UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
Commission File Number 1-14179
INSIGNIA PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 57-1045190
(State of Incorporation) (I.R.S. Employer Identification No.)
One Insignia Financial Plaza, P.O. Box 19059
Greenville, South Carolina 29602
(Address of Principal Executive Offices) (Zip Code)
(864) 239-1300
(Registrant's Telephone Number, Including Area Code)
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 .
At September 16, 1998, the Registrant had 19,427,760 Common Shares outstanding.
<PAGE>
INSIGNIA PROPERTIES TRUST
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements..............................1
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997............................1
Condensed Consolidated Statements of Income
for the Three and Six Months Ended June 30, 1998 and 1997 ...........2
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 1998...............................3
Condensed Consolidated Statements of Cash Flow
for the Six Months Ended June 30, 1998 and 1997......................4
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................18
Item 4. Submission of Matters to a Vote of Security Holders............18
Item 6. Exhibits and Reports on Form 8-K...............................18
SIGNATURES.................................................................19
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
a) Balance Sheets
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 14,639 $ 37,432
Investments in real estate limited partnerships 192,832 159,469
Apartment property, net of depreciation 25,808 22,357
Other assets 6,996 6,810
Total assets $240,275 $226,068
Liabilities, Minority Interest and Shareholders'
Equity
Liabilities:
Accounts payable - Due to Insignia $ 122 $ 841
Distribution payable - Insignia 1,490 1,260
Distributions payable 2,914 2,786
Accrued expenses 1,101 1,222
Non-recourse mortgage notes payable 21,951 19,300
Total liabilities 27,578 25,409
Minority interest in Operating Partnership 59,181 54,447
Shareholders' Equity:
Common shares, par value $.01 per share -
authorized 400,000,000 shares, 19,427,760
issued and outstanding (1998) and 18,573,151
issued and outstanding (1997) 194 186
Additional paid-in capital 154,984 145,594
Unearned compensation (5,173) --
Accumulated earnings in excess of distributions 3,511 432
Total shareholders' equity 153,516 146,212
Total liabilities, minority interest and shareholders'
equity $240,275 $226,068
<FN>
NOTE:The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
</FN>
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
b) Statements of Income
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
<S> <C> <C> <C> <C>
Apartment rentals $ 1,856 $ 1,646 $ 3,627 $ 3,229
Equity earnings - limited partner
interest 4,736 789 8,097 2,993
Other 628 152 1,253 493
7,220 2,587 12,977 6,715
Costs and expenses
Apartment property operating expenses 846 785 1,736 1,517
Apartment property interest 422 372 828 744
Apartment property depreciation 329 241 600 480
Administrative 223 282 575 553
Amortization 112 32 276 52
Other interest 119 35 206 42
2,051 1,747 4,221 3,388
Operating income 5,169 840 8,756 3,327
Equity earnings - gain on sale
of properties 5,772 -- 5,772 --
Income before minority interest and --
extraordinary item 10,941 840 14,528 3,327
Minority interest in consolidated
Subsidiaries and the Operating
Partnership (3,831) (252) (5,364) (2,079)
Income before extraordinary item 7,110 588 9,164 1,248
Equity earnings - extraordinary loss
from property refinancings
(net of minority interest) (283) -- (257) --
Net income $ 6,827 $ 588 $ 8,907 $ 1,248
Net income per share - basic
and diluted:
Income before extraordinary item $ .37 $ .05 $ .48 $ .11
Extraordinary item (.01) -- (.01) --
Net income $ .36 $ . 05 $ .47 $ .11
Distributions declared per
Common Share $ .15 $ -- $ .30 $ --
Weighted average Common Shares
outstanding - basic 18,917,760 11,891,528 18,822,564 11,539,240
Weighted average Common Shares
outstanding - diluted 18,975,719 11,891,528 18,880,523 11,539,240
<FN>
See Notes to Condensed Consolidated Financial Statement.
