<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, 1998
Commission File Number 33-22857
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-4166241
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1998 and December 31, 1997 1
Statements of Operations,
Three Months Ended March 31, 1998 and 1997 ... 2
Statement of Partners' Capital (Deficiency)
Three Months Ended March 31, 1998 ............ 3
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 ... 4
Notes to Financial Statements ...................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 13
Item 6. Exhibits and Reports on Form 8-K ....................... 14
Signatures ..................................................... 15
</TABLE>
<PAGE> 3
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
RENTAL PROPERTY (Notes 1, 2 and 3) $ 33,838,777 $ 34,013,326
CASH AND CASH EQUIVALENTS (Note 1) 4,612,642 4,100,537
RESTRICTED CASH (Notes 1 and 5) 158,700 158,700
OTHER ASSETS (Note 5) 10,524 39,001
------------ ------------
$ 38,620,643 $ 38,311,564
============ ============
LIABILITIES AND PARTNERS' CAPITAL
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES (Note 4) $ 380,401 $ 367,529
SECURITY DEPOSITS 307,511 297,622
PREPAID RENT 12,435 16,866
------------ ------------
700,347 682,017
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL (Note 1) 37,920,296 37,629,547
------------ ------------
$ 38,620,643 $ 38,311,564
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Rental income $ 1,492,831 $ 1,419,028
Interest and other income (Note 3) 87,447 66,564
------------ ------------
1,580,278 1,485,592
------------ ------------
EXPENSES
Operating (Note 4) 311,750 332,608
Property taxes 64,067 66,902
Management fee - (Note 4) 45,213 41,294
General and administrative (Note 4) 91,088 124,499
Depreciation 176,389 176,389
------------ ------------
688,507 741,692
------------ ------------
NET INCOME $ 891,771 $ 743,900
============ ============
NET INCOME PER DEPOSITORY UNIT $ 0.12 $ 0.10
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Special Limited
General Limited Partner
Partners Partners (Note 1) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PARTNERSHIP INTERESTS
BALANCE, JANUARY 1, 1998 $ (274,234) $ 37,903,781 $ -- $ 37,629,547
DISTRIBUTIONS (Note 7) (6,010) (595,012) -- (601,022)
NET INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 1998 8,918 882,853 -- 891,771
------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1998 $ (271,327) $ 38,191,623 $ -- $ 37,920,296
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
CENTURY HILLCRESTE APARTMENTS INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 891,771 $ 743,900
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 176,389 176,389
Decrease (increase) in other assets 28,477 37,918
Increase (decrease) in accounts payable and
accrued liabilities 12,872 66,011
Increase (decrease) in security deposits 9,889 (6,158)
Increase (decrease) in prepaid rent (4,431) (58,012)
------------ ------------
Net cash provided by operating activities 1,114,967 960,048
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in rental property (1,840) (189,386)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (601,022) (588,097)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 512,105 182,565
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,100,537 3,490,463
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,612,642 $ 3,673,028
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements
and related notes thereto contained in the Annual Report for the year
ended December 31, 1997 prepared by Century HillCreste Apartment
Investors, L.P. (the "Partnership"). Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the entire year.
In the opinion of National Partnership Investments Corp. ("NAPICO"), the
accompanying unaudited financial statements contain all adjustments
(consisting primarily of normal recurring accruals) necessary to present
fairly the financial position as of March 31, 1998, and the results of
operations and changes in cash flows for the three months then ended.
ORGANIZATION
The Partnership, a California limited partnership, was formed on June 6,
1988, with NAPICO (the "Managing General Partner"), and HillCreste
Properties Inc. (the "Non-Managing General Partner") as the general
partners (collectively, the "General Partners"). On October 26, 1988,
the Partnership issued to investors (the "Limited Partners") 7,258,000
depositary units (each depositary unit being entitled to the beneficial
interest of a limited partnership interest) for a total amount raised of
$72,580,000, through a public offering.
NAPICO is a wholly owned subsidiary of Casden Investment Corporation,
which is wholly owned by Alan I. Casden.
Concurrent with the issuance of the depository units, the Partnership
purchased a 315-unit luxury apartment complex in the Century City area
of Los Angeles (the "Property") from an affiliate of the Managing
General Partner (the "Seller") for a purchase price of $68,548,000. To
complete the purchase of the Property, the Seller purchased a 10 percent
special limited partnership interest in the Partnership for $6,855,000.
The Partnership Agreement provides that the 10 percent special limited
partnership interest is subordinate to the other Limited Partners'
specified priority return in the case of distributions of net cash flow
from operations, plus the other Limited Partners' return of capital in
the case of net sales or refinancing distribution proceeds.
