UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 0-16116
ANGELES OPPORTUNITY PROPERTIES, LTD.
(Exact name of small business issuer as specified in its charter)
California 95-4052473
(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 OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 235
Receivables and deposits 28
Restricted escrows 56
Other assets 337
Investment properties:
Land $ 1,013
Buildings and related personal property 8,427
9,440
Less accumulated depreciation (3,752) 5,688
$ 6,344
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 15
Tenant security deposit liabilities 44
Accrued property taxes 153
Other liabilities 144
Mortgage notes payable 7,231
Partners' Deficit:
General partner $ (168)
Limited partners (12,425 units issued and
outstanding) (1,075) (1,243)
$ 6,344
See Accompanying Notes to Consolidated Financial Statements
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues:
Rental income $ 597 $ 604 $ 1,155 $ 1,205
Other income 57 41 114 85
Total revenues 654 645 1,269 1,290
Expenses:
Operating 279 269 547 500
General and administrative 33 35 60 77
Depreciation 91 90 180 178
Interest 130 129 257 259
Property taxes 76 68 153 138
Loss on early extinguishment of
debt 42 -- 42 --
Total expenses 651 591 1,239 1,152
Net income $ 3 $ 54 $ 30 $ 138
Net income allocated to general
partner (1%) $ -- $ 1 $ -- $ 1
Net income allocated to limited
partners (99%) 3 53 30 137
$ 3 $ 54 $ 30 $ 138
Net income per limited
partnership unit $ 0.24 $ 4.27 $ 2.41 $ 11.03
Distributions per limited
partnership unit $ 27.69 $ 29.05 $ 27.69 $ 29.05
See Accompanying Notes to Consolidated Financial Statements
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 12,425 $ 1 $12,425 $12,426
Partners' deficit at
December 31, 2002 12,425 $ (165) $ (761) $ (926)
Distributions to partners -- (3) (344) (347)
Net income for the six months
ended June 30, 2003 -- -- 30 30
Partners' deficit at
June 30, 2003 12,425 $ (168) $(1,075) $(1,243)
See Accompanying Notes to Consolidated Financial Statements
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $ 30 $ 138
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 180 178
Loss on early extinguishment of debt 42 --
Amortization of loan costs and discount 10 10
Change in accounts:
Receivables and deposits 5 148
Other assets (48) (62)
Accounts payable (14) (18)
Tenant security deposit liabilities 11 5
Accrued property taxes (147) 51
Other liabilities 43 101
Net cash provided by operating activities 112 551
Cash flows from investing activities:
Property improvements and replacements (71) (56)
Net deposits to restricted escrows (17) --
Net cash used in investing activities (88) (56)
Cash flows from financing activities:
Payments on mortgage notes payable (84) (67)
Distributions to partners (347) (368)
Repayment of mortgage notes payable (1,554) --
Proceeds from mortgage note payable 2,096 --
Loan costs paid (84) --
Advances from affiliates 117 --
Repayment of advances from affiliates (117) --
Net cash provided by (used in) financing 27 (435)
Net increase in cash and cash equivalents 51 60
Cash and cash equivalents at beginning of period 184 254
Cash and cash equivalents at end of period $ 235 $ 314
Supplemental disclosure of cash flow information:
Cash paid for interest $ 251 $ 218
See Accompanying Notes to Consolidated Financial Statements
ANGELES OPPORTUNITY PROPERTIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles
Opportunity Properties, Ltd. (the "Partnership" or the "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
"General Partner" and a subsidiary of Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust), 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, 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.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and reimbursement of certain expenses incurred by affiliates on behalf
of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from both of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$62,000 and $65,000 for the six months ended June 30, 2003 and 2002,
respectively, which is included in operating expenses.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $29,000 and $46,000 for the
six months ended June 30, 2003 and 2002, respectively, which is included in
general and administrative expenses.
