1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
------------------ -----------------
Commission File No. 33-47228
ANGELES MORTGAGE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
California 95-6890805
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
340 North Westlake Blvd., Suite 230
Westlake Village, California 91362
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 449-1335
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on which
Title of each class: registered:
Class A shares, $1.00 par American Stock Exchange
value Angeles Mortgage
Investment Trust Units
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the Class A Shares held by non-affiliates,
based upon a closing price of $7 1/2 on February 1, 1996, was approximately $
18,135,000.
As of February 1, 1996 there were 2,826,700 shares of Angeles Mortgage
Investment Trust Class A, $1.00 par value outstanding.
Documents incorporated by reference: (1) Proxy Statement to be sent to
shareholders on or about February 21, 1996.
Total Pages 40
--
2
TABLE OF CONTENTS
PART I............................................................................................ 3
ITEM 1 BUSINESS................................................................................... 3
Employees...................................................................................... 4
Competition.................................................................................... 4
ITEM 2. PROPERTIES................................................................................ 4
ITEM 3. LEGAL PROCEEDINGS......................................................................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 6
PART II........................................................................................... 7
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS............. 7
ITEM 6. SELECTED FINANCIAL DATA.................................................................. 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 9
General........................................................................................ 9
Fiscal year 1995 compared to 1994.............................................................. 9
Fiscal year 1994 compared to 1993.............................................................. 10
Liquidity And Capital Resources................................................................ 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES... 28
PART III.......................................................................................... 29
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS.......................................................... 29
ITEM 11. EXECUTIVE COMPENSATION................................................................... 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................... 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................... 31
PART IV........................................................................................... 32
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K.................... 32
2
3
PART I
ITEM 1 BUSINESS
Angeles Mortgage Investment Trust (the "Trust") is a California
business trust which qualifies as a real estate investment trust for federal
income tax purposes. The Trust was originally organized as a publicly held
limited partnership that began offering limited partnership units (the "Units")
on August 18, 1986 and commenced operations on July 9, 1987. In January 1989,
the holders of a majority of the Units elected to transfer all of the
partnership's assets to the Trust. Presently the Trust's capital structure
consists of 2,826,700 outstanding shares of Class A Common Stock ("Class A
Shares") and 1,675,113 outstanding shares of Class B Common Stock ("Class B
Shares"). The Class A Shares are publicly held and are traded on the American
Stock Exchange. Each of the Class A Shares and the Class B Shares is entitled to
one vote with respect to any matters put before the Trust's shareholders.
Angeles Funding Corporation ("AFC"), a wholly owned subsidiary of
Angeles Corporation ("Angeles") served as advisor to the Trust until February
1993. Through AFC the Trust had invested in various types of intermediate-term
loans (the "Trust Loans" or "Loans"). The majority of the Loans were made
principally to partnerships that were once controlled by Angeles and are now
controlled by Insignia Financial Group, Inc., a Delaware corporation, which
through an affiliate holds the Trust's Class B Shares, (Insignia Financial
Group, Inc. and its affiliates are referred to as "Insignia" in this document).
These partnerships include private and public real estate limited partnerships
which were formed to acquire, own and operate income-producing real properties.
As of December 31, 1995, there were 30 Trust Loans outstanding, with an
aggregate portfolio balance of approximately $30 million, net of a $13 million
loan loss reserve, and $3.4 million of real property, net of a $.2 million
valuation reserve. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
By virtue of its ownership of the Class B Shares, Insignia owns a 1%
interest in the profits, losses, credits and distributions of the Trust and 37%
of the Trust's total voting shares. As discussed in Note 7, "Notes to Financial
Statements", the Trust and Insignia entered into an agreement pursuant to which
Insignia granted to the Trust the option to purchase all the Class B Shares
currently owned by Insignia. The option is exercisable by the Trust in 10 years
for approximately $94,000. During the 10 year period that the option is
outstanding, all of the Class B Shares are required to vote, pursuant to an
irrevocable proxy, with the majority of Class A Shares in connection with any
proposal involving the Trust and Insignia or the election of any Trustee
nominated by Insignia. Such majority will be determined without consideration of
the votes of "Excess Class A Shares," as defined in the Trust's Declaration of
Trust. With respect to all other matters, the affiliate of Insignia can vote the
Class B Shares without restriction.
The Trust, beginning in February 1993, faced significant liquidity
problems caused by (i) the failure of a significant number of the Insignia
partnerships and entities affiliated with Angeles to fully service outstanding
debt obligations under their respective Trust obligations and (ii) Angeles'
inability to fully service its debt obligations under its promissory note
receivable or perform its other obligations to the Trust under its third party
loan guarantees and shareholder distribution guarantees. As of February 1993,
approximately 75% of the Trust's Loan portfolio had defaulted in payments to the
Trust. In February 1993, Angeles informed the Trust that it was unable to
perform its obligations under its guarantees because of liquidity problems
caused by its inability to complete sales or refinancings of real estate assets,
its inability to fully realize asset values in a continuing sluggish and
depressed real estate market and the failure of the Insignia partnerships to
service fully, if at all, their debt obligations to Angeles. On May 3, 1993,
Angeles filed for protection under Chapter 11 of the federal bankruptcy code.
Angeles' failure to perform under its guarantees, together with the defaults on
Trust Loans made to the Insignia partnerships and affiliates of Angeles,
resulted in the Trust's temporary suspension of cash distributions to the Class
A Shareholders starting February 1993. The Trust made various claims against
Angeles and eventually reached agreement with Angeles and the Committee of
Creditors Holding Unsecured Claims of Angeles to settle all claims between the
Trust and Angeles. The settlement agreement was approved by the Bankruptcy Court
in March 1995. Under the agreement, the Trust received over $15 million in cash,
notes, and Trust Class A Shares.
The Trust has restructured the majority of its Loan portfolio since
February 1993, when the Trust terminated its advisory agreement with AFC, and
has been able to entirely pay off its then outstanding bank loan of $20 million.
However, Loans having a carrying value of approximately $12 million (or 25% of
the Trust's investments) are not currently paying debt service to the Trust. The
Trust's options are significantly limited as a
3
4
result of and its position as the holder of second and third trust deeds and
promissory notes subordinate to other senior creditors. The Trust's lending is
concentrated in secured and unsecured real estate loans in regions which have
experienced adverse economic conditions. The realizable value of real estate
collateralizing notes receivable or acquired in loan foreclosure proceedings can
only be determined based upon a sales negotiation between independent third
parties in an arm's length transaction. In addition, considering that, in most
cases, it is the proceeds of sale and/or refinancing which will enable the Trust
to receive funds, the actual proceeds may be significantly impacted by the
condition of the real estate industry at the time the principal amounts become
due or properties sold. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
From time to time the Trust has held, and will continue to hold
discussions with other REITs to consider expanding the Trust's portfolio through
a transaction involving the issuance of Trust shares or entering into joint
ventures or partnerships which would ultimately result in the issuance in Trust
shares.
The general policies and supervision of the Trust are overseen by a
board of four trustees (the "Trustees").
The Trust will terminate December 31, 2003, unless extended by vote of
the shareholders. Upon liquidation of the Trust, disposition proceeds will be
distributed to the shareholders.
EMPLOYEES
The Trust has three employees. Upon the 1993 termination of AFC's
advisory and administrative services the Trust engaged personnel to advise and
administer its operations. The Class A Shareholders have no right to participate
in the management or conduct of the Trust's business and affairs.
COMPETITION
The business in which the Trust is engaged is highly competitive, and
the Trust is not a significant factor in its industry. The Trust competes with
significant numbers of organizations (including banks, savings and loan
associations, insurance companies, other lending institutions and other similar
limited partnerships and trusts) with respect to its financing activities.
ITEM 2. PROPERTIES
In August 1993, the Trust acquired through a mortgage loan foreclosure,
a vacant parcel of land located in Houston, Texas and in January 1994, the Trust
acquired through a mortgage loan foreclosure, a 220 unit apartment complex
located in Decatur, Georgia. The apartment complex was sold in 1994 for $3.4
million. The vacant parcel of land, free and clear of any liens, was sold in
1995 for $1.5 million.
In addition, in 1995 the Trust obtained title to three properties
through deeds-in-lieu of foreclosure. Two of these properties, are industrial
warehouses, and are located in Cleveland, Ohio. One is known as 4851 Van Epps,
on which the Trust held a first trust deed mortgage in the amount of $1,500,000
and the second is known as 4705 Van Epps, on which the Trust obtained a judgment
lien through recourse provisions in a defaulted loan. In October 1995, the Trust
sold the 4851 Van Epps property for $1,370,000. The third property, University
Center Phase I & II, was obtained through a deed-in-lieu of foreclosure, through
recourse provisions in a defaulted loan. The property consists of warehouse
office space located in Fridley, Minnesota.
In December 1995, the Trust foreclosed on its first trust deed mortgage
in the original amount of $1,800,000, held on a retail shopping center, known as
University Center Phase IV.
4
5
The following is a list of properties owned by the Trust and held for
sale as of December 31, 1995.
Gross
Date of Type of Carrying
Property Ownership Ownership Use Value
- - ------------------- --------- ------------- -------------------- ----------
4705 Van Epps 8/24/95 Fee ownership Industrial Warehouse $ 500,000
35,000 Sq. Ft.
University Center 11/16/95 Fee ownership Warehouse Office 1,100,000
Phase I & II 51,200 Sq. Ft.
University Center 12/2/95 Fee ownership Retail Shopping 1,800,000
Phase IV 56,000 Sq. Ft.
----------
$3,400,000
==========
ITEM 3. LEGAL PROCEEDINGS
THE TRUST IS CURRENTLY INVOLVED AS A PLAINTIFF IN THE FOLLOWING LAWSUITS:
1. Angeles Mortgage Investment Trust vs. Morton D. Kirsch, an individual,
Wherco, Inc., a California corporation, Jeffrey Schultz, and
individual, Schultz Investments, an entity, Jonathan Schultz, an
individual, John Barry Clemens, an individual, and Jules P. Kirsch, an
individual, and DOES 1 through 50, inclusive Superior Court of the
State of California for the Los Angeles, Case No. BC 125243
On April 5, 1995, the Trust filed this action for violations of
California Corporations Code Sections 25402 and 25502.5 and California
Business and Professions Code Sections 17200 et. seq. The action seeks
damages and injunctive relief based on defendants' use of "inside
information" in connection with their purchase of Class A shares of
stock in the Trust. The Trust seeks treble damages pursuant to the
Corporations Code, plus attorneys fees, prejudgement interest and an
injunction. The Trust filed its second amended complaint on July 11,
1995. All defendants have filed answers to the second amended
compliant. Discovery is ongoing.
