UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14581
California Seven Associates Limited Partnership,
a California Limited Partnership
(Exact name of registrant as specified in its charter)
California 94-2970056
(State of Organization) (I.R.S. Employer Identification
No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Telephone Number: (203) 726-6000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
Yes X No
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Balance Sheets
<S> <C> <C>
September 30, December 31,
1995 1994
Assets (Unaudited) (Audited)
Property and improvements, at cost:
Land and land improvements $20,563,613 $20,562,073
Buildings 110,155,335 109,890,874
Furniture and fixtures 13,134,944 13,030,382
Machinery and equipment 808,548 765,087
144,662,440 144,248,416
Less accumulated depreciation 51,275,658 48,128,827
Net property and improvements 93,386,782 96,119,589
Cash and cash equivalents 3,146,767 1,191,015
Partial cash settlement - earthquake insurance 9,337,772 --
Accounts receivable 202,274 488,885
Prepaid expenses and other assets 86,449 599,166
Total $106,160,044 $98,398,655
Liabilities and Partners' Deficit
Liabilities:
Liabilities not subject to compromise:
Accounts payable and accrued expenses $752,120 $357,719
Tenant security deposits 503,529 472,898
Unearned income 59,057 79,046
Earthquake insurance - partial
settlement unapplied 9,250,000 --
10,564,706 909,663
Postpetition liabilities subject to compromise:
Fees and reimbursements payable to the General
Partner and its affiliates 400,633 102,832
Prepetition liabilities subject to compromise:
Note and mortgages payable 111,983,903 111,983,903
Accrued interest payable 2,560,559 2,560,559
Accounts payable and accrued expenses 877,395 923,957
Fees and reimbursements payable to the
general partner and its affiliates 4,078,563 4,078,563
119,500,420 119,546,982
Total liabilities 130,465,759 120,559,477
Partners' deficit:
General Partner (786,295) (764,846)
Limited partners (362 Class A Units
and 3 Class B Units): (23,519,420) (21,395,976)
Total partners' deficit (24,305,715) (22,160,822)
Total $106,160,044 $98,398,655
<FN>
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Statements of Operations
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
Property operating revenues:
Rental income $3,626,104 $3,453,951 $10,740,399 $10,494,327
Other 116,181 134,495 347,301 392,773
3,742,285 3,588,446 11,087,700 10,887,100
Property operating expenses:
Maintenance and repairs,
furniture rental,
insurance, and other
property operations 722,816 672,782 2,186,070 2,128,261
Real estate taxes 274,442 304,901 777,189 999,417
Management fees 125,701 128,676 381,294 410,366
Property administrative 710,755 688,427 2,096,833 2,041,655
1,833,714 1,794,786 5,441,386 5,579,699
Net property revenue 1,908,571 1,793,660 5,646,314 5,307,401
Other operating costs and expenses:
Depreciation 1,044,025 1,060,874 3,146,831 3,176,392
Management and administrative
fees to affiliates 74,907 65,635 223,191 220,731
Partnership administrative 19,866 27,808 62,582 110,381
Net cost (recovery) on business
interruption insurance 55,658 88,877 180,897 (376,592)
1,194,456 1,243,194 3,613,501 3,130,912
Net partnership operating
income 714,115 550,466 2,032,813 2,176,489
Interest income 11,851 5,340 32,702 13,533
Interest expense (contractual interest
of $2,615,450 and $7,846,350 for the
three and nine months ended September
30, 1995, respectively) (1,874,229)(2,179,542) (4,167,547) (7,410,442)
Net loss before reorganization
items (1,148,263)(1,623,736) (2,102,032) (5,220,420)
Reorganization items:
Interest income 9,347 -- 111,120 --
United States Trustee fees (5,000) (800) (15,000) (800)
Professional fees (51,881) (354,397) (138,981) (354,397)
Net loss $(1,195,797) $(1,978,933) $(2,144,893) $(5,575,617)
Net loss:
General Partner $(11,958) $ (19,789) $(21,449) $(55,756)
Limited partners (1,183,839) (1,959,144) (2,123,444) (5,519,861)
$(1,195,797) $(1,978,933) $(2,144,893)$(5,575,617)
Net loss per Class A Unit: $(3,270) $(5,412) $(5,866) $ (15,248)
<FN>
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Statements of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net loss $(2,144,893) $(5,575,617)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 3,146,831 3,176,392
