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 June 30, 2011
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 0-13309
ANGELES PARTNERS XII, LP
(Exact name of registrant as specified in its charter)
Delaware | 95-3903623 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
55 Beattie Place, P.O. 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
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ANGELES PARTNERS XII
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
| June 30, 2011 | December 31, 2010 |
|
Assets |
|
| |
Cash and cash equivalents | $ 1,153 | $ 526 | |
Receivables and deposits | 634 | 626 | |
Restricted escrows | 1,568 | 726 | |
Other assets | 1,054 | 1,364 | |
Investment properties: |
|
| |
Land | 6,468 | 6,468 | |
Buildings and related personal property | 75,906 | 88,396 | |
Total investment property | 82,374 | 94,864 | |
Less accumulated depreciation | (60,844) | (71,967) | |
Investment property, net | 21,530 | 22,897 | |
Total assets | $ 25,939 | $ 26,139 | |
|
|
| |
Liabilities and Partners' Deficit |
|
| |
Liabilities |
|
| |
Accounts payable | $ 515 | $ 376 | |
Tenant security deposit liabilities | 377 | 356 | |
Accrued property taxes | 390 | 424 | |
Other liabilities | 842 | 1,025 | |
Due to affiliates | 9,322 | 15 | |
Mortgage notes payable | 93,286 | 95,325 | |
Total liabilities | 104,732 | 97,521 | |
|
|
| |
Partners' Deficit |
|
| |
General partners | (885) | (811) | |
Limited partners | (77,908) | (70,571) | |
Total partners’ deficit | (78,793) | (71,382) | |
Total liabilities and partners’ deficit | $ 25,939 | $ 26,139 | |
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
| Three Months Ended June 30, 2011 | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
Revenues: |
|
|
|
|
Rental income | $ 3,521 | $3,611 | $ 7,052 | $ 7,184 |
Other income | 464 | 410 | 890 | 827 |
Total revenues | 3,985 | 4,021 | 7,942 | 8,011 |
|
|
|
|
|
Expenses: |
|
|
|
|
Operating | 1,317 | 1,105 | 2,726 | 2,379 |
General and administrative | 83 | 88 | 169 | 165 |
Depreciation | 1,116 | 1,205 | 2,243 | 2,424 |
Interest | 1,424 | 1,530 | 2,928 | 2,897 |
Property taxes | 415 | 379 | 798 | 801 |
Loss on early extinguishment of debt | 6,489 | -- | 6,489 | 866 |
Total expenses | 10,844 | 4,307 | 15,353 | 9,532 |
|
|
|
|
|
Net loss | $ (6,859) | $ (286) | $ (7,411) | $(1,521) |
|
|
|
|
|
Net loss allocated to general partners (1%) |
$ (69) |
$ (3) |
$ (74) |
$ (15) |
|
|
|
|
|
Net loss allocated to limited partners (99%) |
$ (6,790) |
$ (283) |
$ (7,337) |
$(1,506) |
|
|
|
|
|
Net loss per limited partnership unit | $(151.84) | $(6.33) | $(164.07) | $(33.68) |
|
|
|
|
|
Distributions per limited partnership unit |
$ -- |
$23.01 |
$ -- |
$100.88 |
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
|
General Partners |
Limited Partners |
Total |
|
|
|
|
Partners' deficit at December 31, 2010 | $ (811) | $(70,571) | $(71,382) |
|
|
|
|
Net loss for the six months ended June 30, 2011 |
(74) |
(7,337) |
(7,411) |
|
|
|
|
Partners' deficit at June 30, 2011 | $ (885) | $(77,908) | $(78,793) |
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
Cash flows from operating activities: |
|
|
Net loss | $ (7,411) | $ (1,521) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
Depreciation | 2,243 | 2,424 |
Amortization of loan costs | 80 | 108 |
Loss on early extinguishment of debt | 6,489 | 866 |
Change in accounts: |
|
|
Receivables and deposits | (8) | 150 |
Other assets | (106) | (79) |
Accounts payable | (55) | (55) |
Tenant security deposit liabilities | 21 | (8) |
Accrued property taxes | (34) | (20) |
Other liabilities | (183) | 87 |
Due to affiliates | 112 | (573) |
Net cash provided by operating activities | 1,148 | 1,379 |
|
|
|
Cash flows from investing activities: |
|
|
Net deposits to restricted escrows | (842) | (671) |
Property improvements and replacements | (682) | (368) |
Net cash used in investing activities | (1,524) | (1,039) |
|
|
|
Cash flows from financing activities: |
|
|
Payments on mortgage notes payable | (541) | (681) |
Repayment of mortgage notes payable | (68,211) | (9,131) |
Proceeds from mortgage notes payable | 66,713 | 27,000 |
Prepayment penalties paid | (5,606) | (766) |
Loan costs paid | (547) | (225) |
Advances from affiliate | 10,792 | 540 |
Repayment of advances from affiliate | (1,597) | (12,151) |
Distributions to partners | -- | (4,940) |
Net cash provided by (used in) financing activities | 1,003 | (354) |
|
|
|
Net increase (decrease) in cash and cash equivalents | 627 | (14) |