5
<PAGE> 8
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
MINIMUM DISTRIBUTION GUARANTEE
The minimum distribution guarantee payments from the seller have been
reflected as a reduction in the carrying amount of the Property.
DEPRECIATION
Depreciation is reported using the straight-line method over the
estimated useful lives of the buildings and equipment as follows:
<TABLE>
<S> <C>
Buildings 35 years
Furniture and equipment 5 years
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
one money market mutual fund. Such cash and cash equivalents are
uninsured.
RESTRICTED CASH
Restricted cash consists of bank certificates of deposits assigned to
the City of Los Angeles in lieu of purchasing a subdivision improvement
bond to effectuate the privatization of city streets located within the
Property's perimeter (see Note 5).
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements as such taxes, if any, are the liability of the
partners.
6
<PAGE> 9
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER DEPOSITORY UNIT
Net income per depository unit was computed by dividing the limited
partners' share of net income (99 percent) by the number of depository
units outstanding during the year. The number of depository units was
7,258,000 for the periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been
any permanent impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows is less than the carrying amount
of the assets, the Partnership recognizes an impairment loss.
NOTE 2 - RENTAL PROPERTY
Rental property is carried at cost and consists of the following at March
31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<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 828,947 827,107
------------ ------------
45,568,349 45,566,509
Less accumulated depreciation (11,729,572) (11,553,183)
------------ ------------
$ 33,838,777 $ 34,013,326
============ ============
</TABLE>
In December 1996, Everest HillCreste Investors, LLC ("Everest"), an
affiliate of Everest Century Investors, LLC, commenced a proxy
solicitation of the Limited Partners seeking to obtain sufficient votes in
order to (a) authorize Everest to notify the General Partners on behalf of
Limited Partners to call for a special meeting of the Limited Partners,
and (b) adopt a resolution at such meeting approving Everest's proposal to
purchase the Property for $40 million subject to certain material
conditions. On January 9, 1997, the Managing General Partner advised the
limited partners that the proposed purchase price was less than the
Property's appraised value of $46.9 million as of February 1996, and that
four other, non-binding purchase proposals had been received for prices
ranging from $40.2 million to $44.7 million, each subject to various
contingencies and conditions. The Managing General Partner also informed
the Limited Partners that Casden Properties, an affiliate of the Managing
General Partner and the Special Limited Partner of the Partnership, has
under the terms of the Amended and Restated Agreement of limited
partnership (the "Partnership Agreement"), a right of first refusal to
acquire the Property for the proposed sales price and terms (the "Right of
First Refusal").
7
<PAGE> 10
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - RENTAL PROPERTY (CONTINUED)
Subsequently, Everest increased its offer by $7 million to $47 million
(the "Everest Proposal"). Additionally, the Partnership received (a) a
report from an independent real estate appraisal firm that the
Property's current market value is approximately $47 million and (b) a
non-binding proposal from one of the four prior offerees proposing to
increase its offer to purchase the Property to $47.4 million.
The Managing General Partner makes no recommendation as to the Everest
Proposal.
The Managing General Partner has been informed that its affiliate, the
Special Limited Partner, plans, subject to obtaining reasonable
financing, to exercise the aforementioned Right of First Refusal in the
event the Everest Proposal is approved.
A real estate investment trust organized by an affiliate of NAPICO has
advised the Partnership that it intends to make a proposal to purchase
from the Partnership the real estate assets of the Partnership for
$52,500,000.
The Partnership received from an unrelated entity a proposal, dated
March 26, 1998, to purchase the property owned by the Partnership for
$54,500,000.
NOTE 3 - MINIMUM DISTRIBUTION GUARANTEE RECEIVABLE FROM PARTNER
The Minimum Distribution Guarantee Agreement (the "Guarantee Agreement")
required the Seller, who is also the Special Limited Partner, to make
payments to the Partnership, if and when necessary, in an amount
sufficient to enable the Partnership to provide the Limited Partners
with distributions sufficient to achieve a minimum annual return upon
the Limited Partners' investment in the Partnership, through December
31, 1993, as follows:
<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>
The Seller has funded a total of $13,130,998 directly to the Partnership
for distributions to the Limited Partners pursuant to the Guarantee
Agreement. This amount has been reflected as a reduction in the carrying
amount of the Property. Commencing in 1994, distributions to the
Partners have been made from cash flow from operations.
