FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from.........to.........
Commission file number 0-14248
ANGELES PARTNERS XIV
(Exact name of small business issuer as specified in its charter)
California 95-3959771
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES PARTNERS XIV
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1998
Assets
Cash and cash equivalents $ 835
Receivables and deposits 357
Restricted escrows 293
Other assets 332
Investment properties:
Land $ 2,579
Buildings and related personal property 28,967
31,546
Less accumulated depreciation (19,664) 11,882
$ 13,699
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 33
Tenant security deposit liabilities 91
Accrued property taxes 369
Accrued interest 4,797
Due to affiliates 1,271
Other liabilities 72
Notes payable, including $7,242 in default 34,081
Partners' Deficit
General partners $ (653)
Limited partners (43,887 units
issued and outstanding) (26,362) (27,015)
$ 13,699
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 1,295 $ 1,399 $ 2,621 $ 2,741
Other income 40 34 75 72
Write-up of investment property 44 -- 44 --
Total revenues 1,379 1,433 2,740 2,813
Expenses:
Operating 513 595 1,003 1,153
General and administrative 66 98 119 178
Depreciation 313 302 621 603
Interest 991 1,170 2,101 2,318
Property taxes 99 119 213 234
Bad debt (recovery) expense, net (7) 9 (7) (18)
Loss on sale of investment property 177 -- 177 --
Total expenses 2,152 2,293 4,227 4,468
Net loss before
extraordinary item (773) (860) (1,487) (1,655)
Extraordinary gain on extinguishment
of debt 5,735 -- 7,979 --
Net income (loss) $ 4,962 $ (860) $ 6,492 $(1,655)
Net income (loss) allocated to
general partners (1%) $ 50 $ (9) $ 65 $ (17)
Net income (loss) allocated to
limited partners (99%) 4,912 (851) 6,427 (1,638)
Net income (loss) $ 4,962 $ (860) $ 6,492 $(1,655)
Per limited partnership unit:
Net loss before extraordinary item $(17.43) $(19.39) $(33.54) $(37.32)
Extraordinary gain on extinguishment
of debt 129.35 -- 179.98 --
Net income (loss) $111.92 $(19.39) $146.44 $(37.32)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
c)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 44,390 $ 1 $ 44,390 $ 44,391
Partners' deficit at
December 31, 1997 43,887 $ (718) $(32,789) $(33,507)
Net income for the six months
ended June 30, 1998 -- 65 6,427 6,492
Partners' deficit at
June 30, 1998 43,887 $ (653) $(26,362) $(27,015)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 6,492 $(1,655)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-up of investment property (44) --
Loss on sale of investment property 177 --
Extraordinary gain on extinguishment of debt (7,979) --
Depreciation 621 603
Amortization of discounts, loan costs, and
leasing commissions 49 28
Bad debt recovery, net (7) (18)
Change in accounts:
Receivables and deposits (148) 67
Other assets 69 (28)
Accounts payable -- 4
Tenant security deposit liabilities (5) 2
Accrued property taxes 51 72
Accrued interest 1,259 1,534
Due to affiliates 71 143
Other liabilities (4) 5
Net cash provided by operating activities 602 757
Cash flows from investing activities:
Property improvements and replacements (263) (127)
Net receipts from (deposits to) restricted escrows 98 (48)
Proceeds from sale of investment property, net 1,847 --
Net cash provided by (used in) investing activities 1,682 (175)
Cash flows from financing activities:
Principal payments on notes payable (308) (341)
Additions to notes payable 32 96
Repayment of notes payable (1,822) --
Net cash used in financing activities (2,098) (245)
Net increase in cash and cash equivalents 186 337
Cash and cash equivalents at beginning of period 649 318
Cash and cash equivalents at end of period $ 835 $ 655
Supplemental disclosure of cash flow information:
Cash paid for interest $ 765 $ 720
Supplemental disclosure of non-cash investing and
financing activities:
Interest on notes transferred to notes payable $ 350 $ 434
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(in thousands)
Supplemental disclosure of non-cash activities
Foreclosures
In January and April of 1998, Building 53 and Building 59, respectively, of the
Dayton Industrial Complex were foreclosed upon by the lender. In June 1998,
Building 41 of the Dayton Industrial Complex was sold to an independent third
party. In connection with these non-cash transactions, the following accounts
were adjusted:
Building 53 Building 59 Building 41
Receivables and deposits $ (35) $ -- $ (54)
Other assets (9) -- (8)
Investment properties (660) (706) (1,962)
Property tax payable 64 26 --
Tenant security deposit liabilities 12 -- --
Accrued interest 175 688 23
Mortgage notes payable 2,697 3,599 2,105
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GOING CONCERN
The accompanying financial statements have been prepared assuming Angeles
Partners XIV (the "Partnership") will continue as a going concern. The
Partnership continues to incur recurring operating losses and suffers from
inadequate liquidity. Non-recourse and recourse indebtedness of approximately
$2,666,000 and $4,576,000 is in default at June 30, 1998, due to nonpayment of
interest and principal when due.
