UNITED STATES
SECURITIES EXCHANGE ACT OF 1934
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-11766
ANGELES PARTNERS XI
(Exact name of small business issuer as specified in its charter)
California 95-3788040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 268
Receivables and deposits 357
Restricted escrows 625
Other assets 678
Investment property:
Land $ 3,998
Buildings and related personal property 33,595
37,593
Less accumulated depreciation (28,448) 9,145
$ 11,073
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 71
Tenant security deposit liabilities 294
Due to affiliates (Note B) 21
Other liabilities 271
Mortgage note payable 32,499
Partners' Deficit
General partners $ (538)
Limited partners (39,627 units issued and
outstanding) (21,545) (22,083)
$ 11,073
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 1,934 $ 2,019 $ 5,705 $ 5,739
Other income 180 169 691 361
Casualty gain (Note C) -- -- -- 4
Total revenues 2,114 2,188 6,396 6,104
Expenses:
Operating 617 583 1,903 1,910
General and administrative 77 95 311 324
Depreciation 344 344 1,038 1,437
Interest 556 578 1,678 1,741
Property taxes 310 286 862 817
Total expenses 1,904 1,886 5,792 6,229
Net income (loss) $ 210 $ 302 $ 604 $ (125)
Net income (loss) allocated to general
partners (1%) $ 2 $ 3 $ 6 $ (1)
Net income (loss) allocated to limited
partners (99%) 208 299 598 (124)
$ 210 $ 302 $ 604 $ (125)
Net income (loss) per limited partnership
unit $ 5.25 $ 7.54 $ 15.09 $ (3.13)
Distributions per limited partnership unit $ -- $ -- $ -- $ 3.36
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030
Partners' deficit at
December 31, 2003 39,627 $ (544) $(22,143) $(22,687)
Net income for the nine months
ended September 30, 2004 -- 6 598 604
Partners' deficit
at September 30, 2004 39,627 $ (538) $(21,545) $(22,083)
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net income (loss) $ 604 $ (125)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,038 1,437
Amortization of loan costs 13 13
Casualty gain -- (4)
Change in accounts:
Receivables and deposits 81 (118)
Other assets (329) (51)
Accounts payable (33) (107)
Tenant security deposit liabilities (48) (14)
Due to affiliates (25) (6)
Other liabilities (124) (106)
Net cash provided by operating activities 1,177 919
Cash flows from investing activities:
Property improvements and replacements (566) (967)
Insurance proceeds received -- 4
Net cash used in investing activities (566) (963)
Cash flows from financing activities:
Advances from affiliate -- 611
Payments on mortgage notes payable (729) (606)
Distributions to partners -- (134)
Net cash used in financing activities (729) (129)
Net decrease in cash and cash equivalents (118) (173)
Cash and cash equivalents at beginning of period 386 677
Cash and cash equivalents at end of period $ 268 $ 504
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,669 $ 1,713
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ 8 $ 52
Included in property improvements and replacements for the nine months ended
September 30, 2004 and 2003, are approximately $31,000 and $161,000,
respectively, of improvements which were included in accounts payable at
December 31, 2003 and 2002, respectively.
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Partners
XI (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Angeles Realty Corporation II (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 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 Managing General
Partner is an affiliate of Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the Managing General Partner and
its affiliates for the management and administration of all Partnership
activities. The Partnership Agreement provides for (i) certain payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$305,000 and $303,000 for the nine months ended September 30, 2004 and 2003,
respectively, which is included in operating expenses.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $132,000 and $181,000 for the
nine months ended September 30, 2004 and 2003, respectively, which are included
in general and administrative expenses and investment property. Included in
these amounts are fees related to construction management services provided by
an affiliate of the Managing General Partner of approximately $14,000 and
$74,000 for the nine months ended September 30, 2004 and 2003, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment property.
The Partnership Agreement provides for a fee equal to 7.5% of "net cash flow
from operations", as defined in the Partnership Agreement, to be paid to the
Managing General Partner for executive and administrative management services.
One half of this fee is to be accrued and not paid unless the limited partners
have received distributions equal to a 5% cumulative annual return on their
adjusted capital investment as defined in the Partnership Agreement. This return
criteria has not been met. During the nine months ended September 30, 2004 and
2003 no fees were earned or paid. At September 30, 2004, the Partnership has
accrued approximately $21,000 of Partnership management fees, representing one
half of the fees earned in 2000, 2001, and 2002, which are included in due to
affiliates on the accompanying consolidated balance sheet. This amount will
remain accrued until the criteria for payment has been met.
