UNITED STATES
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 0-14248
ANGELES PARTNERS XIV
(Exact name of small business issuer as specified in its charter)
California 95-3959771
(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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANGELES PARTNERS XIV
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 788
Receivables and deposits 550
Restricted escrows 211
Other assets 245
Investment properties:
Land $ 2,243
Buildings and related personal property 26,861
- ------
29,104
Less accumulated depreciation (21,959) 7,145
------- -- -----
$ 8,939
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 10
Tenant security deposit liabilities 123
Accrued property taxes 501
Accrued interest (including $4,468 in default) 9,582
Due to affiliates (Note C) 2,400
Other liabilities 273
Notes payable (including $6,981 in default) 28,747
Partners' Deficit
General partners $ (727)
Limited partners (43,411 units issued and
outstanding) (31,970) (32,697)
------- -------
$ 8,939
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $ 1,271 $ 1,261 $ 2,549 $ 2,504
Other income 66 77 132 166
---- -- ---- -- --- --- --- ---
Total revenues 1,337 1,338 2,681 2,670
- ----- - ----- - ----- - -----
Expenses:
Operating 435 431 893 878
General and administrative 62 80 145 156
Depreciation 360 350 715 698
Interest 1,035 851 1,863 1,734
Property taxes 106 102 210 212
--- --- --- --- --- --- --- ---
Total expenses 1,998 1,814 3,826 3,678
- ----- - ----- - ----- - -----
Net loss $ (661) $ (476) $(1,145) $(1,008)
===== ===== ====== ======
Net loss allocated to general
partners (1%) $ (7) $ (5) $ (11) $ (10)
Net loss allocated to limited
partners (99%) (654) (471) (1,134) (998)
-- ---- -- ---- ------ -- ----
$ (661) $ (476) $(1,145) $(1,008)
===== ===== ====== ======
Net loss per limited partnership unit $(15.07) $(10.85) $(26.12) $(22.98)
====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 44,390 $ 1 $ 44,390 $ 44,391
====== == ======= =======
Partners' deficit at
December 31, 2001 43,411 $ (710) $(30,836) $(31,546)
Distribution to partners -- (6) -- (6)
Net loss for the six months
ended June 30, 2002 -- (11) (1,134) (1,145)
---- -- --- --- ------- -------
Partners' deficit at
June 30, 2002 43,411 $ (727) $(31,970) $(32,697)
====== ===== ======= =======
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net loss $(1,145) $(1,008)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 715 698
Amortization of loan costs 11 15
Change in accounts:
Receivables and deposits (264) (83)
Other assets 27 9
Accounts payable (40) (77)
Tenant security deposit liabilities (6) 5
Accrued property taxes 210 107
Accrued interest 126 20
Due to affiliates 310 103
Other liabilities 114 48
--- --- ---- --
Net cash provided by (used in) operating activities 58 (163)
---- -- -- ----
Cash flows from investing activities:
Property improvements and replacements (210) (101)
Net deposits to restricted escrows (54) (55)
--- --- --- ---
Net cash used in investing activities (264) (156)
-- ---- -- ----
Cash flows from financing activities:
Principal payments on notes payable (177) (285)
Distribution to partners (6) (7)
---- -- ---- --
Net cash used in financing activities (183) (292)
-- ---- -- ----
Net decrease in cash and cash equivalents (389) (611)
Cash and cash equivalents at beginning of period 1,177 1,497
- ----- - -----
Cash and cash equivalents at end of period $ 788 $ 886
==== ====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,488 $ 1,671
====== ======
At June 30, 2002 and December 31, 2001, approximately $79,000 of property
improvements and replacements were included in Due to affiliates.
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The accompanying unaudited consolidated financial statements have been prepared
assuming Angeles Partners XIV (the "Partnership" or "Registrant") will continue
as a going concern. The Partnership continues to incur recurring operating
losses and suffers from inadequate liquidity.
