FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-13418
CENTURY PROPERTIES GROWTH FUND XXII
(Exact name of small business issuer as specified in its charter)
California 94-2939418
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Unrestricted cash and cash equivalents $ 4,241
Receivables and deposits 1,155
Restricted escrows 1,026
Other assets 1,475
Investment properties:
Land $ 14,396
Buildings and related personal property 118,821
133,217
Less accumulated depreciation (58,231) 74,986
$ 82,883
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 174
Tenant security deposits payable 345
Accrued property taxes 980
Other liabilities 843
Mortgage notes payable 72,794
Partners' (Deficit) Capital
General partner's $ (7,769)
Limited partners' (82,848 units issued and
outstanding) 15,516 7,747
$ 82,883
See Accompanying Notes to Consolidated Financial Statements
b)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 5,344 $ 5,100 $ 10,666 $ 10,166
Other income 254 320 526 595
Total revenues 5,598 5,420 11,192 10,761
Expenses:
Operating 1,728 1,956 3,593 3,759
General and administrative 119 77 211 186
Depreciation 1,054 1,007 2,083 2,004
Interest 1,474 1,484 2,952 2,970
Property taxes 470 440 943 882
Total expenses 4,845 4,964 9,782 9,801
Income before
extraordinary item 753 456 1,410 960
Extraordinary loss on early
extinguishment of debt -- (28) -- (28)
Net income $ 753 $ 428 $ 1,410 $ 932
Net income allocated
to general partner $ 89 $ 51 $ 166 $ 110
Net income allocated
to limited partners 664 377 1,244 822
$ 753 $ 428 $ 1,410 $ 932
Net income per limited
partnership unit:
Income before extraordinary
item $ 8.01 $ 4.85 $ 15.02 $ 10.22
Extraordinary loss on early
extinguishment of debt -- (.30) -- (.30)
Net income $ 8.01 $ 4.55 $ 15.02 $ 9.92
Distribution per limited
partnership unit $ -- $ -- $ 53.23 $ --
See Accompanying Notes to Consolidated Financial Statements
c)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 82,848 $ -- $82,848 $82,848
Partners' (deficit) capital at
December 31, 1998 82,848 $(7,345) $18,682 $11,337
Net income for the six months
ended June 30, 1999 -- 166 1,244 1,410
Distribution to partners -- (590) (4,410) (5,000)
Partners' (deficit) capital
at June 30, 1999 82,848 $(7,769) $15,516 $ 7,747
See Accompanying Notes to Consolidated Financial Statements
d)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 1,410 $ 932
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 2,083 2,004
Amortization of loan costs 107 105
Extraordinary loss on early extinguishment of debt -- 28
Change in accounts:
Receivables and deposits 593 (236)
Other assets 30 92
Accounts payable (31) 30
Tenant security deposits payable 3 (2)
Accrued property taxes (256) 69
Other liabilities 87 (8)
Net cash provided by operating activities 4,026 3,014
Cash flows from investing activities:
Net (deposits to) withdrawals from restricted escrows (99) 187
Property improvements and replacements (1,029) (601)
Net cash used in investing activities (1,128) (414)
Cash flows from financing activities:
Mortgage principal payments (341) (301)
Loan costs paid -- (167)
Repayment of mortgage note payable -- (2,840)
Proceeds from mortgage note payable -- 4,000
Distributions to partners (5,000) --
Net cash (used in) provided by
financing activities (5,341) 692
Net (decrease) increase in unrestricted cash and cash
equivalents (2,443) 3,292
Unrestricted cash and cash equivalents at beginning of
period 6,684 3,345
Unrestricted cash and cash equivalents at end of period $ 4,241 $ 6,637
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,845 $ 2,866
See Accompanying Notes to Consolidated Financial Statements
e)
CENTURY PROPERTIES GROWTH FUND XXII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Century
Properties Growth Fund XXII (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Fox Capital Management Corporation
("FCMC" or the "Managing General Partner"), a California corporation, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 1999, are not necessarily indicative of the results
that may be expected for the fiscal year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Annual Report of the Partnership on Form 10-KSB for the
year ended December 31, 1998.