8
<PAGE> 11
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 4 - FEES PAID TO GENERAL PARTNERS AND AFFILIATES
In accordance with the Partnership Agreement certain fees and
reimbursements are paid to the General Partners and their affiliates as
follows:
(a) A Partnership management fee payable to the Managing General
Partner of $50,000 annually. The fee is included in general and
administrative expenses.
(b) Partnership expense reimbursements not to exceed $50,000
annually are paid to the Non-Managing General Partner.
(c) The Partnership is obligated to pay certain fees to the Managing
General Partner or its affiliates upon sale of the Property. The
payment of such fees is subordinated to certain preferred
returns to the Limited Partners.
(d) The Managing General Partner is entitled to receive 1 percent of
distributions (as defined in the Partnership Agreement). This is
paid quarterly by the Partnership to the Managing General
Partner.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a. Construction to "privatize" the streets and alleys providing
access to the Property and to construct wrought iron security
fencing with controlled entrances into the Property is now
complete at a cost to the Partnership of $828,947. The
Partnership pledged a certificate of deposit in the amount of
$158,700 to the City, to secure an improvement guarantee on
the additional construction of a storm drain and related
improvement, which is also complete. Upon final inspection,
the Partnership will receive its deposit of $158,700.
b. The Managing General Partner of the Partnership is a plaintiff
in various lawsuits and has also been named as a defendant in
other lawsuits arising from transactions in the ordinary course
of business. In the opinion of management and the Managing
General Partner, the claims will not result in any material
liability to the Partnership. In addition, the Partnership is
involved in the actions described below:
9
<PAGE> 12
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
c. The Partnership, NAPICO, and several of NAPICO's officers,
directors and affiliates consented to the entry, on June 25,
1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without
admitting or denying any of the findings made by the Commission.
The order concerns, in part, the treatment of Partnership funds
deposited between September 1991 and July 1993 in a master
disbursement account used by the Partnership's previous property
management company. The Commission found that those funds should
have been recorded on the Partnership's books and reported in
its financial statements as related party accounts receivable
rather than as cash as done so by the Partnership's auditors.
Although the Commission found that this misclassification of
current assets violated federal securities laws, the Commission
did not find that these violations were intentional nor did the
Commission find that limited partners had suffered any loss or
damage as a result of these violations. Moreover, the
Commission's order does not impose any cost, burden or penalty
on the Partnership and does not impact NAPICO's ability to serve
as the Partnership's Managing General Partner.
The events that gave rise to the Commission's order occurred in
or before 1993. Subsequent corrective action by the Partnership
and its general partners precludes any recurrence of the cash
management issues described in the Commission's order.
d. On February 13, 1997, J/B Investment Partners ("J/B") filed an
action in the Los Angeles Superior Court (the "J/B Lawsuit"),
against the Managing General Partner and its directors, and
Casden Properties and certain of its affiliates (collectively,
the "Defendants").
By order dated November 25, 1997, the Los Angeles Superior Court
dismissed the J/B Lawsuit with prejudice. No appeal has been
taken.
The J/B Lawsuit was styled as a class action brought against the
Defendants on behalf of all limited partners of the Partnership,
and a derivative action brought on behalf of the Partnership
itself. The Partnership was named as a "nominal defendant." The
complaint in the J/B Lawsuit contained four causes of action:
(a) breach of fiduciary duty; (b) breach of contract; (c) unjust
enrichment; and (d) equitable relief.
The alleged wrongdoing of the Defendants as set forth in the J/B
Lawsuit related to the following issues:
1. J/B alleged misappropriation and misuse of Partnership
funds which were the subject of a previous lawsuit (the
"Prior Lawsuit") filed in the Los Angeles Superior Court
in June 1995 by the Non-Managing General Partner. The
Managing General Partner vigorously denied these
allegations, and without admission of any wrongdoing,
the Prior Lawsuit was settled by a Memorandum of
Understanding executed in August 1995, with final
settlement documentation executed in April 1996, at
which time the Prior
10
<PAGE> 13
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lawsuit was dismissed with prejudice as to all
defendants. Additionally, J/B alleged that the
Defendants wrongfully caused the Partnership to pay
legal fees on behalf of the Managing General Partner or
certain of its affiliates relating to a regulatory
investigation discussed above.
2. J/B alleged that the Defendants failed to explore
transactions that would maximize the value of the
limited partners' investment in the Partnership,
including the four unsolicited offers to purchase the
Property, implementation of an auction process regarding
the potential sale of the Property and obtaining
financing with respect to the Property.