During the six months ended June 30, 2003, an affiliate of the General Partner
advanced the Partnership approximately $117,000 to assist in paying the property
taxes of the two investment properties. These advances were repaid during the
six months ended June 30, 2003. Interest was charged at the prime rate plus 2%.
Interest expense was approximately $2,000 for the six months ended June 30,
2003. There were no such advances made or repaid during the six months ended
June 30, 2002.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During the six months ended June 30, 2003 and 2002, the Partnership was
charged by AIMCO and its affiliates approximately $32,000 and $39,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note C - Mortgages Notes Payable
During May 2003, the Partnership refinanced the first and second mortgages
encumbering Lake Meadows Apartments. The refinancing replaced a first mortgage
of $1,500,000 and a second mortgage of $54,000 with a new mortgage of
$2,096,000. Total capitalized loan costs were approximately $84,000 during the
six months ended June 30, 2003. The Partnership recognized a loss on the early
extinguishment of debt of approximately $42,000 due to the write-off of
unamortized loan costs on the old loans.
Initially the May 2003 refinancing of Lake Meadows Apartments was under an
interim credit facility ("Interim Credit Facility") which also provided for the
refinancing of several other properties. The Interim Credit Facility created
separate loans for each property refinanced thereunder, which loans were not
cross-collateralized or cross-defaulted with each other. During the term of the
Interim Credit Facility, Lake Meadows Apartments was required to make
interest-only payments. The first month's interest rate for Lake Meadows
Apartments was 2.78%.
As of June 1, 2003, the loan on Lake Meadows Apartments was transferred to a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender has a maturity of five years with an option for the Partnership to elect
one five-year extension. The Permanent Credit Facility also created separate
loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under the
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.8% per annum at July 1,
2003), and the rate resets monthly. Each loan automatically renews at the end of
each month. In addition, monthly principal payments are required based on a
30-year amortization schedule, using the interest rate in effect during the
first month that the property is on the Permanent Credit Facility. The loans may
be prepaid without penalty.
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 General Partner and several of
their affiliated partnerships and corporate entities. The action purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint, which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the
Heller action with the Nuanes action and stated that the Heller action was filed
in order to preserve the derivative claims that were dismissed without leave to
amend in the Nuanes action by the Court order dated July 10, 2001. On October 5,
2001, the General Partner and affiliated defendants moved to strike the first
amended complaint in its entirety for violating the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer in the Nuanes action,
or alternatively, to strike certain portions of the complaint based on the
statute of limitations. Other defendants in the action demurred to the fourth
amended complaint, and, alternatively, moved to strike the complaint. On
December 11, 2001, the court heard argument on the motions and took the matters
under submission. On February 4, 2002, the Court served notice of its order
granting defendants' motion to strike the Heller complaint as a violation of its
July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs
filed a notice appealing the order striking the complaint. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The 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 OPERATIONS
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 properties consist of two apartment complexes. The
following table sets forth the average occupancy for each of the properties for
the six months ended June 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Lake Meadows Apartments (1) 93% 90%
Garland, Texas
Lakewood Apartments 92% 92%
Tomball, Texas
(1) The General Partner attributes the increase in occupancy at Lake Meadows
Apartments to increased marketing efforts by property management.
Results of Operations
The Partnership's net income for the three months ended June 30, 2003 and 2002
was approximately $3,000 and $54,000, respectively. The Partnership's net income
for the six months ended June 30, 2003 and 2002 was approximately $30,000 and
$138,000, respectively. The decrease in net income for the three month period
ended June 30, 2003 is due to an increase in total expenses, partially offset by
an increase in total revenues. The decrease in net income for the six month
period is due to an increase in total expenses and a decrease in total revenues.
Total revenues for the three month period increased due to an increase in other
income partially offset by a decrease in rental income. Total revenues for the
six month period decreased due to a decrease in rental income partially offset
by an increase in other income. Rental income for both periods decreased due to
an increase in concessions and bad debt expense at both properties, partially
offset by an increase in occupancy at Lake Meadows Apartments. Other income
increased due to increases in lease cancellation fees, primarily at Lakewood
Apartments.
