<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended MARCH 31, 1997
Commission File Number 33-22857
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-4166241
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1997 and December 31, 1996 .....................................1
Statements of Operations,
Three Months Ended March 31, 1997 and 1996........................................2
Statement of Partners' Capital (Deficiency)
Three Months Ended March 31, 1997 ................................................3
Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996........................................4
Notes to Financial Statements ............................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................15
Item 6. Exhibits and Reports on Form 8-K.........................................................17
Signatures ............................................................................................18
</TABLE>
<PAGE> 3
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
RENTAL PROPERTY (Notes 1, 2 and 3) $34,350,022 $34,337,025
CASH AND CASH EQUIVALENTS (Note 1) 3,673,028 3,490,463
RESTRICTED CASH (Notes 1 and 5) 158,700 158,700
OTHER ASSETS (Note 5) 16,680 54,598
----------- -----------
$38,198,430 $38,040,786
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES (Note 4) $ 479,468 $ 413,457
PREPAID RENT 17,571 75,583
SECURITY DEPOSITS 309,086 315,244
----------- -----------
806,125 804,284
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL (Note 1) 37,392,305 37,236,502
----------- -----------
$38,198,430 $38,040,786
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES
Rental income $1,419,028 $1,262,662
Interest and other income (Note 1) 66,564 63,403
---------- ----------
1,485,592 1,326,065
---------- ----------
EXPENSES
Operating (Note 4) 332,608 273,189
Property taxes 66,902 71,022
Management fee - (Note 4) 41,294 39,058
General and administrative (Note 4) 124,499 110,405
Depreciation 176,389 177,639
---------- ----------
741,692 671,313
---------- ----------
NET INCOME $ 743,900 $ 654,752
========== ==========
NET INCOME PER DEPOSITORY UNIT $ 0.10 $ 0.09
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL (DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Special Limited
General Limited Partner
Partners Partners (Note 1) Total
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
DEPOSITORY UNITS,
March 31, 1997 7,258,000
================
BALANCE, January 1, 1997 $ (278,165) $ 37,514,667 $ - $ 37,236,502
Distributions (5,881) (582,216) (588,097)
Net income for the three months
ended March 31, 1997 7,439 736,461 - 743,900
-------------- ---------------- ---------------- ---------------
BALANCE, March 31, 1997 $ (276,607) $ 37,668,912 $ - $ 37,392,305
=============== ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 743,900 $ 654,752
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 176,389 177,639
Decrease in other assets 37,918 5,720
Derease due to related parties - (183,095)
Increase in accounts payable and
accrued liabilities 66,011 133,494
Increase (decrease) in due to general partner - (60,000)
Decrease in security deposits (6,158) (1,588)
Decrease in prepaid rent (58,012) (2,693)
----------- -----------
Net cash provided by operating activities 960,048 724,229
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments receivable pursuant to the minimum distribution guarantee - 175,000
Increase in rental property (189,386) -
----------- -----------
Net cash (used in) provided by investing activities (189,386) 175,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (588,097) (543,336)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 182,565 355,893
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,490,463 2,738,045
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,673,028 $ 3,093,938
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements
and related notes thereto contained in the Annual Report for the year
ended December 31, 1996 prepared by Century HillCreste Apartment
Investors, L.P. (the "Partnership"). Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are
not necessarily indicative of the results for the entire year.
In the opinion of NAPICO, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1997, and the results of operations and changes in cash
flows for the three months then ended.
ORGANIZATION
The Partnership, a California limited partnership, was formed on June
6, 1988, with National Partnership Investments Corp. ("NAPICO" or the
"Managing General Partner"), and HillCreste Properties Inc. (the
"Non-Managing General Partner") as the general partners. On October 26,
1988, the Partnership issued to investors (the "Limited Partners")
7,258,000 depositary units (each depositary unit being entitled to the
beneficial interest of a limited partnership interest) for a total
amount raised of $72,580,000, through a public offering.
Concurrent with the issuance of the depositary units, the Partnership
purchased a 315-unit luxury apartment complex in the Century City area
of Los Angeles, California (the "Property") from Casden Properties (the
"Seller"). To complete the purchase of the Property, the Seller
purchased a 10% special limited partnership interest in the Partnership
for $6,855,000 and became the Special Limited Partner of the
Partnership.