2. Angeles Mortgage Investment Trust vs. Morton D. Kirsch, an individual,
Wherco, Inc., a California corporation, Leland Evans, an individual,
Jonathan Schultz, an individual, John B. Clemens, an individual, Jules
P. Kirsch, an individual, Lee C. McClurkin, an individual, and Arthur
G. Weiss, an individual United States District Court, Central District
of California, Case No. 95-2670 WDK (CTx)
On April 21, 1995, the Trust filed this action in Federal Court for
violations of Sections 13(d) and 14(a) of the Securities and Exchange
Act of 1934 and the rules and regulations promulgated thereunder. This
action seeks injunctive relief based on defendants' failure to disclose
complete and accurate information in violation of the Federal
Securities Laws. On May 2, 1995, Morton D. Kirsch and Wherco, Inc.
filed a Counterclaim and Third Party Compliant for injunctive relief
against the Trust, and Third Party Defendants Insignia Financial Group,
Inc., a Delaware corporation, MAE GP Corporation, a Delaware
corporation, Ronald J. Consiglio, an individual, J. D'Arcy Chisholm, an
individual, Bryan L. Herrmann, an individual, and Jack E. McDonald, an
individual. On May 17, 1995, Morton D. Kirsch and Wherco, Inc.,
dismissed the Counterclaim and Third Party Compliant. Discovery is
ongoing.
5
6
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
6
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Trust has 1,738 Class A Shareholders of record as of February 1,
1996. The Class A Shares are currently traded on the American Stock Exchange
under the symbol "ANM". All of the Class B Shares are held by MAE GP
Corporation, an affiliate of Insignia.
The Trust, as noted in Note 7 in the "Notes to the Financial
Statements", has acquired an option to purchase all of the Class B Shares held
by MAE GP Corporation, an affiliate of Insignia. There is no established public
trading market for these shares.
The following table sets forth the high and low sales prices of the
Trust's Class A Shares for the two most recent calendar years:
High Low
1995, Quarter ended:
December 31, 1995 $7 9/16 $4 11/16
September 30, 1995 $7 1/4 $5 3/8
June 30, 1995 $7 5/8 $6 1/4
March 31, 1995 $7 1/2 $6 1/4
1994, Quarter ended:
December 31, 1994 $6 7/8 $5 1/4
September 30, 1994 $6 $4 3/4
June 30, 1994 $5 5/8 $3 1/2
March 31, 1994 $3 7/8 $2 9/16
On February 1, 1996, the last sale price of the Class A Shares as
reported by the American Stock Exchange was $7 1/2. The Trust made no
distributions in 1994 and 1995. The Board of Trustees of the Trust declared a
$.10 per share dividend payable on February 13, 1996, to shareholders of record
on January 22, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Board of Trustees of the Trust has authorized the Trust to
repurchase, in open market transactions, up to 10% of its Class A Shares. The
Trust has repurchased 43,800 shares under this program. There were no purchases
in 1995, 1994 and 1993.
7
8
ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
Revenue (1) $ 19,502,000 $ 2,769,000 $ 4,307,000 $ 9,505,000 $ 8,470,000
Costs and expenses (2) 2,213,000 2,396,000 3,017,000 37,808,000 3,044,000
Extraordinary item (3) 1,844,000 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 19,133,000 $ 373,000 $ 1,290,000 $(28,303,000) $ 5,426,000
------------ ------------ ------------ ------------ ------------
PER CLASS A SHARE (4):
Income (loss) before
extraordinary item $ 5.77 $ 0.11 $ 0.38 $ (8.64) $ 1.93
Extraordinary item $ 0.61 $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 6.38 $ 0.11 $ 0.38 $ (8.64) $ 1.93
------------ ------------ ------------ ------------ ------------
Cash distributions to shareholders $ -- $ -- $ 573,000 $ 6,562,000 $ 5,640,000
Cash distributions per Class A
Share (5) $ -- $ -- $ 0.17 $ 2.00 $ 2.00
Total assets $ 37,332,000 $ 35,535,000 $ 41,463,000 $ 48,781,000 $ 76,719,000
Notes and advances payable (6) $ -- $ 11,085,000 $ 17,965,000 $ 26,285,000 $ 19,050,000
8.5% Convertible debenture, net $ -- $ -- $ -- $ -- $ 9,074,000
Shareholders' equity $ 37,139,000 $ 22,510,000 $ 22,137,000 $ 21,420,000 $ 47,280,000
Class A Shares
Outstanding at end of year 2,826,700 3,394,026 3,394,026 3,394,026 2,786,200
Weighted average outstanding 2,968,532 3,394,026 3,394,026 3,394,026 2,786,200
(1) In 1993, revenues decreased significantly as a result of approximately
75% of the Trust's portfolio defaulting in payments to the Trust after
February 1993. In 1995, revenues increased significantly as a result of
$15,954,000 of recovery of bad debts relating primarily to the Angeles
settlement (see Note 10 in the "Notes to the Financial Statements"). In
addition, the 1995 revenues include $435,000 of gain on sale of real
property.
(2) Includes provision for loss and write-down of in-substance foreclosed
properties of $35,000,000 in 1992.
(3) Extraordinary item in 1995 represents the settlement of claims the
Trust had with various partnerships associated with Insignia; the Trust
was able to negotiate the settlement of advances payable at a discount
(see Note 7 in the "Notes to the Financial Statements").
(4) The net income per Class A Share was based the weighted average Class A
Shares outstanding during the years ended December 31, 1995, 1994,
1993, and 1992, respectively, after deduction of the Class B Shares' 1%
interest.
8
9
(5) Monthly cash distributions had been paid to the Class A Shareholders
from cash generated by the Trust from operations, subject to Angeles'
distribution guarantee of a minimum annual distribution of $2.00 per
Class A Share through May 1994. As of February 1993, such distributions
had been temporarily suspended due to the Trust's liquidity problems
and Angeles' inability to perform its guaranty obligations or service
the promissory note due the Trust. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(6) Notes and advances decreased significantly in 1995 as a result of the
settlement of the Insignia related advances from partnerships of
$7,595,000 and the full repayment of the Bank loan.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with "Selected
Financial Data" and the "Financial Statements and Supplementary Data".
FISCAL YEAR 1995 COMPARED TO 1994
For the year ended December 31, 1995 total revenue increased
significantly as compared to total revenue for the same period in 1994. This
increase is primarily due to the Angeles bankruptcy settlement which was
effective March 31, 1995. The Trust recognized a recovery of bad debt of
$12,844,000 as a result of the settlement, for which the Trust received proceeds
of cash in excess of $8 million on April 14, 1995. Simultaneous with the Angeles
settlement, the Trust settled its claims with the various partnerships
associated with Insignia, which resulted in an extraordinary gain of $1,844,000
resulting from the Trust being able to negotiate the settlement of these claims
at a discount. During the year ended December 31, 1995, the Trust recorded an
additional $3,110,000 in recovery of other bad debts, which were associated with
partial principal repayments on loans which had allowances for estimated losses
recorded in addition to recording two properties the Trust received through
deeds-in-lieu of foreclosure at market value. Included in the $3,110,000 of debt
recovery, the Trust reversed $1,800,000 of allowance for estimated loss relating
to the Fox Run loans, based upon improved property performance, the commencement
of modified debt service in the fourth quarter of 1995 and an anticipated
refinancing of the mortgages on the property.
In addition, revenues increased in 1995 from 1994 as a result of a
$435,000 gain recognized from the $1,370,000 sale of the 4851 Van Epps property.
The Trust obtained title to this property through a deed-in-lieu of foreclosure
in September 1995, from its first trust deed mortgage on this property.
Interest income for the twelve months ended December 31, 1995 increased
approximately 12% or $318,000 when compared to the same period ended in 1994.
The increase is primarily related to two Trust Loans: (1) recognition of
interest due to restructuring of past due interest into principal, the note is
currently performing; and (2) recognition of interest as a result of debt
satisfaction through a deed-in-lieu of foreclosure.
Property rental income and ownership expenses increased for the year
ended 1995 when compared to 1994 as the Trust owned up to five properties during
1995 compared to two properties owned in 1994.
In December 1995, the Trust sold the parcel of land it owned in
Houston, Texas for $1,500,000 and recognized a $3,000 loss from such sale.
Interest expense on the Bank line of credit decreased as the Trust's
average month-end borrowings were $2,075,000 and $6,093,000 in 1995 and 1994,
respectively. Such decrease is offset by an increase in the weighted average
interest rate of 10.1% and 9.0% for the years ended December 31, 1995 and 1994,
respectively.
9
10
Other interest expense decreased for the twelve months ended December
31, 1995 when compared to the same period in 1994. Such interest expense is
associated with cash advances which had a balance of $7,585,000 as of December
31, 1994 and were paid effective March 31, 1995 (see Note 7 of Notes to
Financial Statements).
The increase in general and administrative expenses for the twelve
months ended December 31, 1995 when compared to the same period in 1994, is
primarily due to increased proxy solicitation costs of approximately $150,000
incurred as a result of the proxy fight with the Kirsch slate. The increased
legal fees are associated with state claims brought by the Trust against a group
of investors, claiming the investors acquired Trust Class A shares based on
insider information and a federal claim against Morton Kirsch and Wherco, Inc.
and others, for deficiencies in information required to be filed and, false and
misleading information filed by the defendants in public documents regarding the
Trust. The Trust seeks recovery of legal expenses in connection with certain of
these claims.
FISCAL YEAR 1994 COMPARED TO 1993
The Trust had revenue of $2,769,000 in 1994, a decrease of $1,538,000
or 35% from the prior year, with costs and expenses decreasing $611,000 from the
prior year. Net income was $373,000 and $1,290,000 for 1994 and 1993,
respectively. The primary factors contributing to the decrease in Trust's net
income are discussed in the following paragraphs.
Interest income decreased from $4,307,000 in 1993 to $2,769,000 in
1994. Of this decrease, approximately $900,000 is due to loans which were paid
in full or which the Trust received significant payments in late 1993 and early
1994. An additional $600,000 is due to loans which were placed on non-accrual in
1994 or the interest pay rate had been modified downward.
Rental income in 1994 is the result of income earned on properties the
Trust has foreclosed upon. Such rental income was primarily generated from the
apartment complex owned by the Trust for a three month period of time prior to
its sale in April 1994. The remaining property owned by the Trust is a parcel of
land which generates only a minor amount of income.
The Trust Loans outstanding at December 31, 1994 have various
maturities ranging from those that have already matured to nine years, and have
stated fixed interest rates ranging from 8.5% to 13%. A significant portion of
the Trust Loans are secured by real property owned by the borrowers of such
Trust Loans, by an assignment of the limited partnership interest in the limited
partnership that owns the property (but not the specific underlying property) or
by a general obligation of the limited partnerships that own the property.
The overall decrease in costs and expenses from 1993 to 1994 is due to
various factors, the most significant being interest expense to the bank.
Interest expense to Bank decreased as the Trusts average month-end
borrowings on the bank line of credit were $6,093,000 and $15,938,000 in 1994
and 1993, respectively. Such decrease is offset by changes in the stated
interest rate and increases in the prime rate during 1994, thus resulting in
weighted average interest rates of 9.06% and 7.63% for the years ended 1994 and
1993, respectively.