</FN>
</TABLE>
<PAGE>
c) Statements of Shareholders' Equity
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Earnings In Total
Additional Unearned Excess of Share-
Common Paid-In Compen- Distri- holders'
Shares Capital sation butions Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $186 $145,594 $ -- $ 432 $146,212
Issuance of 344,609
Common Shares 3 3,625 3,628
Issuance of 548,000 --
restricted Common Shares 5 5,765 (5,173) 597
Distributions declared and
paid -- -- (2,914) (2,914)
Distributions declared -- -- -- (2,914) (2,914)
Net income for 1998 -- -- -- 8,907 8,907
Balance at June 30, 1998 $194 $154,984 $(5,173) $ 3,511 $153,516
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
d) Statements of Cash Flow
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
Operating Activities
<S> <C> <C>
Net income $ 8,907 $ 1,248
Adjustments to reconcile net income to
net cash provided by operations:
Amortization of organization and formation costs 276 52
Amortization of loan costs 175 --
Apartment property depreciation 600 480
Equity earnings - partnership investments (8,097) (2,993)
Equity earnings - gain on sale of properties (5,772) --
Equity earnings - extraordinary loss from property
refinancings 257 --
Non-cash compensation 597 --
Minority interests in the Operating Partnership and
consolidated Subsidiaries 5,364 2,079
Changes in operating assets and liabilities:
Other assets (84) (301)
Accounts payable and accrued expenses (888) 882
Net cash provided by operating activities 1,335 1,447
Investing Activities
Additions to apartment property (287) (114)
Organizational and formation costs (5) (120)
Purchase of real estate limited partnership interests (20,369) (1,852)
Investment in apartment property, net of acquired cash (3,804) --
Distributions from partnerships 7,100 11,382
Merger costs (408) (704)
Net cash (used in) provided by investing activities (17,773) 8,592
Financing Activities
Proceeds from issuance of Common Shares -- 31,710
Repayments of non-recourse mortgage notes (9) --
Payments on note payable -- (430)
Proceeds from note payable -- 650
Proceeds from refinancing of non-recourse mortgage note 2,660 --
Distributions made to minority investors of NPI 4 (494) (1,420)
Loan costs paid (62) --
Distributions paid to Insignia by operating partnership (2,750) (4,077)
Distributions paid to common shareholders (5,700) (5,880)
Net cash (used in) provided by financing activities (6,355) 20,553
(Decrease) increase in cash and cash equivalents (22,793) 30,592
Cash and cash equivalents at beginning of period 37,432 4,928
Cash and cash equivalents at end of period $ 14,639 $ 35,520
<FN>
See Notes Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
d) Statements of Cash Flow (continued)
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
Supplemental disclosure of non-cash financing
and investing activities
Issuance of Common Shares and operating partnership
<S> <C> <C>
units in exchange for limited partner interests $ 6,656 $ 12,747
<FN>
Note:For the six months ending June 30, 1997, other assets and accounts payable
and accrued expenses were adjusted by $236,000 for non-cash amounts in
connection with organizational costs.
See Notes Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Basis of Presentation
Insignia Properties Trust ("IPT" or the "Company") is a Maryland real
estate investment trust formed in 1996 by Insignia Financial Group, Inc.
("Insignia") for the purpose of acquiring and owning interests in
multifamily residential properties, including limited and general partner
interests in partnerships which hold such real estate properties. IPT has
been organized and is operated in a manner that allows it to be taxed as a
real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended. IPT is the sole general partner of Insignia Properties,
L.P., a Delaware limited partnership ("IPLP"), which is IPT's operating
partnership. Insignia is the sole limited partner of IPLP.
Substantially all of IPT's assets consist of (i) interests in entities
which comprise or control the managing general partners of real estate
limited partnerships (the "IPT Partnerships"), which interests are held by
IPT directly or through wholly-owned subsidiaries, and (ii) limited partner
interests in the IPT Partnerships, which interests are held through IPLP.
The IPT Partnerships own, in the aggregate, 349 properties containing
approximately 73,000 residential apartment units and approximately 5.8
million square feet of commercial space.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance 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 of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three- and six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's
Registration Statement on Form S-4 filed August 10, 1998, File No.
333-53815.
Certain amounts from 1997 have been reclassified to conform with the
1998 presentation.