Among other things, the Partnership Agreement provides that the 10%
special limited partnership interest is subordinate to the other
Limited Partners' specified priority return in the case of
distributions of net cash flow from operations, plus the other Limited
Partners' return of capital in the case of net sales or refinancing
distribution proceeds.
Casden Investment Corporation, an affiliate of the Seller, owns 100
percent of the outstanding common stock of the Managing General
Partner.
5
<PAGE> 8
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
MINIMUM DISTRIBUTION GUARANTEE
The minimum distribution guarantee payments from the seller have been
reflected as a reduction in the carrying amount of the Property. For
its contribution of $6,855,000, the Seller has rights to receive an
allocation of the Partnership's net cash from operations after the
Limited Partners receive a specified priority return.
DEPRECIATION
Depreciation is reported using the straight-line method over the
estimated useful lives of the buildings and equipment as follows:
Buildings 35 years
Furniture and equipment 5 years
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
one money market mutual fund. Such cash and cash equivalents are
uninsured.
RESTRICTED CASH
Restricted cash consists of bank certificates of deposits assigned to
the City of Los Angeles in lieu of purchasing a subdivision improvement
bond to effectuate the privatization of city streets located within the
Property's perimeter (see Note 5).
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements as such taxes, if any, are the liability of the
individual partners.
6
<PAGE> 9
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER DEPOSITORY UNIT
Net income per depository unit was computed by dividing the limited
partners' share of net income (99%) by the number of depository units
outstanding during the year. The number of depository units was
7,258,000 for the periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Accounting for the Improvement of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a
significant effect on its financial statements. The Partnership reviews
long-lived assets to determine if there has been any permanent
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If the sum of
the expected future cash flows is less than the carrying amount of the
assets, the Partnership recognizes an impairment loss.
NOTE 2 - RENTAL PROPERTY
Rental property is carried at cost and consists of the following at
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land $ 16,175,000 $ 16,175,000
Building 24,694,402 24,694,402
Furniture and equipment 3,870,000 3,870,000
Improvements 634,636 445,250
------------ ------------
45,374,038 45,184,652
Less accumulated depreciation (11,024,016) (10,847,627)
------------ ------------
$ 34,350,022 $ 34,337,025
============ ============
</TABLE>
In December 1996, Everest HillCreste Investors, LLC, an affiliate of
Everest Century Investors, LLC, ("Everest"), commenced a proxy
solicitation of the Limited Partners seeking to obtain sufficient votes
in order to (a) authorize Everest to notify the General Partners on
behalf of Limited Partners to call for a special meeting of the Limited
Partners, and (b) adopt a resolution at such meeting approving
Everest's proposal to purchase the Property for $40 million subject to
certain material conditions. On January 9, 1997, the Managing General
Partner advised the limited partners that the proposed purchase price
was less than the Property's appraised value of $46.9 million as of
February 1996, and that four other, non-binding purchase proposals had
been received for prices ranging from $40.2 million to $44.7 million,
each subject to various contingencies and conditions. The Managing
General Partner also informed the limited partners that Casden
Properties, an affiliate of the Managing General
7
<PAGE> 10
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 2 - RENTAL PROPERTY (CONTINUED)
Partner and the Special Limited Partner of the Partnership, has under
the terms of the Amended and Restated Agreement of limited partnership
(the "Partnership Agreement"), a right of first refusal to acquire the
Property for the proposed sales price and terms (the "Right of First
Refusal").
Subsequently, Everest has increased its offer by $7 million to $47
million (the "Everest Proposal"). Additionally, the Partnership has
just received (a) a report from an independent real estate appraisal
firm that the Property's current market value is approximately $47
million and (b) a non-binding proposal from one of the four prior
offerees proposing to increase its offer to purchase the Property to
$47.4 million.
The Managing General Partner makes no recommendation as to the Everest
Proposal.
The Managing General Partner has been informed that its affiliate, the
Special Limited Partner, plans, subject to obtaining reasonable
financing, to exercise the aforementioned Right of First Refusal in the
event the Everest Proposal is approved.
