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 September 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 0-11767
ANGELES INCOME PROPERTIES, LTD. II
(Exact name of small business issuer as specified in its charter)
California 95-3793526
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(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. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2001
Assets
Cash and cash equivalents $ 827
Receivables and deposits 387
Restricted escrows 98
Other assets 575
Investment properties:
Land $ 1,984
Buildings and related personal property 32,586
34,570
Less accumulated depreciation (25,649) 8,921
$ 10,808
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 175
Tenant security deposit liabilities 261
Accrued property taxes 292
Other liabilities 275
Mortgage notes payable 25,101
Partners' Deficit
General partners $ (592)
Limited partners (99,784 units issued and
outstanding) (14,704) (15,296)
$ 10,808
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 1,702 $ 1,628 $ 5,084 $ 4,843
Other income 121 97 325 341
Casualty gains 40 -- 65 --
Total revenues 1,863 1,725 5,474 5,184
Expenses:
Operating 646 600 1,719 1,676
General and administrative 77 163 249 325
Depreciation 454 433 1,366 1,299
Interest 493 357 1,200 1,043
Property taxes 191 154 556 401
Total expenses 1,861 1,707 5,090 4,744
Income from continuing operations 2 18 384 440
(Loss) income from discontinued operation -- (2) -- 114
Gain on sale of discontinued operation -- -- -- 2,060
Income before extraordinary item 2 16 384 2,614
Extraordinary loss on early extinguishment
of debt -- -- (57) --
Net income $ 2 $ 16 $ 327 $ 2,614
Net income allocated to general partners $ -- $ -- $ 3 $ 112
Net income allocated to limited partners 2 16 324 2,502
$ 2 $ 16 $ 327 $ 2,614
Per limited partnership unit:
Income before discontinued operation and
extraordinary item $ 0.02 $ 0.18 $ 3.81 $ 4.36
(Loss) income from discontinued operation -- (0.02) -- 1.13
Gain on sale of discontinued operation -- -- -- 19.58
Extraordinary loss on early extinguishment
of debt -- -- (0.56) --
Net income $ 0.02 $ 0.16 $ 3.25 $ 25.07
Distributions per limited partnership unit $ 72.13 $ -- $ 80.63 $ 51.19
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 100,000 $ 1 $ 50,000 $ 50,001
Partners' deficit at
December 31, 2000 99,784 $ (514) $ (6,982) $ (7,496)
Distributions to partners -- (81) (8,046) (8,127)
Net income for the nine months
ended September 30, 2001 -- 3 324 327
Partners' deficit at
September 30, 2001 99,784 $ (592) $(14,704) $(15,296)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income $ 327 $ 2,614
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,366 1,299
Amortization of discounts, loan costs and lease
commissions 62 65
Gain on sale of discontinued operation -- (2,060)
Extraordinary loss on early extinguishment of debt 57 --
Casualty gains (65) --
Change in accounts:
Receivables and deposits (59) (212)
Other assets (31) 157
Accounts payable 71 10
Tenant security deposit liabilities (29) (6)
Accrued property taxes 179 114
Due to affiliates (81) (158)
Other liabilities (21) (227)
Net cash provided by operating activities 1,776 1,596
Cash flows from investing activities:
Property improvements and replacements (1,047) (1,183)
Net withdrawals from restricted escrows 45 201
Net proceeds from sale of discontinued operation -- 2,746
Insurance proceeds received 72 --
Net cash (used in) provided by investing activities (930) 1,764
Cash flows from financing activities:
Payments on mortgage notes payable (224) (180)
Advance from affiliate -- 265
Distributions to partners (8,127) (6,746)
Proceeds from mortgage note payable 13,750 --
Repayment of mortgage note payable (5,985) --
Loan costs paid (408) --
Net cash used in financing activities (994) (6,661)
Net decrease in cash and cash equivalents (148) (3,301)
Cash and cash equivalents at beginning of period 975 4,229
Cash and cash equivalents at end of period $ 827 $ 928
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,091 $ 996
At December 31, 2000 and 1999, approximately $150,000 and $157,000,
respectively, of property improvements and replacements were included in
accounts payable.
Distributions to partners of approximately $1,500,000 were declared at December
31, 1999 and paid in January 2000.