Accounts receivable 286,611 23,663
Accounts payable and accrued expenses 376,225 933,274
Other, net 435,587 916,411
Liabilities subject to compromise 251,239 --
Net cash provided by (used in) operating
activities 2,351,600 (525,877)
Cash flows from investing activities:
Purchase of property and improvements (394,884) (192,520)
Cash flows from financing activities:
Cash distribution to limited partners (964) (2,343)
Net increase (decrease) in cash and cash
equivalents 1,955,752 (720,740)
Cash and cash equivalents, beginning of year 1,191,015 1,440,476
Cash and cash equivalents, end of period $3,146,767 $719,736
Supplemental disclosure of cash information:
Accrued purchase of property and improvements $19,140 $--
Interest paid during period $4,167,547 $6,450,001
Fees paid in connection with reorganization $105,415 $ 355,197
<FN>
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Notes to Financial Statements
(Unaudited)
Readers of this quarterly report should refer to the audited
financial statements for California Seven Associates Limited Partnership, a
California Limited Partnership ("the Partnership"), for the year ended
December 31, 1994 which are included in the Partnership's 1994 Annual
Report, as certain footnote disclosures which would substantially duplicate
those contained in such audited financial statements have been omitted from
this report.
1. Organization and Basis of Accounting
a) Organization: On September 16, 1994, the Partnership filed a
voluntary petition for bankruptcy protection under Chapter 11 of
Title 11, United States Code. The Partnership's Chapter 11
bankruptcy reorganization case is currently pending in the United
States Bankruptcy Court for the Central District of California.
The Partnership's goal is to maximize recovery by creditors and
partners by preserving the Partnership as a viable entity with a
going concern value. The financial statements do not include any
adjustments relating to the recoverability of reported asset
amounts or the amounts of liabilities that might result from the
outcome of this uncertainty.
b) Basis of Presentation: The accompanying financial statements were
prepared in accordance with generally accepted accounting
principles. It is the opinion of management that the financial
statements presented reflect all the adjustments necessary for a
fair presentation of the financial condition and results of
operations. Certain amounts in the 1994 financial statements have
been reclassified to conform to the 1995 presentation.
c) Cash and Cash Equivalents: Short-term investments with a maturity
of three months or less at the time of purchase are reported as
cash equivalents. At September 30, 1995 the Partnership had cash
and cash equivalents classified as cash collateral used in the
operations of the properties and payment to the first mortgage
lender totalling $813,252. In addition, at September 30, 1995,
cash and cash equivalents include amounts the Partnership is
required to maintain in segregated cash collateral accounts for
security deposits, taxes and insurance, and the Sherman Oaks
deductible. The balances of these accounts at September 30, 1995
were $488,105, $1,089,733 and $505,692, respectively. The
Partnership had unencumbered cash and cash equivalents at September
30, 1995 of $249,985.
2. Petition for Relief Under Chapter 11
On September 16, 1994, the Partnership filed a petition for relief
under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California. Under Chapter 11,
payment of certain claims by the Debtor in existence prior to the filing of
the petitions for relief under the Federal bankruptcy laws are stayed while
the Debtor continues business operations as Debtor in Possession. These
claims are reflected in the accompanying balance sheets as prepetition
liabilities.
Additional claims may arise subsequent to the filing date resulting
from the rejection of executory contracts and from the determination by the
Court of allowed claims for contingencies and other disputed amounts.
Claims secured against the Partnership's assets are stayed, although the
holders of such claims have the right to move the court for relief from the
stay. Secured claims are secured by liens on the Partnership's property
and improvements.