During the nine months ended September 30, 2003, the Managing General Partner
advanced the Partnership approximately $611,000 to cover operating expenses and
capital expenditures. Interest was charged on this advance at prime plus 2% and
was approximately $6,000 for the nine months ended September 30, 2003. This
advance was repaid during 2003. There were no similar advances during the nine
months ended September 30, 2004.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2004 and
2003, the Partnership was charged by AIMCO and its affiliates approximately
$99,000 and $103,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty
During the year ended December 31, 2002, a casualty gain of approximately
$17,000 was recorded at Fox Run Apartments. The casualty gain related to a fire
that occurred in June 2002. The gain was a result of the receipt of insurance
proceeds of approximately $18,000 offset by the write-off of the net book value
of the destroyed assets totaling approximately $1,000.
During the nine months ended September 30, 2003, additional insurance proceeds
of approximately $4,000 were received and recorded as an additional casualty
gain.
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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 (the "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. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the 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. The plaintiffs have
also filed a brief in support of the settlement. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
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.
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, the
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. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's financial
condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, 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, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. 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.
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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Fox Run Apartments 89% 94%
Plainsboro, New Jersey
The Managing General Partner attributes the decrease in occupancy at Fox Run
Apartments to job transfers and tenants purchasing homes.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
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 property to assess the feasibility of increasing
rents, maintaining or increasing occupancy levels and protecting the Partnership
from increases in expenses. As part of this plan, the Managing General Partner
attempts to protect the Partnership from the burden of inflation-related
increases in expenses by increasing rents and maintaining a high overall
occupancy level. However, 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 that are outside the
control of the Partnership, such as the local economic climate and weather can
adversely or positively affect the Partnership's financial results.
Results of Operations
The Partnership recognized net income for the three and nine months ended
September 30, 2004 of approximately $210,000 and $604,000, respectively,
compared to net income of approximately $302,000 and net loss of approximately
$125,000 for the three and nine months ended September 30, 2003, respectively.
The increase in net income for the nine months ending September 30, 2004
compared to the corresponding period in 2003 is due to an increase in total
revenues and a decrease in total expenses. The decrease in net income for the
three months ending September 30, 2004 compared to the corresponding period in
2003 is due to a decrease in total revenues and an increase in total expenses.
Total revenues decreased during the three months ended September 30, 2004 due to
a decrease in rental income partially offset by an increase in other income.
Total revenues increased for the nine months ended September 30, 2004 largely
due to an increase in other income partially offset by a decrease in rental
income and a decrease in casualty gain (as discussed below). Rental income
decreased in both periods due to a decrease in occupancy and an increase in bad
debt expense partially offset by an increase in average rental rates at the
Partnership's investment property. Other income increased for both periods
primarily due to an increase in utility reimbursements due to the implementation
of tenant rebilling for water and sewage charges during the second quarter of
2003.
During the year ended December 31, 2002, a casualty gain of approximately
$17,000 was recorded at Fox Run Apartments. The casualty gain related to a fire
that occurred in June 2002. During the nine months ended September 30, 2003,
additional insurance proceeds of approximately $4,000 were received and recorded
as additional casualty gain.
Total expenses increased for the three months ended September 30, 2004 primarily
due to increases in operating and property tax expenses partially offset by
decreases in interest and general and administrative expenses. Total expenses
decreased for the nine months ended September 30, 2004 due to decreases in
depreciation, interest and general and administrative expenses, partially offset
by an increase in property tax expense. Operating expenses increased for the
three months ended September 30, 2004 due to increases in maintenance, property,
and advertising expenses. Maintenance expenses increased primarily due to an
increase in contract services. Property expenses increased primarily due to
increases in salaries and related benefits and utilities. Advertising expenses
increased primarily due to increases in referral fees. Depreciation expense
decreased for the nine months ended September 30, 2004 due to the buildings at
the Partnership's investment property becoming fully depreciated during the year
ended December 31, 2003. Interest expense decreased for both periods due to
regularly scheduled mortgage payments, which reduced the principal balance of
the mortgage debt encumbering the Partnership's property. Property tax expense
increased for both periods due to a slight increase in the property tax rate at
the Partnership's property.