3. J/B alleged that the January 1997 letter from the
Managing General Partner to the Limited Partners
contained misleading statements about the original
Everest proxy solicitation and about the Special Limited
Partner's Right of First Refusal. Specifically, J/B
contended that the January letter failed to disclose the
Managing General Partner's advice and opinions regarding
the response of the Limited Partners to the original
Everest offer and contained misstatements about certain
provisions of the Partnership Agreement pertaining to
actions permitted or required to be taken by the Limited
Partners of the Partnership. J/B stated that the Limited
Partners were not authorized, by vote of a
majority-in-interest or otherwise, to bind, compel, or
require the Partnership to enter into any contract for
the sale of the Property, including the proposed sales
contract with Everest. In other words, J/B asserted that
the Everest Proposal could not be implemented as
proposed because it is beyond the Limited Partners'
authority under the Partnership Agreement. Consequently,
J/B claimed that the conditions to the Special Limited
Partner's Right of First Refusal to purchase the
Property for a price and on terms equal to those
contained in the Everest Proposal could not under the
Partnership Agreement be fulfilled, and, therefore, no
such Right of First Refusal could be exercised.
J/B was seeking damages in the J/B Lawsuit in a
unspecified amount and equitable relief, including,
among other things, a declaration judgment as to whether
or not there exists a Right of First Refusal.
e. The Partnership has assessed the potential impact of the
Year 2000 computer systems issue on its operations. The
Partnership believes that no significant actions are
required to be taken by the Partnership to address the
issue and that the impact of the Year 2000 computer
systems issue will not materially affect the
Partnership's future operating results or financial
condition.
11
<PAGE> 14
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. The carrying amounts of assets
and liabilities reported on the balance sheets that require such
disclosure approximate fair value due to their short-term maturity.
12
<PAGE> 15
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership raised proceeds of $72,580,000 from the sale of
depository units, pursuant to a public offering and received additional
capital contributions from the General Partners of $1,050 and from the
special limited partner of $6,855,000. Currently, the only sources of
Partnership income consist of income from rental operations at the
Property and interest earned on Partnership reserves.
Construction to "privatize" the streets and alleys providing access to
the Property and to construct wrought iron security fencing with
controlled entrances into the Property is now complete at a cost to
the Partnership of $828,947. The Partnership pledged a certificate of
deposit in the amount of $158,700 to the City, to secure an improvement
guarantee on the additional construction of a storm drain and related
improvement, which is also complete. Upon final inspection, the
Partnership will receive its deposit of $158,700.
RESULTS OF OPERATIONS
Occupancy averaged 99 percent and 97 percent for the three months ended
March 31, 1998 and 1997, respectively. Rental income increased in 1998
as compared to 1997 as a result of the increase in occupancy and an
increase in rental charges per unit. Included in the interest and other
income is interest income earned on cash and cash equivalents of $58,000
and $45,000 for the three months ended March 31, 1998 and 1997,
respectively. Interest income increased in 1998 as compared to 1997 as a
result of the increase in cash and cash equivalents from $3,490,000 at
December 31, 1996 to $4,613,000 at March 31, 1998. The Partnership has
its cash and cash equivalents on deposit primarily with one money market
mutual fund.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
A real estate investment trust ("REIT") organized by an affiliate of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase the property.
13
<PAGE> 16
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The REIT proposes to purchase such property for cash, which it plans to
raise in connection with a private placement of its equity securities.
The purchase is subject to, among other things, (i) consummation of such
private placement by the REIT; (ii) the consent of the limited partners
to the sale of the property and (iii) the consummation of a minimum
number of purchase transactions with other NAPICO affiliated
partnerships.
A proxy is contemplated to be sent to the limited partners setting forth
the terms and conditions of the purchase of the property for investment
by the Partnership, together with certain amendments to the Partnership
Agreement and other disclosures of various conflicts of interest in
connection with the transaction.
14
<PAGE> 17
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1998, NAPICO, the Managing General Partner, was a plaintiff or
defendant in several lawsuits, which are unrelated to the Partnership. In
addition, the Partnership is involved in the actions described below:
Securities and Exchange Commission
The Partnership, NAPICO, and several of NAPICO's officers, directors and
affiliates consented to the entry, on June 25, 1997, of an administrative cease
and desist order by the U.S. Securities and Exchange Commission (the
"Commission"), without admitting or denying any of the findings made by the
Commission. The order concerns, in part, the treatment of Partnership funds
deposited between September 1991 and July 1993 in a master disbursement account
used by the Partnership's previous property management company. The Commission
found that those funds should have been recorded on the Partnership's books and
reported in its financial statements as related party accounts receivable rather
than as cash as done so by the Partnership's auditors. Although the Commission
found that this misclassification of current assets violated federal securities
laws, the Commission did not find that these violations were intentional nor did
the Commission find that limited partners had suffered any loss or damage as a
result of these violations. Moreover, the Commission's order does not impose any
cost, burden or penalty on the Partnership and does not impact NAPICO's ability
to serve as the Partnership's Managing General Partner.
