FORM 10-Q---QUARTERLY 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-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14528
CENTURY PENSION INCOME FUND XXIII
(Exact name of registrant as specified in its charter)
California 94-2963120
(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)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
1999 1998
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,402 $ 11,698
Receivables and deposits 1,619 1,699
Other assets 532 286
Mortgage loan receivable 1,137 1,137
Deferred charges 860 1,037
Debt trustee escrow 1,000 --
Investment properties:
Land 11,447 15,970
Buildings and related personal property 47,098 63,332
58,545 79,302
Less accumulated depreciation (19,808) (24,790)
$ 47,287 $ 70,369
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 33 $ 40
Tenant security deposit liabilities 236 342
Accrued property taxes 553 675
Due to general partner 397 --
Accrued interest - promissory notes 1,573 1,048
Accrued interest - mortgage note payable 287 197
Other liabilities 169 342
Mortgage note payable 6,856 6,856
Non-recourse promissory notes:
Principal 32,776 41,939
Deferred interest payable 30,760 37,342
Minority interest in consolidated joint venture 2,109 7,861
Partners' Deficit
General partner (1,451) (1,387)
Limited partners (95,789 units issued and
outstanding) (27,011) (24,886)
(28,462) (26,273)
$ 47,287 $ 70,369
Note: The balance sheet at December 31, 1998, has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
b)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 2,051 $ 2,776 $ 7,575 $ 8,338
Interest income on mortgage
loans 20 6 61 47
Other income 259 174 936 457
Total revenues 2,330 2,956 8,572 8,842
Expenses:
Operating 530 830 2,061 2,338
General and administrative 649 272 1,184 794
Depreciation 460 615 1,656 1,829
Interest on notes payable 206 206 620 620
Interest to promissory note
holders 1,216 1,216 3,647 3,647
Amortization of sales
commissions and
organizational costs -- 100 52 316
Property taxes 174 356 938 1,094
(Gain) loss on disposal of
investment properties (3) -- 433 --
Total expenses 3,232 3,595 10,591 10,638
Loss before minority interest
in joint ventures' operations (902) (639) (2,019) (1,796)
Minority interest in joint
ventures' operations (124) (188) (149) (434)
Net loss $(1,026) $ (827) $(2,168) $(2,230)
Net loss allocated
to general partner $ (21) $ (17) $ (43) $ (45)
Net loss allocated
to limited partners (1,005) (810) (2,125) (2,185)
$(1,026) $ (827) $(2,168) $(2,230)
Net loss per limited
partnership unit $(10.49) $ (8.46) $(22.18) $(22.81)
See Accompanying Notes to Consolidated Financial Statements
c)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 95,789 $ 958 $ 47,894 $ 48,852
Partners' deficit at
December 31, 1997 95,789 $(1,284) $(21,935) $(23,219)
Distributions to general partner -- (43) -- (43)
Net loss for the nine months
ended September 30, 1998 -- (45) (2,185) (2,230)
Partners' deficit
at September 30, 1998 95,789 $(1,372) $(24,120) $(25,492)
Partners' deficit at
December 31, 1998 95,789 $(1,387) $(24,886) $(26,273)
Distribution to general partner -- (21) -- (21)
Net loss for the nine months
ended September 30, 1999 -- (43) (2,125) (2,168)
Partners' deficit at
September 30, 1999 95,789 $(1,451) $(27,011) $(28,462)
See Accompanying Notes to Consolidated Financial Statements
d)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss $ (2,168) $ (2,230)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,656 1,829
Amortization of organizational costs, sales
commissions and lease commissions 217 522
Minority interest in joint ventures' operations 149 434
Deferred interest on non-recourse promissory notes 2,075 2,075
Loss on disposal of investment properties 433 --
Change in accounts:
Receivables and deposits 80 (428)
Other assets (230) 17
Accounts payable (7) 52
Tenant security deposit liabilities (106) (16)
Accrued property taxes (122) 423
Due to general partner 397 --
Indenture trustee escrow (1,000) --
Other liabilities (173) (80)
Accrued interest on promissory note 525 (524)
Accrued interest on mortgage note payable 90 24
Net cash provided by operating activities 1,816 2,098
Cash flows from investing activities:
Property replacements and improvements (320) (451)
Lease commissions paid (252) (172)
Distribution to minority interest holder (5,901) --
Proceeds from sale of investment properties 14,202 --
Net cash provided by (used in) investing
activities 7,729 (623)
Cash flows from financing activities:
Payment of deferred interest on promissory notes (8,657) --
Distribution to the general partner (21) (43)
Payment on non-recourse promissory notes (9,163) --
Net cash used in financing activities (17,841) (43)
