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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_________________________ TO ________________________________
Commission file Number 1-10202
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ANGELES MORTGAGE INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
California 95-6890805
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
340 North Westlake Boulevard, Suite 230, Westlake Village, California 91362
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 449-1335
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No Change
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Former Name, Former Address and Former Fiscal Year If Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Class A Shares American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
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.
[X] Yes [ ] No
AS OF OCTOBER 31, 1997 ANGELES MORTGAGE INVESTMENT TRUST HAS 2,617,000 CLASS A
SHARES OUTSTANDING.
Total Pages 14
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ANGELES MORTGAGE INVESTMENT TRUST
INDEX
Page No.
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Part I. Financial Information
Item I. Balance Sheets - September 30, 1997 and December 31, 1996 3
Statements of Operations - for the three and nine months ended
September 30, 1997 and 1996 4
Statement of Shareholders Equity - for the nine months ended
September 30, 1997 5
Statements of Cash Flows - for the nine months ended September 30,
1997 and 1996 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
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ITEM 1. FINANCIAL STATEMENTS
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1997 1996
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ASSETS
Notes Receivable
Mortgage notes receivable $ 36,314,000 $ 26,043,000
Promissory notes receivable (primarily from affiliates) 10,221,000 14,175,000
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46,535,000 40,218,000
Less: Allowances for estimated losses (11,760,000) (12,100,000)
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34,775,000 28,118,000
Foreclosed real estate held for sale 4,484,000 5,070,000
Cash 4,730,000 9,789,000
Accrued interest receivable 330,000 174,000
Prepaid expenses and other assets, net 134,000 224,000
------------ ------------
Total assets $ 44,453,000 $ 43,375,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 153,000 $ 287,000
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Total liabilities 153,000 287,000
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Shareholders' equity:
Class A Shares (2,617,000 issued and outstanding,
$1.00 par value, unlimited shares authorized) 2,617,000 2,617,000
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 50,199,000
Accumulated distributions in excess of cumulative net
income (8,530,000) (9,742,000)
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Total shareholders' equity 44,300,000 43,088,000
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Total liabilities and shareholders' equity $ 44,453,000 $ 43,375,000
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The accompanying notes are an integral part of the financial statements.
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ANGELES MORTGAGE INVESTMENT TRUST
STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1997 1996 1997 1996
---------- ---------- ---------- -----------
REVENUE:
Interest income $ 971,000 $ 738,000 $3,496,000 $ 2,077,000
Rental income 117,000 140,000 217,000 216,000
Gain from sale of real property - - 28,000 184,000
Recovery of bad debts - - 341,000 186,000
---------- ---------- ---------- -----------
Total revenue 1,088,000 878,000 4,082,000 2,663,000
---------- ---------- ---------- -----------
COSTS AND EXPENSES:
Property operations - 74,000 - 137,000
Legal fees 114,000 44,000 311,000 (382,000)
General and administrative 177,000 179,000 599,000 570,000
Amortization 19,000 19,000 50,000 32,000
---------- ---------- ---------- -----------
Total costs and expenses 310,000 316,000 960,000 357,000
---------- ---------- ---------- -----------
NET INCOME $ 778,000 $ 562,000 $3,122,000 $ 2,306,000
========== ========== ========== ===========
NET INCOME PER CLASS A SHARE $ 0.29 $ 0.21 $ 1.18 $ 0.84
========== ========== ========== ===========
CASH DISTRIBUTIONS PER CLASS A SHARE $ 0.27 $ 0.14 $ 0.73 $ 0.36
========== ========== ========== ===========
WEIGHTED AVERAGE CLASS A SHARES
OUTSTANDING 2,617,000 2,617,000 2,617,000 2,733,500
========== ========== ========== ===========
The accompanying notes are an integral part of the financial statements.
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ANGELES MORTGAGE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED
DISTRIBUTIONS IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPTIAL INCOME TOTAL
---------- ------- ----------- ----------- ------------
Balance at December 31, 1996 $2,617,000 $14,000 $50,199,000 ($9,742,000) $ 43,088,000
Distributions paid to Class A
Shareholders - - - (1,910,000) (1,910,000)
Net income - - - 3,122,000 3,122,000
---------- ------- ----------- ----------- ------------
Balance at September 30, 1997 $2,617,000 $14,000 $50,199,000 ($8,530,000) $ 44,300,000
========== ======= =========== =========== ============
The accompanying notes are an integral part of the financial statements.