Principles of Consolidation:
The Partnership's consolidated financial statements include the accounts of Wood
Creek CPGF 22, L.P., Plantation Creek CPGF 22, L.P., Stoney Creek CPGF 22, L.P.,
Four Winds CPGF 22, L.P., Coopers Point CPGF 22, L.P., Hampton Greens CPGF 22,
L.P., Century Stoney Greens, L.P. and Copper Mill CPGF 22, L.P., partnerships in
which the registrant owns a 100% interest in each of these partnerships. The
Partnership has the ability to control the major operating and financial
policies of these partnerships. All intercompany transactions have been
eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following transactions with affiliates of the Managing General Partner were
incurred during the six month periods ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $561 $534
Reimbursement for services of affiliates 82 97
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $561,000 and
$534,000 for the six months ended June 30, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $82,000 and $97,000 for the
six months ended June 30, 1999 and 1998, respectively, including approximately
$1,000 and $15,000 of construction services reimbursements during the six months
ended June 30, 1999 and 1998, respectively.
As part of the refinancing of Promontory Point Apartments (see "Note D"), the
Partnership paid an affiliate of the Managing General Partner a broker's fee of
$20,000 during the six months ended June 30, 1998.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 27,208.11 (32.84% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $359 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,830.00
units. As a result, AIMCO and its affiliates currently own 25,675.50 units of
limited partnership interest in the Partnership representing 30.99% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
NOTE D - REFINANCING AND EXTRAORDINARY LOSS
On April 3, 1998, the Partnership refinanced the mortgage encumbering Promontory
Point. The refinancing replaced indebtedness of $2,340,000 with a new mortgage
in the amount of $4,000,000. The new mortgage carries a stated interest rate of
7.04%, which replaced a rate equal to LIBOR plus 3.75% (approximately 9.46% at
the time of the refinancing). The new mortgage matures May 1, 2008. For
financial statement purposes, the Partnership recognized an extraordinary loss
on the early extinguishment of debt of approximately $28,000 during the second
quarter of 1998. This loss is attributable to the write-off of unamortized loan
costs associated with the previous mortgage.
NOTE E - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of nine apartment complexes
in the Southeast, Midwest and Southwest United States. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental revenue $10,666 $ -- $10,666
Other income 511 15 526
Interest expense 2,952 -- 2,952
Depreciation 2,083 -- 2,083
General and administrative expense -- 211 211
Segment profit (loss) 1,606 (196) 1,410
Total assets 82,352 531 82,883
Capital expenditures for investment
properties 1,029 -- 1,029
1998
Residential Other Totals
Rental revenue $10,166 $ -- $10,166
Other income 560 35 595
Interest expense 2,970 -- 2,970
Depreciation 2,004 -- 2,004
General and administrative expense -- 186 186
Extraordinary loss on early
extinguishment of debt (28) -- (28)
Segment profit (loss) 1,083 (151) 932
Total assets 86,247 2,442 88,689
Capital expenditures for investment
properties 601 -- 601
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of nine apartment complexes.
The following table sets forth the average occupancy for each of the properties
for the six months ended June 30, 1999 and 1998:
Average
Occupancy
Property 1999 1998
Cooper's Pointe Apartments
North Charleston, South Carolina 97% 97%
Copper Mill Apartments (1)
Richmond, Virginia 96% 86%
Four Winds Apartments
Overland Park, Kansas 96% 97%
Autumn Run Apartments
Naperville, Illinois 95% 96%
Plantation Creek Apartments
Atlanta, Georgia 95% 95%
Wood Creek Apartments
Mesa, Arizona 94% 95%
Promontory Point Apartments (2)
Austin, Texas 96% 93%
Hampton Greens Apartments (3)
Dallas, Texas 97% 91%
Stoney Creek Apartments (3)
Dallas, Texas 97% 92%
(1) The increase at Copper Mill Apartments is due to economic growth in the
western Richmond, Virginia area.
(2) The increase in occupancy at Promontory Point Apartments is due to economic
growth in the Northeast Austin, Texas area.
(3) The increase in occupancy at Hampton Greens and Stoney Creek is due to
increased marketing efforts.
Results of Operations
The Partnership's net income for the three and six month periods ended June 30,
1999, was approximately $753,000 and $1,410,000, respectively, as compared to
approximately $428,000 and $932,000, respectively, for the corresponding period
in 1998. The increase in net income is primarily due to an increase in total
revenues and a decrease in total expenses.