In addition to mortgage loans encumbering the Partnership's properties, the
Partnership is obligated under unsecured working capital loans and two recourse
notes payable to an affiliate of Angeles Realty Corporation II, the managing
general partner of the Partnership (the "Managing General Partner").
The unsecured working capital loans are in the amount of approximately
$4,576,000 plus related accrued interest of approximately $4,143,000 and are in
default at June 30, 2002 as a result of non-payment of interest and principal
upon its maturity in November 1997. These loans were payable to Angeles
Acceptance Pool, L.P. ("AAP"). During the year ended December 31, 2000, AAP
transferred ownership of the loans to Saticoy Investments Company, LLC
("Saticoy"), a wholly owned entity of The PNL Companies. This indebtedness is
recourse to the Partnership. The Partnership does not have the means with which
to satisfy this obligation, and Saticoy has a judgment against the Partnership
for this debt.
In addition the Partnership has two notes which are recourse to the Partnership
and are owed to an affiliate of the Managing General Partner. One of the two
notes totaling $2,405,000 originally matured in March 1998. The Managing General
Partner negotiated with the holder of the note to extend this indebtedness
through March 2002. This loan in the amount of $2,405,000 plus accrued interest
of approximately $325,000 is in default at June 30, 2002 as a result of
non-payment of interest and principal upon its maturity in March 2002. It is
anticipated that this indebtedness will be repaid with proceeds from the sale of
Waterford Square Apartments (see below). The remaining note with a principal
balance of approximately $4,765,000 matures in March 2003. Accrued interest on
this note is approximately $5,000,000 at June 30, 2002.
During the year ended December 31, 2001, the Managing General Partner signed a
forebearance agreement with Saticoy. The Managing General Partner agreed to
market Waterford Square Apartments for sale. The forebearance period began June
1, 2001 and was to end the earlier of March 1, 2002 or the date Waterford Square
Apartments was sold. The Managing General Partner and Saticoy have negotiated
extensions of the forebearance agreement until July 1, 2002. The Managing
General Partner is currently negotiating an additional extension with Saticoy to
allow the Partnership time to finalize a contract for the sale of Waterford
Square Apartments. Upon the sale of Waterford Square Apartments, the
distributable sale proceeds, after deducting reasonable closing costs, will be
used to repay the first lien mortgage debt on the property and repay certain
Angeles Mortgage Investment Trust ("AMIT") debt. Saticoy has agreed to accept
68.75% of the remaining proceeds in full satisfaction of its notes.
The Partnership realized a net loss of approximately $1,145,000 for the six
months ended June 30, 2002. The Managing General Partner expects the Partnership
to continue to incur such losses from operations. The Partnership generated cash
from operations of approximately $58,000 during the six months ended June 30,
2002; however, this was primarily the result of accruing interest of
approximately $126,000 on its indebtedness.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows during 2002 to meet all
property operating expenses, property debt service requirements on the first
mortgage loans and to fund capital expenditures. However, these cash flows will
be insufficient to service the Partnership indebtedness.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classifications of
liabilities that may result from these uncertainties.
Note B - Basis of Presentation
The accompanying unaudited consolidated financial statements of the Partnership
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. The Managing General Partner of the
Partnership is an affiliate of Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. In the opinion of the
Managing General Partner, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 2002 are
not necessarily indicative of the results that may be expected for the fiscal
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 fiscal year ended December
31, 2001.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The 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.
As compensation for providing property management services, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from
Foxcrest Apartments during the six months ended June 30, 2002 and 2001, and 6%
of gross receipts from Waterford Square Apartments for the six months ended June
30, 2001, and 7.82% of gross receipts for the six months ended June 30, 2002.
The Registrant paid to such affiliates approximately $177,000 and $146,000 for
the six months ended June 30, 2002 and 2001, respectively, which are included in
operating expenses.