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES INCOME PROPERTIES, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. II (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-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 nine month periods ended September 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 an affiliate 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 all accounts of
the Partnership, Georgetown AIP II, LP in which the Partnership holds a 99%
limited partnership interest and AIPL II GP, LLC in which the Partnership is the
sole member. Although legal ownership of the respective asset remains with these
entities, the Partnership retains all economic benefits from the properties. The
Partnership consolidates its interests in these two entities, whereby all
accounts are included in the consolidated financial statements of the
Partnership with all inter-entity accounts being eliminated.
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 for certain payments
to affiliates for services and 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 the nine months
ended September 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in
operating expenses) $ 271 $ 255
Reimbursement for services of affiliates
(included in operating expense, general and
administrative expense and investment properties) 310 153
Disposition fee (included in general partner
distribution) -- 86
Refinancing fee (included in other assets) 138 --
Due to affiliate 11 335
During the nine months ended September 30, 2001 and 2000, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's residential properties for providing property management
services. The Registrant paid to such affiliates approximately $271,000 and
$255,000 for the nine months ended September 30, 2001 and 2000, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $310,000 and
$153,000 for the nine months ended September 30, 2001 and 2000, respectively.
Included in the total is approximately $174,000 and $21,000 in construction
service reimbursements for the nine months ended September 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. The fee
earned was approximately $11,000 and $70,000 for the nine months ended September
30, 2001 and 2000, respectively.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a distribution equal to 3% of the aggregate disposition price of sold
properties. The Partnership paid a distribution of approximately $86,000 to the
Managing General Partner related to the sale of Atlanta Crossing Shopping Center
in September 2000. This amount is subordinate to the limited partners receiving
their original capital contributions plus a cumulative preferred return of 6%
per annum of their adjusted capital investment, as defined in the Partnership
Agreement. If the limited partners have not received these returns when the
Partnership terminates, the Managing General Partner will return this amount to
the Partnership.
In addition to reimbursement for services of affiliates, the Partnership paid a
commission to an affiliate of the Managing General Partner of approximately
$138,000 related to the refinance of Deer Creek Apartments during the nine
months ended September 30, 2001. These costs were capitalized and are included
in other assets on the consolidated balance sheet.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates currently own 59,012 limited partnership
units in the Partnership representing 59.14% of the outstanding units at
September 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 acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO either through private purchases or tender offers. 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 voting on
certain amendments to the Partnership Agreement and voting to remove the
Managing General Partner. As a result of its ownership of 59.14% of the
outstanding units, AIMCO is in a position to control 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 - Sale of Discontinued Operation
In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama,
was sold to an unaffiliated party for $2,875,000. After payment of closing
expenses, the net sales proceeds received by the Partnership were approximately
$2,746,000. The sale resulted in a gain of approximately $2,060,000, which was
recognized during the nine months ended September 30, 2000.
Atlanta Crossing Shopping Center was the only commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as (loss) income from discontinued operation on the consolidated statement of
operations. Revenues of this property were approximately $193,000 for the nine
months ended September 30, 2000. (Loss) income from operations was approximately
($2,000) and $114,000 for the three and nine months ended September 30, 2000,
respectively.
Note D - Distributions
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $8,127,000 (approximately $8,046,000 to the
limited partners or $80.63 per limited partnership unit) of which approximately
$857,000 (approximately $848,000 to the limited partners or $8.50 per limited
partnership unit) was from operations and approximately $7,270,000
(approximately $7,198,000 to the limited partners or $72.13 per limited
partnership unit) was from proceeds of the refinancing of the mortgage
encumbering Deer Creek Apartments. Subsequent to September 30, 2001, the
Partnership declared and paid a distribution of approximately $553,000
(approximately $547,000 to the limited partners or $5.48 per limited partnership
unit) of which approximately $445,000 (approximately $440,000 to the limited
partners or $4.41 per limited partnership unit) was from operations and
approximately $108,000 (approximately $107,000 to the limited partners or $1.07
per limited partnership unit) was from proceeds of the refinance of Deer Creek
Apartments. During the nine months ended September 30, 2000, the Partnership
paid a distribution that was accrued in December 1999 of approximately
$1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the
limited partners or $10.65 per limited partnership unit) was from operations and
approximately $426,000 (approximately $422,000 to the limited partners or $4.23
per limited partnership unit) was from proceeds from the sale of Princeton
Meadows Golf Course Joint Venture during 1999. During the nine months ended
September 30, 2000, the Partnership declared and paid distributions of
approximately $5,246,000 (approximately $5,108,000 to the limited partners or
$51.19 per limited partnership unit) of which approximately $2,500,000
(approximately $2,476,000 to the limited partners or $24.81 per limited
partnership unit) is from operations and approximately $2,746,000 (approximately
$2,632,000 to the limited partners or $26.38 per limited partnership unit) is
from proceeds of the sale of Atlanta Crossing Shopping Center. Pursuant to the
Partnership Agreement, the Partnership accrued and paid a distribution of
approximately $86,000 to the Managing General Partner related to the sale of
Atlanta Crossing Shopping Center in March 2000. This amount is subordinate to
the limited partners receiving their original capital contributions plus a
cumulative preferred return of 6% per annum of their adjusted capital
investment, as defined in the Partnership Agreement. This distribution was paid
during the third quarter of 2000. If the limited partners have not received the
required returns when the Partnership terminates, the Managing General Partner
will return this amount to the Partnership.
Note E - Refinancing of Mortgage Note Payable
On June 27, 2001, the Partnership refinanced the mortgage encumbering Deer Creek
Apartments. The refinancing replaced indebtedness of approximately $5,985,000
with a new mortgage of $13,750,000. The new mortgage carries a stated interest
rate of 7.43% as compared to the 7.33% interest rate on the old mortgage.
Payments on the mortgage loan are due monthly until the loan matures on July 1,
2021. Total capitalized loan costs were approximately $408,000. These costs
included $138,000 in fees paid to the Managing General Partner. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $57,000 due to the write-off of unamortized loan costs.
Note F - Casualties
During the nine months ended September 30, 2001, a net casualty gain was
recorded at Georgetown Apartments. The casualty gain related to ice damage in
January 2001. The gain was the result of insurance proceeds of approximately
$29,000 less the net book value of the damaged property of approximately $3,000.
During the nine months ended September 30, 2001, two net casualty gains were
recorded at Landmark Apartments. One casualty gain related to a fire in January
2001. This gain was the result of insurance proceeds of approximately $22,000
less the net book value of the damaged property of approximately $2,000. The
other casualty gain related to a fire in March 2001. This gain was the result of
insurance proceeds of approximately $22,000 less the net book value of the
damaged property of approximately $2,000.
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership had two reportable segments:
residential properties and commercial properties. The Partnership's residential
property segment consists of three apartment complexes, one each in New Jersey,
Indiana, and North Carolina. The Partnership rents apartment units to tenants
for terms that are typically twelve months or less. The commercial property
segment consisted of a retail shopping center located in Montgomery, Alabama.
This property leased space to a discount store, various specialty retail
outlets, and several restaurants at terms ranging from twelve months to twenty
years. The commercial property was sold on March 15, 2000 (see "Note C").
Therefore, the commercial segment is reflected as discontinued operations.
Measurement of segment profit or loss: The Partnership evaluates performance
based on segment profit (loss) before depreciation. The accounting policies of
the reportable segments are the same as those of the Partnership as described in
the Partnership's Annual Report on Form 10-KSB for the year ended December 31,
2000.
Factors management used to identify the enterprise's reportable segment: The
Partnership's reportable segments are investment properties that offer different
products and services. The reportable segments are each managed separately
because they provide distinct services with different types of products and
customers.
Segment information for the three and nine month periods ended September 30,
2001 and 2000 is shown in the tables below (in thousands). The "Other" column
includes Partnership administration related items and income and expense not
allocated to the reportable segments.