Interest expense to affiliated partnerships increased to $548,000 for
the year ended 1994, or a 17% increase over such expense in 1993. Such advances
from affiliated partnerships had an average month-end balance of $7,585,000 and
$7,618,000 in 1994 and 1993, respectively. These cash advances allegedly accrued
interest from the Trust at the prime rate of interest with accrued interest
payable of $941,000 as of December 31, 1994. The increase in such interest
expense is due to the fact that the prime interest rate increased from 6% to
8.5% during 1994, thus resulting in weighted average interest rates of 7.13% and
6% for 1994 and 1993, respectively. Beginning February 1993, the Trust has not
paid interest on such accruals.
10
11
The decrease in general and administrative expenses for 1994 when
compared to 1993 is due primarily to decreased professional fees, excluding
legal fees. Legal expenses increased to $505,000 in 1994 as compared to $270,000
in 1993, due to the Trust's counsels involvement and preparation of settlement
documents relating to the settlements in principal with Angeles and Insignia. In
addition, the Trust during 1994 has commenced the foreclosure process on three
Trust Loans which the Trust holds the first trust deed position. This
foreclosure process has required the significant use of outside counsel. In
addition, in May 1993, the Trust established and opened its own offices and in
1993, hired three employees to help administer and monitor the Trust operations.
Such expenses are partially offset due to the termination of the Advisors
services in February 1993 and the corresponding elimination of the advisory fees
and non-accountable expense allowance paid to AFC.
LIQUIDITY AND CAPITAL RESOURCES
In February 1993, the Trust's policy of distributing monthly the net
cash from operations to its Class A Shareholders was temporarily suspended as a
result of the failure of the Insignia Partnerships and Angeles to fully service
their respective Trust Loan obligations and Angeles' inability to fulfill its
guarantee of a minimum annual distribution of $2.00 per Class A Share through
May 1994. The Trust announced on December 20, 1995 that it had reduced its bank
and other debt to zero and had scheduled its first dividend payment in three
years to Class A Shareholders of record on January 22, 1996 to be payable on
February 13, 1996, in the amount of $0.10 per share.
As of July 25, 1995, the Trust has a new line of credit established
with the Bank, in the amount of $5 million. This new line of credit requires
monthly interest only payments based upon prime plus 1% and matures July 31,
1996. The new line of credit which has substituted for the prior loan with the
Bank allows the Trust to draw on such line to facilitate the foreclosure process
on Trust loans. In August 1995, the Trust drew down on such line of credit in
the amount of $343,000 in order to pay-off the first trust deed on a property
obtained through a deed-in-lieu of foreclosure (see Note 6). On December 5,
1995, the Trust paid off the outstanding balance on the line of credit.
The Trust's liquidity is dependent upon its borrowers having sufficient
cash to pay interest and principal payments as they become due. In February
1993, a significant number of the Insignia Partnerships failed to service their
debt obligations under the Trust Loans. The Trust has since completed the
process of restructuring certain of the Trust Loans. The restructured loan terms
typically include a reduction in the interest rate, an extension of the loan
term, payment of at least net cash flow from the operation of the relevant
property on a current basis and a modest increase in the principal balance of
the loan as consideration for the modification.
The Trust has restructured the majority of its loan portfolio since
February 1993 and has been able to entirely pay off its then outstanding bank
loan debt of $20 million. However, loans having a carrying value of
approximately $12 million (or 25% of the Trust's investments) are not currently
paying debt service to the Trust. The Trust's options are significantly limited
as a result of its position as the holder of second and third trust deeds
subordinate to other creditors. The Trust's lending is concentrated in secured
and unsecured real estate loans in regions which have experienced adverse
economic conditions. The realizable value of real estate collateralizing notes
receivable or owned from Loan foreclosures, can only be determined based upon a
sales negotiation between independent third parties in an arm's length
transaction. In addition, considering that, in most cases, it is the proceeds of
sale and/or refinancing which will enable the Trust to receive such funds, the
actual proceeds may be significantly impacted by the condition of the real
estate industry at the time the principal amounts become due or properties sold.
The Trust received full and partial paydowns of approximately $10.5
million from 15 Trust Loans, $3.6 million from six Trust Loans, and $9 million
from six Trust Loans during 1993, 1994, and 1995, respectively. Such repayments
have resulted from either the sale or refinancing of the properties or partial
principal prepayments.
In January 1994, the Trust foreclosed on a 220 unit apartment complex,
located in Georgia, on which the Trust held a $3,600,000 first trust deed
mortgage. The Trust subsequently sold this property in April 1994 for
$3,400,000, resulting in cash proceeds of approximately $3,300,000. The proceeds
were used to pay down the Trust's loan with the Bank. During 1994, the Trust
commenced the foreclosure process on 4851 Van Epps, University Center - Phase IV
and Colony Cove Loans on which the Trust holds first trust deed mortgages. In
11
12
addition, during 1995 the Trust foreclosed on University Center Phase IV and
took title to three properties through deeds-in-lieu of foreclosure. These
properties include 4851 Van Epps for which the Trust had commenced foreclosure
action in 1994. In October 1995, the Trust sold this property for $1,370,000,
receiving net cash proceeds of $580,000 and a first trust deed on the property
for $700,000. In addition, the Trust obtained title, through deeds-in-lieu of
foreclosure as a result of recourse provisions in a defaulted loan, on 4705 Van
Epps, an industrial warehouse located in Cleveland, Ohio and on University
Center I and II, office industrial property located in Fridley, Minnesota. The
4705 Van Epps property is under contract for sale which is scheduled to close in
the first quarter of 1996. In addition, the Trust sold a parcel of land located
in Houston, Texas for $1,500,000, resulting in net cash proceeds of
approximately $1,400,000.
As discussed in Note 10 in the "Notes to the Financial Statements", the
settlement between the Trust and Angeles represented over $15 million in various
assets including $6 million in cash. The collateralized note due December 31,
1998, carries interest at prime plus one percent with a maximum interest rate of
8.5%. The note is collateralized with a pledge of Angeles limited partnership
interest in a limited partnership whose assets are comprised of notes and
receivables from various real estate investment partnerships. The collectibility
of the note is subject to the performance of the obligors of the various notes
and receivables. Although the Trust at this time believes there is sufficient
collateral to provide for realization of the note, there can be no assurances
that full recovery will result. The Trust used the cash proceeds from the
settlement of over $6 million, to pay down on debt obligations to the Bank and
various limited partnerships.
The Trust's management on a quarterly basis reviews the carrying value
of the Trust's Loans and properties held for sale. Generally accepted accounting
principles require that the carrying values of a note receivable or property
held for sale cannot exceed the lower of its cost or its estimated net
realizable value. The estimate of net realizable value is based on management's
review and evaluation of the collateral properties as well as recourse
provisions included in certain notes receivable. The allowance for loan loss as
of December 31, 1995 was approximately $13 million. However, the provision for
loss is an estimate which is inherently uncertain and depends on the outcome of
future events. The Trust's estimates are based on an analysis of the Loan
portfolio, composition of the Loan portfolio, the value of collateral and
current economic conditions.
From time to time the Trust has held, and will continue to hold
discussions with other REITs to consider expanding the Trust's portfolio through
a transaction involving the issuance of Trust shares or entering into joint
ventures or partnerships which would ultimately result in the issuance in Trust
shares.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 114 - "Accounting By
Creditors for Impairment of a Loan", which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." The statement requires that notes receivable be
considered impaired when "based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the loan
agreement. Impairment is to be measured either on the present value of expected
future cash flows discounted at the note's effective interest rate or if the
note is collateral dependent, on the fair value of the collateral. In October
1994, the FASB issued SFAS No. 118 - "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosure" which amends SFAS No. 114. SFAS No.
118 eliminates the income recognition provisions of SFAS No. 114, substituting
disclosure of the creditor's policy of income recognition on impaired notes.
SFAS No. 114 and SFAS No. 118 are both effective for the fiscal years beginning
after December 15, 1994. The Trust implemented such pronouncements in 1995 which
did not affect the Trust's interest income recognition policy or require the
reclassification of loans within the Trust's balance sheet.
12
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANGELES MORTGAGE INVESTMENT TRUST
Index to Audited Financial Statements and Supplemental Schedules
Page No.
--------
Report of Independent Certified Public Accountants - BDO Seidman, LLP 14
Audited Financial Statements and Supplemental Schedules - The financial
statements and supplemental schedules of the Trust required to be
included in Item 8 are listed below:
Balance Sheets at December 31, 1995 and 1994 15
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 16
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995,
1994 and 1993 17
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 18
Notes to Financial Statements 19
Supplemental Schedule III - Real Estate and
Accumulated Depreciation 35
Supplemental Schedule IV - Mortgage Loans on
Real Estate 36
All other supplemental schedules are omitted because they are not required or
because the required information is shown in the financial statements.
13
14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees of
Angeles Mortgage Investment Trust
We have audited the accompanying balance sheets of Angeles Mortgage Investment
Trust (the "Trust") as of December 31, 1995 and 1994, and the related statements
of operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. We have also audited the
schedules listed at Item 8. These financial statements and schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on the financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe that
our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Also, in our opinion the schedules present fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
Los Angeles, California
February 2, 1996
14
15
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
DECEMBER 31
--------------------------------
NOTES 1995 1994
----- ---- ----
ASSETS
Notes receivable 2,3,5,6
Mortgage notes receivable, (including
$25,397,000 and $34,399,000 due from affiliates
in 1995 and 1994) $ 26,987,000 $ 35,340,000
Promissory notes receivable, (including
$8,551,000 and $17,908,000 due from affiliates
in 1995 and 1994) 18,310,000 23,908,000
------------- ------------
45,297,000 59,248,000
Foreclosed real estate held for sale 4 3,400,000 1,400,000
------------- ------------
48,697,000 60,648,000
Less: Allowance for estimated losses (13,598,000) (26,995,000)
------------- ------------
35,099,000 33,653,000
Cash 1,229,000 1,104,000
Accrued interest receivable (net of reserves of
$176,000 in 1995 and 1994) 460,000 352,000
Prepaid expenses and other 544,000 426,000
------------- ------------
Total assets $ 37,332,000 $ 35,535,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable to bank 6 $ - $ 3,500,000
Recorded cash advances from affiliated partnerships 7 - 7,585,000
Accounts payable and accrued expenses 193,000 1,940,000
------------- ------------
Total liabilities 193,000 13,025,000
------------- ------------
Shareholders' equity: 9
Class A Shares (2,826,700 in 1995, and 3,394,026 in 1994,
issued and outstanding, $1.00 par value,
unlimited shares authorized) 2,827,000 3,394,000
Class B Shares (1,675,113 issued and outstanding,
$.01 value, unlimited shares authorized) 14,000 14,000
Additional paid-in capital 51,719,000 55,656,000
Accumulated distributions in excess of cumulative net
income (17,421,000) (36,554,000)
------------- ------------
Total shareholders' equity 37,139,000 22,510,000
------------- ------------
Total liabilities and shareholders' equity $ 37,332,000 $ 35,535,000
============= ============
The accompanying notes are an integral part of the financial statements.
