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 0-9704
ANGELES PARTNERS IX
(Exact Name of Registrant as Specified in Its Charter)
California 95-3417137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANGELES PARTNERS IX
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 205
Receivables and deposits 52
Restricted escrow 145
Other assets 429
Investment properties:
Land $ 532
Buildings and related personal property 14,293
14,825
Less accumulated depreciation (12,279) 2,546
$ 3,377
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 42
Tenant security deposit liabilities 69
Accrued property taxes 91
Other liabilities 72
Mortgage notes payable 11,303
Partners' Deficit
General partner $ (332)
Limited partners (19,975 units issued and
outstanding) (7,868) (8,200)
$ 3,377
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
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 $ 729 $ 731 $ 1,454 $ 1,465
Other income 73 50 138 103
Total revenues 802 781 1,592 1,568
Expenses:
Operating 316 335 629 635
General and administrative 39 89 102 176
Depreciation 161 167 320 338
Interest 207 194 400 390
Property taxes 32 27 69 57
Total expenses 755 812 1,520 1,596
Net income (loss) $ 47 $ (31) $ 72 $ (28)
Net income (loss) allocated to
general partner (1%) $ -- $ -- $ 1 $ --
Net income (loss) allocated to
limited partners (99%) 47 (31) 71 (28)
$ 47 $ (31) $ 72 $ (28)
Net income (loss) per limited
partnership unit $ 2.35 $ (1.55) $ 3.55 $ (1.40)
Distributions per limited
partnership unit $ 88.96 $ 8.86 $ 88.96 $ 8.86
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 20,000 $ 1 $ 20,000 $ 20,001
Partners' deficit at
December 31, 2002 19,975 $ (300) $ (6,162) $ (6,462)
Distributions to partners -- (33) (1,777) (1,810)
Net income for the six
months ended June 30, 2003 -- 1 71 72
Partners' deficit
at June 30, 2003 19,975 $ (332) $ (7,868) $ (8,200)
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income (loss) $ 72 $ (28)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 320 338
Amortization of loan costs and discounts 21 20
Loss on early extinguishment of debt 13 --
Change in accounts:
Receivables and deposits (36) 16
Other assets (60) (56)
Due from affiliates 175 52
Accounts payable 2 (49)
Tenant security deposit liabilities 4 10
Accrued property taxes 16 54
Other liabilities (119) 124
Net cash provided by operating activities 408 481
Cash flows from investing activities:
Property improvements and replacements (116) (99)
Net deposits to restricted escrows (46) --
Net cash used in investing activities (162) (99)
Cash flows from financing activities:
Payments on mortgage notes payable (112) (109)
Loan costs paid (130) --
Proceeds from mortgage note payable 4,810 --
Repayment of mortgage notes payable (3,063) --
Distributions to partners (1,810) (180)
Net cash used in financing activities (305) (289)
Net (decrease) increase in cash and cash equivalents (59) 93
Cash and cash equivalents at beginning of period 264 271
Cash and cash equivalents at end of period $ 205 $ 364
Supplemental disclosure of cash flow information:
Cash paid for interest $ 376 $ 370
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS IX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Partners
IX (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Angeles Realty Corporation (the "General Partner" or "ARC"),
the general partner of the Partnership, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 2003 are
not necessarily indicative of the results that may be expected for the 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 year ended December 31, 2002. The General Partner
is a wholly owned subsidiary 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 General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
During the six months ended June 30, 2003 and 2002, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $77,000 and $82,000 for the six
months ended June 30, 2003 and 2002, respectively, which are included in
operating expenses.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $50,000 and $141,000 for the
six months ended June 30, 2003 and 2002, respectively, which are included in
general and administrative expenses.
In connection with the sales of Rosemont Crossing Apartments and Panorama
Terrace Apartments during 2001, the General Partner earned commissions of 3% of
the selling price, or approximately $154,000 and $217,000, respectively, as
permitted by the terms of the Partnership Agreement. In connection with the sale
of The Pines of Northwest Crossing Apartments in July 2000, the General Partner
earned a commission of 3% of the selling price or $285,000. These fees are
subordinate to the limited partners receiving a preferred return, as specified
in the Partnership Agreement. During the year ended December 31, 2001, the
Partnership paid all of these fees. If the limited partners have not received
their preferred return when the Partnership terminates, the General Partner will
be required to return these amounts to the Partnership.
Pursuant to the Partnership Agreement, the General Partner is entitled to a fee
for executive and administrative management services equal to 5% of "net cash
from operations". For the six months ended June 30, 2003 approximately $7,000
was owed to the General Partner and is included in accounts payable and general
and administrative expenses. At June 30, 2002, a fee of approximately $14,000
was owed to the General Partner.
For services provided in connection with the refinancing of Forest River
Apartments, the General Partner was paid a commission of approximately $48,000
during the six months ended June 30, 2003. These costs were capitalized and are
included in other assets.
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 $52,000 and $63,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note C - Refinancing of Mortgage Notes Payable
On May 22, 2003, the Partnership refinanced the mortgages encumbering Forest
River Apartments. The refinancing replaced the existing mortgages of
approximately $3,063,000 with a new mortgage in the amount of $4,810,000. Total
capitalized loan costs were approximately $130,000 during the six months ended
June 30, 2003. The Partnership recognized a loss on the early extinguishment of
debt of approximately $13,000 during the six months ended June 30, 2003, due to
the write off of unamortized loan costs and debt discounts, which is included in
interest expense.
Initially the May 22, 2003 refinancing of Forest River 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, Forest River Apartments was required to make
interest-only payments. The first month's interest rate for Forest River
Apartments was 2.78%.
