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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ ] 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, 1996
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
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 NO [X]
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 $14.00 on February 6, 1997, was approximately
$34,510,000.
As of February 6, 1997 there were 2,617,000 shares of Angeles Mortgage
Investment Trust Class A, $1.00 par value outstanding and 1,675,113 shares of
Angeles Mortgage Investment Trust Class B, $0.01 par value outstanding.
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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 STOCKHOLDER 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 1996 compared to 1995...................................................................9
Fiscal year 1995 compared to 1994..................................................................10
Liquidity And Capital Resources....................................................................11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.......30
PART III..............................................................................................31
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS........................................................31
Information Regarding the Board of Trustees and Its Committees.....................................32
ITEM 11. EXECUTIVE COMPENSATION.................................................................33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................35
PART IV...............................................................................................36
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K..................36
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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 2,617,000 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 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 MAE GP, its affiliate, holds the Trust's Class B Shares, (Insignia
Financial Group, Inc. and its affiliates are collectively 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, 1996, there were 24 Trust
Loans outstanding, with an aggregate portfolio balance of approximately $28
million, net of loan loss reserve, and $5 million of real property. 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 39%
of the Trust's total voting shares. As discussed in Note 7, "Notes to Financial
Statements", the Trust and MAE GP entered into an agreement, effective April
1995, pursuant to which MAE GP granted to the Trust the option to purchase all
the Class B Shares currently owned by MAE GP. The option is exercisable by the
Trust in 2005 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 MAE GP which is an insider affiliate of MAE GP including 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, MAE GP 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
controlled 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 payable to the Trust 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 and resuming in 1996. 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 (net of loan loss reserves) of
approximately $4 million (or 11% of the Trust's net investments) are not
currently paying debt service to the Trust. The Trust's options are limited as
to certain of its investments as a result of its position as the holder of
obligations subordinate to other senior creditors. The Trust's lending is
concentrated in secured and unsecured real estate loans in regions which
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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 and other entities 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 and Class B 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 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 and in March 1996 the Trust sold
4705 Van Epps for $752,000. 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, located in Fridley, Minnesota.
In April 1996, the Trust foreclosed on a first trust deed mortgage in
the original amount of $1,572,000, held on 200 acres of raw land, know as Colony
Cove, located in Ellenton, Florida. In June 1996, the Trust along with a joint
venture partner foreclosed on a first trust deed mortgage in the original amount
of $1,050,000 (representing the Trust's 57% joint venture interest in the loan),
held on 155 acres of raw land and an 8,500 square foot strip shopping center
known as a Rolling Greens, located in Ocala, Florida. In August 1996, the Trust
foreclosed on a second trust deed mortgage in the original amount of $1,720,000
held on a 443 pad mobile home park community, known as Springdale Lake Estates
Mobile Home Park ("Springdale"), located in Belton, Missouri. Upon foreclosure,
the Trust assumed the first note and trust deed mortgage held by a third party
bank in the amount of $2.8 million. In October 1996, the Trust sold Springdale
for $4 million.
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The following is a list of properties owned by the Trust and held for
sale as of December 31, 1996.
Date of Type of Carrying
Property Ownership Ownership Use Value
-------- --------- --------- ---------------- --------
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 1,671,000
Phase IV 56,000 Sq. Ft.
Colony Cove 4/15/96 Fee ownership Raw land - 200 acres 1,714,000
Rolling Greens 6/6/96 57% Joint Raw land - 155 acres 585,000
Venture Retail Shopping,
Interest 8,500 Sq. Ft. ----------
$5,070,000
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ITEM 3. LEGAL PROCEEDINGS
THE TRUST, AS A PLAINTIFF, SETTLED 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 sought 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 sought treble damages pursuant to the Corporations Code, plus
attorneys fees, prejudgement interest and an injunction.
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
sought injunctive relief based on defendants' failure to disclose complete
and accurate information in violation of the Federal Securities Laws.
-------------------
In June 1996 the Trust settled the above noted lawsuits in State and Federal
courts with all defendants, except for Jules Kirsch as to which the Trust
voluntarily dismissed the cases, relating to the Trust's complaint for damages
arising from the use of non-public information to acquire the Trust's Class A
shares and alleged violations of Federal securities laws. The settlement
consisted of the Trust receiving cash of $689,000 and a $75,000 four year, 8%
collateralized promissory note, with semi-annual interest payments. This
$764,000 portion of the settlement was recognized by the Trust as income by
offsetting legal expenses incurred by the Trust relating to the lawsuit. In
addition, the Trust acquired 209,700 Class A shares for $1,730,000, or $8.25 per
Class A share and obtained a standstill agreement and a voting proxy, controlled
by the trustees of the Trust, on approximately 200,000 additional Class A shares
until such shares are sold in the open market.
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THE TRUST AS A DEFENDANT:
1. Jules P. Kirsch, an individual, vs. Angeles Mortgage Investment Trust,
Katten Muchin & Zavis and David M. Bass.
This action was filed in Superior Court of the State of California on
December 26, 1996, alleging that the named defendants maliciously prosecuted the
plaintiff in the cases noted in 1. and 2. above. The action seeks unspecified
amounts for compensatory and punitive damages. The Trust believes this lawsuit
will be resolved with no material effect on the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Trust has 1,563 Class A Shareholders of record as of February
6, 1997. 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.
In November 1996, the Trust's Board of Trustees adopted a
Shareholders Rights Plan and declared a dividend of one Right on each
outstanding share of the Trust's Class A Shares to stockholders of record on
November 18, 1996. The Rights are exercisable if a person or group acquires 20%
or more of the Trust's Class A Shares or announces or commences a tender offer
for 20% or more of the such shares. When a person or group acquires such 20%,
each exercisable Right will entitle its holder (other than such person or group)
to purchase, at the Right's then-current exercise price, a number of the Trust's
Class A Shares having a market value of twice such price. In addition, if the
Trust is acquired in a merger or other business combination transaction after a
person has acquired 20% or more of the Trust's outstanding Class A Shares, each
right will entitle its holder to purchase, at the Right's then-current exercise
price, a number of the acquiring company's common shares having a market value
of twice such price. Prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the Trust's common stock, the Rights are redeemable
for one cent per Right at the option of the Board of Trustees. The Board of
Trustees is also authorized, under certain circumstances, to reduce the 20%
threshold referred to above to not less than 10%. The Rights will expire on
December 31, 2003 unless otherwise extended by the Board of Trustees.
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
1996, Quarter ended:
December 31, 1996 $13 3/4 $8 7/16
September 30, 1996 $8 5/8 $7 7/8
June 30, 1996 $8 5/8 $7 5/8
March 31, 1996 $9 5/8 $5 5/8
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
On February 6, 1997, the last sale price of the Class A Shares as
reported by the American Stock Exchange was $14.00. The Trust made shareholder
distributions of $0.52 per share in 1996 and made no distributions in 1994 and
1995. In December 1996, the Board of Trustees of the Trust declared a $.22 per
share dividend payable on February 3, 1997, to shareholders of record on January
6, 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Board of Trustees of the Trust authorized the Trust to
repurchase, in open market transactions, up to 10% of its Class A Shares. The
Trust repurchased 43,800 shares under this program. There were no purchases in
the open market in 1996, 1995 and 1994, however in 1996, the Trust acquired
209,700 Class A Shares for $1,730,000 less $764,000 in expenses, in settlement
of actions it had brought against certain third parties. See "Legal
Proceedings."
