settlement. 5 10 The Defendants believe the allegations of wrongdoing in the J/B Lawsuit lack merit, and intend to contest them vigorously. The Defendants believe a number of the claims asserted in the J/B Lawsuit are bared by the settlement and dismissal with prejudice of the Prior Lawsuit. The J/B Lawsuit could result in delaying, complicating, or preventing any significant transactions with respect to the sale of the Property, and diminishing future distributions to the Limited Partners until such case is resolved. In addition, the Partnership is expected to incur significant legal fees and expense to the extent of its responsibilities to indemnify and hold the Defendants harmless under certain provisions in the Partnership Agreement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: As discussed above under Item 1, Everest commenced the solicitation of proxies in December 1996 regarding the sale of the property. The General Partners are unaware of the results of that solicitation, as amended, and to date no Special Meeting of the Limited Partners has been called. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS: The Partnership's units are not traded on a public exchange. It is not anticipated that any public market will develop for the purchase and sale of any units. Depository units may be transferred only if certain requirements are satisfied. As of December 31, 1996, there were 6,670 registered holders of units in the Partnership. 6 11 ITEM 6. SELECTED FINANCIAL DATA:
Year Ended December 31, ----------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- Rental revenues $ 5,410,156 $ 5,394,552 $ 5,390,358 $ 5,109,914 $ 4,984,986 Interest and other income 218,216 287,523 81,885 131,332 137,813 ----------- ----------- ----------- ----------- ----------- Total revenues $ 5,628,372 $ 5,682,075 $ 5,472,243 $ 5,241,246 $ 5,122,799 =========== =========== =========== =========== =========== Net income $ 2,675,170 $ 2,498,336 $ 1,224,739 $ 1,848,761 $ 972,848 =========== =========== =========== =========== =========== Net income per depository unit $ 0.37 $ 0.34 $ 0.17 $ 0.25 $ 0.13 =========== =========== =========== =========== =========== Rental property owned at cost less accumulated depreciation $34,337,025 $34,772,331 $35,660,385 $36,424,447 $41,001,958 =========== =========== =========== =========== =========== Total assets $38,040,786 $37,684,178 $38,577,456 $41,344,209 $44,340,806 =========== =========== =========== =========== =========== Effective annual rental per unit $ 17,175 $ 17,126 $ 17,112 $ 16,222 $ 15,825 =========== =========== =========== =========== =========== Average occupancy percentage 95% 94% 96% 93% 87% =========== =========== =========== =========== ===========
7 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CAPITAL RESOURCES AND LIQUIDITY The Partnership raised proceeds of $72,580,000 from the sale of depository units, pursuant to a public offering and received additional capital contributions from the General Partners of $1,050 and from the Special Limited Partner of $6,855,000. Currently, the only sources of Partnership income consist of income from rental operations at the Property and interest earned on Partnership reserves. In conjunction with the acquisition of the Property, the Partnership received a guarantee from the Special Limited Partner, (now an affiliate of the Managing General Partner), which guarantee agreement (the "Guarantee Agreement") required the Special Limited Partner to make payments as provided in the Guarantee Agreement, if and when necessary, in an amount sufficient to enable the Partnership to provide the Limited Partners with minimum distributions through December 1993. Pursuant to a Memorandum of Understanding entered into on August 11, 1995, the Special Limited Partner agreed to pay to the Partnership the sum of $350,000 in two equal installments of $175,000 each; the first such $175,000 payment was made in August 1995 and the second payment was made in May 1996. These payments represent the amount of a real estate tax refund received in 1994 for overpayment of prior year taxes which had previously been offset against amounts receivable from the Special Limited Partner under the Guarantee Agreement. Through December 31, 1996, the Special Limited Partner has funded $13,130,998 directly to the Partnership for distributions to the Limited Partners pursuant to the Guarantee Agreement, which includes the $350,000 payments referred to above. Commencing in 1994, distributions to the partners are being made from cash flow from operations. In addition, during 1995 the Partnership made a special distribution to the Limited Partners in the amount of $135,000. (See "Results of Operations" for further discussion.) Approvals from the City of Los Angeles were obtained to "privatize" the streets and alleys providing access to the Property and to construct wrought iron security fencing with controlled entrances into the Property. The final resolution vacating the streets and alleys was approved on December 31, 1994. Landscaping, and the construction of the perimeter fencing and related improvements, including a guardhouse at the Ambassador Street entrance and a directory/trellis at the Peerless Street location is nearing completion. As a condition to its approval of the proposed "privatization", the City of Los Angeles required the construction of a storm drain and related improvements, for which an improvement agreement and guarantee in the amount $158,000 has been filed with the City of Los Angeles. The Partnership has pledged a certificate of deposit in such amount to the City to secure the improvement guarantee. Contracts in the amount of $683,000 and $49,975 have been awarded to construct the wrought iron security fencing and to construct a storm drain and related improvements, respectively, for which construction work commenced in September 1996. As of December 31, 1996, $445,250 has been paid to the contractor. RESULTS OF OPERATIONS Occupancy averaged 95 percent for the