FORM 10-QSB---QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] 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 0-9136
ANGELES PARTNERS VIII
(Exact name of small business issuer as specified in its charter)
California 95-3264317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
(in thousands)
September 30, 1999
Assets
Cash and cash equivalents $ 226
Receivables and deposits 206
Other assets 34
Investment property, net of accumulated
depreciation 1,206
1,672
Liabilities
Accounts payable 16
Tenant security deposits 30
Accrued property taxes 344
Other liabilities 19
Accrued interest 2,547
Mortgage and notes payable ($1,721 in
default) 5,637
Estimated costs during the period of
liquidation 210
8,803
Net liabilities in liquidation $(7,131)
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 945 $ 945 $ 2,818 $ 2,788
Other income 54 54 163 162
Total revenues 999 999 2,981 2,950
Expenses:
Operating 384 395 1,176 1,220
General and administrative 37 29 108 109
Depreciation 185 178 535 514
Interest 481 472 1,439 1,420
Property taxes 105 114 326 245
Total expenses 1,192 1,188 3,584 3,508
Loss before extraordinary item (193) (189) (603) (558)
Extraordinary gain on conversion to
minority interest (Note A) 8,486 -- 8,486 --
Net income (loss) $ 8,293 $ (189) $ 7,883 $ (558)
Net income (loss) allocated
to general partner $ 180 $ (2) $ 176 $ (6)
Net income (loss) allocated
to limited partners 8,113 (187) 7,707 (552)
$ 8,293 $ (189) $ 7,883 $ (558)
Net income (loss) per limited
partnership unit:
Loss before extraordinary item $(16.25) $ (15.90) $(50.77) $(46.94)
Extraordinary gain on conversion to
minority interest 706.18 -- 706.18 --
$689.93 $ (15.90) $655.41 $(46.94)
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Unit Partner Partners Total
Original capital contributions 12,000 $ 121 $ 12,000 $ 12,121
Partners' deficit at
December 31, 1998 11,759 $ (182) $(14,622) $(14,804)
Net income for the nine months
ended September 30, 1999 -- 176 7,707 7,883
Partners' deficit
at September 30, 1999 11,759 $ (6) $ (6,915) $ (6,921)
Adjustment to liquidation basis
(Note A) (210)
Net liabilities in liquidation
at September 30, 1999 $ (7,131)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 7,883 $ (558)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 535 514
Amortization of loan costs 41 41
Extraordinary gain on conversion to minority interest (8,486) --
Change in accounts:
Receivables and deposits 29 (246)
Other assets (27) 7
Accounts payable 5 30
Tenant security deposit liabilities 4 8
Accrued property taxes 50 128
Accrued interest 432 374
Other liabilities (24) 41
Due to affiliates 61 73
Net cash provided by operating activities 503 412
Cash flows from investing activities:
Conversion to minority interest (115) --
Property improvements and replacement (245) (261)
Net cash used in investing activities (360) (261)
Cash flows used in financing activities:
Payments on mortgage notes payable (234) (212)
Net decrease in cash and cash equivalents (91) (61)
Cash and cash equivalents at beginning of period 317 328
Cash and cash equivalents at end of period $ 226 $ 267
Supplemental disclosure of cash flow information:
Cash paid for interest $ 966 $ 1,004
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
In connection with the Partnership's loss of its 99% limited partnership
interest in Brittany Point AP VIII L.P., the following accounts were adjusted
for non-cash activity:
Receivables and deposits $ (168,000)
Other assets (71,000)
Investment properties, net of accumulated
depreciation (2,977,000)
Accounts payable 52,000
Tenant security deposits 49,000
Other liabilities 6,000
Accrued interest 402,000
Accrued property taxes 141,000
Due to affiliates 375,000
Mortgage note payable 10,792,000
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES PARTNERS VIII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
As of September 30, 1999, Angeles Partners VIII (the "Partnership" or
"Registrant") adopted the liquidation basis of accounting due to the imminent
loss of its remaining investment property. The Partnership has incurred
recurring operating losses and continues to suffer from inadequate liquidity.
In addition, the Partnership is in default on a portion of its mortgage notes
payable and does not generate sufficient cash flows to meet current debt-service
requirements on its subordinated debt. No other sources of additional financing
are available to the Partnership and Angeles Realty Corporation ("ARC" or the
"General Partner") does not have any other plans to remedy the liquidity
problems the Partnership is currently experiencing.
