FORM 10-QSB--QUARTERLY OR TRANSITIONAL 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, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from .........to.........
Commission file number 0-11766
ANGELES PARTNERS XI
(Exact name of small business issuer as specified in its charter)
California 95-3788040
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
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
a)
ANGELES PARTNERS XI
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1998
Assets
Cash and cash equivalents $ 1,067
Receivables and deposits 800
Other assets 426
Investment in, and advances of $164 to, Joint Venture 154
Investment properties:
Land $ 3,998
Buildings and related personal property 25,235
29,233
Less accumulated depreciation (17,522) 11,711
$ 14,158
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 35
Due to affiliates 470
Tenant security deposit liabilities 528
Other liabilities 421
Notes payable 31,271
Partners' Deficit
General partners $ (501)
Limited partners (39,637 units
issued and outstanding) (18,066) (18,567)
$ 14,158
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
b)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 1,761 $ 1,663
Other income 90 62
Total revenues 1,851 1,725
Expenses:
Operating 467 575
General and administrative 44 40
Depreciation 374 373
Interest 727 726
Property taxes 201 179
Total expenses 1,813 1,893
Equity in loss of Joint Venture (47) (44)
Net loss $ (9) $ (212)
Net loss allocated to general partners (1%) $ (--) $ (2)
Net loss allocated to limited partners (99%) (9) (210)
Net loss $ (9) $ (212)
Net loss per limited partnership unit $ (.23) $ (5.30)
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030
Partners' deficit at
December 31, 1997 39,637 $ (501) $ (18,057) $ (18,558)
Net loss for the three months
ended March 31, 1998 -- -- (9) (9)
Partners' deficit at
March 31, 1998 39,637 $ (501) $ (18,066) $ (18,567)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
d)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net loss $ (9) $ (212)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in loss of Joint Venture 47 44
Depreciation 374 373
Amortization of loan costs 28 27
Casualty gain (28) --
Change in accounts:
Receivables and deposits 1 20
Other assets 19 (3)
Accounts payable (52) (390)
Tenant security deposit liabilities (13) 28
Due to affiliates -- 30
Other liabilities (12) 174
Net cash provided by operating activities 355 91
Cash flows from investing activities:
Property improvements and replacements (91) (107)
Advances to Joint Venture -- (7)
Insurance proceeds received related to casualty 58 --
Net cash used in investing activities (33) (114)
Cash flows from financing activities:
Loan costs -- (11)
Payment on mortgage notes payable (1) --
Net cash used in financing activities (1) (11)
Net increase (decrease) in cash and cash equivalents 321 (34)
Cash and cash equivalents at beginning of period 746 662
Cash and cash equivalents at end of period $ 1,067 $ 628
Supplemental disclosure of cash flow information:
Cash paid for interest $ 699 $ 535
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
e)
ANGELES PARTNERS XI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Partners
XI (the "Partnership") 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 month
period ended March 31, 1998, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 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 Managing General Partner is wholly-owned by Insignia
Properties Trust ("IPT"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). The Partnership Agreement provides for certain payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
The following expenses owed to the Managing General Partner and affiliates for
the three months ended March 31, 1998 and 1997 were paid or accrued:
1998 1997
(in thousands)
Property management fees (included in
operating expenses) $ 91 $ 86
Reimbursement for services of affiliates
(included in general and administrative
expenses and investment property) 39 33
Due to affiliates 470 518
Included in reimbursements for services of affiliates at March 31, 1998 and 1997
is approximately $7,000 and $4,000, respectively, in reimbursements for
construction oversight costs.
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an 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 was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which 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 was not
significant.
The Partnership may make advances to the Princeton Meadows Golf Course Joint
Venture (the "Joint Venture") as deemed appropriate by the Managing General
Partner. These advances do not bear interest and do not have stated terms of
repayment. At March 31, 1998, the amount of advances receivable from the Joint
Venture was approximately $164,000.
Concurrent with the refinancing of Fox Run Apartments in December 1996, the
Partnership borrowed $875,000 from Angeles Mortgage Investment Trust ("AMIT"),
which is secured by the Fox Run Apartments and the Partnership's general partner
interest in the Joint Venture. Total interest expense to AMIT was approximately
$25,000 and $24,000 for the three months ended March 31, 1998 and 1997,
respectively. In addition, AMIT holds a note receivable from the Joint Venture
in the amount of $1,567,000, which is secured by the Joint Venture's sole
investment property known as the Princeton Meadows Golf Course. Total interest
expense incurred by the Joint Venture was approximately $49,000 for both the
three months ended March 31, 1998 and 1997.
In November 1992, MAE GP acquired 1,675,113 Class B Common Shares of AMIT. The
terms of the Class B Shares provide that they are convertible, in whole or in
part, into Class A Common Shares on the basis of one Class A Share for every 49
Class B Shares (however, in connection with the settlement agreement described
in the following paragraph, MAE GP agreed not to convert the Class B Shares so
long as AMIT's option is outstanding). These Class B Shares entitle the holder
to receive 1% of the distributions of net cash distributed by AMIT (however, in
connection with the settlement agreement described in the following paragraph,
MAE GP agreed to waive its right to receive dividends and distributions so long
as AMIT's option is outstanding). The holder of the Class B Shares is also
entitled to vote on the same basis as the holders of Class A Shares, providing
the holder 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 such shares would approximate 1.3% 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 which were
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. 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 also executed an irrevocable proxy in favor of AMIT, which provides that
the holder of the Class B Shares is permitted to vote those 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. With respect to such matters, the trustees of AMIT are required to vote
(pursuant to the irrevocable proxy) the Class B Shares (as a single block) in
the same manner as a majority of the Class A Shares are voted (to be determined
without consideration of the votes of "Excess Class A Shares" (as defined in
Section 6.13 of AMIT's Declaration of Trust)).
Between its acquisition of the Class B Shares (in November 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. In February 1998, MAE GP was merged into IPT, and
in connection with that merger, MAE GP dividended all of the Class B Shares to
its sole stockholder, Metropolitan Asset Enhancement, L.P. ("MAE"). As a
result, MAE, as the holder of the Class B Shares, is now subject to the terms of
the settlement agreement, option and irrevocable proxy described in the two
preceding paragraphs. Neither MAE GP nor MAE has exerted or intends to exert any
management control over or participate in the management of AMIT. However,
subject to the terms of the proxy described below, MAE may choose to vote the
Class B Shares as it deems appropriate in the future.
Liquidity Assistance L.L.C., which is an affiliate of the Managing General
Partner, MAE and Insignia (which provides property management and partnership
administration services to the Partnership), owned 96,800 Class A Shares of AMIT
at March 31, 1998. These Class A Shares represent approximately 2.2% of the
total voting power 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
IPT, an entity then owned 98% by Insignia and its affiliates. On July 18, 1997,
IPT, Insignia and MAE GP entered into a definitive merger agreement pursuant to
which (subject to shareholder approval and certain other conditions, including
the receipt by AMIT of a fairness opinion from its investment bankers) AMIT
would be merged with and into IPT, with each Class A Share and Class B Share
being converted into 1.625 and 0.0332 Common Shares of IPT, respectively. The
foregoing exchange ratios are subject to adjustment to account for dividends
paid by AMIT from January 1, 1997 and dividends paid by IPT from February 1,
1997. It is anticipated that Insignia and its affiliates (including MAE) would
own approximately 57% of post-merger IPT when this transaction is consummated.
NOTE C - INVESTMENT IN JOINT VENTURE
The Partnership owns a 41.1% 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 at March 31, 1998 is as
follows (in thousands):
Assets
Cash $ 211
Other assets 180
Investment property, net 1,999
Total $ 2,390
Liabilities and Partners' Deficit
Notes payable to AMIT $ 1,567
Other liabilities 836
Partners' deficit (13)
Total $ 2,390
The condensed statements of operations of the Joint Venture for the three months
ended March 31, 1998 and 1997, are summarized as follows:
Three Months Ended
(in thousands)
1998 1997
Revenues $ 203 $ 196
Costs and expenses (317) (302)
Net income (loss) $ (114) $ (106)
The Partnership realized equity loss of approximately $47,000 and $44,000 in the
Joint Venture for the three months ended March 31, 1998, and 1997, 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 phosphorous
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. Field work is in process, with skimmers
having been installed at three test wells on the site. These skimmers are in
place to detect any residual fuel that may still be in the ground. The expected
completion date of field work should be sometime in 1999. The Joint Venture
originally recorded a liability of $199,000 for the costs of the clean-up.
Subsequently, in 1997, the Joint Venture recorded an additional liability of
approximately $45,000 as an adjustment to estimated costs remaining to complete
the clean-up. At March 31, 1998, the balance in the liability for clean-up
costs is $55,000. Funds from the property will be used to cover this excess.
NOTE D - CASUALTY
In October, 1997, there was a fire at Fox Run Apartments that completely
destroyed the clubhouse and office. After receiving an advance of $50,000, the
remaining insurance proceeds are estimated to be approximately $300,000. Total
insurance proceeds are estimated to cover the cost of replacement of the assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of one apartment complex. The
following table sets forth the average occupancy of the property for the three
months ended March 31, 1998 and 1997:
Average
Occupancy
1998 1997
Fox Run Apartments
Plainsboro, New Jersey 97% 93%
The Managing General Partner attributes the increase in occupancy at Fox Run
Apartments to the improvement of the market in the Plainsboro area.
The Partnership incurred a net loss of approximately $9,000 for the three months
ended March 31, 1998, as compared to a net loss of approximately $212,000 for
the three months ended March 31, 1997. The decrease in the net loss is due to an
increase in total revenues and a decrease in operating expenses.
Fox Run Apartments' increased rental income is the result of an increase in
average occupancy along with an increase in rental rates for the three months
ended March 31, 1998, versus the three months ended March 31, 1997. In
addition, the increase in other income is a result of corporate unit income
increasing due to an increase in the number of corporate units available at Fox
Run Apartments. The income associated with operating these units is higher
because they are fully furnished and utilities are included. Other income also
includes an increase in lease cancellation fees for the current period over
1997. Operating expense decreased primarily due to a decrease in maintenance
expense at Fox Run Apartments. Much of the maintenance work is currently being
done less expensively by in-house personnel rather than outside contractors.
Also, less interior painting was done at Fox Run Apartments during the first
quarter of 1998 as compared to the first quarter of 1997 due to fewer tenants
vacating their units. The decrease in operating expenses was partially offset by
an increase in tax expense due to an increase in tax rates at Fox Run
Apartments.
The Partnership has a 41.1% investment in the Princeton Meadows Golf Course
Joint Venture. For the three months ended March 31, 1998, and March 31, 1997,
the Partnership realized equity in loss of the Joint Venture of approximately
$47,000 and $44,000, respectively. The increase in net loss is attributable to
an increase in maintenance expense as a result of a pond rebuilding project.
This was partially offset by an increase in revenue which can be attributed to
maintenance upgrades at the golf course which have improved the appearance of
the property.
Included in operating expense for the three months ended March 31, 1998, is
approximately $2,000 of major repairs and maintenance mainly comprised of window
covering replacements. For the three months ended March 31, 1997, included in
operating expense is approximately $6,000 of major repairs and maintenance
mainly comprised of construction oversight costs and window covering
replacements.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment at its investment property to
assess the feasibility of increasing rent, 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, 1998, the Partnership had cash and cash equivalents of
approximately $1,067,000 as compared to approximately $628,000 at March 31,
1997. Cash and cash equivalents increased by approximately $321,000 and
decreased by approximately $34,000 for the three month periods ended March 31,
1998 and 1997, respectively. Net cash provided by operating activities increased
for the three months ended March 31, 1998, as compared to the three months ended
March 31, 1997, due to a decrease in net loss, as previously explained, along
with a much smaller decrease in accounts payable. Payment of utility expenses,
loan costs, past due insurance premiums, and deferred liabilities from a
casualty, all accrued for at December 31, 1996, contributed to the large
decrease in accounts payable for the three months ended March 31, 1997. These
changes were partially offset by a decrease in other liabilities. The increase
in other liabilities for the quarter ended March 31, 1997, was primarily due to
an increase in accrued interest relating to the new mortgage indebtedness on Fox
Run Apartments. A full month of interest is accrued at March 31, 1997, whereas
only nine days of interest was accrued at December 31, 1996, as the refinancing
closed on December 23, 1996. Net cash used in investing activities decreased
due to a decrease in property improvements and replacements along with the
recognition in 1998 of insurance proceeds received from the fire at Fox Run
Apartments (see Note D). The decrease in cash used in financing activities is
due to loan costs incurred in 1997 relating to the refinancing of the
indebtedness at Fox Run Apartments in December 1996.
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 mortgage
indebtedness of approximately $31,271,000 matures January 2002, at which time
the property will either be sold or refinanced. Balloon payments due at
maturity total approximately $29,960,000. There were no cash distributions
during the three months ended March 31, 1998, or March 31, 1997. There are no
material restrictions upon the Partnership's present or future ability to make
distributions in accordance with the provisions of the Partnership Agreement.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings, a property sale and the availability of cash reserves.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
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. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Managing General Partner and several of their affiliated partnerships and
corporate entities. The complaint purports to assert claims on behalf of a
class of limited partners and derivatively on behalf of a number of limited
partnerships which are named as nominal defendants, challenging the acquisition
by Insignia Financial Group, Inc., ("Insignia") and its affiliates of interests
in certain general partner entities, past tender offers by Insignia affiliates
to acquire limited partnership units, the management of partnerships by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
The Managing General Partner was only recently served with the complaint which
it believes to be without merit, and intends to vigorously defend the action.
The Registrant is unaware of any other pending or outstanding litigation that is
not of a routine nature. The Managing General Partner of the Registrant
believes that all such pending or outstanding litigation will be resolved
without a material adverse effect upon the business, financial condition, or
operations of the Partnership.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the three months ended March 31, 1998.
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 PARTNERS XI
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President/Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: May 11, 1998