FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period.........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 (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
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
a) ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 2,990
Restricted--tenant security deposits 272
Accounts receivable (net of allowance for
doubtful accounts of $72) 121
Escrows for taxes 131
Restricted escrows 1,429
Other assets 490
Investment in, and advances of $43 to,
joint venture 57
Investment properties:
Land $ 2,197
Buildings and related personal property 32,644
34,841
Less accumulated depreciation (22,598) 12,243
$17,733
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 48
Tenant security deposits 259
Accrued taxes 293
Other liabilities 289
Mortgage notes payable 18,404
Partners' Deficit
General partner $ (454)
Limited partners (99,851 units
issued and outstanding) (1,106) (1,560)
$17,733
See Accompanying Notes to Consolidated Financial Statements
b) ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Rental income $ 1,654 $ 1,650 $ 4,861 $ 5,125
Other income 83 75 229 218
Total revenue 1,737 1,725 5,090 5,343
Expenses:
Operating 460 480 1,392 1,560
General and administrative 76 76 234 250
Maintenance 256 266 646 622
Depreciation 442 431 1,313 1,426
Interest 551 400 1,340 1,380
Property taxes 142 192 422 471
Bad Debt -- -- 19 --
Total expenses 1,927 1,845 5,366 5,709
Equity in income (loss) of
joint venture 11 14 (8) (3)
Gain on transfer of
property in foreclosure -- -- -- 1,385
Loss on disposal of property -- -- -- (40)
(Loss) income before
extraordinary item (179) (106) (284) 976
Extraordinary (loss) gain on
extinguishment of debt (173) -- (173) 565
Net (loss) income $ (352) $ (106) $ (457) $ 1,541
Net (loss) income allocated
to general partners (1%) $ (4) $ (1) $ (5) $ 15
Net (loss) income allocated
to limited partners (99%) (348) (105) (452) 1,526
Net (loss) income $ (352) $ (106) $ (457) $ 1,541
Per limited partnership unit:
(Loss) income before
extraordinary item $ (1.77) $ (1.05) $ (2.81) $ 9.68
Extraordinary (loss) gain on
extinguishment of debt (1.72) -- (1.72) 5.60
Net (loss) income $ (3.49) $ (1.05) $ (4.53) $ 15.28
See Accompanying Notes to Consolidated Financial Statements
c) 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, 1995 99,851 $ (449) $ (654) $(1,103)
Net income for the nine months
ended September 30, 1996 (5) (452) (457)
Partners' deficit at
September 30, 1996 99,851 $ (454) $ (1,106) $(1,560)
See Accompanying Notes to Consolidated Financial Statements
d) ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net (loss) income $ (457) $ 1,541
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Bad Debt Expense 19 --
Depreciation 1,313 1,426
Amortization of discounts, loan costs and lease
commissions 244 103
Equity in loss of joint venture 8 3
Gain on transfer of property in foreclosure -- (1,385)
Loss on disposal of property -- 40
Extraordinary loss (gain) on extinguishment of debt 173 (565)
Change in accounts:
Restricted cash (26) 11
Accounts receivable (31) (80)
Escrows for taxes (36) (31)
Other assets (38) (40)
Accounts payable (100) (66)
Tenant security deposit liabilities 15 9
Accrued taxes 179 92
Other liabilities 45 137
Net cash provided by operating activities 1,308 1,195
Cash flows from investing activities:
Property improvements and replacements (300) (446)
Insurance proceeds -- 19
Deposits to restricted escrows (1,262) (64)
Receipts from restricted escrows 247 30
Advances to joint venture (29) --
Net cash used in investing activities (1,344) (461)
Cash flows from financing activities:
Loan costs (225) --
Payments on mortgage notes payable (156) (195)
Repayments of mortgage notes payable (11,069) --
Proceeds from mortgage notes payable 12,900 --
Debt extinguishment costs (132) --
Net cash provided by (used in) financing activities 1,318 (195)
Net increase in cash balances 1,282 539
Cash and cash equivalents at beginning of period 1,708 1,063
Cash and cash equivalents at end of period $ 2,990 $ 1,602
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,111 $ 1,125
<FN>
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
(Unaudited)
Foreclosures
On March 20, 1995, the Partnership negotiated a Deed in Lieu of Foreclosure for
Executive Plaza Office Park, located in Huntsville, Alabama. The property was
lost to the wrap note holder. Angeles Realty Corporation II, the ("Managing
General Partner") believes that the Deed in Lieu of Foreclosure was in the best
interest of the Partnership.