The Partnership incurred net income of approximately $6,492,000 for the six
months ended June 30, 1998. This was due to the recognition of an extraordinary
gain on the extinguishment of debt of approximately $7,979,000, relating to the
foreclosures of Buildings 53 and 59 and the sale of Building 41 in the Dayton
Industrial Complex. The Partnership realized a loss before the extraordinary
gain of approximately $1,487,000. Angeles Realty Corporation II, (the "Managing
General Partner" or "ARC II") expects the Partnership to continue to incur such
losses from operations. The Partnership generated cash from operations of
approximately $602,000 during the six months ended June 30, 1998; however, this
primarily was the result of accruing interest of approximately $1,259,000 on its
indebtedness and $71,000 for services provided by affiliates.
In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton
Industrial Complex were foreclosed on and in June 1998, Building 41 of the
Dayton Industrial Complex was sold. Historically, the Dayton Industrial Complex
has not been able to retain tenants and has never generated operating cash.
Effective October 1, 1996, the Partnership determined that, based on economic
conditions at the time as well as projected future operational cash flows, the
decline in value of the property was other than temporary and recovery of the
carrying value was not likely. Accordingly, the Dayton Industrial Complex's
carrying value was reduced to an amount equal to its estimated fair value. The
Partnership ceased making debt service payments on Buildings 53 and 59 in 1996
and the buildings were placed in receivership in 1997. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure actions. As a result of the foreclosures, the Partnership recorded
an extraordinary gain on extinguishment of debt of approximately $2,244,000 and
$3,607,000 for Buildings 53 and 59, respectively. Also, in connection with the
foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the
building from its carrying value to its estimated fair value during the second
quarter of 1998. Prior to the foreclosure of Building 53, the outstanding debt
on the property was a first mortgage in the amount of approximately $1,043,000
and a second mortgage in the amount of approximately $1,669,000. Related
accrued interest amounted to approximately $175,000. Prior to the foreclosure
of Building 59, the outstanding debt on the property was a first mortgage in the
amount of approximately $2,895,000 and a second mortgage in the amount of
approximately $704,000. Related accrued interest amounted to approximately
$688,000. As a result of the sale of Building 41, the Partnership recorded an
extraordinary gain on extinguishment of debt of approximately $2,128,000. Prior
to the sale of Building 41, the outstanding debt on the property was a first
mortgage in the amount of approximately $1,104,000 and a second mortgage in the
amount of approximately $2,823,000. Related accrued interest amounted to
approximately $23,000.
The Dayton Industrial Complex has one remaining building at June 30, 1998. The
first mortgage on Building 55 which totals approximately $2,666,000 is all
nonrecourse to the Partnership, matured in December 1997 and is in default due
to nonpayment of interest and principal when due. The Managing General Partner
has entered into a sales agreement for Building 55 of the Dayton Industrial
Complex and anticipates selling this building to an unrelated party in 1998.
The Dayton Industrial Complex has not generated any operating cash for the
Partnership since it was purchased nor has the Partnership expended any cash to
support the property. The Managing General Partner will not use any Partnership
funds on the remaining building in 1998.