Net (decrease) increase in cash and cash equivalents (8,296) 1,432
Cash and cash equivalents at beginning of period 11,698 9,366
Cash and cash equivalents at end of period $ 3,402 $10,798
Supplemental disclosure of cash flow information:
Cash paid for interest - notes payable $ 596 $ 596
Cash paid for current and deferred interest -
non-recourse promissory notes $ 9,705 $ 2,097
See Accompanying Notes to Consolidated Financial Statements
e)
CENTURY PENSION INCOME FUND XXIII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
Century Pension Income Fund XXIII (the "Partnership" or the "Registrant") will
continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Nonrecourse
Promissory Notes had a balance of principal and deferred interest of
approximately $80,000,000 at the maturity date of February 15, 1999; however,
such amount was not paid at maturity. As a result, the Partnership was in
default under the Nonrecourse Promissory Notes. Fox Capital Management
Corporation ("FCMC" or the "Managing General Partner") contacted the indenture
trustee for the Nonrecourse Promissory Notes regarding this default. In
connection with these conversations, on July 30, 1999 the Partnership entered
into a forbearance agreement with the indenture trustee pursuant to which the
indenture trustee agreed not to exercise its rights and remedies under the
indenture for up to 390 days. In turn, the Partnership agreed to (a) deliver to
the indenture trustee for the benefit of the noteholders all of the accumulated
cash of the Partnership, less certain reserves and anticipated operating
expenses, (b) market all of its properties for sale, (c) deliver all cash
proceeds from any sales to the indenture trustee until the notes are fully
satisfied and (d) comply with the reporting requirements under the indenture.
It is uncertain whether the sale of the Partnership's assets will generate
sufficient proceeds to pay off the Nonrecourse Promissory Notes in full. If the
Partnership cannot sell its properties for sufficient value, it is likely that
the Partnership will lose its properties through delivery to auctioneer. These
conditions raise substantial doubt about the Partnership's ability to continue
as a going concern.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Partnership
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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 the Managing General
Partner, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and two joint ventures in which the Partnership has controlling interest. An
affiliated partnership owns the minority interest in these joint ventures. All
significant interentity transactions and balances have been eliminated.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
NOTE C - 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 D - 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 certain 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 nine month
periods ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 94 $124
Reimbursement for services of affiliates
(included in investment properties and general and
administrative expenses and operating expenses) 153 191
Partnership management fee (included in
general and administrative expenses) 452 111
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from the
Partnership's residential property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$94,000 and $90,000 for the nine months ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1998, an affiliate of the
Managing General Partner was entitled to receive varying percentages of gross
receipts from the Partnership's Coral Palm Plaza property for providing property
management services. The Partnership paid to such affiliate approximately
$34,000 for the nine months ended September 30, 1998. Since October 1, 1998 (the
effective date of the Insignia Merger), these services have been provided for
Coral Palm Plaza by an unrelated party. For the Partnership's remaining
commercial properties, these services were provided by an unrelated party for
the nine months ended September 30, 1999 and 1998.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $153,000 and
$191,000 for the nine months ended September 30, 1999 and 1998, respectively.
Included in this amount is approximately $4,000 of construction oversights costs
as of September 30, 1998. No such costs were incurred during the nine months
ended September 30, 1999.
On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554
of the Partnership's 1985 Nonrecourse Promissory Notes and 1,270 of the
Partnership's 1986 Nonrecourse Promissory Notes from a noteholder for $600 per
note.