Three Months Ended
September 30, 2001 Residential Other Totals
Rental income $ 1,702 $ -- $ 1,702
Other income 114 7 121
Casualty gain 40 -- 40
Interest expense 493 -- 493
Depreciation 454 -- 454
General and administrative expense -- 77 77
Segment profit (loss) 72 (70) 2
Nine Months Ended
September 30, 2001 Residential Other Totals
Rental income $ 5,084 $ -- $ 5,084
Other income 314 11 325
Casualty gain 65 -- 65
Interest expense 1,200 -- 1,200
Depreciation 1,366 -- 1,366
General and administrative
expense -- 249 249
Extraordinary loss on early
extinguishment of debt (57) -- (57)
Segment profit (loss) 565 (238) 327
Total assets 10,723 85 10,808
Capital expenditures for
investment properties 897 -- 897
Three Months Ended
September 30, 2000 Residential Commercial Other Totals
(discontinued)
Rental income $ 1,628 $ -- $ -- $ 1,628
Other income 94 -- 3 97
Interest expense 357 -- -- 357
Depreciation 433 -- -- 433
General and administrative
expense -- -- 163 163
Loss from discontinued
operation -- (2) -- (2)
Segment profit (loss) 178 (2) (160) 16
Nine Months Ended
September 30, 2000 Residential Commercial Other Totals
(discontinued)
Rental income $ 4,843 $ -- $ -- $ 4,843
Other income 296 -- 45 341
Interest expense 1,043 -- -- 1,043
Depreciation 1,299 -- -- 1,299
General and administrative
expense -- -- 325 325
Income from discontinued
operation -- 114 -- 114
Gain on sale of discontinued
operation -- 2,060 -- 2,060
Segment profit (loss) 720 2,174 (280) 2,614
Total assets 11,223 -- 183 11,406
Capital expenditures for
investment properties 1,020 6 -- 1,026
Note H - 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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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
operations. 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 properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for both
of the nine months ended September 30, 2001 and 2000:
Average Occupancy
Property 2001 2000
Deer Creek Apartments 96% 98%
Plainsboro, New Jersey
Georgetown Apartments 96% 96%
South Bend, Indiana
Landmark Apartments 91% 89%
Raleigh, North Carolina
Results of Operations
The Partnership's net income for the nine months ended September 30, 2001 was
approximately $327,000 compared to approximately $2,614,000 for the nine months
ended September 30, 2000. The Partnership's net income for the three month
period ended September 30, 2001 was approximately $2,000 compared to
approximately $16,000 for the three month period ended September 30, 2000. The
decrease in net income for the nine month period ended September 30, 2001 is
primarily attributable to the sale of Atlanta Crossing Shopping Center in March
2000 (see discussion below) offset by the extraordinary loss on the early
extinguishment of debt recognized in 2001. The extraordinary loss on early
extinguishment of debt relates to the refinancing of the mortgage encumbering
Deer Creek Apartments (see discussion in "Liquidity and Capital Resources").
Excluding the operations and sale of the discontinued operation and the
extraordinary loss on the early extinguishment of debt, the Partnership had
income from continuing operations of approximately $384,000 for the nine months
ended September 30, 2001, compared to approximately $440,000 for the nine months
ended September 30, 2000. Excluding the operations of the discontinued
operation, the Partnership had income from continuing operations of
approximately $2,000 for the three month period ended September 30, 2001,
compared to approximately $18,000 for the three month period ended September 30,
2000. Net income remained comparable for the three and nine month periods ended
September 30, 2001 due to an increase in total revenues partially offset by an
increase in total expenses.
The increase in total revenues for the nine month period ended September 30,
2001 is due to an increase in rental income and the casualty gain at Georgetown
Apartments due to an ice storm in January 2001 and the casualty gains at
Landmark Apartments due to fires in January 2001 and March 2001 which were
partially offset by a decrease in other income. The increase in total revenues
for the three month period ended September 30, 2001 is due to an increase in
rental income and other income and the casualty gains recognized in the third
quarter upon receipt of insurance proceeds. The increase in rental income is the
result of increased average rental rates at all of the Partnership's properties
and an increase in occupancy at Landmark Apartments which was partially offset
by a decrease in occupancy at Deer Creek Apartments and an increase in rental
concessions and military discounts primarily at Landmark Apartments. The
decrease in other income for the nine months ended September 30, 2001 is
primarily due to a decrease in interest income as a result of a lower cash
balance in interest bearing accounts, which was partially offset by an increase
in tenant reimbursements at all of the Partnership's properties. The increase in
other income for the three month period ended September 30, 2001 is primarily
due to an increase in tenant reimbursements at all of the Partnership's
properties.
During the nine months ended September 30, 2001, a net casualty gain was
recorded at Georgetown Apartments. The casualty gain related to ice damage in
January 2001. The gain was the result of insurance proceeds of approximately
$29,000 less the net book value of the damaged property of approximately $3,000.
During the nine months ended September 30, 2001, two net casualty gains were
recorded at Landmark Apartments. One casualty gain related to a fire in January
2001. This gain was the result of insurance proceeds of approximately $22,000
less the net book value of the damaged property of approximately $2,000. The
other casualty gain related to a fire in March 2001. This gain was the result of
insurance proceeds of approximately $22,000 less the net book value of the
damaged property of approximately $2,000.