Cash and cash equivalents at beginning of period | 526 | 301 |
|
|
|
Cash and cash equivalents at end of period | $ 1,153 | $ 287 |
|
|
|
Supplemental disclosure of cash flow information: |
|
|
Cash paid for interest | $ 2,854 | $ 3,279 |
|
|
|
Supplemental disclosure of non-cash activity: |
|
|
Property improvements and replacements included in accounts payable |
$ 287 |
$ -- |
See Accompanying Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Partners XII (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" or “ARC II”), all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The Managing General Partner is a wholly owned subsidiary of Apartment Investment and Management Company ("Aimco"), a publicly traded real estate investment trust.
The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.
Organization: On November 24, 2010, the Partnership changed its domicile from California to Delaware by merging with and into Angeles Partners XII, LP, a Delaware limited partnership, with the Delaware partnership as the surviving entity in the merger. The merger was undertaken pursuant to an Agreement and Plan of Merger, dated as of November 24, 2010, by and between the California partnership and the Delaware partnership. All references herein to the Partnership shall mean Angeles Partners XII, a California limited partnership, for all periods prior to November 24, 2010 and Angeles Partners XII, LP, a Delaware limited partnership, for all periods from and after November 24, 2010.
Under the merger agreement, each unit of limited partnership interest in the California partnership was converted into an identical unit of limited partnership interest in the Delaware partnership and the general partnership interest in the California partnership previously held by the general partner was converted into a general partnership interest in the Delaware partnership. All interests in the Delaware partnership outstanding immediately prior to the merger were cancelled in the merger.
The voting and other rights of the limited partners provided for in the partnership agreement were not changed as a result of the merger. In the merger, the partnership agreement of the California partnership was adopted as the partnership agreement of the Delaware partnership, with the following changes: (i) references therein to the California Uniform Limited Partnership Act were amended to refer to the Delaware Revised Uniform Limited Partnership Act; (ii) a description of the merger was added; (iii) the name of the partnership was changed to “Angeles Partners XII, LP” and (iv) a provision was added that gives the managing general partner authority to establish different designated series of limited partnership interests that have separate rights with respect to specified partnership property, and profits and losses associated with such specified property.
On July 28, 2011, the Partnership entered into an agreement and plan of merger (the “Merger Agreement”) with AIMCO Properties, L.P., a Delaware limited partnership, and AIMCO AP XII Merger Sub LLC, a Delaware limited liability company of which AIMCO Properties, L.P. is the sole member (the “Merger Subsidiary”), pursuant to which the Merger Subsidiary will be merged with and into the Partnership, with the Partnership as the surviving entity.
In the merger, each unit of limited partnership interest (each, a “Unit”) of the Partnership outstanding immediately prior to the consummation of the merger (other than Units held by limited partners who perfect their appraisal rights pursuant to the Merger Agreement) will be converted into the right to receive, at the election of the limited partner, either (i) $526.71 in cash (the “Cash Consideration”) or (ii) a number of partnership common units of AIMCO Properties, L.P. calculated by dividing $526.71 by the average closing price of Aimco common stock, as reported on the New York Stock Exchange, over the ten consecutive trading days ending on the second trading day immediately prior to the effective time of the merger. However, if AIMCO Properties, L.P. determines that the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of partnership common units of AIMCO Properties, L.P. in that state or other jurisdiction (or that registration or qualification in that state or jurisdiction would be prohibitively costly), then such limited partner will only be entitled to receive the Cash Consideration for each Unit. Those limited partners who do not make an election will be deemed to have elected to receive the Cash Consideration.