year ended December 31, 1996, as compared to an average of 94 percent for the year ended December 31, 1995, and an average of 96 percent for 1994. The Property was 95 percent and 90 percent occupied as of December 31, 1996 and 1995, respectively. Gross revenues were generally consistent for 1996, 1995 and 1994. Operating expenses were approximately the same for all three years presented , with the exception of the provision for earthquake loss for 1995 and 1994. In 1996 a substantial decrease in legal expense was reflected in general and administrative expenses. On January 17, 1994, the rental property sustained damage due to the Northridge Earthquake (Earthquake). In 1994, a total of $405,340 was spent to repair damage caused by the Earthquake. Substantially all of the repairs ($376,000) were performed on an emergency basis by Mayer Property Services, Inc., an affiliate of the Managing General Partner, and the Special Limited Partner upon the instruction and authorization of the building's property management company, Mayer Management, Inc. In 8 13 1995, the Partnership paid approximately $1,125,000 to an unaffiliated contractor to fully repair the remaining damage suffered by the Property as a result of the Earthquake. Based on a determination by the building's insurance carrier that the loss suffered by the Property as a result of the Earthquake was $1,537,718, the Partnership received in August 1994 a net insurance settlement in the amount of $355,448. This amount was determined by reducing the gross amount of the Property's loss by: (a) the deductible provided for in the policy in the amount of $1,071,808; (b) the $34,095 paid to the independent public adjuster that processed the building's claim; and (c) the insurance company's holdback of $76,367. Since the investigation and recommendation of the staff of the Securities and Exchange Commission (the "Commission") (see "Legal Proceedings," Item 3, for further discussion) concerning the Partnership's financial statements and Commission filings, a portion of the legal fees incurred by NAPICO in responding to the staff has been allocated to and charged to the Partnership by NAPICO. These fees were $2,583, $120,431 and $113,331 for 1996, 1995 and 1994, respectively, and are included in general and administrative expenses. In addition, $150,000 in professional fees was estimated and accrued in 1995 related to the Memorandum of Understanding. The actual amount paid in 1996 was $90,000, with the balance reversed against expenses. Legal fees primarily account for the increase in general and administrative expenses in 1995, compared to 1996 and 1994. In the opinion of the Managing General Partner, any action that might result from the Commission staff's investigation is not likely to have a material adverse effect on the Partnership. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The Financial Statements and Supplementary Data are listed under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. 9 14 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORTS DECEMBER 31, 1996 10 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Century HillCreste Apartment Investors, L.P. (A California limited partnership) We have audited the accompanying balance sheets of Century HillCreste Apartment Investors, L.P. (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of income, partners' capital (deficiency) and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and financial statement schedule are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Century HillCreste Apartment Investors, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California March 26, 1997 11 16 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (a California limited partnership) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- RENTAL PROPERTY (Notes 1, 2 and 3) $34,337,025 $34,772,331 CASH AND CASH EQUIVALENTS (Note 1) 3,490,463 2,738,045 RESTRICTED CASH (Notes 1 and 5) 158,700 158,700 OTHER ASSETS (Note 5) 54,598 15,102 ----------- ----------- $38,040,786 $37,684,178 =========== =========== LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 4) $ 413,457 $ 359,359 DUE TO GENERAL PARTNER (Note 4) -- 150,000 SECURITY DEPOSITS 315,244 310,099 PREPAID RENT 75,583 46,965 ----------- ----------- 804,284 866,423 COMMITMENTS AND CONTINGENCIES (Note 5) PARTNERS' CAPITAL (Note 1) 37,236,502 36,817,755 ----------- ----------- $38,040,786 $37,684,178 =========== ===========
The accompanying notes are an integral part of these financial statements. 12 17 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (a California limited partnership) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---------- ---------- ---------- REVENUES Rental income $5,410,156 $5,394,552 $5,390,358 Interest and other income (Note 3) 218,216 287,523 81,885 ---------- ---------- ---------- 5,628,372 5,682,075 5,472,243 ---------- ---------- ---------- EXPENSES Operating (Note 4) 1,165,010 1,178,744 1,076,682 Property taxes 537,717 422,121 525,867 Management fee - related party in 1995 and 1994 (Note 4) 177,320 181,375 273,130 General and administrative (Note 4) 367,599 651,783 513,638 Depreciation 705,556 713,054 716,572 Provision for earthquake loss (Note 5) -- 36,662 1,141,615 ---------- ---------- ---------- 2,953,202 3,183,739 4,247,504 ---------- ---------- ---------- NET INCOME $2,675,170 $2,498,336 $1,224,739 ========== ========== ========== NET INCOME PER DEPOSITORY UNIT $ 0.37 $ 0.34 $ 0.17 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 13 18 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (a California limited partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Special Limited General Limited Partner Partners Partners (Note 1) Total ------------ ---------- --------------- ------------ BALANCE, JANUARY 1, 1994 $ (198,855) 40,615,556 -- 40,416,701 DISTRIBUTIONS (Note 7) (98,899) (4,905,234) -- (5,004,133) NET INCOME FOR 1994 12,247 1,212,492 -- 1,224,739 ------------ ---------- ----- ------------ BALANCE, DECEMBER 31, 1994 (285,507) 36,922,814 -- 36,637,307 DISTRIBUTIONS (Note 7) (27,262) (2,290,626) (2,317,888) NET INCOME FOR 1995 24,983 2,473,353 -- 2,498,336 ------------ ---------- ----- ------------ BALANCE, DECEMBER 31, 1995 (287,786) 37,105,541 -- 36,817,755 DISTRIBUTIONS (Note 7) (17,131) (2,239,292) (2,256,423) NET INCOME FOR 1996 26,752 2,648,418 -- 2,675,170 ------------ ---------- ----- ------------ BALANCE, DECEMBER 31, 1996 $ (278,165) 37,514,667 $ -- $ 37,236,502 ============ ========== ===== ============
The accompanying notes are an integral part of these financial statements. 14 19 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (a California limited partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,675,170 $ 2,498,336 $ 1,224,739 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 705,556 713,054 716,572 Provision for earthquake loss -- 36,662 1,141,615 Decrease (increase) in other assets (39,496) 317,783 324,066 Increase (decrease) in accounts payable and accrued liabilities 54,098 (54,664) (396,000) Increase (decrease) in due to general partners (150,000) 58,669 91,331 Increase (decrease) in security deposits 5,145 (10,241) (13,430) Increase (decrease) in prepaid rent 28,618 24,233 (30,465) ----------- ----------- ----------- Net cash provided by operating activities 3,279,091 3,583,832 3,058,428 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Redemption of short term investments -- -- 1,451,600 Increase in restricted cash -- -- (158,700) Payments received pursuant to the minimum distribution guarantee 175,000 175,000 2,992,712 Increase in rental property (445,250) -- -- Insurance proceeds for earthquake loss -- -- 355,448 Earthquake loss payments -- (1,128,385) (405,340) ----------- ----------- ----------- Net cash (used in) provided by investing activities (270,250) (953,385) 4,235,720 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (2,256,423) (2,317,888) (5,004,133) ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 752,418 312,559 2,290,015 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,738,045 2,425,486 135,471 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,490,463 $ 2,738,045 $ 2,425,486 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 15 20 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Century HillCreste Apartment Investors, L.P. (the "Partnership"), a California limited partnership, was formed on June 6, 1988, with National Partnership Investments Corp. (the "Managing General Partner"), and HillCreste Properties Inc. (the "Non-Managing General Partner") as the general partners. On October 26, 1988, the Partnership issued to investors (the "Limited Partners") 7,258,000 depositary units (each depositary unit being entitled to the beneficial interest of a limited partnership interest), for a total amount raised of $72,580,000, through a public offering. Concurrent with the issuance of the depositary units, the Partnership purchased a 315-unit apartment complex in the Century City area of Los Angeles, California (the "Property") from Casden Properties (the "Seller"). To complete the purchase of the Property, the Seller purchased a 10% special limited partnership interest in the Partnership for $6,855,000 and became the Special Limited Partner of the Partnership. Among other things, the Partnership Agreement provides that the 10% special limited partnership interest be subordinate to the other Limited Partners' specified priority return in the case of distributions of net cash flow from operations, plus the other Limited Partners' return of capital in the case of net sales or refinancing distribution proceeds. Casden Investment Corporation, an affiliate of the Seller, owns 100% of the outstanding common stock of the Managing General Partner. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is reported using the straight-line method over the estimated useful lives of the buildings and equipment as follows: Buildings 35 years Furniture and equipment 5 years Minimum Distribution Guarantee The minimum distribution guarantee payments from the Seller have been reflected as a reduction in the carrying amount of the Property. 16 21 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) For its contribution of $6,855,000, the Seller has rights to receive an allocation of the Partnership's net cash from operations after the Limited Partners receive a specified priority return. Cash and Cash Equivalents Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity of three months or less. The Partnership has its cash and cash equivalents on deposit primarily with one money market mutual fund. Such cash and cash equivalents are uninsured. Restricted Cash Restricted cash consists of bank certificates of deposits assigned to the City of Los Angeles in lieu of purchasing a subdivision improvement bond to effectuate the privatization of city streets located within the Property's perimeter (see Note 5). Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the partners. Net Income Per Depository Unit Net income per depository unit was computed by dividing the Limited Partners' share of net income (99%) by the number of depository units outstanding during the year. The number of depository units was 7,258,000 for all years presented. Impairment of Long-Lived Assets The Partnership adopted Statement of Financial Accounting Standards No. 121, Account for the Improvement of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a significant effect on its financial statements. The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. 17 22 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 2. RENTAL PROPERTY At December 31, 1996 and 1995, rental property is carried at cost and consists of the following at December 31, 1996 and 1995:
1996 1995 ----------- ----------- Land $16,175,000 $16,175,000 Buildings 24,694,402 24,869,402 Furniture and equipment 3,870,000 3,870,000 Improvements 445,250 -- ----------- ----------- 45,184,652 44,914,402 Less: Accumulated depreciation 10,847,627 10,142,071 ----------- ----------- $34,337,025 $34,772,331 =========== ===========
