ITEM 1. DESCRIPTION OF BUSINESS
Century Pension Income Fund XXIII (the "Registrant" or the "Partnership") was organized in June 1984, as a California limited partnership under the Uniform Limited Partnership Act of the California Corporations Code. Fox Partners V, a California general partnership, is the General Partner of the Partnership. Fox Capital Management Corporation (the "Managing General Partner" or "FCMC"), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership, are the General Partners of Fox Partners V. The managing general partner of FRI is NPI Equity Investments II, Inc. ("NPI Equity II").
The Partnership's Registration Statement, filed pursuant to the Securities Act of 1933 (No. 2-96389), was declared effective by the Securities and Exchange Commission on July 1, 1985. The Partnership marketed its securities pursuant to its Prospectus dated July 1, 1985, which was thereafter supplemented (hereinafter the "Prospectus"). This Prospectus was filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act of 1933.
Beginning in July 1985 through December 1986, the Partnership offered $50,000,000 in Individual Investor Units and $65,000,000 in Pension Investor Notes ("Nonrecourse Promissory Notes" or "Promissory Notes"). The Partnership sold Individual Investor Units and Pension Investor Notes of $47,894,500 and $41,939,000, respectively. The net proceeds of this offering were originally used to acquire interests in five business parks and two shopping centers and to fund eight mortgage loans. The principal business of the Partnership is and has been to acquire, hold for investment and ultimately sell income-producing properties, and invest in, service, and ultimately collect or dispose of mortgage loans on income-producing properties. The Partnership presently owns seven investment properties. These properties include one residential apartment complex, two shopping centers, three business parks, and one industrial building. The Partnership also owns joint venture interests in four other commercial properties. One joint venture with an affiliated partnership, in which the Partnership has a 66 2/3 percent interest, owns a shopping center. Another joint venture with an affiliated partnership, in which the Partnership has a 68 percent interest, owns three business parks. In addition, the Partnership still holds one mortgage loan receivable. See "Item 2, Description of Properties" for a description of the Partnership's properties.
The Managing General Partner of the Partnership intends to maximize the operating results and, ultimately, the net realizable value of each of the Partnership's properties in order to achieve the best possible return for the investors. Such results may best be achieved through property sales, refinancings, debt restructurings or relinquishment of the assets. The Partnership intends to evaluate each of its holdings periodically to determine the most appropriate strategy for each of the assets.
The Partnership has no full time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. Limited partners have no right to participate in the management or conduct of such business and affairs. NPI-AP Management, L.P. ("NPI-AP"), an affiliate of the Managing General Partner, provides day-to-day management services for the Partnership's residential investment property. Insignia Commercial Group, Inc., an affiliate of the Managing General Partner, provides day-to-day management services for Coral Palm Plaza. With respect to the Partnership's other commercial properties, management is performed by an unaffiliated third party management company. See "Item 8. Financial Statements and Supplementary Data - Note C" for additional information.
The real estate business in which the Partnership is engaged is highly competitive, and the Partnership is not a significant factor in its industry. Each of its properties are located in or near a major urban area and, accordingly, competes for rentals not only with similar properties in its immediate area but with hundreds of similar properties throughout the urban area. Such competition is primarily on the basis of location, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar partnerships, real estate investment trusts and financial institutions) with respect to the sale of improved real properties, primarily on the basis of the prices and terms of such transactions.
Change in Control
On December 6, 1993, the shareholders of the Managing General Partner entered into a Voting Trust Agreement with NPI Equity II pursuant to which NPI Equity II was granted the right to vote 100% of the outstanding stock of the Managing General Partner. In addition, NPI Equity II became the managing partner of FRI. As a result, NPI Equity II indirectly became responsible for the operation and management of the business and affairs of the Registrant and the other investment partnerships originally sponsored by the Managing General Partner and/or FRI. The individuals who had served previously as partners of FRI and as officers and directors of the Managing General Partner contributed their general partnership interests in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests in PRA. The shareholders of the Managing General Partner and the prior partners of FRI, in their capacity as limited partners of PRA, continue to hold, indirectly, certain economic interests in the Registrant and such other investment limited partnerships, but have ceased to be responsible for the operation and management of the Registrant and such other partnerships.
On January 19, 1996, IFGP Corporation, an affiliate of Insignia, acquired all of the issued and outstanding shares of capital stock of National Property Investors, Inc. ("NPI"). At the time, NPI was the sole shareholder of NPI Equity II. In addition, on June 1996, an affiliate of Insignia purchased all of the issued and outstanding shares of capital stock of the Managing General Partner. As a result of the foregoing transactions, IFGP Corporation caused new officers and directors of NPI Equity II and the Managing General Partner to be elected. See "Item 10, Directors and Executive Officers of the Registrant."