On September 22, 1994, the Partnership entered into a Letter
Agreement with the first mortgage lender which defines and authorizes the
use of cash collateral. The Partnership was granted use of collateral
pursuant to the Letter Agreement until November 30, 1995. All excess cash
flow from property operations after payment of property operating expenses,
allowed capital expenditures, and funding of agreed upon segregated cash
collateral accounts, is remitted to the first mortgage lender monthly.
As part of the Partnership's Motion for Use of Cash Collateral, the
Partnership requested all use of property that may be cash collateral in
the form of rental revenues and insurance proceeds to repair the Sherman
Oaks property. On February 1, 1995, the Court held a hearing on the use of
cash collateral to repair Sherman Oaks and denied the Partnership's Motion
without prejudice after determining that the issue should be decided in the
context of the confirmation of the Partnership's plan of reorganization.
On or about December 6, 1994, the first mortgage lender commenced a
declaratory action against the Partnership, claiming that the second lien
holder is an insider as defined under 11 U.S.C. Sec. 101. The Partnership
filed an answer to the Complaint denying that the second lien holder is an
insider as that term is defined in the Bankruptcy Code. A status hearing
was held on February 21, 1995 which resulted in a discovery deadline and
continued status hearing date of May 22, 1995. A continued hearing is
pending with the Court.
On or about January 30, 1995, the first mortgage lender filed a
Motion for Relief from the Automatic Stay. The Partnership filed an
Opposition to the Motion. At the hearing held on February 21, 1995, the
court set April 18, 1995 as the final evidentiary hearing. After hearing
arguments and representations of counsel, the Court continued the hearing
to July 12, 1995 and then to August 9, 1995. At the Continued Confirmation
Hearing on August 9, 1995, the Court allowed The Travelers Insurance
Company limited relief from the automatic stay to file its Notice of
Default in accordance with California state law. The continued hearing on
the Motion for Relief from the Automatic Stay was set for September 26,
1995 and then continued to October 18, 1995.
On March 17, 1995, the Partnership filed its proposed Plan of
Reorganization under Chapter 11 of the Bankruptcy Code dated March 16,
1995, together with a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code. On March 17, 1995, the Court set the hearing on the
Partnership's Disclosure Statement for April 18, 1995. On April 17, 1995,
the Partnership filed with the Bankruptcy Court certain Non-material
Amendments to the Disclosure Statement. On April 18, 1995, the Bankruptcy
Court held a hearing and acted upon the approval of the Partnership's
Disclosure Statement together with the Non-material Amendments. After
considering the Disclosure Statement and the Non-material Amendments
thereto, the Court ruled that certain additional information should be
included in the Partnership's Disclosure Statement. The Court required the
Partnership to file an Amended Disclosure Statement which the Court
approved without further hearing.
The Partnership filed its Amended Disclosure Statement and Amended
Plan of Reorganization (the "Plan") on May 4, 1995. On May 15, 1995, the
Partnership mailed all impaired creditors, limited partners, and parties in
interest a copy of the Amended Disclosure Statement and Plan, along with a
ballot for voting and other notices. All classes of creditors, limited
partners and parties in interest impaired under the Plan voted to accept
the plan except Class 1, the first mortgage lender, Travelers Insurance Co.
Pursuant to the order approving the Amended Disclosure Statement,
the Court set July 12, 1995 as the confirmation hearing for the
Partnership's Plan. Subsequently, a stipulation was agreed to and approved
by the Court to bifurcate the confirmation hearing to allow additional
pleadings. Nonfeasibility issues were scheduled to be heard on July 12,
1995 and all feasibility related issues would be heard by the Court on
August 9, 1995.
As a result of the hearing on July 12, 1995, the Court ruled on
certain nonfeasibility related objections and issues raised by Travelers
Insurance Company, including pricing of interest rates. Based on the
Court's rulings, the Partnership proposed a Third Modification to the Plan.