In connection with the foreclosure of Executive Plaza Office Park on March 20,
1995, the following accounts were adjusted by the following non-cash amounts:
Accounts receivable $ (101,035)
Investment properties (4,481,841)
Other assets (88,775)
Taxes 144,629
Tenant security deposits 39,919
Mortgage 5,987,086
Other liabilities 509,904
See Accompanying Notes to Consolidated Financial Statements
e) ANGELES INCOME PROPERTIES, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements 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, 1996, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in Angeles Income Properties, Ltd. II's (the
"Partnership") annual report on Form 10-KSB for the fiscal year ended December
31, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were paid to
the Managing General Partner and affiliates during the nine month periods ended
September 30, 1996 and 1995:
1996 1995
(in thousands)
Property management fees $238 $247
Reimbursement for services
of affiliates 186 194
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of the
Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which were later acquired by the
agent who placed the current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner who
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES - (CONTINUED)
Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust,
provided financing to the Princeton Meadows Golf Course Joint Venture ("Joint
Venture") which is secured by the Joint Venture's investment property known as
the Princeton Meadows Golf Course, in the original amount of $1,280,000 (see
"Part II, Item 1. Legal Proceedings").
MAE GP Corporation ("MAE GP"), an affiliate of the Managing General Partner,
owns 1,675,113 Class B Shares of AMIT. MAE GP has the option to convert these
Class B Shares, in whole or in part, into Class A Shares on the basis of 1 Class
A Share for every 49 Class B Shares. These Class B Shares entitle MAE GP to
receive 1.2% of the distributions of net cash distributed by AMIT. The Class B
Shares also entitle MAE GP to vote on the same basis as Class A Shares which
allows MAE GP to vote approximately 37% of the total shares (unless and until
converted to Class A Shares at which time the percentage of the vote controlled
represented by the shares held by MAE GP would approximate 1.2% of the vote).
Between the date of acquisition of these shares (November 24, 1992) and March
31, 1995, MAE GP declined to vote these shares. Since that date, MAE GP voted
its shares at the 1995 annual meeting in connection with the election of
trustees and other matters. MAE GP has not exerted, and continues to decline to
exert, any management control over or participate in the management of AMIT. MAE
GP may choose to vote these shares as it deems appropriate in the future. In
addition, Liquidity Assistance, LLC ("LAC"), an affiliate of the Managing
General Partner and an affiliate of Insignia Financial Group, Inc., which
provides property management and partnership administration services to the
Partnership, currently owns 87,700 Class A Shares of AMIT. These Class A Shares
entitle LAC to vote approximately 2% of the total shares. The number of Class A
Shares of AMIT owned by LAC increased from 63,200 shares on September 30, 1996,
to 87,700 shares as of October 22, 1996. The voting percentage also increased
from 1.5% to 2% over the same period.
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B Shares. This option can be exercised at the end
of 10 years or when all loans made by AMIT to partnerships affiliated with MAE
GP as of November 9, 1994, (which is the date of execution of a definitive
Settlement Agreement) have been paid in full, but in no event prior to November
9, 1997. AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which
occurred April 14, 1995, as payment for the option. Upon exercise of the
option, AMIT would remit to MAE GP an additional $94,000.
Simultaneously with the execution of the option, MAE GP executed an irrevocable
proxy in favor of AMIT, the result of which is MAE GP will be able to vote the
Class B Shares on all matters except those involving transactions between AMIT
and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an
officer or trustee of AMIT. On those matters, MAE GP granted to the AMIT
trustees, in their capacity as trustees of AMIT, proxies with regard to the
Class B Shares instructing such trustees to vote said Class B Shares in
accordance with the vote of the majority of the Class A Shares voting to be
determined without consideration of the votes of "Excess Class A Shares" as
defined in Section 6.13 of the Declaration of Trust of AMIT.
NOTE C - INVESTMENT IN JOINT VENTURE
The Partnership owns a 14.4% interest in the Joint Venture. The Partnership
accounts for the Joint Venture on the equity method. AMIT currently provides
financing to the Joint Venture, secured by the investment property, in the
amount of $1,567,000.