Affiliates of the Managing General Partner were eligible to receive
reimbursements of accountable administrative expenses amounting to approximately
$101,000 and $103,000 for the six months ended June 30, 2002 and 2001,
respectively, which are included in general and administrative expenses. The
Partnership owed the affiliates approximately $2,036,000 and $1,763,000 at June
30, 2002 and 2001, respectively, for reimbursement of accountable administrative
expenses. In addition, during 2002 affiliates of the Managing General Partner
decided to charge interest at prime plus 2% on unpaid reimbursements of
accountable administrative expenses as allowed under the Partnership Agreement.
Approximately $204,000 was charged during the six months ended June 30, 2002, of
which approximately $140,000 related to 2001. There was no associated interest
accrued at June 30, 2001. These amounts are included in Due to affiliates at
June 30, 2002 and 2001.
In accordance with the Partnership Agreement, the Managing General Partner has
made advances to the Partnership. At June 30, 2002, the amount of the
outstanding loan and accrued interest was approximately $160,000, and is
included in Due to affiliates at June 30, 2002. Interest is charged at the prime
rate plus 2%. Interest expense was approximately $5,000 for the six months ended
June 30, 2002. There were no loans from the Managing General Partner or
associated interest for the six months ended June 30, 2001.
AMIT provided financing (the "AMIT Loans") to the Partnership. Pursuant to a
series of transactions, affiliates of the Managing General Partner acquired
ownership interests in AMIT. On September 17, 1998, AMIT was merged with and
into Insignia Properties Trust ("IPT"), the entity which controlled the Managing
General Partner. Effective February 26, 1999, IPT was merged into AIMCO. Thus,
AIMCO is the current holder of the AMIT Loans. The principal balances on the
AMIT Loans total approximately $7,170,000 at June 30, 2002, accrue interest at a
rate of 12.5% per annum and are recourse to the Partnership. One of the two
notes totaling $2,405,000 originally matured in March 1998. The Managing General
Partner negotiated with AMIT to extend this indebtedness through March 2002. The
Partnership is currently in default with respect to this note as a result of
non-payment of interest and principal upon its maturity in March 2002. It is
anticipated that this indebtedness will be repaid with proceeds from the sale of
Waterford Square Apartments. The remaining note with a principal balance of
approximately $4,765,000 matures in March 2003. Total interest expense on the
AMIT Loans was approximately $781,000 and $754,000 for the six months ended June
30, 2002 and 2001, respectively. Total interest paid on the AMIT Loans was
approximately $810,000 and $978,000 for the six months ended June 30, 2002 and
2001, respectively. Accrued interest was approximately $5,325,000 at June 30,
2002.
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 Managing General Partner. During the six months ended June
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $68,000 and $56,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note D - Notes Payable
In November 1992, AAP, a Delaware limited partnership which controlled the
working capital loans previously provided by Angeles Capital Investment, Inc.
("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited
partner of AAP and Angeles Acceptance Directives, Inc. ("AAD"), which was
wholly-owned by Insignia Properties Trust ("IPT"), was the 1% general partner of
AAP, until April 14, 1995. On April 14, 1995, as part of a settlement of claims
between affiliates of the Managing General Partner and Angeles, AAD resigned as
general partner of AAP and simultaneously received a 0.5% limited partner
interest in AAP. An affiliate of Angeles now serves as the general partner of
AAP.
The AAP working capital loans funded the Partnership's operating deficits in
prior years. Total indebtedness was approximately $4,576,000, plus accrued
interest of approximately $4,143,000, at June 30, 2002, with monthly interest
accruing at the prime rate plus two percent. Upon maturity on November 25, 1997,
the Partnership did not have the means with which to satisfy this maturing debt
obligation. This indebtedness remains in default at June 30, 2002. Total
interest expense for this loan was approximately $154,000 and $246,000 for the
six months ended June 30, 2002 and 2001, respectively. During the year ended
December 31, 2000, AAP transferred ownership of the loans to Saticoy Investments
Company, LLC ("Saticoy"), a wholly owned entity of the PNL Companies, which is
an unrelated party.