On August 9, 1995, the Court considered the Plan, the proposed Third
Modification and all other evidence in support of the confirmation of the
Plan, as well as the objections and related filings filed by the Travelers
Insurance Company in support of its objections. The Court found that the
Travelers Insurance Company did not have sufficient advance notice and
disclosure regarding the proposed Third Modification to the Plan.
Therefore, the Court denied the Plan to allow the Partnership to
incorporate the Third Modification to the Plan into a new plan of
reorganization, the Second Amended Plan. The Second Amended Plan is
essentially the Plan incorporating the Third Modification. The Court set a
schedule of time requirements for the Partnership to file a Second
Disclosure Statement and Amended Plan which would allow appropriate time
for notice. The Court set a combined hearing on the adequacy of the
Partnership's Second Disclosure Statement and Confirmation of the Second
Amended Plan for September 26, 1995.
On August 25, 1995, the Partnership filed and served its Second
Amended Plan of Reorganization and a Second Disclosure Statement. The
Partnership's Second Disclosure Statement was approved on September 26,
1995. The Court held the Confirmation hearing on September 26, 1995 and
continued the hearing to October 18, 1995. The Confirmation hearing was
concluded on October 18, 1995, although the Court has not yet rendered a
ruling on the Second Amended Plan of Reorganization. The Court has not
disclosed a date in which the decision will be communicated.
3. Property and Improvements and Note and Mortgages Payable
At June 30, 1995, the Partnership owned five operating apartment
properties located in California totaling 1,763 units with leases generally
for a term of one year or less. The Partnership owns a sixth property with
372 apartment units which was not operating and was unoccupied at September
30, 1995. All properties are pledged as security for the long-term debt.
Although the first and second mortgages payable represent secured
claims under the bankruptcy proceedings, there is uncertainty as to whether
the claims are undersecured or will be impaired under a plan of
reorganization. The mortgages payable, therefore, are classified as
liabilities subject to compromise in the accompanying balance sheet.
Interest expense will be recorded postpetition to the extent paid during
the proceeding. The Partnership has entered into a cash collateral
agreement with the first mortgage lender which calls for the payment of
cash flow from operations, rents less operating expenses and capital, on a
monthly basis.
The Sherman Oaks property was severely damaged by the January 17,
1994 Southern California earthquake. The property is not operating and is
currently unoccupied. The Partnership's properties are covered by
insurance, including earthquake and business interruption; although the
policy carries a 5% deductible.
On April 28, 1994, the Partnership received a $750,000 advance on
the business interruption policy for the earthquake damaged property. The
Partnership recorded the advance as income, "Net recovery on business
interruption insurance", for the year ended December 31, 1994. "Net cost
(recovery) on business interruption insurance" represents costs
specifically associated with the earthquake. All other income statement
lines relating to the Sherman Oaks property include only the activity
related to the period from January 1, 1994 to January 16, 1994, or fixed
operating expenses unrelated to the earthquake, if applicable.
On March 9, 1995, the Partnership submitted a report, prepared as
of January 11, 1995, representing the Partnership's business interruption
claim. The claim adjuster and the Partnership's representatives have
agreed on the components and the amount of the claim, which was submitted
to the applicable insurance companies for approval. The income statement
does not include any amounts relating to the pending claim with the
insurance company. The Partnership received $2,200,000 in business
interruption insurance proceeds on October 27, 1995.
Of February 3, 1995, the insurance company carrying the first
$10,000,000 layer of earthquake insurance coverage offered to settle a
portion of the loss resulting from the earthquake. The appropriate
documents were executed in the second quarter of 1995 and on April 26,
1995, the Partnership received a partial insurance settlement of
$9,250,000. The application of the insurance proceeds to the outstanding
first mortgage payable or repair of the Sherman Oaks property will be
decided by the Court as part of the Plan of Reorganization confirmation
process.
<TABLE>
<CAPTION>
4. Transactions with Affiliates
Fees and other expenses incurred by the Partnership related to the General
Partner or its affiliates are as follows:
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended Unpaid at
September 30, September 30, September 30,
1995 1994 1995 1994 1995
Interest on assignment note(a) $ -- $18,333 $ -- $ 62,333 $502,334
Asset management fee 37,407 28,135 110,691 108,231 2,575,768
Administration and management fee -- -- -- -- 260,050
General partner's salary 37,500 37,500 112,500 112,500 1,012,500
Real Estate Advisory fee -- -- -- -- 518,750
Reimbursement (at cost) for
out of pocket expenses 9,704 6,767 31,044 22,443 68,562
Reorganization item:
Professional fees 33,102 -- 43,566 -- 43,566
$117,713 $90,735 $297,801 $305,507 $4,981,530
<FN>
a) Postpetition interest is recorded to the extent it is paid.
Contractual interest on assignment note was $22,000 and $66,000 for
the three and nine months ended September 30, 1995, respectively.
</TABLE>
5. Litigation
[Theodore D. Cohen, et al v. California Seven Associates, et al.,
No. 657925 (Orange County, CA, May 16, 1991)] Plaintiffs in suit brought
against the Partnership and its General Partner are members of the class
participating in a federal court action in Chicago [In re VMS Securities
Litigation, No. 90 c 2412, N.D. Ill.] which concluded in a settlement.
Defendant filed a Motion for Summary Judgment which was granted. Plantiffs
have requested additional time for filing an appeal. The likelihood of an
unfavorable outcome or the extent of any possible liability cannot be
assessed at this time.
6. Going Concern
The Partnership's Plan of Reorganization, which contemplates
repairing the Sherman Oaks property, is pending with the Court. The
outcome of the confirmation of the Plan of Reorganization is unknown at
this time. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties. Although every
effort is being made to preserve the Partnership as a going concern, the
possibility remains that the Partnership will cease its operations causing
the complete loss of the ownership interest held by the partners.
If the Partnership's effort to reorganize is unsuccessful, the
Partnership will likely lose the properties and improvements through
foreclosure with no cash available to partners. As a result of a
foreclosure, the Partnership would record extraordinary income on relief of
indebtedness.
<PAGE>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
On September 16, 1994, the Partnership filed a voluntary petition
under Chapter 11 of the Federal bankruptcy laws in the United States
Bankruptcy Court for the District of California. Pursuant to Section 1108
of the Bankruptcy Code, the Partnership is managing and operating its
business as a debtor in possession and will continue to do so pursuant to
Sections 1107 and 1108 of the Bankruptcy Code unless otherwise ordered by
the Court.
On February 3, 1995, the insurance company carrying the first
$10,000,000 layer of earthquake insurance coverage, offered to settle a
portion of the loss resulting from the earthquake. The appropriate
documents were executed in the second quarter of 1995 and on April 26,
1995, the Partnership received a partial insurance settlement of
$9,250,000. The application of the insurance proceeds to the outstanding
first mortgage payable or repair of the Sherman Oaks property will be
decided by the Court as part of the Plan confirmation process.
On March 9, 1995, the Partnership submitted a report, prepared as
of January 11, 1995, representing the Partnership's business interruption
claim. The claim adjuster and the Partnership's representatives have
agreed on the components and the amount of the claim, which was submitted
to the applicable insurance companies for approval. The income statement
does not include any amounts relating to the pending claim with the
insurance company. The Partnership received $2,200,000 in business
interruption insurance proceeds on October 27, 1995.
On or about January 30, 1995, the first mortgage lender filed a
Motion for Relief from the Automatic Stay. The Partnership filed an
Opposition to the Motion. At the hearing held on February 21, 1995, the
court set April 18, 1995 as the final evidentiary hearing. After hearing
arguments and representations of counsel, the Court continued the hearing
to July 12, 1995 and then to August 9, 1995. At the Continued Confirmation
Hearing on August 9, 1995, the Court allowed The Travelers Insurance
Company limited relief from the automatic stay to file its Notice of
Default in accordance with California state law. The continued hearing on
the Motion for Relief from the Automatic Stay was set for September 26,
1995 and then continued to October 18, 1995.