Total expenses increased for the three and nine month periods ended September
30, 2001 due to increases in depreciation, interest, and property tax expenses
partially offset by a decrease in general and administrative expenses.
Depreciation expense increased for the three and nine month periods ended
September 30, 2001 due to capital improvements completed during the past twelve
months. Interest expense increased for the three and nine month periods ended
September 30, 2001 due to the refinancing of Deer Creek Apartments in June 2001,
which increased the debt balance at the property, as discussed in Liquidity and
Capital Resources. Property tax expense increased for the three and nine month
periods ended September 30, 2001 due to an increase in the tax rate at Deer
Creek Apartments and the timing of the receipt of tax bills at Georgetown
Apartments. General and administrative expenses decreased for the three and nine
month periods ended September 30, 2001 due to a decrease in Partnership
management fees accrued at September 30, 2001, a decrease in professional fees
associated with the administration of the Partnership, and a decrease in legal
expenses. Included in general and administrative expenses at both September 30,
2001 and 2000 are reimbursements to the Managing General Partner allowed under
the Partnership Agreement associated with its management of the Partnership.
Costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama,
was sold to an unaffiliated party for $2,875,000. After payment of closing
expenses, the net sales proceeds received by the Partnership were approximately
$2,746,000. The sale resulted in a gain of approximately $2,060,000, which was
recognized during the nine months ended September 30, 2000.
Atlanta Crossing Shopping Center was the only commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as (loss) income from discontinued operation on the consolidated statement of
operations. Revenues of this property were approximately $193,000 for the nine
months ended September 30, 2000. (Loss) income from operations was approximately
($2,000) and $114,000 for the three and nine months ended September 30, 2000,
respectively.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors 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
expense. 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 September 30, 2001, the Partnership had cash and cash equivalents of
approximately $827,000 compared to approximately $928,000 at September 30, 2000.
The decrease in cash and cash equivalents of approximately $148,000 since
December 31, 2000 is due to approximately $994,000 of cash used in financing
activities and approximately $930,000 of cash used in investing activities
partially offset by approximately $1,776,000 of cash provided by operating
activities. Cash used in financing activities consisted of repayment of the
mortgage encumbering Deer Creek Apartments, loan costs paid, distributions to
the partners, and payments of principal made on the mortgages encumbering the
Partnership's properties partially offset by proceeds received from the
refinancing of Deer Creek Apartments. Cash used in investing activities
consisted of property improvements and replacements partially offset by net
withdrawals from escrow accounts maintained by the mortgage lenders and
insurance proceeds received. The Partnership invests its working capital
reserves in interest bearing accounts.
On June 27, 2001, the Partnership refinanced the mortgage encumbering Deer Creek
Apartments. The refinancing replaced indebtedness of approximately $5,985,000
with a new mortgage of $13,750,000. The new mortgage carries a stated interest
rate of 7.43% as compared to the 7.33% interest rate on the old mortgage.
Payments on the mortgage loan are due monthly until the loan matures on July 1,
2021. Total capitalized loan costs were approximately $408,000. These costs
included $138,000 in fees paid to the Managing General Partner. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $57,000 due to the write-off of unamortized loan costs.
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 various 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. Capital
improvements planned for each of the Registrant's properties are detailed below.
Deer Creek
During the nine months ended September 30, 2001, the Partnership spent
approximately $570,000 on capital improvements consisting primarily of air
conditioning unit replacements, swimming pool improvements, carpet and vinyl
replacements, maintenance equipment, water submetering, and cabinet
replacements. These improvements were funded from Partnership reserves and
operating cash flow. The Partnership has evaluated the capital improvement needs
of the property for the year 2001. The amount budgeted is approximately
$1,029,000, consisting primarily of cabinets, appliances, and water submetering.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Georgetown
During the nine months ended September 30, 2001, the Partnership spent
approximately $184,000 on budgeted and non-budgeted capital improvements
consisting primarily of buildings, appliances, and carpet replacements. These
improvements were funded from Partnership reserves, insurance proceeds, and
operating cash flow. The Partnership has evaluated the capital improvement needs
of the property for the year 2001. The amount budgeted is approximately
$159,000, consisting primarily of carpet and vinyl replacements, appliances, and
structural improvements. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property. Landmark
During the nine months ended September 30, 2001, the Partnership spent
approximately $143,000 on budgeted and non-budgeted capital improvements
consisting primarily of buildings, structural improvements, water heater
replacements, countertop replacements, and carpet and vinyl replacements. These
improvements were funded from Partnership reserves, operating cash flow and
insurance proceeds. The Partnership has evaluated the capital improvement needs
of the property for the year 2001. The amount budgeted is approximately $99,000,
consisting primarily of air conditioning unit replacements, carpet and vinyl
replacement, window treatments, cabinets, and appliances. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. 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 Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering Deer Creek Apartments of $13,700,000 is amortized over
20 years and matures July 1, 2021. The mortgage indebtedness encumbering
Georgetown Apartments and Landmark Apartments of approximately $11,401,000, net
of discount, is amortized over periods ranging from 29 to 30 years with balloon
payments due in 2003. The Managing General Partner will attempt to refinance the
mortgages encumbering Georgetown and Landmark and/or sell the properties prior
to such maturity date. If the properties cannot be refinanced or sold for a
sufficient amount, the Partnership may risk losing such properties through
foreclosure.