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ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31
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1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Revenue (1) $ 10,050,000 $ 19,502,000 $ 2,769,000 $ 4,307,000 $ 9,505,000
Costs and expenses (2) 964,000 2,213,000 2,396,000 3,017,000 37,808,000
Extraordinary item (3) - 1,844,000 - - -
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 9,086,000 $ 19,133,000 $ 373,000 $ 1,290,000 $(28,303,000)
------------ ------------ ------------ ------------ ------------
PER CLASS A SHARE (4):
Income (loss) before
extraordinary item $ 3.33 $ 5.77 $ 0.11 $ 0.38 $ (8.64)
Extraordinary item - $ 0.61 - - -
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 3.33 $ 6.38 $ 0.11 $ 0.38 $ (8.64)
------------ ------------ ------------ ------------ ------------
Cash distributions to shareholders $ 1,407,000 $ - $ - $ 573,000 $ 6,562,000
Cash distributions per Class A
Share (5) $ 0.52 $ - $ - $ 0.17 $ 2.00
Total assets $ 43,375,000 $ 37,332,000 $ 35,535,000 $ 29,327,000 $ 48,781,000
Notes and advances payable (6) $ - $ - $ 11,085,000 $ 17,965,000 $ 26,285,000
Shareholders' equity $ 43,088,000 $ 37,139,000 $ 22,510,000 $ 22,137,000 $ 21,420,000
Class A Shares
Outstanding at end of year 2,617,000 2,826,700 3,394,026 3,394,026 3,394,026
Weighted average outstanding 2,704,375 2,968,532 3,394,026 3,394,026 3,394,026
(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. In 1996, revenues included $3,126,000 of recovery of bad
debts and $3,481,000 of interest income was recognized relating
primarily to two loans; Lake Arrowhead Joint Venture and Fox Run
Apartments. In addition, the 1996 revenues include $184,000 of gain on
sale of real property.
(2) Costs and expenses included a provision for loss and write-down of
in-substance foreclosed properties of $35,000,000 in 1992. In 1996,
Costs and expenses were reduced in the amount of $764,000, from a
recovery of legal expenses incurred in connection with the Trust's
legal actions taken against third parties. See Legal Proceedings.
(3) Extraordinary item in 1995 represented 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 (loss) per Class A Share was based the weighted average
Class A shares outstanding during each of the five years in the period
ended December 31, 1996, after deduction of the Class B Shares' 1%
interest.
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(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. However, as of February 1993, such
distributions had been temporarily suspended due to the Trust's
liquidity problems and Angeles Corporation's 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." The Trust resumed cash distributions to the
Class A shareholders in 1996.
(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".
On November 26, 1996 a Schedule 13D was filed by Insignia Financial
Group Inc. ("Insignia"), with the Securities and Exchange Commission ("SEC"),
disclosing its ownership of a total of approximately 6% of Class A shares of
Angeles Mortgage Investment Trust (the "Trust") and describing the investment
intentions underlying the ownership. Insignia has filed subsequent amendments to
Schedule 13D and reported that their ownership, from subsequent sales of Class A
shares, was reduced to approximately 5% of the Trust's outstanding Class A
shares. The SEC's rules and regulations require that when a person or entity
acquires more than 5% of a publicly held entities' securities a Schedule 13D
must be filed. In addition to the Class A shares now owned by Insignia, it has
owned 1,675,113 shares of Class B stock of the Trust for approximately four
years. These Class B shares represent approximately 39% of the outstanding votes
while representing a 1% economic interest in the Trust. The Class B Shares are
subject to an irrevocable proxy granted to the Trust to vote all the Class B
Shares 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 affiliated with Insignia.
During the last two years the Trust has held preliminary discussions
with several unrelated real estate investment trusts and other real estate
companies regarding the Trust's acquisition of those entities' shares or assets.
On October 16, 1996, at Insignia's invitation, the initial meeting between the
Trust's management and a senior member of Insignia's management was held. At
that meeting the subject of combining the Trust and various assets held by
Insignia was introduced for the first time. Such discussions are ongoing but, to
date, have not resulted in any agreements or offers.
FISCAL YEAR 1996 COMPARED TO 1995
For the year ended December 31, 1996 total revenue decreased
significantly as compared to total revenue for the same period in 1995. The
decrease is due to the Angeles bankruptcy settlement of $12,844,000 which was
effective March 31, 1995. Simultaneous with the Angeles settlement, the Trust
settled its claims with the various partnerhsips associated with Insignia, which
resulted in extraordinary income of $1,844,000 resulting from the Trust being
able to negoitate the settlement of these claims at a discount. Total revenue
for the year ended December 31, 1996 represents a significant decrease from the
same period ended 1995 due to the two 1995 settlement transactions referred to
above.
Interest income for the year ended December 31, 1996 increased by
approximately 73% when compared to the year ended December 31, 1995. This
increase in 1996 is primarily due to the restructuring of the Trust's Arrowhead
loan, for which the Trust recognized approximately $2.8 million of interest
income and the pay off of the Fox Run and Harbour Landing loans for which the
Trust recognized approximately $900,000 of interest income not previous recorded
due to the doubtful nature of their collectability. Rental income grew during
1996 as the two University Center properties achieved greater occupancy in 1996
over that of 1995.
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In conjunction with the modification of the Arrowhead loan, the Trust
held a $1.2 million preferred partnership distribution interest which it
received in the Angeles bankruptcy settlement. At that time the Trust valued
this interest at zero as it had an indeterminable value when it was acquired.
Upon modifying the Arrowhead loan this preferred interest was rolled into the
principal of the restructured loan, and as a result the Trust recognized
additional interest income of $1.2 million. In addition, $2 million was recorded
as recovery of bad debt upon the full repayment of the $6.7 million Fox Run loan
in December 1996.
Interest expense to the Bank decreased as the Trust had no borrowings
on the bank line of credit for the year ending December 31, 1996, and only
borrowed $430,000 for a three day period in June 1996. The Trust had an average
month end borrowing on the bank line of credit of $2,075,000 in 1995.
During 1996 the Trust paid $9,000 for 1995 Minnesota state taxes due to
the fact that the Trust owns properties in that state and $10,000 and $120,000
in alternative minimum tax for the 1995 and 1996 tax year, respectively, as the
Trust utilized its net operating losses to offset its 1995 and 1996 taxable
income. Prior to October 1996 the Trust shared its office administrative
expenses along with a portion of the salaries of its employees with another
trust, Angeles Participating Mortgage Trust. Effective, October 1996, the Trust
employees no longer provide any services to Angeles Participating Mortgage Trust
nor does it operate in the same offices as the Trust. As a result beginning in
October 1996 the Trust no longer receives reimbursement of employee salary or
general office expenses.
Legal expenses for the year ended December 31, 1996 decreased
significantly when compared to the same period in 1995 as the Trust reached an
agreement to settle pending litigation in State and Federal courts with all but
one defendant, relating to the Trust's complaint for damages arising from the
use of non-public information to acquire the Trust's Class A shares and alleged
violations of Federal securities laws. The Trust, in settlement, received cash
of $689,000 and a $75,000 four year, 8% collateralized promissory note, with
semi-annual interest payments. This $764,000 portion of the settlement was
recognized by the Trust as income by offsetting legal expenses incurred by the
Trust relating to the lawsuit. In addition, the Trust acquired 209,700 Class A
shares for $1,730,000, or $8.25 per Class A share and obtained a standstill
agreement and a voting proxy, controlled by the trustees of the Trust, on
approximately 200,000 additional Class A shares until such shares are sold in
the open market.
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.
10
11
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.
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 contest in 1995. The increased legal fees were
associated with state claims brought by the Trust against a group of investors.
The Trust claimed the investors acquired Trust Class A shares based on insider
information and brought 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 sought recovery of legal expenses in connection with certain of
these claims.
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 controlled 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 declared 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. The Trust
paid dividends in each of the following three quarters during 1996 of $0.12,
$0.14, and $0.16 per share, respectively, and in December 1996, declared a
dividend of $0.22 per share to shareholders of record on January 6, 1997 to be
payable on February 3, 1997.
The Trust's line of credit established with the Bank, in the amount of
$5 million, was renewed in September 1996. This line of credit requires monthly
interest-only payments based upon prime plus 3/4% and matures April 30, 1997.