15
16
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
REVENUE:
Interest income (including $1,710,000, $2,080,000, and $3,534,000
from affiliates in 1995, 1994, 1993, respectively) $ 3,017,000 $ 2,696,000 $ 4,305,000
Rental income 96,000 71,000 --
Gain from sale of real property 435,000 2,000 --
Recovery of bad debt from Angeles Corporation settlement 12,844,000 -- --
Recovery of other bad debts 3,110,000 -- --
Service fee income -- -- 2,000
----------- ----------- -----------
Total revenue 19,502,000 2,769,000 4,307,000
----------- ----------- -----------
COSTS AND EXPENSES:
Property operating expenses 262,000 76,000 152,000
Loss from sale of real property 3,000 -- --
Interest expense to bank 227,000 578,000 1,239,000
Interest expense affiliated partnerships -- 548,000 468,000
Legal expenses 851,000 505,000 270,000
General and administrative (including amount paid to affiliate
of $35,000 in 1993) 835,000 612,000 730,000
Amortization of loan fees 35,000 77,000 158,000
----------- ----------- -----------
Total costs and expenses 2,213,000 2,396,000 3,017,000
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 17,289,000 373,000 1,290,000
EXTRAORDINARY ITEM - Debt forgiveness 1,844,000
----------- ----------- -----------
NET INCOME $19,133,000 $ 373,000 $ 1,290,000
=========== =========== ===========
PER CLASS A SHARE:
Net income before extraordinary $ 5.77 $ 0.11 $ 0.38
Extraordinary item 0.61 -- --
----------- ----------- -----------
Net income $ 6.38 $ 0.11 $ 0.38
=========== =========== ===========
Cash distributions $ -- $ -- $ 0.17
=========== =========== ===========
Weighted average Class A Shares 2,968,532 3,394,026 3,394,026
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
16
17
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ACCUMULATED
DISTRIBUTIONS IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPTIAL INCOME TOTAL
------------ ------------ ------------ ---------------- ------------
Balance at January 1, 1993 $ 3,394,000 $ 14,000 $ 55,656,000 $(37,644,000) $ 21,420,000
Net income -- -- -- 1,290,000 1,290,000
Cash distributions -- -- -- (573,000) (573,000)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1993 3,394,000 14,000 55,656,000 (36,927,000) 22,137,000
Net income -- -- -- 373,000 373,000
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 3,394,000 14,000 55,656,000 (36,554,000) 22,510,000
Class A Shares received from
Angeles Corporation settlement (567,000) -- (3,687,000) -- (4,254,000)
Purchase of Class B Share Option (250,000) -- (250,000)
Net income -- -- 19,133,000 19,133,000
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 $ 2,827,000 $ 14,000 $ 51,719,000 ($17,421,000) $ 37,139,000
============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
17
18
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,133,000 $ 373,000 $ 1,290,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOWS FROM OPERATING ACTIVITIES:
Net gain from sale of real property (432,000) -- --
Amortization 35,000 77,000 158,000
Recovery of bad debt (15,954,000) -- --
Interest income in exchange of notes receiveable or real property (501,000) (183,000) --
Extraordinary gain (1,844,000) -- --
Decrease (increase) in interest receivable (108,000) 149,000 108,000
Increase in prepaid expenses and other (326,000) (399,000) (315,000)
(Decrease) increase in accounts payable and accrued expenses (61,000) 579,000 321,000
(Decrease) in unearned loan fee income (38,000) (274,000) (422,000)
------------ ------------ ------------
Cash flows from (used in) operating activities (96,000) 322,000 1,140,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of foreclosed real estate (355,000) -- --
Funding of notes receivable -- -- (1,944,000)
Principal collections of notes receivable 9,056,000 3,599,000 10,498,000
Proceeds from sale of real estate 1,952,000 3,298,000 --
------------ ------------ ------------
Cash flows from investing activities 10,653,000 6,897,000 8,554,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable to bank (3,500,000) (6,880,000) (9,620,000)
Repayment of cash advances from affiliate partnerships (6,682,000) -- --
Purchase of Class B option (250,000) -- --
Cash advances recorded from affiliated partnerships -- -- 1,300,000
Distributions to shareholders -- -- (1,146,000)
Advances under distribution guarantee by Angeles Corp. -- -- 537,000
------------ ------------ ------------
Cash flows from (used in) financing activities (10,432,000) (6,880,000) (8,929,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 125,000 339,000 765,000
Cash and cash equivalents:
At beginning of period 1,104,000 765,000 --
------------ ------------ ------------
At end of period $ 1,229,000 $ 1,104,000 $ 765,000
============ ============ ============
Supplemental operating cash flow disclosure:
Cash received for interest $ 2,213,000 $ 2,394,000 $ 3,558,000
Cash paid for interest 312,000 590,000 1,423,000
Schedule of noncash financing and investing activities:
Carrying value of real estate in satisfaction of notes receivable
with carrying values of $3,580,000 in 1995, $3,501,000 in 1994
and $3,200,000 in 1993 $ 3,969,000 $ 3,170,000 $ 1,400,000
Mortgage notes receivable from sale of real estate 700,000 -- --
Recovery of Class A stock in connection with Angeles Settlement 4,254,000 -- --
The accompanying notes are an integral part of the financial statements.
18
19
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, BUSINESS ACTIVITIES AND SIGNIFICANT EVENTS
Angeles Mortgage Investment Trust (the "Trust") is a California
business trust which qualifies as a real estate investment trust for federal
income tax purposes. The Trust was originally organized as a publicly held
limited partnership that began offering limited partnership units on August 18,
1986 and commenced operations on July 9, 1987. In January 1989, the holders of a
majority of the units elected to transfer all of the partnership's assets to the
Trust. The Trust's capital structure consists of 2,826,700 outstanding shares of
Class A Common Stock ("Class A Shares") and 1,675,113 outstanding shares of
Class B Common Stock ("Class B Shares"). The Class A Shares are publicly held
and are traded on the American Stock Exchange. Each of the Class A Shares and
the Class B Shares is entitled to one vote with respect to any matters put
before the Trust's shareholders.
Prior to November 1992, all Class B Shares were held by Angeles Funding
Corporation ("AFC"), a California corporation wholly owned by Angeles
Corporation, a California corporation ("Angeles"). AFC served as the advisor to
the Trust until February 1993 when AFC's advisory services were terminated by
the Trust. On November 24, 1992, Angeles sold to an independent third party
controlled by Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), Angeles' real estate partnership business consisting of property
management contracts and other service contracts relating to its real estate
partnership business, together with the general partnership interests of a
number of limited partnerships (hereinafter, the "Insignia Partnerships") to
which the Trust had made various types of intermediate-term loans (the "Trust
Loans"). In connection with this transaction, Angeles also transferred to MAE GP
Corporation, an affiliate of Insignia, all of its Class B Shares. Angeles did
not obtain approval from the Trust with respect to these transactions. By virtue
of its ownership of the Class B Shares, Insignia owns a 1% interest in the
profits, losses and credits of the Trust and holds 37% of the Trust's total
voting shares.
The Trust, beginning in February 1993, faced significant liquidity
problems caused by (i) the failure of a significant number of the Insignia
Partnerships and entities affiliated with Angeles to fully service outstanding
debt obligations under their respective Trust obligations and (ii) Angeles'
inability to fully service its debt obligations under its promissory note
receivable or perform its other obligations to the Trust under its third party
loan guarantees and shareholder distribution guarantees. As of February 1993,
approximately 75% of the Trust's loan portfolio had defaulted in payments to the
Trust. In February 1993, Angeles informed the Trust that it was unable to
perform its obligations under these guarantees because of liquidity problems
caused by its inability to complete sales or refinancings of real estate assets,
its inability to fully realize asset values in a continuing sluggish and
depressed real estate market and the failure of the Insignia Partnerships to
service fully, if at all, their debt obligations to Angeles. On May 3, 1993,
Angeles filed for protection under Chapter 11 of the federal bankruptcy code.
Angeles' failure to perform under its guarantees, together with the defaults on
Trust Loans made to the Insignia Partnerships and affiliates of Angeles, have
resulted in the Trust's temporary suspension of cash distributions to the Class
A Shareholders effective February 1993. The Trust had made various claims
against Angeles and as discussed under Note 10, and eventually reached an
agreement with Angeles and the Committee of Creditors Holding Unsecured Claims
of Angeles to settle all claims between the Trust and Angeles. The settlement
agreement was approved, effective March 31, 1995, by the Bankruptcy Court having
jurisdiction over the Angeles bankruptcy Under the agreement, the Trust received
approximately $15 million in various assets, including $6 million in cash.
The Trust has restructured the majority of its loan portfolio since
February 1993 and has been able to entirely pay off its then outstanding bank
loan debt and other debt of $27 million. However, loans having a carrying value
of approximately $12 million (or 25% of the Trust's investments) are not
currently paying debt service to the Trust. The Trust's lending is concentrated
in real estate-secured and unsecured loans in regions which have experienced
adverse economic conditions. The realizable value of real estate collateralizing
notes receivable or owned from loan foreclosures, can only be determined based
upon a sales negotiation between independent third parties in an arm's length
transaction. In addition, considering that in most cases, it is the proceeds of
sale and/or
19
20
refinancing which will enable the Trust to receive such funds, the actual
proceeds may be significantly impacted by the condition of the real estate
industry at the time the principal amounts become due or properties sold.
From time to time the Trust has held, and will continue to hold
discussions with other REITs to consider expanding the Trust's portfolio through
a transaction involving the issuance of Trust shares or entering into joint
ventures or partnerships which would ultimately result in the issuance in Trust
shares.
The general policies and supervision of the Trust are overseen by a
board of four trustees (the "Trustees"). On February 26, 1993, in recognition of
the conflicts of interest between the Trust and Angeles, a committee was formed
consisting solely of Trustees who were not affiliated with Angeles (the
"Independent Committee"). The Independent Committee was given the authority to
evaluate, negotiate and implement a restructuring of the Trust's assets and
liabilities, and to make all decisions relating to the Trust's dealings with
Angeles. An independent firm of valuation consultants and independent counsel
were engaged to assist the Independent Committee. In April 1993, the two
Trustees affiliated with Angeles resigned from the Board of Trustees and the
Independent Committee ceased to exist.
The Trust will terminate December 31, 2003, unless extended by vote of
the shareholders. The Trust will liquidate its investments in the ordinary
course of its business, and may liquidate certain investments during the course
of the restructuring. Upon liquidation of the Trust, disposition proceeds will
be distributed to the shareholders.
The Trust has made loans principally to partnerships that were
originally affiliated with Angeles but the majority of which are now controlled
by Insignia. These partnerships include private and public real estate limited
partnerships which were formed to acquire, own and operate income-producing real
properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Trust are
prepared on the accrual basis and therefore, revenue is recorded as earned and
costs and expenses are recorded as incurred. In connection with the preparation
of the financial statements, the Trust has made certain estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from these estimates. Certain prior years amounts have been
reclassified to conform to current year classifications.