During the year ended December 31, 2001, the Managing General Partner signed a
forebearance agreement with Saticoy. The Managing General Partner agreed to
market Waterford Square Apartments for sale. The forebearance period began June
1, 2001 and was to end the earlier of March 1, 2002 or the date Waterford Square
Apartments was sold. The Managing General Partner and Saticoy have negotiated
extensions of the forebearance agreement until July 1, 2002. The Managing
General Partner is currently negotiating an additional extension with Saticoy to
allow the Partnership time to finalize a contract for the sale of Waterford
Square Apartments. Upon the sale of Waterford Square Apartments, the
distributable sale proceeds, after deducting reasonable closing costs, will be
used to repay the first lien mortgage debt on the property and repay certain
AMIT debt. Saticoy has agreed to accept 68.75% of the remaining proceeds in full
satisfaction of its notes.
Note E - 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 Managing 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 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 Managing 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 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. 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 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 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
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment 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
-------- ---- ----
Waterford Square Apartments 97% 95%
Huntsville, Alabama
Fox Crest Apartments 96% 98%
Waukegan, Illinois
Results of Operations
The Partnership's net loss for the three and six months ended June 30, 2002 was
approximately $661,000 and $1,145,000, respectively, as compared to net losses
of approximately $476,000 and $1,008,000, respectively, for the three and six
months ended June 30, 2001. The increase in net loss for both the three and six
months ended June 30, 2002 is due to an increase in total expenses. The increase
in total expenses for both the three and six months ended June 30, 2002 is
primarily due to an increase in interest expense and, to a lesser extent, an
increase in depreciation expense. The increase in total expenses for the six
months ended June 20, 2002 is also due to a slight increase in operating
expense. The increase in total expenses for both the three and six months ended
June 30, 2002 was partially offset by a decrease in general and administrative
expenses.
The increase in interest expense is primarily a result of the accrual of
interest on unpaid reimbursements of accountable administrative expenses to
affiliates of the Managing General Partner, partially offset by scheduled
principal payments made on the properties' mortgages, the repayment during 2001
of one of the AMIT loans, and payments made on the remaining AMIT loans. The
increase in depreciation expense is due to property improvements and
replacements being placed into service during the past twelve months at both of
the Partnership's investment properties. Operating expense increased for the six
months ended June 30, 2002 primarily due to an increase in management fees at
Waterford Square Apartments, partially offset by a decrease in maintenance
expense at both properties. Operating expense remained relatively constant for
the three months ended June 30, 2002. Property tax expense remained relatively
constant for both the three and six months ended June 30, 2002.
General and administrative expenses decreased primarily due to a decrease in
professional fees associated with the management of the Partnership. Included in
general and administrative expenses at both June 30, 2002 and 2001 are
management reimbursements to the Managing General Partner allowed under the
Partnership Agreement, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
Total revenues remained relatively constant for both the three and six months
ended June 30, 2002 as an increase in rental income was offset by a decrease in
other income. The increase in rental income is primarily due to the increase in
occupancy at Waterford Square Apartments and an increase in the average rental
rate at Fox Crest Apartments, partially offset by the decrease in occupancy at
Fox Crest Apartments. The decrease in other income is primarily due to a
decrease in interest income.