The Partnership has unsecured working capital loans to Angeles Acceptance Pool,
L.P. ("AAP") in the amount of approximately $4,576,000 plus related accrued
interest that was due in November 1997. This indebtedness is recourse to the
Partnership. The Partnership does not have the means with which to satisfy this
obligation. The Managing General Partner does not plan to enter into
negotiations with AAP on this indebtedness at this time. The Managing General
Partner believes that the possibility that AAP will initiate collection
proceedings on this indebtedness is remote, as the estimated value of the
Partnership's investment properties and other assets are significantly less than
the existing first mortgages and other secured Partnership indebtedness. If AAP
initiates proceedings, then the Managing General Partner will enter into
negotiations to restructure this indebtedness.
The Partnership has two notes to Angeles Mortgage Investment Trust ("AMIT"),
which are recourse to the partnership only, in the amount of approximately
$2,326,000 plus related accrued interest that originally matured in March 1998.
The Managing General Partner negotiated with AMIT to extend this indebtedness
and in the second quarter of 1998 executed an extension through November 2027.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows for the next twelve months
to meet all property operating expenses, debt service requirements and to fund
capital expenditures.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. 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 the Managing General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the fiscal year ended December
31, 1997.
Effective October 1, 1996, the Dayton Industrial Complex buildings were
classified as an investment property "held for disposal". Accordingly, the
remaining building has been recorded at the lower of its carrying amount or fair
value, less costs to sell, and no additional depreciation expense will be
recorded during the period the asset is held for disposal.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Managing General Partner is a wholly-owned
subsidiary of Insignia Properties Trust ("IPT"), an affiliate of Insignia
Financial Group, Inc. ("Insignia"). The Partnership Agreement provides for
payments to affiliates for services and as reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
The following payments were paid or accrued to the Managing General Partner and
affiliates during each of the six months ended June 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating
expenses) $132 $123
Reimbursement for services of affiliates,
including $1,271 accrued at June 30, 1998
(included in general and administrative
expenses) 76 143
Included in operating expense and investment properties for the period ended
June 30, 1998, is approximately $5,000 of construction oversight reimbursements.
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which receives payment on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations was not
significant.
In November 1992, AAP, a Delaware limited partnership which now controls the
working capital loan previously provided by Angeles Capital Investment, Inc.
("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited
partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which is wholly-
owned by IPT, was, until April 14, 1995, the 1% general partner of AAP. On
April 14, 1995, as part of a settlement of claims between affiliates of the
General Partner and Angeles, AAD resigned as general partner of AAP and
simultaneously received a .5% limited partner interest in AAP. An affiliate of
Angeles now serves as the general partner of AAP.
These working capital loans funded the Partnership's operating deficits in prior
years. Total indebtedness was approximately $4,576,000, plus accrued interest,
at June 30, 1998, with monthly interest accruing at prime plus two percent. Upon
maturity on November 25, 1997, the Partnership did not have the means with which
to satisfy this maturing debt obligation. Total interest expense for this loan
was approximately $240,000 for both the six months ended June 30, 1998 and 1997.
Accrued interest payable was approximately $2,513,000 at June 30, 1998.
AMIT currently holds notes receivable from the Partnership in the amount of
approximately $7,090,000. Total interest expense on this financing was
approximately $555,000 and $498,000 for the six months ended June 30, 1998 and
1997, respectively. Accrued interest was approximately $2,141,000 at June 30,
1998.
In November 1992, MAE GP acquired 1,675,113 Class B Common Shares of AMIT. The
terms of the Class B Shares provide that they are convertible, in whole or in
part, into Class A Common Shares on the basis of one Class A Share for every 49
Class B Shares (however, in connection with the settlement agreement described
in the following paragraph, MAE GP has agreed not to convert the Class B Shares
so long as AMIT's option is outstanding). These Class B Shares entitle the
holder to receive 1% of the distributions of net cash distributed by AMIT
(however, in connection with the settlement agreement described in the following
paragraph, MAE GP agreed to waive its right to receive dividends and
distributions so long as AMIT's option is outstanding). The holder of the Class
B Shares is also entitled to vote on the same basis as the holders of Class A
Shares, providing the holder with approximately 39% of the total voting power of
AMIT (unless and until converted to Class A Shares, in which case the percentage
of the vote controlled represented by such shares would approximate 1.3% of the
total voting power of AMIT).
