UNITED STATES
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________to _________
Commission file number 0-9704
ANGELES PARTNERS IX
(Exact name of small business issuer as specified in its charter)
California 95-3417137
(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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANGELES PARTNERS IX
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 364
Receivables and deposits 8
Restricted escrows 100
Other assets 323
Investment properties:
Land $ 532
Buildings and related personal property 14,028
14,560
Less accumulated depreciation (11,681) 2,879
$ 3,674
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 22
Tenant security deposit liabilities 57
Accrued property taxes 78
Other liabilities 224
Mortgage notes payable 9,764
Partners' Deficit
General partner $ (298)
Limited partners (19,975 units issued and
outstanding) (6,173) (6,471)
$ 3,674
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 731 $ 744 $ 1,465 $ 1,483
Other income 50 60 103 125
Casualty gain -- -- -- 41
Total revenues 781 804 1,568 1,649
Expenses:
Operating 335 311 635 605
General and administrative 89 99 176 194
Depreciation 167 174 338 345
Interest 194 215 390 374
Property taxes 27 26 57 51
Total expenses 812 825 1,596 1,569
(Loss) income from
continuing operations (31) (21) (28) 80
Loss from discontinued
operations -- (53) -- (211)
Net loss $ (31) $ (74) $ (28) $ (131)
Net loss allocated to general
partner (1%) $ -- $ (1) $ -- $ (1)
Net loss allocated to limited
partners (99%) (31) (73) (28) (130)
$ (31) $ (74) $ (28) $ (131)
Per limited partnership unit:
(Loss) income from continuing
operations $ (1.55) $ (1.05) $ (1.40) $ 3.95
Loss from discontinued
operations -- (2.60) -- (10.46)
Net loss $ (1.55) $ (3.65) $ (1.40) $ (6.51)
Distributions per limited
partnership unit $ 8.86 $ 14.47 $ 8.86 $ 33.79
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 20,000 $ 1 $ 20,000 $ 20,001
Partners' deficit at
December 31, 2001 19,975 $ (295) $ (5,968) $ (6,263)
Distributions to partners -- (3) (177) (180)
Net loss for the six months
ended June 30, 2002 -- -- (28) (28)
Partners' deficit
at June 30, 2002 19,975 $ (298) $ (6,173) $ (6,471)
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net loss $ (28) $ (131)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Casualty gain -- (41)
Depreciation 338 772
Amortization of loan costs and discounts 20 39
Loss on early extinguishment of debt -- 50
Change in accounts:
Receivables and deposits 16 (325)
Other assets (56) (57)
Due from General Partner 52 --
Accounts payable (49) (117)
Tenant security deposit liabilities 10 (7)
Accrued property taxes 54 151
Due to General Partner -- (285)
Other liabilities 124 85
Net cash provided by operating activities 481 134
Cash flows from investing activities:
Property improvements and replacements (99) (297)
Insurance proceeds received -- 45
Net receipts from restricted escrows -- 48
Net cash used in investing activities (99) (204)
Cash flows from financing activities:
Payments on mortgage notes payable (109) (111)
Loan costs paid -- (219)
Proceeds from mortgage notes payable -- 6,800
Repayment of mortgage notes payable -- (4,655)
Distributions to partners (180) (687)
Net cash (used in) provided by financing activities (289) 1,128
Net increase in cash and cash equivalents 93 1,058
Cash and cash equivalents at beginning of period 271 1,200
Cash and cash equivalents at end of period $ 364 $ 2,258
Supplemental disclosure of cash flow information:
Cash paid for interest $ 370 $ 625
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Partners
IX (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 (the "General Partner" or "ARC"),
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, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. 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, 2001. The General Partner is a wholly-owned subsidiary of
Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2001 to reflect the operations of Rosemont Crossing Apartments and
Panorama Terrace Apartments as loss from discontinued operations, due to their
sales in July 2001 and August 2001, respectively (see "Note B").
Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from
Extinguishment of Debt," required that all gains and losses from extinguishment
of debt be aggregated and, if material, classified as an extraordinary item.
SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from
extinguishment of debt should only be classified as extraordinary if they are
unusual in nature and occur infrequently. Neither of these criteria applies to
the Partnership. As a result, the accompanying consolidated statements of
operations have been restated to reflect the loss on early extinguishment of
debt at Village Green Apartments in 2001 (see "Note E") as interest expense.