CASH AND CASH EQUIVALENTS - For financial reporting purposes, the Trust
considers cash and cash equivalents to include cash on deposit and amounts due
from banks maturing within 90 days of purchase.
NOTES RECEIVABLE AND INTEREST INCOME - Notes receivable are recorded at
the lower of cost or estimated net realizable value net of unearned loan fees
which are amortized over the lives of the respective loans. Interest income is
recorded as earned in accordance with the terms of the loans. Interest income is
not recorded on individual loans if a specific loan loss allowance has been
associated with such loan or if payments are in default in excess of two months.
FORECLOSED REAL ESTATE HELD FOR SALE - Foreclosed real estate is
initially recorded at new cost, defined as the lower of original cost or fair
value minus estimated costs of sale. After foreclosure, the excess of new cost,
if any, over fair value minus estimated costs of sale is recognized in an
valuation allowance. Subsequent changes in fair value either increases or
decreases such valuation allowance. See "Allowance for Estimated Losses" below.
ALLOWANCE FOR ESTIMATED LOSSES - Valuation allowances are established
by the Trust for estimated losses on notes receivable and properties held for
sale to the extent that the investment in notes or properties exceeds the
Trust's estimate of net realizable values of the property or collateral securing
each note, or fair value if foreclosure is probable. The provision for losses is
based on estimates using the direct capitalization of net operating income for
the underlying properties. Capitalization rates have been determined by using
micro and macro economic factors. Actual losses may vary from current estimates.
Such estimates are reviewed periodically and any additional provision determined
to be necessary is charged against earnings in the period in which it becomes
reasonably estimated.
20
21
REVENUE RECOGNITION ON SALE OF REAL ESTATE - Sales of real estate are
recognized when and to the extent permitted by Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate."
INCOME TAXES - The Trust has elected to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code for each taxable year
of operations. As a qualified REIT, the Trust is subject to income taxation at
corporate rates on its REIT taxable income. However, the Trust is allowed a
deduction for the amount of dividends paid to its shareholders, thereby
subjecting the distributed net income of the Trust to taxation at the
shareholder level only. As of December 31, 1995 the Trust had tax loss
carryforwards of approximately $6.0 million expiring through 2009.
NET INCOME PER CLASS A SHARE - The net income per Class A Share was
based on 2,968,532, 3,394,026, and 3,394,026 weighted average Class A Shares
outstanding during the years ended December 31, 1995, 1994 and 1993,
respectively, after deduction of the Class B Shares' 1% interest.
SERVICE FEE INCOME - Service fee income, consisting of loan commitment
fees, is calculated based upon any undrawn funds during the commitment period
and is recognized over the commitment period.
AMORTIZATION - The Trust amortizes loan fees to interest income over
the lives of the related Trust Loans. Loan fees and refinancing expenses paid by
the Trust are amortized over the life of the relevant loans.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Trust to concentrations of credit risk are primarily temporary cash
investments and mortgage and promissory notes receivable. The Trust places its
temporary cash investments with major financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution. The
majority of all notes receivable are with partnerships who have previously
defaulted on their obligations (see Note 3).
NOTE 3 - NOTES AND INTEREST RECEIVABLE
Notes receivable are collateralized by real property owned by the
borrowers of such Trust Loans, or by an assignment of the limited partnership
interest in the limited partnership that owns the property (but not the specific
underlying property) or by a general obligation of the limited partnership that
owns the property. All of the Trust's mortgage notes receivable collateralize
the Trust's line of credit with a third party lender (see Note 6).
Activity in the allowance for estimated loan losses was as follows:
1995 1994 1993
------------ ------------ ------------
Balance at beginning of period $ 26,595,000 $ 30,825,000 $ 35,000,000
Provisions for losses -- -- --
Deductions (12,997,000) (4,230,000) (4,175,000)
------------ ------------ ------------
Balance at end of period $ 13,598,000 $ 26,595,000 $ 30,825,000
============ ============ ============
The deductions to the estimated loan losses relate primarily to the
foreclosure of properties by either Trust or the first lien holder, where the
Trust is in a second position. During 1995 the Trust modified the Fox Run loans
and capitalized approximately $1,914,000 of past due interest and default
interest into the principal of the loans. The Trust reversed $1,800,000 of
allowance for estimated loss relating to the Fox Run loans, based upon improved
property performance, the commencement of modified debt service in the fourth
quarter of 1995 and an anticipated refinancing of the mortgages on the property.
Included in the Trust's allowances for estimated losses on notes
receivable is $3 million relating to one loan, a promissory note on a Waukegan,
Illinois apartment complex. The property has continued to improve in operations
since February 1993. The property still needs substantial maintenance and
capital improvements and has not provided the Trust with any debt service since
February 1993, and no debt service is anticipated in the near future. The Trust
has not reduced the allowance. There can be no assurances that the value in this
property will exceed the first mortgage debt.
21
22
Notes receivable are summarized as follows:
December 31
-----------------------------
1995 1994
------------ ------------
MORTGAGE NOTES RECEIVABLE:
First trust deeds, primarily requiring monthly interest only
payments ranging from 9% to 13%, maturing through
December 2003 $ 8,200,000 $ 10,537,000
Second trust deeds, requiring monthly interest only payments
ranging from 11% to 12.5%, maturing through December 2003 15,317,000 17,498,000
Third trust deeds, requiring monthly interest only payments
ranging from 10% to 12.5%, maturing through June 1996 3,534,000 7,398,000
------------ ------------
27,051,000 35,433,000
Less: Unearned loan fees (64,000) (93,000)
------------ ------------
Net mortgage notes receivable 26,987,000 35,340,000
------------ ------------
PROMISSORY NOTES RECEIVABLE:
Promissory notes receivable, requiring monthly interest
payments ranging from 8.5% to 13%, maturing through
December 2003 (See Note 5) 18,318,000 23,925,000
Less: Unearned loan fees (8,000) (17,000)
------------ ------------
Net promissory note receivable 18,310,000 23,908,000
------------ ------------
NOTES RECEIVABLE $ 45,297,000 $ 59,248,000
============ ============
At December 31, 1995 mortgage notes receivable of $7,848,000 and
promissory notes receivable of $7,588,000, all of which are due from affiliates,
are in default.
With respect to the promissory notes receivable as of December 31,
1995, $9,750,000 are secured by partnership interests and $8,560,000 are general
obligations of partnerships. The underlying properties are not collateral for
such loans.
During year ended December 31, 1994, two Trust Loans, referred to as
Bridgetower Apartments and North Prior, were foreclosed upon by debt holders
senior to the debts of the Trust. Both loans had been fully reserved for loss.
During year ended December 31, 1995, two Trust Loans, referred to as Marina
Plaza and Burnhamthorpe, respectively, were foreclosed upon by debt holders
senior to the debts of the Trust. Both loans had been fully reserved for loss.
However, due to recourse provisions on the Marina Plaza loan, the Trust was able
to obtain title to a property having an estimated value of $500,000.
Scheduled maturities of notes receivable due subsequent to December 31,
1995 are, $14,775,000 in 1996, $8,410,000 in 1997, $4,075,000 in 1998, $0 in
1999 and $8,846,000 thereafter. It is likely that the scheduled maturity dates,
for a significant percentage of the notes, will be extended.
NOTE 4 - REAL ESTATE HELD FOR SALE
In August 1993, the Trust foreclosed on a parcel of land located in
Houston, Texas, referred to by the Trust as "Martinique", for which it held a
first trust deed mortgage. The Trust did not recognize a loss on foreclosure in
1993 in excess of the reserve of $600,000 previously provided. The property was
sold in December 1995, for $1.5 million and the Trust received net cash proceeds
of approximately $1,371,000. The Trust realized a $3,000 loss on the sale as
detailed in the following table.
22
23
In 1994, the Trust began a foreclosure action on a $1,500,000 first
trust deed mortgage held on a property referred to as 4851 Van Epps, an
industrial warehouse located in Cleveland, Ohio. The Trust had previously
provided a loss reserve of $600,000 on this loan. In September 1995 the Trust
obtained title to the property through a deed-in-lieu of foreclosure. In October
1995 the Trust sold the property for $1,370,000, taking back a $700,000 first
trust deed mortgage on the property and received net cash proceeds of
approximately $580,000. The income recognized from the sale is detailed in the
following table.
4851 Van Epps Martinique
------------- -----------
Sale price of real estate $ 1,370,000 $ 1,500,000
Less:
New cost of real estate held for sale (912,000) (1,400,000)
Closing costs (23,000) (103,000)
----------- -----------
Gain (loss) from sale of real estate $ 435,000 $ (3,000)
=========== ===========
In January 1994, the Trust acquired, through a foreclosure on its loan
of $3,600,000, a 220 unit apartment complex located in Decatur, Georgia. The
foreclosure resulted in no loss in 1994 as the reserve of $430,000 had been
previously provided. See Note 3. In April 1994, the Trust sold the property and
received net cash proceeds of approximately $3.3 million. The income recognized
from the sale is detailed in the following table:
Sale price of real estate $ 3,400,000
Less:
New cost of real estate held for sale (3,298,000)
Closing costs (100,000)
-----------
Gain from sale of real property $ 2,000
===========
As of December 31, 1995, the Trust owns three real estate properties
held for sale, referred to as University Center Phase IV a 56,000 square foot
retail center and University Center Phase I & II, a 51,200 square foot warehouse
office space, both of these properties are located in Fridley, Minnesota and
4705 Van Epps, a 35,000 square foot industrial warehouse located in Cleveland,
Ohio.
The Trust foreclosed on University Center Phase IV in December 1995, on
which it held a $1,800,00 first trust deed mortgage. This note contained
recourse provisions, accordingly, the Trust received as a function of the
foreclosure action, a judgment lien in the amount of $464,000 on a property
called University Center Phase I & II. As the Trust had two additional loans
with the same borrower, the borrower agreed to deed-in-lieu of foreclosure the
University Center Phase I & II property in consideration of reducing the
principal loan balance by $880,000 on a second trust deed mortgage held by the
Trust in the original amount of $2,600,000, known as Springdale Lake Estates.
The Trust recorded the University Center Phase I and II property at $1,100,000,
its estimated fair market value.
The Trust obtained title to the 4705 Van Epps property through a
deed-in-lieu of foreclosure in August 1995. The Trust had obtained a judgment
lien of approximately $2.7 million on this property as a result of recourse
provisions in the $2 million note referred to as Marina Plaza. In consideration
of the deed-in-lieu of foreclosure, the Trust agreed to reduce the judgment lien
by $500,000 and a payment of $5,000. The 4705 Van Epps property had a $343,000
delinquent first mortgage from an independent financial institution which the
Trust was required to pay upon transfer of title to the Trust. The Trust
recorded this property at $500,000 and recognized approximately $151,000 as
recovery of bad debt. The property is currently under contract to sell with an
anticipated closing by the first quarter of 1996. There can be no assurance that
this sale will be consummated.