On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Partnership's investments in properties:
The Partnership also holds a mortgage loan on real property. See "Item 8. Financial Statements and Supplementary Data - Note D" for information regarding this loan.
Schedule of Properties: (in thousands)
All of the Partnership's properties are pledged as collateral for the Non- Recourse Promissory Notes. See "Item 8. Financial Statements and Supplementary Data - Note H" for information about the payments of the Non-Recourse Promissory Notes. In addition, The Enclaves is pledged as collateral for additional financing. The Enclaves note, with a principal balance of approximately $6,856,000 at December 31, 1997, bears interest at 12.0625 percent and requires a balloon payment of $6,856,000 in April 2001, exclusive of deferred interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt.
The mortgage note payable is non-recourse and is secured by pledge of the property and by a pledge of revenues from the rental property. The Enclaves note includes prepayment penalties if repaid prior to maturity.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
The Managing General Partner attributes the increase in occupancy at Commerce Plaza to the leasing of the remaining available space to a new tenant during the second quarter of 1996. Occupancy at Highland Park II decreased as a result of two tenants vacating the property in 1996. The increase in occupancy at Interrich Plaza is attributable to the property being fully occupied during the fourth quarter of 1997. Occupancy at The Enclaves has decreased as a result of upgrades and concessions offered at competing apartment complexes. The Enclaves also lost four units as a result of a fire during May 1997. Occupancy at Coral Palm Plaza decreased as a result of two tenants vacating the property during the fourth quarter of 1997. Occupancy at Alpha Business Center decreased as a result of two tenants vacating the property in 1997 and to lease turnover in 1997.
As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other properties in the area. The Managing General Partner believes that all of the properties are adequately insured. The multi-family residential property's lease terms are for one year or less. No individual residential property tenant leases 10% or more of the available rental space.
SCHEDULE OF LEASE EXPIRATIONS FOR 1998-2007:
% of Gross Number of Square Annual Annual Expirations Feet Rent Rent Commerce Plaza 1998 1 9,523 $111,419 16.4% 1999 1 6,889 60,279 8.8% 2000 2 65,833 509,837 74.8% 2001-2007 0 -- -- --
Regency Centre 1998 5 8,241 $109,940 8.9% 1999 5 11,561 161,194 13.1% 2000 7 13,773 176,698 14.3% 2001 4 9,600 126,560 10.2% 2002 7 14,414 175,572 14.2% 2003 3 30,461 246,397 19.9% 2004 1 32,154 239,226 19.4% 2005-2007 0 -- -- --
Highland Park II 1998 9 22,701 183,171 35.5% 1999 3 15,277 130,951 25.4% 2000 5 6,918 58,872 11.4% 2001 1 3,274 28,942 5.6% 2002 2 7,231 79,839 15.5% 2003-2007 0 -- -- --
Interrich Plaza 1998 2 6,530 37,583 13.0% 1999 1 4,730 27,198 9.4% 2000 1 3,500 19,250 6.7% 2001-2002 0 -- -- -- 2003 1 36,209 193,356 67.0% 2004-2007 0 -- -- --
Centre Stage 1998 4 9,678 104,252 11.6% 1999 1 2,000 27,000 3.0% 2000 5 7,823 100,848 11.2% 2001 0 -- -- -- 2002 5 10,616 137,297 15.2% 2003-2005 0 -- -- -- 2006 2 5,450 69,908 7.8% 2007 0 -- -- --
Medtronics 1998 - 1999 0 -- -- -- 2000 1 35,000 285,600 100.0% 2001-2007 0 -- -- --
CORAL PALM PLAZA JOINT VENTURE:
Coral Palm Plaza 1998 2 2,760 27,351 3.2% 1999 1 3,600 34,128 3.9% 2000 8 10,350 120,034 13.9% 2001 4 7,050 89,039 10.3% 2002 4 7,350 80,092 9.2% 2003 2 12,212 97,585 11.3% 2004 1 9,064 86,652 10.0% 2005 1 20,000 150,000 17.3% 2006 0 -- -- -- 2007 2 17,600 182,000 21.0%
MINNEAPOLIS BUSINESS PARKS JOINT VENTURE:
Alpha Business Center 1998 4 12,305 $100,488 7.7% 1999 11 39,457 300,020 22.9% 2000 12 37,118 319,136 24.4% 2001 6 52,378 415,930 31.8% 2002 5 15,392 161,512 12.4% 2003-2007 0 -- -- --
Plymouth Service Center 1998 2 9,976 72,233 15.4% 1999 1 14,332 104,480 22.4% 2000 0 -- -- -- 2001 1 13,966 83,700 17.9% 2002 0 -- -- -- 2003 1 35,768 207,067 44.3% 2004-2007 0 -- -- --
Westpoint Business Center 1998 7 24,586 185,162 20.1% 1999 9 61,388 386,883 42.0% 2000 6 14,118 103,617 11.3% 2001 1 11,048 88,274 9.6% 2002-2003 0 -- -- -- 2004 1 24,890 88,344 9.6% 2005-2007 0 -- -- --
The following schedule reflects information on tenants occupying 10% or more of the leasable square feet for each property at December 31, 1997:
Annual Square Expiration Rent Per Footage of Lease Square Foot Commerce Plaza Government Office 9,523 9/30/98 $11.70 Bank 64,186 1/31/00 7.68
Regency Center Craft Store 18,121 2/28/03 7.84 Fashion Discount 32,154 11/30/04 7.44
Highland Park II Bank 13,154 3/31/99 8.75 Marketing 6,788 4/30/98 6.50
Interrich Plaza Electronic Manufacturer 36,209 12/31/03 5.34
Centre Stage Grocer 58,890 3/31/11 7.64
Medtronics Medical Products 35,000 6/30/00 8.16
CORAL PALM PLAZA JOINT VENTURE:
Coral Palm Plaza Craft Store 20,000 2/28/05 $7.50
MINNEAPOLIS BUSINESS PARKS JOINT VENTURE
Alpha Business Center HVAC Supplies 22,020 9/30/01 $6.56
Plymouth Service Center Sales - Tool Parts 14,332 5/31/99 7.29 Eye Doctor 13,966 9/30/01 5.99 Building Supplies 35,768 12/31/03 5.79
Westpoint Business Center Parts Manufacturer 18,637 8/31/99 3.66 Parts Manufacturer 24,890 1/31/04 3.55 Tile 18,775 7/31/99 7.88