NOTE 3 - MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER
The Minimum Distribution Guarantee Agreement (the "Guarantee
Agreement") required the Seller, who is also the Special Limited
Partner, to make payments to the Partnership, if and when necessary, in
an amount sufficient to enable the Partnership to provide the Limited
Partners with distributions sufficient to achieve a minimum annual
return upon the Limited Partners' investment in the Partnership,
through December 31, 1993, as follows:
<TABLE>
<CAPTION>
Years Ended December 31, Annual Return on Investment
------------------------ ---------------------------
<S> <C>
1988 8.0%
1989 8.0%
1990 8.5%
1991 9.0%
1992 9.0%
1993 9.0%
</TABLE>
Pursuant to a Memorandum of Understanding entered into on August 11,
1995, the Seller agreed to pay to the Partnership the sum of $350,000
in two equal installments of $175,000 each; the first such $175,000
payment was made in August 1995 and the second payment was made in May
1996. These payments represent the amount of a real estate tax refund
received in 1994 for overpayment of prior year taxes which had
previously been offset against amounts receivable from the Seller under
the Guarantee Agreement. In addition, in August 1995, the Seller made
an additional payment of $135,000 pursuant to the Memorandum of
Understanding representing interest on late guarantee payments. This
has been included in interest income.
8
<PAGE> 11
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 3 - MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER (CONTINUED)
Through December 31, 1996, the Seller has funded a total of $13,130,998
directly to the Partnership for distributions to the Limited Partners
pursuant to the Guarantee Agreement, which includes the $350,000,
referred to above. This amount has been reflected as a reduction in the
carrying amount of the property. The period covered by the Guarantee
Agreement expired on December 31, 1993. Except with respect to the
payments made in 1995 and 1996 pursuant to the Memorandum of
Understanding, commencing in 1994, distributions to the Partners have
been made from cash flow from operations.
NOTE 4 - FEES PAID TO GENERAL PARTNERS AND AFFILIATES
In accordance with the Partnership Agreement certain fees and
reimbursements are paid to the general partners and their affiliates as
follows:
(a) A Partnership management fee payable to the Managing General
Partner of $50,000 annually. The fee is included in general
and administrative expenses.
(b) Partnership expense reimbursements, payable to the
Non-Managing General Partner, not to exceed $50,000 annually.
The 1990 reimbursement was accrued and is included in accounts
payable and accrued liabilities at March 31, 1997 and December
31, 1996. The Non-Managing General partner has requested
reimbursement for expenses for 1990 through 1997, however, the
Managing General Partner has refused to pay such
reimbursements and so none have been paid or accrued from 1991
through March 31, 1997.
(c) The Partnership is obligated to pay fees to the Managing
General Partner or its affiliates upon sale of the Property.
The payment of such fees are subordinated to certain preferred
returns to the Limited Partners.
(d) The Managing General Partner is entitled to receive 1% of
distributions (as defined in the Partnership Agreement). This
is paid quarterly by the Partnership to the Managing General
Partner.
(e) At December 31, 1995, $150,000 was estimated as due to the
Non-Managing General Partner for reimbursement of professional
fees paid on behalf of the Partnership in connection with
issues raised in the Memorandum of Understanding. The actual
amount paid in 1996 was $90,000, with the balance reversed
against expenses.
9
<PAGE> 12
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES
(a) Construction Contracts
Approvals from the City of Los Angeles were obtained to
"privatize" the streets and alleys providing access to the
Property and to construct wrought iron security fencing with
controlled entrances into the Property. The final resolution
vacating the streets and alleys was approved by the City on
December 31, 1994. Landscape and construction of the perimeter
fencing and related improvements, including a guardhouse at
the Ambassador Street entrance and a directory/trellis at the
Peerless Street location is nearing completion.
As a condition to its approval of the proposed
"privatization", the City of Los Angeles required the
construction of a storm drain and related improvements, for
which an improvement agreement and guarantee in the amount
$158,700 has been filed with the City of Los Angeles. The
Partnership has pledged a Certificate of Deposit in such
amount to the City to secure the improvement guarantee.
Contracts in the amount of $683,000 and $49,975 have been
awarded to construct the wrought iron security fencing and to
construct a storm drain and related improvements,
respectively, for which construction work commenced in
September 1996 and is to be completed in May, 1997. As of
March 31, 1997, $634,636 has been paid to the contractor.