Condensed balance sheet information of the Joint Venture is as follows:
September 30, 1996
(in thousands)
Assets
Cash $ 232
Deferred charges and other assets 169
Investment properties, net 1,899
Total $ 2,300
Liabilities and Partners' Capital
Notes payable to AMIT $ 1,567
Other liabilities 642
Partners' capital 91
Total $ 2,300
The condensed profit and loss statements of the Joint Venture are summarized as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(in thousands) (in thousands)
Revenue $ 568 $ 501 $ 1,177 $ 985
Costs and expenses (495) (405) (1,235) (1,003)
Net income (loss) $ 73 $ 96 $ (58) $ (18)
The Partnership's equity interest in the net income and net loss of the Joint
Venture for the three and nine months ended September 30, 1996, was $11,000 and
$8,000, respectively. The Partnership's equity interest in the net income and
net loss of the Joint Venture for the three and nine months ended September 30,
1995, was $14,000 and $3,000, respectively.
The Princeton Meadows Golf Course property had an underground fuel storage tank
that was removed in 1992. This fuel storage tank caused contamination to the
area. Management installed monitoring wells in the area where the tank was
formerly buried. Some samples from these wells indicated lead and phosphorus
readings that were higher than the range prescribed by the New Jersey Department
of Environmental Protection ("DEP"). The Joint Venture notified DEP of the
findings when they were first discovered. However, DEP did not give any
directives as to corrective action until late 1995.
In November 1995, representatives of the Joint Venture and the New Jersey DEP
met and developed a plan of action to clean-up the contamination site at
Princeton Meadows Golf Course. The Joint Venture has engaged an engineering
firm to conduct consulting and compliance work and a second firm to perform the
field work necessary for the clean-up. The Joint Venture has recorded a
liability of $199,000 for the costs of the clean-up. The contracts have been
executed and work has commenced with the expected completion date to be sometime
in late 1996. The Managing General Partner believes the liability recorded is
sufficient to cover all costs associated with this incident.
NOTE D - FORECLOSURE OF EXECUTIVE PLAZA
On March 20, 1995, the Partnership negotiated a Deed in Lieu of Foreclosure for
Executive Plaza Office Park located in Huntsville, Alabama. The total
outstanding debt on the property at the time of foreclosure was approximately
$6,430,000 including approximately $443,000 in accrued interest. The net fair
value and the recorded net book value less related net operating liabilities as
of the date of foreclosure totaled approximately $5,867,000 and approximately
$4,482,000, respectively. The net gain on foreclosure amounted to approximately
$1,950,000 of which approximately $1,385,000 represented a gain on transfer of
property in foreclosure and approximately $565,000 represented an extraordinary
gain on the extinguishment of related debt. The gain on transfer of assets
represents the difference between fair value and the net book value of the
property surrendered. The extraordinary gain represents the difference between
the settlement amount of the debt and the recorded amount of the debt
extinguished pursuant to the foreclosure.
NOTE E - REFINANCING
On July 1, 1996, the Partnership refinanced the mortgages encumbering Deer Creek
Apartments and Landmark Apartments. The total indebtedness refinanced was
approximately $7,517,000 (interest rate - 9.13%) and $3,552,000 (interest rate -
9.75%), respectively. Resulting from the refinancing was a loss of
approximately $173,000 from the write-off of unamortized loan costs and
incurring of prepayment penalties. The new mortgage indebtedness of
approximately $6,300,000 for Deer Creek Apartments and approximately $6,600,000
for Landmark Apartments carries a stated interest rate of 2.50% plus LIBOR and
a maturity date of November 15, 1996. This interim financing was necessary due
to the maturity of the mortgage secured by Deer Creek Apartments in July 1996.
Landmark Apartments was refinanced to obtain a lower interest rate and to
provide funds needed to help close the Deer Creek Apartments refinancing. Both
of these properties are in the process of negotiating long term financing which
is anticipated to close in the fourth quarter of 1996. The outcome of such
negotiations cannot presently be determined. The net surplus from these
refinancings was $214,000 and will be held in an escrow account to be used for
operating and capital needs of the properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
The Partnership's investment properties consist of three apartment complexes and
one commercial property. The following table sets forth the average occupancy
of the properties for the nine months ended September 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Atlanta Crossing Shopping Center
Montgomery, Alabama 92% 91%
Deer Creek Apartments
Plainsboro, New Jersey 95% 95%
Georgetown Apartments
South Bend, Indiana 97% 98%
Landmark Apartments
Raleigh, North Carolina (1) 92% 96%
(1)This property typically attracts a student tenant base. This year a number
of long time residents graduated. Occupancy should increase as those
vacancies are filled.