The Partnership had an outstanding obligation due to an affiliate of the General
Partner (the "Affiliate"), for cumulative unpaid accountable administrative
services. This liability was secured by the Partnership's 99% limited
partnership interest in Brittany Point AP VIII L.P. ("Brittany LP"), the entity
that owned Brittany Point Apartments. During the third quarter of 1999, the
Affiliate informed the General Partner of its intention to exercise its remedy
with respect to this liability and foreclose on the Partnership's limited
partnership interest in Brittany LP. The General Partner determined that it was
unlikely that the Partnership would be able to retain its interest in Brittany
LP. Accordingly, in order to preserve Partnership assets the General Partner
elected not to contest the foreclosure and executed settlement documents to
effect the exercise of such remedies in a manner that was most cost effective to
the Partnership.
Effective September 30, 1999, the Affiliate acquired the Partnership's 99%
limited partnership interest in Brittany LP at a public sale in compliance with
the South Carolina Uniform Commercial Code and was admitted as the sole limited
partner of Brittany LP. The Partnership has been advised that the Affiliate
intends to remove the general partner of Brittany LP, an entity in which the
Partnership owns an interest. Accordingly, it is expected that the
Partnership's entire interest in Brittany LP will be lost.
The Partnership's note payable of approximately $371,000, plus accrued interest
of approximately $217,000, due to Angeles Acceptance Pool, L.P. ("AAP") is in
default due to non-payment upon maturity in November 1997. In addition, the
Partnership's second mortgage to Angeles Mortgage Investment Trust ("AMIT") in
the amount of approximately $1,350,000, plus accrued interest of approximately
$2,300,000, which is secured by the Partnership's remaining investment property,
Bercado Shores Apartments, has been in default since 1993 due to nonpayment of
interest and the maturity of the note in 1995. This indebtedness is recourse to
the Partnership and the estimated fair value of this property is less than the
total of its first and second mortgages. Pursuant to a series of transactions,
affiliates of the General Partner acquired ownership interests in AMIT. On
September 17, 1998, AMIT was merged with and into Insignia Properties Trust
("IPT"), which was the sole shareholder of the General Partner. On February 26,
1999, IPT was merged into Apartment Investment and Management Company ("AIMCO").
The Partnership intends to transfer title to Bercado Shores Apartments to AIMCO
in satisfaction of the subordinated indebtedness secured by the investment
property. AIMCO has received, and is in the process of complying with, the
requirements of the first mortgage holder for such holder's consent to the
transfer.
Accordingly, the General Partner expects that the Partnership will soon lose its
remaining investment property and its indirect interest in Brittany LP, and will
liquidate the Partnership at that time.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its consolidated financial statements at
September 30, 1999, to the liquidation basis of accounting. Consequently,
assets have been valued at estimated net realizable value (including subsequent
actual transactions described below) and liabilities are presented at their
estimated settlement amounts, including estimated costs associated with carrying
out the liquidation. The valuation of assets and liabilities necessarily
requires many estimates and assumptions and there are substantial uncertainties
in carrying out the liquidation. The actual realization of assets and
settlement of liabilities could be higher or lower than amounts indicated and is
based upon the General Partner's estimates as of the date of the consolidated
financial statements.
Included in liabilities in the statement of net liabilities in liquidation, as
of September 30, 1999, are approximately $210,000 of costs, net of income, that
the General Partner estimates will be incurred during the period of liquidation,
based on the assumption that the liquidation process will be completed by March
31, 2000. These costs principally include the estimated net loss for Bercado
Shores and interest and administrative expenses for the Partnership. Because
the success in realization of assets and the settlement of liabilities is based
on the General Partner's best estimates, the liquidation period may be shorter
than projected or it may be extended beyond the projected period.
Principles of Consolidation
Prior to September 30, 1999, the consolidated financial statements of the
Partnership included its 99% limited partnership interests in both Brittany LP
and Brittany Point GP, L.P. Because the Partnership could remove the general
partner of Brittany LP and Brittany Point GP, L.P., these partnerships were
controlled and consolidated by the Partnership. All significant
interpartnership balances have been eliminated.
As of September 30, 1999, the Partnership lost its entire 99% limited
partnership interest in Brittany LP.
Reclassifications
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a
result, AIMCO acquired 100% ownership interest in the General Partner. The
General Partner does not believe that this transaction will have a material
effect on the affairs and operations of the Partnership.