(b) Litigation
The Managing General Partner of the Partnership is a plaintiff
in various lawsuits and has also been named as a defendant in
other lawsuits arising from transactions in the ordinary
course of business. In the opinion of management and the
Managing General Partner, the claims are not expected to
result in any material liability to the Partnership. In
addition, the Partnership is involved in the actions described
below:
(c) Securities and Exchange Commission
The staff of the Securities and Exchange Commission (the
"Commission") informed the Partnership and NAPICO in August,
1995 that it intends to recommend that the Commission
institute a civil action and/or administrative proceeding
against the Partnership, NAPICO and others that would be
based, in part, on allegations that certain of the
Partnership's financial statements in 1991, 1992 and 1993
should have characterized certain current assets deposited in
the master disbursement account of the Partnership's property
management company as accounts receivable from a related party
rather than as cash. The Partnership and NAPICO strenuously
disagree with the staff's contentions, which have not yet been
considered by the Commission. Moreover, in the opinion of
NAPICO, any action that might result from the staff's
recommendation is not likely to have a material adverse effect
on the Partnership.
10
<PAGE> 13
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
(d) J/B Lawsuit
On February 13, 1997, J/B Investment Partners ("J/B") filed an
action in the Los Angeles Superior Court (the "J/B Lawsuit"),
against the Managing General Partner and its directors, and
Casden Properties and certain of its affiliates (collectively,
the "Defendants").
The J/B Lawsuit is styled as a class action brought against
the Defendants on behalf of all limited partners of the
Partnership, and commenced a proxy solicitation of the Limited
Partners seeking to obtain sufficient votes in order to (a)
authorize Everest to notify the General Partners on behalf of
Limited Partners to call for a special meeting of the Limited
Partners, and (b) adopt a resolution at such meeting approving
Everest's proposal to purchase the Property for $40 million
subject to certain material conditions. The J/B Lawsuit is
styled as a class action brought against the Defendants on
behalf of all limited partners of the Partnership and a
derivative action brought on behalf of the Partnership itself.
The Partnership is named as a "nominal defendant." The
complaint in the J/B Lawsuit contains four causes of action:
(a) breach of fiduciary duty; (b) breach of contract; (c)
unjust enrichment; and (d) equitable relief.
The alleged wrongdoing of the Defendants as set forth in the
J/B Lawsuit relates to the following issues:
1. J/B alleges misappropriation and misuse of
Partnership funds which were the subject of a
previous lawsuit (the "Prior Lawsuit") filed in the
Los Angeles Superior Court in June 1995 by HillCreste
Properties, Inc., the non-managing general partner of
the Partnership (the "Non-Managing General Partner").
The Managing General Partner vigorously denied these
allegations, and without admission of any wrongdoing
the Prior Lawsuit was settled by a Memorandum of
Understanding executed in August 1995, with final
settlement documentation executed in April 1996, at
which time the Prior Lawsuit was dismissed with
prejudice as to all defendants. Additionally, J/B
alleges that the Defendants have wrongfully caused
the Partnership to pay legal fees on behalf of the
Managing General Partner or certain of its affiliates
relating to a regulatory investigation discussed
above.
2. J/B alleges that the Defendants have failed to
explore transactions that would maximize the value of
the limited partners' investment in the Partnership,
including the four unsolicited offers to purchase the
Property, implementation of an auction process
regarding the potential sale of the Property and
obtaining financing with respect to the Property.
3. J/B alleges that the January 1997 letter from the
Managing General Partner to the Limited Partners
contained misleading statements about the original
Everest proxy
11
<PAGE> 14
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
solicitation and about the Special Limited Partner's
Right of First Refusal. Specifically, J/B contends that
the January letter failed to disclose the Managing
General Partner's advice and opinions regarding the
response of the Limited Partners to the original
Everest offer and contained misstatements about certain
provisions of the Partnership Agreement pertaining to
actions permitted or required to be taken by the
Limited Partners of the Partnership. J/B states that
the Limited Partners are not authorized, by vote of a
majority-in-interest or otherwise, to bind, compel, or
require the Partnership to enter into any contract for
the sale of the Property, including the proposed sales
contract with Everest. In other words, J/B asserts that
the Everest Proposal cannot be implemented as proposed
because it is beyond the Limited Partners' authority
under the Partnership Agreement. Consequently, J/B
claims that the conditions to the Special Limited
Partner's Right of First Refusal to purchase the
Property for a price and on terms equal to those
contained in the Everest Proposal cannot under the
Partnership Agreement be fulfilled, and, therefore, no
such Right of First Refusal could be exercised.