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B Shares owned by it. This option can be exercised
at the end of 10 years or when all loans made by AMIT to partnerships which were
affiliated with MAE GP as of November 9, 1994 (which is the date of execution of
a definitive Settlement Agreement) have been paid in full. In connection with
such settlement, AMIT delivered to MAE GP cash in the sum of $250,000 at closing
(which occurred April 14, 1995) as payment for the option. If and when the
option is exercised, AMIT will be required to remit to MAE GP an additional
$94,000.
Simultaneously with the execution of the option and as part of the settlement,
MAE GP also executed an irrevocable proxy in favor of AMIT, which provides that
the holder of the Class B Shares is permitted to vote those shares on all
matters except those involving transactions between AMIT and MAE GP affiliated
borrowers or the election of any MAE GP affiliate as an officer or trustee of
AMIT. With respect to such matters, the trustees of AMIT are required to vote
(pursuant to the irrevocable proxy) the Class B Shares (as a single block) in
the same manner as a majority of the Class A Shares are voted (to be determined
without consideration of the votes of "Excess Class A Shares" (as defined in
Section 6.13 of AMIT's Declaration of Trust)).
Between its acquisition of the Class B Shares (in November 1992) and March 31,
1995, MAE GP declined to vote these shares. Since that date, MAE GP voted its
shares at the 1995 and 1996 annual meetings in connection with the election of
trustees and other matters. In February 1998, MAE GP was merged into IPT, and in
connection with that merger, MAE GP dividended all of the Class B Shares to its
sole stockholder, Metropolitan Asset Enhancement, L.P. ("MAE"). As a result,
MAE, as the holder of the Class B Shares, is now subject to the terms of the
settlement agreement, option and irrevocable proxy described in the two
preceding paragraphs. Neither MAE GP nor MAE has exerted or has any current
intention to exert any management control over or participate in the management
of AMIT. However, subject to the terms of the proxy described below, MAE may
choose to vote the Class B Shares or otherwise exercise its rights as a
shareholder of AMIT as it deems appropriate in the future.
Liquidity Assistance L.L.C., which is an affiliate of the General Partner, MAE
and Insignia (which provides property management and partnership administration
services to the Partnership), owned 96,800 Class A Shares of AMIT at June 30,
1998. These Class A Shares represent approximately 2.2% of the total voting
power of AMIT.
On April 3, 1997, Insignia and AMIT entered into a non-binding agreement in
principle contemplating, among other things, a business combination of AMIT and
IPT, which was then owned 98% by Insignia and its affiliates. On July 18, 1997,
IPT, Insignia and MAE GP entered into a definitive merger agreement pursuant to
which (subject to shareholder approval and certain other conditions, including
the receipt by AMIT of a fairness opinion from its investment bankers) AMIT
would be merged with and into IPT, with each Class A Share and Class B Share
being converted into 1.625 and 0.0332 Common Shares of IPT, respectively. The
foregoing exchange ratios are subject to adjustment to account for dividends
paid by AMIT from January 1, 1997 and dividends paid by IPT from February 1,
1997. It is anticipated that Insignia and its affiliates (including MAE) would
own approximately 57% of post-merger IPT if this transaction is consummated.
The Partnership has agreed to pay Miller Valentine Realty ("MV") property
management fees, leasing commissions, and financing fees and sales commissions
upon the refinancing or sale of the properties. The Partnership will receive
the first $3,000,000 of excess cash from operations, refinancing or sales of the
properties less unrefunded arrearages. Thereafter, the agreement provides that
MV shall receive, as incentive for providing property management, leasing and
asset management services to the Partnership, two-thirds of the next $12,000,000
of excess cash proceeds generated by the properties. Cash in excess of
$15,000,000 shall be shared equally by MV and the Partnership.
The agreement contemplates that the properties will be sold at an opportune time
but no later than 10 years after commencement of the agreements (March 2, 1992).
