UNITED STATES
SECURITIES EXCHANGE ACT OF 1934
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11766
ANGELES PARTNERS XI
(Exact name of small business issuer as specified in its charter)
California 95-3788040
(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 XI
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2003
Assets
Cash and cash equivalents $ 475
Receivables and deposits 248
Restricted escrows 625
Other assets 351
Investment property:
Land $ 3,998
Buildings and related personal property 32,548
36,546
Less accumulated depreciation (26,177) 10,369
$ 12,068
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 518
Tenant security deposit liabilities 385
Other liabilities 212
Mortgage note payable 33,921
Partners' Deficit
General partners $ (547)
Limited partners (39,627 units issued and
outstanding) (22,421) (22,968)
$ 12,068
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
Revenues:
Rental income $1,873 $2,074
Other income 84 169
Casualty gain 4 --
Total revenues 1,961 2,243
Expenses:
Operating 640 657
General and administrative 185 73
Depreciation 542 523
Interest 580 595
Property taxes 265 264
Total expenses 2,212 2,112
Net (loss) income $ (251) $ 131
Net (loss) income allocated to general partners (1%) $ (3) $ 1
Net (loss) income allocated to limited partners (99%) (248) 130
$ (251) $ 131
Net (loss) income per limited partnership unit $(6.26) $ 3.28
Distributions per limited partnership unit $ 3.36 $ --
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030
Partners' deficit at
December 31, 2002 39,627 $ (543) $ (22,040) $(22,583)
Distributions to partners (1) (133) (134)
Net loss for the three
months ended March 31, 2003 -- (3) (248) (251)
Partners' deficit
at March 31, 2003 39,627 $ (547) $ (22,421) $(22,968)
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net (loss) income $ (251) $ 131
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 542 523
Amortization of loan costs 4 4
Casualty gain (4) --
Change in accounts:
Receivables and deposits 61 369
Other assets 92 (218)
Accounts payable 46 9
Tenant security deposit liabilities -- (31)
Other liabilities (131) (144)
Net cash provided by operating activities 359 643
Cash flows from investing activities:
Property improvements and replacements (283) (681)
Insurance proceeds received 4 --
Net cash used in investing activities (279) (681)
Cash flows from financing activities:
Payments on mortgage note payable (148) (209)
Distributions to partners (134) --
Net cash used in financing activities (282) (209)
Net decrease in cash and cash equivalents (202) (247)
Cash and cash equivalents at beginning of period 677 460
Cash and cash equivalents at end of period $ 475 $ 213
Supplemental disclosure of cash flow information:
Cash paid for interest $ 446 $ 590
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 365 $ 110
Included in property improvements and replacements for the three months ended
March 31, 2003 and 2002, are approximately $161,000 and $259,000, respectively,
of improvements which were included in accounts payable at December 31, 2002 and
2001, respectively.
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Partners
XI (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Angeles Realty Corporation II (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 2003, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2003. 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, 2002. The Managing General Partner is an
affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
In exchange for property management services, affiliates of the Managing General
Partner are entitled to receive 5% of gross receipts from the Partnership's
property. The Partnership paid to such affiliates approximately $100,000 and
$113,000 for the three months ended March 31, 2003 and 2002, respectively, which
is included in operating expenses.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $66,000 and $122,000 for the
three months ended March 31, 2003 and 2002, respectively, which are included in
general and administrative expenses and investment property. Included in these
amounts are fees related to construction management services provided by an
affiliate of the Managing General Partner of approximately $22,000 and $66,000
for the three months ended March 31, 2003 and 2002, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment property.
The Partnership Agreement provides for a fee equal to 7.5% of "net cash flow
from operations", as defined in the Partnership Agreement, to be paid to the
Managing General Partner for executive and administrative management services.
One half of this fee is to be accrued and not paid unless the limited partners
have received distributions equal to a 5% cumulative annual return on their
adjusted capital investment as defined in the Partnership Agreement. This return
criteria has not been met. During the three months ended March 31, 2003 and 2002
no fees were earned or paid. At March 31, 2003, the Partnership has accrued
approximately $43,000 of Partnership management fees which is included in other
liabilities on the accompanying consolidated balance sheet. Of this amount
$25,000 will remain accrued until criteria for payment has been met.
The Partnership insures its property 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 property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During 2003 and 2002, the Partnership's cost for
insurance coverage and fees associated with policy claims administration
provided by AIMCO and its affiliates will be approximately $103,000 and
$124,000, respectively.
Note C - Casualties
During the year ended December 31, 2002, a casualty gain of approximately
$17,000 was recorded at Fox Run Apartments. The casualty gain related to a fire
that occurred in June 2002. The gain was a result of the receipt of insurance
proceeds of approximately $18,000 offset by the write-off of the net book value
of the destroyed assets totaling approximately $1,000.
During the three months ended March 31, 2003, additional insurance proceeds of
approximately $4,000 were received and recorded as additional casualty gain.
Note D - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (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 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
General Partner or its affiliates will charge the Partnerships in connection
with this litigation and imposes limits on the class counsel fees and costs in
this litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed 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. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal
pending the Court's review of the terms of the proposed settlement described
above.
The Managing General Partner does not anticipate that any costs to the
Partnership, 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 report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. The discussions of the Registrant's
business and results of operations, including forward-looking statements
pertaining to such matters, do not take into account the effects of any changes
to the Registrant's business and results of operations. Actual results may
differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation: national and local economic conditions; the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive environment in which the Registrant operates; financing risks,
including the risk that cash flows from operations may be insufficient to meet
required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the three
months ended March 31, 2003 and 2002:
Average Occupancy
Property 2003 2002
Fox Run Apartments 89% 95%
Plainsboro, New Jersey
The Managing General Partner attributes the decrease in occupancy to a weak
economy and lay offs in the local area.