On March 17, 1995, the Partnership filed its proposed Plan of
Reorganization under Chapter 11 of the Bankruptcy Code dated March 16,
1995, together with a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code. On March 17, 1995, the Court set the hearing on the
Partnership's Disclosure Statement for April 18, 1995. On April 17, 1995,
the Partnership filed with the Bankruptcy Court certain Non-material
Amendments to the Disclosure Statement. On April 18, 1995, the Bankruptcy
Court held a hearing and acted upon the approval of the Partnership's
Disclosure Statement together with the Non-material Amendments. After
considering the Disclosure Statement and the Non-material Amendments
thereto, the Court ruled that certain additional information should be
included in the Partnership's Disclosure Statement. The Court required the
Partnership to file an Amended Disclosure Statement which the Court
approved without further hearing.
The Partnership filed its Amended Disclosure Statement and Amended
Plan of Reorganization (the "Plan") on May 4, 1995. On May 15, 1995, the
Partnership mailed all impaired creditors, limited partners, and parties in
interest a copy of the Amended Disclosure Statement and Plan, along with a
ballot for voting and other notices. All classes of creditors, limited
partners and parties in interest impaired under the Plan voted to accept
the plan except Class 1, the first mortgage lender, Travelers Insurance Co.
Pursuant to the order approving the Amended Disclosure Statement,
the Court set July 12, 1995 as the confirmation hearing for the
Partnership's Plan. Subsequently, a stipulation was agreed to and approved
by the Court to bifurcate the confirmation hearing to allow additional
pleadings. Nonfeasibility issues were scheduled to be heard on July 12,
1995 and all feasibility related issues would be heard by the Court on
August 9, 1995.
As a result of the hearing on July 12, 1995, the Court ruled on
certain nonfeasibility related objections and issues raised by Travelers
Insurance Company, including pricing of interest rates. Based on the
Court's rulings, the Partnership proposed a Third Modification to the Plan.
On August 9, 1995, the Court considered the Plan, the proposed Third
Modification and all other evidence in support of the confirmation of the
Plan, as well as the objections and related filings filed by the Travelers
Insurance Company in support of its objections. The Court found that the
Travelers Insurance Company did not have sufficient advance notice and
disclosure regarding the proposed Third Modification to the Plan.
Therefore, the Court denied the Plan to allow the Partnership to
incorporate the Third Modification to the Plan into a new plan of
reorganization, the Second Amended Plan. The Second Amended Plan is
essentially the Plan incorporating the Third Modification. The Court set a
schedule of time requirements for the Partnership to file a Second
Disclosure Statement and Amended Plan which would allow appropriate time
for notice. The Court set a combined hearing on the adequacy of the
Partnership's Second Disclosure Statement and Confirmation of the Second
Amended Plan for September 26, 1995.
On August 25, 1995, the Partnership filed and served its Second
Amended Plan of Reorganization and a Second Disclosure Statement. The
Partnership's Second Disclosure Statement was approved on September 26,
1995. The Court held the Confirmation hearing on September 26, 1995 and
continued the hearing to October 18, 1995. The Confirmation hearing was
concluded on October 18, 1995, although the Court has not yet rendered a
ruling on the Second Amended Plan of Reorganization. The Court has not
disclosed a date in which the decision will be communicated.
The outcome of the confirmation of the Second Amended Plan of
Reorganization is unknown at this time. Although every effort is being
made to preserve the Partnership as a going concern, the possibility
remains that the Partnership will cease its operations causing the complete
loss of the ownership interests held by the partners.
If the Partnership's effort to reorganize is unsuccessful, the
Partnership will likely lose the Project through foreclosure with no cash
available to Partners. A foreclosure would result in an income allocation
to the Partners approximating ending capital balances at the time of
foreclosure ($83,912 per $150,000 Class A limited partner unit at December
31, 1994); although, if a limited partner's ownership interest in the
Partnership is the partner's only passive activity and the limited partner
has been suspending passive loss allocations as required by the Tax Reform
Act of 1986, the suspended losses available are estimated to be more than
the potential foreclosure income allocation, resulting in an available net
loss. In a year in which the Project is disposed of and the Partnership
dissolved, any cumulative suspended loss will be available for use by a
limited partner to offset ordinary income.