In each of the nine months ended September 30, 1999 and 1998, the general
partner received a cash distribution of approximately $21,000 and $43,000, which
was equal to two percent of cash distributions to the Promissory Note holders
prior to July 1, 1999. The partnership management fee and partnership
management incentive are limited by the Partnership Agreement to ten percent of
cash available for distribution before interest payments to the Promissory Note
holders and the partnership management fee.
NOTE E - SALE OF INVESTMENT PROPERTIES
On June 1, 1999, Minneapolis Business Park Joint Venture ("Minneapolis"), a
joint venture in which the Partnership has a controlling interest, sold Alpha
Business Center, Plymouth Service Center, and Westpoint Service Center, to an
unaffiliated third party for net sales proceeds of approximately $14,202,000
after payment of closing costs. The Partnership's share of the net sales
proceeds is approximately $9,657,000 and the minority holder's share is
approximately $4,545,000, which was distributed subsequent to September 30,
1999. Minneapolis realized a loss of approximately $433,000 on the sale. The
Partnership's share of the loss on the sale is approximately $294,000 and the
minority holder's share is approximately $139,000, which is allocated to the
minority holder through the minority interest in joint ventures' operations.
The sales transactions are summarized as follows (amounts in thousands):
Net sale price, net of selling costs $ 14,202
Net real estate (1) (14,423)
Net other assets (212)
Loss on sale of real estate $ (433)
(1) Net of accumulated depreciation of approximately $6,638,000.
NOTE F - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of one apartment complex located in Atlanta, Georgia. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The commercial property segment consists of three business parks located in
Florida, North Carolina and Texas, one industrial building located in
California, and two shopping centers located in Kentucky and Georgia. In
addition, the Partnership also owns a controlling interest in one joint venture
whose property includes a shopping center located in Florida. The Partnership
also owns a controlling interest in one joint venture whose properties were sold
June 1, 1999.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those of the Partnership as
described in Partnership's Annual Report on Form 10-K for the year ended
December 31, 1998.
Factors management used to identify the Partnership's reportable segments:
The Partnership's reportable segments consist of investment properties that
offer different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the nine months ended September 30, 1999 and 1998, is
shown in the tables below. The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segments.
1999 Residential Commercial Other Totals
(in thousands)
Rental income $ 1,844 $ 5,731 $ -- $ 7,575
Interest income on mortgage loans -- -- 61 61
Other income 36 306 594 936
Interest expense 620 -- 3,647 4,267
Amortization of deferred costs -- -- 52 52
Depreciation 266 1,390 -- 1,656
General and administrative expense -- -- 1,184 1,184
Loss on sale of investment -- 433 -- 433
properties
Minority interest in joint
ventures' operation -- (149) -- (149)
Segment profit (loss) 208 1,852 (4,228) (2,168)
Total assets 8,965 33,212 5,110 47,287
Capital expenditures for investment
properties 98 222 -- 320
1998 Residential Commercial Other Totals
(in thousands)
Rental income $ 1,737 $ 6,601 $ -- $ 8,338
Interest income on mortgage loans -- -- 47 47
Other income 40 74 343 457
Interest expense 620 -- 3,647 4,267
Amortization of deferred costs -- -- 316 316
Depreciation 261 1,568 -- 1,829
General and administrative expense -- -- 794 794
Minority interest in joint
ventures' operation -- (434) -- (434)
Segment profit (loss) 84 2,053 (4,367) (2,230)
Total assets 8,828 49,238 11,776 69,842
Capital expenditures for
investment properties 90 361 -- 451
NOTE G - 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note C - Transfer of Control"). 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 have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed
and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the Managing General Partner will make tender offers for
all outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case 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 OPERATION
The matters discussed in this Form 10-Q 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-Q 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 Registrant's business and results
of operations. 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 remaining investment properties consist of one apartment
complex, four business parks and two shopping centers, as well as one shopping
center owned by one consolidated joint venture between the Partnership and an
affiliated partnership. The following table sets forth the average occupancy
for each of the Partnership's investment properties, as well as for the joint
venture property, for the nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Commerce Plaza 100% 100%
Tampa, Florida
Regency Centre 100% 93%
Lexington, Kentucky
Highland Park III 94% 90%
Charlotte, North Carolina
Interrich Plaza 95% 99%
Richardson, Texas
Centre Stage Shopping Center 97% 97%
Norcross, Georgia
The Enclaves 97% 94%
Atlanta, Georgia
Medtronics 100% 100%
Irvine, California
CORAL PALM PLAZA JOINT VENTURE:
Coral Palm Plaza 62% 68%
Coral Springs, Florida
The Managing General Partner attributes the increase in occupancy at Regency
Centre to an expanding local economy creating a demand for retail space in the
area which resulted in three tenants, occupying approximately 12% of the total
square footage, signing leases since March 31, 1998. Occupancy at Highland Park
III increased due to 2,275 square feet of space being leased to a new tenant
during the first quarter of 1999. Occupancy at Interrich Plaza decreased due to
a tenant not renewing its lease and vacating its space during the first quarter
of 1999. Occupancy at the Enclaves increased due to a more aggressive marketing
campaign at the property. Occupancy at Coral Palm Plaza decreased as a result
of the three tenants vacating the property during the fourth quarter of 1998.
Liquidity and Capital Resources
In order to finance the purchase of its properties, the Partnership sold
Nonrecourse Pension Investor Notes with an aggregate original principal amount
of $41,939,000 (the "Notes"). Pursuant to the terms of the Notes, the
Partnership was required to pay interest at a rate of 5% per annum on the Notes,
and accrue the additional 5% (1986 Notes) and 7% (1985 Notes) per annum due on
the Notes. The Notes are secured by all of the Partnership's properties. The
Nonrecourse Promissory Notes had a balance of principal and deferred interest of
approximately $80,000,000 at the maturity date of February 15, 1999; however,
such amount was not paid at maturity. As a result, the Partnership is currently
in default under the Nonrecourse Promissory Notes. In an effort to resolve this
default, the Managing General Partner contacted the indenture trustee for the
Note holders. In connection with these conversations, on July 30,1999 the
Partnership entered into a forbearance agreement with the indenture trustee
pursuant to which the indenture trustee agreed not to exercise its rights and
remedies under the indenture for us to 390 days. In turn, the Partnership
agreed to (a) deliver to the indenture trustee for the benefit of the
noteholders all of the accumulated cash of the Partnership, less certain
reserves and anticipated operating expenses, (b) market all of its properties
for sale, (c) deliver all cash proceeds from any sales to the indenture trustee
until the notes are fully satisfied and (d) comply with the reporting
requirements under the indenture. Accordingly, the Partnership is currently
marketing all of its remaining properties for sale. If the Partnership is
unsuccessful in selling its properties for sufficient value, it is likely that
the Partnership will lose its properties through delivery to auctioneer. If the
properties are delivered to auctioneer, the Partnership would be dissolved, any
available cash would be distributed to the noteholders and the limited partners
would lose their investment in the Partnership. It is expected that the
Partnership will recognize a gain from the sale of the properties if they were
delivered to auctioneer.
The Partnership's Centre State Shopping Center and Medtronics properties are
currently under contract for sale to unaffiliated third parties. These sales,
which are subject to the purchasers completing their due diligence review and
other customary closing conditions, are expected to close, if at all, during the
fourth quarter of 1999. There can be no assurance, however, that these
transactions will be consummated or as to what the final sales terms will be.
At September 30, 1999, the Partnership had cash and cash equivalents of
approximately $3,402,000 as compared to approximately $10,798,000 at September
30, 1998. The net decrease in cash and cash equivalents for the nine months
ended September 30, 1999, from the Partnership's year ended December 31, 1998,
was approximately $8,296,000. This decrease is due to approximately $17,841,000
of net cash used in financing activities, offset by approximately $1,816,000 of
cash provided by operating activities and approximately $7,729,000 of cash
provided by investing activities. Cash used in financing activities consisted
of payment of deferred interest on promissory notes, a distribution to the
general partner and a principal payment to the non-recourse promissory note
holders. Cash provided by investing activities consisted of proceeds received
from the sale of investment properties partially offset by property improvements
and replacements, payment of lease commissions and a distribution to the
minority interest holder of Minneapolis. The Partnership invests its working
capital reserves in money market accounts.
In addition to the Notes, the Partnership's Enclaves property is secured by
mortgage indebtedness of approximately $6,856,000, which requires interest only
payments with a balloon payment due in 2001.
In light of the maturity of the Notes, no distributions were made to the limited
partners for the nine months ended September 30, 1999 or 1998. In accordance
with the Partnership Agreement, the general partner received cash distributions
equal to 2% of the interest payments on the nonrecourse promissory notes which
amounted to approximately $21,000 and $43,000 during each of the nine months
ended September 30, 1999 and 1998, respectively.
Capital improvements planned for each of the Partnership's properties are
detailed below. Additional capital expenditures will be incurred only if cash
is available from operations.
Commerce Plaza
During the nine months ended September 30, 1999, the Partnership expended
approximately $47,000 of capital improvements at Commerce Plaza consisting
primarily of tenant and building 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 $87,000 of capital improvements over the next
several years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $41,000 for 1999 at this property which include
certain of the required improvements and consist of tenant improvements.
Regency Centre
During the nine months ended September 30, 1999, the Partnership completed
approximately $31,000 for tenant improvements at Regency Centre which 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 $127,000 of capital improvements over
the next several years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $48,000 for 1999 at this property which
include certain of the required improvements and consist of tenant improvements.
Highland Park III
During the nine months ended September 30, 1999, the Partnership completed
approximately $65,000 of tenant improvements at Highland Park III which 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 $243,000 of capital improvements over
the next several years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $110,000 for 1999 at this property which
include certain of the required improvements and consist of tenant improvements.
Interrich Plaza
During the nine months ended September 30, 1999, the Partnership completed
approximately $6,000 of building improvements at Interrich Plaza which 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 $79,000 of capital improvements over
the next several years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $16,000 for 1999 at this property which
include certain of the required improvements and consist of tenant improvements.
Centre Stage
During the nine months ended September 30, 1999, the Partnership expended
approximately $7,000 for tenant improvements at Centre Stage which 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 $131,000 of capital improvements over the next
several years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $17,000 for 1999 at this property which include
certain of the required improvements and consist of tenant improvements.
The Enclaves
During the nine months ended September 30, 1999, the Partnership expended
approximately $98,000 for capital improvements at The Enclaves consisting
primarily of HVAC improvements, floor covering and appliance replacements, and
other 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 $1,020,000 of capital improvements over the next several years.
The Partnership has budgeted, but is not limited to, capital improvements of
approximately $477,000 for 1999 at this property which include certain of the
required improvements and consist of landscaping, carpet replacement and roof
replacements.
Medtronics
During the nine months ended September 30, 1999, the Partnership did not
complete any capital or tenant improvements at Medtronics. 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 $23,000
of capital improvements over the next several years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $426,000
for 1999 at this property which include certain of the required improvements and
consist of tenant improvements.
Coral Palm Plaza
During the nine months ended September 30, 1999, the Partnership did not
complete any capital or tenant improvements at Coral Palm Plaza. Capital
improvements budgeted for 1999 include, but are not limited to, tenant
improvements, which are expected to cost approximately $80,000.
Alpha Business Center
Prior to this property's sale on June 1, 1999, the Partnership expended
approximately $34,000 for building and tenant improvements at Alpha Business
Center.
Westpoint Business Center
Prior to this property's sale on June 1, 1999, the Partnership expended
approximately $32,000 for capital improvements at West Point Business Center
consisting of tenant improvements.