Total expenses increased for the three and six months ended June 30, 2003 due to
the recognition of a loss on the early extinguishment of debt from the
refinancing of Lake Meadows Apartments and due to an increase in operating and
property tax expenses. Operating expense increased due to increases in payroll
and related benefits at both investment properties. Property tax expense
increased due to an increase in the assessed value of Lakewood Apartments.
During May 2003, the Partnership refinanced the first and second mortgages
encumbering Lake Meadows Apartments. The refinancing replaced a first mortgage
of $1,500,000 and a second mortgage of $54,000 with a new mortgage of
$2,096,000. Total capitalized loan costs were approximately $84,000 during the
six months ended June 30, 2003. The Partnership recognized a loss on the early
extinguishment of debt of approximately $42,000 due to the write-off of
unamortized loan costs on the old loans.
Included in general and administrative expense for the six months ended June 30,
2003 and 2002 are management reimbursements to the General Partner as allowed
under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included in
general and administrative expense.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2003, the Partnership had cash and cash equivalents of approximately
$235,000 compared to approximately $314,000 at June 30, 2002. Cash and cash
equivalents increased approximately $51,000 from December 31, 2002 due to
approximately $27,000 and $112,000 of cash provided by financing and operating
activities, respectively, partially offset by approximately $88,000 of cash used
in investing activities. Cash provided by financing activities consisted of
proceeds from the refinancing of the mortgage encumbering Lake Meadows
Apartments partially offset by the repayment of the mortgage notes payable on
Lake Meadows Apartments, distributions to the partners, loan costs paid and
principal payments made on the mortgages encumbering the investment properties.
Cash used in investing activities consisted of property improvements and
replacements and net deposits to restricted escrows held by the mortgage lender.
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 investment properties to adequately maintain the
physical assets and other operating needs of the registrant and to comply with
Federal, state, and local legal an regulatory requirements. The 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. Capital improvements
planned for the Partnership's properties are detailed below.
Lake Meadows Apartments
During the six months ended June 30, 2003, the Partnership completed
approximately $33,000 of capital improvements at Lake Meadows Apartments,
consisting primarily of floor covering and appliance replacements and parking
lot resurfacing. These improvements were funded from operating cash flow. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $4,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of cabinet, appliance and floor covering replacements.
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.
Lakewood Apartments
During the six months ended June 30, 2003, the Partnership completed
approximately $38,000 of capital improvements at Lakewood Apartments, consisting
primarily of floor covering, air conditioning and appliance replacements and
plumbing fixture upgrades. These improvements were funded from operating cash
flow. The Partnership evaluates the capital improvement needs of the property
during the year and currently expects to complete an additional $51,000 in
capital improvements during the remainder of 2003. The additional capital
improvements will consist primarily of cabinet, appliance and floor covering
replacements, fencing additions and air conditioning unit upgrades. 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.
Additional capital expenditures will be incurred only to the extent of cash
available from operations, replacement reserves, and Partnership reserves. To
the extent that such budgeted capital improvements are completed, the
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
During May 2003, the Partnership refinanced the first and second mortgages
encumbering Lake Meadows Apartments. The refinancing replaced a first mortgage
of $1,500,000 and a second mortgage of $54,000 with a new mortgage of
$2,096,000. Total capitalized loan costs were approximately $84,000 during the
six months ended June 30, 2003. The Partnership recognized a loss on the early
extinguishment of debt of approximately $42,000 due to the write-off of
unamortized loan costs on the old loans.
Initially the May 2003 refinancing of Lake Meadows Apartments was under an
interim credit facility ("Interim Credit Facility") which also provided for the
refinancing of several other properties. The Interim Credit Facility created
separate loans for each property refinanced thereunder, which loans were not
cross-collateralized or cross-defaulted with each other. During the term of the
Interim Credit Facility, Lake Meadows Apartments was required to make
interest-only payments. The first month's interest rate for Lake Meadows
Apartments was 2.78%.