As of June 1, 2003 the loan on Forest River 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. This 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 this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Registrant 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 (1.80% per annum at June 30,
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 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. 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 of the properties for the six
months ended June 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Forest River Apartments 94% 94%
Gadsden, Alabama
Village Green Apartments 97% 95%
Montgomery, Alabama
Results of Operations
The Partnership's net income for the three and six months ended June 30, 2003
was approximately $47,000 and $72,000, respectively, compared to net loss of
approximately $31,000 and $28,000 for the comparable periods in 2002. The
increase in net income is due to a decrease in total expenses and an increase in
total revenues. The increase in total revenues is due to an increase in other
income. The increase in other income for the six months ended June 30, 2003 was
partially offset by a decrease in rental income, which remained relatively
constant for the three months ended June 30, 2003. The increase in other income
is primarily due to an increase in lease cancellation fees at both properties.
The decrease in rental income for the six months ended June 30, 2003 is
primarily due to the decrease in the average rental rate and increased
concessions at Forest River Apartments, partially offset by increases in
occupancy and the average rental rate at Village Green Apartments.
The decrease in total expenses for the three and six months ended June 30, 2003
is due to decreases in operating, general and administrative and depreciation
expenses, partially offset by increases in both interest and property tax
expenses. Operating expenses decreased primarily due to a decrease in hazard
insurance expense at both properties. Depreciation expense decreased primarily
as a result of property improvements and replacements placed into service in
prior years at Village Green Apartments becoming fully depreciated during the
past twelve months. General and administrative expenses decreased primarily due
to a decrease in the costs of services included in the management reimbursements
to the General Partner as allowed under the Partnership Agreement. Also included
in general and administrative expenses for the three and six months ended June
30, 2003 and 2002 are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement. The increase in property tax expense is
the result of an increase in the assessed value at Forest River Apartments. The
increase in interest expense is due to the timing of the refinancing at Forest
River Apartments and the loss on early extinguishment of debt recognized as a
result of the refinancing (as discussed in "Liquidity and Capital Resources").
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
$205,000, compared to approximately $364,000 at June 30, 2002. The decrease in
cash and cash equivalents of approximately $59,000 for the six months ended June
30, 2003, from December 31, 2002, is due to approximately $305,000 of cash used
in financing activities and approximately $162,000 of cash used in investing
activities, partially offset by approximately $408,000 of cash provided by
operating activities. Cash used in investing activities consisted of property
improvements and replacements and net deposits to restricted escrow accounts
maintained by the mortgage lender. Cash used in financing activities consisted
of payments of principal made on the mortgages encumbering the Partnership's
properties, distributions to partners, repayment of the mortgages encumbering
Forest River Apartments, and loan costs paid related to the refinancing of
Forest River Apartments, partially offset by proceeds from the refinancing of
Forest River Apartments. The Partnership invests its working capital reserves in
interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. 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 each of the Partnership's properties are detailed below.
Forest River Apartments: During the six months ended June 30, 2003, the
Partnership completed approximately $60,000 of capital improvements at Forest
River Apartments, consisting primarily of plumbing upgrades and floor covering
replacement. These improvements were funded from operations. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $19,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of HVAC upgrades and 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 and replacement reserves.
Village Green Apartments: During the six months ended June 30, 2003, the
Partnership completed approximately $56,000 of capital improvements at Village
Green Apartments, consisting primarily of plumbing upgrades and floor covering
replacement. These improvements were funded from operations. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $54,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of swimming pool upgrades, tennis court resurfacing, fitness center
upgrades, parking area improvements, HVAC upgrades, and floor covering and
appliance 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.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership.
On May 22, 2003, the Partnership refinanced the mortgages encumbering Forest
River Apartments. The refinancing replaced the existing mortgages of
approximately $3,063,000 with a new mortgage in the amount of $4,810,000. Total
capitalized loan costs were approximately $130,000 during the six months ended
June 30, 2003. The Partnership recognized a loss on the early extinguishment of
debt of approximately $13,000 during the six months ended June 30, 2003, due to
the write off of unamortized loan costs and debt discounts, which is included in
interest expense.
Initially the May 22, 2003 refinancing of Forest River 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, Forest River Apartments was required to make
interest-only payments. The first month's interest rate for Forest River
Apartments was 2.78%.
As of June 1, 2003 the loan on Forest River 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. This 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 this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Registrant 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 (1.80% per annum at June 30,
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 mortgage indebtedness on Village Green Apartments of approximately
$6,493,000 is being amortized over 240 months until the loan matures July 1,
2021, at which time the loan is scheduled to be fully amortized.
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 $ 319 $ 15.82 $ 180 $ 8.86
Refinancing
proceeds (1) 1,476 73.14 -- --
Other (2) 15 -- -- --
Total $1,810 $ 88.96 $ 180 $ 8.86
(1) From the refinancing of the mortgages encumbering Forest River Apartments
in May 2003.
(2) Distribution to the general partner of the majority-owned sub-tier limited
partnership in connection with the transfer of funds from the
majority-owned sub-tier limited partnership to the Partnership.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital improvement expenditures, to permit any additional
distributions to its partners during the remainder of 2003 or subsequent
periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 13,501 limited partnership units
(the "Units") in the Partnership representing 67.59% 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 not limited to, voting on certain amendments to
the Partnership Agreement and voting to remove the General Partner. As a result
of its ownership of 67.59% of the outstanding Units, AIMCO and its affiliates
are in a position to control all 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 an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned 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, Amended Certificate and Agreement of the Limited
Partnership filed in Form S-11 dated December 24, 1984
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 22, 2003 and filed on
June 6, 2003 in connection with the refinancing of the
mortgages encumbering Forest River 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 PARTNERS IX
By: Angeles Realty Corporation
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 Partners
IX;
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, 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 Partners
IX;
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,
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 Partners IX
(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.