23
24
NOTE 5 - ANGELES PROMISSORY NOTE RECEIVABLE
The Trust had provided Angeles with a $10,000,000 promissory note
receivable secured by real estate, expiring May 31, 1993. At December 31, 1994,
outstanding borrowings on the note were $9,255,000. As a result of the Angeles
settlement as discussed in Note 10 the Trust received over $15 million in cash,
notes and stock to settle this note along with other matters. The new note in
the amount of $6,100,000 received from Angeles in the settlement has been paid
down to $3,750,000 as of December 31, 1995.
NOTE 6 - NOTE PAYABLE TO BANK
As of July 25, 1995, the Trust established a new line of credit with
the Bank, in the amount of $5 million. This new line of credit requires monthly
interest only payments based upon prime plus 1% and matures July 31, 1996. The
new line of credit which refinanced the prior loan with the Bank allows the
Trust to draw on such line to facilitate the foreclosure process on Trust Loans.
In August 1995 the Trust drew down on such line of credit in the amount of
$343,000 in order to pay-off the first trust deed on a property obtained through
a deed-in-lieu of foreclosure (see Note 4). As of December 5, 1995, the Trust
paid off the remaining outstanding balance on the line of credit.
The Trust's average month-end borrowings on the working capital line of
credit were $2,075,000 and $6,094,000 in 1995 and 1994, respectively at a
weighted average interest rate of 10.1% and 9.0%, respectively. The highest
month-end loan balance was $3,500,000 and $9,257,000 in 1995 and 1994,
respectively. Such borrowings were used to increase the Trust's investment in
notes receivable. In conjunction with the financing, the Trust paid loan fees of
$43,000, $82,000, and $91,000 in 1995, 1994 and 1993, respectively.
NOTE 7 - RECORDED CASH ADVANCES FROM AFFILIATED PARTNERSHIPS AND PROPOSED
SETTLEMENT WITH INSIGNIA
In July 1993, the Trust had filed a lawsuit challenging the Trust's
indebtedness and any liability for principal and interest relating to funds
allegedly loaned to the Trust by eight partnerships. The balance outstanding on
these alleged loans, as of December 31, 1994, was $7,585,000 along with accrued
interest of approximately $941,000. Cross complaints were filed against the
Trust by certain of the lending partnerships in this same lawsuit seeking, among
other things, repayment in full of the alleged loans. Effective March 31, 1995,
the following settlement was consummated between the Trust and seven
partnerships, Insignia and affiliates of Insignia. Funds were paid to such
entities on April 14, 1995 as follows:
- the Trust paid approximately, $5,752,000 in cash;
- the Trust purchased, for $250,000, an option from MAE GP
Corporation, an affiliate of Insignia, to purchase all the Class
B Shares of the Trust currently owned by the affiliate. Such
holdings represent 100% of the Trust's outstanding Class B
Shares. The option is exercisable by the Trust in 10 years for
approximately $94,000. During the 10 year period the option is
outstanding all of the Class B Shares will be voted, pursuant to
an irrevocable proxy, with the majority of Class A Shares in
connection with any proposal involving the Trust and Insignia or
any affiliate thereof or election of any Trustee nominated by or
affiliated with Insignia. Such majority will be determined
without consideration of the votes of "Excess Class A Shares," as
defined in the Trust's Declaration of Trust. With respect to all
other matters the affiliate of Insignia can vote the Class B
Shares without restriction.
In addition, one partnership, not affiliated with Insignia, having an
alleged loan to the Trust of $1,150,000 along with accrued interest of
approximately $145,000 as of March 31, 1995, reached an agreement with the Trust
for a settlement of all claims between the Trust and the partnership. Pursuant
to this agreement the Trust paid a total of $930,000 of cash on May 9, 1995,
upon execution of the settlement agreement.
24
25
As a result of this settlement the Trust recognized an extraordinary
gain of $1,844,000 summarized as follows:
Recorded cash advances from affiliated partnerships $ 7,585,000
Accrued interest on recorded cash advances through 12/31/94 941,000
-----------
Total recorded liabilities relating to recorded cash advances 8,526,000
Less:
Settlement of principal and interest on Insignia related partnerships (5,686,000)
Additional interest due on settlement of Insignia related partnerships (66,000)
Settlement of principal on non-Insignia related partnership (930,000)
-----------
Extraordinary gain $ 1,844,000
===========
NOTE 8 - SHAREHOLDERS' EQUITY
The Shares of the Trust are of two classes: Class A Shares (par value
$1.00 per share) and Class B Shares (par value $.01 per share). There is no
limit on the number of either Class A or Class B Shares which the Trust is
authorized to issue. Class A and Class B Shares are each entitled to one vote
per share with respect to the election of Trustees and other matters.
In 1995, the Trust purchased, for $250,000, an option from MAE GP
Corporation, an affiliate of Insignia to purchase all the Class B Shares of the
Trust currently owned by the affiliate. Such holdings represent 100% of the
Trust's outstanding Class B Shares. The option is exercisable by the Trust in 10
years for approximately $94,000. During the 10 year period the option is
outstanding, all of the Class B Shares will be voted, pursuant to an irrevocable
proxy, with majority of Class A Shares in connection with any proposal involving
the Trust and Insignia or any affiliate thereof or election of any Trustee
nominated by or affiliated with Insignia. The majority will be determined
without consideration of the votes of "Excess Class A Shares," as defined in the
Trust's Declaration of Trust. With respect to all other matters, the affiliate
of Insignia can vote the Class B Shares without restriction.
The Board of Trustees of the Trust has authorized the Trust to
repurchase, in open market transactions, up to 10% of its Class A Shares. The
Trust has repurchased 43,800 shares under this program. There were no purchases
in 1995, 1994 and 1993.
In February 1993, the Trust's policy of distributing monthly the net
cash from operations to its Class A shareholders was temporarily suspended as a
result of the failure of the Insignia Partnerships and partnerships affiliated
with Angeles to fully service their Trust Loan obligations and Angeles'
inability to perform its guarantee of a minimum annual distribution of $2.00 per
Class A Share through May 1994 or meet its obligations under its promissory note
receivable with the Trust because of its own liquidity problems. The Trust
announced in December 1995 its intention to declare a dividend of $0.10 to its
Class A Shareholders of record as of January 22, 1996, payable February 13,
1996.
NOTE 9 - FEES AND OTHER PAYMENTS TO AFC AND ITS AFFILIATES
Until February 1, 1993, the Trust paid AFC monthly advisory fees for
trust administration . The Trust also reimbursed an affiliate of AFC for
administrative expenses incurred on its behalf. In February 1993, AFC's advisory
services to the Trust were terminated. The amount paid to AFC or its affiliate
for 1993 was $35,000.
NOTE 10 - SETTLEMENT WITH ANGELES CORPORATION
Angeles had been unable to service its debt obligations under its
promissory note receivable with the Trust or perform its obligations under its
guarantees of the Trust's Loans. In May 1993 Angeles filed for protection under
Chapter 11 of the federal bankruptcy code. Angeles's failure to perform under
its debt obligations and guarantees
25
26
with the Trust together with other matters, resulted in the March 1994 filing by
the Trustees, on behalf of the Trust, of substantial claims against Angeles in a
proof of claim in the Angeles bankruptcy.
The Trust reached agreement with Angeles and the Committee of Creditors
Holding Unsecured Claims of Angeles to settlement of all claims between the
Trust and Angeles. The settlement agreement was approved by the Bankruptcy Court
under a plan of reorganization and the Trust received on April 14, 1995, after
the effective date of Court approval (March 31, 1995), the following:
- cash of $6.0 million;
- collateralized note payable of $6,100,000 due December 31, 1998,
interest paid quarterly at prime plus 1% not to exceed 8.5%;
- 567,326 Class A Shares of the Trust, owned by Angeles,
representing 16% of the then total outstanding Class A Shares of
the Trust;
- payment of $1 million on a third party claim;
- assignment of a third party subordinated note with a face value
of $1.2 million; and a
- release of all claims on behalf of Angeles against the Trust.
The $6.1 million note is collateralized with a pledge of Angeles's
limited partnership interest in a limited partnership whose assets are comprised
of notes and receivables from various real estate investment partnerships. The
Trust, during 1995, received $2,350,000 in principal paydowns on this loan
leaving a remaining principal balance as of December 31, 1995 of $3,750,000.
The third party $1.2 million subordinated note received in the
settlement had an indeterminable value and therefore was recorded at zero.
The settlement transaction with Angeles has resulted in the Trust
recording $12,844,000 recovery of bad debt, summarized as follows:
Consideration received in settlement:
Cash $ 6,000,000
Collateralized note 6,100,000
Third party subordinated note 1,200,000
Reimbursement for third party claim 1,000,000
567,326 Class A Trust Shares (valued as of
effective date of settlement, $7.50/Class A share) 4,254,000
Other 745,000
------------
Total 19,299,000
Less:
Repayment of Angeles note receivable, net of reserve (4,255,000)
Reserve for third party subordinated note (1,200,000)
Payment of third party claim (1,000,000)
------------
Recovery of bad debt from Angeles Settlement $ 12,844,000
============
26
27
NOTE 11 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the selected quarterly financial data
for the Trust (in thousands except for per share amounts).
QUARTER ENDING
--------------------------------------------
1995 12/31/95 9/30/95 6/30/95 3/31/95
- - ---- --------------------------------------------
Revenue $4,048 $1,231 $ 602 $13,621
Income (loss) before extraordiary item $3,387 $ 864 $ 228 $12,810
Extraordinary item $ -- $ -- $ -- $ 1,844
Net income (loss) $3,387 $ 864 $ 228 $14,654
PER CLASS A SHARE
Income (loss) before extraordiary item $ 1.19 $ 0.30 $ 0.08 $ 3.74
Extraordinary item $ -- $ -- $ -- $ 0.53
Net income (loss) $ 1.19 $ 0.30 $ 0.08 $ 4.27
Weighted average Class A Shares outstanding 2,827 2,827 2,827 3,394
Quarter Ending
----------------------------------------------
1994 12/31/94 9/30/94 6/30/94 3/31/94
----------------------------------------------
Revenue $ 815 $ 711 $ 531 $ 712
Net income (loss) $ 194 $ 171 ($ 100) $ 108
Net income (loss) per Class A share $ 0.06 $ 0.05 ($ 0.03) $ 0.03
Weighted average Class A Shares outstanding 3,394 3,394 3,394 3,394
27
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
28
29
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS
The current executive officers and Trustees of the Trust are listed
below, together with their ages and all Trust positions held by them:
Ronald J. Consiglio (1) 52 Trustee, Chairman, Chief Executive Officer and
President
J. D'Arcy Chisholm (1) (2) (3) 64 Trustee
Bryan L. Herrmann (1) (3) 60 Trustee
Leland B. Evans (2) 42 Trustee
Anna Merguerian 40 Vice President, Secretary, and Chief Financial Officer
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Mr. Consiglio has been a Trustee since April 1988 and has served as the
Chairman, Chief Executive Officer and President of the Trust since May 1993. In
addition, Mr. Consiglio was the Chairman of the Trust's Audit Committee in 1993
and became the Chairman of the Independent Committee upon its formation in
February 1993. Upon formation of the Trust's Executive Committee in May 1995,
Mr. Consiglio serves as its Chairman. From January 1993 through June 1993, Mr.