As of June 1, 2003, the loan on Lake Meadows Apartments was transferred to a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender has a maturity of five years with an option for the Partnership to elect
one five-year extension. The Permanent Credit Facility also created separate
loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under the
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.8% per annum at July 1,
2003), and the rate resets monthly. Each loan automatically renews at the end of
each month. In addition, monthly principal payments are required based on a
30-year amortization schedule, using the interest rate in effect during the
first month that the property is on the Permanent Credit Facility. The loans may
be prepaid without penalty.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness at Lakewood Apartments is approximately $5,139,000 and is amortized
over 20 years with a maturity date of January 1, 2022, at which time the loan is
scheduled to be fully amortized. The mortgage indebtedness of Lake Meadows
Apartments is amortized over 30 years with a balloon payment of approximately
$1,877,000 due in September 2007. The General Partner will attempt to refinance
such indebtedness and/or sell the properties prior to such maturity dates. If
the properties cannot be refinanced or sold for a sufficient amount, the
Partnership may risk losing such properties through foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Operations $ -- $ -- $ 368 $29.05
Refinancing (1) 347 27.69 -- --
$ 347 $27.69 $ 368 $29.05
(1) Proceeds from the refinancing of Lake Meadows Apartments in May 2003.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit further distributions to its
partners, during the remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 6,160 limited partnership units (the
"Units") in the Partnership representing 49.58% of the outstanding Units at June
30, 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 in exchange for cash or a combination of cash and units
in the operating partnership of AIMCO either through private purchases or tender
offers. Pursuant to the Partnership Agreement, unitholders holding a majority of
the Units are entitled to take action with respect to a variety of matters that
include, but are limited to, voting on certain amendments to the Partnership
Agreement and voting to remove the General Partner. As a result of its ownership
of 49.58% of the outstanding Units, AIMCO and its affiliates are in a position
to influence all such voting decisions with respect to the Partnership. Although
the General Partner owes fiduciary duties to the limited partners of the
Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the General Partner, as general partner,
to the Partnership and its limited partners may come into conflict with the
duties of the General Partner to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause 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 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. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
Item 3. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the General Partner, who are the equivalent of the Partnership's principal
executive officer and principal financial officer, respectively, has evaluated
the effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, the principal executive
officer and principal financial officer of the General Partner, who are the
equivalent of the Partnership's principal executive officer and principal
financial officer, respectively, have concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint, which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the
Heller action with the Nuanes action and stated that the Heller action was filed
in order to preserve the derivative claims that were dismissed without leave to
amend in the Nuanes action by the Court order dated July 10, 2001. On October 5,
2001, the General Partner and affiliated defendants moved to strike the first
amended complaint in its entirety for violating the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer in the Nuanes action,
or alternatively, to strike certain portions of the complaint based on the
statute of limitations. Other defendants in the action demurred to the fourth
amended complaint, and, alternatively, moved to strike the complaint. On
December 11, 2001, the court heard argument on the motions and took the matters
under submission. On February 4, 2002, the Court served notice of its order
granting defendants' motion to strike the Heller complaint as a violation of its
July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs
filed a notice appealing the order striking the complaint. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The 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, Amendment Certificate and Agreement of the
Limited Partnership filed in the Partnership's prospectus
dated July 7, 1986, which is incorporated herein by reference.
Exhibit 31.1, Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2, Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1, 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:
Current report on Form 8-K dated May 21, 2003 and filed on
June 5, 2003 disclosing the refinancing of Lake Meadows
Apartments.
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 OPPORTUNITY PROPERTIES, LTD.
By: Angeles Realty Corporation II
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 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles
Opportunity Properties, Ltd.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 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
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles
Opportunity Properties, Ltd.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 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 32.1
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 Opportunity
Properties, Ltd. (the "Partnership"), for the quarterly period ended June 30,
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: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.