Results of Operations
The Partnership's net loss for the three months ended March 31, 2003 was
approximately $251,000 compared to net income of approximately $131,000 for the
corresponding period in 2002. The decrease in net income for the three months
ended March 31, 2003 compared to the corresponding period in 2002 is due to a
decrease in total revenue and an increase in total expenses. Total revenues
decreased for the three months ended March 31, 2003, primarily due to decreases
in rental revenue and other income. Rental revenue decreased due to a decrease
in rental rates and a decrease in occupancy at the Partnership's investment
property. Other income decreased due to a decrease in recreational facility fees
and lease cancellation fees.
Total expenses increased for the three months ended March 31, 2003 primarily due
to an increase in general and administrative expenses and depreciation expense,
partially offset by a decrease in operating expense and interest expense.
Property tax expense remained constant for the comparable periods. Depreciation
expense increased due to property improvements and replacements during the past
twelve months, which are now being depreciated. General and administrative
expenses increased for the three months ended March 31, 2003 primarily due to a
new partnership level tax based on the number of partners in the partnership
implemented by the state of New Jersey in July 2002. Also included in general
and administrative expenses are the cost of services included as 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. Operating expenses decreased due to decreases in
administrative expense and property management fees, partially offset by
increased maintenance and insurance expense. The decrease in administrative
expense is due to the timing of the receipt of the ad valorem tax bill. The
decrease in property management fees is due to a decrease in rental income.
Maintenance expense increased due to an increase in snow removal and repairs at
Fox Run Apartments. Insurance expense increased due to an increase in hazard
insurance premiums. Interest expense decreased due to principle payments made on
the mortgage debt encumbering the Partnership's property.
During the year ended December 31, 2002, a casualty gain of approximately
$17,000 was recorded at Fox Run Apartments. The casualty gain related to a fire
that occurred in June 2002. The gain was a result of the receipt of insurance
proceeds of approximately $18,000 offset by the write-off of the net book value
of the destroyed assets totaling approximately $1,000.
During the three months ended March 31, 2003, additional insurance proceeds of
approximately $4,000 were received and recorded as additional casualty gain.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2003, the Partnership had cash and cash equivalents of
approximately $475,000 compared to approximately $213,000 at March 31, 2002.
Cash and cash equivalents decreased approximately $202,000 since December 31,
2002 due to approximately $282,000 and $279,000 of cash used in financing and
investing activities respectively, partially offset by approximately $359,000 of
cash provided by operating activities. Cash used in financing activities
consisted of distributions to partners and principal payments made on the
mortgage encumbering Fox Run Apartments. Cash used in investing activities
consisted of property improvements and replacements expenditures partially
offset by the receipt of insurance proceeds. 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 property 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. The Managing General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees.
During the three months ended March 31, 2003, the Partnership completed
approximately $487,000 of capital improvements at Fox Run Apartments, primarily
consisting of a water submetering project, water heater and floor covering
replacement, and structural improvements. These improvements were funded from
operating cash flow. The Partnership evaluates the capital improvement needs of
the property and currently expects to complete an additional $64,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering replacements, appliance replacements,
HVAC upgrades, fencing, pool enhancements, exterior building improvements and
major landscaping. 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. To the extent that such budgeted capital
improvements are completed, the Registrant's distributable cash flow, if any,
may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $33,921,000 encumbering Fox Run Apartments is
being amortized over 20 years and matures in December 2021 at which time it is
expected to be fully amortized.
The Partnership distributed the following amounts during the three months ended
March 31, 2003 and 2002 (in thousands, except per unit data):
For the three Per For the three Per
Months Ended Limited Months Ended Limited
March 31, Partnership March 31, Partnership
2003 Unit 2002 Unit
Refinancing (1) $ 134 $ 3.36 $ -- $ --
(1) Refinancing proceeds are from the December 2001 refinancing of Fox Run
Apartments. Approximately $554,000 remains to be distributed at March 31,
2003.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, the timing of the debt maturity
and refinancing and/or sale of the property. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance that
the Partnership will generate sufficient funds from operations, after required
capital improvement expenditures, to permit further distributions to its
partners in 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 24,944 limited partnership units
(the "Units") in the Partnership representing 62.95% of the outstanding Units at
March 31, 2003. 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. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters which would include
voting on certain amendments to the Partnership Agreement and voting to remove
the Managing General Partner. As a result of its ownership of 62.95% of the
outstanding Units, AIMCO is in a position to control all voting decisions with
respect to the Partnership. Although the Managing General Partner owes fiduciary
duties to the limited partners of the Partnership, the Managing General Partner
also owes 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
The investment property is recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of the 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 property. 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 impairment of 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 and
the Partnership fully reserves all balances outstanding over thirty days. 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.
ITEM 3. Controls and Procedures
The principal executive officer and principal financial officer of the Managing
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and procedures are adequate. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
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 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
General Partner or its affiliates will charge the Partnerships in connection
with this litigation and imposes limits on the class counsel fees and costs in
this litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed 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. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal
pending the Court's review of the terms of the proposed settlement described
above.
The Managing General Partner does not anticipate that any costs to the
Partnership, 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 Agreement of Limited Partnership dated
February 26, 1982, filed in Form 10-K dated November 30, 1983,
incorporated herein by reference.
Exhibit 99, Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2003.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS XI
(A California Limited Partnership)
(Registrant)
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Senior Vice President and
Chief Accounting Officer
Date: May 14, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Partners XI;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Angeles Realty
Corporation II, equivalent of the chief
executive officer of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Partners XI;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Angeles Realty Corporation II,
equivalent of the chief financial officer of
the Partnership
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 XI
(the "Partnership"), for the quarterly period ended March 31, 2003 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: May 14, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 14, 2003
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.