REAL ESTATE TAXES AND RATES:
1997 1997 Property Billing Rate (in thousands) Commerce Plaza $ 88 2.58% Regency Centre 84 .97% Highland Park II 45 1.26% Interrich Plaza 33 2.49% Centre Stage 94 1.38% The Enclaves 164 3.95% Medtronics 28 1.20%
CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 192 2.66%
MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 297 5.64% Plymouth Service Center 130 5.81% Westpoint Business Center 319 5.82%
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Partnership believes that all such pending or outstanding routine litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The unit holders of the Partnership did not vote on any matter during the fiscal year covered by this report.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED PARTNER MATTERS
The Partnership, a publicly-held limited partnership, sold 95,789 Individual Investor Units during its offering period through December 1986. As of December 31, 1997, the number of holders of Individual Investor Units was 3,040. There is no intention to sell additional Individual Investor Units nor is there an established market for these Units.
In accordance with the Partnership Agreement, distributions are to be made to the General Partner equal to 2% of the cash distributed to holders of the Promissory Notes. As such, cash distributions of $43,000 were made to the General Partner during each of the years ended December 31, 1997, 1996 and 1995. Additionally, a cash distribution of $21,000 was made to the General Partner during February 1998. Future cash distributions will depend on the levels of net cash generated from operations, property sales, refinancings, and the availability of cash reserves. No cash distributions were made to the limited partners in 1997, 1996, or 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for the Partnership, for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. The data should be read in conjunction with the consolidated financial statements included elsewhere herein. This data is not covered by the independent auditors' report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report.
Results of Operations
1997 Compared to 1996
The Partnership's net income for the year ended December 31, 1997 was approximately $216,000 compared to a net loss of approximately $3,681,000 for the year ended December 31, 1996. The increase in net income for the year ended December 31, 1997 was attributable to the gain on foreclosure of Sunnymead Towne Shopping Center ("Sunnymead") during the first quarter of 1997. The Partnership recognized an extraordinary gain on foreclosure of approximately $5,337,000 (see Note M - Foreclosure of Sunnymead Towne Shopping Center). The Partnership's loss before the extraordinary gain for the year ended December 31, 1997 was approximately $5,121,000 compared to approximately $3,681,000 for the corresponding period of 1996. The increase in net loss before extraordinary gain was primarily attributable to the provision for the impairment of value of $2,067,000 at Coral Palm Plaza (see "Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CENTURY PENSION INCOME FUND XXIII
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years ended December 31, 1997, 1996, and
Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996, and
Notes to Consolidated Financial Statements
Independent Auditors' Report
To the Partners Century Pension Income Fund XXIII, A California Limited Partnership Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of Century Pension Income Fund XXIII, A California Limited Partnership (the "Partnership") and its joint ventures as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note A to the financial statements, the Partnership's Non-Recourse Promissory Notes, totaling approximately $79,627,000 in principal and interest, mature on February 15, 1999. This matter raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Century Pension Income Fund XXIII, A California Limited Partnership, and its joint ventures as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/Imowitz Koenig & Co., LLP Certified Public Accountants
New York, N.Y. February 16, 1998
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
December 31, December 31, 1997 1996 Assets Cash and cash equivalents $ 9,366 $ 8,289 Restricted cash -- 80 Receivables and deposits 1,118 1,647 Other assets 332 149 Mortgage loan receivable 1,137 1,137 Deferred charges 1,533 1,858 Investment properties: Land 15,970 18,165 Buildings and related personal property 62,629 69,172 78,599 87,337 Less accumulated depreciation (22,358) (21,604) 56,241 65,733 $ 69,727 $ 78,893 Liabilities and Partners' Deficit
Liabilities Deferred income, accrued expenses and other liabilities $ 933 $ 1,189 Accrued interest-promissory notes 1,048 1,048 Deferred interest-notes payable 165 1,499 Notes payable, $10,100 in default at December 31, 1996, (Note I) 6,856 16,956 Non-recourse promissory notes: Principal 41,939 41,939 Deferred interest payable 34,576 31,810
Minority interest in consolidated joint ventures 7,429 7,844
Partners' Deficit General partner's (1,284) (2,206) Limited partners' (95,789 units issued and outstanding at December 31, 1997 and 1996) (21,935) (21,186) (23,219) (23,392) $ 69,727 $ 78,893