The Partnership's net loss for the nine months ended September 30, 1996, was
approximately $457,000 versus net income of approximately $1,541,000 for the
nine months ended September 30, 1995. The Partnership's net losses for the three
months ended September 30, 1996 and 1995, were approximately $352,000 and
approximately $106,000, respectively. The decrease in net income is due
primarily to the gain on transfer of property in foreclosure and the gain on
extinguishment of debt related to the foreclosure of Executive Plaza Office Park
on March 20, 1995 (see discussion below). Contributing to the decrease in net
income was an extraordinary loss on extinguishment of debt of $173,000 from
Landmark and Deer Creek Apartments on July 1, 1996 (see "Note E").
As a result of the transfer of property in foreclosure, the Partnership realized
a decrease in expenses for the nine months ended September 30, 1996, versus the
nine months ended September 30, 1995, except for maintenance and bad debt. The
decrease in property tax expense was offset by a tax rate increase and an
increase in the assessed value of Georgetown Apartments. The decrease in
interest expense was offset by an increase in loan cost amortization associated
with the interim refinancing of Deer Creek and Landmark Apartments. Maintenance
expense increased due to an increase in exterior and interior building
improvements at Landmark Apartments.
The Managing General Partner determined that past due amounts from tenants of
the Atlanta Crossing Shopping Center amounting to $41,000 were uncollectible,
and therefore reserved these amounts, resulting in bad debt expense for the nine
months ended September 30, 1996. Partially offsetting this amount was $22,000
in bad debt recovery by the Partnership from an affiliate of the former owner of
the Managing General Partner of the Partnership.
The Partnership realized a net $40,000 loss on disposal of property during the
nine months ended September 30, 1995. Approximately $47,000 of the loss related
to Georgetown Apartments was due to the write-off of roofs due to replacement.
These roofs were not fully depreciated at the time of replacement. Offsetting
this loss was a gain of approximately $7,000 in 1995 at Deer Creek Apartments
related to one unit being written off due to fire damage which was covered by
insurance. The refinancing on Deer Creek Apartments and Landmark Apartments debt
resulted in a loss of $173,000 from prepayment penalties and the write-off of
unamortized loan costs.
The Partnership has a 14.4% investment in the Princeton Meadows Golf Course
Joint Venture. For the nine months ended September 30, 1996, the Partnership
realized equity in loss of the Joint Venture of approximately $8,000 as compared
to a approximately $3,000 loss for the nine months ended September 30, 1995. The
increased loss at Princeton Meadows Golf Course can be attributed to an increase
in advertising, salaries, insurance and maintenance expense. Advertising
expense increased as a result of an aggressive advertising campaign and salary
expense increased due to the hiring of additional personnel, including a full
time golf pro for the course. The environmental issue at the property (See
"Note C - Investment in Joint Venture") necessitated a purchase of new
insurance. The Partnership also implemented a preventive maintenance program
and repairs were made to the cart paths and course. These increases in expenses
were only partially offset by an increase in revenues. The increase in revenue
can be attributed to an increase in advertising and to maintenance upgrades at
the golf course that have improved the appearance of the property.
On March 20, 1995, the Partnership negotiated a Deed in Lieu of Foreclosure for
Executive Plaza Office Park located in Huntsville, Alabama, and as a result the
property was transferred to the wrap note holder. The Managing General Partner
believes the Deed In Lieu of Foreclosure was in the best interest of the
Partnership. The Partnership realized a gain of $1,950,000 of which $1,385,000
represented a gain on transfer of property in foreclosure and $565,000
represented an extraordinary gain on the extinguishment of related debt. The
gain on transfer of property in foreclosure represents the difference between
the fair value and the net book value of the property surrendered. The
extraordinary gain represents the difference between the settlement amount of
the debt (the fair value of the property surrendered) and the recorded amount of
the debt extinguished pursuant to foreclosure.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. 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, due
to changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
At September 30, 1996, the Partnership had unrestricted cash of approximately
$2,990,000 versus approximately $1,602,000 at September 30, 1995. Net cash
provided by operating activities increased due to an increase in accrued taxes
resulting from a prepayment of taxes at Landmark Apartments for the period
ending September 30, 1995. Net cash used in investing activities increased due
to an increase in deposits to restricted escrows resulting from a capital repair
escrow set up for Deer Creek Apartments with the refinancing. Net cash provided
by financing activities increased due to the proceeds received from the
refinancing of Deer Creek and Landmark Apartments.
