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 June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period.........to.........
Commission file number 0-16209
ANGELES PARTNERS 16
(Exact name of small business issuer as specified in its charter)
California 95-4106417
(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 PARTNERS 16
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 551
Restricted--tenant security deposits 61
Accounts receivable 21
Escrow for taxes 151
Restricted escrows 1,247
Other assets 218
Investment properties:
Land $ 1,076
Buildings and related personal property 10,636
11,712
Less accumulated depreciation (3,153) 8,559
$ 10,808
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 17
Tenant security deposits 60
Accrued taxes 338
Accrued interest 1,011
Other liabilities 1,064
Notes payable, including $2,887
in default 13,663
Partners' Deficit
General partner $ (171)
Limited partners' (14,033 units
issued and outstanding) (5,174) (5,345)
$ 10,808
See Accompanying Notes to Financial Statements
b) ANGELES PARTNERS 16
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues:
Rental income $ 581 $ 922 $ 1,172 $ 1,844
Other income 52 47 105 94
Total revenues 633 969 1,277 1,938
Expenses:
Operating 200 1,026 415 1,323
General and administrative 38 50 75 94
Maintenance 39 85 73 150
Depreciation 74 167 147 328
Interest 294 447 616 920
Property taxes 64 256 185 532
Bad debt recovery -- -- -- (4)
Total expenses 709 2,031 1,511 3,343
Loss before (loss) gain on
sale of investment
property and
extraordinary item (76) (1,062) (234) (1,405)
(Loss) gain on sale of
investment property (44) 611 20 611
Loss before extraordinary
item (120) (451) (214) (794)
Extraordinary item - gain
on early extinguishment
of debt -- 56 -- 56
Net loss $ (120) $ (395) $ (214) $ (738)
Net loss allocated
to general partner (1%) $ (1) $ (4) $ (2) $ (7)
Net loss allocated
to limited partners (99%) (119) (391) (212) (731)
Net loss $ (120) $ (395) $ (214) $ (738)
Per limited partnership unit:
Loss before extraordinary
item $ (8.48) $(31.82) $(15.11) $(56.02)
Extraordinary item -- 3.95 -- 3.95
Net loss $ (8.48) $(27.87) $(15.11) $(52.07)
<FN>
See Accompanying Notes to Financial Statements
c) ANGELES PARTNERS 16
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 14,050 $ 1 $14,050 $14,051
Partners' deficit at
December 31, 1995 14,033 $ (169) $(4,962) $(5,131)
Net loss for the six months
ended June 30, 1996 -- (2) (212) (214)
Partners' deficit at
June 30, 1996 14,033 $ (171) $(5,174) $(5,345)
<FN>
See Accompanying Notes to Financial Statements
d) ANGELES PARTNERS 16
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net loss $ (214) $ (738)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 147 328
Amortization of loan costs and leasing 4 25
commissions
Gain on sale of investment property (20) (611)
Bad debt recovery -- (4)
Extraordinary item - gain on early
extinguishment of debt -- (56)
Change in accounts:
Restricted cash 2 8
Accounts receivable 119 44
Escrows for taxes 80 68
Other assets 1 (41)
Accounts payable (23) 2
Tenant security deposit liabilities (2) 7
Accrued taxes (104) (22)
Accrued interest 239 (983)
Other liabilities (127) 736
Net cash provided by (used in)
operating activities 102 (1,237)
Cash flows from investing activities:
Property improvements and replacements (27) (269)
Proceeds from sale of investment property -- 9,863
Deposits to restricted escrows (181) (1,346)
Withdrawals from restricted escrows 299 84
Net cash provided by
investing activities 91 8,332
Cash flows from financing activities:
Repayment of notes payable -- (8,035)
Payments on notes payable (92) (18)
Additions to notes payable 44 --
Net cash used in financing activities (48) (8,053)
Net increase (decrease) in cash 145 (958)
Cash and cash equivalents at beginning of period 406 1,773
Cash and cash equivalents at end of period $ 551 $ 815
Supplemental disclosure of cash flow information:
Cash paid for interest $ 372 $ 1,890
<FN>
See Accompanying Notes to Financial Statements
e) ANGELES PARTNERS 16
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The financial statements have been prepared assuming that Angeles Partners 16
(the "Partnership") will continue as a going concern. The Partnership has
incurred recurring operating losses and continues to suffer from inadequate
liquidity. In addition, there are limited identified capital resources
available to the Partnership. As a result, the Partnership has not had cash
available to perform the substantial rehabilitation necessary at each of the
investment properties.
The Partnership is in default on $2,887,000 of its indebtedness, plus related
accrued interest of $459,000, due to its inability to make interest and
principal payments when due. The debt is unsecured debt of the Partnership
payable to Angeles Mortgage Investment Trust ("AMIT") (see "Note C" for further
discussion).
The Partnership is presently paying non-debt related expenses of the properties,
is current on its mortgages on its other two investment properties and is
negotiating forbearance agreements with AMIT on the debt in default.
As a result of the above conditions, there is substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets or amounts or classification of
liabilities that may result from these uncertainties.
Note B - 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 "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month
period ended June 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
the Partnership's 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 C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the 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 made to the General Partner and affiliates during
the six months ended June 30, 1996 and 1995:
1996 1995
(in thousands)
Property management fees $ 62 $ 77
Reimbursement for services of affiliates 31 47
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the General Partner. An affiliate of the 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 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 General
Partner by virtue of the agent's obligations is not significant.
In November 1992, Angeles Acceptance Pool, L.P. ("AAP"), a Delaware limited
partnership, was organized to acquire and hold the obligations evidencing the
working capital loan previously provided to the Partnership by Angeles Capital
Investments, Inc. ("ACII"). Angeles Corporation ("Angeles") is the 99% limited
partner of AAP and Angeles Acceptance Directives, Inc. ("AAD"), an affiliate of
the General Partner, was, until April 14, 1995, the 1% general partner of AAP.
On April 14, 1995, as part of a settlement of claims between affiliates of the
General Partner and Angeles, AAD resigned as general partner of AAP and
simultaneously received a 1/2% limited partner interest in AAP. An affiliate of
Angeles now serves as the general partner of AAP.
The AAP working capital loan funded the Partnership's operating deficits in
prior years. Total indebtedness including accrued interest of $512,000, was
$2,029,000 at June 30, 1996, with monthly interest only payments at prime plus
2% from available cash flow. Principal is to be paid the earlier of i) the
availability of funds, ii) the sale of one or more properties owned by the
Partnership, or iii) November 25, 1997. Total interest expense for this loan
was $78,000 and $83,000 for the six months ended June 30, 1996 and 1995,
respectively.
Note C - Transactions with Affiliated Parties (continued)
AMIT currently holds two unsecured notes receivable from the Partnership. Total
indebtedness of $2,887,000 is in default at June 30, 1996, due to non-payment.
Total interest expense on this financing was $274,000 and $221,000 for the six
months ended June 30, 1996 and 1995, respectively. Accrued interest was
$459,000 at June 30, 1996.
MAE GP Corporation ("MAE GP"), an affiliate of the 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. These 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 has 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 General Partner
and an affiliate of Insignia Financial Group, Inc., which provides property
management and partnership administration services to the Partnership, owns
63,200 Class A Shares of AMIT. These Class A Shares entitle LAC to vote
approximately 1.5% of the total shares.
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. 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 D - Contingencies
On June 12, 1995, the Partnership sold the North Prior Industrial Park to an
unrelated party. The net proceeds of $10,325,000, were used to pay the first
mortgage and related accrued interest, to pay AMIT in partial satisfaction of a
recourse second mortgage, and to fund restricted escrows. The holder of the
first mortgage forgave $56,000, which the Partnership recognized as an
extraordinary gain on extinguishment of debt. The unpaid balance of the note
payable to AMIT is now unsecured Partnership debt (see "Note C").
As required by the sales agreement, the Partnership established three escrows as
described below:
Tenant Improvements Escrow - This escrow was being held pending completion of
tenant improvements that were begun prior to the sale. At June 30, 1996, the
escrow balance had been expended. All funds were used for the improvement
projects and the residual, or $56,000, was used to reduce the debt to AMIT.
