-----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, B5rN5/yA1orRCGeoCD6OSh/apmUa82AA0+CPz1cEJRORo1/P/w95USqZdLYnX0sf 4SWg0/w9C+mmhigJw/aV+w== 0000950148-98-001403.txt : 19980521 0000950148-98-001403.hdr.sgml : 19980521 ACCESSION NUMBER: 0000950148-98-001403 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980520 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: 10-Q SEC ACT: SEC FILE NUMBER: 033-22857 FILM NUMBER: 98628679 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 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended MARCH 31, 1998 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 BLVD., SUITE 201 BEVERLY HILLS, CALIF. 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 [ ] 2 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION Item 1. Financial Statements and Notes to Financial Statements Balance Sheets, March 31, 1998 and December 31, 1997 1 Statements of Operations, Three Months Ended March 31, 1998 and 1997 ... 2 Statement of Partners' Capital (Deficiency) Three Months Ended March 31, 1998 ............ 3 Statements of Cash Flows Three Months Ended March 31, 1998 and 1997 ... 4 Notes to Financial Statements ...................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings ...................................... 13 Item 6. Exhibits and Reports on Form 8-K ....................... 14 Signatures ..................................................... 15
3 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 ASSETS
1998 1997 (Unaudited) (Audited) ------------ ------------ RENTAL PROPERTY (Notes 1, 2 and 3) $ 33,838,777 $ 34,013,326 CASH AND CASH EQUIVALENTS (Note 1) 4,612,642 4,100,537 RESTRICTED CASH (Notes 1 and 5) 158,700 158,700 OTHER ASSETS (Note 5) 10,524 39,001 ------------ ------------ $ 38,620,643 $ 38,311,564 ============ ============ LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 4) $ 380,401 $ 367,529 SECURITY DEPOSITS 307,511 297,622 PREPAID RENT 12,435 16,866 ------------ ------------ 700,347 682,017 COMMITMENTS AND CONTINGENCIES (Note 5) PARTNERS' CAPITAL (Note 1) 37,920,296 37,629,547 ------------ ------------ $ 38,620,643 $ 38,311,564 ============ ============
The accompanying notes are an integral part of these financial statements. 4 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
1998 1997 ------------ ------------ REVENUES Rental income $ 1,492,831 $ 1,419,028 Interest and other income (Note 3) 87,447 66,564 ------------ ------------ 1,580,278 1,485,592 ------------ ------------ EXPENSES Operating (Note 4) 311,750 332,608 Property taxes 64,067 66,902 Management fee - (Note 4) 45,213 41,294 General and administrative (Note 4) 91,088 124,499 Depreciation 176,389 176,389 ------------ ------------ 688,507 741,692 ------------ ------------ NET INCOME $ 891,771 $ 743,900 ============ ============ NET INCOME PER DEPOSITORY UNIT $ 0.12 $ 0.10 ============ ============
The accompanying notes are an integral part of these financial statements. 5 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY) THREE MONTHS ENDED MARCH 31, 1998 (Unaudited)
Special Limited General Limited Partner Partners Partners (Note 1) Total ------------ ------------ ------------ ------------ PARTNERSHIP INTERESTS BALANCE, JANUARY 1, 1998 $ (274,234) $ 37,903,781 $ -- $ 37,629,547 DISTRIBUTIONS (Note 7) (6,010) (595,012) -- (601,022) NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 8,918 882,853 -- 891,771 ------------ ------------ ------------ ------------ BALANCE, MARCH 31, 1998 $ (271,327) $ 38,191,623 $ -- $ 37,920,296 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 6 CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 891,771 $ 743,900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 176,389 176,389 Decrease (increase) in other assets 28,477 37,918 Increase (decrease) in accounts payable and accrued liabilities 12,872 66,011 Increase (decrease) in security deposits 9,889 (6,158) Increase (decrease) in prepaid rent (4,431) (58,012) ------------ ------------ Net cash provided by operating activities 1,114,967 960,048 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in rental property (1,840) (189,386) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (601,022) (588,097) ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 512,105 182,565 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,100,537 3,490,463 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,612,642 $ 3,673,028 ============ ============
The accompanying notes are an integral part of these financial statements. 7 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the Annual Report for the year ended December 31, 1997 prepared by Century HillCreste Apartment Investors, L.P. (the "Partnership"). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. In the opinion of National Partnership Investments Corp. ("NAPICO"), the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1998, and the results of operations and changes in cash flows for the three months then ended. ORGANIZATION The Partnership, a California limited partnership, was formed on June 6, 1988, with NAPICO (the "Managing General Partner"), and HillCreste Properties Inc. (the "Non-Managing General Partner") as the general partners (collectively, 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. NAPICO is a wholly owned subsidiary of Casden Investment Corporation, which is wholly owned by Alan I. Casden. 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 (the "Seller") for a purchase price of $68,548,000. To complete the purchase of the Property, the Seller 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. 5 8 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. MINIMUM DISTRIBUTION GUARANTEE The minimum distribution guarantee payments from the seller have been reflected as a reduction in the carrying amount of the Property. 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