Consiglio served as Executive Vice President and Chief Administrative Officer of
Reynolds Kendrick Stratton, Inc., a Los Angeles based securities brokerage firm.
From 1990 through 1992, Mr. Consiglio was the Senior Vice President and Chief
Financial Officer of Cantor Fitzgerald & Co., Inc. where he was responsible for
operations, administration and finance. From 1988 through 1990 he was the Senior
Vice President of the investment banking firm of Wedbush Morgan Securities, Inc.
("WMS"), and from 1984 through 1988 he was Executive Vice President of a
predecessor firm, Morgan, Olmstead, Kennedy & Gardner Incorporation. He was
responsible for WMS's investment banking activities, as well as many of the
administrative and operation functions of the firm. He is a certified public
accountant and was a partner in Deloitte Haskins & Sells from 1977 to June 1984.
In 1992, Mr. Consiglio served as the District Chairman of the National
Association of Securities Dealers' District Business Conduct Committee. Mr.
Consiglio is also an executive officer, trustee and Chairman of Angeles
Participating Mortgage Trust and is a business consultant.
Mr. Chisholm has been a Trustee of the Trust since September 1989 and
became a member of the Audit, Compensation and Executive Committees and serves
as the Chairman of the Audit Committee. He has been a consultant to real estate,
business and educational entities in San Francisco, California, currently and in
Minneapolis, Minnesota since 1989. From 1980 until September 1989, Mr. Chisholm
was associated with the Institute for Pastoral and Social Ministry at the
University of Notre Dame, initially as a volunteer, then as an assistant
director from 1982 until 1986 and finally as an associate director from 1986
until 1989. From 1971 until 1980, Mr. Chisholm served in several capacities for
Angeles and its subsidiaries, including president of its property management
company and president of its property sales company. Prior to 1971, Mr. Chisholm
was employed at the following real estate related firms; Real Estate Research
Corporation, Del E. Webb Corporation and Milton Meyer Company. He holds a B.A.
degree from the University of Notre Dame and is a graduate of the Executive
Program, graduate School of Business, UCLA. Mr. Chisholm also serves as a
trustee of Angeles Participating Mortgage Trust.
Mr. Herrmann has been trustee since December 1994 and is a member of
the Compensation and Executive Committees and serves as the Chairman of the
Compensation Committee. Mr. Herrmann is an investment banker by background and
currently is Chairman and Chief Executive Officer of Base Camp 9 Corp. and has
been in that position since 1990. In addition to his duties at Base Camp 9
Corp., from 1992 to 1994, Mr. Herrmann served as Chief Executive officer of
Spaulding Composites Company and is currently a member of its board of
directors.
29
30
Since 1984 Mr. Herrmann has been the general partner of MOKG 1984 Investment
Partners Ltd. Mr. Herrmann is a member of the board of directors of Wynn's
International, Inc., a New York Stock Exchange company.
Mr. Evans, has been a Trustee since May 1995, and became a member of
the audit committee in June 1995. Mr. Evans is an attorney and has practiced law
since 1980. Mr. Evans has represented secured lenders in real estate matters and
has served as counsel to federally insured lending institutions.
Ms. Merguerian became the Vice President and Secretary of the Trust in
December 1993 and the Chief Financial Officer in December 1994. Prior to joining
the Trust in May 1993, she was employed by Angeles from June 1981 through April
1993. Her last position with Angeles and its subsidiaries was as a Senior Vice
President of the Asset Management Group. From September 1977 to May 1981, she
served as a Senior Accountant at Ernst & Young (which was formerly known as
Ernst & Whinney). Ms. Merguerian is a certified public accountant.
INFORMATION REGARDING THE BOARD OF TRUSTEES AND ITS COMMITTEES
INDEPENDENT COMMITTEE. On February 26, 1993, in recognition of the
conflicts of interest between the Trust and Angeles, a committee was formed
consisting solely of Trustees who are not affiliated with Angeles. The
Independent Committee was given the authority to evaluate, negotiate and
implement the Restructuring of the Trust's assets and liabilities, and to make
all decisions relating to the Trust's dealings with Angeles or any of its
affiliates. An independent firm of valuation consultants and independent counsel
have been engaged to assist the Independent Committee. Messrs. Consiglio,
Bryant, Chisholm and McDonald served on the Independent Committee with Mr.
Consiglio serving as Chairman. In April 1993 the Independent Committee ceased to
exist upon the resignation of the two Angeles affiliated Trustees.
AUDIT COMMITTEE. The Board of Trustees has delegated a portion of its
authority to an Audit Committee comprised of only independent trustees. This
Committee makes recommendations to the Board of Trustees concerning the
selection of the Trust's independent auditors, oversees the financial reporting
process, develops and approves plans for the annual duties of the Trust, reviews
fees charged by the independent auditors, reviews the scope and results of the
auditors' reports and reviews and monitors the implementation of suggestions
made by the independent auditors. Additionally, the Committee reviews and
monitors non-audit services provided by the independent auditors. The Committee
is kept apprised by management of the Trust's internal control procedures.
Messrs. Chisholm and Evans served on the Audit Committee with Mr. Chisholm
serving as Chairman.
COMPENSATION COMMITTEES. During 1995 the Audit and Compensation
Committee was split into two separate committees. The Compensation Committee
oversees, reviews and approves the compensation of the Trustees and officers of
the Trust. Messrs. Chisholm and Herrmann serve on the Compensation Committee
with Mr. Herrmann serving as Chairman.
EXECUTIVE COMMITTEE. In May 1995 the Board of Trustees delegated a
portion of its authority to the Executive Committee comprised of Mr. Consiglio,
Mr. Chisholm and Mr. Herrmann, with Mr. Consiglio serving as Chairman. The
purpose of establishing the Executive Committee was the expectation that the
Board of Trustees would expand in size due to the contemplated expansion of the
Trust's asset portfolio through an UPREIT structure. Therefore, in order to
facilitate efficient management of the Trust without having to arrange for
meetings for a larger group of Trustees, the Executive Committee was formed as
provided in the Trust's Declaration of Trust. The Executive Committee has all of
the powers and authority of the board of trustees with some restrictions.
BOARD OF TRUSTEES AND COMMITTEE MEETINGS. During the fiscal year ended
December 31, 1995, the Trust's Board of Trustees held five regular meetings with
all Trustees attending in person and three special meetings with all Trustees
attending except for Mr. Herrmann, who did not attend one such special meeting.
The Audit Committee met once during fiscal year 1995 and each committee member
attended either in person or by telephone. The Compensation Committee met once
in 1995 and each committee member attended either in person or by telephone. The
Executive Committee met three times during 1995 and each committee member
attended either in person or by telephone.
30
31
ITEM 11. EXECUTIVE COMPENSATION
This item is hereby incorporated by reference to the Trust's 1996 Proxy
Statement to be filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is hereby incorporated by reference to the Trust's 1996 Proxy
Statement to be filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is hereby incorporated by reference to the Trust's 1996 Proxy
Statement to be filed with the Securities and Exchange Commission.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a) Listed below are all financial statements and supplemental schedules
filed as part of this 10-K and herein included.
Page No.
--------
Balance Sheets at December 31, 1995 and 1994 15
Statements of Operations for the years ended December 31, 1995, 1994 and 1993 16
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 17
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 18
Notes to Financial Statements 19
Supplemental Schedule III - Real Estate and Accumulated Depreciation 35
Supplemental Schedule IV - Mortgage Loans on Real Estate 36
(b) No reports on Form 8-K were filed during the last quarter of the period
ended December 31, 1995
(c) Exhibits required by Item 601 of Regulation S-K: Refer to Exhibit Index
of this report.
(d) Other Financial Statements required by Regulation S-X are not
applicable or because the required information is shown in the
financial statement.
All other supplemental schedules are omitted because they are not required or
because the required information is shown in the financial statements.
32
33
ANGELES MORTGAGE INVESTMENT TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- - -------------- ----------------------
3.1 Declaration of the Trust dated September 1, 1988.(1)
10.1 The Financial Statements of Angeles Corporation
("Angeles").(2)
10.2 Loan and Security Agreement dated May 31, 1990 between
Angeles and the Trust.(3)
10.3 Amended and Restated Loan and Security Agreement dated June
25, 1990 between the Bank and the Trust.(3)
10.4 Amendment No. 1 to the Amended and Restated Loan and
Security Agreement dated May 30, 1991 between the Bank and
the Trust.(4)
10.5 $10,000,000 Convertible Debenture Agreement dated April 17,
1991 between Angeles and the Trust.(4)
10.7 Fee and Indemnity Agreement dated April 21, 1992 among
Angeles, Angeles Housing Concepts, Inc. ("AHC") and the
Trust.(5)
10.8 Guarantee Agreement dated April 21, 1992 relating to
guaranty made by the Trust in favor of PaineWebber
Independent Living Mortgage Fund, Inc. and PaineWebber
Independent Living Mortgage Inc. II.(5)
10.9 Amendment No. 2 to the Amended and Restated Loan and
Security Agreement dated April 29, 1992 between the Bank and
the Trust. (5)
10.10 First Amendment to Fee and Indemnity Agreement dated July
20, 1992 between Angeles, AHC and the Trust.(5)
10.11 Guaranty Agreement dated November 24, 1992 relating to
guaranty made by Insignia Financing Group, Inc. ("Insignia")
in favor of the Trust. (5)
10.12 Amendment No. 1 to the Security Agreement dated November 24,
1992 between Angeles and the Trust.(5)
10.13 Letter Agreement dated April 13, 1993 regarding the Amended
and Restated Loan and Security Agreement between the Bank
and the Trust.(5)
10.14 Amendment No. 3 to the Amended and Restated Loan and
Security Agreement dated May 17, 1993 between the Bank and
the Trust.(6)
10.15 Amendment No. 4 to the Amended and Restated Loan and
Security Agreement dated November 17, 1993 between the Bank
and the Trust.(6)
10.16 Amendment No. 5 to the Amended and Restated Loan and
Security Agreement dated May 16, 1994 between the Bank and
the Trust.(6)
10.17 Supplement to Amendment No. 5 to Amended and Restated Loan
and Security Agreement RE: Extension dated November 28, 1994
between the Bank and the Trust. (7)
10.18 Agreement and Mutual Release dated January 30, 1995 between
the Trust, Angeles Corporation and the Committee of
Creditors Holding Unsecured Claims. (7)
10.19 Settlement Agreement dated November 9, 1994 between the
Trust and the Insignia Parties. (7)
10.20 Amendment to Agreement and Mutual Release dated April 10,
1995 between the Trust, Angeles Corporation and the
Committee of Creditors Holding Unsecured Claims.
10.21 Amendment to Settlement Agreement dated December 20, 1994
between the Trust and the Insignia Parties.