In December 1996, Everest HillCreste Investors, LLC, an affiliate of Everest Century Investors, LLC, ("Everest"), commenced a proxy solicitation of the Limited Partners seeking to obtain sufficient votes in order to (a) authorize Everest to notify the General Partners on behalf of Limited Partners to call for a special meeting of the Limited Partners, and (b) adopt a resolution at such meeting approving Everest's proposal to purchase the Property for $40 million subject to certain material conditions. On January 9, 1997, the Managing General Partner advised the limited partners that the proposed purchase price was less than the Property 's appraised value of $46.9 million as of February 1996, and that four other, non-binding purchase proposals had been received for prices ranging from $40.2 million to $44.7 million, each subject to various contingencies and conditions. The Managing General Partner also informed the limited partners that Casden Properties, an affiliate of the Managing General Partner and the Special Limited Partner of the Partnership, has under the terms of the Amended and Restated Agreement of limited partnership (the "Partnership Agreement"), a right of first refusal to acquire the Property for the proposed sales price and terms (the "Right of First Refusal"). Subsequently, Everest has increased its offer by $7 million to $47 million (the "Everest Proposal"). Additionally, the Partnership has just received (a) a report from an independent real estate appraisal firm that the Property's current market value is approximately $47 million and (b) a non-binding proposal from one of the four prior offerees proposing to increase its offer to purchase the Property to $47.4 million. The Managing General Partner makes no recommendation as to the Everest Proposal. The Managing General Partner has been informed that its affiliate, the Special Limited Partner, plans, subject to obtaining reasonable financing, to exercise the aforementioned Right of First Refusal in the event the Everest Proposal is approved. 18 23 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 3. MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER The Minimum Distribution Guarantee Agreement (the "Guarantee Agreement") required the Seller, who is also the Special Limited Partner, to make payments to the Partnership, if and when necessary, in an amount sufficient to enable the Partnership to provide the Limited Partners with distributions sufficient to achieve a minimum annual return upon the Limited Partners' investment in the Partnership, through December 31, 1993, as follows:
Years Ended December 31, Annual Return on Investment ------------------------ --------------------------- 1988 8.0% 1989 8.0% 1990 8.5% 1991 9.0% 1992 9.0% 1993 9.0%
Pursuant to a Memorandum of Understanding entered into on August 11, 1995, the Seller agreed to pay to the Partnership the sum of $350,000 in two equal installments of $175,000 each; the first such $175,000 payment was made in August 1995 and the second payment was made in May 1996. These payments represent the amount of a real estate tax refund received in 1994 for overpayment of prior year taxes which had previously been offset against amounts receivable from the Seller under the Guarantee Agreement. In addition, in August 1995, the Seller made an additional payment of $135,000 pursuant to the Memorandum of Understanding representing interest on late guarantee payments. This has been included in interest income. Through December 31, 1996, the Seller has funded a total of $13,130,998 directly to the Partnership for distributions to the Limited Partners pursuant to the Guarantee Agreement, which includes the $350,000, referred to above. This amount has been reflected as a reduction in the carrying amount of the property. The period covered by the Guarantee Agreement expired on December 31, 1993. Except with respect to the payments made in 1995 and 1996 pursuant to the Memorandum of Understanding, commencing in 1994, distributions, if any, to the Partners are made from cash flow from operations. 4. FEES PAID TO GENERAL PARTNERS AND AFFILIATES In accordance with the Partnership and other agreements, certain fees and reimbursements have been paid to the general partners and their affiliates as follows: a. A partnership management fee of $50,000 annually is paid to the Managing General Partner. This fee is included in general and administrative expenses for 1996, 1995 and 1994. b. Prior to February 1, 1995, a property management fee equal to 5% of collected revenues was paid to an affiliate of the Managing General Partner. Effective February 1, 1995, the property management fee payable to the Managing General Partner's affiliate was reduced to 3%. The property management fees paid to the affiliate for the years ended December 31, 1995 and 1994 were $181,375 and $273,130, respectively. On January 1, 1996, property management was 19 24 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 4. FEES PAID TO GENERAL PARTNERS AND AFFILIATES (CONTINUED) transferred to an unaffiliated agent, who manages the property for a fee of 3% of rental revenues. The property management fees paid to the unaffiliated agent for the year ended December 31, 1996 were $177,320. Additionally, the Partnership paid approximately $41,700 and $21,200 for the years ended December 31, 1995 and 1994, respectively, to an affiliate of the Managing General Partner for maintenance services. c. Through December 1990, partnership expense reimbursements, not to exceed $50,000 annually, were paid to the Non-Managing General Partner. The 1990 reimbursement has not been paid but has been accrued and is included in accounts payable and accrued liabilities at December 31, 1996 and 1995. The Non-Managing General Partner has requested reimbursement for expenses for 1990 through 1996, however, the Managing General Partner has refused to pay such reimbursements and none have been paid or accrued for the period from 