2. Earnings Per Share
In 1997, the Financial Accounting Standard Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
Earnings per share is computed based on the weighted average number of
Common Shares outstanding. An IPLP partnership interest is not considered
dilutive because the allocation of earnings to an IPLP partnership interest
is equivalent to an IPT Common Share.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except share and per share data)
Numerator - basic and diluted
<S> <C> <C> <C> <C>
Income before extraordinary item $ 7,110 $ 588 $ 9,164 $ 1,248
Extraordinary loss (283) -- (257) --
Net income $ 6,827 $ 588 $ 8,907 $ 1,248
Denominator
Denominator for basic earnings
per share - weighted average
Common Shares 18,917,760 11,891,528 18,822,564 11,539,240
Effect of dilutive securities -
Restricted shares and options 57,959 -- 57,959 --
Denominator for diluted earnings
per share -
Adjusted weighted average Common
Shares and assumed conversions 18,975,719 11,891,528 18,880,523 11,539,240
Earnings per Common Share - basic
and diluted
Income before extraordinary item $ .37 $ .05 $ .48 $ .11
Extraordinary loss (.01) -- (.01) --
Net income $ .36 $ .05 $ .47 $ .11
</TABLE>
3. 1998 Acquisitions
Tender Offers
In December 1997, a wholly-owned subsidiary of IPLP commenced tender
offers to purchase units of limited partner interest in the following IPT
Partnerships: Multi-Benefit Realty Fund '87-1, Century Properties Fund XIV,
Century Properties Fund XV, Century Properties Fund XVIII, Consolidated
Capital Growth Fund, Consolidated Capital Institutional Properties/3,
Consolidated Capital Properties V, Johnstown/Consolidated Income Partners
and Shelter Properties VII Limited Partnership. These tender offers expired
in January and February 1998, with IPLP acquiring additional units of
limited partner interest in these partnerships for a total cost of
approximately $11.4 million (inclusive of acquisition costs of
approximately $1.0 million).
In April 1998, a wholly-owned subsidiary of IPLP commenced tender
offers to purchase units of limited partner interest in the following IPT
Partnership: Angeles Income Properties, Ltd. II, Angeles Partners IX and
Angeles Partners XII. These tender offers expired in May 1998, with IPLP
acquiring units of limited partner interest in these partnerships for a
total cost of approximately $6.6 million (inclusive of acquisitions costs
of approximately $0.3 million).
As a result of the above tender offers, IPLP increased its stated
ownership interest in these partnerships by a range of 4.52% to 24.39% with
total stated ownership interest in these partnerships ranging from 13.26%
to 45.85% at June 30, 1998. IPLP accounts for these partnership interest
under the equity method.
During the third quarter of 1998, a wholly-owned subsidiary of IPLP
commenced tender offers to purchase units of limited partner interest in
the following IPT Partnerships: Shelter Properties I Limited Partnership,
Shelter Properties II Limited Partnership, Shelter Properties IV Limited
Partnership, Shelter Properties V Limited Partnership, Shelter Properties
VI Limited Partnership, Shelter Properties VII Limited Partnership,
Consolidated Capital Institutional Properties, Consolidated Capital
Institutional Properties/2, Consolidated Capital Institutional
Properties/3, Consolidated Capital Properties III, Consolidated Capital
Properties V, Angeles Income Properties, Ltd. II, Angeles Income
Properties, Ltd. III, Angeles Income Properties, Ltd. IV, Angeles Income
Properties, Ltd. 6, Angeles Partners IX, Angeles Partners X, Angeles
Partners XI, Angeles Partners XII, Angeles Opportunity Properties, Ltd.,
Davidson Diversified Real Estate I, LP, Davidson Diversified Real Estate
II, LP, Davidson Diversified Real Estate III, LP, Davidson Income Real
Estate, LP and Davidson Growth Plus, LP. The tender offers for the Shelter
Properties partnerships expired in August 1998, with IPLP acquiring
additional units of limited partner interest in these partnerships for a
total cost of approximately $7.5 million (inclusive of acquisition costs of
approximately $0.4 million). As a result, IPLP increased its stated
ownership interest in these partnerships by a range of 5.19% to 8.36%, with
total stated ownership interest in these partnerships ranging from 23.16%
to 47.03% as of August 31, 1998. The remainder of these tender offers are
scheduled to expire at various times during the fourth quarter of 1998.
Property Acquisition
On January 28, 1998, a wholly-owned subsidiary of IPT acquired a
168-unit apartment complex located in Pensacola, Florida known as Raintree
Apartments, which is the only whole asset currently owned by IPLP. The
aggregate purchase price paid for the Raintree Apartments was approximately
$3.8 million, approximately $2.6 million of which was debt financed on a
non-recourse basis.