The line of credit with the Bank allows the Trust to draw on such line to
facilitate the foreclosure process on Trust loans. In June 1996 the Trust drew
down on the line of credit in the amount of $430,000 and repaid the same amount
to the Bank within three days.
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 controlled 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. Certain of
the restructured loan terms 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.
Loans having a carrying value (net of loan loss reserves) of
approximately $4 million (or 11% of the Trust's net investments) are not
currently paying debt service to the Trust. The Trust's options are limited as a
result of its position as the holder of obligations subordinate to 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 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.
11
12
During 1996 the Trust modified five loans referred to as Brittany
Point, Fox Crest, Carriage Hills, Vista Hills and Angeles Partners
XIV-Waterford. In connection with the modifications, the Trust extended the
maturity dates on all of the loans except for Angeles Partners XIV-Waterford, to
December 31, 2000, March 1, 2003, September 1, 2000 and September 1, 2002,
respectively, and capitalized approximately $320,000, $1,765,000, $204,000,
$230,000 and $134,000, respectively, of past due interest into principal. The
modified notes require payments only out of cash flows provided by the
properties. The Trust did not recognize any interest income in connection with
these loan modifications.
The Trust received full and partial paydowns as follows:
Number of Paydown in
Year Loans millions
---- --------- --------
1994 6 $3.6
1995 6 $9.0
1996 10 $10.3
During the last quarter of 1996 the Trust modified and received a
significant repayment on two of the Trust's largest loans. In October 1996, the
Arrowhead Joint Venture $6 million loan (which was previously secured only by a
partnership interest), along with a related $1.2 million unsecured preferred
partnership distribution interest ("Preferred Interest"), was restructured to a
$9 million first trust deed mortgage, with a current effective interest rate of
10.02% reducing to a 9.8% rate upon repayment of $1.5 million which is expected
to occur in late 1997. The restructuring has resulted in the Trust significantly
strengthening the collateral on this loan along with increasing the annual debt
service on this loan by approximately $400,000. The $1.2 million Preferred
Interest was acquired in the settlement with Angeles (see Note 9 of Notes to
Financial Statements) and was initially valued at zero as it had an
indeterminable value when it was acquired. In addition, the Trust capitalized
approximately $1.7 million in deferred interest that was not previously
recognized in income, as full recovery of such interest was, until the
modification, considered doubtful.
In December 1996, the Trust received approximately $7 million from its
three Fox Run mortgages as a result of the borrower refinancing the property.
The $7 million of cash proceeds represented the full repayment of approximately
$6.7 million of principal on these three loans with the remainder representing a
portion of the accrued interest associated with the loans. In addition to this
repayment, the Trust took back a new third mortgage on the Fox Run property in
the amount of $875,000. The $875,000 is comprised of approximately $425,000 of
the remaining accrued interest from the three Fox Run loans and approximately
$450,000 of accrued interest and principal on the Angeles Partners XI-Harbour
Landing promissory note. The Trust recognized $2 million of bad debt recovery on
this transaction, and approximately $900,000 of interest income from accrued
interest not previously recognized, as full recovery of such interest was
undeterminable until the repayment.
In December 1996 the Trust acquired, at par, three first mortgage loans
from an unaffiliated third party for approximately $2.9 million. These mortgages
are on three properties known as Hospitality Inns (three separate properties and
locations) on which the Trust also holds three second mortgages. All of these
six mortgages matured in October 1996, and the Trust is in the process of
modifying loans with the borrowers, although the loans remain current as to
monthly debt service.
As of February 6, 1997, the Trust has signed and proposed commitments
to fund approximately $9.5 million of new loans.
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. 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. During
1996, the Trust sold the 4705 Van Epps property in March 1996 for a sale price
of $752,000 and received net cash proceeds of approximately $677,000. In
addition, the Trust foreclosed on three properties during 1996, which included;
Colony Cove a 200-acre parcel of raw land; Rolling Greens, in which the Trust
has a 57% joint venture interest in a 155-acre parcel of raw land and an 8,500
square foot strip shopping center and Springdale Lake Estates Mobile Home Park
("Springdale") a 443 pad
12
13
mobile home park. In October 1996, the Trust sold Springdale for a $4 million
sale price and received net cash proceeds of approximately $1.1 million. In
addition, during 1996, the Trust began the foreclosure process on five
properties, which include a first mortgage referred to as LaSalle Warehouse, a
second mortgage referred to as Southgate Apartments and three industrial
properties located in Cleveland, Ohio. The Trust's interest in the Cleveland,
Ohio properties, were obtained from judgement liens relating to recourse
provisions on a defaulted second mortgage loan held by the Trust. The Trust
anticipates that the foreclosure process will be completed during 1997.
As discussed in Note 9 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 and a collateralized note. 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 full
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 and other entities 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.
13
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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 15
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, 1996 and 1995 16
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 17
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996,
1995 and 1994 18
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 19
Notes to Financial Statements 20
Supplemental Schedule III - Real Estate and
Accumulated Depreciation 40
Supplemental Schedule IV - Mortgage Loans on
Real Estate 41
All other supplemental schedules are omitted because they are not required or
because the required information is shown in the financial statements.
14
15
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, 1996 and 1995, 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, 1996. 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 provide 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, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, 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 6, 1997
15
16
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
DECEMBER 31
--------------------------------
NOTES 1996 1995
----- ------------ ------------
ASSETS
Notes receivable 2,3,5,6
Mortgage notes receivable, (including
$16,791,000 and $25,397,000 due from affiliates
in 1996 and 1995) $ 26,043,000 $ 26,987,000
Promissory notes receivable, (including
$10,650,000 and $8,551,000 due from affiliates
in 1996 and 1995) 14,175,000 18,310,000
------------ ------------
40,218,000 45,297,000
Less: Allowance for estimated losses (12,100,000) (13,598,000)
------------ ------------
28,118,000 31,699,000
Foreclosed real estate held for sale 4 5,070,000 3,400,000
Cash 9,789,000 1,229,000
Accrued interest receivable 174,000 460,000
Prepaid expenses and other 224,000 544,000
------------ ------------
Total assets $ 43,375,000 $ 37,332,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 287,000 $ 193,000
------------ ------------
Total liabilities 287,000 193,000
------------ ------------
Shareholders' equity: 9
Class A Shares (2,617,000 in 1996, and 2,826,700 in 1995,
issued and outstanding, $1.00 par value,
unlimited shares authorized) 2,617,000 2,827,000
Class B Shares (1,675,113 issued and outstanding,
$.01 value, unlimited shares authorized) 14,000 14,000
Additional paid-in capital 50,199,000 51,719,000
Accumulated distributions in excess of cumulative net
income (9,742,000) (17,421,000)
------------ ------------
Total shareholders' equity 43,088,000 37,139,000
------------ ------------
Total liabilities and shareholders' equity $ 43,375,000 $ 37,332,000
============ ============
The accompanying notes are an integral part of the financial statements.
16
17
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
---------------------------------------------------
1996 1995 1994
------------ ------------ ------------
REVENUE:
Interest income (including $2,405,000, $1,710,000, and $2,080,000
from affiliates in 1996, 1995, 1994, respectively) $ 6,419,000 $ 3,017,000 $ 2,696,000
Rental income 321,000 96,000 71,000
Gain from sale of real property 184,000 435,000 2,000
Recovery of bad debt from Angeles Corporation settlement - 12,844,000 -
Recovery of other bad debts 3,126,000 3,110,000 -
------------ ------------ ------------
Total revenue 10,050,000 19,502,000 2,769,000
------------ ------------ ------------
COSTS AND EXPENSES:
Property operating expenses 180,000 262,000 76,000
Loss from sale of real property - 3,000 -
Interest expense to bank - 227,000 578,000
Interest expense affiliated partnerships - - 548,000
Legal expenses (257,000) 851,000 505,000
General and administrative 858,000 835,000 612,000
Amortization 44,000 35,000 77,000
Income taxes 139,000 - -
------------ ------------ ------------
Total costs and expenses 964,000 2,213,000 2,396,000
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 9,086,000 17,289,000 373,000
EXTRAORDINARY ITEM - Debt forgiveness - 1,844,000 -
------------ ------------ ------------
NET INCOME $ 9,086,000 $ 19,133,000 $ 373,000
============ ============ ============
PER CLASS A SHARE:
Net income before extraordinary $ 3.33 $ 5.77 $ 0.11
Extraordinary item - 0.61 -
------------ ------------ ------------
Net income $ 3.33 $ 6.38 $ 0.11
============ ============ ============
Cash distributions $ 0.52 $ - $ -
============ ============ ============
Weighted average Class A Shares 2,704,375 2,968,532 3,394,026
============ ============ ============
The accompanying notes are an integral part of the financial statements.
