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, 2001
[ ] 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 0-13192
ANGELES INCOME PROPERTIES, LTD. III
(Exact name of small business issuer as specified in its charter)
California 95-3903984
(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
(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 INCOME PROPERTIES, LTD. III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2001
Assets
Cash and cash equivalents $ 115
Receivables and deposits 21
Other assets 13
Investment property:
Land $ 657
Buildings and related personal property 4,360
5,017
Less accumulated depreciation (3,521) 1,496
$ 1,645
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 6
Tenant security deposit liabilities 21
Accrued property taxes 23
Other liabilities 56
Partners' (Deficit) Capital
General partners $ (17)
Limited partners (86,738 units issued and
outstanding) 1,556 1,539
$ 1,645
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Rental income $ 209 $ 218 $ 419 $ 423
Other income 14 40 26 56
Total revenues 223 258 445 479
Expenses:
Operating 83 85 164 174
General and administrative 33 36 70 65
Depreciation 67 67 133 135
Property taxes 9 10 24 21
Total expenses 192 198 391 395
Net income $ 31 $ 60 $ 54 $ 84
Net income allocated to general
partners (1%) $ -- $ 1 $ -- $ 1
Net income allocated to limited
partners (99%) 31 59 54 83
$ 31 $ 60 $ 54 $ 84
Net income per limited partnership unit $ 0.36 $ 0.68 $ 0.62 $ 0.96
Distributions per limited partnership
unit $ 0.52 $ 10.62 $ 2.23 $ 25.17
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 86,920 $ 1 $43,460 $43,461
Partners' (deficit) capital at
December 31, 2000 86,738 $ (15) $ 1,695 $ 1,680
Distributions to partners -- (2) (193) (195)
Net income for the six months
ended June 30, 2001 -- -- 54 54
Partners' (deficit) capital at
June 30, 2001 86,738 $ (17) $ 1,556 $ 1,539
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 54 $ 84
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 133 135
Change in accounts:
Receivables and deposits 8 79
Other assets (5) (4)
Accounts payable (17) (28)
Tenant security deposit liabilities (2) 4
Accrued property taxes (15) (17)
Other liabilities (27) (130)
Net cash provided by operating activities 129 123
Cash flows from investing activities:
Property improvements and replacements (25) (22)
Cash flows from financing activities:
Distributions to partners (195) (2,205)
Net decrease in cash and cash equivalents (91) (2,104)
Cash and cash equivalents at beginning of period 206 2,253
Cash and cash equivalents at end of period $ 115 $ 149
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES INCOME PROPERTIES, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. III (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-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 Angeles Realty Corporation II (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, 2001, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2001. 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 year ended December 31, 2000.
The Managing General Partner is a wholly owned subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
Principles of Consolidation: The consolidated financial statements of the
Partnership include its 99% limited partnership interests in Poplar Square AIP
III, L.P. and Poplar Square GP LP. Poplar Square GP LP is the general partner of
Poplar Square AIP III and ARC II is the general partner of Poplar Square GP LP.
Both general partners of the consolidated partnerships may be removed by the
Registrant; therefore, the partnerships are controlled and consolidated by the
Partnership. All significant interpartnership balances have been eliminated.
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information" established
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also established standards for related disclosures about
products and services, geographic areas, and major customers. As defined in SFAS
No. 131, the Partnership has only one reportable segment. The Managing General
Partner believes that segment-based disclosures will not result in a more
meaningful presentation than the consolidated financial statements as currently
presented.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides (i) for certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
The following payments were made to the Managing General Partner and affiliates
during the six months ended June 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating
expenses) $ 22 $ 22
Reimbursement for services of affiliates (included
in general and administrative expenses) 35 19
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Registrant's residential property as compensation for
providing property management services. The Registrant paid to such affiliates
approximately $22,000 for each of the six months ended June 30, 2001 and 2000.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $35,000 and
$19,000 for the six months ended June 30, 2001 and 2000, respectively.
The Partnership Agreement provides for a fee equal to 10% of "net cash flow from
operations", as defined in the Partnership Agreement to be paid to the Managing
General Partner for executive and administrative management services. This fee
is calculated and accrued annually.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 40,890 limited partnership units
(the "Units") in the Partnership representing 47.14% of the outstanding Units at
June 30, 2001. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include without limitation, voting on certain
amendments to the Partnership Agreement and voting to remove the Managing
General Partner. As a result of its ownership of 47.14% of the outstanding
Units, AIMCO is in a position to significantly influence all voting decisions
with respect to the Registrant. When voting on matters, AIMCO would in all
likelihood vote the Units it acquired in a manner favorable to the interest of
the Managing General Partner because of its affiliation with the Managing
General Partner.
