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 March 31, 2004
[ ] 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 0-11767
ANGELES INCOME PROPERTIES, LTD. II
(Exact Name of Registrant as Specified in Its Charter)
California 95-3793526
(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 INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2004
Assets
Cash and cash equivalents $ 774
Receivables and deposits 466
Restricted escrow 53
Other assets 524
Investment properties:
Land $ 1,691
Buildings and related personal property 25,665
27,356
Less accumulated depreciation (22,244) 5,112
$ 6,929
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 65
Tenant security deposit liabilities 198
Accrued property taxes 36
Other liabilities 282
Due to affiliates (Note B) 145
Mortgage notes payable 18,879
Partners' Deficit
General partners $ (565)
Limited partners (99,804 units issued and
outstanding) (12,111) (12,676)
$ 6,929
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2004 2003
(Restated)
Revenues:
Rental income $1,159 $1,128
Other income 88 82
Total revenues 1,247 1,210
Expenses:
Operating 425 483
General and administrative 72 93
Depreciation 184 362
Interest 363 372
Property taxes 139 135
Total expenses 1,183 1,445
Income (loss) from continuing operations 64 (235)
(Loss) income from discontinued operations (116) 11
Gain from sale of discontinued operations 9,556 --
Net income (loss) $9,504 $ (224)
Net income (loss) allocated to general partners (1%) $ 95 $ (2)
Net income (loss) allocated to limited partners (99%) 9,409 (222)
$9,504 $ (224)
Per limited partnership unit:
Income (loss) from continuing operations $ 0.63 $(2.33)
(Loss) income from discontinued operations (1.15) 0.11
Gain from sale of discontinued operations 94.79 --
Net income (loss) $94.27 $(2.22)
Distributions per limited partnership unit $41.73 $ 2.06
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 100,000 $ 1 $ 50,000 $ 50,001
Partners' deficit at
December 31, 2003 99,804 $ (618) $(17,355) $(17,973)
Distributions to partners -- (42) (4,165) (4,207)
Net income for the three months
ended March 31, 2004 -- 95 9,409 9,504
Partners' deficit at
March 31, 2004 99,804 $ (565) $(12,111) $(12,676)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2004 2003
Cash flows from operating activities:
Net income (loss) $ 9,504 $ (224)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Gain from sale of discontinued operations (9,556) --
Depreciation 208 476
Amortization of mortgage discounts and loan costs 11 17
Loss on early extinguishment of debt 159 --
Change in accounts:
Receivables and deposits (34) 43
Other assets (76) (23)
Accounts payable (4) 38
Tenant security deposit liabilities (47) 18
Accrued property taxes (137) 87
Due to affiliates (77) 35
Other liabilities (214) 115
Net cash (used in) provided by operating activities (263) 582
Cash flows from investing activities:
Proceeds from sale of investment property 10,769 --
Property improvements and replacements (82) (142)
Net (deposits to) withdrawals from restricted escrows (20) 44
Net cash provided by (used in) investing
activities 10,667 (98)
Cash flows from financing activities:
Payments on mortgage notes payable (154) (135)
Repayment of mortgage note payable (6,062) --
Distributions to partners (4,207) (208)
Net cash used in financing activities (10,423) (343)
Net (decrease) increase in cash and cash equivalents (19) 141
Cash and cash equivalents at beginning of period 793 669
Cash and cash equivalents at end of period $ 774 $ 810
Supplemental disclosure of cash flow information:
Cash paid for interest $ 380 $ 375
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. II (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Angeles Realty Corporation II (the
"Managing General Partner"), which is wholly-owned by 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
month period ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2004. 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, 2003.
The accompanying consolidated statement of operations for the three months ended
March 31, 2003 has been restated as of January 1, 2003 to reflect the operations
of Georgetown Apartments as income from discontinued operations in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". Georgetown Apartments was
sold to an unrelated third party on March 2, 2004.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for certain payments
to affiliates for services and reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from all of the Partnership's properties as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $83,000 and $81,000 for the three months ended March 31, 2004 and
2003, respectively, which is included in operating expenses and (loss) income
from discontinued operations.