17
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ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ACCUMULATED
DISTRIBUTIONS IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPTIAL INCOME TOTAL
---------- ------- ----------- ----------- -----------
Balance at January 1, 1994 $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
Purchase of Class A Shares (210,000) (1,520,000) - (1,730,000)
Net income - - - 9,086,000 9,086,000
Cash distributions - - - (1,407,000) (1,407,000)
---------- ------- ----------- ----------- -----------
Balance at December 31, 1996 $2,617,000 $14,000 $50,199,000 ($9,742,000) $43,088,000
========== ======= =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
18
19
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
----------------------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 9,086,000 $ 19,133,000 $ 373,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
FLOWS FROM OPERATING ACTIVITIES:
Net gain from sale of real property (184,000) (432,000) -
Amortization 44,000 35,000 77,000
Recovery of bad debt (3,126,000) (15,954,000) -
Interest income in exchange of notes receivable or real property (3,708,000) (501,000) (183,000)
Extraordinary gain - (1,844,000) -
Decrease (increase) in interest receivable 87,000 (108,000) 149,000
Decrease (increase) in prepaid expenses and other 215,000 (326,000) (399,000)
(Decrease) increase in accounts payable and accrued expenses 94,000 (61,000) 579,000
Increase (decrease) in unearned loan fee income 56,000 (38,000) (274,000)
------------ ------------ ------------
Cash flows from (used in) operating activities 2,564,000 (96,000) 322,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of foreclosed real estate - (355,000) -
Funding of notes receivable (2,968,000) - -
Principal collections of notes receivable 10,256,000 9,056,000 3,599,000
Proceeds from sale of real estate 1,845,000 1,952,000 3,298,000
Investment in securities (979,000) - -
Principal collections of investment in securities 979,000 - -
------------ ------------ ------------
Cash flows from investing activities 9,133,000 10,653,000 6,897,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Draw on bank line of credit 430,000 - -
Repayment of bank line of credit (430,000) (3,500,000) (6,880,000)
Repayment of cash advances from affiliate partnerships - (6,682,000) -
Purchase of Class B share option - (250,000) -
Distributions to shareholders (1,407,000) - -
Purchase of Class A shares (1,730,000) - -
------------ ------------ ------------
Cash flows from (used in) financing activities (3,137,000) (10,432,000) (6,880,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 8,560,000 125,000 339,000
Cash and cash equivalents:
At beginning of period 1,229,000 1,104,000 765,000
------------ ------------ ------------
At end of period $ 9,789,000 $ 1,229,000 $ 1,104,000
============ ============ ============
Supplemental operating cash flow disclosure:
Cash received for interest $ 2,798,000 $ 2,213,000 $ 2,394,000
Cash paid for interest - 312,000 590,000
Schedule of Noncash Financing and Investing Activities:
Carrying value of real estate in satisfaction of notes
receivable with carrying values of $2,622,000 in 1996,
$3,580,000 in 1995 and $3,501,000 in 1994 $ 2,019,000 $ 3,969,000 $ 3,170,000
Mortgage notes receivable from sale of real estate - 700,000 -
Restructuring of past due interest into notes receivable 2,625,000 1,914,000 -
Notes receivable from lawsuit settlement 75,000 - -
Recovery of Class A stock in connection with Angeles Settlement - 4,254,000 -
The accompanying notes are an integral part of the financial statements.
19
20
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 2,617,000 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 39% 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 9, 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
(net of loan loss reserves) of approximately $4 million (or 11% of the Trust's
net 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 refinancing which will enable the Trust
to receive such funds, the actual
20
21
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 and other entities 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 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. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. 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.
INTEREST RECOGNITION ON NOTES RECEIVABLE - Interest income is recorded
as earned in accordance with the terms of the loans. Interest income is not
recorded on individual loans if the carrying value of the receivable exceeds the
realizable value of the underlying collateral 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 a
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.
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, 1996 the Trust had tax loss
carryforwards of approximately $1.5 million expiring 2009. During 1996 the Trust
paid $10,000 and $120,000 in alternative minimum tax for the 1995 and 1996 tax
year as the Trust utilized its net operating losses to offset its 1995 and 1996
taxable income.
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22
NET INCOME PER CLASS A SHARE - The net income per Class A Share was
based on 2,704,375, 2,968,532, and 3,394,026 weighted average Class A Shares
outstanding during the years ended December 31, 1996, 1995 and 1994,
respectively, after deduction of the Class B Shares' 1% interest.
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. The Trust amortizes
leasing commissions to leasing commission expense over the term of the related
leases.
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).
INVESTMENT IN JOINT VENTURE - The Trust's investment in joint venture
is accounted for using the equity method since it is the Trust's intention to
dispose of the joint venture interest.
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 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:
1996 1995 1994
----------- ------------ -----------
Balance at beginning of period $13,598,000 $26,595,000 $30,825,000
Provisions for losses 4,334,000 2,350,000 100,000
Deductions (5,832,000) (15,347,000) (4,330,000)
----------- ----------- -----------
Balance at end of period $12,100,000 $13,598,000 $26,595,000
=========== =========== ===========
The provisions for losses for 1996, 1995 and 1994 relate to debt
modifications whereby unrecorded past due interest receivable was restructured
as principal (see below).
The deductions to the estimated loan losses relate primarily to the
full or partial repayment of Trust loans and foreclosure of properties by either
the 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. In 1996 approximately $660,000 of
deductions were due to the significant improvement of property performance
underlying certain of the Trust loans.
Included in the Trust's allowances for estimated losses on notes
receivable is $6.3 million relating to two loan, -- a promissory note on a
Waukegan, Illinois apartment complex, referred to as Fox Crest, and a promissory
note on an East Lansing, Michigan apartment complex, referred to as Carriage
Hills. The properties have continued to improve in operations since February
1993, which may lead to some future recovery of some portion of these promissory
notes. The properties still need maintenance and capital improvements and have
not provided the Trust with any debt service since February 1993 for the Fox
Crest loan and since December 1994 for the Carriage Hills loan, 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 these properties will
exceed the first mortgage debt.
During 1996, the Trust began foreclosure proceedings on three
industrial properties in Cleveland, Ohio that represent additional collateral
available to the Trust through recourse provisions of a failed loan referred to
as Marina Plaza. Although the properties are heavily indebted and in need of
maintenance and capital improvements,
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23
the Trust has received early indications of sales value from potential
purchasers that may recover approximately $300,000 which would be recognized as
income after foreclosure and sale of these properties.
As reported by the Trust in 1995, the Trust loan referred to as North
Prior defaulted on its obligation to the Trust as well as to the senior lender
on the property. The property was sold just prior to foreclosure with proceeds
sufficient to pay the senior lender the full amount of the senior obligation.
Proceeds above the senior obligation were escrowed for potential use in an
environmental remediation that occurred prior to the foreclosure and sale.
Approximately $825,000 remains in the escrow and indications are that the
environmental issues could be resolved by the end of 1997 with remaining amounts
paid to the Trust. The Trust will recognized income for amounts, when and if,
received from escrow.