The increase in total revenues is due to an increase in rental income. Rental
income increased due to an increase in rental rates at all of the Partnership's
rental properties except Wood Creek and increases in occupancy at Copper Mill,
Stoney Creek, Promontory Point and Hampton Greens Apartments. Total expenses
decreased primarily due to decreases in operating expenses, partially offset by
an increase in depreciation, general and administrative, and property tax
expenses. Operating expenses decreased primarily as a result of a decrease in
maintenance expenses. Maintenance expenses decreased primarily due to decreases
in landscaping at Plantation Creek, Wood Creek, Four Winds, Stoney Creek, and
Promontory Point. Decreases in interior and exterior building improvements at
Plantation Creek, Four Winds, Copper Mill, and Stoney Creek also contributed to
the overall decrease. Depreciation expense increased resulting from depreciable
assets being placed into service at the Partnership's investment properties
during the last twelve months. Property tax expense increased due to an
increase in assessed value in 1998 not recognized until the fourth quarter of
1998 at both Wood Creek and Stoney Creek. General and administrative expenses
increased due to an increase in administrative expenses and the settlement of a
legal case during the first quarter of 1998 as disclosed in the Partnership's
Annual Report on Form 10-KSB for the year ended December 31, 1998. Also
contributing to the increase in net income was a $28,000 extraordinary loss on
early extinguishment of debt which was recognized during the three and six
months ended June 30, 1998.
Included in general and administrative expenses for the six months ended June
30, 1999 and 1998, are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with management of the Partnership.
In addition, costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At June 30, 1999, the Partnership had unrestricted cash and cash equivalents of
approximately $4,241,000 as compared to approximately $6,637,000 at June 30,
1998. For the six months ended June 30, 1999, unrestricted cash and cash
equivalents decreased approximately $2,443,000 from the Partnership's year ended
December 31, 1998. The decrease in cash and cash equivalents is due to
approximately $1,128,000 of cash used in investing activities and approximately
$5,341,000 of cash used in financing activities, which was partially offset by
approximately $4,026,000 of cash provided by operating activities. Cash used in
investing activities consists of property improvements and replacements and
deposits to restricted escrows maintained by the mortgage lenders. Cash used in
financing activities consists of principal payments made on the mortgages
encumbering the Partnership's investment properties and a cash distribution made
to the partners during January 1999. The Partnership invests its working
capital reserves in money market accounts.
An affiliate of the Managing General Partner has made available to the
Partnership a credit line of up to $150,000 per property owned by the
Partnership. The Partnership has no outstanding amounts due under this line of
credit. Based on present plans, the Managing General Partner does not
anticipate the need to borrow in the near future. Other than cash and cash
equivalents, the line of credit is the Partnership's only unused source of
liquidity.
On April 3, 1998, the Partnership refinanced the mortgage encumbering Promontory
Point. The refinancing replaced indebtedness of $2,840,000 with a new mortgage
in the amount of $4,000,000. The new mortgage carries a stated interest rate of
7.04%, which replaced a rate equal to LIBOR plus 3.75%. The new mortgage
matures May 1, 2008.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership and to
comply with Federal, state and local legal and regulatory requirements. Capital
improvements planned for each of the Partnership's properties are detailed
below.
Wood Creek
During the six months ended June 30, 1999, the Partnership completed
approximately $123,000 of capital improvement projects at Wood Creek, consisting
primarily of floor covering replacements, landscaping, parking lot improvements,
and signage. These improvements were funded from operating cash flow. Based on
a report received from an independent third party consultant analyzing necessary
exterior improvements and estimates made by the Managing General Partner on
interior improvements, it is estimated that the property requires approximately
$360,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to capital improvements of approximately $434,000
for 1999 at this property which include certain of the required improvements and
consist of parking lot repairs, plumbing repairs, pool repairs, landscaping,
floor covering replacements and roof repairs.
Plantation Creek
During the six months ended June 30, 1999, the Partnership completed
approximately $429,000 of capital improvement projects at Plantation Creek,
consisting primarily of landscaping, floor covering replacements, roof repairs,
painting, which is approximately 70% complete, and appliance replacements.
These improvements were funded from replacement reserves and operating cash
flow. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the Managing
General Partner on interior improvements, it is estimated that the property
requires approximately $862,000 of capital improvements over the next few years.
The Partnership has budgeted, but is not limited to capital improvements of
approximately $978,000 for 1999 at this property which include certain of the
required improvements and consist of landscaping, painting, floor covering
replacements, and parking lot repairs and roof replacements.
Stoney Creek
During the six months ended June 30, 1999, the Partnership completed
approximately $31,000 of capital improvement projects at Stoney Creek,
consisting primarily of floor covering replacements and hot water heater
replacements. These improvements were funded from replacement reserves. Based
on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $473,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to capital improvements of
approximately $267,000 for 1999 at this property which include certain of the
required improvements and consist of painting, floor covering replacements, hot
water heater replacements and landscaping.