The Partnership has no material capital programs scheduled to be performed in
1996, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.
On July 1, 1996, the Partnership refinanced the mortgages encumbering Deer Creek
Apartments and Landmark Apartments. The total indebtedness refinanced was
approximately $7,517,000 (interest rate - 9.13%) and $3,552,000 (interest rate -
9.75%), respectively. Resulting from the refinancing was a loss of
approximately $173,000 from the write-off of unamortized loan costs and
incurring of prepayment penalties. The new mortgage indebtedness of
approximately $6,300,000 for Deer Creek Apartments and approximately $6,600,000
for Landmark Apartments carries a stated interest rate of 2.50% plus LIBOR and
a maturity date of November 15, 1996. This interim financing was necessary due
to the maturity of the mortgage secured by Deer Creek Apartments in July 1996.
Landmark Apartments was refinanced to obtain a lower interest rate and to
provide funds needed to help close the Deer Creek Apartments refinancing. Both
of these properties are in the process of negotiating long term financing which
is anticipated to close in the fourth quarter of 1996. The outcome of such
negotiations cannot presently be determined. The net surplus from these
refinancings was $214,000 and will be held in an escrow account to be used for
operating and capital needs of the properties.
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. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The partnership has
mortgage notes payable totaling approximately $18,404,000. The first mortgages
secured by Deercreek Apartments and Landmark Apartments totaling approximately
$12,900,000 were refinanced with interim financing as noted above, which matures
on November 15, 1996. Both of these properties are in the process of negotiating
long term financing which is anticipated to close in the fourth quarter of 1996.
The remaining debt, which is secured by Georgetown Apartments, matures on
October 2003 at which time the property will either be sold or refinanced.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings, property sale and the availability of cash reserves.
There were no cash distributions in the nine months ended September 30, 1996, or
September 30, 1995. At this time, The Managing General Partner does not
anticipate a cash distribution during fiscal 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
AMIT, a real estate investment trust, made a loan to the Joint Venture on a non-
recourse basis in September 1991, in the original amount of $1,280,000 secured
by the Joint Venture's real property known as Princeton Meadows Golf Course.
AMIT asserts that the loan is recourse by virtue of a certain amendment
purportedly entered into as of November 1, 1992, but which the Partnership and
the Joint Venture have been informed and believe were actually executed in
December of 1992 ("Note Modification"). The Partnership and the Joint Venture
have been further informed and believe that the amendment was executed at the
direction of Angeles Corporation ("Angeles") by an individual in his purported
capacity as an officer of the Managing General Partner of the Partnership and
the Joint Venture at a time when such person was not in fact an officer of such
entities. Accordingly, the Partnership and the Joint Venture filed Proofs of
Claim in the Angeles bankruptcy proceeding with respect to such purported
amendment. Additionally, the Partnership and the Joint Venture filed a Proof of
Claim in the Angeles Funding Corporation and Angeles Real Estate Corporation
bankruptcy proceedings on similar grounds. Both Angeles Funding Corporation and
Angeles Real Estate Corporation are affiliates of Angeles. Angeles has agreed
to cooperate with the Partnership and the Joint Venture in any action commenced
by or against them by AMIT asserting that the original $1,280,000 obligation
owed to AMIT is recourse to the Partnership. Angeles further agreed to waive
the attorney-client privilege with respect to any information relating to the
Note Modification. Accordingly, the Partnership and the Joint Venture withdrew
their Proofs of Claim on August 9, 1995. The Partnership continues to have
discussions with AMIT regarding resolution of this issue. No agreement has been
reached with AMIT at this time.