Results of Operations
The Partnership's loss before minority interest in the joint ventures'
operations was approximately $2,019,000 for the nine months ended September 30,
1999, as compared to approximately $1,796,000 for the corresponding period in
1998. The Partnership's loss before minority interest in the joint ventures'
operations was approximately $902,000 for the three months ended September 30,
1999, as compared to approximately $639,000 for the corresponding period in
1998. The increase in net loss for the three and nine months ended September
30, 1999 is attributable to a decrease in total revenues only partially offset
by a decrease in total expenses. The decrease in total revenue and total
expenses is partially due to the sale of the investment properites in the
Minneapolis Business Park Joint Venture (see discussion below). Excluding the
operations of these investment properties and the corresponding equity in the
net income of the joint venture, the Partnership had an increase in total
revenues partially offset by a slight increase in total expenses. The increase
in total revenue is due to an increase in rental income and other income. The
increase in rental income is primarily due to an increase in occupancy at
Regency Centre, Highland Park III, and The Enclaves which more than offset the
decrease in occupancy at Interrich Plaza and Coral Palm Plaza. The increase in
other income is primarily due to a lease buyout fee received from a tenant at
Medtronics.
The increase in total expenses at the remaining properties is primarily
attributable to an increase in general and administrative expense and property
tax expense offset by a decrease in amortization of deferred charges and
operating expenses. The increase in general and administrative expense is
primarily due to the accrual of the Partnership management fee in connection
with the payment made to the note holders during the three months ended
September 30, 1999. Property tax expense increased due to a reduction of the
1998 property tax expense for the Coral Palm Plaza property resulting from a
successful appeal of 1997 property taxes. The decrease in amortization of
deferred charges is due to the fact that partnership level deferred charges
became fully amortized during the nine month period ended September 30, 1999.
The decrease in operating expense is primarily due to a decrease in maintenance
expense. This decrease is primarily due to decreases in parking lot repairs at
Commerce Plaza, roof repairs at Interrich Plaza, landscaping at The Enclaves,
and garbage removal at Coral Palm Plaza.
Included in general and administrative expenses at both September 30, 1999 and
1998, are management reimbursements to the Managing General Partner allowed
under the Partnership Agreement. 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.
On June 1, 1999, Minneapolis Business Park Joint Venture ("Minneapolis"), a
joint venture in which the Partnership has a controlling interest, sold Alpha
Business Center, Plymouth Service Center, and Westpoint Service Center, to an
unaffiliated third party for net sales proceeds of approximately $14,202,000
after payment of closing costs. The Partnership's share of the net sales
proceeds is approximately $9,657,000 and the minority holder's share is
approximately $4,545,000, which was distributed subsequent to September 30,
1999. Minneapolis realized a loss of approximately $433,000 on the sale. The
Partnership's share of the loss on the sale is approximately $294,000 and the
minority holder's share is approximately $139,000, which was allocated to the
minority holder through the minority interest in joint ventures' operations.
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.
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 September 30, 1999, had virtually completed 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.
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 virtually all of the server operating systems.
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 virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 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
September 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 has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
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 expenses
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. To mitigate the impact of fluctuations in U.S.
interest rates, the Partnership maintains its debt as fixed rate in nature by
borrowing on a long-term basis. Based on interest rates at September 30, 1999,
a 1% increase or decrease in market interest rates would not have a material
impact on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 1998, the Partnership's latest fiscal year end. The interest rates
represent the weighted-average rates. The fair value of the debt obligations
approximated the record value as of December 31, 1998.
Principal amount by expected maturity:
Long term debt Fixed Rate Debt Average Interest Rate
1999 $41,939 11.60%
2000 -- --
2001 6,856 12.06%
Thereafter -- --
Total $48,795
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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note C - Transfer
of Control"). 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 have filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed
and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the Managing General Partner will make tender offers for
all outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
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 September 30, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTURY PENSION INCOME FUND XXIII
By: FOX PARTNERS V
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
<PAGE>
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Century
Pension Income Fund XXIII 1999 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000764543
<NAME> CENTURY PENSION INC0ME FUND XXIII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 58,545
<DEPRECIATION> 19,808
<TOTAL-ASSETS> 47,287
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,856
0
0
<COMMON> 0
<OTHER-SE> (28,462)
<TOTAL-LIABILITY-AND-EQUITY> 47,287
<SALES> 0
<TOTAL-REVENUES> 8,572
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,168)
<EPS-BASIC> (22.18)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