Four Winds
During the six months ended June 30, 1999, the Partnership completed
approximately $81,000 of capital improvement projects at Four Winds, consisting
primarily of floor covering replacements, air conditioning repairs, and
appliances. These improvements were funded from replacement reserves and
operating cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $262,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to capital
improvements of approximately $302,000 for 1999 at this property which include
certain of the required improvements and consist of lighting upgrades, parking
lot repairs, air conditioning repairs, appliance upgrades, floor covering
replacement, structural improvements, roof and building repairs.
Promontory Point
During the six months ended June 30, 1999, the Partnership completed
approximately $102,000 of capital improvement projects at Promontory Point
Apartments, consisting primarily of structural improvements, roof replacements,
and floor covering replacements. These improvements were funded from replacement
reserves and operating cash flow. Based on a report received from an
independent third party consultant analyzing necessary exterior improvements and
estimates made by the Managing General Partner on interior improvements, it is
estimated that the property requires approximately $320,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to capital improvements of approximately $371,000 for 1999 at this
property which include certain of the required improvements and consist of
perimeter fencing, roof repairs, floor covering replacements and landscaping.
Cooper's Pointe
During the six months ended June 30, 1999, the Partnership completed
approximately $74,000 of capital improvement projects at Cooper's Point,
consisting primarily of floor covering replacements and parking lot
improvements, which have been completed. These improvements were funded from
replacement reserves and operating cash flow. Based on a report received from an
independent third party consultant analyzing necessary exterior improvements and
estimates made by the Managing General Partner on interior improvements, it is
estimated that the property requires approximately $160,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to capital improvements of approximately $197,000 for 1999 at this
property which include certain of the required improvements and consist of
parking lot repairs, floor covering replacements, and landscaping.
Hampton Greens
During the six months ended June 30, 1999, the Partnership completed
approximately $53,000 of capital improvement projects at Hampton Greens,
consisting primarily of floor covering replacements and fencing. These
improvements were funded from operating cash flow. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $155,000
of capital improvements over the next few years. The Partnership has budgeted,
but is not limited to capital improvements of approximately $189,000 for 1999 at
this property which include certain of the required improvements and consist of
floor covering replacements, painting, fencing repairs and landscaping.
Autumn Run
During the six months ended June 30, 1999, the Partnership completed
approximately $66,000 of capital improvement projects at Autumn Run, consisting
primarily of floor covering replacements, painting, and pool improvements.
These improvements were funded from operating cash flow. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $189,000
of capital improvements over the next few years. The Partnership has budgeted,
but is not limited to capital improvements of approximately $254,000 for 1999 at
this property which include certain of the required improvements and consist of
building improvements, floor covering replacements, air conditioning upgrades,
pool repairs, structural upgrades, painting and floor covering replacements.
Copper Mill
During the six months ended June 30, 1999, the Partnership completed
approximately $70,000 of capital improvement projects at Copper Mill, consisting
primarily of floor covering replacements, structural improvements, pool
improvements, lighting, and other improvements. These improvements were funded
from replacement reserves and operating cash flow. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $219,000
of capital improvements over the next few years. The Partnership has budgeted,
but is not limited to capital improvements of approximately $248,000 for 1999 at
this property which include certain of the required improvements and consist of
water heater and air conditioning upgrades, floor covering replacements,
painting and parking lot repairs.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $72,794,000 is being amortized over varying
periods with balloon payments due over periods ranging from November 2003 to May
2008. The Managing General Partner will attempt to refinance such remaining
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.
During the six months ended June 30, 1999, the Partnership distributed
approximately $5,000,000 ($53.23 per limited partnership unit) from operations.
Future cash distributions will depend on the levels of cash generated from
operations, and the availability of cash reserves, the timing of debt
maturities, property sales, and/or refinancing. The Partnership's distribution
policy is reviewed on a quarterly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital improvements to permit additional distributions to its partners
in 1999 or subsequent periods.
Tender Offer
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 27,208.11 (32.84% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $359 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,830.00
units. As a result, AIMCO and its affiliates currently own 25,675.50 units of
limited partnership interest in the Partnership representing 30.99% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K: None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTURY PROPERTIES GROWTH FUND XXII
By: FOX PARTNERS IV,
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION,
Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Century
Properties Growth Fund XXII 1999 Second Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000740156
<NAME> CENTURY PROPERTIES GROWTH FUND XXII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,241
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 133,218
<DEPRECIATION> 58,231
<TOTAL-ASSETS> 82,883
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 72,794
0
0
<COMMON> 0
<OTHER-SE> 7,747
<TOTAL-LIABILITY-AND-EQUITY> 82,883
<SALES> 0
<TOTAL-REVENUES> 11,192
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,410
<EPS-BASIC> 15.32<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiiplier is 1.
</FN>
</TABLE>