J/B seeks damages in the J/B Lawsuit in a unspecified
amount and equitable relief, including, among other
things, a declaration judgment as to whether or not
there exists a Right of First Refusal.
The Managing General Partner strenuously disputes all
of the accusations of wrongdoing against it and its
affiliates alleged in the J/B Lawsuit, and defends the
existence and integrity of the Right of First Refusal,
which was an integral and material part of the
financial structure of the Partnership and was
disclosed to the Limited Partners, in the prospectus at
the time of the original sale of units in the
Partnership. The Managing General Partner further
intends to vigorously defend the settlement of the
Prior Lawsuit.
It appears that J/B purchased or was assigned certain
rights with respect to 200 units in the Partnership in
or about 1995. It is not yet known whether J/B or
plaintiff's class action counsel is connected with,
directly or indirectly, parties sponsoring the original
Everest proxy or the revised Everest Proposal, or other
third parties who have expressed interest in acquiring
the Property.
The Special Limited Partnership has advised the
Managing General Partner and the Non-Managing General
Partner that the Right of First Refusal was a material
inducement to the Special Limited Partner's sale of the
Property to the Partnership, its purchase of a
subordinated special limited partnership interest in
the Partnership for $6,855,000, and its agreement to
provide the Partnership with a Minimum Distribution
Guarantee pursuant to which the Special Limited Partner
paid a total of approximately $13,130,000 to the
Partnership to support distributions to the Limited
Partners. If, as
12
<PAGE> 15
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE - 5 COMMITMENTS AND CONTINGENCIES (CONTINUED)
a result of the J/B Lawsuit or otherwise, the Special
Limited Partner is not entitled to exercise the Right
of First Refusal with respect to the Everest Proposal
or in response to other similar situations, the Special
Limited Partner believes that it would be entitled to
return of its investment and all sums paid under the
Minimum Distribution Guarantee, together with interest
thereon. Moreover, the settlement of the Prior Lawsuit
was reached after extensive negotiations with the
Non-Managing General Partner which negotiated on behalf
of the Partnership a binding and conclusive settlement.
If, as a result of the J/B Lawsuit or otherwise, the
settlement of the Prior Lawsuit is set aside, the
Managing General Partner and its affiliates would seek
a return of all funds paid to the Partnership as a
result of such settlement.
The Defendants believe the allegations of wrongdoing in
the J/B Lawsuit lack merit, and intend to contest them
vigorously. The Defendants believe a number of the
claims asserted in the J/B Lawsuit are bared by the
settlement and dismissal with prejudice of the Prior
Lawsuit.
The J/B Lawsuit could result in delaying, complicating,
or preventing any significant transactions with respect
to the sale of the Property, and diminishing future
distributions to the Limited Partners until such case
is resolved. In addition, the Partnership is expected
to incur significant legal fees and expense to the
extent of its responsibilities to indemnify and hold
the Defendants harmless under certain provisions in the
Partnership Agreement.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. The carrying amount of assets
and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
13
<PAGE> 16
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership raised proceeds of $72,580,000 from the sale of
depository units, pursuant to a public offering and received additional
capital contributions from the General Partners of $1,050 and from the
special limited partner of $6,855,000. Currently, the only sources of
Partnership income consist of income from rental operations at the
Property and interest earned on Partnership reserves.
In conjunction with the acquisition of the Property, the Partnership
received a Guarantee from the Special Limited Partner, (now an affiliate
of the Managing General Partner), which guarantee agreement (the
"Guarantee Agreement") required the Special Limited Partner to make
payments as provided in the Guarantee Agreement if and when necessary,
in an amount sufficient to enable the Partnership to provide the Limited
Partners with minimum distributions through December 1993.
Pursuant to the Memorandum of Understanding entered into on August 11,
1995, the Special Limited Partner agreed to pay to the Partnership the
sum of $350,000 in two equal installments of $175,000 each; the first
such $175,000 payment was made in August 1995 and the second payment was
made in May 1996. These payments represent the amount of a real estate
tax refund received in 1994 for overpayment of prior year taxes which
had previously been offset against amounts receivable from the Special
Limited Partner under the Guarantee Agreement.
Through March 31, 1997, the Special Limited Partner has funded
$13,130,998 directly to the Partnership for distributions to the Limited
Partners pursuant to the Guarantee Agreement, which includes the
$350,000 referred to above. In addition, during 1995 the Partnership
made a special distribution to the Limited Partners in the amount of
$135,000 representing interest on late guarantee payments. Commencing in
1994, except with respect to the $350,000 and $135,000 described above,
contributions to the partners have been made from cash flow from
operations.
