FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
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 March 31, 1997
[] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(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
a) ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 3,047
Restricted--tenant security deposits 267
Accounts receivable, net of allowance for
doubtful accounts of $90 57
Escrows for taxes 193
Restricted escrows 1,667
Other assets 732
Investment in, and advances of $46 to,
Joint Venture 31
Investment properties
Land $ 2,197
Buildings and related personal property 32,867
35,064
Less accumulated depreciation (23,409) 11,655
$ 17,649
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 52
Tenant security deposits 267
Accrued taxes 207
Other liabilities 176
Mortgage notes payable 18,331
Partners' Deficit
General partners $ (453)
Limited partners (99,784 units issued and
outstanding) (931) (1,384)
$ 17,649
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
March 31,
1997 1996
Revenues:
Rental income $ 1,593 $ 1,609
Other income 106 69
Total revenues 1,699 1,678
Expenses:
Operating 447 452
General and administrative 69 88
Maintenance 183 172
Depreciation 443 433
Interest 365 396
Property taxes 140 133
Bad debt expense 10 38
Total expenses 1,657 1,712
Equity in loss of Joint Venture (15) (30)
Loss on disposal of property (37) --
Net loss $ (10) $ (64)
Loss allocated to
general partners (1%) $ -- $ (1)
Loss allocated to
limited partners (99%) (10) (63)
Net loss $ (10) $ (64)
Net loss per limited partnership unit $ (.10) $ (.63)
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, 1996 99,784 $ (453) $ (921) $ (1,374)
Net loss for the three months
ended March 31, 1997 -- -- (10) (10)
Partners' deficit
at March 31, 1997 99,784 $ (453) $ (931) $ (1,384)
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<aptioin>
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net loss $ (10) $ (64)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Bad debt expense 10 38
Depreciation 443 433
Amortization of discounts, loan costs and lease
commissions 25 30
Equity in loss of Joint Venture 15 30
Loss on disposal of property 37 --
Change in accounts:
Restricted cash (8) (2)
Accounts receivable 132 (32)
Escrows for taxes (98) (89)
Other assets (9) (10)
Accounts payable (200) (58)
Tenant security deposit liabilities 11 2
Accrued taxes 29 75
Other liabilities 5 34
Net cash provided by operating activities 382 387
Cash flows from investing activities:
Property improvements and replacements (70) (64)
Deposits to restricted escrows (61) (16)
Advances to Joint Venture (2) (29)
Net cash used in investing activities (133) (109)
Cash flows from financing activities:
Loan costs (10) (10)
Payments on mortgage notes payable (47) (70)
Net cash used in financing activities (57) (80)
Net increase in unrestricted cash and
cash equivalents 192 198
Unrestricted cash and cash equivalents at
beginning of period 2,855 1,708
Unrestricted cash and cash equivalents at
end of period $ 3,047 $ 1,906
Supplemental disclosure of cash flow information:
Cash paid for interest $ 345 $ 370
<FN>
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 months ended March 31, 1997, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1997. For further
information, refer to the financial statements and footnotes thereto included in
Angeles Income Properties, Ltd. II's (the "Partnership" or the "Registrant")
annual report on Form 10-KSB for the fiscal year ended December 31, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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 three months ended March
31, 1997 and 1996:
1997 1996
(in thousands)
Property management fees $82 $79
Reimbursements for services
of affiliates (including $13 of
construction oversight costs for
the three months ended March 31, 1997) 66 49
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 payment 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.
Angeles Mortgage Investment Trust, ("AMIT"), a real estate investment trust,
provides financing to the Princeton Meadows Golf Course Joint Venture ("Joint
Venture") which is secured by the Joint Venture's sole investment property known
as the Princeton Meadows Golf Course, in the amount of $1,567,000. Interest
expense on the debt secured by the Joint Venture was $49,000 and $52,000 for the
three months ended March 31, 1997 and 1996, respectively. Accrued interest was
$17,000 at March 31, 1997.
MAE GP Corporation ("MAE GP"), an affiliate of the Managing General Partner,
owns 1,675,113 Class B Shares of AMIT. The terms of the Class B Shares provide
that they are convertable, in whole or in part, into Class A Shares on the basis
of 1 Class A Share for every 49 Class B Shares (however, in connection with the
settlement agreement described in the following paragraph, MAE GP has agreed not
to convert the Class B Shares so long as AMIT's option is outstanding). These
Class B Shares entitle MAE GP to receive 1% of the distributions of net cash
distributed by AMIT. These Class B Shares also entitle MAE GP to vote on the
same basis as Class A Shares, providing MAE GP with approximately 39% of the
total voting power of AMIT (unless and until converted to Class A Shares, in
which case the percentage of the vote controlled represented by the shares held
by MAE GP would approximate 1.3% 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 and 1996
annual meetings 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, Insignia Properties,
L.P. ("IPLP"), an affiliate of the Managing General Partner and an affiliate of
Insignia Financial Group, Inc. ("Insignia"), which provides property management
and partnership administration services to the Partnership, owns 96,800 Class A
Shares of AMIT at March 31, 1997. These Class A Shares represent approximately
2.2% of the total voting power of AMIT.
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B shares owned by it. 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. In connection with such settlement, AMIT delivered to MAE
GP cash in the sum of $250,000 at closing (which occurred April 14, 1995) as
payment for the option. If and when the option is exercised, AMIT will be
required to remit to MAE GP an additional $94,000.
Simultaneously with the execution of the option and as part of the settlement,
MAE GP executed an irrevocable proxy in favor of AMIT, the result of which is
that MAE GP is permitted 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 is obligated to deliver 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).
On April 3, 1997, Insignia and AMIT entered into a non-binding agreement in
principle contemplating, among other things, a business combination of AMIT and
Insignia Properties Trust, an entity owned 98% by Insignia and its affiliates
("IPT"). It is anticipated that the resulting combined entity would be owned
approximately 82% by Insignia and its affiliates and 18% by the pre-combination
AMIT shareholders (including MAE GP and IPLP). The proposed transaction is
contingent upon, among other things, satisfactory review of the business,
operations, properties and assets of AMIT and IPT, the negotiation and execution
of definitive agreements and the approval of the proposed transaction by the
trustees and shareholders of each of AMIT and IPT.
NOTE C - INVESTMENT IN JOINT VENTURE
The Partnership owns a 14.4% interest in the Joint Venture. The Partnership
accounts for its interest in the Joint Venture using the equity method of
accounting.
Condensed balance sheet information of the Joint Venture is as follows:
March 31, 1997
(in thousands)
Assets
Cash $ 125
Other assets 222
Investment property, net 1,889
Total $ 2,236
Liabilities and Partners' Deficit
Notes payable to AMIT $ 1,567
Other liabilities 775
Partners' deficit (106)
Total $ 2,236
The condensed profit and loss statements of the Joint Venture are summarized as
follows:
Three Months Ended
March 31,
1997 1996
(in thousands)
Revenues $196 $115
Costs and expenses (302) (324)
Net loss $(106) $(209)
The Partnership's equity interest in the loss of the Joint Venture for the three
months ended March 31, 1997, was $15,000 and was $30,000 for the three months
ended March 31, 1996.
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 had not given 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 field work has been completed with the expected completion date of
the compliance work to be sometime in 1997. The Managing General Partner
believes the liability recorded is sufficient to cover all costs associated with
this incident.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 three months ended March 31, 1997 and March 31, 1996:
Average
Occupancy
Property 1997 1996
Atlanta Crossing Shopping Center 89% 90%
Montgomery, Alabama (1)
Deer Creek Apartments 95% 95%
Plainsboro, New Jersey
Georgetown Apartments 97% 98%
South Bend, Indiana
Landmark Apartments 91% 95%
Raleigh, North Carolina (2)
1) The Managing General Partner is still working to lease several outparcels at
this property and hopes to increase occupancy during the remainder of 1997.
2) The decrease in occupancy at Landmark Apartments is due to the softening
market in the area.
The Partnership's net loss for the three months ended March 31, 1997, was
$10,000 versus a net loss of $64,000 for the three months ended March 31, 1996.
The decrease in net loss is due primarily to an increase in other income and a
decrease in total expenses, offset partially by a loss recognized on disposal of
property. Other income increased due to increased interest income. During the
first quarter of 1997, the Partnership invested in instruments that yield a
higher rate of return on the Partnership's cash reserves. Also, as a result of
the refinance of the mortgages encumbering Deer Creek Apartments and Landmark
Apartments in the second half of 1996, there was an increase in capital reserve
balances, leading to increased interest income. General and administrative
expense decreased due to decreases in taxes, fees and licenses and
administrative expenses such as postage and copying. The decrease in interest
expense is a result of lower interest rates obtained by the refinancing of the
mortgages encumbering Deer Creek Apartments and Landmark Apartments. Partially
offsetting these decreases in expense were increases in maintenance expense and
depreciation expense. Maintenance expense increased at Landmark Apartments due
to minor interior and exterior improvements made during the first quarter of
1997. Depreciation expense increased due to more capital improvements being made
in late 1996 and the first quarter of 1997.
The Managing General Partner determined that past due amounts, from tenants of
the Atlanta Crossing Shopping Center, amounting to $10,000 were uncollectible
and therefore were reserved, resulting in bad debt expense for the three months
ended March 31, 1997.
The Partnership has a 14.4% investment in the Princeton Meadows Golf Course
Joint Venture. For the three months ended March 31, 1997, the Partnership
realized equity in loss of the Joint Venture of $10,000 as compared to a $30,000
loss for the three months ended March 31, 1996. The decreased loss at Princeton
Meadows Golf Course in 1997 can be attributed to an increase in revenue. These
revenue increases are the result of maintenance upgrades at the golf course that
have improved the appearance of the property. The completion of these upgrades
in 1996 lead to a decrease in expenses for the three months ended March 31,
1997.
For the three months ended March 31, 1997, the Partnership recognized a loss on
disposal of property of $37,000. This loss resulted from the write-off of roofs
at Deer Creek Apartments that were not fully depreciated at the time of
replacement. The roof replacement project is still in process at March 31,
1997.
Included in maintenance expense for the three months ended March 31, 1997, is
$48,000 of major repairs and maintenance mainly comprised of exterior building
improvements and parking lot repairs. Included in maintenance expense for the
three months ended March 31, 1996, is $34,000 of major repairs and maintenance
mainly comprised of major landscaping and exterior building improvements.
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 March 31, 1997, the Partnership had unrestricted cash and cash equivalents of
$3,047,000 versus $1,906,000 at March 31, 1996. Net cash provided by operating
activities remained consistent for the three months ended March 31, 1997, as
compared to the three months ended March 31, 1996. However, there were
significant fluctuations in accounts receivable and accounts payable. Accounts
receivable fluctuated due to a revised estimate of expense recoveries from
tenants at the Atlanta Crossing Shopping Center. Accounts payable decreased due
to payments of property improvements and replacements that were accrued for at
December 31, 1996. Net cash used in investing activities increased due to an
increase in deposits to restricted escrows as required by the new mortgage
indebtedness secured by Landmark Apartments and Deer Creek Apartments. Net cash
used in financing activities decreased due to decreased payments required on the
new mortgage indebtedness. These decreased payments are the direct result of a
decreased mortgage balance on the debt secured by Deer Creek Apartments and due
to the extended amortization period from 20 years to 30 years on the new
mortgage indebtedness secured by Landmark Apartments.
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. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
Partnership has mortgage notes payable totaling $18,331,000. The first
mortgages secured by Deer Creek Apartments and Landmark Apartments mature in
November 2003. The remaining debt, which is secured by Georgetown Apartments,
matures in October 2003.
The Partnership's primary source of cash is from the operations of its
properties and from financing placed on such properties. Cash from these
sources is utilized for property operations, capital improvements, and/or
repayment of debt. 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 investment properties to adequately
maintain the physical assets and other operating needs of the Partnership.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings and property sales.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Registrant believes that all such routine matters are
adequately covered by insurance and will be resolved without a material adverse
effect upon the Partnership's financial condition, results of operation or
liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the three months ended March 31, 1997.
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: May 12, 1997