In addition, the agreement contains an option for MV to buy the properties five
years after the commencement date of the agreement. MV did not exercise this
option.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
NOTE D - SALE OF INVESTMENT PROPERTY
The Partnership sold Building 41 of the Dayton Industrial Complex on June 12,
1998, to an unaffiliated party for net sales proceeds of approximately
$1,847,000. The Partnership realized a loss of approximately $177,000 on the
sale and a related $2,128,000 extraordinary gain on the early extinguishment of
debt during the second quarter of 1998. The extraordinary gain was the result
of forgiveness of debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes and
one commercial property. The following table sets forth the average occupancy
of the properties for the six months ended June 30, 1998 and June 30, 1997.
Property 1998 1997
Waterford Square Apartments
Huntsville, Alabama 94% 91%
Fox Crest Apartments
Waukegan, Illinois 96% 96%
Dayton Industrial Complex
Dayton, Ohio (1) 74% 69%
1)Dayton Industrial has been adversely affected by the build-up of commercial
space in the area. The increase in occupancy is due to the foreclosures of
Buildings 53 and 59 in 1998 that were not occupied. The remaining building
is fully leased at June 30, 1998.
The Partnership realized net income of approximately $4,962,000 and $6,492,000
for the three and six months ended June 30, 1998, versus net losses of
approximately $860,000 and $1,655,000 for the three and six months ended June
30, 1997. Net income for the three and six months ended June 30, 1998, resulted
from the extraordinary gain on extinguishment of debt of approximately
$5,735,000 and $7,979,000, respectively. The Partnership realized a loss before
the extraordinary gain of approximately $1,487,000. The Partnership experienced
a decrease in revenues and expenses for the six months ended June 30, 1998, due
to the loss of Buildings 53, 59, and 41 of the Dayton Industrial Complex in
January, April, and June 1998, respectively (see discussion below).
Rental income decreased primarily due to the loss of Buildings 53, 59, and 41 of
the Dayton Industrial Complex but was offset by an increase in rental income at
both Foxcrest Apartments and Waterford Square Apartments. Average rental rates
increased at both investment properties, while Waterford Square Apartments also
experienced an increase in average occupancy.
The decrease in expenses is mainly due to decreases in operating expenses,
general and administrative expenses, and interest expense. These decreases were
primarily due to the foreclosures of Buildings 53 and 59 and the sale of
Building 41 of the Dayton Industrial Complex. The decrease in operating
expenses was offset by an increase in maintenance expense at Waterford Square
Apartments due to an exterior painting project during the six months ended June
30, 1998. Offsetting the decrease in interest expense due to the foreclosure of
Buildings 53 and 59 and the sale of Building 41 was an increase in interest
expense on the defaulted debt due to interest accruing on increased debt
balances as unpaid interest is added to principal.
As part of the ongoing business plan of the Partnership, the Managing General
Partner continues to monitor the rental market environment of each 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 inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
At June 30, 1998, the Partnership had cash and cash equivalents of approximately
$835,000 compared to approximately $655,000 at June 30, 1997. Cash and cash
equivalents increased approximately $186,000 and $337,000 for the periods ended
June 30, 1998 and 1997, respectively. Net cash provided by operating activities
decreased primarily due to an increase in receivables and deposits and smaller
increases in accrued interest and amounts due to affiliates. These changes were
partially offset by a decrease in other assets. The decrease in receivables and
deposits during the first six months of 1997 is primarily due to a decrease in
tenant accounts receivable. The increase in receivables and deposits during the
first six months of 1998 is primarily due to an increase in escrow accounts due
to the timing of payments. The increase in accrued interest is primarily due to
the accrual of default interest, along with interest accruing on increased debt
balances at Dayton Industrial Complex as accrued interest is added to the
principal on all of the 2nd mortgages secured by this property. However, due to
the foreclosures of Buildings 53 and 55 and the sale of Building 41 of the
Dayton Industrial Complex, the second mortgage balance was lower during the six
months ended June 30, 1998, resulting in a smaller increase in accrued interest.