The events that gave rise to the Commission's order occurred in or before 1993.
Subsequent corrective action by the Partnership and its general partners
precludes any recurrence of the cash management issues described in the
Commission's order.
J/B Lawsuit
On February 13, 1997, J/B Investment Partners ("J/B") filed an action in the Los
Angeles Superior Court (the "J/B Lawsuit"), against the Managing General Partner
and its directors, and Casden Properties and certain of its affiliates
(collectively, the "Defendants").
By order dated November 25, 1997, the Los Angeles Superior Court dismissed the
J/B Lawsuit with prejudice. No appeal has been taken.
The J/B Lawsuit was styled as a class action brought against the Defendants on
behalf of all limited partners of the Partnership, and a derivative action
brought on behalf of the Partnership itself. The Partnership was named as a
"nominal defendant." The complaint in the J/B Lawsuit contained four causes of
action: (a) breach of fiduciary duty; (b) breach of contract; (c) unjust
enrichment; and (d) equitable relief.
15
<PAGE> 18
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
The alleged wrongdoing of the Defendants as set forth in the J/B Lawsuit related
to the following issues:
3. J/B alleged misappropriation and misuse of Partnership funds which were
the subject of a previous lawsuit (the "Prior Lawsuit") filed in the Los
Angeles Superior Court in June 1995 by the Non-Managing General
Partner. The Managing General Partner vigorously denied these
allegations, and without admission of any wrongdoing, the Prior Lawsuit
was settled by a Memorandum of Understanding executed in August 1995,
with final settlement documentation executed in April 1996, at which
time the Prior Lawsuit was dismissed with prejudice as to all
defendants. Additionally, J/B alleged that the Defendants wrongfully
caused the Partnership to pay legal fees on behalf of the Managing
General Partner or certain of its affiliates relating to a regulatory
investigation discussed above.
2. J/B alleged that the Defendants failed to explore transactions that
would maximize the value of the limited partners' investment in the
Partnership, including the four unsolicited offers to purchase the
Property, implementation of an auction process regarding the potential
sale of the Property and obtaining financing with respect to the
Property.
3. J/B alleged that the January 1997 letter from the Managing General
Partner to the Limited Partners contained misleading statements about
the original Everest proxy solicitation and about the Special Limited
Partner's Right of First Refusal. Specifically, J/B contended that the
January letter failed to disclose the Managing General Partner's advice
and opinions regarding the response of the Limited Partners to the
original Everest offer and contained misstatements about certain
provisions of the Partnership Agreement pertaining to actions permitted
or required to be taken by the Limited Partners of the Partnership. J/B
stated that the Limited Partners were not authorized, by vote of a
majority-in-interest or otherwise, to bind, compel, or require the
Partnership to enter into any contract for the sale of the Property,
including the proposed sales contract with Everest. In other words, J/B
asserted that the Everest Proposal cannot be implemented as proposed
because it is beyond the Limited Partners' authority under the
Partnership Agreement. Consequently, J/B claimed that the conditions to
the Special Limited Partner's Right of First Refusal to purchase the
Property for a price and on terms equal to those contained in the
Everest Proposal could not under the Partnership Agreement be fulfilled,
and, therefore, no such Right of First Refusal could be exercised.
J/B was seeking damages in the J/B Lawsuit in a unspecified amount and
equitable relief, including, among other things, a declaration judgment
as to whether or not there exists a Right of First Refusal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
16
<PAGE> 19
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY HILLCRESTE APARTMENT INVESTORS, L.P.
(a California limited partnership)
By: National Partnership Investments Corp.
Managing General Partner
/s/ BRUCE NELSON
-------------------------------
Bruce Nelson
President
Date: May 18, 1998
--------------
/s/ CHARLES H. BOXENBAUM
-------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: May 18, 1998
--------------
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,612,642
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,781,866
<PP&E> 45,568,349
<DEPRECIATION> 11,729,572
<TOTAL-ASSETS> 38,620,643
<CURRENT-LIABILITIES> 380,401
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 37,920,296
<TOTAL-LIABILITY-AND-EQUITY> 38,620,643
<SALES> 0
<TOTAL-REVENUES> 1,580,278
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 688,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 891,771
<INCOME-TAX> 0
<INCOME-CONTINUING> 891,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 891,771
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