1991 through 1996. d. Payments in the amount of approximately $376,000 were made to an affiliate of the Managing General Partner, in connection with earthquake related repairs during the year ended December 31, 1994 (see Note 5). These amounts were included in the provision for earthquake damage. e. The Managing General Partner is entitled to receive 1% of distributions (as defined in the Partnership Agreement) which are made by the Partnership. The distributions received by the Managing General Partner for the years ended December 31, 1996, 1995 and 1994 were $17,131, $27,262 and $98,899, respectively. f. The Partnership is obligated to pay certain fees to the Managing General Partner or its affiliates upon sale of the Property. The payment of such fees is subordinated to certain preferred returns to the Limited Partners. g. At December 31, 1995, $150,000 was estimated as due to the Non-Managing General Partner for reimbursement of professional fees paid on behalf of the Partnership in connection with issues raised in the Memorandum of Understanding. The amount paid in 1996 was $90,000, with the balance reversed against expenses. 5. COMMITMENTS AND CONTINGENCIES a. On January 17, 1994, the Property sustained damage due to the earthquake in the Los Angeles area (the "Northridge Earthquake"). For the years ended December 31, 1995 and 1994, approximately $37,000, and $1,142,000, respectively, has been provided for repairing the damage caused by the Northridge Earthquake. Based on a determination by the building's insurance carrier that the loss suffered by the Property as a result of the Northridge Earthquake was $1,537,718, the Partnership received in August 1994 a net insurance settlement in the amount of $355,448. This amount was determined by reducing the gross amount of the loss by: (a) the deductible provided for in the policy in the 20 25 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) amount of $1,071,808; (b) the $34,095 paid to the independent public adjuster that processed the building's claim; and (c) the insurance company's holdback of $76,367. The insurance settlement of $355,448 has been offset against the provision for earthquake loss. b. Approvals from the City of Los Angeles were obtained to "privatize" the streets and alleys providing access to the Property and to construct wrought iron security fencing with controlled entrances into the Property. The final resolution vacating the streets and alleys was approved on December 31, 1994. Landscape and the construction of the perimeter fencing and related improvements, including a guardhouse at the Ambassador Street entrance and a directory/trellis at the Peerless Street location is nearing completion. As a condition to its approval of the proposed "privatization", the City of Los Angeles required the construction of a storm drain and related improvements, for which an improvement agreement and guarantee in the amount $158,700 has been filed with the City of Los Angeles. The Partnership has pledged a certificate of deposit in such amount to the City to secure the improvement guarantee. Contracts in the amount of $683,000 and $49,975 have been awarded to construct the wrought iron security fencing and to construct a storm drain and related improvements, respectively, for which construction work commenced in September 1996. As of December 31, 1996, $445,250 has been paid to the contractor. c. The Managing General Partner of the Partnership is a plaintiff in various lawsuits and has also been named as a defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the Managing General Partner, the claims will not result in any material liability to the Partnership. In addition, the Partnership is involved in the actions described below: Securities and Exchange Commission The staff of the Securities and Exchange Commission (the "Commission") informed the Partnership and NAPICO in August, 1995 that it intends to recommend that the Commission institute a civil action and/or administrative proceeding against the Partnership, NAPICO and others that would be based, in part, on allegations that certain of the Partnership's financial statements in 1991, 1992 and 1993 should have characterized certain current assets deposited in the master disbursement account of the Partnership's property management company as accounts receivable from a related party rather than as cash. The Partnership and NAPICO strenuously disagree with the staff's contentions, which have not yet been considered by the Commission. Moreover, in the opinion of NAPICO, any action that might result from the staff's recommendation is not likely to have a material adverse effect on the Partnership. 21 26 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) J/B Lawsuit On February 13, 1997, J/B Investment Partners ("J/B") filed an action in the Los Angeles Superior Court (the "J/B Lawsuit"), against the Managing General Partner and its directors, and Casden Properties and certain of its affiliates (collectively, the "Defendants"). The J/B Lawsuit is styled as a class action brought against the Defendants on behalf of all limited partners of the Partnership, and commenced a proxy solicitation of the Limited Partners seeking to obtain sufficient votes in order to (a) authorize Everest to notify the General Partners on behalf of Limited Partners to call for a special meeting of the Limited Partners, and (b) adopt a resolution at such meeting approving Everest's proposal to purchase the Property for $40 million derivative action brought on behalf of the Partnership itself. The Partnership is named as a "nominal defendant." The complaint in the J/B Lawsuit contains four causes of action: (a) breach of fiduciary duty; (b) breach of contract; (c) unjust enrichment; and (d) equitable relief. The alleged wrongdoing of the Defendants as set forth in the J/B Lawsuit relates to the following issues: 1. J/B alleges misappropriation and misuse of Partnership funds which were the subject of a previous lawsuit (the "Prior Lawsuit") filed in the Los Angeles Superior Court in June 1995 by HillCreste Properties, Inc., the non-managing general partner of the Partnership (the "Non- Managing General Partner"). The Managing General Partner vigorously denied these allegations, and without admission of any wrongdoing the Prior Lawsuit was settled by a Memorandum of Understanding executed in August 1995, with final settlement documentation executed in April 1996, at which time the Prior Lawsuit was dismissed with prejudice as to all defendants. Additionally, J/B alleges that the Defendants have wrongfully caused the Partnership to pay legal fees on behalf of the Managing General Partner or certain of its affiliates relating to a regulatory investigation discussed above. 