FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO 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)
June 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 1,356
Restricted--tenant security deposits 45
Investment in joint venture 1,059
Accounts receivable, less allowance for
doubtful accounts of $17 29
Escrow for taxes 139
Other assets 260
Restricted escrows 219
Investment properties:
Land
Buildings and related personal property $ 1,527
12,844
14,371
Less accumulated depreciation (8,915) 5,456
$ 8,563
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 68
Tenant security deposits 47
Accrued taxes 22
Other liabilities 55
Mortgage note payable 3,777
Partners' (Deficit) Capital
General partners $ (330)
Limited partners capital (86,778
units issued and outstanding) 4,924 4,594
$ 8,563
<FN>
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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Rental income $ 386 $ 451 $ 895 $ 851
Other income 17 33 31 46
Total revenues 403 484 926 897
Expenses:
Operating 103 103 207 213
General and administrative 30 67 91 123
Maintenance 127 43 159 80
Depreciation 168 162 331 323
Interest 91 109 182 215
Bad debt expense -- 12 -- 23
Property taxes 39 41 80 63
Total expenses 558 537 1,050 1,040
Loss before equity in income
(loss) of joint venture (155) (53) (124) (143)
Equity in income (loss) of
joint venture (Note B) 7,203 (285) 6,968 (526)
Net income (loss) $ 7,048 $ (338) $ 6,844 $ (669)
Net income (loss) allocated
to general partners (1%) $ 70 $ (3) $ 68 $ (7)
Net income (loss) allocated
to limited partners (99%) 6,978 (335) 6,776 (662)
Net income (loss) $ 7,048 $ (338) $ 6,844 $ (669)
Net income (loss) per
limited partnership unit $ 80.41 $ (3.86) $ 78.08 $ (7.63)
<FN>
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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 income for the six months
ended June 30, 1997 -- 68 6,776 6,844
Partners' (deficit) capital
at June 30, 1997 86,778 $ (330) $ 4,924 $ 4,594
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 6,844 $ (669)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Equity in (income) loss of joint venture (6,968) 526
Depreciation 331 323
Amortization of loan costs and
leasing commissions 21 42
Bad debt expense -- 23
Change in accounts:
Restricted cash 3 (1)
Accounts receivable (18) (28)
Escrows for taxes (25) (71)
Other assets 22 4
Accounts payable 41 (1)
Tenant security deposit liabilities (1) 1
Property taxes (19) (25)
Other liabilities (5) (20)
Net cash provided by operating
activities 226 104
Cash flows from investing activities:
Property improvements and replacements (209) (50)
Advances to joint venture -- (612)
Deposits to restricted escrows (12) --
Net cash used in investing activities (221) (662)
Cash flows from financing activities:
Payments on mortgage notes payable (20) (27)
Loan costs paid -- (37)
Net cash used in financing activities (20) (64)
Net decrease in unrestricted cash
and cash equivalents (15) (622)
Unrestricted cash and cash equivalents at
beginning of period 1,371 1,888
Unrestricted cash and cash equivalents at
end of period $ 1,356 $ 1,266
Supplemental disclosure of cash flow information:
Cash paid for interest $ 174 $ 189
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 of Angeles Income Properties,
Ltd. III (the "Partnership" or "Registrant") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Angeles Realty Corporation II, (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 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 the Partnership's 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 "Investment in joint venture" on the balance sheet. The
investment property, Northtown Mall, was sold in May 1997, but effective April
1, 1997. The condensed balance sheet information as of June 30, 1997, for
Northtown is as follows:
Northtown
(in thousands)
Assets
Cash $ 1,524
Total Assets $ 1,524
Liabilities
Liabilities $ 1,524
Total Liabilities $ 1,524
The condensed profit and loss statements for the three and six months ended June
30, 1997 and 1996, for Northtown are as follows:
(in thousands)
Three Months Ended
June 30,
1997 1996
Revenue $ 31 $ 2,417
Costs and expenses (122) (3,271)
Gain on sale of investment property 23,632 --
Net income (loss) $ 23,541 $ (854)
(in thousands)
Six Months Ended
June 30,
1997 1996
Revenue $ 2,727 $ 4,990
Costs and expenses (3,521) (6,564)
Gain on sale of investment property 23,632 --
Net income (loss) $ 22,838 $ (1,574)
The Partnership realized equity income from Northtown of $6,968,000 for the six
months ended June 30, 1997 and realized equity loss of $526,000 for the six
months ended June 30, 1996.
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 income and 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" for information regarding the sale of this
investment property).
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 six months ended June 30, 1997 and June 30, 1996, were paid or
accrued:
1997 1996
(in thousands)
Property management fees $35 $32
Reimbursement for services of affiliates 62 88
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 - SALE OF NORTHTOWN MALL
On May 12, 1997, the Partnership sold Northtown Mall to an affiliate of the
lender. The sale resulted in net proceeds of approximately $1,200,000 after
payment of closing costs, and the gain on the sale amounted to approximately
$23,632,000. The economic closing of the sale of Northtown Mall was as of April
1, 1997, at which time the Partnership was released from the mortgage note
secured by this property in the amount of approximately $51,326,000.