Also, as a result of the sale and foreclosures of the buildings, expense
reimbursements decreased for the six months ended June 30, 1998, resulting in a
smaller accrual to due to affiliates. Other assets decreased for the six months
ended June 30, 1998, due to a decrease in prepaid insurance. Net cash provided
by investing activities increased primarily as a result of the recognition of
proceeds from the sale of Building 41 of the Dayton Industrial Complex, along
with an increase in receipts from restricted escrows. This was partially offset
by an increase in property improvements and replacements at Waterford Square
Apartments and Fox Crest Apartments. Net cash used in financing activities
increased due to the repayment of loans which occurred as a result of the sale
of Building 41 of the Dayton Industrial Complex. Also contributing to the
increase in cash used in financing activities was a decrease in additions to
notes payable as a result of fewer advances received from the lender to cover
operating expenses for Building 59 of the Dayton Industrial Complex. These
changes were partially offset by a decrease in principal payments on notes
payable. For the six months ended June 30, 1997, a $200,000 principal payment
was made on the third mortgage indebtedness at the Dayton Industrial Complex
versus a $150,000 principal payment for the six months ended June 30, 1998.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
incur recurring operating losses and suffers from inadequate liquidity. Non-
recourse and recourse indebtedness of approximately $2,666,000 and $4,576,000 is
in default at June 30, 1998, due to nonpayment of interest and principal when
due.
The Partnership incurred net income of approximately $6,492,000 for the six
months ended June 30, 1998. This was due to the recognition of an extraordinary
gain on the extinguishment of debt of approximately $7,979,000, relating to the
foreclosures of Buildings 53 and 59 and the sale of Building 41 in the Dayton
Industrial Complex. The Partnership realized a loss before the extraordinary
gain of approximately $1,487,000. Angeles Realty Corporation II, (the "Managing
General Partner" or "ARC II") expects the Partnership to continue to incur such
losses. The Partnership generated cash from operations of approximately
$602,000 during the six months ended June 30, 1998; however, this primarily was
the result of accruing interest of approximately $1,259,000 on its indebtedness
and $71,000 for services provided by affiliates.
In January and April 1998, Buildings 53 and 59, respectively, of the Dayton
Industrial Complex were foreclosed on and in June 1998, Building 41 of the
Dayton Industrial Complex was sold. Historically, the Dayton Industrial Complex
has not been able to retain tenants and has never generated operating cash.
Effective October 1, 1996, the Partnership determined that, based on economic
conditions at the time as well as projected future operational cash flows, the
decline in value of the property was other than temporary and recovery of the
carrying value was not likely. Accordingly, the Dayton Industrial Complex's
carrying value was reduced to an amount equal to its estimated fair value. The
Partnership ceased making debt service payments on Buildings 53 and 59 in 1996
and the buildings were placed in receivership in 1997. In the Managing General
Partner's opinion, it was not in the Partnership's best interest to contest the
foreclosure actions. As a result of the foreclosures, the Partnership recorded
an extraordinary gain on extinguishment of debt of approximately $2,244,000 and
$3,607,000 for Buildings 53 and 59, respectively. Also, in connection with the
foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the
building from its carrying value to its estimated fair value during the second
quarter of 1998. Prior to the foreclosure of Building 53, the outstanding debt
on the property was a first mortgage in the amount of approximately $1,043,000
and a second mortgage in the amount of approximately $1,669,000. Related
accrued interest amounted to approximately $175,000. Prior to the foreclosure
of Building 59, the outstanding debt on the property was a first mortgage in the
amount of approximately $2,895,000 and a second mortgage in the amount of
approximately $704,000. Related accrued interest amounted to approximately
$688,000. As a result of the sale of Building 41, the Partnership recorded an
extraordinary gain on extinguishment of debt of approximately $2,128,000. Prior
to the sale of Building 41, the outstanding debt on the property was a first
mortgage in the amount of approximately $1,104,000 and a second mortgage in the
amount of approximately $2,823,000. Related accrued interest amounted to
approximately $23,000.
The Dayton Industrial Complex has one remaining building at June 30, 1998. The
first mortgage on Building 55 which totals approximately $2,666,000 is all
nonrecourse to the Partnership, matured in December 1997 and is in default due
to nonpayment of interest and principal when due. The Managing General Partner
has entered into a sales agreement for Building 55 of the Dayton Industrial
Complex and anticipates selling this building to an unrelated party in 1998.