MAE GP, an affiliate of the Managing General Partner, owns 1,675,113 Class B
Shares of AMIT. MAE GP has the option to convert these Class B Shares, in whole
or in part, into Class A Shares on the basis of 1 Class A Share for every 49
Class B Shares. These Class B Shares entitle MAE GP to receive 1.2% of the
distributions of net cash distributed by AMIT. The Class B Shares also entitle
MAE GP to vote on the same basis as Class A Shares which allows MAE GP to vote
approximately 37% of the total shares (unless and until converted to Class A
Shares at which time the percentage of the vote controlled represented by the
shares held by MAE GP would approximate 1.2% of the vote). Between the date of
acquisition of these shares (November 24, 1992) and March 31, 1995, MAE GP
declined to vote these shares. Since that date, MAE GP voted its shares at the
1995 annual meeting in connection with the election of trustees and other
matters. MAE GP has not exerted, and continues to decline to exert, any
management control over or participate in the management of AMIT. MAE GP may
choose to vote these shares as it deems appropriate in the future. In addition,
LAC, an affiliate of the Managing General Partner and an affiliate of Insignia
Financial Group, Inc., which provides property management and partnership
administration services to the Partnership, currently owns 87,700 Class A Shares
of AMIT. These Class A Shares entitle LAC to vote approximately 2% of the total
shares. The number of Class A Shares of AMIT owned by LAC increased from 63,200
shares on September 30, 1996, to 87,700 shares as of October 22, 1996. The
voting percentage also increased from 1.5% to 2% over the same period.
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B Shares. This option can be exercised at the end
of 10 years or when all loans made by AMIT to partnerships affiliated with MAE
GP as of November 9, 1994, (which is the date of execution of a definitive
Settlement Agreement) have been paid in full, but in no event prior to November
9, 1997. AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which
occurred April 14, 1995, as payment for the option. Upon exercise of the
option, AMIT would remit to MAE GP an additional $94,000.
Simultaneously with the execution of the option, MAE GP executed an irrevocable
proxy in favor of AMIT the result of which is MAE GP will be able to vote the
Class B Shares on all matters except those involving transactions between AMIT
and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an
officer or trustee of AMIT. On those matters, MAE GP granted to the AMIT
trustees, in their capacity as trustees of AMIT, proxies with regard to the
Class B Shares instructing such trustees to vote said Class B Shares in
accordance with the vote of the majority of the Class A Shares voting to be
determined without consideration of the votes of "Excess Class A Shares" as
defined in Section 6.13 of the Declaration of Trust of AMIT.
Also, Angeles, either directly or through an affiliate, maintained a central
disbursement account (the "Account") for the properties and partnerships managed
by Angeles and its affiliates, including the Partnership. Angeles caused the
Partnership to make deposits to the Account ostensibly to fund the payment of
certain obligations of the Partnership. Angeles further caused checks on such
Account to be written to or on behalf of certain other partnerships. At least
$63,412 deposited by or on behalf of the Partnership was used for purposes other
than satisfying the liabilities of the Partnership. Accordingly, the
Partnership filed a Proof of Claim in the Angeles bankruptcy proceedings for
such amount. However, subsequently the Managing General Partner of the
Partnership determined that the cost involved to pursue such claim would likely
exceed any amount received, if in fact such claim were to be resolved in favor
of the Partnership. Therefore, the Partnership withdrew this claim on August 9,
1995.
Except as mentioned above, the Partnership is not involved in any legal
proceedings other than those arising in the normal course of business. The
Managing General Partner believes that any losses experienced as a result of
such proceedings will not have a material adverse effect upon the Partnership's
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
Exhibit 10.14, Multifamily Note between Angeles Income Properties, Ltd.
II and Lehman Brothers Holdings, Inc d/b/a Lehman Capital, a division of
Lehman Brothers Holdings, Inc., dated July 1, 1996.
Exhibit 10.15, Multifamily Note between Angeles Income Properties, Ltd.
II and Lehman Brothers Holdings, Inc d/b/a Lehman Capital, a division of
Lehman Brothers Holdings, Inc., dated July 1, 1996.
Exhibit 10.16, Multifamily Mortgage, Assignment of Rents and Security
Agreement between Angeles Income Properties, Ltd. II and Lehman Brothers
Holdings, Inc d/b/a Lehman Capital, a division of Lehman Brothers
Holdings, Inc., dated July 1, 1996.
Exhibit 10.17, Multifamily Deed of Trust, Assignment of Rents and
Security Agreement Collateral Includes Fixtures between Angeles Income
Properties, Ltd. II and Lehman Brothers Holdings, Inc d/b/a Lehman
Capital, a division of Lehman Brothers Holdings, Inc., dated July 1,
1996.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1996.
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/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: November 12, 1996