MAE GP Corporation Merger
Effective February 25, 1998, MAE GP Corporation, which until then was
a wholly-owned subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"),
was merged with and into IPT (the "MAE GP Merger"). MAE is an affiliate of
IPT and Insignia. As consideration for the MAE GP Merger, IPT issued
344,609 IPT Common Shares to MAE, valued for purposes of the MAE GP Merger
at $10.53 per share. MAE GP Corporation owned or controlled equity
interests in entities which comprised or controlled the general partners of
29 public and 61 private real estate limited partnerships (collectively,
the "MAE Partnerships"). At that time, the MAE Partnerships owned, in the
aggregate, 167 properties containing approximately 31,000 residential
apartment units and approximately 2.2 million square feet of commercial
space.
MAE Sale to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP
purchased the following assets from MAE for approximately $596,000 in cash:
(i) a 99% limited partner interest in Insignia Jacques Miller, L. P.
("IJM"), which in turn owned non-controlling equity interests in entities
that comprise or control the general partners of 30 of the MAE Partnerships
and various notes receivable (the 1% general partner interest in IJM was
acquired by IPT from MAE GP in the MAE GP Merger); and (ii) a 6.557%
limited partner interest in Buccaneer Trace Limited Partnership, which owns
a 208-unit residential apartment complex located in Savannah, Georgia.
Insignia Contribution to IPLP
Also in connection with the MAE GP Merger, on February 17, 1998,
Insignia contributed to IPLP all of the limited partner interests in the
MAE Partnerships owned by Insignia and its wholly-owned subsidiaries in
exchange for additional limited partner interests in IPLP. The interests
contributed were valued at approximately $5,460,000, in exchange for which
IPLP issued to Insignia 518,528 additional units of limited partner
interest in IPLP (based on a value of $10.53 per interest). The interests
in the MAE Partnerships were recorded at the historical cost of Insignia.
4. Equity Earnings - Gain on Sale of Properties
On April 16, 1998, Consolidated Capital Institutional Partners, LP
("CCIP"), which is one of the IPT Partnerships, sold Northlake Quadrangle
(one of the properties controlled by CCIP) to an unrelated third party for
$2.3 million. CCIP's net proceeds from this sale were $2.1 million. IPT
owns approximately 41% of the equity interests in CCIP, and its share of
the gain (included in IPT's equity earnings) was approximately $291,000.
On June 30, 1998, National Property Investors 5 ("NPI 5") and National
Property Investors 6 ("NPI 6"), each an IPT Partnership, sold the Village
(an apartment property jointly owned by NPI 5 and NPI 6) to an unrelated
third party for approximately $30.1 million. Aggregate net sales proceeds
to NPI 5 and NPI 6 from this sale were approximately $18.1 million, after
repayment of the mortgage note and closing expenses. IPT owned
approximately 48% and 44% of the equity interests in NPI 5 and NPI 6,
respectively, at the time of this sale, and its share of the gain (included
in IPT's equity earnings) was approximately $5.5 million.
5. Commitments and Contingencies
General Partners
Qualified REIT subsidiaries of IPT either control or serve as managing
general partner of the IPT Partnerships, and these subsidiaries may be
liable for recourse obligations of the IPT Partnerships in the event that
they are unable to satisfy those obligations. IPT believes that each IPT
Partnership has more than adequate resources to discharge all recourse
obligations and maintains adequate insurance.
Loan Commitments
IPT is obligated to loan up to $500,000 each to certain IPT
Partnerships ($2,600,000 in aggregate) and $150,000 each to certain other
IPT Partnerships ($6,000,000 in aggregate) at interest rates not to exceed
the prime rate plus 2%. There were no amounts outstanding under these
commitments at June 30, 1998.
Obligations to Former General Partners
Certain corporate general partners owned by IPT were acquired by
Insignia from unaffiliated prior owners. The acquisition agreements
provided that Insignia (now IPT) would be indemnified from claims
attributable to events or actions prior to Insignia's (now IPT's)
ownership, and that Insignia (now IPT) would indemnify the prior owners
from claims or causes of action arising after the change in ownership. In
addition, certain former owners of the general partners of seven IPT
Partnerships retained 100% (and in some instances 75%) of the obligation to
make capital contributions that may be required by the general partners
upon windup of the applicable partnerships.