Results of Operations
During 1994, the apartment submarkets in which the Partnership's
properties operate remained stable in terms of occupancy percentages and
new construction. Absorption of existing units continued and rental rates
began to increase slightly. Contributing to the Partnership's improved net
property revenue results (property level revenues less property level
operating expenses) for 1994, as compared with 1993, was a decrease in
OAKWOOD related costs due to the conversion of Mission Bay East from
OAKWOOD operations to conventional apartments effective January 1, 1994.
When adjusted for Sherman Oaks activity, net property revenues for the
three months ended September 30, 1995 increased approximately 1% as
compared with the second quarter and 3% as compared with the first quarter
of 1995. A slight decrease of property revenues was offset by decreased
property level expenses in the third quarter.
The Sherman Oaks property was severely damaged by the Southern
California earthquake on January 17, 1994. The property was evacuated and
city inspectors classified the property as unsafe for use. The property is
not operating and is unoccupied. As a result, the property generated no
revenue in 1995, and only a nominal amount in 1994, and has incurred only
necessary operating expenses and expenses related to the earthquake since.
Sherman Oaks' results for the nine months ended September 30, 1995, as
compared with the same period in 1994, were affected as follows: Rental
income decreased approximately $91,000, other income decreased
approximately $9,000, property operating expenses decreased approximately
$93,000, real estate taxes decreased approximately $147,000, management
fees decreased approximately $34,000 and property administrative expenses
decreased approximately $64,000. For the three months ended September 30,
1995, Sherman Oaks' results, as compared with the same period in 1994, were
affected as follows: Property operating expenses decreased approximately
$6,000, real estate taxes decreased approximately $22,000, management fees
decreased approximately $10,000 and property administrative expenses
decreased approximately $3,000. The following analytical comments have
been limited to the Partnership's five operating properties.
Rental income at Mission Bay East increased approximately $178,000
for the nine months ended September 30, 1995, as compared with the same
period in 1994 as a result of higher average occupancy. The year-to-date
increase in rental income at Mission Bay East was net of a decrease in
rental income in the first quarter of 1995 compared with 1994, as 1994
included leftover corporate business, which generally commands higher
rates, subsequent to the property's conversion from OAKWOOD. At Amberway,
higher average occupancy for the three and nine months led to an increase
in rental income of approximately $55,000 and $149,000, respectively.
Average occupancy at West Los Angeles was approximately 11% and 4% higher
for the three and nine months, respectively, as compared with the same
periods in 1994, resulting in increased rental income of approximately
$94,000 and $132,000 for the three and nine months, respectively. A slight
decrease in average occupancy at Pacifica Club led to a decrease in rental
income of approximately $11,000 and $40,000 for the three and nine months
ended September 30, 1995, respectively. Rental income at Arbor Park
decreased approximately $26,000 and $82,000 for the three and nine months
as a result of soft market conditions and lower average occupancy.
Other income decreased for the three and nine months ended
September 30, 1995, as compared with the same periods in 1994, due
primarily to decreased laundry revenue and cleaning fees earned at Arbor
Park.
Property operating expenses increased for the three and nine months
ended September 30, 1995, as compared to the same periods of the previous
year. Insurance expense increased approximately $83,000 and $247,000 for
the three and nine months, respectively, for the five operating properties.
Other operating expense increases for the three and nine months resulted
from costs of termite treatments at Pacifica Club and utility increases at
Mission Bay East, West Los Angeles and Arbor Park. Partially offsetting
increases in operating expenses for the three and nine months was a
decrease in furniture rental and earthquake related repairs and maintenance
expenses at West Los Angeles. Once the leases expire on rented furniture,
the property exercises the $1 purchase option, with replacement on an as
needed basis as part of capital purchases. Decreases in corporate
apartment expenses at Amberway were offset by increases in repair and
maintenance for carpet, vinyl and blinds.