Affiliates of the Managing General Partner were eligible to receive
reimbursement of accountable administrative expenses amounting to approximately
$58,000 and $47,000 for the three months ended March 31, 2004 and 2003,
respectively, which are included in general and administrative expenses and
investment properties. Included in these amounts are fees related to
construction management services provided by an affiliate of the Managing
General Partner of approximately $1,000 and $2,000 for the three months ended
March 31, 2004 and 2003, respectively. The construction management service fees
are calculated based on a percentage of current additions to investment
properties. At March 31, 2004, approximately $71,000 is owed to affiliates of
the Managing General Partner and is included in due to affiliates.
The Partnership Agreement provides for a fee equal to 10% of "Net cash flow from
operations," as defined in the Partnership Agreement to be paid to the Managing
General Partner for executive and administrative management services. Fees of
approximately $35,000 were earned by the Managing General Partner for the three
months ended March 31, 2003, which is included in general and administrative
expenses. There were no such fees earned by the Managing General Partner for the
three months ended March 31, 2004. At March 31, 2004, approximately $74,000 is
owed to the Managing General Partner and is included in due to affiliates.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a distribution equal to 3% of the aggregate disposition price of sold
properties. The Partnership paid a distribution of approximately $86,000 to the
Managing General Partner related to the sale of Atlanta Crossing Shopping Center
in March 2000. This amount is subordinate to the limited partners receiving
their original capital contributions plus a cumulative preferred return of 6%
per annum of their adjusted capital investment, as defined in the Partnership
Agreement. If the limited partners have not received these returns when the
Partnership terminates, the Managing General Partner will return this amount to
the Partnership. No such distribution was paid to the Managing General Partner
related to the March 2004 sale of Georgetown Apartments.
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
Managing General Partner. During 2004, the Partnership anticipates its cost for
insurance coverage and fees associated with policy claims administration
provided by AIMCO and its affiliates will be approximately $41,000. The
Partnership was charged approximately $62,000 for 2003.
Note C - Disposition of Investment Property
On March 2, 2004, the Partnership sold Georgetown Apartments to an unrelated
third party for a gross sale price of approximately $10,950,000. The net
proceeds realized by the Partnership were approximately $10,769,000 after
payment of closing costs and a prepayment penalty owed by the Partnership and
paid by the buyer. The Partnership used approximately $6,062,000 of the net
proceeds to repay the mortgage encumbering the property. The Partnership
realized a gain of approximately $9,556,000 as a result of the sale during the
three months ended March 31, 2004, which is included in gain from sale of
discontinued operations. In addition, the Partnership recorded a loss on the
early extinguishment of debt of approximately $159,000 as a result of the
write-off of unamortized loan costs and a prepayment penalty, which is included
in loss from discontinued operations. The property's operations, loss of
approximately $116,000 and income of approximately $11,000 for the three months
ended March 31, 2004 and 2003, respectively, including revenues of approximately
$234,000 and $391,000, respectively, are included in (loss) income from
discontinued operations.
Note D - Contingencies
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
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 Managing 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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers 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 Managing 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. On August 12, 2003, an objector
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. On April 23, 2004, the Managing General
Partner and its affiliates filed a response brief in support of the settlement
and the judgment thereto. Plaintiffs have also filed a brief in support of the
settlement. Objector is scheduled to file a reply brief no later than May 13,
2004.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Managing General Partner. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving or its investment properties that are not of a routine nature
arising in the ordinary course of business.
Pursuant to a formal order of investigation received by AIMCO on March 29, 2004,
the Central Regional Office of the United States Securities and Exchange
Commission is conducting an investigation relating to certain matters. AIMCO
believes the areas of investigation include AIMCO's miscalculated monthly net
rental income figures in third quarter 2003, forecasted guidance, accounts
payable, rent concessions, vendor rebates, and capitalization of expenses and
payroll. AIMCO is cooperating fully. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations taken as a whole. Similarly, the Managing
General Partner does not believe that the ultimate outcome will have a material
adverse effect on the Partnership's consolidated financial condition or results
of operations taken as a whole.
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 three
months ended March 31, 2004 and 2003:
Average Occupancy
Property 2004 2003
Deer Creek Apartments 92% 93%
Plainsboro, New Jersey
Landmark Apartments 87% 82%
Raleigh, North Carolina
The Managing General Partner attributes the increase in occupancy at Landmark
Apartments to competitive pricing and increased marketing efforts.
The Partnership's financial results are dependent upon a number of factors
including the ability to attract and maintain tenants at the investment
properties, interest rates on mortgage loans, costs incurred to operate the
investment properties, general economic conditions and weather. As part of the
ongoing business plan of the Partnership, the Managing 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
Managing General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, the Managing General Partner may use
rental concessions and rental rate reductions to offset softening market
conditions, accordingly, there is no guarantee that the Managing General Partner
will be able to sustain such a plan. Further, a number of factors which are
outside the control of the Partnership such as the local economic climate and
weather can adversely or positively impact the Partnership's financial results.
Results of Operations
The Partnership's net income for the three months ended March 31, 2004 was
approximately $9,504,000 compared to a net loss of approximately $224,000 for
the three months ended March 31, 2003. On March 2, 2004, the Partnership sold
Georgetown Apartments to an unrelated third party for a gross sale price of
approximately $10,950,000. The net proceeds realized by the Partnership were
approximately $10,769,000 after payment of closing costs and a prepayment
penalty owed by the Partnership and paid by the buyer. The Partnership used
approximately $6,062,000 of the net proceeds to repay the mortgage encumbering
the property. The Partnership realized a gain of approximately $9,556,000 as a
result of the sale during the three months ended March 31, 2004, which is
included in gain from sale of discontinued operations. In addition, the
Partnership recorded a loss on the early extinguishment of debt of approximately
$159,000 as a result of the write-off of unamortized loan costs and a prepayment
penalty, which is included in loss from discontinued operations. The property's
operations, a loss of approximately $116,000 and income of approximately $11,000
for the three months ended March 31, 2004 and 2003, respectively, including
revenues of approximately $234,000 and $391,000, respectively, are included in
(loss) income from discontinued operations.
The Partnership's income from continuing operations for the three months ended
March 31, 2004 was approximately $64,000, compared to a loss from continuing
operations of approximately $235,000 for the three months ended March 31, 2003.
The increase in income from continuing operations is due to a decrease in total
expenses and an increase in total revenues. The decrease in total expenses is
due to decreases in operating, general and administrative, depreciation, and
interest expenses. Property tax expense remained relatively constant for the
comparable periods. The decrease in depreciation expense is due to buildings and
property improvements and replacements placed into service in prior years
becoming fully depreciated during the second and third quarters of 2003. The
decrease in operating expenses is primarily due to a decrease in snow removal at
Deer Creek Apartments and contract maintenance and utility expenses at Landmark
Apartments, partially offset by an increase in utility expenses at Deer Creek
Apartments. The decrease in interest expense is primarily due to payments of
principal made on the mortgages encumbering the Partnership's properties, which
reduced the carrying balance of the loans. General and administrative expense
decreased due to a decrease in the management fee due to the Managing General
Partner based on cash flow as allowed under the Partnership Agreement, partially
offset by an increase in the cost of services included in the management
reimbursements to the Managing General Partner as allowed under the Partnership
Agreement. Also included in general and administrative expenses for the three
months ended March 31, 2004 and 2003 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 total revenues is due to increases in both rental and other
income. The increase in rental income is primarily due to the increases in
occupancy at Landmark Apartments and the average rental rate at Deer Creek
Apartments, partially offset by the decreases in occupancy at Deer Creek
Apartments and the average rental rate at Landmark Apartments. The increase in
other income is primarily due to an increase in lease cancellation fees at both
of the Partnership's investment properties, partially offset by a decrease in
late charges at Deer Creek Apartments.
Liquidity and Capital Resources
At March 31, 2004, the Partnership had cash and cash equivalents of
approximately $774,000 compared to approximately $810,000 at March 31, 2003. The
decrease in cash and cash equivalents of approximately $19,000, from December
31, 2003, is due to approximately $10,423,000 of cash used in financing
activities and approximately $263,000 of cash used in operating activities,
partially offset by approximately $10,667,000 of cash provided by investing
activities. Cash used in financing activities consisted of repayment of the
mortgage encumbering Georgetown Apartments, distributions to the partners, and
payments of principal made on the mortgages encumbering the Partnership's
properties. Cash provided by investing activities consisted of proceeds received
from the sale of Georgetown Apartments, partially offset by property
improvements and replacements and net deposits to a restricted escrow account
maintained 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 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 Managing General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
Georgetown Apartments
During the three months ended March 31, 2004, the Partnership completed
approximately $9,000 of capital improvements at Georgetown Apartments,
consisting primarily of floor covering replacement. These improvements were
funded from operating cash flow. The Partnership sold Georgetown Apartments to
an unrelated third party on March 2, 2004.
