UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-11767
ANGELES INCOME PROPERTIES, LTD. II
(Exact name of small business issuer 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)
Check whether the issuer (1) 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 INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2005
Assets
Cash and cash equivalents $ 427
Receivables and deposits 479
Restricted escrows 530
Other assets 635
Investment properties:
Land $ 1,691
Buildings and related personal property 27,022
28,713
Less accumulated depreciation (23,032) 5,681
$ 7,752
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 236
Tenant security deposit liabilities 166
Accrued property taxes 38
Other liabilities 218
Due to affiliates (Note B) 271
Mortgage notes payable 19,488
Partners' Deficit
General partners $ (565)
Limited partners (99,804 units issued and
outstanding) (12,100) (12,665)
$ 7,752
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,
2005 2004
Revenues:
Rental income $ 1,168 $1,159
Other income 93 88
Total revenues 1,261 1,247
Expenses:
Operating 495 425
General and administrative 59 72
Depreciation 210 184
Interest 366 363
Property taxes 154 139
Total expenses 1,284 1,183
(Loss) income from continuing operations (23) 64
Loss from discontinued operations -- (116)
Gain from sale of discontinued operations -- 9,556
Net (loss) income $ (23) $9,504
Net (loss) income allocated to general partners (1%) $ -- $ 95
Net (loss) income allocated to limited partners (99%) (23) 9,409
$ (23) $9,504
Per limited partnership unit:
(Loss) income from continuing operations $ (0.23) $ 0.63
Loss from discontinued operations -- (1.15)
Gain from sale of discontinued operations -- 94.79
Net (loss) income $ (0.23) $94.27
Distributions per limited partnership unit $ -- $41.73
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, 2004 99,804 $ (565) $(12,077) $(12,642)
Net loss for the three months
ended March 31, 2005 -- -- (23) (23)
Partners' deficit at
March 31, 2005 99,804 $ (565) $(12,100) $(12,665)
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,
2005 2004
Cash flows from operating activities:
Net (loss) income $ (23) $ 9,504
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Gain from sale of discontinued operations -- (9,556)
Depreciation 210 208
Amortization of loan costs 37 11
Loss on early extinguishment of debt -- 159
Change in accounts:
Receivables and deposits (169) (34)
Other assets (40) (76)
Accounts payable 78 (4)
Tenant security deposit liabilities (5) (47)
Accrued property taxes 38 (137)
Due to affiliates 5 (77)
Other liabilities (36) (214)
Net cash provided by (used in) operating activities 95 (263)
Cash flows from investing activities:
Proceeds from sale of investment property -- 10,769
Property improvements and replacements (387) (82)
Net deposits to restricted escrows (22) (20)
Net cash (used in) provided by investing
activities (409) 10,667
Cash flows from financing activities:
Payments on mortgage notes payable (97) (154)
Repayment of mortgage note payable -- (6,062)
Distributions to partners -- (4,207)
Loan costs paid (7) --
Net cash used in financing activities (104) (10,423)
Net decrease in cash and cash equivalents (418) (19)
Cash and cash equivalents at beginning of period 845 793
Cash and cash equivalents at end of period $ 427 $ 774
Supplemental disclosure of cash flow information:
Cash paid for interest $ 317 $ 380
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in accounts
payable $ 129 $ --
At December 31, 2004, approximately $48,000 of property improvements and
replacements were included in accounts payable and are included in property
improvements and replacements at March 31, 2005.
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, 2005 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2005. 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, 2004.
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 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 receive 5% of gross receipts from all
of the Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $63,000 and $83,000 for the
three months ended March 31, 2005 and 2004, respectively, which are included in
operating expenses and loss from discontinued operations.
Affiliates of the Managing General Partner charged the Partnership for
reimbursement of accountable administrative expenses amounting to approximately
$64,000 and $58,000 for the three months ended March 31, 2005 and 2004,
respectively, which are included in general and administrative expenses and
investment properties. The portion of these reimbursements included in
investment properties for the three months ended March 31, 2005 and 2004 are
fees related to construction management services provided by an affiliate of the
Managing General Partner of approximately $35,000 and $1,000, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment properties.