See Accompanying Notes to Consolidated Financial Statements
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data)
CENTURY PENSION INCOME FUND XXIII
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
CENTURY PENSION INCOME FUND XXIII Notes to Consolidated Financial Statements - Continued
CENTURY PENSION INCOME FUND XXIII
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - GOING CONCERN
The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note H, the Non-Recourse Promissory Notes (the "Notes"), totaling approximately $79,627,000 (at maturity) in principal and deferred interest, mature on February 15, 1999. The Managing General Partner is currently evaluating the feasibility of selling some of the Partnership's properties in order to pay off the outstanding Notes and/or seeking to either extend the maturity date of the Notes or find replacement financing. However, there can be no assurance that these courses of action will be successful and that the Partnership will have sufficient funds to meet its 1999 obligations. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Partnership be unable to continue as a going concern.
NOTE B - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Century Pension Income Fund XXIII (the "Partnership"), is a limited partnership organized in 1984 under the laws of the State of California to acquire, hold for investment and ultimately sell income-producing real properties, and invest in, service, and ultimately collect or dispose of mortgage loans on income-producing real properties. The Partnership currently owns one apartment complex located in Georgia, three business parks located in Florida, North Carolina and Texas, one industrial building located in California, and two shopping centers located in Kentucky and Georgia. The Partnership also holds a sixty-eight percent joint venture interest in three business parks located in Minnesota and a sixty-six and two thirds percent joint venture interest in a shopping center located in Florida. The General Partner is Fox Partners V, a California general partnership whose general partners are Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership. Pursuant to a series of transactions which closed during the first half of 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI Equity is a wholly-owned subsidiary of National Property Investors, Inc. ("NPI"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and FCMC. The capital contributions of $47,894,500 ($500 per unit) were made by individual investor unit holders.
Principles of Consolidation: The consolidated financial statements include the statements of the Partnership, its wholly-owned subsidiary, and two joint ventures in which the Partnership has a controlling interest. An affiliated Partnership owns the minority interest in these joint ventures. All significant intercompany transactions and balances have been eliminated.
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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Allocation of Income, Loss, and Distributions: Net income, net loss, and distributions of cash of the Partnership are allocated between general and limited partners in accordance with the provisions of the partnership agreement.
Mortgage Loan Receivable: Mortgage loans are stated at unpaid balances, less an allowance for loan losses. The amount of the allowance is based on the Managing General Partner's evaluation of the collectibility of the loan. Allowances from impaired loans are generally determined based on the value of underlying collateral or the present value of estimated cash flows. Loans are placed on a nonaccrual basis when a loan is specifically determined to be impaired or when, in the opinion of the Managing General Partner, there is an indication that the borrower may be unable to meet payments as they become due. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance.
Fair Value of Financial Instruments: The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term nature of these instruments. The estimated fair value of the Non-Recourse Promissory notes is not practicable to estimate because it cannot be determined whether financing with similar terms and conditions would be available to the Partnership. The fair value of the note payable and deferred interest encumbering The Enclaves, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates the carrying balance.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than 90 days at the time of purchase. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits.
Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments.
Investment Properties: Investment properties are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
Investment Properties (continued): In 1997, the Partnership determined that the Coral Palm Plaza Joint Venture property, with a carrying value of $6,029,000, was impaired and its value was written down by $2,067,000 to reflect its fair value at December 31, 1997 of $3,962,000. The fair value was based upon current economic conditions and projected future operational cash flows (see Note F).
Depreciation: Depreciation is computed by the straight-line method over estimated useful lives ranging from twenty-seven and one-half to thirty nine years for buildings and improvements and five to seven years for furnishings.