Deer Creek Apartments
During the three months ended March 31, 2004, the Partnership completed
approximately $43,000 of capital improvements at Deer Creek Apartments,
consisting primarily of structural improvements, water heater upgrades and floor
covering replacement. 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 $115,000 in capital
improvements during the remainder of 2004. 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.
Landmark Apartments
During the three months ended March 31, 2004, the Partnership completed
approximately $30,000 of capital improvements at Landmark Apartments, consisting
primarily of major landscaping. 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
$131,000 in capital improvements during the remainder of 2004. Additional
capital improvements may be considered and will depend on the physical condition
of the property as well as the anticipated cash flow generated by the property
and replacement reserves.
The additional capital expenditures will be incurred only if cash is available
from operations or from 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. The mortgage
indebtedness encumbering Deer Creek Apartments of approximately $12,867,000 is
amortized over 20 years and matures on July 1, 2021 at which time the loan is
scheduled to be fully amortized. The mortgage indebtedness encumbering Landmark
Apartments of approximately $6,012,000 is amortized over a period of 30 years
with a balloon payment of approximately $5,950,000 due November 1, 2004. The
mortgage encumbering Landmark Apartments matured November 1, 2003. However, the
Managing General Partner has negotiated a one year extension, which extends the
maturity of the loan to November 1, 2004, with a one-time right to extend to
February 1, 2005. The extension requires the Partnership to continue making
monthly payments of principal and interest under the terms of the original
mortgage. The Managing General Partner will attempt to refinance the mortgage
encumbering Landmark Apartments and/or sell the property prior to such maturity
date. If the property cannot be refinanced or sold for a sufficient amount, the
Partnership will risk losing such property through foreclosure.
The Partnership distributed the following amounts during the three months ended
March 31, 2004 and 2003 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2004 Unit March 31, 2003 Unit
Sale (1) $3,927 $38.96 $ -- $ --
Operations 280 2.77 208 2.06
Total $4,207 $41.73 $ 208 $ 2.06
(1) From proceeds from the sale of Georgetown Apartments.
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 expenditures to permit additional distributions to its partners
during the remainder of 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 64,255 limited partnership units
(the "Units") in the Partnership representing 64.38% of the outstanding Units at
March 31, 2004. 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 AIMCO Properties L.P., 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 Managing General Partner. As a result of its ownership of 64.38% of
the outstanding Units, AIMCO and its affiliates are in a position to control all
such voting decisions with respect to the Partnership. Although the Managing
General Partner owes fiduciary duties to the limited partners of the
Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as
its sole stockholder. As a result, the duties of the Managing General Partner,
as managing general partner, to the Partnership and its limited partners may
come into conflict with the duties of the Managing General Partner to AIMCO, as
its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
The Partnership's 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, but are not limited
to, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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 Managing 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 Managing 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 Managing 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 Managing 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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers 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 Managing 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. On August 12, 2003, an objector
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. On April 23, 2004, the Managing General
Partner and its affiliates filed a response brief in support of the settlement
and the judgment thereto. Plaintiffs have also filed a brief in support of the
settlement. Objector is scheduled to file a reply brief no later than May 13,
2004.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Managing General Partner. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Amendment Agreement of Limited Partnership of the
Partnership dated October 12, 1982 filed on Form 10K dated
November 30, 1983, 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 filed during the quarter ended March 31,
2004:
Current Report on Form 8-K dated March 2, 2004 and filed on
March 17, 2004, disclosing the sale of Georgetown Apartments
to an unrelated third party.
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 INCOME PROPERTIES, LTD. II
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President
and Chief Accounting Officer
Date: May 13, 2004
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Income
Properties Ltd. II;
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: May 13, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of Angeles Realty
Corporation II, equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Thomas M. Herzog certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Income
Properties Ltd. II;
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: May 13, 2004
/s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief Accounting
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 Income
Properties, Ltd. II (the "Partnership"), for the quarterly period ended March
31, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the chief executive officer
of the Partnership, and Thomas M. Herzog, 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/Martha L. Long
Name: Martha L. Long
Date: May 13, 2004
/s/Thomas M. Herzog
Name: Thomas M. Herzog
Date: May 13, 2004
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.