Note B - Disposition of Investment Properties
On July 30, 2001, the Partnership sold Rosemont Crossing Apartments to an
unrelated third party for a gross sale price of approximately $5,339,000. The
net proceeds realized by the Partnership were approximately $4,809,000 after
payment of closing costs of approximately $316,000 and a prepayment penalty of
approximately $214,000 owed by the Partnership and paid by the buyer. The
Partnership used approximately $2,764,000 of the net proceeds to repay the
mortgages encumbering the property. The property's operating results, losses of
approximately $46,000 and $124,000 for the three and six months ended June 30,
2001, respectively, including revenues of approximately $281,000 and $569,000,
respectively, are included in loss from discontinued operations on the
accompanying consolidated statements of operations.
On August 1, 2001, the Partnership sold Panorama Terrace Apartments to an
unrelated third party for a gross sale price of approximately $7,463,000. The
net proceeds realized by the Partnership were approximately $6,915,000 after
payment of closing costs of approximately $303,000 and a prepayment penalty of
approximately $245,000 owed by the Partnership and paid by the buyer. The
Partnership used approximately $3,649,000 of the net proceeds to repay the
mortgage encumbering the property. The property's operating results, losses of
approximately $7,000 and $87,000 for the three and six months ended June 30,
2001, respectively, including revenues of approximately $430,000 and $826,000,
respectively, are included in loss from discontinued operations on the
accompanying consolidated statements of operations.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
During the six months ended June 30, 2002 and 2001, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $82,000 and $157,000 for the
six months ended June 30, 2002 and 2001, respectively, which are included in
operating expenses and loss from discontinued operations.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $141,000 and $139,000 for the
six months ended June 30, 2002 and 2001, respectively, which are included in
general and administrative expenses.
In connection with the sales of Rosemont Crossing Apartments and Panorama
Terrace Apartments during 2001, the General Partner earned commissions of 3% of
the selling price, or approximately $154,000 and $217,000, respectively. In
connection with the sale of The Pines of Northwest Crossing Apartments in July
2000, the General Partner earned a commission of 3% of the selling price or
$285,000. These fees are subordinate to the limited partners receiving a
preferred return, as specified in the Partnership Agreement. During 2001, the
Partnership paid all of these fees. If the limited partners have not received
their preferred return when the Partnership terminates, the General Partner will
return these amounts to the Partnership.
Pursuant to the Partnership Agreement, the General Partner is entitled to a fee
for executive and administrative management services equal to 5% of "net cash
from operations". For the six months ended June 30, 2002 approximately $14,000
was owed to the General Partner and is included in other liabilities. No such
fee was owed or earned for the six months ended June 30, 2001.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$43,000 and $95,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note D - Casualty Event
In October 2000, a fire occurred at Forest River Apartments, which resulted in
damage to two apartment units. The property incurred damages of approximately
$51,000. Insurance proceeds of approximately $45,000 were received during the
six months ended June 30, 2001. After writing off the undepreciated cost of the
damaged units, the Partnership realized a casualty gain of approximately $41,000
from this event.
Note E - Refinancing and Loss on Extinguishment of Debt
On June 27, 2001, the Partnership refinanced the mortgage encumbering Village
Green Apartments. The refinancing replaced indebtedness of approximately
$4,655,000 with a new mortgage in the amount of $6,800,000. The new mortgage
carries a stated interest rate of 7.39% as compared to 7.33% on the previous
loan. Payments of principal and interest on the new mortgage loan are due
monthly until the loan matures on July 1, 2021, at which time it will be fully
amortized. The Partnership recognized a loss on the early extinguishment of debt
of approximately $50,000 due to the write-off of unamortized loan costs, which
is included in interest expense. Total capitalized loan costs for the new
mortgage were approximately $219,000 during the six months ended June 30, 2001.
Note F - 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 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 General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The 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 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 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
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
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 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. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The 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 OPERATION
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
discussions 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 properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Forest River Apartments 94% 96%
Gadsden, Alabama
Village Green Apartments 95% 94%
Montgomery, Alabama
Results of Operations
The Registrant's net loss for the three and six months ended June 30, 2002 was
approximately $31,000 and $28,000, respectively, compared to a net loss of
approximately $74,000 and $131,000, respectively, for the three and six months
ended June 30, 2001. The decrease in net loss is due to a decrease in loss from
discontinued operations resulting from the operations during 2001 at Rosemont
Crossing Apartments and Panorama Terrace Apartments. Effective January 1, 2002,
the Partnership adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", which
established standards for the way that public business enterprises report
information about long-lived assets that are either being held for sale or have
already been disposed of by sale or other means. The standard requires that
results of operations for a long-lived asset that is being held for sale or has
already been disposed of be reported as a discontinued operation on the
statement of operations. As a result, the accompanying consolidated statements
of operations have been restated as of January 1, 2001 to reflect the operations
of Rosemont Crossing Apartments and Panorama Terrace Apartments as loss from
discontinued operations.