Property taxes decreased for the three and nine months ended
September 30, 1995, as compared with the same periods in 1994, due to a
decrease in assessed value from successful property tax appeals at each of
the Partnership's properties.
The increase in property administrative expense for the three and
nine months ended September 30, 1995, as compared with the same periods in
1994, was the result of higher payroll and related costs. In addition, an
increase in the amount of advertising at West Los Angeles and Arbor Park
was partially offset by a decrease in advertising at Pacifica Club and
Amberway for the nine month period.
The decrease in partnership administrative expense for the three
and nine months ended September 30, 1995, as compared with the same periods
in 1994, was due primarily to a decrease in legal fees incurred.
The increase in interest income for the three and nine months ended
September 30, 1995, as compared with the same periods in 1994, was due to
the increase in interest rates coupled with higher average cash balances.
<PAGE>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Occupancy
The following is a listing of approximate physical occupancy levels
by quarter for the Partnership's investment properties:
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995
At 3/31 At 6/30 At 9/30 At 12/31 At 3/31 At 6/30 At 9/30
The Anaheim Property 83% 81% 89% 95% 92% 93% 93%
The Huntington Beach Property 95% 98% 99% 94% 94% 97% 95%
The West Los Angeles Property 87% 92% 87% 83% 91% 97% 94%
The San Diego Property 84% 93% 95% 92% 95% 94% 95%
The Sherman Oaks Property (a) N/A N/A N/A N/A N/A N/A N/A
The Upland Property 91% 90% 91% 95% 85% 87% 90%
<FN>
(a) The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property was evacuated and considered
unsafe for use. Therefore, occupancy is not applicable for the
periods presented.
</TABLE>
<PAGE>
California Seven Associates Limited Partnership,
a California Limited Partnership
(Debtor in Possession)
Part II - Other Information
Item 1. Legal Proceedings
The information included in the "Notes to Financial Statements,
Note 5. Litigation" on page 8 of the Partnership's September 30, 1995
Financial Statements, is incorporated by reference.
The information included in the "Notes to Financial Statements,
Note 2. Petition for Relief Under Chapter 11" on page 5 of the
Partnership's September 30, 1995 Financial Statements, is incorporated by
reference.
Item 2. Changes in the Rights of the Partnership Security Holders
(b) On September 16, 1994, the Partnership filed a petition for
relief under Chapter 11 of the Federal bankruptcy laws. The voluntary
reorganization action may provide for a reorganization of the debt and
equity structure of the Partnership business which may change the rights
and form of the equity interests of the Partnership.
Item 3. Defaults by the Partnership on its Senior Securities
On September 16, 1994, the Partnership filed a petition for relief
under Chapter 11 of the Federal bankruptcy laws. On the filing date, the
Partnership was in default on its second mortgage loan obligation.
Although the second mortgage holder had acknowledged the default, the
Partnership did not receive a notice of acceleration. Due to the Chapter
11 proceedings, claims secured against the Partnership assets are stayed.
The balance of the second mortgage note at September 30, 1995 was
$14,000,000 plus $1,699,892 of accrued and unpaid interest.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) No Form 8-Ks were filed during the three months ended September 30,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
California Seven Associates Limited Partnership,
a California Limited Partnership
By: CIGNA Realty Resources, Inc. - Seventh,
General Partner
Date: November 7, 1995 By: /s/ John D. Carey
John D. Carey, President and Controller
(Principal Executive Officer)
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<CASH> 3146767
<SECURITIES> 0
<RECEIVABLES> 202274
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 144662440
<DEPRECIATION> 51275658
<TOTAL-ASSETS> 106160044
<CURRENT-LIABILITIES> 0
<BONDS> 111983903
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 106160044
<SALES> 0
<TOTAL-REVENUES> 11087700
<CGS> 0
<TOTAL-COSTS> 5441386
<OTHER-EXPENSES> 3613501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4167547
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2144893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2144893)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