Leases: The Partnership generally leases apartment units for twelve-month terms or less and recognizes income as earned on these leases. The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases."
Some of these commercial leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. This straight-line basis recognized $51,000 and $215,000 more in rental income than was collected in 1997 and 1996, respectively. This amount will be collected in future years, as cash collections under the terms of the leases exceed the straight-line basis of revenue recognition.
The Partnership recognized bad debt expense associated with lease income of $354,000, $272,000, and $27,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
Deferred Charges: Included in deferred charges are sales commissions, organization expenses and lease commissions. Sales commissions and organization expenses related to the Pension Investor Notes ("Non-Recourse Promissory Notes", "Promissory Notes" or "Notes"), are deferred and amortized by the straight-line method over the life of the Notes. Leasing commissions are deferred and amortized over the lives of the related leases. Such amortization is charged to operating expense. At December 31, 1997 and 1996, deferred charges totaled $7,369,000 and $7,182,000 and accumulated amortization totaled $5,836,000 and $5,323,000, respectively.
Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $49,000, $39,000 and $66,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Income Taxes: Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership.
Reclassifications: Certain reclassifications have been made to the 1996 and 1995 balances to conform to the 1997 presentation.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with affiliates of Insignia, NPI Equity, and affiliates of NPI Equity were incurred in 1997, 1996 and 1995:
Affiliates of the Managing General Partner performed property management services for The Enclaves during 1995, 1996 and 1997. Effective May 1, 1996, an affiliate of Insignia began performing property management services for Coral Palm Plaza.
For the period from January 19, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant.
Approximately $74,000 of insurance premiums, which were paid to an affiliate of NPI, under a master insurance policy arranged for by such affiliate, are included in operating expenses for the year ended December 31, 1995.
In accordance with the Partnership Agreement, the General Partner was allocated its two percent continuing interest in the Partnership's net income and loss and taxable income and loss exclusive of gains or losses on property dispositions recognized in 1997. The extraordinary gain on the Sunnymead foreclosure has been allocated 20% to the General Partner and 80% to the limited partners per the terms of the Partnership Agreement. In each of the years ended December 31, 1997, 1996 and 1995, the General Partner received $43,000 of cash distributions, which were equal to two percent of cash distributions to Promissory Note holders. The partnership management fee and partnership management incentive are limited by the Partnership Agreement to ten percent of cash available for distribution before interest payments to the Promissory Note holders and the partnership management fee.
NOTE D - MORTGAGE LOANS RECEIVABLE
The Partnership entered into various agreements with the borrowers on two of the Partnership's second mortgage loans receivable, which were cross collateralized and in default. The properties are located in Irvine ("Irvine") and Costa Mesa, California ("Costa Mesa"). The borrower on the Irvine property had terminated payments on the mortgage loan receivable in October 1994, and in January 1995, a court appointed receiver was placed on the Irvine property. As a result, on April 20, 1995, the Partnership acquired the Irvine property through a deed in lieu of foreclosure and satisfied the existing first mortgage encumbering the property in the principal amount (including expenses) of approximately $1,114,000. On May 31, 1995, the receiver on the Irvine property was dismissed. The Partnership commenced operating the property on June 1, 1995. The mortgage loan receivable, net of the previously recorded provision for impairment of value of $1,250,000, was reclassified as real estate in 1995. The mortgagor of the Costa Mesa property assumed $400,000 of the principal amount of the debt encumbering the Irvine property resulting in an aggregate outstanding principal balance of $1,137,000. The Partnership extended the maturity date of the loan on the Costa Mesa property to March 31, 2000. Monthly payments to the Partnership remain the same. Upon the sale of the Costa Mesa property, the Partnership will be entitled to contingent interest of 50% of the amount received in excess of the current debt.
In July 1995, the Partnership lost its second mortgage interest on 1726 M Street when the first mortgagee foreclosed on this property. In 1992, the Partnership fully reserved for this contingency.
In April 1995, the Partnership received $1,007,000 in full satisfaction of its mortgage loan receivable on the Warren, Michigan property. The property had been classified as an in-substance foreclosure property. The Partnership recorded a $978,000 loss on satisfaction of a mortgage loan receivable in 1995. In 1992, a $1,850,000 provision for uncollectable mortgage and interest receivable had been recorded.
Interest income on mortgage loans totaled $81,000 for each of the years ended December 31, 1997, 1996, and 1995.
NOTE E - JOINT VENTURES
The Partnership has investments in two consolidated joint ventures as follows:
Coral Palm Plaza Joint Venture
On January 23, 1987, the Partnership acquired a 66.67% ownership interest in Coral Palm Plaza Joint Venture ("Coral Palm"), a joint venture with Century Pension Income Fund XXIV, a California Limited Partnership ("CPF XXIV") and an affiliate of FCMC and FRI. Also, on January 23, 1987, Coral Palm Plaza Joint Venture acquired the Coral Palm Plaza, a shopping center located in Coral Springs, Florida. The Partnership reflects its interest in the Coral Palm Plaza Joint Venture utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's financial statements (intercompany accounts are eliminated).