Environmental Escrow - This escrow was established for costs associated with
fuel oil contamination at the property. In January 1993, a local fuel oil
distributor pumped fuel oil into a testing well instead of into the storage tank
at North Prior Industrial Park. The Partnership notified the necessary
authorities and engaged an environmental engineering firm to develop a plan of
action to clean up the site. The cost of the clean up, which is not covered by
insurance, is estimated to be approximately $900,000 over a five year period. A
liability has been recorded to cover the estimated costs to clean-up the site
and is included in "Other Liabilities", and the funds have been set aside in an
escrow account. The Partnership entered into an agreement with the buyer of the
property limiting the Partnership's liability with regard to the clean up of
this site to the balance of the escrow account. This agreement will terminate
when the Partnership receives a "Site Closure Letter" from the Minnesota
Pollution and Control Agency. Upon receipt of this letter, any remaining funds
in the escrow account will be used to pay down the AMIT debt discussed above.
Attorney Fee Escrow - This escrow is being held for attorney fees relating to
the environmental issue described above. At June 30, 1996, the balance in this
account is $72,000. All funds are expected to be used for attorney fees;
however, any remaining funds will be used to reduce the debt to AMIT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Whispering Pines Apartments
Fitchburg, Wisconsin (1) 89% 94%
Silver Ridge Apartments
Maplewood, Minnesota 98% 92%
(1) Occupancy at this property has dropped due to attractive interest rates for
potential home buyers and due to construction around the property which has
decreased traffic to the property.
The Partnership realized a net loss of $214,000 for the six months ended June
30, 1996, versus a net loss of $738,000 for the six months ended June 30, 1995.
The Partnership realized a net loss of $120,000 and $395,000 for the three
months ended June 30, 1996 and 1995, respectively. The decrease in net loss for
the three and six months ended June 30, 1996, as compared to the three and six
months ended June 30, 1995, is primarily due to the sale of North Prior
Industrial Park on June 12, 1995.
Rental income decreased for the three and six months ended June 30, 1996, as
compared to the three and six months ended June 30, 1995, due to the sale of
North Prior Industrial Park on June 12, 1995. Also contributing to the decrease
in rental income was the decrease in occupancy at Whispering Pines Apartments,
which was partially offset by an increase in occupancy at Silver Ridge
Apartments.
For the three and six months ended June 30, 1996, versus the three and six
months ended June 30, 1995, operating, maintenance, depreciation, and property
tax expenses decreased due to the sale of North Prior Industrial Park on June
12, 1995. Interest expense also decreased due to the sale of North Prior
Industrial Park. However this decrease was partially offset by an increase in
interest expense at Whispering Pines Apartments due to higher interest payments
resulting from a higher interest rate on the fluctuating rate mortgage. Also
contributing to the decrease in property tax expense was a decrease in the tax
rate for Silver Ridge Apartments. General and administrative expense decreased
due to a decrease in cost reimbursements for partnership accounting, investor
relations and asset management services.
As mentioned previously, the Partnership sold North Prior Industrial Park on
June 12, 1995. The net proceeds were used to pay the first mortgage and related
accrued interest. As a result of the sale, tenant receivable balances were
written off due to the doubts regarding the collectibility of such amounts.
However, during the six months ended June 30, 1996, $8,000 in receivables were
collected and the funds were remitted to AMIT to reduce the principal balance.
In addition, during the six months ended June 30, 1996, the tenant improvement
projects were completed, as required by the sale of the property (see "Note D"),
and funds remaining in the escrow account were also remitted to AMIT to reduce
the principal balance. The funds remitted amounted to $56,000. As per the
terms of the promissory note agreement between the Partnership and AMIT, all
attorney's fees and cost incurred by AMIT in pursuit of collection of this note
shall be paid by the Partnership. During the six months ended June 30, 1996,
$44,000 in costs were added to the outstanding principal balance and was
recorded as a loss on the sale of the property. The net gain on the sale of the
property for the six months ended June 30, 1996, amounted to $20,000.
The Partnership sold the investment property, North Prior Industrial Park, for
$10,450,000 to an unrelated third party. The net proceeds were used to pay the
first mortgage and related accrued interest. Accrued interest of $56,000
related to the first mortgage was forgiven resulting in an extraordinary gain on
debt forgiveness for the six months ended June 30, 1995, and a total gain of
$611,000 was realized on the sale during the six months ended June 30, 1995.
As part of the ongoing business plan of the Partnership, the 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 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
General Partner will be able to sustain such a plan.
At June 30, 1996, the Partnership had unrestricted cash of $551,000 versus
$815,000 at June 30, 1995. Net cash provided by operating activities increased
primarily due to the decreased net loss as a result of the sale of North Prior
Industrial Park. In addition, there was significant payment of accrued interest
in 1995 as a result of the sale of North Prior Industrial Park. Net cash
provided by investing activities decreased primarily due to the sales proceeds
received in 1995 as a result of the sale of North Prior Industrial Park. In
addition, net cash used in financing activities decreased due to the sale of
North Prior Industrial Park because there was a significant repayment of the
notes payable at the closing of the sale.
The financial statements have been prepared assuming the Partnership will
continue as a going concern. The Partnership has incurred recurring operating
losses and continues to suffer from inadequate liquidity. In addition, there
are limited identified capital resources available to the Partnership. As a
result, the Partnership has not had cash available to perform the substantial
rehabilitation necessary at each of the investment properties. The Partnership
is in default on $2,887,000 of its indebtedness due to its inability to make
interest and principal payments when due. The debt is unsecured debt of the
Partnership payable to AMIT. The Partnership is presently paying non-debt
related expenses of the properties, is current on its mortgages secured by its
two remaining investment properties and is negotiating forbearance agreements
with AMIT on the debt in default. As a result of the above conditions, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability or classification of assets or
amounts or classification of liabilities that may result from these
uncertainties.
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. The mortgage indebtedness
of $13,663,000 consists of a first mortgage of $4,359,000, which is being
amortized over 30 years and is due January 1997, a second trust deed and a
working capital loan with principal balances of $375,000 and $1,517,000,
respectively, (interest only) with maturity dates in November and December 1997,
and a first mortgage bond payable in the principal amount of $4,525,000
(interest only) due July 2023. The Partnership also has unsecured debt to AMIT
in the amount of $859,000 and $2,028,000 (interest only) with maturity dates of
June 1997 and June 1996, respectively, which is in default. Future cash
distributions will depend on the levels of net cash generated from operations,
refinancings and property sales. At this time, the General Partner does not
anticipate making a cash distribution during fiscal 1996.
The General Partner is currently negotiating a refinance of the mortgage secured
by Whispering Pines Apartments prior to its maturity in January 1997. The
outcome of such negotiations cannot presently be determined.
Subsequent to June 30, 1996, AMIT filed a complaint against the Partnership, in
the State of Minnesota, demanding payment on the $2,028,000 obligation (plus
$116,000 accrued interest) that the Partnership has to AMIT at June 30, 1996,
which is in default previously due to non-payment of interest and now in default
due to maturity.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1993, a local fuel oil distributor pumped fuel oil into a testing
well instead of into the storage tank at North Prior Industrial Park. The
Partnership notified the necessary authorities and engaged an environmental
engineering firm to develop a plan of action to clean up the site. The cost of
the clean up, which is not covered by insurance, is estimated to be
approximately $900,000 over a five year period. A liability has been recorded
to cover the estimated costs to clean up the site and the funds have been set
aside in an escrow account. The Partnership entered into an Environmental
Undertaking and Indemnity Agreement with the buyer of the property limiting the
Partnership's liability with regard to the clean up of this site to the balance
of the escrow account. This agreement will terminate when the Partnership
receives a "Site Closure Letter" from the Minnesota Pollution and Control
Agency. Upon receipt of this letter, any remaining funds in the escrow account
will be used to pay down Partnership debt to AMIT. In January 1995, the holder
of the first mortgage, along with the former receiver, initiated two separate
lawsuits against the Partnership, among others, for damages sustained as a
result of the above. In June 1995, the suit with the former holder of the first
mortgage was dismissed. During November 1995, the Partnership was removed as
the defendant and became the Plaintiff in the lawsuit initiated by the former
receiver in a suit filed against the fuel distributor, among others. The former
receiver was removed as Plaintiff in the suit due to it no longer being a party-
in-interest.
Subsequent to June 30, 1996, AMIT filed a complaint against the Partnership, in
the State of Minnesota, demanding payment on the $2,028,000 obligation (plus
$116,000 accrued interest) that the Partnership has to AMIT at June 30, 1996,
which is in default previously due to non-payment of interest and now in default
due to maturity.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner of the Partnership 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:
None filed during the quarter ended June 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 PARTNERS 16
By: Angeles Realty Corporation II
General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long
Robert D. Long
Vice President/CAO
Date: August 8, 1996