As part of the ongoing business plan of the Partnership, the Managing General
Partner continues to monitor the rental market environment of each of its
investment properties to assess the feasibility of increasing rents, maintaining
or increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Registrant had cash and cash equivalents of approximately
$788,000 as compared to approximately $886,000 at June 30, 2001. The decrease in
cash and cash equivalents of approximately $389,000 for the six months ended
June 30, 2002, from the Registrant's year ended December 31, 2001, is due to
approximately $264,000 of cash used in investing activities and approximately
$183,000 of cash used in financing activities, partially offset by approximately
$58,000 of cash provided by operating activities. Cash used in investing
activities consisted of property improvements and replacements and net deposits
to restricted escrow accounts maintained by the mortgage lender. Cash used in
financing activities consisted of payments of principal on the mortgages
encumbering the Registrant's properties and, to a lesser extent, a distribution
to the general partner of Waterford Square Apartments, Ltd. The Registrant
invests its working capital reserves in interest bearing accounts.
The accompanying unaudited consolidated financial statements have been prepared
assuming the Partnership will continue as a going concern. The Partnership
continues to incur recurring operating losses and suffers from inadequate
liquidity. Indebtedness of approximately $4,576,000 plus accrued interest of
approximately $4,143,000 is in default at June 30, 2002, as a result of
nonpayment of interest and principal upon its maturity in November 1997. These
loans were payable to Angeles Acceptance Pool, L.P. ("AAP"). During the year
ended December 31, 2000, AAP transferred ownership of the loans to Saticoy
Investments Company, LLC ("Saticoy"), a wholly owned entity of The PNL
Companies. This indebtedness is recourse to the Partnership.
In addition the Partnership has two notes which are recourse to the Partnership
and are owed to an affiliate of the Managing General Partner. One of the two
notes totaling $2,405,000 originally matured in March 1998. The Managing General
Partner negotiated with the holder of the note to extend this indebtedness
through March 2002. This loan in the amount of $2,405,000 plus accrued interest
of approximately $325,000 is in default at June 30, 2002 as a result of
non-payment of interest and principal upon its maturity in March 2002. It is
anticipated that this indebtedness will be repaid with proceeds from the sale of
Waterford Square Apartments (see below). The remaining note with a principal
balance of approximately $4,765,000 matures in March 2003.
During the year ended December 31, 2001, the Managing General Partner signed a
forebearance agreement with Saticoy. The Managing General Partner agreed to
market Waterford Square Apartments for sale. The forebearance period began June
1, 2001 and was to end the earlier of March 1, 2002 or the date Waterford Square
Apartments was sold. The Managing General Partner and Saticoy have negotiated
extensions of the forebearance agreement until July 1, 2002. The Managing
General Partner is currently negotiating an additional extension with Saticoy to
allow the Partnership time to finalize a contract for the sale of Waterford
Square Apartments. Upon the sale of Waterford Square Apartments, the
distributable sale proceeds, after deducting reasonable closing costs, will be
used to repay the first lien mortgage debt on the property and repay certain
AMIT debt. Saticoy has agreed to accept 68.75% of the remaining proceeds in full
satisfaction of its notes.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows during 2002 to meet all
property operating expenses, property debt service requirements on the first
mortgage loans and to fund capital expenditures. However, these cash flows will
be insufficient to provide debt service for the unsecured Partnership
indebtedness. If the Managing General Partner is unsuccessful in its efforts to
restructure these loans, then it may be forced to liquidate the Partnership.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
With respect to the Partnership's two apartment complexes, at present the
properties generate sufficient revenue to meet property operating expenses.
However, the sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Waterford Square Apartments
The Partnership has budgeted, but is not limited to, approximately $179,000 of
capital improvements at Waterford Square Apartments for 2002 consisting
primarily of floor covering and appliance replacements, cabinet upgrades and air
conditioning unit replacements. As of June 30, 2002, the property has spent
approximately $103,000 on capital improvements consisting primarily of cabinet
upgrades, office computers and floor covering replacement. These improvements
were funded from operations. Additional capital improvements may be considered
and will depend on the physical condition of the property as well as the
anticipated cash flow generated by the property and replacement reserves.