NOTE C - ADJUSTMENT TO LIQUIDATION BASIS OF ACCOUNTING
At September 30, 1999, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their settlement amount and include all estimated costs
associated with carrying out the liquidation. The net adjustment required to
convert to the liquidation basis of accounting was an increase in net
liabilities of approximately $210,000 which is included in the Consolidated
Statement of Changes in Partners' Deficit/Net Liabilities In Liquidation.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates of the
General Partner for services and (ii) reimbursement of certain expenses incurred
by affiliates on behalf of the Partnership.
The following transactions were paid or accrued to the General Partner and its
affiliates during the nine months ended September 30, 1999 and 1998,
respectively:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $153 $148
Reimbursement for services of affiliates
(included in investment properties, general and
administrative and operating expenses) 87 86
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $153,000 and $148,000 for the
nine months ended September 30, 1999 and 1998, respectively.
Affiliates of the General Partner were entitled to reimbursements of accountable
administrative expense amounting to approximately $87,000 and $86,000 for the
nine months ended September 30, 1999 and 1998, respectively. Included in these
expenses is approximately $22,000 and $13,000 in construction oversight costs
for the nine months ended September 30, 1999 and 1998, respectively.
See "Note A - Basis of Presentation" for information relating to the
Partnership's obligation for cumulative unpaid accountable administrative
services which was secured by the Partnership's 99% limited partnership interest
in Brittany LP.
In June 1990, AMIT provided secondary financing on the Partnership's investment
property, Bercado Shores Apartments. Total indebtedness was approximately
$1,350,000 at September 30, 1999, and is in default at September 30, 1999.
Total interest expense related to this debt was approximately $408,000 and
$348,000 for the nine months ended September 30, 1999 and 1998, respectively.
Accrued interest related to this debt was approximately $2,300,000 at September
30, 1999. As discussed in "Note A - Basis of Presentation", AIMCO is now the
holder of the AMIT debt. The AMIT mortgage secured by Bercado Shores Apartments
has been in default since 1993 due to nonpayment of interest and the maturity of
the note in 1995. The Partnership intends to transfer title to Bercado Shores
Apartments to AIMCO in satisfaction of the subordinated indebtedness. AIMCO has
received, and is complying with, the requirements of the first mortgage holder
for such holder's consent to the transfer.
In November 1992, AAP, a Delaware limited partnership which now controls the
working capital loan previously provided by Angeles Capital Investment, Inc.
("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited
partner of AAP and Angeles Acceptance Directives, Inc. ("AAD"), which was
wholly-owned by IPT, was, until April 14, 1995, the 1% general partner of AAP.
On April 14, 1995, as part of a settlement of claims between affiliates of the
General Partner and Angeles, AAD resigned as general partner of AAP and
simultaneously received a .5% limited partner interest in AAP. An affiliate of
Angeles now serves as the general partner of AAP. This indebtedness, which is
included in notes payable, was approximately $371,000 at September 30, 1999 and
is in default due to non-payment upon maturity in November 1997 (see "Note A -
Basis of Presentation"). Interest is accruing monthly at prime plus 0.75%
(8.75%, average rate at September 30, 1999). Total interest expense for this
loan was approximately $23,000 and $26,000 for the nine months ended September
30, 1999 and 1998, respectively. Total accrued interest for this loan was
approximately $217,000 at September 30, 1999.
NOTE E - SEGMENT REPORTING
The Partnership has only one reportable segment. Moreover, due to the very
nature of the Partnership's operations, the General Partner believes that
segment-based disclosures will not result in a more meaningful presentation than
the financial statements as currently presented.
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The complaint seeks monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June
25, 1998, the General Partner filed a motion seeking dismissal of the action.
In lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The General Partner filed demurrers to the amended complaint which
were heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement ("Stipulation"), settling claims, subject to final
court approval, on behalf of the Partnership and all limited partners who own
units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the General Partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, excluding the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The General Partner does not anticipate that costs
associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussions of the Registrant's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Registrant's business and results
of operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consisted of two apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Bercado Shores Apartments (1) 90% 93%
Mishawaka, Indiana
Brittany Point Apartments (2) 95% 92%
Huntsville, Alambama
(1) The decrease in occupancy at Bercado Shores is primarily due to the cash
flow problems at the property which has affected the property's ability to fund
all the required capital expenditures (see "Item 1. Financial Statements, Note A
- - Basis of Presentation"). As a result, this has affected the property's lease
renewals and its ability to attract new tenants.