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $8,127,000 (approximately $8,046,000 to the
limited partners or $80.63 per limited partnership unit) of which approximately
$857,000 (approximately $848,000 to the limited partners or $8.50 per limited
partnership unit) was from operations and approximately $7,270,000
(approximately $7,198,000 to the limited partners or $72.13 per limited
partnership unit) was from proceeds of the refinancing of the mortgage
encumbering Deer Creek Apartments. Subsequent to September 30, 2001, the
Partnership declared and paid a distribution of approximately $553,000
(approximately $547,000 to the limited partners or $5.48 per limited partnership
unit) of which approximately $445,000 (approximately $440,000 to the limited
partners or $4.41 per limited partnership unit) was from operations and
approximately $108,000 (approximately $107,000 to the limited partners or $1.07
per limited partnership unit) was from proceeds of the refinance of Deer Creek
Apartments. During the nine months ended September 30, 2000, the Partnership
paid a distribution that was accrued in December 1999 of approximately
$1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the
limited partners or $10.65 per limited partnership unit) was from operations and
approximately $426,000 (approximately $422,000 to the limited partners or $4.23
per limited partnership unit) was from proceeds from the sale of Princeton
Meadows Golf Course Joint Venture during 1999. During the nine months ended
September 30, 2000, the Partnership declared and paid distributions of
approximately $5,246,000 (approximately $5,108,000 to the limited partners or
$51.19 per limited partnership unit) of which approximately $2,500,000
(approximately $2,476,000 to the limited partners or $24.81 per limited
partnership unit) is from operations and approximately $2,746,000 (approximately
$2,632,000 to the limited partners or $26.38 per limited partnership unit) is
from proceeds of the sale of Atlanta Crossing Shopping Center. Pursuant to the
Partnership Agreement, the Partnership accrued and paid a distribution of
approximately $86,000 to the Managing General Partner related to the sale of
Atlanta Crossing Shopping Center in March 2000. This amount is subordinate to
the limited partners receiving their original capital contributions plus a
cumulative preferred return of 6% per annum of their adjusted capital
investment, as defined in the Partnership Agreement. This distribution was paid
during the third quarter of 2000. If the limited partners have not received the
required returns when the Partnership terminates, the Managing General Partner
will return this amount to the Partnership. Future cash distributions will
depend on the levels of cash generated from operations, the availability of cash
reserves and the timing of debt maturities, refinancings, and/or property sales.
The Partnership's distribution policy is reviewed on a monthly basis. There can
be no assurance, however, that the Partnership will generate sufficient funds
from operations after required capital expenditures to permit additional
distributions to its partners during the remainder of 2001 or subsequent
periods. In addition, the Partnership may be restricted from making
distributions by the requirement to deposit in the reserve account maintained by
the mortgage lender for Georgetown Apartments a minimum of $200 and a maximum of
$400 per apartment unit for a total of $40,000 to $80,000. As of September 30,
2001, the reserve account totaled approximately $78,000.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates currently own 59,012 limited partnership
units in the Partnership representing 59.14% of the outstanding units at
September 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 acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO either through private purchases or tender offers. 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 voting on
certain amendments to the Partnership Agreement and voting to remove the
Managing General Partner. As a result of its ownership of 59.14% of the
outstanding units, AIMCO is in a position to control 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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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 filed during the quarter ended September
30, 2001:
None.
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. II
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: