UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11767
(Exact name of registrant as specified in its charter)
California | 95-3793526 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Item 1. Financial Statements.
ANGELES INCOME PROPERTIES, LTD. II
BALANCE SHEETS
(in thousands, except unit data)
| March 31, | December 31, |
|
| 2009 | 2008 |
|
| (Unaudited) | (Note) |
|
Assets |
|
| |
Cash and cash equivalents | $ 99 | $ 84 | |
Receivables and deposits | 272 | 256 | |
Restricted escrow | 658 | 477 | |
Other assets | 577 | 453 | |
Investment properties: |
|
| |
Land | 1,691 | 1,691 | |
Buildings and related personal property | 32,578 | 32,347 | |
| 34,269 | 34,038 | |
Less accumulated depreciation | (26,961) | (26,644) | |
| 7,308 | 7,394 | |
| $ 8,914 | $ 8,664 | |
|
|
| |
Liabilities and Partners' Deficit |
|
| |
Liabilities |
|
| |
Accounts payable | $ 180 | $ 257 | |
Tenant security deposit liabilities | 180 | 189 | |
Due to affiliates (Note B) | 1,332 | 980 | |
Accrued property taxes | 37 | -- | |
Other liabilities | 243 | 359 | |
Mortgage notes payable (Note D) | 32,011 | 31,770 | |
| 33,983 | 33,555 | |
|
|
| |
Partners' Deficit |
|
| |
General partners | (689) | (687) | |
Limited partners (99,804 units issued and |
|
| |
outstanding) | (24,380) | (24,204) | |
| (25,069) | (24,891) | |
| $ 8,914 | $ 8,664 | |
Note: The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
| Three Months Ended | |
| March 31, | |
| 2009 | 2008 |
|
|
|
Revenues: |
|
|
Rental income | $ 1,437 | $ 1,480 |
Other income | 131 | 125 |
Total revenues | 1,568 | 1,605 |
|
|
|
Expenses: |
|
|
Operating | 613 | 603 |
General and administrative | 63 | 71 |
Depreciation | 317 | 269 |
Interest | 539 | 537 |
Property taxes | 133 | 141 |
Loss on early extinguishment of debt (Note D) | 81 | -- |
Total expenses | 1,746 | 1,621 |
|
|
|
Casualty gain (Note C) | -- | 33 |
|
|
|
Net (loss) income | $ (178) | $ 17 |
|
|
|
Net (loss) income allocated to general partners (1%) | $ (2) | $ -- |
|
|
|
Net (loss) income allocated to limited partners (99%) | (176) | 17 |
|
|
|
| $ (178) | $ 17 |
|
|
|
Net (loss) income per limited partnership unit | $ (1.76) | $ 0.17 |
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
| Limited |
|
|
|
| Partnership | General | Limited |
|
| Units | Partners | Partners | Total |
|
|
|
|
|
Original capital contributions | 100,000 | $ 1 | $ 50,000 | $ 50,001 |
|
|
|
|
|
Partners' deficit at |
|
|
|
|
December 31, 2008 | 99,804 | $ (687) | $(24,204) | $(24,891) |
|
|
|
|
|
Net loss for the three months |
|
|
|
|
ended March 31, 2009 | -- | (2) | (176) | (178) |
|
|
|
|
|
Partners' deficit at |
|
|
|
|
March 31, 2009 | 99,804 | $ (689) | $(24,380) | $(25,069) |
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Three Months Ended | |
| March 31, | |
| 2009 | 2008 |
Cash flows from operating activities: |
|
|
Net (loss) income | $ (178) | $ 17 |
Adjustments to reconcile net (loss) income to net cash |
|
|
provided by operating activities: |
|
|
Depreciation | 317 | 269 |
Amortization of loan costs | 24 | 23 |
Casualty gain | -- | (33) |
Loss on early extinguishment of debt | 81 | -- |
Change in accounts: |
|
|
Receivables and deposits | (16) | (25) |
Other assets | (79) | (109) |
Accounts payable | 25 | (11) |
Tenant security deposit liabilities | (9) | 9 |
Accrued property taxes | 37 | 40 |
Other liabilities | (116) | (45) |
Due to affiliates | 35 | -- |
Net cash provided by operating activities | 121 | 135 |
|
|
|
Cash flows from investing activities: |
|
|
Property improvements and replacements | (333) | (449) |
Net deposits to restricted escrows | (181) | -- |
Insurance proceeds received | -- | 33 |
Net cash used in investing activities | (514) | (416) |
|
|
|
Cash flows from financing activities: |
|
|
Payments on mortgage notes payable | (74) | (67) |
Repayment of mortgage note payable | (8,535) | -- |
Proceeds from mortgage note payable | 8,850 | -- |
Prepayment penalty paid | (50) | -- |
Advances from affiliates | 317 | -- |
Loan costs paid | (100) | -- |
Net cash provided by (used in) financing activities | 408 | (67) |
|
|
|
Net increase (decrease) in cash and cash equivalents | 15 | (348) |
Cash and cash equivalents at beginning of period | 84 | 527 |
Cash and cash equivalents at end of period | $ 99 | $ 179 |
|
|
|
Supplemental disclosure of cash flow information: |
|
|
Cash paid for interest | $ 546 | $ 518 |
Supplemental disclosure of non-cash activity: |
|
|
Property improvements and replacements included in accounts |
|
|
payable | $ 34 | $ 54 |
At December 31, 2008 and 2007, approximately $136,000 and $87,000, respectively, of property improvements and replacements were included in accounts payable and are included in property improvements and replacements for the three months ended March 31, 2009 and 2008, respectively.