The Partnership Agreement provides for a fee equal to 10% of "Net cash from
operations," as defined in the Partnership Agreement to be paid to the Managing
General Partner for executive and administrative management services. There were
no such fees earned by the Managing General Partner for the three months ended
March 31, 2005 and 2004.
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. It is not presently expected that the limited partners will
receive these returns when the Partnership terminates. Accordingly, no such
distribution was paid to the Managing General Partner related to the March 2004
sale of Georgetown Apartments.
In accordance with the Partnership Agreement, during the third and fourth
quarter of 2004, an affiliate of the Managing General Partner advanced the
Partnership approximately $262,000 to fund capital improvements and costs
related to the refinancing of the mortgage encumbering Landmark Apartments.
These advances bear interest at the prime rate plus 2% (7.75% at March 31,
2005). Interest expense was approximately $5,000 for the three months ended
March 31, 2005. At March 31, 2005, the total outstanding advances and accrued
interest was approximately $271,000 and is included in due to affiliates. There
were no such advances made by affiliates of the Managing General Partner to the
Partnership during the three months ended March 31, 2005 and 2004. Subsequent to
March 31, 2005, an affiliate of the Managing General Partner advanced the
Partnership approximately $67,000 to fund capital improvements at Landmark
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 the three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $43,000 for
hazard insurance coverage and fees associated with policy claims administration.
Additional charges will be incurred by the Partnership during 2005 as other
insurance policies renew later in the year. The Partnership was charged by AIMCO
and its affiliates approximately $62,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
Note C - Disposition of Investment Property
On March 2, 2004, the Partnership sold Georgetown Apartments to a 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 for the
three months ended March 31, 2004, including revenues of approximately $234,000,
are included in loss 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 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 28, 2002, the trail court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 May 4, 2004,
the Objector filed a second appeal challenging the court's use of a referee and
its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
As previously disclosed AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in a lawsuit alleging
that they 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. The complaint attempts to bring 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. and
NHP Management Company failed to compensate maintenance workers for time that
they were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action is scheduled for May 12, 2005. 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 consolidated financial condition or results of
operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its properties, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its properties.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Managing General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the Managing General Partner believes that these measures
will eliminate, or at least minimize, the effects that mold could have on
residents. To date, the Partnership has not incurred any material costs or
liabilities relating to claims of mold exposure or to abate mold conditions.
Because the law regarding mold is unsettled and subject to change the Managing
General Partner can make no assurance that liabilities resulting from the
presence of or exposure to mold will not have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
SEC Investigation
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.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation 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 properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2005 and 2004:
Average Occupancy
Property 2005 2004
Deer Creek Apartments (1) 96% 92%
Plainsboro, New Jersey
Landmark Apartments (2) 82% 87%
Raleigh, North Carolina
(1) The Managing General Partner attributes the increase in occupancy at Deer
Creek Apartments to improved economic conditions in the Plainsboro area.
(2) The Managing General Partner attributes the decrease in occupancy at
Landmark Apartments to increased resident selection standards.
The Partnership's financial results depend 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 affect the Partnership's financial results.
Results of Operations
The Partnership's net loss for the three months ended March 31, 2005 was
approximately $23,000, compared to net income of approximately $9,504,000 for
the three months ended March 31, 2004. On March 2, 2004, the Partnership sold
Georgetown Apartments to a 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 for the three months ended March 31, 2004, including
revenues of approximately $234,000 are included in loss from discontinued
operations.
The Partnership's loss from continuing operations for the three months ended
March 31, 2005 was approximately $23,000, compared to income from continuing
operations of approximately $64,000 for the three months ended March 31, 2004.
The decrease in income from continuing operations is due to an increase in total
expenses, partially offset by an increase in total revenues. The increase in
total expenses is due to increases in operating, depreciation, and property tax
expenses, partially offset by a decrease in general and administrative expenses.