Summary financial information for Coral Palm Plaza Joint Venture is as follows (in thousands):
December 31, 1997 1996
Total assets $ 5,041 $ 7,301 Total liabilities (366) (468) Total ventures' equity $ 4,675 $ 6,833
Years Ended December 31, 1997 1996
Total revenues $ 739 $ 1,183 Total expenses (Note F) (2,897) (807) Net income $(2,158) $ 376
Minneapolis Business Parks Joint Venture
On April 30, 1987, the Partnership acquired a 68% ownership interest in Minneapolis Business Parks Joint Venture, a joint venture with CPF XXIV. On May 5, 1987, Minneapolis Business Parks Joint Venture acquired Alpha Business Center located in Bloomington, Minnesota; Plymouth Service Center located in Plymouth, Minnesota, and Westpoint Business Center located in Plymouth, Minnesota. The Partnership reflects its interest in the Minneapolis Business Parks Joint Venture utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's financial statements (intercompany accounts are eliminated).
Summary financial information for Minneapolis Business Park Joint Venture is as follows (in thousands):
December 31, 1997 1996
Total assets $18,331 $17,412 Total liabilities (167) (176) Total ventures' equity $18,164 $17,236
Years Ended December 31, 1997 1996
Total revenues $ 3,190 $ 3,136 Total expenses (2,262) (2,202) Net income $ 928 $ 934
NOTE F - PROVISION FOR IMPAIRMENT OF VALUE
During 1997, two significant tenants that had occupied 36,000 square feet (27% of leasable space) at Coral Palm Plaza moved out. The Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, a decline in value had occurred which was other than temporary. Accordingly, the property's carrying value was reduced to an amount equal to its estimated fair value and an impairment write down of $2,067,000 was recorded at December 31, 1997.
A significant tenant at the Partnership's Sunnymead Towne Center property, that occupied 98,000 square feet (approximately 57% of leasable space), vacated during late 1995 as part of the retail chain's national downsizing. The Partnership did not anticipate being able to re-lease the space at a rental rate sufficient to cover debt service and operating costs. Based on the sum of projected future operating cash flows the Partnership determined that the loss in value was not temporary and recorded an impairment write down of $2,900,000.
NOTE G - TERMINATION AGREEMENTS WITH FORMER TENANTS
In December 1994, the Partnership accepted a lease buy-out of $800,000 from a significant tenant at the Partnership's 66.67% owned joint venture property, which was received in 1995. During 1995, management re-leased all of the unoccupied space, on similar terms, and recognized the remaining portion of the lease buy-out in the amount of $699,000 as other income.
In October 1995, the Partnership accepted a lease buy-out and termination agreement with a former tenant at the Partnership's Coral Palm Plaza property. The $300,000 termination payment, has been deferred and is being amortized into income on a straight-line basis over the remaining three years of the former tenant's lease. This space had not been re-leased at December 31, 1997.
NOTE H - NON-RECOURSE PROMISSORY NOTES
The Non-Recourse Promissory Notes are secured by a deed of trust on all properties owned in fee by the Partnership, by a security interest in the joint venture interests held by the Partnership, and by a pledge of the note and of the deed of trust on the real properties underlying the mortgage loans made by the Partnership. The Notes were issued in two series. The "1985 Series Notes," in the amount of $33,454,000, bear interest at 12 percent per annum, and the "1986 Series Notes," in the amount of $8,485,000, bear interest at ten percent per annum, except that portions of the interest may be deferred, provided the Partnership makes minimum interest payments of 5% on the unpaid principal balance. The deferred interest does not accrue additional interest. The Notes are due February 15, 1999. In accordance with the Partnership Agreement and the Trust Indenture, upon the sale, repayment or other disposition of any Partnership property or Partnership mortgage loan, 98 percent of the resulting distributable cash proceeds is first allocated to the payment of the Promissory Notes until such Notes and related accumulated deferred interest payable are repaid and, thereafter, the cash proceeds are distributed to the Partnership's General Partner, Individual Unit holders, and Note holders. Note holders are also entitled to the payment of residual interest after specified payments to the General Partner and Individual Unit holders as set forth in the Trust Indenture, but it appears no residual interest will be paid. Refer to "Note A" for a discussion regarding the Managing General Partner's intentions to meet its obligation when the Promissory Notes mature.
NOTE I - MORTGAGE NOTE PAYABLE
The Enclaves Apartments ("Enclaves") complex located in Atlanta, Georgia was the only property pledged as collateral for the note payable at December 31, 1997. The Enclaves note, with a principal balance of approximately $6,856,000, bears interest at 12.0625 percent. The Enclaves note requires a balloon payment of $6,856,000 in April 2001, exclusive of deferred interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt. Principal payments at December 31, 1997, are required as follows (in thousands):
1998 $ 0 1999 0 2000 0 2001 6,856 Total $ 6,856
The mortgage note payable is non-recourse and is secured by pledge of the Partnership's property and by a pledge of revenues from the property. The Enclaves note includes prepayment penalties if repaid prior to maturity.
NOTE J - MINIMUM FUTURE RENTAL REVENUES
Minimum future rental revenues from operating leases having non-cancelable lease terms in excess of one year at December 31, 1997, are as follows (in thousands):
1998 $ 7,173 1999 6,014 2000 4,419 2001 3,261 2002 2,527 Thereafter 7,031
Total $30,425
Amortization of deferred leasing commissions totaled $255,000, $252,000, and $254,000 for 1997, 1996, and 1995, respectively, and are included in operating expenses.
NOTE K - INCOME TAXES
A reconciliation of the net income (loss) per the financial statements to the net taxable loss to the partners is as follows (in thousands, except unit data):
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands) at December 31:
NOTE L - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (IN THOUSANDS)
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31, 1997 1996 1995 Investment Properties
Balance at beginning of year $87,337 $86,512 $88,807 Property improvements 742 825 864 Casualty loss (95) -- -- Property acquired through deed in lieu of foreclosure of mortgage loan receivable -- -- 1,726 Provision for impairment of value (2,067) -- (2,900) Disposal via foreclosure (7,318) -- -- Satisfaction of mortgage receivable on property classified as in-substance foreclosure property -- -- (1,985)
Balance at end of year $78,599 $87,337 $86,512
Accumulated Depreciation
Balance at beginning of year $21,604 $19,094 $16,529 Additions charged to expense 2,378 2,510 2,565 Disposal via foreclosure (1,604) -- -- Casualty loss (20) -- --
Balance at end of year $22,358 $21,604 $19,094
The aggregate cost of the real estate for Federal income tax purposes at December 31, 1997 and 1996, is $90,164,000 and $101,522,000, respectively. Accumulated depreciation for Federal income tax purposes at December 31, 1997 and 1996, is $25,604,000 and $24,650,000, respectively.
NOTE M - FORECLOSURE OF SUNNYMEAD TOWNE SHOPPING CENTER
On March 27, 1997, the Sunnymead Towne Shopping Center ("Sunnymead") located in Moreno Valley, California, was foreclosed on. Sunnymead had a significant tenant, which occupied 98,000 square feet, vacate in 1995. During February 1996, another major tenant vacated 11,000 square feet, leaving the property approximately 25% physically occupied. Effective March 1, 1996, the Partnership ceased making debt service payments, as the value of Sunnymead was estimated at less than the debt. The property was placed in receivership on May 1, 1996. In 1995, a $2,900,000 provision for impairment of value was recorded on the Sunnymead property. The Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, the decline in value was other than temporary and recovery of the carrying value was not likely. Accordingly, the property's carrying value was reduced to an amount equal to its estimated fair value. In the Managing General Partner's opinion, it was not in the Partnership's best interest to contest the foreclosure action. As a result of the foreclosure, the Partnership recorded a gain on foreclosure of approximately $5,337,000. Prior to the foreclosure, the outstanding debt on the property was a note payable with a principal balance of $10,100,000 and accrued interest of approximately $1,591,000.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Neither the Registrant nor Fox Partners VI ("Fox"), the General Partner of the Registrant, has any officers or directors. Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), the managing general partner of Fox, manages and controls substantially all of the Registrant's affairs and has general responsibility and ultimate authority in all matters affecting its business. The Managing General Partner is a wholly-owned affiliate of Insignia Financial Group, Inc. ("Insignia").
The names and ages of, as well as the positions held by the executive officers and directors of FCMC are set forth below. No family relationships exist among any of the officers or directors of FCMC.
Name Age Position
William H. Jarrard, Jr. 51 President and Director
Ronald Uretta 41 Vice President and Treasurer
Martha L. Long 38 Controller
Robert D. Long, Jr. 30 Vice President
Daniel M. LeBey 32 Vice President and Secretary
Kelley M. Buechler 40 Assistant Secretary
William H. Jarrard, Jr. has been President and Director of FCMC since June 1996. He has acted as Senior Vice President of Insignia Properties Trust ("IPT"), parent of the Managing General Partner, since May 1997. Mr. Jarrard previously acted as Managing Director-Partnership Administration of Insignia from January 1991 through September 1997, and served as Managing Director-Partnership Administration and Asset Management of Insignia from July 1994 until January 1996.