During 1996 the Trust modified five loans referred to as Brittany
Point, Fox Crest, Carriage Hills, Vista Hills and Angeles Partners
XIV-Waterford. In connection, with the modifications, the Trust extended the
maturity dates on all of the loans except for Angeles Partners XIV-Waterford, to
December 31, 2000, March 1, 2003, September 1, 2000 and September 1, 2002,
respectively, and capitalized approximately $320,000, $1,765,000, $204,000,
$230,000 and $134,000, respectively, of past due interest into principal. The
modified notes require payments only out of cash flows provided by the
properties. The Trust did not recognize any interest income in connection with
these loan modifications.
During the last quarter of 1996 the Trust modified and received a
significant repayment on two of the Trust's largest loans. In October 1996, the
Arrowhead Joint Venture $6 million loan (which was previously secured only by a
partnership interest), along with a related $1.2 million unsecured preferred
partnership distribution interest ("Preferred Interest"), was restructured to a
$9 million first trust deed mortgage, with a current effective interest rate of
10.20% reducing to a 9.8% rate upon repayment of $1.5 million which is expected
to occur in late 1997. The restructuring has resulted in the Trust significantly
strengthening the collateral on this loan along with increasing the annual debt
service on this loan by approximately $400,000. The $1.2 million Preferred
Interest was originally acquired in the settlement with Angeles (see Note 9 of
Notes to Financial Statements) and was previously valued at zero as it had an
indeterminable value when it was acquired. In addition, the Trust capitalized
approximately $1.7 million in deferred interest that was not previously
recognized in income, as full recovery of such interest was until the
modification, considered doubtful.
In December 1996, the Trust received approximately $7 million from its
three Fox Run mortgages as a result of the borrower refinancing the property.
The $7 million of cash proceeds represented the full repayment of approximately
$6.7 million of principal on these three loans with the remainder representing a
portion of the accrued interest associated with the loans. In addition to this
repayment, the Trust took back a new third mortgage on the Fox Run property in
the amount of $875,000. The $875,000 is comprised of approximately $425,000 of
the remaining accrued interest from the three Fox Run loans and approximately
$450,000 of accrued interest and principal on the Angeles Partners XI-Harbour
Landing promissory note. The Trust recognized $2 million of bad debt recovery on
this transaction, and approximately $900,000 of interest income from accrued
interest not previously recognized, as full recovery of such interest was not
reasonably assured until the repayment.
In addition, in December 1996 the Trust acquired, at par, three first
mortgage loans from an unaffiliated third party for approximately $2.9 million.
These mortgages are on three properties known as Hospitality Inns (three
separate properties and locations) on which the Trust holds three second
mortgages. All of these six mortgages matured in October 1996, and the Trust is
in the process of modifying loans with the borrowers, although the loans remain
current as to the monthly debt service.
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Notes receivable are summarized as follows:
December 31
1996 1995
------------ ------------
MORTGAGE NOTES RECEIVABLE:
First trust deeds, primarily requiring monthly
interest only payments ranging from 9% to 12.5%,
maturing through December 2003 $ 17,868,000 $ 8,200,000
Second trust deeds, requiring monthly interest
only payments ranging from 11.5% to 12.5%,
maturing through December 2000 7,427,000 15,317,000
Third trust deed, requiring monthly interest
and principal payments of 11.25%,
maturing January 2002 875,000 3,534,000
------------ ------------
26,170,000 27,051,000
Less: Unearned loan fees (127,000) (64,000)
------------ ------------
Net mortgage notes receivable 26,043,000 26,987,000
------------ ------------
PROMISSORY NOTES RECEIVABLE:
Promissory notes receivable, requiring monthly
interest payments ranging from 8% to 12.75%,
maturing through December 2003 (See Note 5) 14,175,000 18,318,000
Less: Unearned loan fees - (8,000)
------------ ------------
Net promissory notes receivable 14,175,000 18,310,000
------------ ------------
NOTES RECEIVABLE $ 40,218,000 $ 45,297,000
============ ============
At December 31, 1996 mortgage notes receivable of $9,537,000 and
promissory notes receivable of $1,879,000, all of which are due from affiliates,
are in default.
With respect to the promissory notes receivable as of December 31,
1996, $11,762,000 are secured by partnership interests and other loans and
$2,413,000 are general obligations of partnerships or individuals. The
underlying properties are not collateral for such loans.
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 $300,000.
Scheduled maturities of notes receivable due subsequent to December 31,
1996 are, $860,000 in 1997, $4,284,000 in 1998, $9,004,000 in 1999, $3,049,000
in 1999 and $13,683,000 thereafter. It is likely that the scheduled maturity
dates, for certain 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.
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 Trust realized income of $435,000 from the sale.
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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 Trust recognized
income of $2,000 from the sale.
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 was sold in February 1996 for $752,000,
received net cash proceeds of approximately $677,000 and realized a $184,000
gain on the sale.
In August 1996, the Trust foreclosed on a 443 unit mobile home park
located in Belton, Missouri, referred to by the Trust as Springdale Lake Estates
MHP ("Springdale"), for which it held a second trust deed mortgage in the amount
of $1,720,000 and had capitalized foreclosure costs of approximately $2,000.
Upon taking title to Springdale, the Trust assumed a first mortgage on the
property in the amount of approximately $2,800,000. The Trust did not recognize
any loss from the foreclosure as a reserve of $531,000 had been previously
provided. In October 1996, the Trust sold Springdale for $4,000,000 and received
net cash proceeds of approximately $1,112,000 with no gain or loss recognized on
the sale.
As of December 31, 1996, the Trust owns four 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, a
200-acre parcel of raw land referred to as Colony Cove located in Ellenton,
Florida and a 57% joint venture interest in a 155-acre raw parcel of land along
with an 8,500 square foot strip shopping center referred to as Rolling Greens,
located in Ocala, Florida.
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.
In April 1996, the Trust foreclosed on a 200 acre parcel of land
located in Ellenton, Florida, referred to by the Trust as "Colony Cove", for
which it held a first trust deed mortgage in the amount of $1,572,000 and had
capitalized foreclosure costs of approximately $142,000. The Trust did not
recognize any income or loss from the foreclosure.
In June 1996, the Trust obtained through foreclosure a 57% joint
venture interest in a 160 acre parcel of land in Ocala, Florida. This property
was collateral for a Trust loan in the amount of $1,050,000, referred to as
"Rolling Greens." The Trust did not recognize any loss on the foreclosure as a
reserve of $465,000 had been previously provided.
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 9 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 $3,450,000 as of December 31, 1996. An additional $1,725,000 was paid
down by Angeles in January 1997.
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NOTE 6 - NOTE PAYABLE TO BANK
The Trust's line of credit with the Bank, in the amount of $5 million
requires monthly interest only payments based upon prime plus 3/4% and matures
April 30, 1997. The line of credit 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. In June 1996, the Trust
drew down for a three day period of time $480,000. As of December 31, 1996 the
Trust has no outstanding borrowings with the Bank.
The Trust's average month-end borrowings on the working capital line of
credit were $0 and $2,075,000 in 1996 and 1995, respectively with a weighted
average interest rate of 10.1%, in 1995. The highest month-end loan balance was
$0 and $3,500,000 in 1996 and 1995, respectively. In conjunction with the
financing, the Trust paid loan fees of $19,000, $43,000, and $82,000 in 1996,
1995 and 1994, 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.
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
==========
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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.
In November 1996, the Trust's Board of Trustees adopted a Shareholders
Rights Plan and declared a dividend of one Right on each outstanding share of
the Trust's Class A Shares to stockholders of record on November 18, 1996. The
Rights are exercisable if a person or group acquires 20% or more of the Trust's
Class A Shares or announces or commences a tender offer for 20% or more of the
such shares. When a person or group acquires such 20%, each exercisable Right
will entitle its holder (other than such person or group) to purchase, at the
Right's then-current exercise price, a number of the Trust's Class A Shares
having a market value of twice such price. In addition, if the Trust is acquired
in a merger or other business combination transaction after a person has
acquired 20% or more of the Trust's outstanding Class A Shares, each right will
entitle its holder to purchase, at the Right's then-current exercise price, a
number of the acquiring company's common shares having a market value of twice
such price. Prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the Trust's common stock, the Rights are redeemable
for one cent per Right at the option of the Board of Trustees. The Board of
Trustees is also authorized, under certain circumstances, to reduce the 20%
threshold referred to above to not less than 10%. The Rights will expire on
December 31, 2003 unless otherwise extended by the Board of Trustees.
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 the open market in 1996, 1995 and 1994 however the Trust acquired 209,700
Class A Shares for $1,730,000 less $764,000 in expenses, in settlement of
actions it had brought against certain third parties.
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 made
shareholder distributions aggregating $0.52 per share in 1996 and made no
distributions in 1994 and 1995. In December 1996, the Board of Trustees of the
Trust declared a $.22 per share dividend payable on February 3, 1997, to
shareholders of record on January 6, 1997.
NOTE 9 - 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 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
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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 preferred interest 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 third party $1.2 million preferred interest received in the settlement
had an indeterminable value when acquired and therefore was recorded at zero.
The settlement transaction with Angeles resulted in the Trust recording
$12,844,000 as 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
===========
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NOTE 10 - 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
-----------------------------------------------
1996 12/31/96 09/30/96 06/30/96 03/31/96
- ---- -------- -------- -------- --------
Revenue $7,387 $ 878 $ 631 $1,154
Net income $6,780 $ 562 $1,033 $ 711
PER CLASS A SHARE
Net income $ 2.56 $ 0.21 $ 0.37 $ 0.25
Weighted average Class A
Shares outstanding 2,617 2,617 2,757 2,827
QUARTER ENDING
-----------------------------------------------------
1995 12/31/95 09/30/95 06/30/95 03/31/95
- ---- -------- -------- -------- --------
Revenue $ 4,048 $ 1,231 $ 602 $13,621
Income before extraordinary item $ 3,387 $ 864 $ 228 $12,810
Extraordinary item $ -- $ -- $ -- $ 1,844
Net income $ 3,387 $ 864 $ 228 $14,654
PER CLASS A SHARE
Income before extraordinary item $ 1.19 $ 0.30 $ 0.08 $ 3.74
Extraordinary item $ -- $ -- $ -- $ 0.53
Net income $ 1.19 $ 0.30 $ 0.08 $ 4.27
Weighted average Class A
Shares outstanding 2,827 2,827 2,827 3,394
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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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:
NAME AGE POSITION
---- --- --------
Ronald J. Consiglio (1) 53 Trustee, Chairman, Chief Executive
Officer and President
J. D'Arcy Chisholm (1) (2) (3) 65 Trustee
Bryan L. Herrmann (1) (3) 61 Trustee
Curtis J. Crivelli (2) 54 Trustee
Anna Merguerian 41 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 officer and trustee of Angeles Participating Mortgage Trust
and is a business consultant.
Mr. Chisholm has been a Trustee of the Trust since September 1989 and
is 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. 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.
31
32
Mr. Crivelli has been a Trustee since March 1996, and became a member
of the Audit Committee in March 1996. Mr. Crivelli , prior to his recent
retirement from the banking industry, was an executive with Great Western Bank
from 1987 through 1995. Mr. Crivelli's responsibilities at Great Western, as
Executive Vice President, included the management of the Bank's retail banking
division along with securities operation and marketing departments. From 1982
through 1987 Mr. Crivelli was President and Chief Executive Officer of Encino
Savings Bank. Mr. Crivelli currently serves on the Board of Directors of ACCO,
Inc.
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
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 Crivelli 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. 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 certain specific restrictions.
BOARD OF TRUSTEES AND COMMITTEE MEETINGS. During the fiscal year
ended December 31, 1996, the Trust's Board of Trustees held four regular
meetings with all Trustees attending in person or by telephone and four special
meetings with all Trustees attending in person or by telephone. The Audit
Committee did not meet during fiscal year 1996. The Compensation Committee met
once in 1996 and each committee member attended either in person or by
telephone. The Executive Committee met three times during 1996 and each
committee member attended either in person or by telephone.
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33
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES
REMUNERATION OF TRUSTEES. Each Trustee receives a retainer fee of
$12,000 per year, which is paid quarterly and (except for Mr. Consiglio) a fee
of $1,000 for each meeting of the Board of Trustees which he attends in person,
$750 for each meeting of the Board of Trustees which he attends telephonically,
and $500 for each Audit, Compensation and Executive Committee meeting which he
attends, either personally or telephonically. Trustees are also reimbursed for
any expenses incurred in attending such meetings or incurred as a result of
other work performed for the Trust. During the year ended December 31, 1996,
Mr. Crivelli received $6,450 and Mr. Herrmann received $17,750 in consulting
fees from the Trust for independent services provided to the Trust.
EXECUTIVE OFFICERS' COMPENSATION. During the year ended December
31, 1996, Mr. Consiglio received a total of $252,360 for his services as
President and Chief Executive Officer of the Trust plus a bonus of $56,000
relating to services performed in 1996, and an additional $12,000 as
compensation for serving on the Board of Trustees. Mr. Consiglio drives an
automobile leased by the Trust with a monthly rental of $732 (aggregating
$11,000 in 1996) and reimburses the Trust for his personal use of the automobile
which aggregated $60 per month for a total of $600 in 1996. For the year ended
December 31, 1996, Ms. Merguerian was paid $79,400 for her services as Chief
Financial Officer of the Trust and was paid a bonus of $45,000 relating to
services performed in 1996.
The table below sets forth information concerning the compensation
for services in all capacities to the Trust for the fiscal years 1996, 1995 and
1994, those persons who at any time during the fiscal years served as Chief
Executive Officer and the most highly compensated officers ("Executive
Officers").
SUMMARY COMPENSATION TABLE
Annual All Other
Compensation Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Ronald J. Consiglio, Trustee, Chairman, 1996 $252,360 $56,000 $12,000(1)
Chief Executive Officer and President(5) 1995 $281,200 $40,000(4) $12,000(1)
1994 $263,000 $12,000(1)
Anna Merguerian, Chief Financial Officer(3) 1996 $79,400 $45,000 $ -0-
1995 $62,500 $15,000(4) $ -0-
Jack E. McDonald, Chief Financial Officer(2) 1995 N/A N/A $10,375(1)
1994 $ -0- $ -0- $17,875(1)
(1) Represents compensation for serving on the Board of Trustees.
(2) Mr. McDonald resigned as Chief Financial Officer in December 1994 and
was replaced by Ms. Merguerian and resigned as a Trustee in May 1995.
(3) Ms. Merguerian became Chief Financial Officer in December 1994 upon Mr.
McDonald's resignation. Ms. Merguerian is paid a salary of $100,000 for
which the Trust contributed $62,500 to such salary in 1995 and $79,400
in 1996 and another trust, Angeles Participating Mortgage Trust,
contributed $37,500 and $20,600, respectively. In addition, in December
1995 the Trust entered into a renewable Employment Agreement with Ms.
Merguerian with an eighteen-month term. The Employment Agreement
provides for an annual salary of $100,000 to be paid to Ms. Merguerian
and allows for Ms. Merguerian to provide services to Angeles
Participating Mortgage Trust for which the Trust is reimbursed for
specific time spent on such trust. Effective October 1996, Ms.
Merguerian will no longer be providing any services to Angeles
Participating Mortgage Trust.
(4) Represents bonus paid in 1996 for the year ended December 31, 1995
33
34
(5) Mr. Consiglio is paid a salary of $276,000 for which the Trust
contributed $252,360 to such salary in 1996 and another trust, Angeles
Participating Mortgage Trust, contributed the remaining amount. In
addition, in January 1996 the Trust entered into a renewable Employment
Agreement with Mr. Consiglio with a two-year term. The Employment
Agreement provides for an annual salary of $276,000 to be paid to Mr.
Consiglio and allows for Mr. Consiglio to provide executive services to
Angeles Participating Mortgage Trust for which the Trust is reimbursed
for specific time, if any, spent on such trust.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for recommending to the Board
appropriate compensation of the Trust's executive officers and key employees.
The Compensation Committee's compensation policy for the last fiscal
year was to recommend salaries at levels and establish cash incentive benefits
the Board believes will attract, retain and motivate highly competent
individuals. In December 1995 the Trust entered into an eighteen-month
employment contract with Ms. Merguerian and in January 1996 entered into a two
year employment contract with Mr. Consiglio. The terms of the contracts were
based upon a comparison of comparable positions in the REIT industry and the
Compensation Committee obtained the advise and opinion as to the fairness of the
contracts from a REIT executive compensation/recruitment firm. In determining
the salary of Mr. Consiglio, the Compensation Committee considered the
responsibilities of Mr. Consiglio as the Chief Executive Officer, President,
Trustee and Chairman of the Board of Trustees of the Trust, Mr. Consiglio's
experience and the salaries paid in the competitive marketplace for executive
talent, including a comparison of the salaries and other perquisites for
comparable positions at other companies.
The Compensation Committee currently intends for all compensation paid
to the Trust's executive officers to be tax deductible to the Trust pursuant to
Section 162(m) of the Internal Revenue Code ("Section 162(m)"). Section 162(m)
provides that compensation paid to executive officers in excess of $1,000,000
cannot be deducted by the Trust for federal income tax purposes unless, in
general, such compensation is performance based, is established by an
independent committee of Trustees, is objective and the plan or agreement
providing for such performance based compensation had been approved in advance
by the shareholders. In the future, however, if, in the judgment of the
Compensation Committee, the benefits to the Trust of a compensation program that
does not satisfy the arbitrary and inflexible conditions of Section 162(m)
outweigh the costs to the Trust of failure to satisfy these conditions, the
Committee may adopt such a program.
COMPENSATION COMMITTEE
J. D'Arcy Chisholm
Bryan L. Herrmann
SECTION 16 MATTERS
Section 16 (a) of the Securities Exchange Act of 1934, as amended,
requires the Trust's officers, trustees and persons who own greater than ten
percent of a registered class of the Trust's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and the American Stock Exchange, and to furnish the Trust with copies
of all Section 16(a) forms they file. Based solely on representations from such
persons, the Trust believes that during the fiscal year ended December 31, 1996
all Section 16(a) filing requirements applicable to its Trustees, officers and
10% beneficial holders were complied with.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 6, 1997, with
respect to any Class A Shares and Class B Shares owned by Trustees and nominees
as Trustees of the Trust and individual shareholders known to be the beneficial
owner of more than 5% of the issued and outstanding Class A shares. There are no
other trustees or officers of the Trust who beneficially own either Class A
shares or Class B shares, and there is no other shareholders known to be the
beneficial owner of more than 5% of the issued and outstanding Class A Shares.
The Trust had
34
35
1,563 Class A shareholders of record as of February 6, 1997. All of the issued
and outstanding Class B Shares (a total of 1,675,113 shares) are owned by MAE GP
Corporation, which is affiliated with Insignia.
NAME AND ADDRESS OF BENEFICIAL HOLDER TITLE OF CLASS SHARES BENEFICIALLY OWNED (1)
- ------------------------------------- -------------- -----------------------------------
NUMBER OF SHARES PERCENT OF CLASS
-----------------------------------
Insignia Financial Group, Inc., Andrew L. Farkas, Liquidity
Assistance L.L.C., Metropolitan Asset Enchancement, L.P.,
MAE GP Corporation, and MAE Parent, Inc.
One Insignia Financial Plaza, Greenville, SC 29602 Class A Shares 130,986 5.0% (2)(3)
Gotham Partners, L.P and Gotham Partners II, LP
110 East 42nd Street, 18th Floor,
New York, NY 10017 Class A Shares 193,673 7.4% (5)
Ronald J. Consiglio Class A Shares 14,750 0.6%
Bryan L. Herrmann Class A Shares 4,550 0.2%
J. D'Arcy Chisholm Class A Shares 1,721 *
MAE GP Corporation, One Insignia Financial Plaza,
Greenville, SC 29602 Class B Shares 1,675,113 100% (3)(4)
All Executive Officers and Trustees as Group (3 persons) Class A Shares 21,021 0.8%
All Executive Officers and Trustees as Group (3 persons) Class B Shares -- 0.0%
- ----------
(1) Except as otherwise indicated and subject to applicable community
property laws and similar statutes and subject to the B Share Proxy and
related Option Agreement pertaining to the B Shares, the person listed
as beneficial owner of shares has sole voting power and/or dispositive
power with respect to the shares.
(2) On January 31, 1997, Insignia Financial Group, Inc., Andrew L. Farkas,
Liquidity Assistance L.L.C., Metropolitan Asset Enhancement, L.P., MAE
GP Corporation and MAE Parent, Inc., (collectively referred to as
"Insignia"), filed Amendment No. 4 to Schedule 13D. In the
aforementioned Amendment and in prior amendments the filing parties
disclose their possible intention to acquire control of the Trust which
could involve replacing the Board of Trustees and/or proposing a
business combination transaction with the Trust. Such other plans or
proposals Insignia is considering include (1) a sale or transfer of a
material amount of assets of the Trust, (2) a material change in the
present capitalization or dividend policy of the Trust, (3) material
changes to the Trust's business or Trust structure, (4) changes in the
Trust's Declaration of Trust or Trustees' Regulations and (5)
redemption or judicial invalidation of rights to purchase Class A
shares (the "Purchase Rights").
(3) An affiliate of Insignia.
(4) Equals 39% of the total voting power of the Trust.
(5) On January 28, 1997, Gotham Partners, L.P. and Gotham Partners II, L.P.
(collectively referred to as "Gotham"), filed Amendment No. 1 to
Scheudule 13D. In the initial Schedule 13D, filed on January 21, 1997,
Gothem discloses that they acquired the Class A shares for investment
purposes.
* Less than .1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1992 and the first month of fiscal 1993, the Trust
recorded receipt of advances of $7,585,000 from certain partnerships affiliated
with Insignia and certain partnerships affiliated with Angeles. As of December
31, 1995, all amounts owing under such advances were discharged by way of a cash
payment and the settlement of claims the Trust had brought against Insignia and
the Insignia partnerships.
The Trust had provided to Angeles a line of credit of $10,000,000,
expiring May 31, 1993, with $9,255,000 in outstanding borrowings as of December
31, 1994. As of December 31, 1995, this note was settled along with other
matters in a settlement of claims the Trust had brought against Angeles.
In 1992, the Trust signed an alleged guaranty for certain obligations
of AHC to PaineWebber. As of December 31, 1995, this matter was resolved in
conjunction with the settlement of claims the Trust had brought against Angeles.
A significant portion of the outstanding Trust Loans have been made to
the partnerships affiliated with MAE GP, the sole holder of the Class B Shares
and Insignia the owner of 5% of the Class A Shares.
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36
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, 1996 and 1995 16
Statements of Operations for the years ended December 31, 1996,
1995 and 1994 17
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 18
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 19
Notes to Financial Statements 20
Supplemental Schedule III - Real Estate and Accumulated Depreciation 40
Supplemental Schedule IV - Mortgage Loans on Real Estate 41
(b) No reports on Form 8-K were filed during the last quarter of the
period ended December 31, 1996
(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.
36
37
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. (8)
10.21 Amendment to Settlement Agreement dated December 20, 1994
between the Trust and the Insignia Parties. (8)
10.22 Second Amendment to Settlement Agreement dated March 29, 1995
between the Trust and the Insignia Parties. (8)
10.23 Third Amendment to Settlement Agreement dated April 12, 1995
between the Trust and the Insignia Parties. (8)
10.24 Settlement Agreement dated May 5, 1995 between the Trust and
Satellite Communication Partners, Ltd. (8)
10.25 Seconded Amended and Restated Loan and Security Agreement
dated July 25, 1995 between the Trust and Imperial Bank. (8)
10.26 Employment Agreement dated December 1, 1995 between the Trust
and Anna Merguerian. (8)
10.27 Employment Agreement dated January 1, 1996 between the Trust
and Ronald J. Consiglio.
10.28 Amendment No. 1 to Second Amended and Restated Loan and
Security Agreement and Note dated September 3, 1996 between
the Trust and Imperial Bank
19.1 Form of Indemnification Agreement dated as of January 3, 1989
between the Trust and the Trustees.
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38
(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.
(8) Filed as an exhibit to the Trust's Form 10-K dated December 31, 1995,
and incorporated herein by reference.
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39
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 14, 1997 / 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 14, 1997 / s/ Ronald J. Consiglio
------------------------
Ronald J. Consiglio
Trustee, President and Chief Executive
Officer
(Principal Executive Officer)
Date February 14, 1997 / s/ J. D'Arcy Chisholm
-----------------------
J. D'Arcy Chisholm
Trustee
Date February 14, 1997 / s/ Bryan L. Herrmann
----------------------
Bryan L. Herrmann
Trustee
Date February 14, 1997 / s/Curtis J. Crivelli
----------------------
Curtis J. Crivelli
Trustee
Date February 14, 1997 / s/ Anna Merguerian
--------------------
Anna Merguerian
Vice President, Chief Financial Officer
and Secretary
(Principal Financial and Accounting
Officer)
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40
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Cost capitalized Gross amount at which
Description Encum- Initial Cost to subsequent to carried at close of Accumulated
brances Trust acquisition period(1)(2) Depreciation
-------------------------------------
Building Improve- Carrying
and land ments costs
improvements
- --------------------------------------------------------------------------------------------------------------------------------
University Center Phase IV 1,800,000 - - 1,671,000 0
Retail Shopping
Friedly, Minnesota
University Center Phase I & II 1,100,000 - - 1,100,000 0
Warehouse Office
Friedly, Minnesota
Colony Cove 1,714,000 - - 1,714,000 0
Raw Land
Ellenton, Florida
Rolling Greens 585,000 - - 585,000 0
Raw Land and Retail
Ocala, Florida
------------------------------------------------------------------------------------------------
Total 0 5,199,000 0 0 5,070,000 0
================================================================================================
Life on
which
Description Date of Date depreciation
con- acquired in latest
struction income
statements
is computed
- --------------------------------------------------------------------------
University Center Phase IV 1975 Dec.-'95 N/A
Retail Shopping
Friedly, Minnesota
University Center Phase I & II 1975 Nov.-'95 N/A
Warehouse Office
Friedly, Minnesota
Colony Cove N/A Apr.-'96 N/A
Raw Land
Ellenton, Florida
Rolling Greens N/A Jun.-'96 N/A
Raw Land and Retail
Ocala, Florida
FOOTNOTES TO SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(1) Reconcilation of real property investment:
Balance at January 1, 1994 $ 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
-----------
Additions during period:
Acquisition through foreclosure $ 3,490,000
Deductions during period $(1,820,000)
-----------
Balance at December 31, 1996 $ 5,070,000
===========
(2) The carrying value for federal income tax purposes is $5,070,000.
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41
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(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
Lake Arrowhead Resort
Hotel
Lake Arrowhead, California 10.20% Nov-99 (1) - 9,004 9,004 -
Mesa Dunes, Wakonda, Town & Country
Retail Stores, 9.00% Dec-03 (4) - 5,000 3,422 -
Cedar Rapids / Des
Moines, Iowa
Princeton Meadows Joint Venture
Golf Course,
Princeton Meadows, New Jersey 12.50% Sep-01 (1) - 1,280 1,567 -
La Salle
Warehouse,
Las Vegas, Nevada 11.50% Dec-03 (1) - 935 911 911
Hospitality Inn (5)
Hotel,
Pensacola, Florida Prime +3.0% Oct-96 (1) - 800 579 579
Hospitality Inn (5)
Hotel,
Pensacola, Florida Prime +2.75% Oct-96 (1) - 975 684 684
Hospitality Inn (5)
Hotel,
Jacksonville, Florida Prime +2.75% Oct-96 (1) - 2,425 1,701 1,701
---------------------------------------------------------------
Total First Trust Deeds 0 20,419 17,868 3,875
41
42
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(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
Hospitality Inn (5)
Hotel,
Pensacola, Florida 12.50% Oct-96 (1) 795 800 900 900
Hospitality Inn (5)
Hotel,
Pensacola, Florida 12.00% Oct-96 (1) 904 525 588 588
Hospitality Inn (5)
Hotel,
Jacksonville, Florida 12.00% Oct-96 (1) 2,248 575 644 644
Bercado Shores
Apartments,
South Bend, Indiana 12.50% Jun-95 (1) 4,307 1,350 1,350 1,350
Brittany Point
Apartments,
Huntsville, Alabama 12.50% Dec-00 (1) 9,536 1,570 1,570 -
Nolana Apartments, Inc.
Los Angeles, California 12.00% Sep-98 (1) 1,873 455 375 -
Southgate
Apartments,
Bedford Heights, Ohio 11.50% Mar-95 (1) 2,723 2,000 2,000 2,000
---------------------------------------------------------------
Total Second Trust Deeds 22,386 7,275 7,427 5,482
42
43
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(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
Fox Run (A) 11.25% Jan-02 (4) 30,400 875 875 -
Apartments,
Plainsboro, New Jersey
---------------------------------------------------------------
Total Third Trust Deeds 30,400 875 875 0
Promissory Notes Receivable
North Prior 12.25% Jun-96 (1) 7,918 2,000 1,019 1,019
Warehouse Complex,
St. Paul, Minnesota
J. Schultz 8.00% May-00 (1) - 75 75 -
An Individual
Carriage Hills 12.00% Sep-00 (1) 3,440 1,404 1,404 -
Apartments,
East Lansing, Michigan
Vista Hills 12.50% Sep-02 (1) 3,775 1,530 1,530 -
Apartments,
El Paso, Texas
Angeles Partners 16 12.50% Jun-97 (1) - 860 860 860
California Limited Partnership
Angeles Partners X 12.75% Dec-03 (1) - 1,350 614 -
California Limited Partnership
43
44
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(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% Mar-03 (1) 6,682 4,764 4,764 -
Apartments,
Waukegan, Illinois
Angeles Partners XIV 12.00% Feb-98 (1) - 459 459 -
California Limited Partnership
Angeles Corporation 8.50% Dec-98 (1) - 6,100 3,450 -
Los Angeles, California
---------------------------------------------------------------
Total Promissory Notes Receivable 21,815 18,542 14,175 1,879
------- ------- ------- -------
Total $74,601 $47,111 40,345 $11,236
======================= =========================
Unearned loan fees (127)
---------------
40,218
Allowance for estimated losses (12,100)
---------------
$28,118
===============
44
45
ANGELES MORTGAGE INVESTMENT TRUST
FOOTNOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
(1) Note requires monthly interest only payments through maturity, when the
principal balance is due.
(2) Reconciliation of notes receivable:
Balance at January 1, 1994 $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
Additions:
New mortgage loans (6) 15,574,000
Deductions:
Principal collections (7) (16,256,000)
Foreclosures (4,342,000)
-----------
Balance at December 31, 1996 $40,345,000
===========
(3) The carrying amount for Federal income tax purposes is approximately
$37,875,000.
(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.
(6) Amount includes modified loans in which accrued but unrecorded interest
income was recast as principal for the following loans; Lake Arrowhead
- $9,002,000, Fox Run - $875,000, Fox Crest - $1,764,000, Brittany -
$291,000, Vista Hills - $230,000, Carriage Hills - $204,000 and
Waterford - $134,000.
(7) Amount includes the refinancing of the Lake Arrowhead promissory note
of $6 million.
45