See Accompanying Notes to Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements of Angeles Income Properties, Ltd. II (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Angeles Realty Corporation II (the "Managing General Partner"), which is wholly-owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner receive 5% of gross receipts from both of the Partnership’s properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $78,000 for each of the three month periods ended March 31, 2009 and 2008, which are included in operating expenses.
Affiliates of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $56,000 and $55,000 for the three months ended March 31, 2009 and 2008, respectively, which are included in general and administrative expenses and investment properties. The portion of these reimbursements included in investment properties for the three months ended March 31, 2009 and 2008 are construction management services provided by an affiliate of the Managing General Partner of approximately $34,000 and $29,000, respectively. At March 31, 2009 and December 31, 2008, approximately $114,000 and $93,000, respectively, of these reimbursements remain unpaid and are included in due to affiliates on the accompanying balance sheets.
The Partnership Agreement provides for a fee equal to 10% of "Net cash from operations," as defined in the Partnership Agreement, to be paid to the Managing General Partner for executive and administrative management services. There was no such fee earned by the Managing General Partner for the three months ended March 31, 2009 and 2008. At March 31, 2009 and December 31, 2008, there were no outstanding fees owed to the Managing General Partner.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled to receive a distribution equal to 3% of the aggregate disposition price of sold properties. The Partnership paid a distribution of approximately $86,000 to the Managing General Partner related to the sale of Atlanta Crossing Shopping Center in March 2000. This amount is subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 6% per annum of their adjusted capital investment, as defined in the Partnership Agreement. If the limited partners have not received these returns when the Partnership terminates,the Managing General Partner will be required to return this amount to the Partnership.
In accordance with the Partnership Agreement, during the three months ended March 31, 2009, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced to the Partnership approximately $317,000 to fund operating expenses, property taxes, and a rate lock deposit related to the refinance at Landmark Apartments. The advances bear interest at the prime rate plus 2% (5.25% at March 31, 2009). Interest expense was approximately $14,000 for the three months ended March 31, 2009. There were no such advances or interest expense during the three months ended March 31, 2008. At March 31, 2009 and December 31, 2008, there were outstanding advances and associated accrued interest of approximately $1,218,000 and $887,000, which are included in due to affiliates on the accompanying balance sheets. Subsequent to March 31, 2009, the Partnership received an advance of approximately $21,000 to pay real estate taxes at Deer Creek Apartments. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.
The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the three months ended March 31, 2009, the Partnership was charged by AIMCO and its affiliates approximately $57,000 for hazard insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2009 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $138,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2008.
Note C – Casualty Event
In June 2007, Deer Creek Apartments incurred damages of approximately $215,000 from a fire that damaged four apartment units. During the fourth quarter of 2007, the Partnership recognized a casualty gain of approximately $164,000 as a result of the receipt of insurance proceeds of approximately $164,000. The Partnership recognized an additional gain of approximately $33,000 during the three months ended March 31, 2008 as a result of the receipt of additional insurance proceeds of approximately $33,000. The damaged assets were fully depreciated.
Note D – Refinancing of Mortgage Notes Payable
On March 11, 2009, the Partnership refinanced the mortgage encumbering Landmark Apartments. The refinancing replaced the existing mortgage of approximately $8,535,000, with a new mortgage in the amount of $8,850,000. The new mortgage requires monthly payments of principal and interest beginning on May 1, 2009 until the loan matures April 1, 2016 with a balloon payment due at maturity. The new mortgage bears interest at an adjustable interest rate of the monthly LIBOR Index Rate plus 4.01%, capped at 7.25% per annum. Total capitalized loan costs associated with the new mortgage were approximately $100,000 and are included in other assets on the accompanying balance sheets. The Partnership recorded a loss on the early extinguishment of debt of approximately $81,000, as a result of the write off of unamortized loan costs and a prepayment penalty. As a condition of the new mortgage, the lender required AIMCO Properties, L.P., an affiliate of the Managing General Partner, to guarantee certain obligations and liabilities of the Partnership with respect to the new mortgage.
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as acollective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by the plaintiff’s counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.
The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s properties and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations inreal estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risk; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.
The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 2009 and 2008:
| Average Occupancy | |
Property | 2009 | 2008 |
|
|
|
Deer Creek Apartments (1) | 93% | 97% |
Plainsboro, New Jersey |
|
|
Landmark Apartments | 97% | 96% |
Raleigh, North Carolina |
|
|
(1) The Managing General Partner attributes the decrease in occupancy at Deer Creek Apartments to decreased marketing efforts.
The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors which are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.
The Partnership’s net loss for the three months ended March 31, 2009 was approximately $178,000, compared to net income of approximately $17,000 for the three months ended March 31, 2008. The increase in net loss is due to an increase in total expenses and decreases in total revenues and casualty gain. Total expenses increased primarily due to an increase in depreciation expense and the recognition of loss on early extinguishment of debt as a result of the refinancing of the mortgage encumbering Landmark Apartments. Operating, general and administrative, interest and property tax expenses remained relatively constant for the comparable periods. The increase in depreciation expense is due to property improvements and replacements placed into service at the Partnership’s investment properties.
Included in general and administrative expenses for the three months ended March 31, 2009 and 2008 are a New Jersey partnership tax expense, management reimbursements to the Managing General Partner as allowed under the Partnership Agreement, costs associated with the quarterly and annual communications with investors and regulatory agencies, and the annual audit required by the Partnership Agreement.
The decrease in total revenues is primarily due to a decrease in rental income. Other income remained relatively constant for the comparable periods. Rental income decreased due to a decrease in occupancy and an increase in bad debt expense at Deer Creek Apartments, partially offset by an increase in the average rental rates at both of the Partnership’s investment properties.
In June 2007, Deer Creek Apartments incurred damages of approximately $215,000 from a fire that damaged four apartment units. During the fourth quarter of 2007, the Partnership recognized a casualty gain of approximately $164,000 as a result of the receipt of insurance proceeds of approximately $164,000. The Partnership recognized an additional gain of approximately $33,000 during the three months ended March 31, 2008 as a result of the receipt of additional insurance proceeds of approximately $33,000. The damaged assets were fully depreciated.
Liquidity and Capital Resources
At March 31, 2009 the Partnership had cash and cash equivalents of approximately $99,000, compared to approximately $179,000 at March 31, 2008. The increase in cash and cash equivalents of approximately $15,000, from December 31, 2008, is due to approximately $408,000 and $121,000 of cash provided by financing and operating activities, respectively, partially offset by approximately $514,000 of cash used in investing activities. Cash provided by financing activities consisted of advances from affiliates and proceeds from mortgage note payable, partially offset by loan costs paid, repayment of mortgage note payable, prepayment penalty paid, and payments of principal made on the mortgages encumbering Deer Creek Apartments. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrows. The Partnership invests its working capital reserves in interest bearing accounts.
In accordance with the Partnership Agreement, during the three months ended March 31, 2009, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced to the Partnership approximately $317,000 to fund operating expenses, property taxes, and a rate lock deposit related to the refinance at Landmark Apartments. The advances bear interest at the prime rate plus 2% (5.25% at March 31, 2009). Interest expense was approximately $14,000 for the three months ended March 31, 2009. There were no such advances or interest expense during the three months ended March 31, 2008. At March 31, 2009 and December 31, 2008, there were outstanding advances and associated accrued interest of approximately $1,218,000 and $887,000, which are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.
The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance. Capital improvements planned for each of the Partnership's properties are detailed below.
Deer Creek Apartments
During the three months ended March 31, 2009, the Partnership completed approximately $60,000 of capital improvements at the property consisting primarily of appliance and floor covering replacements and roof replacement. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Landmark Apartments
During the three months ended March 31, 2009, the Partnership completed approximately $171,000 of capital improvements at the property consisting primarily of electrical upgrades, air conditioning unit and floor covering replacements, and balcony and door replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated duringthe remainder of2008. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property.
Capital expenditures will be incurred only if cash is available from operations, replacement reserves, or from Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.
The Partnership’s assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and repayment of advances from affiliates) of the Partnership. On March 11, 2009, the Partnership refinanced the mortgage encumbering Landmark Apartments. The refinancing replaced the existing mortgage of approximately $8,535,000, with a new mortgage in the amount of $8,850,000. The new mortgage requires monthly payments of principal and interest beginning on May 1, 2009 until the loan matures April 1, 2016 with a balloon payment due at maturity. The new mortgage bears interest at an adjustable interest rate of the monthly LIBOR Index Rate plus 4.01%, capped at 7.25% per annum. Total capitalized loan costs associated with the new mortgage were approximately $100,000 and are included in other assets. The Partnership recorded a loss on the early extinguishment of debt of approximately $81,000, as a result of the write off of unamortized loan costs and a prepayment penalty. As a condition of the new mortgage, the lender required AIMCO Properties, L.P., an affiliate of the Managing General Partner, to guarantee certain obligations and liabilities of the Partnership with respect to the new mortgage.
The mortgage indebtedness encumbering Deer Creek Apartments of approximately $23,161,000 requires monthly payments of principal and interest until the loans mature on September 1, 2015, with balloon payments totaling approximately $20,900,000 due at maturity. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to the maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure.
The Partnership made no distributions during the three months ended March 31, 2009 and 2008. Future cash distributions will depend on the levels of net cash generatedfrom operations, the timing of debt maturities, refinancings and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any distributions to its partners during 2009 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 71,418 limited partnership units (the "Units") in the Partnership representing 71.56% of the outstanding Units at March 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 71.56% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment properties. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Any adverse changes in these factors could cause impairment of the Partnership’s assets.
The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.
Item 4T. Controls and Procedures.
(a) Disclosure Controls and Procedures.
The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
(b) Changes in Internal Control Over Financial Reporting.
There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Item 1. Legal Proceedings.
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the fourth quarter of 2008, the Partnership paid approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by the plaintiff’s counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.
Item 6. Exhibits.
See Exhibit Index.
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.
| ANGELES INCOME PROPERTIES, LTD. II |
|
|
| By: Angeles Realty Corporation II |
| Managing General Partner |
|
|
Date: May 12, 2009 | By: /s/Steven D. Cordes |
| Steven D. Cordes |
| Senior Vice President |
|
|
Date: May 12, 2009 | By: /s/Stephen B. Waters |
| Stephen B. Waters |
| Vice President |
|
|
|
|
ANGELES INCOME PROPERTIES, LTD. II
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amendment Agreement of Limited Partnership of the Partnership dated October 12, 1982 filed in the Partnership’s Annual Report on Form 10-K dated November 30, 1983, incorporated herein by reference.
3.2 Amended Agreement of Limited Partnership of the Partnership dated March 31, 1983 filed in the Prospectus, of the Partnership, as Exhibit A, dated March 31, 1983 incorporated herein by reference.
10.31 Loan Agreement dated September 1, 2005 between Angeles Income Properties, Ltd. II, a California limited partnership, and GMAC Commercial Mortgage Bank, incorporated by reference to the Current Report on Form 8-K dated September 1, 2005.
10.32 Amended and Restated Loan Agreement dated September 1, 2005 between Angeles Income Properties, Ltd. II, a California limited partnership, and Federal Home Loan Mortgage Corporation, incorporated by reference to the Current Report on Form 8-K dated September 1, 2005.
10.36 Multifamily Note dated August 31, 2007 between Angeles Income Properties, Ltd. II, a California limited partnership, and Capmark Bank, a Utah industrial bank, incorporated by reference to the Current Report on Form 8-K dated August 31, 2007.
10.37 Multifamily Note, dated March 11, 2009, between Landmark (NC), LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank, incorporated by reference to the Current Report on Form 8-K dated March 11, 2009.
10.38 Multifamily Deed of Trust, Assignment of Rents and Security Agreement, dated March 11, 2009, between Landmark (NC), LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank, incorporated by reference to the Current Report on Form 8-K dated March 11, 2009.
10.39 Guaranty, dated March 11, 2009, between AIMCO Properties, L.P., a Delaware limited partnership, and Capmark Bank, a Utah industrial bank, incorporated by reference to the Current Report on Form 8-K dated March 11, 2009.
10.40 Repair Escrow Agreement, dated March 11, 2009, between Landmark (NC), LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank, incorporated by reference to the Current Report on Form 8-K dated March 11, 2009.
31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