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ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOW
NINE MONTHS ENDED
SEPTEMBER 30
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1997 1996
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Cash flows from operating activities:
Net income $ 3,122,000 $ 2,306,000
Adjustments to reconcile net income to cash
flows from operating activities:
Gain from sale of real estate (28,000) (184,000)
Recovery of bad debt (341,000) (186,000)
Interest income in exchange for notes receivable (864,000) -
Amortization of loan fees 50,000 32,000
Decrease (increase) in interest receivable (156,000) 1,000
Decrease in prepaid expenses and other assets 42,000 135,000
Decrease in accounts payable and accrued expenses (134,000) (42,000)
Increase (decrease) in unearned loan fee income 96,000 (9,000)
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Cash flows from operating activities 1,787,000 2,053,000
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Cash flows from investing activities:
Funding of notes receivable (9,850,000) (4,000)
Principal collections of notes receivable 4,301,000 1,894,000
Proceeds from sale of real property 613,000 736,000
Investment in securities - (979,000)
Principal collections of investment securities - 979,000
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Cash flows from investing activities (4,936,000) 2,626,000
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Cash flows from financing activities:
Draw on bank line of credit - 430,000
Repayment of bank line of credit - (430,000)
Purchase of Class A Shares - (1,730,000)
Distributions to Class A Shareholders (1,910,000) (988,000)
----------- -----------
Cash flows used in financing activities (1,910,000) (2,718,000)
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Increase (decrease) in cash and cash equivalents (5,059,000) 1,961,000
Cash and cash equivalents
At beginning of period 9,789,000 1,229,000
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At end of period $ 4,730,000 $ 3,190,000
=========== ===========
Schedule of noncash financing and investing activities:
Carrying value of real estate in satisfaction of notes
receivable with carrying values of $3,068,000 $ - $ 3,210,000
Recast past due interest into principal on notes receivable - 2,454,000
Note receivable from lawsuit settlement - 75,000
The accompanying notes are an integral part of the financial statements.
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PART I. FINANCIAL INFORMATION
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - The accompanying financial statements have not been audited by
independent certified accountants, but in the opinion of management, all of the
adjustments necessary to present fairly the financial position of Angeles
Mortgage Investment Trust (the "Trust") and the results of operations and its
cash flows at the date and for periods indicated have been included. Certain
prior year amounts have been reclassified to conform to current year
classifications.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
For further information, refer to the financial statements and notes
thereto included in the Trust's annual report on Form 10-K for the year ended
December 31, 1996.
NOTE 2 - The net income per Class A Share was based on 2,617,000 weighted
average Class A Shares outstanding during the three months ended September 30,
1997 and 1996 and 2,617,000 and 2,733,500 weighted average Class A Shares
outstanding during the nine months ended September 30, 1997 and 1996,
respectively, after deduction of the 1% interest for Class B Shares.
NOTE 3 - In May 1997 the Trust's $5 million line of credit was renewed through
October 1997 with the ability to extend the line of credit through April 1998 at
the Trust's option. As of October 31, 1997 the Trust exercised such option, with
the requirement to pay an additional $12,500 commitment fee paid quarterly. The
line of credit requires monthly interest only payments based upon prime plus
1/2% and a $12,500 commitment fee paid quarterly. During the three and nine
months ended September 30, 1997, the Trust did not draw on the line of credit.
NOTE 4 - On July 21, 1997, the Trust announced that it had executed a definitive
merger agreement to merge with Insignia Properties Trust ("IPT"), a REIT
majority owned by Insignia Financial Group, Inc., and its affiliates. The
definitive agreement provides that each Trust Class A share will be valued at
$16.25 per share and exchanged for 1.625 shares of IPT Common Stock valued at
$10.00 per share. The exchange ratio will be adjusted to reflect dividends and
earnings of the respective trusts from December 31, 1996 through the closing of
the transaction. The proposed transaction is contingent upon, among other
conditions, the Trust's receipt of a fairness opinion and the approval of the
proposed transaction by certain governmental authorities and by the shareholders
of the Trust and IPT.
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NOTE 5 - In October 1997 and previously in April 1996, the Trust foreclosed on a
40 and an adjacent 200-acre parcel of land, respectively, in Ellenton, Florida.
The Trust held a first trust deed in the amount of $1,572,000 on the 200 acres
and had recourse, through provisions on the mortgage note, allowing for the
foreclosure on the adjacent 40 acres. In conjunction with the foreclosures, the
Trust incurred approximately $177,000 in expenses, which have been capitalized
into the cost of the property. The Trust did not recognize any income or loss
from such foreclosures.
NOTE 6 - During the quarter ended September 30, 1997, one Trust loan prepaid the
total outstanding principal balance of $589,000 and another loan made a
substantial principal repayment in the amount of $1,100,000. These two loans are
referred to by the Trust as Angeles Partners X and Angeles Corporation,
respectively. In addition, subsequent to September 30, 1997 the Trust received a
full prepayment on the loan referred to by the Trust as LaSalle, in the amount
of $1,334,000.
As of October 31, 1997 the Trust has signed and proposed commitments to
fund approximately $5 million of new loans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Trust has invested in loans (the "Trust Loans") which prior to
December 1996 were made principally to partnerships that were affiliated with
Angeles Corporation ("Angeles"), parent company to the Trust's prior advisor,
Angeles Funding Corporation (the "Advisor" or "AFC"), but the majority of which
are now controlled by Insignia Financial Group, Inc. ("Insignia").
In February 1993, the Trust's policy of distributing monthly the Net Cash
from operations to its Class A Shareholders was suspended as a result of the
failure of the Insignia partnerships and entities affiliated with 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 scheduled its first dividend payment
in three years to Class A Shareholders of record on January 22, 1996 which was
paid on February 13, 1996, in the amount of $0.10 per Class A Share. During the
twelve months ended December 31, 1996 the Trust paid total dividends of $0.52
per share to Class A shareholders. During the nine months ended September 30,
1997 the Trust has paid total dividends of $0.73 per share to Class A
shareholders. In addition, during the third quarter ended September 30, 1997 the
Trust declared a fourth quarter dividend of $0.30 per Class A share to
shareholders of record on October 14, 1997 and payable on November 5, 1997.
In May 1997, the Trust's $5 million line of credit with the Bank was
renewed through October 1997, with the ability to renew for an additional six
months to April 1998 at the Trust's option. The line of credit with the Bank
allows the Trust to draw on such line to facilitate the foreclosure process on
Trust loans. The line of credit requires monthly interest only payments based
upon prime plus 1/2% and a $12,500 commitment fee paid quarterly. In October
1997 the Trust exercised its option to renew the line of credit through April
1998 upon payment of an additional $12,500 commitment fee to be paid quarterly.
During the nine month period ended September 30, 1997, the Trust did not draw on
the line of credit.
The Trust's liquidity is dependent upon its borrowers having sufficient
cash to pay interest and principal payments as they become due. In February
1993, a significant number of the Insignia Partnerships failed to service their
debt obligations under the Trust Loans. The Trust has since completed the
process of restructuring the majority of the Trust Loans. The restructured loan
terms typically include a reduction in the interest pay 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.
In February 1997, the Trust made its first new loan since January 1993, in
the amount of $5,000,000 secured by first deeds of trust on three manufactured
home parks located in Texas. This new loan requires interest only payments at
8.9% and matures in December 2003. In April 1997, the Trust made a second new
loan in the amount of $2,950,000 secured by a first deed of trust on a 628,000
square foot industrial warehouse located in Martinsville, Virginia. This loan
requires interest only payments at 11% and matures in April 1998. In June 1997
the Trust made a new loan in the amount of $1,900,000 secured
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by a first deed of trust on four manufactured home parks located in Wyoming.
This new loan requires interest only payments at 9.07% and matures in December
2003.
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 carrying amount 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 September 30, 1997 was approximately $12 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.
The Trust believes that its current cash flow from operations is
sufficient to provide for payment of its operating costs and provide for
distributions to shareholders.
As previously announced in a press release on July 21, 1997, the Trust has
executed a definitive merger agreement to merge with Insignia Properties Trust
("IPT"), a REIT majority owned by Insignia and its affiliates. The definitive
agreement provides that each Trust Class A share will be valued at $16.25 per
share and exchanged for 1.625 shares of IPT Common Stock valued at $10.00 per
share. The exchange ratio will be adjusted to reflect dividends and earnings of
the respective trusts from December 31, 1996 through the closing of the
transaction. The proposed transaction is contingent upon, among other
conditions, the Trust's receipt of a fairness opinion and the approval of the
proposed transaction by certain governmental authorities and by the shareholders
of the Trust and IPT. IPT's business consists primarily of acquiring and owning
interests in multifamily residential properties through ownership of limited and
general partner interests in limited partnerships, which hold such real estate
properties. IPT and its affiliated operating limited partnership own an
aggregate of from 1% to 54% of the ownership interests of entities which own, in
the aggregate, approximately 184 properties containing approximately 42,000
residential apartment units and approximately 4.2 million square feet of
commercial space.
During the quarter ended September 30, 1997, one Trust loan prepaid the
total outstanding principal balance of $589,000 and another loan made a
substantial principal repayment in the amount of $1,100,000. These two loans are
referred to by the Trust as Angeles Partners X and Angeles Corporation,
respectively. In addition, subsequent to September 30, 1997 the Trust received a
full prepayment on the loan referred to by the Trust as LaSalle, in the amount
of $1,334,000.
As of October 31, 1997 the Trust has signed and proposed commitments to
fund approximately $5 million of new loans.
In October 1997 and previously in April 1996, the Trust foreclosed on a
40 and an adjacent 200-acre parcel of land, respectively, in Ellenton, Florida.
The Trust held a first trust deed in the amount of $1,572,000 on the 200 acres
and had recourse, through provisions on the mortgage note, allowing for the
foreclosure on the adjacent 40 acres. In conjunction with the foreclosures, the
Trust incurred approximately $177,000 in expenses, which have been capitalized
into the cost of the property. The Trust did not recognize any income or loss
from such foreclosures.
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RESULTS OF OPERATIONS
Interest income for the three and nine months ended September 30, 1997
increased significantly when compared to the same periods ending in 1996. Such
increase is primarily due to the restructuring of the three Hospitality Inn
second mortgage loans, which occurred in April 1997 and the LaSalle loan which
was effective in February 1997. Upon modifying these loans the Trust capitalized
into principal accrued interest and late fees of approximately $440,000 relating
to the three Hospitality Inn second mortgage loans, during the quarter ended
June 30, 1997, and $409,000 for the LaSalle loan during the first quarter ended
March 31, 1997. In addition, interest income has increased significantly in 1997
due to previously modified loans which are now paying debt service either at the
stated interest rate or on a cash flow basis and newly funded loans during the
six months ended June 30, 1997 in the amount of $9,850,000. Funds for such new
loans came from the repayment of non-performing loans and loans paying at a
lower rate of interest and from the sale of a property obtained through
foreclosure.
The Trust recognized additional income for the nine months
ended September 30, 1997 relating to recovery of bad debt. During the three
months ended June 30, 1997, the Trust received a partial principal repayment of
$340,500 on a loan for which an allowance for estimated loss has been previously
provided. In addition during the three months ended June 30, 1997, the Trust
recognized a gain from the sale of its joint venture interest in the Rolling
Greens property in the amount of $28,000.
The increase in legal fee expenses for the nine months ended
September 30, 1997 when compared to the previous same period, is due to the
settlement in June 1996 of the State and Federal claims the Trust brought
against others relating to the use of non-public information by a group of
investors. In conjunction with this settlement, the Trust offset $764,000 in
settlement proceeds against legal expenses in June 1996. In addition during the
three and nine months ended September 30, 1997 the Trust has incurred legal
expenses defending itself against a malicious prosecution case brought against
the Trust by one of the defendants in the State and Federal insider trading
claims described above. In October 1997 the malicious prosecution case was
dismissed in favor of the Trust on summary judgement.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
THE TRUST, AS A PLAINTIFF, SETTLED THE FOLLOWING LAWSUITS IN 1996:
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.
THE TRUST AS A DEFENDANT:
On December 23, 1996, the Trust, Katten Muchin & Zavis
("Katten"), and Katten partner David Bass ("Bass") were sued in Los Angeles
County Superior Court by Jules Kirsch (Jules P. Kirsch v. Angeles Mortgage
Investment Trust, et al., Case No. BC 162 914). In this action, Kirsch alleges
malicious prosecution by the Trust and its attorneys of insider trading claims
against Jules Kirsch, which claims in July 1996 were terminated against Jules
Kirsch (as described above). Kirsch alleges various damages in an unspecified
amount. On October 20, 1997, summary judgment was granted in favor of the Trust,
Katten, and Bass and against Kirsch on all claims in the malicious prosecution
action. Formal judgment in defendants' favor is expected to be entered within
sixty (60) days hereof. Kirsch's counsel has stated that Kirsch will seek to
appeal the summary judgment ruling.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None.
b. REPORTS ON FORM 8-K
None.
Note: All items required under Part II of Form 10-Q which are applicable have
been reported herein.
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SIGNATURES
Pursuant to the requirements 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
By /s/Anna Merguerian
-------------------------------
Anna Merguerian
Chief Financial Officer
Date: October 31, 1997
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