Environmental Liabilities
Under various federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
cleanup costs incurred by such parties in connection with contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with
the contamination. The owner or operator of a site may be liable under
common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. There can be no
assurance that IPT, any of its affiliates or any assets owned or controlled
by IPT or any of its affiliates currently are in compliance with all of
such laws and regulations, or that IPT or its affiliates will not become
subject to liabilities that arise in whole or in part out of any such laws,
rules or regulations. Management is not currently aware of any
environmental liabilities that are expected to have a material adverse
effect on the Company's operations or financial condition.
Litigation
In January and February 1998, a limited partner in several of the IPT
Partnerships commenced arbitration proceedings and litigation against those
partnerships and their general partners. The claims in both the arbitration
and in complaints filed in the circuit Court of Jackson County, Missouri
assert that the general partners controlled by IPT breached certain
contractual and fiduciary duties allegedly owed to the claimant. IPT
believes the claims asserted in these proceedings are without merit.
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the IPT Partnerships filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against IPT, Insignia, the general partners of the partnerships, certain
persons and entities who purportedly formerly controlled the general
partners, and additional entities affiliated with and individuals who are
officers, directors and/or principals of several of the defendants. The
complaint contains allegations that, among other things, (i) the defendants
breached their fiduciary duties to the plaintiffs by selling or agreeing to
sell their "fiduciary positions" as stockholders, officers and directors of
the general partners for a profit and retaining said profit rather than
distributing it to the plaintiffs; (ii) the defendants breached their
fiduciary duties by mismanaging the partnerships and misappropriating the
assets of the partnerships by (a) manipulating the operations of the
partnerships to depress the trading price of units of limited partner
interest in the partnerships, (b) coercing and fraudulently inducing
unitholders to sell units to certain of the defendants at depressed prices
and (c) using the voting control obtained by purchasing units at depressed
prices to entrench certain of the defendants' positions of control over the
partnerships; and (iii) the defendants breached their fiduciary duties to
the plaintiffs by selling assets (such as mailing lists of unitholders) of
the partnerships and causing the general partners to enter into exclusive
arrangements with their affiliates to sell goods and services to the
general partners, the unitholders and tenants of partnership properties.
The complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The San Mateo
Complaint seeks unspecified compensatory and punitive damages, an
injunction blocking the sale of control of the general partners and a court
order directing the defendants to discharge their fiduciary duties to the
plaintiffs. On June 25, 1998, the general partners filed a motion seeking
dismissal of the action. In lieu of responding to that motion, the
plaintiffs recently filed an amended complaint. IPT believes that the
allegations contained in the amended complaint are without merit and
intends to defend the action vigorously.
On July 30, 1998, certain entities claiming to own limited partner
interests in 44 of the IPT Partnerships filed a complaint in the Superior
Court of the State of California, County of Los Angeles against IPT,
Insignia, the applicable IPT Partnerships, the general partners of those
partnerships and additional entities affiliated with several of the
defendants. Plaintiffs allege that they have requested from, but have been
denied by each of the partnerships, lists of their respective limited
partners for the purpose of making tender offers to purchase up to 4.9% of
the units of limited partner interest in each of those partnerships. The
complaint also alleges that certain of the defendants made tender offers to
purchase units of limited partner interest in many of the partnerships,
with the alleged result that plaintiffs have been deprived of the benefits
they would have realized from ownership of the additional units. The
plaintiffs assert eleven causes of action, including breach of contract,
unfair business practices and violations of the partnership statutes of the
states in which the partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. None of defendants has yet
responded to the complaint. IPT believes the claims are without merit and
intends to defend the action vigorously.
In addition to the above, certain of the IPT Partnerships and other
subsidiaries of IPT are defendants in lawsuits arising in the ordinary
course of business. Such lawsuits are primarily insured claims arising from
accidents at managed properties. Claims may demand substantial compensatory
and punitive damages. Management believes that the litigation will be
resolved without a material impact on the financial position or results of
operations of the IPT.
<PAGE>
6. Angeles Mortgage Investment Trust Merger
On September 17, 1998, Angeles Mortgage Investment Trust, an
unincorporated California business trust ("AMIT"), was merged with and into
IPT (the "AMIT Merger"). In the AMIT Merger, each issued and outstanding
Class A common share of AMIT was converted into 1.516 Common Shares of IPT
and each issued and outstanding Class B common share of AMIT was converted
into 0.0309 Common Shares of IPT. IPT issued approximately 4,019,198 Common
Shares to the AMIT shareholders in the AMIT Merger, including approximately
146,779 Common Shares issued to a wholly-owned subsidiary of Insignia as a
result of its ownership of 96,800 Class A common shares of AMIT and
approximately 51,826 Common Shares issued to MAE as a result of its
ownership of 1,675,113 Class B common shares of AMIT. IPT's Common Shares
are listed on the American Stock Exchange under the symbol "FFO". In
connection with the AMIT Merger, on September 16, 1998 Insignia purchased
senior participation interests in certain loans of AMIT for an aggregate
purchase price of $11 million in cash. IPT acquired such cash in the AMIT
Merger, but has no interest (nor will it acquire any interest) in the
senior participation interests sold to Insignia.
Pro forma results of operations for the six-month periods ended June
30, 1998 and 1997, giving effect to the AMIT Merger as if effected at the
beginning of each period, are as follows (in thousands, except share and
per share data):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 15,956 $ 9,708
Income before extraordinary item 11,808 3,592
Net income 11,551 3,592
Diluted earnings per Common Share:
Income before extraordinary item $ .52 $ .23
Net income $ .51 $ .23
Weighed average Common Shares -
diluted 22,899,721 15,558,438
</TABLE>
7. Other Matters
Winthrop Option
On February 17, 1998, Insignia granted IPLP an option (the "Winthrop
Option") to acquire at any time on or before December 31, 1998, all of
Insignia's interest in certain limited partner interests in two public and
11 private real estate limited partnerships which own, in the aggregate, 29
properties containing approximately 12,100 residential apartment units,
together with the right to receive certain asset management, investor
services and partnership management fees from ten of those partnerships.
Insignia acquired such interests from Winthrop Financial Associates and
certain affiliates of Winthrop Financial Associates. The Winthrop Option is
exercisable by IPLP for an aggregate cash amount of approximately $46
million, plus interest on approximately $40 million of that amount at a
rate equal to Insignia's cost of funds (based on the interest rate in
effect from time to time under Insignia's revolving credit facility) and a
ratable portion of the transaction costs incurred by Insignia in connection
with the acquisitions of those interests.
Potential Apartment Investment and Management Company Merger
On March 17, 1998, Insignia entered into an agreement to merge its
national residential property management operations, including its
controlling interest in IPT, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The
closing of that merger is expected to occur in October 1998. In connection
with that transaction, AIMCO committed, contingent upon consummation of the
merger, to offer to acquire (by merger) all of the outstanding IPT Common
Shares not owned by Insignia for not less than $13.25 per share in cash and
to use its commercially reasonable best efforts to consummate such merger
within 90 days of the consummation of the merger of Insignia and AIMCO.
Cost of Start-up Activities
In 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), which is effective for financial statements for fiscal years
beginning after December 15, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Initial
application should be reported as the cumulative effect of a change in
accounting principle and expensed in the first quarter in the year of
adoption. At June 30, 1998, IPT had approximately $1.0 million (net of
accumulated amortization) capitalized as organizational costs that would be
affected by the requirements of SOP 98-5.
EITF 97-11
IPT has not capitalized any internal costs in connection with
identifying and acquiring operating properties. Therefore, EITF 97-11 will
have no effect on IPT's financial statements.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement No. 130"). Statement No.
130 establishes new rules for the reporting and display of comprehensive
income and its components. IPT adopted Statement No. 130 as of January 1,
1998. Statement No. 130 had no effect on IPT as of June 30, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
At June 30, 1998, IPT held assets of $240 million, an increase of 6%
from December 31, 1997. IPT's assets consist primarily of cash, investments
in real estate limited partnerships and apartment property. Total
liabilities increased 9% to $27.6 million at June 30, 1998, compared to
$25.4 million at December 31, 1997. IPT's liabilities consist mostly of
non-recourse mortgage notes payable. The apartment property and
non-recourse mortgage notes payable balances constitute the principal
assets and liabilities of The Village of Pennbrook in NPI 4 (which is an
IPT Partnership of which IPLP owns a majority of the limited partner
interests) and Raintree Apartments in Raintree Pensacola, L.P. (which is a
wholly-owned subsidiary of IPT), which are consolidated in IPT's financial
statements.
Cash and cash equivalents decreased 61% to $14.6 million at June 30,
1998, compared to $37.4 million at December 31, 1997. The decrease was
primarily attributable to the purchase of limited partner interests during
the six months ended June 30, 1998. During the first six months of 1998,
IPT expended approximately $20.4 million for the purchase of limited
partner interests. Also contributing to the decrease in cash was the
purchase of Raintree Apartments, a 168-unit residential apartment complex
located in Pensacola, Florida. The purchase resulted in a net cash outflow
of approximately $1.1 million.
Investments in real estate limited partnerships increased from $159.5
million at December 31, 1997, to $192.8 million at June 30, 1998, an
increase of 21%. The increase was attributable to the purchase of limited
partner interests during the first six months of 1998 as noted above, the
MAE GP Merger and related contribution of limited partner interests by
Insignia, and an increase in undistributed equity earnings from property
sales by IPT Partnerships.
The increase in apartment property and non-recourse mortgage notes
payable balances at June 30, 1998 was attributable to the purchase of
Raintree Apartments in January 1998.
Results of Operations
The following discussion compares IPT's results of operations for the
three- and six-month periods ended June 30, 1998 with its results of
operations for the corresponding periods in 1997. The table below
summarizes certain financial information extracted from IPT's financial
statements:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenues $ 7,220 $ 2,587 $ 12,977 $ 6,715
Expenses 2,051 1,747 4,221 3,388
Funds from operations 9,386 3,522 16,825 8,666
Net Income 6,827 588 8,907 1,248
Weighted average Common
Shares outstanding -
diluted 18,975,719 11,891,528 18,880,523 11,539,240
</TABLE>
Net income per share increased to $.36 and $.47 for the three and six
months ending June 30, 1998, respectively, as compared to $.05 and $.11 for
the corresponding periods of 1997. Total revenues increased 179% for the
three months and 93% for the six months ending June 30, 1998, as compared
to the same periods in 1997. Total expenses rose approximately 17% and 25%
for the three and six months ending June 30, 1998, respectively. IPT's
funds from operations ("FFO") increased 167% to $9.4 million for the three
months ending June 30, 1998, and 94% to $16.8 million for the six months
ending June 30, 1998. The increases in revenue and expenses were primarily
attributable to increases in equity earnings resulting from the continued
acquisition of limited partner interests in IPT Partnerships and improved
property operations.
Contributing to the increase in net income for the three and six
months ending June 30, 1998 was a gain of approximately $5.8 million
realized on the sale of two properties during the second quarter of 1998.
There were no gains from property sales during the comparable periods of
1997. Partially offsetting the gain was the realization of approximately
$257,000 in losses related to the refinancings of several investment
properties. These losses resulted from prepayment penalties and write-offs
of unamortized loan costs and debt discounts.
Minority interest reflected in the statements of income represents
Insignia's interest in IPLP, the operating partnership of IPT.
Funds from operations is defined as income or loss from real estate
operations, which is net income in accordance with generally accepted
accounting principles excluding gains or losses for debt restructurings,
sales of property and minority interests, plus depreciation and provision
for impairment. Depreciation of real estate is, except for two properties
held by consolidated IPT Partnerships, reflected within equity earnings -
limited partner interests. The difference between FFO and net income
consists of consolidated depreciation and depreciation recorded within
equity earnings, gain on sale of apartment property, extraordinary loss and
minority interest.
Investment Limited Partnership Operations
IPT's FFO growth is attributable to both acquisition activity and
internal growth. Acquisitions at cost were an aggregate of approximately
$65 million from July 1, 1997 to June 30, 1998. However, comparable
operations of properties owned by IPT Partnerships during the first half of
both 1998 and 1997 met or exceeded management's expectations.
Comparable property revenues grew by almost 5% for both the second
quarter and first half of 1998 compared to the corresponding periods in
1997. The growth was primarily attributable to the average increase in
rental rates year to year, increases in the average occupancy of
approximately 0.5%, and the renovation and re-leasing of The Sterling in
Philadelphia. Operating expenses declined nearly 12% for the three months
and 5% for the six months ending June 30, 1998, respectively. The reduction
in expenses was primarily the result of above normal levels of maintenance
incurred in 1997 as management implemented plans to improve the overall
appearance of the properties. Recurring operating expenses remained
relatively flat. Results from comparable partnerships resulting from the
comparable revenue and expense changes accounted for FFO growth of 57% and
31% for the three and six months ending June 30, 1998, respectively. The
remaining FFO growth is attributable to acquisitions.
Liquidity and Capital Resources
IPT's primary source of cash is the receipt of distributions from the
IPT Partnerships. Each IPT Partnership maintains its own cash reserves,
which management believes are adequate for most of the partnerships. IPT
expects distributions from IPT Partnerships to be sufficient for its
current level of dividends on an annual basis.
During 1997, IPT raised approximately $62.3 million through the
private placement of Common Shares primarily with institutional investors.
IPT invested approximately $20.3 million of those proceeds to acquire
additional limited partner interests in IPT Partnerships during the first
half of 1998, and through June 30,1998 had invested a total of
approximately $49 million of the offering proceeds to acquire additional
interests in IPT Partnerships.
IPT also has available a revolving credit facility of $50 million to
use for acquisitions. The line of credit is secured by a pledge and
security interest in all of the limited partner interests owned by IPLP.
IPT expects this credit facility to be sufficient for its acquisition
requirements for the remainder of 1998. As of September 21, 1998, IPT has
committed to acquire approximately $25.3 million of limited partner
interests, and IPT has borrowed $30 million of the available credit
facility to finance these purchases.
On July 15, 1998, IPT paid a second quarter dividend of $.15 per share
to shareholders of record as of the close of business on June 23, 1998. On
September 21, 1998, the Board of Trustees of IPT declared a third quarter
dividend of $.16 per share, payable on October 15, 1998 to shareholders of
record as of the close of business on September 30, 1998.
Year 2000 Compliance
IPT is dependent upon Insignia for management and administrative
services. Insignia has completed an assessment and has determined that it
will have to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year
2000 and thereafter. The project is estimated to be completed not later
than December 31, 1998, which is prior to any anticipated impact on its
operating systems. Insignia believes that with modifications to existing
software and conversions to new software, the year 2000 issue will not pose
significant operational problems for its computer systems. IPT does not
expect the conversion to have a material impact on its financial positions
or results of operations. However, if such modifications and conversions
are not made, or are not completed in a timely fashion, the year 2000 issue
could have a material impact on the operations of IPT.
Other
Certain items discussed in this Quarterly Report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and, as such, may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of IPT to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements speak only as
of the date of this Quarterly Report. IPT expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in
IPT's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 in Notes to Condensed Consolidated Financial Statements herein.
Item 4. Submission of Matters to a Vote of Security Holders
IPT's annual meeting of shareholders was held on May 27, 1998. At the
annual meeting, Frank M. Garrison was re-elected as a Class I trustee of IPT,
with a term expiring upon the annual meeting of IPT in 2001. Mr. Garrison was
re-elected by the vote of 12,287,108 Common Shares in favor and none opposed.
Following the annual meeting, the other trustees of IPT continuing in office
were Andrew L. Farkas and James A. Aston. A proposal to ratify and approve the
appointment of Ernst & Young, L.L.P. as IPT's independent auditors for the 1998
fiscal year was also presented to the shareholders at the 1998 annual meeting,
although all 12,287,108 Common Shares represented at the meeting abstained from
voting.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27. Financial Data Schedule for June 30, 1998.
b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30,
1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSIGNIA PROPERTIES TRUST
By: /s/ James A. Aston
--------------------------------------------
James A. Aston
President
By: /s/ William D. Falls
--------------------------------------------
William D. Falls
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Insignia Properties Trust June 30, 1998 Form 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0001062508
<NAME> Insignia Properties Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,639
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 240,275
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 153,322
<TOTAL-LIABILITY-AND-EQUITY> 240,275
<SALES> 0
<TOTAL-REVENUES> 12,977
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,907
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