Interest expense remained relatively constant for the comparable periods. The
increase in operating expenses is primarily due to increases in snow removal
expense at Deer Creek Apartments and contract maintenance expense at Landmark
Apartments. The increase in depreciation expense is due to property improvements
and replacements placed into service at both of the Partnership's investment
properties during the past twelve months. The increase in property tax expense
is due to an increase in the tax rate at Deer Creek Apartments. The decrease in
general and administrative expenses is due to a decrease in the cost of services
included in the management reimbursements to the Managing General Partner as
allowed under the Partnership Agreement, partially offset by an increase in
partnership tax expense. Also included in general and administrative expenses
for the three months ended March 31, 2005 and 2004 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 increases in occupancy
at Deer Creek Apartments and the average rental rate at Landmark Apartments, and
a decrease in bad debt expense at both of the Partnership's investment
properties, partially offset by decreases in occupancy at Landmark Apartments
and the average rental rate at Deer Creek Apartments. The increase in other
income is primarily due to an increase in late charges at Deer Creek Apartments,
partially offset by a decrease in lease cancellation fees at both of the
Partnership's investment properties.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $427,000, compared to approximately $774,000 at March 31, 2004.
The decrease in cash and cash equivalents of approximately $418,000, from
December 31, 2004, is due to approximately $409,000 of cash used in investing
activities and approximately $104,000 of cash used in financing activities,
partially offset by approximately $95,000 of cash provided by operating
activities. Cash used in investing activities consisted of property improvements
and replacements and net deposits to restricted escrow accounts maintained by
the mortgage lender. Cash used in financing activities consisted of payments of
principal made on the mortgage encumbering Deer Creek Apartments and loan costs
paid related to the November 2004 refinancing of the mortgage encumbering
Landmark Apartments. The Partnership invests its working capital reserves in
interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the 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. 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 each of
the Partnership's properties are detailed below.
Deer Creek Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $117,000 of capital improvements at Deer Creek Apartments,
consisting primarily of furniture upgrades and appliance and floor covering
replacements. These improvements were funded from operating cash flow. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as anticipated cash flow generated by the property.
Landmark Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $351,000 of capital improvements at Landmark Apartments,
consisting primarily of a repair project to address water filtration issues with
15 units. Based upon current plans, the Managing General Partner anticipates the
project to be complete and all units back online in May, 2005 at a total cost of
approximately $471,000. Other improvements consisted primarily of structural
improvements, exterior painting, major landscaping, fitness equipment, interior
and exterior building improvements, furniture upgrades and floor covering
replacement. These improvements were funded from operating cash flow. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as replacement reserves and anticipated cash flow generated by the
property.
The capital expenditures will be incurred only if cash is available from
operations, Partnership reserves, or advances from affiliates of the Managing
General Partner. To the extent that 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 $12,488,000 is
amortized over 20 years and matures on July 1, 2021 at which time the loan is
scheduled to be fully amortized. On November 1, 2004, the Partnership obtained a
mortgage in the principal amount of $7,000,000 on Landmark Apartments. The
existing mortgage with an outstanding principal amount of approximately
$5,950,000 matured on November 1, 2004 and was repaid with proceeds from the new
mortgage. Loan costs associated with the existing mortgage were fully amortized.
Total capitalized loan costs associated with the new mortgage were approximately
$208,000 during the year ended December 31, 2004. These costs included
approximately $70,000 paid to the Managing General Partner. Approximately $7,000
of additional loan costs were capitalized during the three months ended March
31, 2005. The new mortgage requires monthly payments of interest beginning on
December 1, 2004 until the loan matures November 1, 2006, with interest being
equal to the average of the one month LIBOR plus 235 basis points (5.2082% at
March 31, 2005 with a minimum rate of 4.3662%). In conjunction with the new
mortgage note, the Partnership paid approximately $13,000 to enter into an
interest rate cap agreement, which limits the Partnership's exposure to interest
rate increases. Under this interest rate cap agreement, the Partnership's
interest rate on the amounts owed to the lender will be no higher than 5.5%.
Adjustments to the initial amount paid are recognized in interest expense. In
addition, the new mortgage requires monthly escrow deposits for taxes, insurance
and replacement reserves and a $500,000 repair reserve that was established with
the lender at closing. As a condition of making the new mortgage, the lender
required AIMCO Properties, L.P., an affiliate of the Managing General Partner,
to guarantee the obligations and liabilities of the Partnership with respect to
the new mortgage.