Note C - Distributions
The Partnership declared and paid cash distributions from operations of
approximately $195,000 (approximately $193,000 to the limited partners or $2.23
per limited partnership unit) during the six months ended June 30, 2001. During
the six months ended June 30, 2000, the Partnership paid a cash distribution
from sale proceeds of Poplar Square Shopping Center, which sold in December
1999, of approximately $1,205,000 (approximately $1,193,000 to the limited
partners or $13.76 per limited partnership unit) and from operations of
approximately $1,000,000 (approximately $990,000 to the limited partners or
$11.41 per limited partnership unit).
Note D - Legal Proceedings
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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs
seek 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, the
plaintiffs filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does not anticipate that any costs, whether legal or settlement costs,
associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the six
months ended June 30, 2001 and 2000:
Average Occupancy
Property 2001 2000
Lake Forest Apartments 92% 94%
Brandon, Mississippi
Results from Operations
The Registrant's net income for the six months ended June 30, 2001 was
approximately $54,000 as compared to net income of approximately $84,000 for the
six months ended June 30, 2000. The Registrant's net income for the three months
ended June 30, 2001 was approximately $31,000 as compared to net income of
approximately $60,000 for the three months ended June 30, 2000. The decrease in
net income for the three and six months ended June 30, 2001 was attributable to
a decrease in total revenues while total expenses remained constant. The
decrease in total revenues was attributable to a decrease in other income and a
slight decrease in rental revenue. The decrease in other income was due to a
decrease in interest income due to lower average cash balances in interest
bearing accounts. Rental income decreased due to a decrease in occupancy at Lake
Forest Apartments offset by an increase in average rental rates and decreased
concessions.
Included in general and administrative expenses are costs of the services
provided by the Managing General Partner as allowed under the Partnership
Agreement associated with its management of the Partnership. Also included are
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property 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, 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.
Liquidity and Capital Resources
At June 30, 2001, the Registrant had cash and cash equivalents of approximately
$115,000 as compared to approximately $149,000 at June 30, 2000. Cash and cash
equivalents decreased approximately $91,000 from December 31, 2000. The decrease
in cash and cash equivalents was due to approximately $195,000 and $25,000 of
cash used in financing and investing activities, respectively, which was
partially offset by approximately $129,000 of cash provided by operating
activities. Cash used in financing activities consisted of distributions to the
partners. Cash used in investing activities consisted of property improvements
and replacements. The Registrant invests its working capital reserves in
interest bearing accounts.
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 Partnership's property to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, and local legal and regulatory requirements.
The Partnership budgeted approximately $37,000 for capital improvements at Lake
Forest Apartments for the year 2001 consisting primarily of floor coverings,
heating and air conditioning upgrades and appliances. During the six months
ended June 30, 2001, the property completed approximately $25,000 in capital
expenditures, consisting primarily of floor coverings, heating and air
conditioning upgrades, appliances, painting and pool improvements. These
improvements were funded from operating cash flow. Additional improvements may
be considered and will depend on the physical condition of the property and
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations. To the extent that such budgeted capital improvements are
completed, the Registrant's distributable cash flow, if any, may be adversely
affected at least in the short term. The Registrant's current assets are thought
to be sufficient for any near-term needs (exclusive of capital improvements) of
the Registrant.
The Partnership declared and paid cash distributions from operations of
approximately $195,000 (approximately $193,000 to the limited partners or $2.23
per limited partnership unit) during the six months ended June 30, 2001. During
the six months ended June 30, 2000, the Partnership paid a cash distribution
from sale proceeds of Poplar Square Shopping Center, which sold in December
1999, of approximately $1,205,000 (approximately $1,193,000 to the limited
partners or $13.76 per limited partnership unit) and from operations of
approximately $1,000,000 (approximately $990,000 to the limited partners or
$11.41 per limited partnership unit). The Partnership's distribution policy is
reviewed on a quarterly basis. Future cash distributions will depend on the
levels of net cash generated from operations, mortgage financing, and/or the
sale of the property. There can be no assurance that the Partnership will
generate sufficient funds from operations, after required capital expenditures,
to permit additional distributions to its partners during the remainder of 2001
or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 40,890 limited partnership units
(the "Units") in the Partnership representing 47.14% of the outstanding Units at
June 30, 2001. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include without limitation, voting on certain
amendments to the Partnership Agreement and voting to remove the Managing
General Partner. As a result of its ownership of 47.14% of the outstanding
Units, AIMCO is in a position to significantly influence all voting decisions
with respect to the Registrant. When voting on matters, AIMCO would in all
likelihood vote the Units it acquired in a manner favorable to the interest of
the Managing General Partner because of its affiliation with the Managing
General Partner.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs
seek 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, the
plaintiffs filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does not anticipate that any costs, whether legal or settlement costs,
associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2001.
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 INCOME PROPERTIES, LTD. III
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: