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 SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period.........to.........
Commission file number 0-13192
ANGELES INCOME PROPERTIES, LTD. III
(Exact name of small business issuer as specified in its charter)
California 95-3903984
(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. III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 1,445
Restricted--tenant security deposits 48
Accounts receivable, less allowance
for doubtful accounts of $26 71
Escrows for taxes 113
Other assets 281
Restricted escrows 212
Investment properties
Land $ 1,527
Buildings and related personal property 12,653
14,180
Less accumulated depreciation (8,747) 5,433
Total assets $ 7,603
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 14
Tenant security deposits 48
Accrued taxes 11
Other liabilities 53
Mortgage notes payable 3,787
Equity interest in net liabilities of joint venture,
net of advances of $1,653 (Note B) 6,144
Partners' Deficit
General partners $ (400)
Limited partners (86,778 units issued
and outstanding) (2,054) (2,454)
Total liabilities and partners' deficit $ 7,603
See Accompanying Notes to Consolidated Financial Statements
b) ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1997 1996
Revenues:
Rental income $ 509 $ 400
Other income 14 13
Total revenues 523 413
Expenses:
Operating 104 110
General and administrative 61 56
Maintenance 32 37
Depreciation 163 161
Interest 91 106
Property taxes 41 22
Bad debt expense -- 11
Total expenses 492 503
Income (loss) before equity in loss of
joint venture 31 (90)
Equity in loss of joint venture (Note B) (235) (241)
Net loss $ (204) $ (331)
Loss allocated to general
partners (1%) $ (2) $ (3)
Loss allocated to limited
partners (99%) (202) (328)
Net loss $ (204) $ (331)
Net loss per limited partnership unit $ (2.33) $ (3.78)
See Accompanying Notes to Consolidated Financial Statements
c) ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 86,920 $ 1 $ 43,460 $ 43,461
Partners' deficit at
December 31, 1996 86,778 $ (398) $ (1,852) $ (2,250)
Net loss for the three months
ended March 31, 1997 -- (2) (202) (204)
Partners' deficit at
March 31, 1997 86,778 $ (400) $ (2,054) $ (2,454)
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net loss $ (204) $ (331)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in loss of joint venture 235 241
Depreciation 163 161
Amortization of loan costs and leasing commissions 11 19
Bad debt expense -- 11
Change in accounts:
Accounts receivable (60) 13
Escrows for taxes 1 (36)
Other assets 11 6
Accounts payable (13) 1
Accrued taxes (30) (32)
Other liabilities (7) (34)
Net cash provided by operating activities 107 19
Cash flows from investing activities:
Capital improvements (18) (25)
Advances to Joint Venture -- (436)
Deposits to restricted escrows (5) --
Net cash used in investing activities (23) (461)
Cash flows used in financing activities:
Payments on mortgage notes payable (10) (13)
Net increase (decrease) in unrestricted cash
and cash equivalents 74 (455)
Unrestricted cash and cash equivalents at
beginning of period 1,371 1,888
Unrestricted cash and cash equivalents at
end of period $ 1,445 $ 1,433
Supplemental disclosure of cash flow information:
Cash paid for interest $ 87 $ 95
<FN>
See Accompanying Notes to Consolidated Financial Statements
e) ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED NOTES TO 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 month period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the fiscal year ended December 31, 1997. For
further information, refer to the financial statements and footnotes thereto
included in Angeles Income Properties, Ltd. III's (the "Partnership" or
"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 - INVESTMENT IN JOINT VENTURE
The Partnership has a 33.3% investment in Northtown Mall Partners ("Northtown")
which is shown as "Equity interest in net liabilities of joint venture" on the
balance sheet. The condensed balance sheet information as of March 31, 1997,
for Northtown is as follows:
Northtown
(in thousands)
Assets
Cash $ 973
Other assets 6,425
Investment property, net 26,187
Total Assets $ 33,585
Liabilities and Partners' Deficit
Northtown
(in thousands)
Other liabilities $ 5,798
Mortgage note payable, in default 51,326
Partners' deficit (23,539)
Total Liabilities and Partners' Deficit $ 33,585
The condensed profit and loss statements for the three months ended March 31,
1997 and 1996, for Northtown is as follows:
Northtown
(in thousands)
1997 1996
Revenue $ 2,696 $ 2,573
Costs and expenses (3,399) (3,293)
Net loss $ (703) $ (720)
The Partnership's equity in the losses of the joint venture was $235,000 and
$241,000 for the three months ended March 31, 1997 and 1996, respectively.
The Partnership accounts for its 33.3% investment in Northtown using the equity
method of accounting. Under the equity method, the Partnership records its
equity interest in losses of the joint venture; however, the investment in the
joint venture will be recorded at an amount less than zero (a liability) to the
extent of the Partnership's share of net liabilities of the joint venture (See
"Note D").
NOTE C - 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 expenses owed to the Managing General Partner and affiliates
during the three months ended March 31, 1997, and March 31, 1996, were paid or
accrued:
1997 1996
(in thousands)
Property management fees $19 $16
Reimbursement for services of
affiliates 44 37
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 was 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 D - SUBSEQUENT EVENT
Effective April 1, 1997, the Northtown Mall property was sold to an affiliate of
the lender for $43,000,000. Northtown received approximately $1,600,000 in
proceeds as a result of the sale. The Partnership will recognize a gain on the
sale of this investment property in the second quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of one apartment complex and one
commercial property. The following table sets forth the average occupancy of
the properties for the three months ended March 31, 1997 and 1996:
Average Occupancy
1997 1996
Lake Forest Apartments
Brandon, Mississippi (1) 93% 87%
Poplar Square Shopping Center
Medford, Oregon (2) 94% 97%
1) Average occupancy at Lake Forest Apartments was down as of March 31, 1996,
due to new apartment complexes in the Brandon, Mississippi area.
2) Average occupancy at Poplar Square Shopping Center decreased due to two
tenants that went out of business. However, leases with new tenants have
been signed and both vacancies filled subsequent to March 31, 1997.
The Partnership realized a net loss of $204,000 for the three months ended March
31, 1997, as compared to a net loss of $331,000 for the three months ended March
31, 1996. The decrease in the net loss for the three months ended March 31,
1997, as compared to the three months ended March 31, 1996, is primarily due to
an increase in rental income.
Rental income increased during the three months ended March 31, 1997, as
compared to the three months ended March 31, 1996, due to the increase in
occupancy at Lake Forest Apartments and an increase in average rental rates at
Poplar Square Shopping Center. Partially offsetting the increase in revenue was
an increase in property tax expense. Property tax expense increased due to a
refund in January 1996 for an overpayment of 1995 property taxes relating to
Poplar Square Shopping Center. At the same time, interest expense decreased due
to refinancing of the mortgage debt secured by Poplar Square Shopping Center in
November 1996. Other expense items remained stable for the comparative periods.
Included in maintenance expense for the three months ended March 31, 1997, is
$15,000 of major repairs and maintenance comprised of parking lot seal-coating
and repairs.
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
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, 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
$1,445,000 compared to $1,433,000 at March 31, 1996. Net cash provided by
operating activities increased as a result of the decreased net loss. The
Northtown Mall property has continued to experience cash shortfalls and has been
dependent upon the Partnership and Angeles Income Properties, Ltd. IV (the 66.7%
owner of Northtown) to cover such shortfalls in order to meet operating and debt
service requirements for this property (see discussion below and at "Note D"
regarding this investment property). During the three months ended March 31,
1996, the Partnership advanced $436,000 to Northtown. There were no advances to
Northtown during the three months ended March 31, 1997. Other uses of cash for
investing and financing purposes remained stable for the comparable periods.
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
mortgage indebtedness of $3,787,000, which is secured by the Poplar Square
Shopping Center investment property, carries a stated interest rate of 9.2% and
matures in November 2006. Future cash distributions will depend on the levels of
net cash generated from operations, property sales and the availability of cash
reserves.
At March 31, 1997, Northtown is in default on its non-recourse mortgage note
payable due to allowing a mechanics lien to remain on its mortgaged property,
which is in violation of its mortgage agreement. The Partnership incurred
significant costs for tenant improvements and other expenditures for a new
tenant during 1996. In November 1996, the lender and the Partnership disagreed
on the funding for these costs, resulting in the Partnership refusing to
authorize any further disbursements from its "Improvements and Leasing
Commissions Reserve Escrow" to pay the remaining balance of approximately $1
million due to the contractors and other vendors. In January 1997, the
contractors filed a mechanics lien against the property. In addition, the
Partnership ceased servicing the mortgage debt secured by this property in March
1997.
On March 15, 1991, Northtown and the holder of the Northtown Mall mortgage note
payable entered into an Option Agreement ("Option") whereby such lender has the
right and an option to purchase the Northtown Mall property on the terms and
conditions as set forth in the Option. The purchase price of the property, as
set forth in the Option, is defined as the fair market value of the property.
Such Option can be exercised by written notice by the lender at specified dates.
In accordance with the Option, the lender gave notice to Northtown in November
1996, that it intended to exercise this Option. The lender and Northtown began
the determination of the property's fair value as defined in the Option and in
the loan agreement. The Managing General Partner believed that the appraisals
would produce an option price that would be substantially less than the current
outstanding debt. The Managing General Partner made a proposal to allow the
lender to consummate its option to purchase the property. Subsequent to March
31, 1997, the Northtown Mall investment property was sold to an affiliate of the
lender for $43,000,000.
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 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 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:
No reports on form 8-K were 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. III
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long
Robert D. Long
Vice President/CAO
Date:May 13, 1997