The Dayton Industrial Complex has not generated any operating cash for the
Partnership since it was purchased nor has the Partnership expended any cash to
support the property. The Managing General Partner will not use any Partnership
funds on the remaining building in 1998.
The Partnership has unsecured working capital loans to Angeles Acceptance Pool,
L.P. ("AAP") in the amount of approximately $4,576,000 plus related accrued
interest that was due in November 1997. This indebtedness is recourse to the
Partnership. The Partnership does not have the means with which to satisfy this
obligation. The Managing General Partner does not plan to enter into
negotiations with AAP on this indebtedness at this time. The Managing General
Partner believes that the possibility that AAP will initiate collection
proceedings on this indebtedness is remote, as the estimated value of the
Partnership's investment properties and other assets are significantly less than
the existing first mortgages and other secured Partnership indebtedness. If AAP
initiates proceedings, then the Managing General Partner will enter into
negotiations to restructure this indebtedness.
The Partnership has two notes to Angeles Mortgage Investment Trust ("AMIT"),
which are recourse to the partnership only, in the amount of approximately
$2,326,000 plus related accrued interest that originally matured in March 1998.
The Managing General Partner negotiated with AMIT to extend this indebtedness
and in the second quarter of 1998 executed an extension through November 2027.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows for the next twelve months
to meet all property operating expenses, debt service requirements and to fund
capital expenditures.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.,
("Insignia") and its affiliates of interests in certain general partner
entities, past tender offers by Insignia affiliates to acquire limited
partnership units, the management of partnerships by Insignia affiliates as well
as a recently announced agreement between Insignia and Apartment Investment and
Management Company. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, plaintiffs have recently filed an amended
complaint.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners are affiliates of
Insignia filed a complaint in the Superior Court of the State of California,
County of Los Angeles. The action involves 44 real estate limited partnerships
(including the Partnership) in which the plaintiffs allegedly own interests and
which Insignia affiliates allegedly manage or control (the "Subject
Partnerships"). The complaint names as defendants Insignia, several Insignia
affiliates alleged to be managing partners of the defendant limited
partnerships, the Partnership and the Managing General Partner. Plaintiffs
allege that they have requested from, but have been denied by each of the
Subject Partnerships, lists of their respective limited partners for the purpose
of making tender offers to purchase up to 4.9% of the limited partner units of
each of the Subject Partnerships. The complaint also alleges that certain of
the defendants made tender offers to purchase limited partner units in many of
the Subject Partnerships, with the alleged result that plaintiffs have been
deprived of the benefits they would have realized from ownership of the
additional units. The plaintiffs assert eleven causes of action, including
breach of contract, unfair business practices, and violations of the partnership
statutes of the states in which the Subject Partnerships are organized.
Plaintiffs seek compensatory, punitive and treble damages. The Partnership was
only recently served with the complaint and has not yet responded to it. The
Partnership believes the claims to be without merit and intends to defend the
action vigorously.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner believes that all such
pending or outstanding litigation will be resolved without a material adverse
effect upon the business, financial condition, or operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: Exhibit 27, Financial Data Schedule.
Exhibit 10.38, Assignment of Warranties - Building 41 of the Dayton
Industrial Complex - between the Partnership and Mid-States
Development Company, dated June 12, 1998.
Exhibit 10.39, Assignment of Permits - Building 41 of the Dayton
Industrial Complex - between the Partnership and Mid-States
Development Company, dated June 12, 1998.
Exhibit 10.40, Purchase Agreement - Building 41 of the Dayton
Industrial Complex - between the Partnership and Mid-States
Development Company, dated June 12, 1998.
Exhibit 10.41, Closing Statement - Building 41 of the Dayton
Industrial Complex - between the Partnership and Mid-States
Development Company, dated June 12, 1998.
Exhibit 10.42, Journal Entry Confirming Sale, Ordering Deed and
Distributing Sale Proceeds - between The Traveler's Insurance
Company and the Partnership, dated June 12, 1998.
b) Reports on Form 8-K:
No reports on form 8-K were filed during the six months ended June
30, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS XIV
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President/Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 13, 1998