After the merger, AIMCO Properties, L.P.’s membership interest in the Merger Subsidiary will be converted into Units of the Partnership. As a result, after the merger, AIMCO Properties, L.P. will be the sole limited partner of the Partnership, holding all outstanding Units. ARC II will continue to be the managing general partner of the Partnership after the merger, and AIMCO Angeles GP, LLC will continue to be the non-managing general partner of the Partnership after the merger. The Partnership’s partnership agreement in effect immediately prior to the merger will remain unchanged after the merger.
Completion of the merger is subject to certain conditions, including approval by a majority in interest of the limited partners holding Units. As of June 30, 2011 and December 31, 2010, the Partnership had issued and outstanding 44,718 Units, and AIMCO Properties, L.P. and its affiliates owned 33,750 of those Units, or approximately 75.47% of the number of outstanding Units. AIMCO Properties, L.P. and its affiliates have indicated that they intend to take action by written consent to approve the merger.
Note B – Transactions with Affiliated Parties
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 all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $394,000 and $393,000 for the six months ended June 30, 2011 and 2010, respectively, which are included in operating expenses.
The Partnership Agreement provides for a fee equal to 7.5% 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. One half of this fee is to be accrued and not paid unless the limited partners have received distributions equal to a 5% cumulative annual return on their adjusted capital investment as defined in the Partnership Agreement or there are net proceeds from the sale or refinancing of a property. No fee was earned or accrued for the six months ended June 30, 2011 and 2010. At December 31, 2010, approximately $2,000 of such fees were owed to the Managing General Partner, which were included in other liabilities. This amount was paid to the Managing General Partner during the six months ended June 30, 2011.
During the six months ended June 30, 2011, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership approximately $43,000 to fund real estate taxes at Hunters Glen Apartments VI, approximately $1,352,000 to fund a refinance commitment fee and approximately $9,397,000 in connection with the refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI (as discussed in “Note C”). During the six months ended June 30, 2010, AIMCO Properties, L.P. advanced the Partnership approximately $540,000 to fund a refinance commitment fee at Twin Lake Towers Apartments. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rate charged on the outstanding advances made to the Partnership is the prime rate (3.25% at June 30, 2011). Interest expense was approximately $59,000 and $93,000 for the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011 and 2010, the Partnership repaid advances and accrued interest of approximately $1,597,000 and $12,817,000, respectively. Total advances and accrued interest of approximately $9,269,000 and $15,000 were unpaid at June 30, 2011 and December 31, 2010, respectively, and 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 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 six months ended June 30, 2011, the Partnership was charged by Aimco and its affiliates approximately $123,000 for hazard insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2011 as other insurance policies renew later in the year. The Partnership was charged by Aimco and its affiliates approximately $252,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2010.
Note C – Mortgage Financing
On May 2, 2011, the Partnership refinanced the mortgage debt encumbering Hunters Glen Apartments IV, V and VI. The refinancing replaced the existing mortgage loans, which at the time of refinancing had an aggregate principal balance of approximately $68,211,000, with a new mortgage loan in the principal amount of $66,713,000. The new loan bears interest at a rate of 5.47% per annum and requires monthly payments of principal and interest of approximately $378,000 beginning on July 1, 2011, through the June 1, 2021 maturity date. The new mortgage loan has a balloon payment of approximately $55,145,000 due at maturity. The Partnership may prepay the mortgage at any time with 30 days written notice to the lender, subject to a prepayment penalty. The Partnership recorded a loss on the early extinguishment of debt of approximately $6,489,000, as a result of the write off of unamortized loan costs and the payment of prepayment penalties of approximately $5,606,000. Total capitalized loan costs associated with the new mortgage were approximately $547,000 and are included in other assets.
In connection with the refinancing, the Partnership received an advance of approximately $9,397,000 from AIMCO Properties, LP. This advance and the proceeds from the new mortgage loan were then used to pay in full the existing mortgage loans encumbering Hunters Glen Apartments IV, V and VI, prepayment penalties, a deposit into a repair escrow and other loan closing costs. This advance is unsecured and bears interest at the prime rate.
On March 25, 2010, the Partnership refinanced the mortgage encumbering Twin Lake Towers Apartments. The refinancing resulted in the replacement of the existing mortgage loan, which at the time of refinancing had a principal balance of approximately $9,131,000, with a new mortgage loan in the principal amount of $27,000,000. The new loan bears interest at a rate of 5.49% per annum and requires monthly payments of principal and interest of approximately $153,000 beginning on May 1, 2010, through the April 1, 2020 maturity date. The new mortgage loan has a balloon payment of approximately $22,331,000 due at maturity. The Partnership may prepay the mortgage at any time with 30 days written notice to the lender, subject to a prepayment penalty. The Partnership recorded a loss on the early extinguishment of debt of approximately $866,000, as a result of the write off of unamortized loan costs and the payment of a prepayment penalty of approximately $766,000. Total capitalized loan costs associated with the new mortgage were approximately $225,000 and are included in other assets.
Note D – Fair Value of Financial Instruments
Financial Accounting Standards Board Accounting Standards Codification Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for mortgage notes payable) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its mortgage notes payable by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, mortgage notes payable. At June 30, 2011, the fair value of the Partnership's mortgage notes payable at the Partnership's incremental borrowing rate was approximately $96,364,000.
Note E – Distributions
The Partnership distributed the following amounts during the six months ended June 30, 2011 and 2010 (in thousands, except per unit data):
| Six Months |
| Six Months |
|
| Ended | Per Limited | Ended | Per Limited |
June 30, | Partnership | June 30, | Partnership | |
| 2011 | Unit | 2010 | Unit |
|
|
|
|
|
Refinancing (1) | $ -- | $ -- | $ 3,900 | $ 77.87 |
Operations | -- | -- | 1,040 | 23.01 |
Total | $ -- | $ -- | $ 4,940 | $100.88 |
(1) Proceeds from the March 2010 refinancing of the mortgage encumbering Twin Lake Towers Apartments.
Note F – Contingencies
The Partnership is unaware of any 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 potentially hazardous materials present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials 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 improper management of these materials 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 these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials 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 responsible for environmental liabilities or costs associated with its properties.
Note G – Investment Property
During the three months ended June 30, 2011, the Partnership retired and wrote off personal property no longer being used that had a cost basis of approximately $13,366,000 and accumulated depreciation of approximately $13,366,000.
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 Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the Partnership’s ability to maintain current or meet projected occupancy, rental rates and property operating results and the effect of redevelopments. 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, including the pace of job growth and the level of unemployment; 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 in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; 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 consolidated 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 four apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 2011 and 2010:
| Average Occupancy | |
Property | 2011 | 2010 |
|
|
|
Hunters Glen Apartments – IV | 95% | 96% |
Plainsboro, New Jersey |
|
|
Hunters Glen Apartments – V | 96% | 96% |
Plainsboro, New Jersey |
|
|
Hunters Glen Apartments – VI | 94% | 96% |
Plainsboro, New Jersey |
|
|
Twin Lake Towers Apartments | 98% | 96% |
Westmont, Illinois |
|
|
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 that 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.
Results of Operations
The Partnership recognized net losses of approximately $6,859,000 and $7,411,000 for the three and six months ended June 30, 2011, respectively, compared to net losses of approximately $286,000 and $1,521,000, respectively, for the corresponding periods in 2010. The increase in net loss for both periods is due to an increase in total expenses and a decrease in total revenues.
The increase in total expenses for the three months ended June 30, 2011 is due to the recognition of a loss on early extinguishment of debt as a result of the refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI in May 2011 (as discussed in “Liquidity and Capital Resources”) and increases in operating and property tax expenses, partially offset by decreases in depreciation and interest expenses. The increase in total expenses for the six months ended June 30, 2011 is due to increases in loss on early extinguishment of debt (as discussed in “Liquidity and Capital Resources”), operating and interest expenses, partially offset by a decrease in depreciation expense. Property tax expense remained relatively constant for the six months ended June 30, 2011. General and administrative expenses remained relatively constant for both periods. Operating expense increased for both periods primarily due to increases in contract services and payroll related expenses at Hunters Glen Apartments IV, V and VI. Also contributing to the increase in operating expenses for the six months ended June 30, 2011 is an increase in snow removal costs at Hunters Glen Apartments IV, V and VI. Property tax expense increased for the three months ended June 30, 2011 primarily due to the receipt of tax bills in 2010, which resulted in an adjustment to the 2010 accrual at Twin Lake Towers Apartments. Depreciation expense decreased for both periods primarily due to assets placed into service in previous years at Hunters Glen Apartments IV, V and VI becoming fully depreciated in 2010. Interest expense decreased for the three months ended June 30, 2011 due to the May 2011 refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI at a lower debt balance, partially offset by an increase in interest on advances from AIMCO Properties, L.P., as a result of a higher average outstanding advance balance. The increase in interest expense for the six months ended June 30, 2011 is primarily due to a higher average debt balance as a result of the March 2010 refinancing of the mortgage encumbering Twin Lake Towers Apartments, partially offset by a decrease in interest on advances from AIMCO Properties, L.P., as a result of a lower average outstanding advance balance and a lower average debt balance as a result of the May 2011 refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI.
Included in general and administrative expenses for the three and six months ended June 30, 2011 and 2010 are a New Jersey tax based upon the number of resident and non-resident limited partners, 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.
Total revenues decreased for both periods due to a decrease in rental income, partially offset by an increase in other income. The decrease in rental income for the three months ended June 30, 2011 is primarily due to decreases in occupancy and the average rental rate at Hunters Glen Apartments IV, V and VI, partially offset by increases in occupancy and the average rental rate at Twin Lake Towers Apartments. The decrease in rental income for the six months ended June 30, 2011 is due to decreases in the average rental rate at Hunters Glen Apartments IV, V and VI and occupancy at Hunters Glen Apartments IV and VI, partially offset by increases in occupancy and the average rental rate at Twin Lake Towers Apartments. Other income increased for both periods primarily due to increases in resident utility reimbursements and parking income at Twin Lake Towers Apartments.
Liquidity and Capital Resources
At June 30, 2011, the Partnership had cash and cash equivalents of approximately $1,153,000, compared with approximately $526,000 at December 31, 2010. Cash and cash equivalents increased approximately $627,000 due to approximately $1,148,000 and $1,003,000 of cash provided by operating and financing activities, respectively, partially offset by approximately $1,524,000 of cash used in investing activities. Cash provided by financing activities consisted of proceeds from the refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI and advances received from AIMCO Properties, L.P., partially offset by repayment of the mortgages encumbering Hunters Glen Apartments IV, V and VI, principal payments made on the mortgages encumbering the Partnership’s investment properties, prepayment penalties paid, loan costs paid and repayment of advances from AIMCO Properties, L.P. Cash used in investing activities consisted of net deposits to restricted escrows and property improvements and replacements.
During the six months ended June 30, 2011, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership approximately $43,000 to fund real estate taxes at Hunters Glen Apartments VI, approximately $1,352,000 to fund a refinance commitment fee and approximately $9,397,000 in connection with the refinancing of the mortgages encumbering Hunters Glen Apartments IV, V and VI (as discussed below). During the six months ended June 30, 2010, AIMCO Properties, L.P. advanced the Partnership approximately $540,000 to fund a refinance commitment fee at Twin Lake Towers Apartments. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rate charged on the outstanding advances made to the Partnership is the prime rate (3.25% at June 30, 2011). Interest expense was approximately $59,000 and $93,000 for the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2011 and 2010, the Partnership repaid advances and accrued interest of approximately $1,597,000 and $12,817,000, respectively. Total advances and accrued interest of approximately $9,269,000 and $15,000 were unpaid at June 30, 2011 and December 31, 2010, respectively, and 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.
Hunters Glen Apartments IV
During the six months ended June 30, 2011, the Partnership completed approximately $259,000 of capital improvements at the property, consisting primarily of patio and balcony upgrades, exterior painting, water heater upgrades and floor covering 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 2011. Such capital improvements will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property.
Hunters Glen Apartments V
During the six months ended June 30, 2011, the Partnership completed approximately $185,000 of capital improvements at the property, consisting primarily of patio and balcony upgrades, water heater upgrades and floor covering 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 2011. Such capital improvements will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property.
Hunters Glen Apartments VI
During the six months ended June 30, 2011, the Partnership completed approximately $226,000 of capital improvements at the property, consisting primarily of HVAC upgrades, patio and balcony upgrades, water heater upgrades and floor covering 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 2011. Such capital improvements will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property.
Twin Lake Towers Apartments
During the six months ended June 30, 2011, the Partnership completed approximately $206,000 of capital improvements at the property, consisting primarily of kitchen and bath upgrades and floor covering replacement. These improvements were funded from operating cash flow and replacement reserves. 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 2011. 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 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 amounts due to affiliates) of the Partnership. On May 2, 2011, the Partnership refinanced the mortgage debt encumbering Hunters Glen Apartments IV, V and VI. The refinancing replaced the existing mortgage loans, which at the time of refinancing had an aggregate principal balance of approximately $68,211,000, with a new mortgage loan in the principal amount of $66,713,000. The new loan bears interest at a rate of 5.47% per annum and requires monthly payments of principal and interest of approximately $378,000 beginning on July 1, 2011, through the June 1, 2021 maturity date. The new mortgage loan has a balloon payment of approximately $55,145,000 due at maturity. The Partnership may prepay the mortgage at any time with 30 days written notice to the lender, subject to a prepayment penalty. The Partnership recorded a loss on the early extinguishment of debt of approximately $6,489,000, as a result of the write off of unamortized loan costs and the payment of prepayment penalties of approximately $5,606,000. Total capitalized loan costs associated with the new mortgage were approximately $547,000 and are included in other assets.
In connection with the refinancing, the Partnership received an advance of approximately $9,397,000 from AIMCO Properties, LP. This advance and the proceeds from the new mortgage loan were then used to pay in full the existing mortgage loans encumbering Hunters Glen Apartments IV, V and VI, prepayment penalties, a deposit into a repair escrow and other loan closing costs. This advance is unsecured and bears interest at the prime rate.
On March 25, 2010, the Partnership refinanced the mortgage encumbering Twin Lake Towers Apartments. The refinancing resulted in the replacement of the existing mortgage loan, which at the time of refinancing had a principal balance of approximately $9,131,000, with a new mortgage loan in the principal amount of $27,000,000. The new loan bears interest at a rate of 5.49% per annum and requires monthly payments of principal and interest of approximately $153,000 beginning on May 1, 2010, through the April 1, 2020 maturity date. The new mortgage loan has a balloon payment of approximately $22,331,000 due at maturity. The Partnership may prepay the mortgage at any time with 30 days written notice to the lender, subject to a prepayment penalty. The Partnership recorded a loss on the early extinguishment of debt of approximately $866,000, as a result of the write off of unamortized loan costs and the payment of a prepayment penalty of approximately $766,000. Total capitalized loan costs associated with the new mortgage were approximately $225,000 and are included in other assets.
The Managing General Partner will attempt to refinance the mortgages encumbering the properties and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing the properties through foreclosure.
The Partnership distributed the following amounts during the six months ended June 30, 2011 and 2010 (in thousands, except per unit data):
| Six Months |
| Six Months |
|
| Ended | Per Limited | Ended | Per Limited |
June 30, | Partnership | June 30, | Partnership | |
| 2011 | Unit | 2010 | Unit |
|
|
|
|
|
Refinancing (1) | $ -- | $ -- | $ 3,900 | $ 77.87 |
Operations | -- | -- | 1,040 | 23.01 |
Total | $ -- | $ -- | $ 4,940 | $100.88 |
(1) Proceeds from the March 2010 refinancing of the mortgage encumbering Twin Lake Towers Apartments.