The Partnership distributed the following amounts during the three months ended
March 31, 2005 and 2004 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2005 Unit March 31, 2004 Unit
Sale (1) $ -- $ -- $3,927 $38.96
Operations -- -- 280 2.77
Total $ -- $ -- $4,207 $41.73
(1) From proceeds from the sale of Georgetown Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations 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 planned capital expenditures to
permit any distributions to its partners in 2005 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 69,067 limited partnership units
(the "Units") in the Partnership representing 69.20% of the outstanding Units at
March 31, 2005. 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 69.20% 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
As previously disclosed AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in a lawsuit alleging
that they 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. The complaint attempts to bring 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. and
NHP Management Company failed to compensate maintenance workers for time that
they were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action is scheduled for May 12, 2005. 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 consolidated financial condition or results of
operations.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index.
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/Stephen B. Waters
Stephen B. Waters
Vice President
Date: May 11, 2005
ANGELES INCOME PROPERTIES, LTD. II
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amendment Agreement of Limited Partnership of the Partnership
dated October 12, 1982 filed in Form 10K dated November 30,
1983, incorporated herein by reference
3.2 Amended Agreement of Limited Partnership of the Partnership
dated March 31, 1983 filed in the Prospectus, of the
Partnership, as Exhibit A, dated March 31, 1983 incorporated
herein by reference
10.19 Multifamily Note dated June 27, 2001, by and between Angeles
Income Properties, Ltd. II, a California Limited Partnership,
and GMAC Commercial Mortgage Corporation for Deer Creek
Apartments, is incorporated by reference to the Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2001.
10.21 Purchase and Sale Contract between Georgetown AIP II, L.P. and
Freestone Realty Advisors, LLC, dated November 25, 2003,
incorporated by reference to the Current Report on Form 8-K
dated March 2, 2004.
10.22 First Amendment to Purchase and Sale Contract between
Georgetown AIP II, L.P. and Freestone Realty Advisors, LLC,
dated January 9, 2004, incorporated by reference to the
Current Report on Form 8-K dated March 2, 2004.
10.23 Second Amendment to Purchase and Sale Contract between
Georgetown AIP II, L.P. and Freestone Realty Advisors, LLC,
dated January 12, 2004, incorporated by reference to the
Current Report on Form 8-K dated March 2, 2004.
10.24 Third Amendment to Purchase and Sale Contract between
Georgetown AIP II, L.P. and Freestone Realty Advisors, LLC,
dated January 13, 2004, incorporated by reference to the
Current Report on Form 8-K dated March 2, 2004.
10.25 Reinstatement and Fourth Amendment to Purchase and Sale
Contract between Georgetown AIP II, L.P. and Freestone Realty
Advisors, LLC, dated January 24, 2004, incorporated by
reference to the Current Report on Form 8-K dated March 2,
2004.
10.26 Assignment and Assumption of Contract between Freestone Realty
Advisors, LLC, as Assignor and Georgetown Apartment
Homes-FRIP, L.L.C., as Assignee, dated February 11, 2004,
incorporated by reference to the Current Report on Form 8-K
dated March 2, 2004.
10.28 Loan Agreement dated November 1, 2004 between Angeles Income
Properties, Ltd. II, a California limited partnership and GMAC
Commercial Mortgage Bank, incorporated by reference to the
Current Report on Form 8-K dated November 1, 2004.
10.29 Promissory Notes dated November 1, 2004 between Angeles Income
Properties, Ltd. II, a California limited partnership and GMAC
Commercial Mortgage Bank, incorporated by reference to the
Current Report on Form 8-K dated November 1, 2004.
ANGELES INCOME PROPERTIES, LTD. II
EXHIBIT INDEX - CONTINUED
10.30 Guaranty dated November 1, 2004 by AIMCO Properties, L.P., for
the benefit of GMAC Commercial Mortgage Bank, incorporated by
reference to the Current Report on Form 8-K dated November 1,
2004.
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 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 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: May 11, 2005
/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 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 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: May 11, 2005
/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 Income
Properties, Ltd. II (the "Partnership"), for the quarterly period ended March
31, 2005 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: May 11, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 11, 2005
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.