Ronald Uretta has been Vice President and Treasurer of FCMC since June 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Insignia's Chief Operating Officer. He has also served as Insignia's Secretary from January 1992 to June 1996 and as Chief Financial Officer from January 1992 to August 1996.
Martha L. Long has been Controller of FCMC since December 1996 and Senior Vice President - Finance and Controller of Insignia since January 1997. In June 1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior Vice President - Finance in January 1997. Prior to that time, she was Senior Vice President and Controller of the First Savings Bank in Greenville, South Carolina.
Robert D. Long, Jr. has been Vice President of FCMC since January 2, 1998. Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice President and Chief Accounting officer of the MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was an auditor for the State of Tennessee and was associated with the accounting firm of Harsman Lewis and Associates.
Daniel M. LeBey has been Vice President and Secretary of FCMC since January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has also served as Insignia's Associate General Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP, Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of FCMC since June 1996 and Assistant Secretary of Insignia since 1991.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to any officer or director of the Managing General Partner. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. However, reimbursements and other payments have been made to the Partnership's Managing General Partner and its affiliates, as described in "Item 14. Certain Relationships and Related Transactions."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Partnership is a limited partnership and has no officers or directors. The Managing General Partner has discretionary control over most of the decisions made by or for the Partnership in accordance with the terms of the Partnership Agreement. The directors and officers of the Managing General Partner and its affiliates, as a group do not own any of the Partnership voting securities.
There is no person known to the Partnership who owns beneficially or of record more than five percent of the voting securities of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.
Pursuant to a series of transactions which closed during the first half of 1996, affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI Equity is a wholly-owned subsidiary of National Property Investors, Inc. ("NPI"). In connection with these transactions, affiliates of Insignia appointed new officers and directors of NPI Equity and FCMC.
The following transactions with affiliates of Insignia, NPI, and affiliates of NPI were incurred in 1997, 1996 and 1995:
Years Ended December 31, 1997 1996 1995 (in thousands) Property management fees $ 147 $ 140 $ 104 Reimbursement for services of affiliates 204 184 96 Services relating to successful real estate tax appeals -- -- 88 Partnership management fee 111 111 111 $ 462 $ 435 $ 399
Affiliates of the Managing General Partner performed property management services for The Enclaves during 1995, 1996 and 1997. Effective May 1, 1996, an affiliate of Insignia began performing property management services for Coral Palm Plaza.
For the period from January 19, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant.
Approximately $74,000 of insurance premiums, which were paid to an affiliate of NPI, under a master insurance policy arranged for by such affiliate, are included in operating expenses for the year ended December 31, 1995.
In accordance with the Partnership Agreement, the General Partner was allocated its two percent continuing interest in the Partnership's net income and loss and taxable income and loss exclusive of gains or losses on property dispositions recognized in 1997. The extraordinary gain on the Sunnymead foreclosure has been allocated 20% to the General Partner and 80% to the limited partners after deducting any distributions made to the general partner during 1997. In each of the years ended December 31, 1997, 1996 and 1995, the General Partner received $43,000 of cash distributions, which were equal to two percent of cash distributions to Promissory Note holders. The partnership management fee and partnership management incentive are limited by the Partnership Agreement to ten percent of cash available for distribution before interest payments to the Promissory Note holders and the partnership management fee.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)(2) Consolidated Financial Statements and Consolidated Financial Statement Schedules:
See "Item 8" of the Form 10-K for Consolidated Financial Statements of the Partnership, Notes thereto, and Consolidated Financial Statement Schedules. (A Table of Contents to Consolidated Financial Statements and Consolidated Financial Statement Schedules is included in "Item 8" and incorporated herein by reference.)
(a) (3) Exhibits: See Exhibit Index contained herein
(b) Reports on Form 8-K: None filed during the fourth quarter of 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 PENSION INCOME FUND XXIII
By: Fox Partners V Its General Partner
By: Fox Capital Management Corporation Its Managing General Partner
By: /s/ William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/William H. Jarrard, Jr. President and March 31, 1998 William H. Jarrard Director
/s/Ronald Uretta Vice President and March 31, 1998 Ronald Uretta Treasurer
Exhibit Index
2. NPI Stock Purchase Agreement, dated as of August 17, 1995, incorporated by reference to the Partnership's Current Report on Form 8-K dated August 17, 1995.
3.4. Agreement of Limited Partnership incorporated by reference to Exhibit A to the Prospectus of the Partnership dated July 1, 1985, and thereafter supplemented contained in the Partnership's Registration Statement on Form S-11 (Reg. No 2-96389)
16. Letter from the Partnership's former Independent Auditor dated April 27, 1994, incorporated by reference to exhibit 10 to the Partnership's Current Report on Form 8-K dated April 22, 1994.
27. Financial Data Schedule is filed as an Exhibit to this report.