(2) The Partnership had an outstanding obligation due to an affiliate of the
General Partner (the "Affiliate") for cumulative unpaid accountable
administrative services. This liability was secured by the Partnership's 99%
limited partnership interest in Brittany Point AP VIII L.P. ("Brittany LP"), the
entity that owned Brittany Point Apartments. During the third quarter of 1999,
the Affiliate informed the General Partner of its intention to exercise it
remedy with respect to this Brittany LP. The General Partner determined that it
was unlikely that the Partnership would be able to retain its interest in
Brittany LP. Accordingly, in order to preserve Partnership assets, the General
Partner elected not to contest the foreclosure and executed settlement documents
to effect the exercise of such remedies in a manner that was most cost effective
to the Partnership.
Effective September 30, 1999, the Affiliate acquired the Partnership's 99%
limited partnership interest in Brittany LP at a public sale in compliance with
the South Carolina Uniform Commercial Code and was admitted as the sole limited
partner of Brittany LP. The Partnership has been advised that the Affiliate
intends to remove the general partner of Brittany LP, an entity in which the
Partnership owns an interest. Accordingly, it is expected that the
Partnership's entire interest in Brittany LP will be lost.
Liquidity and Capital Resources
As of September 30, 1999, the Partnership adopted the liquidation basis of
accounting due to the imminent loss of its investment properties. The
Partnership has experienced significant recurring operating losses, is in
default on a portion of its mortgage notes payable and does not generate
sufficient cash flow to meet current debt service requirements on its
subordinated debt. No other sources of additional financing are available to
the Partnership and the General Partner does not have any other plans to remedy
the liquidity problems the Partnership is currently experiencing.
At September 30, 1999, the Partnership had cash and cash equivalents of
approximately $226,000 as compared to approximately $267,000 at September 30,
1998. Cash and cash equivalents decreased approximately $91,000 for the nine
months ended September 30, 1999, from the Registrant's fiscal year end. The
decrease in net cash was primarily due to approximately $360,000 of cash used in
investing activities and approximately $234,000 of cash used in financing
activities, which is partially offset by approximately $503,000 of cash provided
by operating activities. Cash used in investing activities consisted of
property improvements and replacements and the conversion of the Partnership's
investment in Brittany LP to minority interest. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Registrant's properties (see discussion above). The Registrant invests its
working capital reserves in money market accounts.
The Partnership's note payable of approximately $371,000, plus accrued interest
of approximately $217,000, due to AAP is in default due to non-payment upon
maturity in November 1997. In addition, the Partnership's second mortgage to
AMIT in the amount of approximately $1,350,000, plus accrued interest of
approximately $2,300,000, which is secured by the Partnership's remaining
investment property, Bercado Shores Apartments, has been in default since 1993
due to nonpayment of interest and the maturity of the note in 1995. This
indebtedness is recourse to the Partnership and the estimated fair value of this
property is less than the total of its first and second mortgages. Pursuant to
a series of transactions, affiliates of the General Partner acquired ownership
interests in AMIT. On September 17, 1998, AMIT was merged with and into
Insignia Properties Trust ("IPT"), which was the sole shareholder of the General
Partner. On February 26, 1999, IPT was merged into AIMCO. The Partnership
intends to transfer title to Bercado Shores Apartments to AIMCO in satisfaction
of the subordinated indebtedness secured by Bercado Shores Apartments. AIMCO
has received, and is in the process of complying with, the requirements of the
first mortgage holder for such holder's consent to the transfer.
While the description set forth below is a general description of the adverse
tax consequences that a limited partner may suffer as a result of the loss of
the Partnership's property, each limited partner should consult with his or her
own tax advisor to determine his or her particular tax consequences. The
transfer of the limited partnership interests in Brittany Point AP VIII, L.P. in
satisfaction of the Partnership's liability secured thereby will result in the
deemed sale or exchange of the limited partnership interests, thereby resulting
in taxable gain to the extent that the amount of the Partnership's reduction in
its share of Brittany Point AP VIII, L.P.'s net liabilities resulting from the
transfer exceeds the tax basis of the limited partnership interests. The
transfer of the Bercado Shores Apartments subject to the first mortgage in
satisfaction of the second mortgage will result in the deemed sale or exchange
of the Bercado Shores Apartments resulting in (i) taxable gain to the extent the
fair market value of the Bercado Shores Apartments plus the amount of the first
mortgage exceeds the tax basis of the Bercado Shores Apartments, and (ii)
cancellation of indebtedness income to the extent of the excess of the second
mortgage over the fair market value of the Bercado Shores Apartments. This
taxable gain described above will pass through to the limited partners, thereby
effectively resulting in the recapture of prior years depreciation deductions.
This will likely result in income tax liability to the limited partners without
any distributions of cash from the Partnership.
There were no distributions paid for the nine months ended September 30, 1999 or
1998. Future cash distributions will depend on the estimated levels of net cash
generated from the liquidation of the Partnership. However, based on the
Partnership's liabilities upon liquidation, it is unlikely that any such
distribution will be made.
Results from Operations
Prior to adopting the liquidation basis of accounting, the Partnership realized
net income of approximately $7,883,000 for the nine months ended September 30,
1999 compared with a net loss of approximately $558,000 for the corresponding
period in 1998. The increase in net income is primarily due to the effect of
the loss of the Partnership's 99% limited partnership interest in Brittany LP as
discussed above resulting in the recognition of an extraordinary gain on
conversion to minority interest of approximately $8,486,000 during the nine
months ended September 30, 1999.
The Partnership's net loss before extraordinary gain on conversion to minority
interest for the nine months ended September 30, 1999 was approximately $603,000
compared to approximately $558,000 for the corresponding period in 1998. The
Partnership recorded a net loss before extraordinary gain on conversion to
minority interest of approximately $193,000 for the three months ended September
30, 1999 compared to a net loss of approximately $189,000 for the corresponding
period in 1998. The increase in net loss for the nine months ended September
30, 1999 compared to the corresponding period in 1998 is primarily attributable
to an increase in total expenses partially offset by a slight increase in total
revenues. Total revenues and expenses for the three months ended September 30,
1999 compared to the corresponding period in 1998 remained relatively constant.
Total expenses increased primarily due to an increase in property tax expense
which is partially offset by a decrease in operating expense. During the second
quarter of 1998, Bercado Shores successfully appealed an increase in its
property tax assessment value. The property received a credit on its 1998
property tax bill, a portion of which related to the 1997 tax year. The full
amount of the credit was applied against property tax expense for the nine
months ended September 30, 1998 resulting in a lower than normal expense for
that period. The decrease in operating expense is partially attributable to a
decrease in tax service fees, which were paid in 1998 to defend the tax appeal
at Bercado Shores. Operating expense also decreased for the nine months ended
September 30, 1999 due to a decrease in salaries and related expenses at
Brittany Point and a decrease in insurance expense at both investment properties
due to a change in insurance carriers late in 1998. The increase in total
revenues for the nine months ended September 30, 1999 is due to an increase in
rental income. Rental income increased due to an increase in average annual
rental rates at both properties and an increase in occupancy at Brittany Point,
which more than offset the decline in occupancy at Bercado Shores.
Included in general and administrative expenses for both of the nine month
periods ended September 30, 1999 and 1998 are reimbursements to the General
Partner allowed under the Partnership Agreement associated with its management
of the Partnership. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Partnership from increases in expenses. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (inluding the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
General Partner filed a motion seeking dismissal of the action. In lieu of
responding to the motion, the plaintiffs have filed an amended complaint. The
General Partner filed demurrers to the amended complaint which were heard
February 1999. Pending the ruling on such demurrers, settlement negotiations
commenced. On November 2, 1999, the parties executed and filed a Stipulation of
Settlement ("Stipulation"), settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. The Court has preliminarily approved the Settlement and scheduled a
final approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
General Partner will make tender offers for all outstanding limited partnership
interests in 49 partnerships, excluding the Registrant, subject to the terms and
conditions set forth in the Stipulation, and has agreed to establish a reserve
to pay an additional amount in settlement to qualifying class members (the
"Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will
make an application for attorneys' fees and reimbursement of expenses, to be
paid in part by the partnerships and in part from the Settlement Fund. The
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS VIII LIMITED PARTNERSHIP
By: Angeles Realty Corporation
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners VIII 1999 Third Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000276779
<NAME> ANGELES PARTNERS VIII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 226
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,082
<DEPRECIATION> 3,876
<TOTAL-ASSETS> 1,672
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,637
0
0
<COMMON> 0
<OTHER-SE> (7,131)
<TOTAL-LIABILITY-AND-EQUITY> 1,672
<SALES> 0
<TOTAL-REVENUES> 2,981
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,439
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (603)
<DISCONTINUED> 0
<EXTRAORDINARY> 8,486
<CHANGES> 0
<NET-INCOME> 7,883
<EPS-BASIC> 0<F2>
<EPS-DILUTED> 655.41
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