10.22 Second Amendment to Settlement Agreement dated March 29,
1995 between the Trust and the Insignia Parties.
10.23 Third Amendment to Settlement Agreement dated April 12, 1995
between the Trust and the Insignia Parties.
10.24 Settlement Agreement dated May 5, 1995 between the Trust and
Satellite Communication Partners, Ltd.
10.25 Seconded Amended and Restated Loan and Security Agreement
dated July 25, 1995 between the Trust and Imperial Bank.
10.26 Employment Agreement dated December 1, 1995 between the
Trust and Anna Merguerian.
19.1 Form of Indemnification Agreement dated as of January 3,
1989 between the Trust and the Trustees.
(1) Filed as an exhibit to the Trust's Registration Statement dated
December 14, 1988, and incorporated herein by reference.
(2) Filed as an exhibit to Angeles' Form 10-K dated June 30, 1991 and
Angeles' Form 10-Q dated December 31, 1991, and incorporated herein by
reference.
(3) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1990,
March 27, 1991, and incorporated herein by reference.
(4) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1991,
and incorporated herein by reference.
(5) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1992,
and incorporated herein by reference.
(6) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1993,
and incorporated herein by reference.
(7) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1994,
and incorporated herein by reference.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Trust has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ANGELES MORTGAGE INVESTMENT TRUST
Registrant
Date February 7, 1996 /s/ Ronald J. Consiglio
-------------------------------------
Ronald J. Consiglio
Chairman of the Board of Trustees
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
Trust and in the capacities and on the dates indicated.
Date February 7, 1996 /s/ Ronald J. Consiglio
-------------------------------------
Ronald J. Consiglio
Trustee, President and Chief
Executive Officer (Principal
Executive Officer)
Date February 7, 1996 /s/ J. D'Arcy Chisholm
-------------------------------------
J. D'Arcy Chisholm
Trustee
Date February 7, 1996 /s/ Bryan L. Herrmann
-------------------------------------
Bryan L. Herrmann
Trustee
Date February , 1996
-------------------------------------
Leland B. Evans
Trustee
Date February 7, 1996 /s/ Anna Merguerian
-------------------------------------
Anna Merguerian
Vice President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
34
35
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Cost capitalized Gross amount at which
Description Encum- Initial Cost to subsequent to carried at close of Accumulated Date of
brances Trust acquisition period(1)(2) Depreciation con-
----------------------------------- struction
Building Improve- Carrying
and land ments costs
improvements
- - ----------------------------------------------------------------------------------------------------------------------------------
4705 Van Epps $-0- $ 500,000 -- -- $ 500,000 0 1979
Industrial Warehouse
Cleveland, Ohio
University Center Phase IV 1,800,000 -- -- 1,800,000 0 1975
Retail Shopping
Friedly, Minnesota
University Center Phase I & II 1,100,000 -- -- 1,100,000 0 1975
Warehouse Office
Friedly, Minnesota
--------------------------------------------------------------------------
Total 0 3,400,000 0 0 3,400,000 0
==========================================================================
Life on
which
Description Date depreciation
acquired in latest
income
statements
is computed
- - --------------------------------------------------------------
4705 Van Epps Aug.-'95 N/A
Industrial Warehouse
Cleveland, Ohio
University Center Phase IV Dec.-'95 N/A
Retail Shopping
Friedly, Minnesota
University Center Phase I & II Nov.-'95 N/A
Warehouse Office
Friedly, Minnesota
Total
FOOTNOTES TO SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(1) Reconcilation of real property investment:
Balance at January 1, 1993 $ --
Additions during period:
Acquisition through foreclosure $ 1,400,000
Deductions during period $ --
-----------
Balance at December 31, 1993 $ 1,400,000
-----------
Additions during period:
Acquisition through foreclosure $ 3,170,000
Deductions during period $(3,170,000)
-----------
Balance at December 31, 1994 $ 1,400,000
-----------
Additions during period:
Acquisition through foreclosure $ 4,312,000
Deductions during period $(2,312,000)
-----------
Balance at December 31, 1995 $ 3,400,000
===========
(2) The carrying value for federal income tax purposes is $3,400,000.
35
36
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(IN THOUSANDS)
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF MORT SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES GAGES(2)(3) PRINCIPAL OR INTEREST
----------- -------- -------- -------- ----- --------- -------------- -------------------------
FIRST TRUST DEEDS
- - -----------------
Colony Cove 13.00% Jun-95 (1) $ - 2,000 1,572 1,572
Land,
Ellenton, Florida
Mesa Dunes, Wakonda, Town & Country
Retail Stores, 9.00% Dec-03 (4) - 5,000 3,450 -
Cedar Rapids / Des
Moines, Iowa
Princeton Meadows Joint Venture
Golf Course,
Princeton Meadows, New Jersey 12.50% Sep-01 (1) - 1,280 1,567 -
4851 Van Epps
Warehouse Complex,
Cleveland, Ohio 9.00% Dec-03 (1) - 700 700 -
La Salle
Warehouse, 11.50% Dec-03 (1) - 935 911 -
Las Vegas, Nevada
-----------------------------------------------------------
TOTAL FIRST TRUST DEEDS 0 9,915 8,200 1,572
SECOND TRUST DEEDS
- - ------------------
Hospitality Inn 12.50% Jul-96 (1) 795 800 900 -
Hotel,
Pensacola, Florida
Hospitality Inn 12.00% Jul-96 (1) 904 525 588 -
Hotel,
Pensacola, Florida
Hospitality Inn 12.00% Jul-96 (1) 2,248 575 644 -
Hotel,
Jacksonville, Florida
36
37
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(IN THOUSANDS)
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF MORT SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES GAGES(2)(3) PRINCIPAL OR INTEREST
----------- -------- -------- -------- ------ --------- -------------- -------------------------
SECOND TRUST DEEDS - CONTINUED
Panorama Terrace 11.00% Dec-03 (1) 3,946 950 256 -
Apartments,
Birmingham, Alabama
Southgate (5) 11.50% Mar-95 (1) 2,723 2,000 2,000 2,000
Apartments,
Bedford Heights, Ohio
4595-97 Van Epps 12.00% Feb-97 (1) 1,601 600 500 -
Warehouse Complex,
Cleveland, Ohio
North Prior 12.25% Jun-96 (1) 7,918 2,000 1,206 1,206
Warehouse Complex,
St. Paul, Minnesota
Springdale Lake Estates (5) 12.25% Jun-95 (1) 2,883 2,600 1,720 1,720
Mobile Home Park,
Belton, Missouri
Bercado Shores 12.50% Jun-95 (1) 4,307 1,350 1,350 1,350
Apartments,
South Bend, Indiana
Brittany Point 12.50% Dec-00 (1) 9,536 1,250 1,250 -
Apartments,
Huntsville, Alabama
Nolana Apartments, Inc. 12.00% Aug-96 (1) 1,873 455 375 -
Los Angeles, California
Fox Run 11.50% Sep-96 (1) 22,849 1,734 1,734 -
Apartments,
Plainsboro, New Jersey
Fox Run 12.50% Sep-96 (1) - 2,794 2,794 -
Apartments,
Plainsboro, New Jersey
---------------------------------------------------
TOTAL SECOND TRUST DEEDS 61,583 17,633 15,317 6,276
37
38
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
(in thousands)
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF MORT SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES GAGES(2)(3) PRINCIPAL OR INTEREST
----------- -------- -------- -------- ------ --------- -------------- -------------------------
THIRD TRUST DEEDS
- - -----------------
Oxford/Spanish Gardens 10.00% Jun-96 (1) 2,741 1,298 1,298 -
Apartments,
Montgomery, Alabama
Fox Run (A) 12.50% Sep-96 (1) 3,250 2,236 2,236 -
Apartments,
Plainsboro, New Jersey
-------------------------------------------------------------
TOTAL THIRD TRUST DEEDS 5,991 3,534 3,534 0
PROMISSORY NOTES RECEIVABLE
- - ---------------------------
Lake Arrowhead Joint Venture 13.00% Dec-97 (1) 21,000 6,000 6,000 -
Hotel,
Lake Arrowhead, California
Harbour Landing 12.00% Feb-95 (1) 4,165 470 178 178
Apartments,
Columbia, South Carolina
Carriage Hills 12.00% Apr-95 (1) 3,440 1,200 1,200 1,200
Apartments,
East Lansing, Michigan
Vista Hills 12.50% Jun-95 (1) 3,775 1,300 1,300 1,300
Apartments,
El Paso, Texas
Angeles Partners 16 12.50% Jun-97 (1) - 860 860 860
California Limited Partnership
Rolling Greens Partners, Ltd. 12.50% Jun-97 (1) - 2,470 1,050 1,050
California Limited Partnership
Angeles Partners X 12.75% Dec-03 (1) - 1,350 655 -
California Limited Partnership
38
39
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
(in thousands)
FINAL PERIODIC FACE CARRYING PRINCIPAL AMOUNT OF LOANS
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF MORT SUBJECT TO DELINQUENT
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES GAGES(2)(3) PRINCIPAL OR INTEREST
----------- -------- -------- -------- -------- --------- -------------- -------------------------
PROMISSORY NOTES RECEIVABLE -
CONTINUED
Fox Crest 12.50% Jan-96 (1) 6,682 3,000 3,000 3,000
Apartments,
Waukegan, Illinois
Angeles Partners XIV 12.00% Feb-98 (1) - 325 325 -
California Limited Partnership
Angeles Corporation 8.50% Dec-98 (1) - 6,100 3,750 -
---------------------------------------------------------------
Los Angeles, California
TOTAL PROMISSORY NOTES RECEIVABLE 39,062 23,075 18,318 7,588
-------- ------- -------- -------
TOTAL $106,636 $54,157 45,369 $15,436
==================== =======
UNEARNED LOAN FEES (72)
--------
45,297
ALLOWANCE FOR ESTIMATED LOSSES (13,598)
--------
$ 31,699
========
39
40
ANGELES MORTGAGE INVESTMENT TRUST
FOOTNOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1995
(1) Note requires monthly interest only payments through maturity, when the
principal balance is due.
(2) Reconciliation of notes receivable:
Balance at January 1, 1993 83,060,000
Additions:
New mortgage loans 1,944,000
Deductions:
Principal collections (10,498,000)
Foreclosures (4,732,000)
------------
Balance at December 31, 1993 $ 69,774,000
Additions:
New mortgage loans 283,000
Deductions:
Principal collections (3,599,000)
Foreclosures (7,100,000)
------------
Balance at December 31, 1994 $ 59,358,000
Additions:
New mortgage loans 9,001,000
Deductions:
Principal collections (12,310,000)
Foreclosures (10,680,000)
------------
Balance at December 31, 1995 $ 45,369,000
============
(3) The carrying amount for Federal income tax purposes is approximately
$45,369,000.
(4) Note requires monthly interest and principal payments through maturity,
when the principal balance is due.
(5) Although loans are noted as delinquent as to principal or interest,
these loans are paying debt service to the Trust from cash available
from property operations.
40