General and administrative expenses decreased for the three and nine months
ended September 30, 2004 due to a decrease in New Jersey partnership tax due to
a reduction in the number of limited partners and a reduction in the cost of the
annual audit required by the Partnership Agreement, partially offset by an
increase in the cost of services included in management reimbursements to the
Managing General Partner allowed under the Partnership Agreement. Also included
in general and administrative expenses are costs associated with the quarterly
and annual communications with investors and regulatory agencies.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $268,000 compared to approximately $504,000 at September 30, 2003.
Cash and cash equivalents decreased approximately $118,000 since December 31,
2003 due to approximately $729,000 and $566,000 of cash used in financing and
investing activities, respectively, partially offset by approximately $1,177,000
of cash provided by operating activities. Cash used in financing activities
consisted of principal payments on the mortgage encumbering the Partnership's
property. Cash used in investing activities consisted of property improvements
and replacements. The Partnership invests its working capital reserves in
interest-bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with Federal, state,
and local legal and regulatory requirements. The Managing General Partner
monitors developments in the area of legal and regulatory compliance. For
example, 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. Capital improvements planned for the
Partnership's investment property is detailed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $543,000 of capital improvements at Fox Run Apartments, primarily
consisting of water heater and floor covering replacements, structural
improvements, heating and electrical upgrades, air conditioning unit and other
appliance replacements and interior decoration. These improvements were funded
from operating cash flow. The Partnership evaluates the capital improvement
needs of the property and currently expects to complete an additional $315,000
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. 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 Fox Run Apartments of approximately $32,499,000 is
being amortized over 20 years and matures in December 2021, at which time it is
scheduled to be fully amortized.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003 (in thousands, except per unit data):
For the Nine For the Nine
Months Ended Per Limited Months Ended Per Limited
September 30, Partnership September 30, Partnership
2004 Unit 2003 Unit
Refinancing (1) $ -- $ -- $ 134 $ 3.36
(1) Refinancing proceeds are from the December 2001 refinancing of Fox Run
Apartments. Approximately $554,000 remains to be distributed at September
30, 2004.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, the timing of the debt
maturity and refinancing and/or sale of the property. There can be no assurance
that the Partnership will generate sufficient funds from operations, after
required capital improvement expenditures, to permit any distributions to its
partners in 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 25,955 limited partnership units
(the "Units") in the Partnership representing 65.50% of the outstanding Units at
September 30, 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. In this regard, on November
4, 2004, an affiliate of AIMCO commenced a tender offer to purchase any and all
of the remaining partnership interests for a purchase price of $359.55. 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 65.50% of the outstanding Units, AIMCO and its affiliates are in a position
to control all voting decisions with respect to the Partnership. Although the
Managing General Partner owes fiduciary duties to the limited partners of the
Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as
its sole stockholder. As a result, the duties of the Managing General Partner,
as managing general partner, to the Partnership and its limited partners may
come into conflict with the duties of the Managing General Partner to AIMCO as
its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the
Partnership to make estimates and assumptions. The Partnership believes that of
its significant accounting policies, the following may involve a higher degree
of judgment and complexity.
Impairment of Long-Lived Assets
The investment property is recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of the property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include, but are not limited
to, changes in 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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 (the "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. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the 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. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
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.
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, the
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. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's financial
condition or results of operations.
Item 6. Exhibits
See Exhibit Index attached.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS XI
(A California Limited Partnership)
(Registrant)
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 11, 2004
ANGELES PARTNERS XI
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amended Agreement of Limited Partnership dated February 26,
1982, filed in Form 10-K dated November 30, 1983, incorporated
herein by reference
10.13 Promissory Note between New York Life Insurance, a New York
mutual insurance company and Fox Run AP XI, LP., a South
Carolina limited partnership dated December 5, 2001, filed as
exhibit 10.13 to the Partnership's Annual Report on Form
10-KSB dated March 25, 2002, incorporated herein by reference.
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.
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.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Partners
XI;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 11, 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, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Angeles Partners
XI;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 11, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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 Partners XI
(the "Partnership"), for the quarterly period ended September 30, 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 Stephen B. Waters, 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: November 11, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 11, 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.