Fox Crest Apartments
The Partnership has budgeted, but is not limited to, approximately $175,000 of
capital improvements at Fox Crest Apartments for 2002 consisting primarily of
roof replacement, fencing upgrades, and floor covering replacement. As of June
30, 2002, the property has spent approximately $107,000 on capital improvements
consisting primarily of roof replacement, parking area upgrades, and floor
covering replacement. These improvements were funded from operations. Additional
capital improvements may be considered and will depend on the physical condition
of the property as well as the anticipated cash flow generated by the property
and replacement reserves.
The additional capital improvements planned for 2002 at the Partnership's
properties will be made only to the extent of cash available from operations and
Partnership reserves.
The existing first mortgage indebtedness, working capital loans and amounts due
to AMIT are thought to be in excess of the value of the properties. (Pursuant to
a series of transactions, affiliates of the Managing General Partner acquired
ownership interests in AMIT as follows: On September 17, 1998, AMIT was merged
with and into IPT; effective February 26, 1999, IPT was merged into AIMCO.
Accordingly, AIMCO is the current holder of the AMIT loans.) One AMIT note was
paid in full during 2001. One AMIT Note in the aggregate amount of approximately
$2,405,000 plus related accrued interest at 12.5% per annum compounded monthly
of approximately $325,000 matured March 2002; this note is recourse to the
Partnership only. This loan requires monthly payments of excess cash flow, as
defined in the terms of the promissory note. The Partnership is currently in
default with respect to this note as a result of non-payment of interest and
principal upon its maturity in March 2002. It is anticipated that this
indebtedness will be repaid with proceeds from the sale of Waterford Square
Apartments upon its sale. The Partnership's other remaining note to AMIT for
approximately $4,765,000, plus accrued interest at 12.5% per annum compounded
monthly, is due March 2003 and does not require any payments until maturity.
Accrued interest on this note as of June 30, 2002 is approximately $5,000,000.
The first mortgage loan encumbering Waterford Square Apartments, which is
guaranteed by HUD, is scheduled to mature November 2027. The first mortgage loan
encumbering Fox Crest Apartments is scheduled to mature in May 2003, at which
time a balloon payment of $5,445,000 is due. The Registrant is current in its
payments on both of these mortgages. With respect to Fox Crest Apartments, the
Managing General Partner will 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 Registrant will risk losing such property
through foreclosure.
For the six months ended June 30, 2002, Waterford Square Apartments, LTD (a
limited partnership in which the Registrant owns a 99% interest) made a surplus
cash distribution of approximately $606,000 of which approximately $6,000 was
paid to the Managing General Partner which is the general partner of Waterford
Square Apartments, Ltd. For the six months ended June 30, 2001, a surplus cash
distribution of approximately $701,000 of which approximately $7,000 was paid to
the Managing General Partner which is the general partner of Waterford Square
Apartments, Ltd. 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 Registrant's cash
available for distribution is reviewed on a monthly basis. However, based on the
current default under the working capital loans, the current default of one AMIT
loan, the pending maturity of the other AMIT loan and the first mortgage loan on
Fox Crest Apartments, it is unlikely that a distribution will be made by the
Registrant in the foreseeable future.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 10,818 limited partnership units in
the Partnership representing 24.92% of the outstanding units at June 30, 2002.
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. 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. Although the Managing General Partner owes fiduciary
duties to the limited partners of the Partnership, the Managing General Partner
also owed fiduciary duties to AIMCO as its sole Stockholder. As a result, the
duties of the Managing General Partner, as managing general partner, to the
Partnership and its limited partners may come into conflict with the duties of
the Managing General Partner to AIMCO, as its sole stockholder.
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 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 Managing 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 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 Managing 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 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. 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 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:
3.1 Amended Certificate and Agreement of Limited Partnership filed
in Form S-11 dated December 24, 1984 incorporated herein by
reference.
99 Certification of Chief Executive Officer and Chief Financial
Officer
b) Reports on Form 8-K:
None 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 XIV
By: Angeles Realty Corporation II
Managing 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 XIV
(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.