Approvals from the City of Los Angeles were obtained to "privatize" the
streets and alleys providing access to the Property and to construct
wrought iron security fencing with controlled entrances into the
Property. The final resolution vacating the streets and alleys was
approved on December 31, 1994. Landscape and construction of the
perimeter fencing and related improvements, including a guardhouse at
the Ambassador Street entrance and a directory/trellis at the Peerless
Street location is complete.
As a condition to its approval of the proposed "privatization", the City
of Los Angeles required the construction of a storm drain and related
improvements, for which an improvement agreement and guarantee in the
amount $158,000 has been filed with the City of Los Angeles. The
Partnership has pledged a Certificate of Deposit in such amount to the
City to secure the improvement guarantee. The construction of the storm
drain and related improvements is to be completed in May, 1997 (and the
City will release the Certificate of Deposit after completion of
inspection.
Occupancy averaged 97 percent and 94 percent for the three months ended
March 31, 1997 and 1996, respectively. Operating expenses increased
primarily due to an increase in insurance expense in 1997.
14
<PAGE> 17
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1997, NAPICO, the Managing General Partner, was a plaintiff or
defendant in several lawsuits, which are unrelated to the Partnership. In
addition, the Partnership is involved in the actions described below:
Securities and Exchange Commission
The staff of the Securities and Exchange Commission (the "Commission") informed
the Partnership and NAPICO in August, 1995 that it intends to recommend that the
Commission institute a civil action and/or administrative proceeding against the
Partnership, NAPICO and others that would be based, in part, on allegations that
certain of the Partnership's financial statements in 1991, 1992 and 1993 should
have characterized certain current assets deposited in the master disbursement
account of the Partnership's property management company as accounts receivable
from a related party rather than as cash. The Partnership and NAPICO strenuously
disagree with the staff's contentions, which have not yet been considered by the
Commission. Moreover, in the opinion of NAPICO, any action that might result
from the staff's recommendation is not likely to have a material adverse effect
on the Partnership.
J/B Lawsuit
On February 13, 1997, J/B Investment Partners ("J/B") filed an action in the Los
Angeles Superior Court (the "J/B Lawsuit"), against the Managing General Partner
and its directors, and Casden Properties and certain of its affiliates
(collectively, the "Defendants").
The J/B Lawsuit is styled as a class action brought against the Defendants on
behalf of all limited partners of the Partnership, and a derivative action
brought on behalf of the Partnership itself. The Partnership is named as a
"nominal defendant." The complaint in the J/B Lawsuit contains four causes of
action: (a) breach of fiduciary duty; (b) breach of contract; (c) unjust
enrichment; and (d) equitable relief.
The alleged wrongdoing of the Defendants as set forth in the J/B Lawsuit relates
to the following issues:
1. J/B alleges misappropriation and misuse of Partnership funds which were
the subject of a previous lawsuit (the "Prior Lawsuit") filed in the
Los Angeles Superior Court in June 1995 by HillCreste Properties, Inc.,
the non-managing general partner of the Partnership (the "Non-Managing
General Partner"). The Managing General Partner vigorously denied these
allegations, and without admission of any wrongdoing the Prior Lawsuit
was settled by a Memorandum of Understanding executed in August 1995,
with final settlement documentation executed in April 1996, at which
time the Prior Lawsuit was dismissed with prejudice as to all
defendants. Additionally, J/B alleges that the Defendants have
wrongfully caused the Partnership to pay legal fees on behalf of the
Managing General Partner or certain of its affiliates relating to a
regulatory investigation discussed above.
15
<PAGE> 18
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
2. J/B alleges that the Defendants have failed to explore transactions that
would maximize the value of the limited partners' investment in the
Partnership, including the four unsolicited offers to purchase the
Property, implementation of an auction process regarding the potential
sale of the Property and obtaining financing with respect to the
Property.