2. J/B alleges that the Defendants have failed to explore transactions that would maximize the value of the limited partners' investment in the Partnership, including the four unsolicited offers to purchase the Property, implementation of an auction process regarding the potential sale of the Property and obtaining financing with respect to the Property. 3. J/B alleges that the January 1997 letter from the Managing General Partner to the Limited Partners contained misleading statements about the original Everest proxy solicitation and about the Special Limited Partner's Right of First Refusal. Specifically, J/B contends that the January letter failed to disclose the Managing General Partner's advice and opinions regarding the response of the Limited Partners to the original Everest offer and contained misstatements about certain provisions of the Partnership Agreement pertaining to actions permitted or required to be taken by the Limited Partners of the Partnership. J/B states that the Limited Partners are not authorized, by vote of a majority-in-interest or otherwise, to bind, compel, or require the Partnership to enter into any contract for the sale of the Property, including the proposed sales 22 27 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) contract with Everest. In other words, J/B asserts that the Everest Proposal cannot be implemented as proposed because it is beyond the Limited Partners' authority under the Partnership Agreement. Consequently, J/B claims that the conditions to the Special Limited Partner's Right of First Refusal to purchase the Property for a price and on terms equal to those contained in the Everest Proposal cannot under the Partnership Agreement be fulfilled, and, therefore, no such Right of First Refusal could be exercised. J/B seeks damages in the J/B Lawsuit in a unspecified amount and equitable relief, including, among other things, a declaration judgment as to whether or not there exists a Right of First Refusal. The Managing General Partner strenuously disputes all of the accusations of wrongdoing against it and its affiliates alleged in the J/B Lawsuit, and defends the existence and integrity of the Right of First Refusal, which was an integral and material part of the financial structure of the Partnership and was disclosed to the Limited Partners, in the prospectus at the time of the original sale of units in the Partnership. The Managing General Partner further intends to vigorously defend the settlement of the Prior Lawsuit. It appears that J/B purchased or was assigned certain rights with respect to 200 units in the Partnership in or about 1995. It is not yet known whether J/B or plaintiff's class action counsel is connected with, directly or indirectly, parties sponsoring the original Everest proxy or the revised Everest Proposal, or other third parties who have expressed interest in acquiring the Property. The Special Limited Partnership has advised the Managing General Partner and the Non- Managing General Partner that the Right of First Refusal was a material inducement to the Special Limited Partner's sale of the Property to the Partnership, its purchase of a subordinated special limited partnership interest in the Partnership for $6,855,000, and its agreement to provide the Partnership with a Minimum Distribution Guarantee pursuant to which the Special Limited Partner paid a total of approximately $13,130,000 to the Partnership to support distributions to the Limited Partners. If, as a result of the J/B Lawsuit or otherwise, the Special Limited Partner is not entitled to exercise the Right of First Refusal with respect to the Everet Proposal or in response to other similar situations, the Special Limited Partner believes that it would be entitled to return of its investment and all sums paid under the Minimum Distribution Guarantee, together with interest thereon. Moreover, the settlement of the Prior Lawsuit was reached after extensive negotiations with the Non-Managing General Partner which negotiated on behalf of the Partnership a binding and conclusive settlement. If, as a result of the J/B Lawsuit or otherwise, the settlement of the Prior Lawsuit is set aside, the Managing General Partner and its affiliates would seek a return of all funds paid to the Partnership as a result of such settlement. 23 28 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Defendants believe the allegations of wrongdoing in the J/B Lawsuit lack merit, and intend to contest them vigorously. The Defendants believe a number of the claims asserted in the J/B Lawsuit are bared by the settlement and dismissal with prejudice of the Prior Lawsuit. The J/B Lawsuit could result in delaying, complicating, or preventing any significant transactions with respect to the sale of the Property, and diminishing future distributions to the Limited Partners until such case is resolved. In addition, the Partnership is expected to incur significant legal fees and expense to the extent of its responsibilities to indemnify and hold the Defendants harmless under certain provisions in the Partnership Agreement. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. The carrying amount of assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 7. SUBSEQUENT EVENT In January 1997, the Partnership distributed $588,097 to the General and Limited Partners related to 1996. 24 29 SCHEDULE III CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 NOTES: 1. Rental property is stated at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. Substantially all of the apartments are leased on a month-to-month basis. 2. The total cost of land, buildings, and equipment for federal income tax purposes at December 31, 1996 is approximately $51,324,040. 3. Investment in rental property:
Buildings, Furniture and Land Equipment Total ---- --------- ----- Balance, January 1, 1994 $16,175,000 $ 28,961,892 $ 45,136,892 Less: minimum distribution guarantee amounts funded in 1994 -- (47,490) (47,490) ----------- ------------ ------------ Balance, December 31, 1994 16,175,000 28,914,402 45,089,402 Less: minimum distribution guarantee amounts funded in 1995 -- (175,000) (175,000) ----------- ------------ ------------ Balance, December 31, 1995 16,175,000 28,739,402 44,914,402 Less: minimum distribution guarantee amounts funded in 1996 -- (175,000) (175,000) Additions: Improvements -- 445,250 445,250 ----------- ------------ ------------ Balance, December 31, 1996 $16,175,000 $ 29,009,652 $ 45,184,652 =========== ============ ============
25 30 SCHEDULE III (CONTINUED) CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
Buildings, Furniture and Equipment --------- Accumulated Depreciation: Balance, January 1, 1994 $ 8,712,445 Provision for the year ended December 31, 1994 716,572 ----------- Balance, December 31, 1994 9,429,017 Provision for the year ended December 31, 1995 713,054 ----------- Balance, December 31, 1995 10,142,071 Provision for the year ended December 31, 1996 705,556 ----------- Balance, December 31, 1996 $10,847,627 ===========
26 31 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (the "Partnership") has no directors or executive officers of its own. National Partnership Investments Corp. ("NAPICO" or the "Managing General Partner") is a wholly-owned subsidiary of Casden Investment Corporation, an affiliate of The Casden Company. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs. CHARLES H. BOXENBAUM, 67, Chairman of the Board of Directors and Chief Executive Officer of NAPICO. Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. In 1963, he was the winner of the Snyder Award, the highest annual award offered by the National Association of Real Estate Boards for Best Exchange. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Mr. Boxenbaum was a member of the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago. BRUCE E. NELSON, 45, President and a director of NAPICO. Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas. ALAN I. CASDEN, 51, Chairman of The Casden Company, an affiliate of Casden Properties (formerly CoastFed Properties), a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO. Mr. Casden is Chairman of the Board, Chief Executive Officer and sole shareholder of The Casden Company and Casden Investment Corp. Prior to that, he was the president and chairman of Mayer Group, Inc., which he joined in 1975. He is also chairman of Mayer Management, Inc., a real estate management firm. Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums. 27 32 Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, and the President's Council of the California Building Industry Association. He also serves on the advisory board to the School of Accounting of the University of Southern California. He holds a Bachelor of Science degree from the University of Southern California. HENRY C. CASDEN, 53, President, Chief Operating Officer and Secretary of The Casden Company and a director and secretary of NAPICO. Mr. Casden has been President and Chief Operating Officer of The Casden Company, as well as a director of NAPICO since February 1988. He became secretary of both companies in late 1994. From 1982 to 1988, Mr. Casden was of counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From 1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink & Casden, Professional Corporation. Mr. Casden received his Bachelor of Arts degree from the University of California at Los Angeles, and is a graduate of the University of San Diego Law School. Mr. Casden is a member of the State Bar of California and has numerous professional affiliations. BRIAN D. GOLDBERG, 33, Chief Financial Officer of The Casden Company and a director of NAPICO. Mr. Goldberg joined The Casden Company in 1990 as Vice President of Finance and became Chief Financial Officer in March 1991. Prior to joining The Casden Company, Mr. Goldberg was with Arthur Andersen & Co., an international public accounting firm, from August 1985 until July 1990 in their Los Angeles office. He received his bachelor of science degree in Accounting from the University of Denver. Mr. Goldberg is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. SHAWN HORWITZ, 37, Executive Vice President and Chief Financial Officer. Mr. Horwitz joined NAPICO in 1990 and is responsible for the financial affairs of NAPICO and the limited partnerships sponsored by NAPICO. Prior to joining NAPICO, Mr. Horwitz was President for approximately one year of Star Sub Shops, Inc., a corporation engaged in the business of selling fast food franchises, was an audit manager in the real estate industry group for Altschuler, Melvoin & Glasser for six years, and was an auditor with Arthur Young & Co. for three years. Mr. Horwitz received his Bachelor of Commerce degree in accounting from Rhodes University in South Africa and is a member of the Illinois Society of Certified Public Accountants, the American Institute of Certified Public Accountants and the South African Institute of Chartered Accountants. BOB SCHAFER, 55, Senior Vice President and Corporate Controller. Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible for the financial reporting function of the company. Prior to this, he was a Group and Division Controller at Bergen Brunswig for over eight years, Controller at a Flintkote subsidiary for over four years, and Assistant Controller at an electronics subsidiary of General Electric for two years. Mr. Schafer is a member of the California Society of Certified Public Accountants. He holds a Bachelor of Science degree in accounting from Woodbury University, Burbank, California. 28 33 PATRICIA W. TOY, 67, Senior Vice President - Communications and Assistant Secretary Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska. MARK L. WALTHER, 36, Executive Vice President, General Counsel and Assistant Secretary. Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther worked in the San Francisco law firm of Browne and Kahn which specialized in construction litigation. Mr. Walther received his Bachelor of Arts Degree in Political Science from the University of California, Santa Barbara and is a graduate of the University of California, Davis, School of Law. He is a member of the State Bar of Hawaii. 29 34 ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS: In accordance with the Partnership Agreement, certain fees and reimbursements are paid to the general partners and their affiliates as follows: (a) A partnership management fee of $50,000 annually is paid to the Managing General Partner. This fee is included in general and administrative expenses for 1996, 1995 and 1994. (b) A property management fee equal to 3% (5% prior to February 1, 1995) of collected revenues was paid to an affiliate of the Managing General Partner through December 31, 1995. The property management fees for the years ended December 31, 1995 and 1994 were $181,375 and $273,130, respectively. On January 1, 1996, property management was transferred to an unaffiliated agent, who manages the property for a fee of 3% of rental revenues. Additionally, the Partnership paid approximately $41,700 and $21,200 for the years ended December 31, 1995 and 1994, respectively, to an affiliate of the Managing General Partner for maintenance services. (c) Payments in the amount of approximately $376,000 were made to an affiliate of the Managing General Partner, in connection with earthquake related repairs during the year ended December 31, 1994. These amounts have been included in provision for earthquake damage for the year ended December 31, 1994. (d) 1% of distributions (as defined in the Partnership Agreement) is payable to the Managing General Partner. (e) In addition, the Partnership is obligated to pay fees to the Managing General Partner or its affiliates upon sale of the Property based upon the form of such sale. The payment of such fees are subordinated to certain preferred returns to the Limited Partners. ITEM 12. SECURITY OF OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: (a) Security of Ownership of Certain Beneficial Owners The General Partners own all of the outstanding general partnership interests of the Partnership; no person is known to own beneficially in excess of 5% of the outstanding limited partnership interests. 30 35 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The Partnership has no officers, directors, or employees of its own. All of its affairs are managed by the Managing General Partner. The transactions with the Managing General Partner are primarily in the form of fees paid by the Partnership to the General Partners or their affiliates for services rendered to the Partnership, as discussed in Item 11 and in the notes to the accompanying financial statements. PART IV. ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K: FINANCIAL STATEMENTS Report of Independent Public Accountants. Balance Sheets as of December 31, 1996 and 1995. Statements of Income for the years ended December 31, 1996, 1995 and 1994. Statements of Partners' Capital (Deficiency) for the years ended December 31, 1996, 1995 and 1994. Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Financial Statements. FINANCIAL STATEMENT SCHEDULE: Schedule III - Real Estate and Accumulated Depreciation, December 31, 1996. The remaining schedules are omitted because any required information is included in the financial statements and notes thereto, or they are not applicable or not required. EXHIBITS (3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 Registration #33-22857 incorporated herein by reference. (10) Material contracts: The registrant is not party to any material contracts, other than the Amended and Restated Certificate and Agreement of Limited Partnership dated September 8, 1988 and the contracts representing the Partnership's acquisition of its apartment project as previously filed at the Securities Exchange Commission, File #33-22857 which is hereby incorporated by reference. (13) Annual report to security holders Pages ___ to ___. REPORTS ON FORM 8-K A report on Form 8-K dated December 10, 1996, was filed with the Securities and Exchange Commission. This Form 8-K disclosed that the registrant became aware of an entity conducting a tender offer for up to 320,000 units in the registrant for $4.25 per unit. The general partners on behalf of the registrant, by letter, mailed on or about December 10, 1996, advised the limited partners that the general partners recommended rejecting the offer because they believed that it did not reflect the true value of the units. 31 36 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 in the City of Los Angeles, State of California. CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. By: NATIONAL PARTNERSHIP INVESTMENTS CORP. The Managing General Partner __________________________________ Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer __________________________________ Bruce E. Nelson Director and President __________________________________ Alan I. Casden Director __________________________________ Henry C. Casden Director __________________________________ Brian D. Goldberg Director __________________________________ Shawn D. Horwitz Executive Vice President and Chief Financial Officer __________________________________ Bob E. Schafer Senior Vice President and Corporate Controller 32 -----END PRIVACY-ENHANCED MESSAGE-----