If the merger transaction (as discussed below) is not consummated, future cash distributions will depend on the level of cash generated from operations, the timing of debt maturities, refinancings, and/or property sales. The Partnership’s cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at June 30, 2011, there can be no assurance that the Partnership will generate sufficient funds from operations after planned capital improvement expenditures to permit any distributions to its partners during 2011 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the Partnership, Aimco and its affiliates owned 33,750 limited partnership units (the "Units") in the Partnership representing 75.47% of the outstanding Units at June 30, 2011. A number of these Units were acquired pursuant to tender offers made by Aimco or its affiliates. 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 75.47% of the outstanding Units, Aimco and its affiliates are in a position to control all 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.
On July 28, 2011, the Partnership entered into an agreement and plan of merger (the “Merger Agreement”) with AIMCO Properties, L.P., a Delaware limited partnership, and AIMCO AP XII Merger Sub LLC, a Delaware limited liability company of which AIMCO Properties, L.P. is the sole member (the “Merger Subsidiary”), pursuant to which the Merger Subsidiary will be merged with and into the Partnership, with the Partnership as the surviving entity.
After the merger, AIMCO Properties, L.P.’s membership interest in the Merger Subsidiary will be converted into Units of the Partnership. As a result, after the merger, AIMCO Properties, L.P. will be the sole limited partner of the Partnership, holding all outstanding Units. ARC II will continue to be the managing general partner of the Partnership after the merger, and AIMCO Angeles GP, LLC will continue to be the non-managing general partner of the Partnership after the merger. The Partnership’s partnership agreement in effect immediately prior to the merger will remain unchanged after the merger.
Completion of the merger is subject to certain conditions, including approval by a majority in interest of the limited partners holding Units. As of June 30, 2011 and December 31, 2010, the Partnership had issued and outstanding 44,718 Units, and AIMCO Properties, L.P. and its affiliates owned 33,750 of those Units, or approximately 75.47% of the number of outstanding Units. AIMCO Properties, L.P. and its affiliates have indicated that they intend to take action by written consent to approve the merger.
Critical Accounting Policies and Estimates
The consolidated 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 estimated 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; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could cause an impairment of the Partnership’s assets.
Revenue Recognition
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 4. 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 6. Exhibits
See Exhibit Index.
The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
- should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
- have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
- may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and
- were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
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 PARTNERS XII, LP |
| (A Delaware Limited Partnership) |
|
|
| By: Angeles Realty Corporation II |
| Managing General Partner |
|
|
Date: August 12, 2011 | By: /s/Steven D. Cordes |
| Steven D. Cordes |
| Senior Vice President |
|
|
Date: August 12, 2011 | By: /s/Stephen B. Waters |
| Stephen B. Waters |
| Senior Director of Partnership Accounting |
|
|
|
|
EXHIBIT INDEX
Exhibit Description of Exhibit
3.1 Amended Certificate and Agreement of Limited Partnership dated May 26, 1983 filed in Form S-11 dated June 2, 1983 and is incorporated herein by reference.
3.2 Amendment to the Amended Certificate and Agreement of Limited Partnership Agreement, dated October 22, 2007. (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2007)
3.3 Second Amendment to the Amended Certificate and Agreement of Limited Partnership of Angeles Partners XII, dated November 24, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 24, 2010.
3.4 Third Amendment to the Amended Certificate and Agreement of Limited Partnership of Angeles Partners XII, LP, dated November 24, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 24, 2010.
10.1 Agreement and Plan of Merger, dated July 28, 2011, by and among Angeles Partners XII, LP, AIMCO Properties, L.P. and AIMCO AP XII Merger Sub LLC, incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 28, 2011.
10.42 Multifamily Note between AP XII Twin Lake Towers, LLC, a Delaware limited liability company, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, related to Twin Lake Towers Apartments. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 25, 2010.
10.43 Multifamily Note – CME, dated May 2, 2011, between Hunters Glen AP XII Limited Partnership, a South Carolina limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio Corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 2, 2011.
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 the equivalent of the 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.