3. J/B alleges that the January 1997 letter from the Managing General
Partner to the Limited Partners contained misleading statements about
the original Everest proxy solicitation and about the Special Limited
Partner's Right of First Refusal. Specifically, J/B contends that the
January letter failed to disclose the Managing General Partner's advice
and opinions regarding the response of the Limited Partners to the
original Everest offer and contained misstatements about certain
provisions of the Partnership Agreement pertaining to actions permitted
or required to be taken by the Limited Partners of the Partnership. J/B
states that the Limited Partners are not authorized, by vote of a
majority-in-interest or otherwise, to bind, compel, or require the
Partnership to enter into any contract for the sale of the Property,
including the proposed sales contract with Everest. In other words, J/B
asserts that the Everest Proposal cannot be implemented as proposed
because it is beyond the Limited Partners' authority under the
Partnership Agreement. Consequently, J/B claims that the conditions to
the Special Limited Partner's Right of First Refusal to purchase the
Property for a price and on terms equal to those contained in the
Everest Proposal cannot under the Partnership Agreement be fulfilled,
and, therefore, no such Right of First Refusal could be exercised.
J/B seeks damages in the J/B Lawsuit in a unspecified amount and
equitable relief, including, among other things, a declaration judgment
as to whether or not there exists a Right of First Refusal.
The Managing General Partner strenuously disputes all of the
accusations of wrongdoing against it and its affiliates alleged in the
J/B Lawsuit, and defends the existence and integrity of the Right of
First Refusal, which was an integral and material part of the financial
structure of the Partnership and was disclosed to the Limited Partners,
in the prospectus at the time of the original sale of units in the
Partnership. The Managing General Partner further intends to vigorously
defend the settlement of the Prior Lawsuit.
It appears that J/B purchased or was assigned certain rights with
respect to 200 units in the Partnership in or about 1995. It is not yet
known whether J/B or plaintiff's class action counsel is connected
with, directly or indirectly, parties sponsoring the original Everest
proxy or the revised Everest Proposal, or other third parties who have
expressed interest in acquiring the Property.
The Special Limited Partnership has advised the Managing General
Partner and the Non-Managing General Partner that the Right of First
Refusal was a material inducement to the Special Limited Partner's sale
of the Property to the Partnership, its purchase of a subordinated
special limited partnership interest in the Partnership for $6,855,000,
and its agreement to provide the Partnership with a Minimum
Distribution Guarantee pursuant to which the Special Limited Partner
paid a total of approximately $13,130,000 to the Partnership to support
distributions to the Limited Partners. If, as a result of the J/B
Lawsuit or otherwise, the Special Limited Partner is not entitled to
exercise the Right of First Refusal with respect to the Everest
Proposal or in response to other similar situations, the
16
<PAGE> 19
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
Special Limited Partner believes that it would be entitled to return of
its investment and all sums paid under the Minimum Distribution
Guarantee, together with interest thereon. Moreover, the settlement of
the Prior Lawsuit was reached after extensive negotiations with the
Non-Managing General Partner which negotiated on behalf of the
Partnership a binding and conclusive settlement. If, as a result of the
J/B Lawsuit or otherwise, the settlement of the Prior Lawsuit is set
aside, the Managing General Partner and its affiliates would seek a
return of all funds paid to the Partnership as a result of such
settlement.
The Defendants believe the allegations of wrongdoing in the J/B Lawsuit
lack merit, and intend to contest them vigorously. The Defendants
believe a number of the claims asserted in the J/B Lawsuit are bared by
the settlement and dismissal with prejudice of the Prior Lawsuit.
The J/B Lawsuit could result in delaying, complicating, or preventing
any significant transactions with respect to the sale of the Property,
and diminishing future distributions to the Limited Partners until such
case is resolved. In addition, the Partnership is expected to incur
significant legal fees and expense to the extent of its responsibilities
to indemnify and hold the Defendants harmless under certain provisions
in the Partnership Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
17
<PAGE> 20
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(a California limited partnership)
By: National Partnership Investments Corp.
Managing General Partner
Date:
---------------------------------------
By:
---------------------------------------
Bruce Nelson
President
Date:
---------------------------------------
By:
---------------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
Date:
---------------------------------------
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENT OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,831,728
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,848,408
<PP&E> 45,374,038
<DEPRECIATION> 11,024,016
<TOTAL-ASSETS> 38,198,430
<CURRENT-LIABILITIES> 479,468
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 37,392,305
<TOTAL-LIABILITY-AND-EQUITY> 38,198,430
<SALES> 0
<TOTAL-REVENUES> 1,485,592
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 741,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 743,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 743,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743,900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