On July 30, 2001, the Partnership sold Rosemont Crossing Apartments to an
unrelated third party for a gross sale price of approximately $5,339,000. The
net proceeds realized by the Partnership were approximately $4,809,000 after
payment of closing costs of approximately $316,000 and a prepayment penalty of
approximately $214,000 owed by the Partnership and paid by the buyer. The
Partnership used approximately $2,764,000 of the net proceeds to repay the
mortgages encumbering the property. The property's operations, losses of
approximately $46,000 and $124,000 for the three and six months ended June 30,
2001, respectively, including revenues of approximately $281,000 and $569,000,
respectively, are included in loss from discontinued operations on the
accompanying consolidated statements of operations.
On August 1, 2001, the Partnership sold Panorama Terrace Apartments to an
unrelated third party for a gross sale price of approximately $7,463,000. The
net proceeds realized by the Partnership were approximately $6,915,000 after
payment of closing costs of approximately $303,000 and prepayment penalty of
approximately $245,000 owed by the Partnership and paid by the buyer. The
Partnership used approximately $3,649,000 of the net proceeds to repay the
mortgage encumbering the property. The property's operations, losses of
approximately $7,000 and $87,000 for the three and six months ended June 30,
2001, respectively, including revenues of approximately $430,000 and $826,000,
respectively, are included in loss from discontinued operations on the
accompanying consolidated statements of operations.
The Partnership's loss from continuing operations was approximately $31,000 and
$28,000, respectively, for the three and six months ended June 30, 2002,
compared to a loss from continuing operations of approximately $21,000 and
income from continuing operations of approximately $80,000 for the three and six
months ended June 30, 2001, respectively. The increase in loss from continuing
operations for the three months ended June 30, 2002 is due to a decrease in
total revenues, partially offset by a decrease in total expenses. The increase
in loss from continuing operations for the six months ended June 30, 2002 is due
to a decrease in total revenues and an increase in total expenses. The decrease
in total expenses for the three months ended June 30, 2002 is due to decreases
in interest, depreciation, and general and administrative expenses, partially
offset by an increase in operating expense. Property tax expense remained
relatively constant for the three months ended June 30, 2002. The increase in
total expenses for the six months ended June 30, 2002 is due to increases in
operating, interest, and property tax expenses, partially offset by decreases in
both depreciation and general and administrative expense. The decrease in
interest expense for the three months ended June 30, 2002 is due to the loss on
early extinguishment of debt recognized in 2001 as a result of the refinancing
of the mortgage encumbering Village Green Apartments (as discussed below),
partially offset by increased interest expense as a result of the larger loan
balance at the property. The decrease in depreciation expense for both the three
and six months ended June 30, 2002 is due to property improvements and
replacements placed into service in prior years becoming fully depreciated in
2002. General and administrative expenses decreased for both the three and six
months ended June 30, 2002 primarily due to decreased professional fees
associated with the management of the Partnership and a decrease in audit
expense. Included in general and administrative expenses at both June 30, 2002
and 2001 are management reimbursements to the General Partner as allowed under
the Partnership Agreement. In addition, 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.
The increase in operating expense for both the three and six months ended June
30, 2002 is primarily due to an increase in insurance expense at both of the
Partnership's investment properties. Interest expense increased for the six
months ended June 30, 2002 as a result of the 2001 refinancing of the debt
encumbering Village Green Apartments which resulted in a larger loan balance at
the property, partially offset by the loss on early extinguishment of debt
recognized in 2001 as a result of the refinancing (as discussed below). Property
tax expense increased for the six months ended June 30, 2002 primarily due to an
increase in the assessed value of Village Green Apartments.
Total revenues decreased for the three months ended June 30, 2002 due to
decreases in both rental income and other income. Total revenues decreased for
the six months ended June 30, 2002 primarily due to the recognition of a
casualty gain during the six months ended June 31, 2001 and, to a lesser extent,
decreases in both rental income and other income. The casualty gain is the
result of an October 2000 fire which occurred at Forest River Apartments. Two
apartment units were damaged with a cost of repairs of approximately $51,000.
Insurance proceeds of approximately $45,000 were received in 2001 to cover these
damages. After writing off the undepreciated cost of the damaged units, the
Partnership recognized a casualty gain of approximately $41,000. The decrease in
other income for both the three and six months ended June 30, 2002 is primarily
due to a decrease in interest income as a result of lower cash balances in
interest bearing accounts. The decrease in rental income for both the three and
six months ended June 30, 2002 is primarily due to the decrease in occupancy at
Forest River Apartments and a decrease in the average rental rate at Village
Green Apartments partially offset by an increase in occupancy at Village Green
Apartments, an increase in the average rental rate at Forest River Apartments,
and reduced concessions at both properties.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this plan,
the 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 General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$364,000, compared to approximately $2,258,000 at June 30, 2001. The increase in
cash and cash equivalents of approximately $93,000 for the six months ended June
30, 2002, from the Partnership's calendar year end, is due to approximately
$481,000 of cash provided by operating activities, partially offset by
approximately $289,000 of cash used in financing activities and approximately
$99,000 of cash used in investing activities. Cash used in investing activities
consisted of property improvements and replacements. Cash used in financing
activities consisted of distributions to partners and payments of principal made
on the mortgages encumbering the Registrant's properties. The Partnership
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 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 Partnership's properties are detailed below.
Forest River Apartments: For 2002 the Partnership has budgeted approximately
$104,000 for capital improvements, consisting primarily of structural
improvements, cabinet upgrades, and floor covering, appliance, and air
conditioning unit replacements. The Partnership completed approximately $41,000
in capital expenditures at Forest River Apartments as of June 30, 2002,
consisting primarily of floor covering replacement. These improvements were
funded from operations. 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.
Village Green Apartments: For 2002 the Partnership has budgeted approximately
$121,000 for capital improvements, consisting primarily of cabinet upgrades, air
conditioning unit upgrades, and floor covering and appliance replacements. The
Partnership completed approximately $58,000 in capital expenditures at Village
Green Apartments as of June 30, 2002, consisting primarily of office computers
and floor covering replacement. These improvements were funded from operations.
Additional improvements may be considered and will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. On June 27, 2001,
the Partnership refinanced the mortgage encumbering Village Green Apartments.
The refinancing replaced indebtedness of approximately $4,655,000 with a new
mortgage in the amount of $6,800,000. The new mortgage carries a stated interest
rate of 7.39% as compared to 7.33% on the previous loan. Payments of principal
and interest on
the new mortgage loan are due monthly until the loan matures on July 1, 2021, at
which time it will be fully amortized. The Partnership recognized a loss on the
early extinguishment of debt of approximately $50,000 due to the write-off of
unamortized loan costs, which is included in interest expense. Total capitalized
loan costs for the new mortgage were approximately $219,000 during the six
months ended June 30, 2001.
The mortgage indebtedness on Forest River Apartments of approximately
$3,105,000, net of discount, is being amortized over 29 years with a balloon
payment due in October 2003. The General Partner may attempt to refinance such
indebtedness and/or sell the property prior to such maturity date. If the
property cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such property through foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ 180 $ 8.86 $ 539 $26.48
Sale Proceeds (1) -- -- 148 7.31
$ 180 $ 8.86 $ 687 $33.79
(1) From the sale of The Pines of Northwest Crossing Apartments in 2000.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital improvement expenditures, to permit any additional
distributions to its partners during the remainder of 2002 or subsequent
periods. In addition, the Partnership may be restricted from making
distributions until the amount in the reserve account maintained by the mortgage
lender is equal to a minimum of $200 and a maximum of $400 per apartment unit at
Forest River Apartments for a total of approximately $49,600 to $99,200. As of
June 30, 2002, the balance in the reserve account is approximately $100,000.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 13,426 limited partnership units in
the Partnership representing 67.21% of the outstanding Units at June 30, 2002. A
number of these Units were acquired pursuant to tender offers made by AIMCO or
its affiliates. It is possible that AIMCO or its affiliates will acquire
additional units of limited partnership interest in the Partnership in exchange
for cash or a combination of cash and units in the operating partnership of
AIMCO either through private purchases or tender offers. In this regard, on June
25, 2002, a tender offer by AIMCO Properties, L.P., to acquire any and all of
the units not owned by affiliates of AIMCO for a purchase price of $74.00 per
unit expired. Pursuant to this offer, AIMCO acquired 155 units during the
quarter ended June 30, 2002. 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 General Partner. As a result of
its ownership of 67.21% of the outstanding Units, AIMCO is in a position to
control all voting decisions with respect to the Registrant. Although the
General Partner owes fiduciary duties to the limited partners of the
Partnership, the General Partner also owed fiduciary duties to AIMCO as its sole
Stockholder. As a result, the duties of the General Partner, as general partner,
to the Partnership and its limited partners may come into conflict with the
duties of the General Partner to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 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 General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The 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 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 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
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
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 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. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The 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:
Exhibit 3.1, Amended Certificate and Agreement of the Limited
Partnership filed in Form S-11 dated December 24, 1984
incorporated herein by reference.
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer.
b) Reports on Form 8-K:
None were filed during the quarter ended June 30, 2002.
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 IX
By: Angeles Realty Corporation
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Angeles Partners IX
(the "Partnership"), for the quarterly period ended June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"),
Patrick J. Foye, as the equivalent of the Chief Executive Officer of the
Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial
Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.