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 six months ended June 30, 1997 and 1996:
Average Occupancy
1997 1996
Lake Forest Apartments
Brandon, Mississippi (1) 91% 89%
Poplar Square Shopping Center
Medford, Oregon 93% 94%
(1) This property is competing against new complexes in the area and also has
physical deficiencies that are being addressed. The Managing General
Partner is optimistic that occupancy will increase.
The Partnership realized net income of $7,048,000 and $6,844,000, respectively,
for the three and six months ended June 30, 1997, as compared to net losses of
$338,000 and $669,000, respectively, for the three and six months ended June 30,
1996. The net income for the three and six months ended June 30, 1997, is due to
the equity in income of the joint venture, as a result of the gain realized on
the sale of Northtown in the second quarter of 1997 (see "Note D"). For the six
months ended June 30, 1997, versus 1996, loss before equity in income (loss) of
the joint venture decreased due to an overall increase in total revenues, which
was only partially offset by an increase in total expenses.
Rental income increased during the six months ended June 30, 1997, as compared
to the six months ended June 30, 1996, due to the increase in occupancy and
average annual rental rates at Lake Forest Apartments. Although, for the three
months ended June 30, 1997, versus the same period in 1996, there was a decrease
in rental income due to a slight decrease in occupancy at Lake Forest Apartments
during the second quarter of 1997. Other income decreased during the six months
ended June 30, 1997, as compared to the six months ended June 30, 1996, due to a
decrease in interest income as a result of a decrease in cash investments. The
Partnership began the 1996 year with over $1,800,000 in cash and was able to
invest a significant portion of this cash until it was advanced to Northtown
(See discussion below). Partially offsetting the overall increase in income was
an increase in property tax expense and an increase in maintenance 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.
Maintenance expense increased at Lake Forest Apartments due to an exterior
painting project and other various exterior building improvements undertaken in
an effort to improve the appearance of the property. Partially offsetting this
increase in overall expenses was a decrease in general and administrative
expenses due to a decrease in professional services, combined with a decrease in
reimbursements for services of affiliates. Also, interest expense decreased due
to the refinancing of the mortgage debt secured by Poplar Square Shopping Center
in November 1996. This debt was refinanced at a lower interest rate.
Bad debt expense for the three and six months ended June 30, 1996, was a result
of an increase in the reserve required based on a review of tenants' accounts at
the Poplar Square Shopping Center. No such reserve was required during the six
months ended June 30, 1997.
On May 12, 1997, the Partnership sold Northtown Mall to an affiliate of the
lender. The sale resulted in net proceeds of approximately $1,200,000 after
payment of closing costs, and the gain on the sale amounted to approximately
$23,632,000. The Partnership's pro-rata share of this gain is included in
equity in income of the joint venture. The economic closing of the sale of
Northtown Mall is as of April 1, 1997, at which time the Partnership was
released from the mortgage note of approximately $51,326,000.
Included in maintenance expense for the six months ended June 30, 1997, is
$82,000 of major repairs and maintenance comprised of parking lot seal-coating
and repairs, exterior building improvements, and exterior painting. For the six
months ended June 30, 1996, $4,000 of major repairs and maintenance, comprised
of exterior building improvements, is included in maintenance expense.
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 June 30, 1997, the Partnership had unrestricted cash and cash equivalents of
$1,356,000 compared to $1,266,000 at June 30, 1996. Net cash provided by
operating activities increased primarily as a result of the timing of payment of
operating expenses out of accounts payable and also due to a lesser increase in
tax escrows. Net cash used in investing activities decreased due to the
decrease in advances to joint venture. Prior to the sale of the property, the
Northtown Mall property had continued to experience cash shortfalls and had 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 at "Note D" regarding
this investment property). During the six months ended June 30, 1996, the
Partnership advanced $612,000 to Northtown. There were no advances to Northtown
during the six months ended June 30, 1997. Partially offsetting the decrease in
advances to joint venture was an increase in cash used for property improvements
and replacements at Lake Forest Apartments. Net cash used in financing
activities decreased due to the loan costs incurred in 1996 in an effort to
refinance the mortgage indebtedness secured by the Poplar Square Shopping
Center. This mortgage indebtedness was refinanced in November 1996. As a
result of the refinance, the monthly payments to service this debt decreased
causing a decrease in payments on the mortgage note payable.
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 $3,777,000, 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 10.16 Sales Agreement among Northtown Mall Partners, a
California general partnership, Northtown Associates, a
Delaware general partnership, and State of Wisconsin
Investment Board, an independent state agency, and
Northtown LLP, a Minnesota limited liability partnership
dated May 5, 1997.
Exhibit 10.17 General Conveyance by Northtown Mall Partners, a
California general partnership, dated May 5, 1997.
Exhibit 10.18 Termination of Agreements and Assignment of Accounts
between Northtown Mall Partners, a California general
partnership and Northtown Associates, a Delaware general
partnership and State of Wisconsin Investment Board, an
independent state agency, made as of May 5, 1997.
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
June 30, 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: August 5, 1997