CASH AND CASH EQUIVALENTS Cash and cash equivalents consists 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 as such taxes, if any, are the liability of the partners. 6 9 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INCOME PER DEPOSITORY UNIT Net income per depository unit was computed by dividing the limited partners' share of net income (99 percent) by the number of depository units outstanding during the year. The number of depository units was 7,258,000 for the periods presented. IMPAIRMENT OF LONG-LIVED ASSETS 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. NOTE 2 - RENTAL PROPERTY Rental property is carried at cost and consists of the following at March 31, 1998 and December 31, 1997:
1998 1997 ------------ ------------ Land $ 16,175,000 $ 16,175,000 Building 24,694,402 24,694,402 Furniture and equipment 3,870,000 3,870,000 Improvements 828,947 827,107 ------------ ------------ 45,568,349 45,566,509 Less accumulated depreciation (11,729,572) (11,553,183) ------------ ------------ $ 33,838,777 $ 34,013,326 ============ ============
In December 1996, Everest HillCreste Investors, LLC ("Everest"), an affiliate of Everest Century Investors, LLC, 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"). 7 10 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 2 - RENTAL PROPERTY (CONTINUED) Subsequently, Everest increased its offer by $7 million to $47 million (the "Everest Proposal"). Additionally, the Partnership 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. A real estate investment trust organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership the real estate assets of the Partnership for $52,500,000. The Partnership received from an unrelated entity a proposal, dated March 26, 1998, to purchase the property owned by the Partnership for $54,500,000. NOTE 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%
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. This amount has been reflected as a reduction in the carrying amount of the Property. Commencing in 1994, distributions to the Partners have been made from cash flow from operations. 8 11 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 4 - FEES PAID TO GENERAL PARTNERS AND AFFILIATES 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 payable to the Managing General Partner of $50,000 annually. The fee is included in general and administrative expenses. (b) Partnership expense reimbursements not to exceed $50,000 annually are paid to the Non-Managing General Partner. (c) 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. (d) The Managing General Partner is entitled to receive 1 percent of distributions (as defined in the Partnership Agreement). This is paid quarterly by the Partnership to the Managing General Partner. NOTE 5 - COMMITMENTS AND CONTINGENCIES a. Construction to "privatize" the streets and alleys providing access to the Property and to construct wrought iron security fencing with controlled entrances into the Property is now complete at a cost to the Partnership of $828,947. The Partnership pledged a certificate of deposit in the amount of $158,700 to the City, to secure an improvement guarantee on the additional construction of a storm drain and related improvement, which is also complete. Upon final inspection, the Partnership will receive its deposit of $158,700. b. 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: 9 12 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED) c. The Partnership, NAPICO, and several of NAPICO's officers, directors and affiliates consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The order concerns, in part, the treatment of Partnership funds deposited between September 1991 and July 1993 in a master disbursement account used by the Partnership's previous property management company. The Commission found that those funds should have been recorded on the Partnership's books and reported in its financial statements as related party accounts receivable rather than as cash as done so by the Partnership's auditors. Although the Commission found that this misclassification of current assets violated federal securities laws, the Commission did not find that these violations were intentional nor did the Commission find that limited partners had suffered any loss or damage as a result of these violations. Moreover, the Commission's order does not impose any cost, burden or penalty on the Partnership and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. The events that gave rise to the Commission's order occurred in or before 1993. Subsequent corrective action by the Partnership and its general partners precludes any recurrence of the cash management issues described in the Commission's order. d. 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"). By order dated November 25, 1997, the Los Angeles Superior Court dismissed the J/B Lawsuit with prejudice. No appeal has been taken. The J/B Lawsuit was 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 was named as a "nominal defendant." The complaint in the J/B Lawsuit contained 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 related to the following issues: 1. J/B alleged 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 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 10 13 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Lawsuit was dismissed with prejudice as to all defendants. Additionally, J/B alleged that the Defendants 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 alleged that the Defendants 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 alleged 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 contended 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 stated that the Limited Partners were 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 asserted that the Everest Proposal could not be implemented as proposed because it is beyond the Limited Partners' authority under the Partnership Agreement. Consequently, J/B claimed 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 could not under the Partnership Agreement be fulfilled, and, therefore, no such Right of First Refusal could be exercised. J/B was seeking 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. e. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. 11 14 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 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 amounts of assets and liabilities reported on the balance sheets that require such disclosure approximate fair value due to their short-term maturity. 12 15 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION 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. Construction to "privatize" the streets and alleys providing access to the Property and to construct wrought iron security fencing with controlled entrances into the Property is now complete at a cost to the Partnership of $828,947. The Partnership pledged a certificate of deposit in the amount of $158,700 to the City, to secure an improvement guarantee on the additional construction of a storm drain and related improvement, which is also complete. Upon final inspection, the Partnership will receive its deposit of $158,700. RESULTS OF OPERATIONS Occupancy averaged 99 percent and 97 percent for the three months ended March 31, 1998 and 1997, respectively. Rental income increased in 1998 as compared to 1997 as a result of the increase in occupancy and an increase in rental charges per unit. Included in the interest and other income is interest income earned on cash and cash equivalents of $58,000 and $45,000 for the three months ended March 31, 1998 and 1997, respectively. Interest income increased in 1998 as compared to 1997 as a result of the increase in cash and cash equivalents from $3,490,000 at December 31, 1996 to $4,613,000 at March 31, 1998. The Partnership has its cash and cash equivalents on deposit primarily with one money market mutual fund. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase the property. 13 16 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) The REIT proposes to purchase such property for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the consent of the limited partners to the sale of the property and (iii) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the property for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. 14 17 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of March 31, 1998, NAPICO, the Managing General Partner, was 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 Partnership, NAPICO, and several of NAPICO's officers, directors and affiliates consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The order concerns, in part, the treatment of Partnership funds deposited between September 1991 and July 1993 in a master disbursement account used by the Partnership's previous property management company. The Commission found that those funds should have been recorded on the Partnership's books and reported in its financial statements as related party accounts receivable rather than as cash as done so by the Partnership's auditors. Although the Commission found that this misclassification of current assets violated federal securities laws, the Commission did not find that these violations were intentional nor did the Commission find that limited partners had suffered any loss or damage as a result of these violations. Moreover, the Commission's order does not impose any cost, burden or penalty on the Partnership and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. The events that gave rise to the Commission's order occurred in or before 1993. Subsequent corrective action by the Partnership and its general partners precludes any recurrence of the cash management issues described in the Commission's order. 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"). By order dated November 25, 1997, the Los Angeles Superior Court dismissed the J/B Lawsuit with prejudice. No appeal has been taken. The J/B Lawsuit was 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 was named as a "nominal defendant." The complaint in the J/B Lawsuit contained four causes of action: (a) breach of fiduciary duty; (b) breach of contract; (c) unjust enrichment; and (d) equitable relief. 15 18 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (CONTINUED) The alleged wrongdoing of the Defendants as set forth in the J/B Lawsuit related to the following issues: 3. J/B alleged 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 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 alleged that the Defendants 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 alleged that the Defendants 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 alleged 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 contended 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 stated that the Limited Partners were 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 asserted that the Everest Proposal cannot be implemented as proposed because it is beyond the Limited Partners' authority under the Partnership Agreement. Consequently, J/B claimed 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 could not under the Partnership Agreement be fulfilled, and, therefore, no such Right of First Refusal could be exercised. J/B was seeking 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No reports on Form 8-K were filed during the quarter ended March 31, 1998. 16 19 CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURY HILLCRESTE APARTMENT INVESTORS, L.P. (a California limited partnership) By: National Partnership Investments Corp. Managing General Partner /s/ BRUCE NELSON ------------------------------- Bruce Nelson President Date: May 18, 1998 -------------- /s/ CHARLES H. BOXENBAUM ------------------------------- Charles H. Boxenbaum Chief Executive Officer Date: May 18, 1998 -------------- 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 4,612,642 0 0 0 0 4,781,866 45,568,349 11,729,572 38,620,643 380,401 0 0 0 0 37,920,296 38,620,643 0 1,580,278 0 0 688,507 0 0 891,771 0 891,771 0 0 0 891,771 0 0
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