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
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period 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 (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza,
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 BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1999
Assets
Cash and cash equivalents $ 280
Receivables and deposits 536
Other assets 124
Investment properties:
Land $ 543
Buildings and related personal property 15,123
15,666
Less accumulated depreciation (11,302) 4,364
$ 5,304
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 75
Tenant security deposit liabilities 78
Accrued property taxes 540
Accrued interest 2,655
Other liabilities 55
Due to affiliates 349
Notes payable, $1,721 in default 16,587
Partners' Deficit
General partner $ (184)
Limited partners (11,855 units issued (14,851) (15,035)
and outstanding)
$ 5,304
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 928 $ 916
Other income 56 50
Total revenues 984 966
Expenses:
Operating 404 383
General and administrative 49 36
Depreciation 170 168
Interest 477 472
Property taxes 115 126
Total expenses 1,215 1,185
Net loss $ (231) $ (219)
Net loss allocated to general partner (1%) $ (2) $ (2)
Net loss allocated to limited partners (99%) (229) (217)
$ (231) $ (219)
Net loss per limited partnership unit $(19.47) $(18.29)
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
For the Three Months Ended March 31, 1999
(in thousands, except unit data)
Limited
Partnership General Limited
Units 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 loss for the three months
ended March 31, 1999 -- (2) (229) (231)
Partners' deficit at
March 31, 1999 11,759 $ (184) $ (14,851) $ (15,035)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS VIII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net loss $ (231) $ (219)
Adjustments to reconcile net loss to net
cash provided by operating activities:
cash provided by operating activities:
Depreciation 170 168
Amortization of loan costs 14 14
Change in accounts:
Receivables and deposits (133) (119)
Other assets (19) 10
Accounts payable 12 68
Tenant security deposit liabilities 3 4
Accrued property taxes 105 126
Accrued interest 138 119
Other liabilities 6 (7)
Due to affiliates 35 26
Net cash provided by operating activities 100 190
Cash flows from investing activities:
Property improvements and replacements (61) (72)
Net cash used in investing activities (61) (72)
Cash flows from financing activities:
Payments on notes payable (76) (68)
Net cash used in financing activities (76) (68)
Net (decrease) increase in cash and cash equivalents (37) 50
Cash and cash equivalents at beginning of period 317 328
Cash and cash equivalents at end of period $ 280 $ 378
Supplemental disclosure of cash flow information:
Cash paid for interest $ 326 $ 339
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS VIII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
NOTE A - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
Angeles Partners VIII (the "Partnership") will continue as a going concern. 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.
The Partnership incurred an operating loss of approximately $231,000 for the
three months ended March 31, 1999, and Angeles Realty Corporation (the "General
Partner") expects this trend to continue. The Partnership realized net cash
from operations of approximately $100,000; however, interest of approximately
$138,000 was accrued during the three months ended March 31, 1999 on a note
payable and on the second mortgage securing one of the Partnership's investment
properties.
The Partnership's second mortgage to Angeles Mortgage Investment Trust ("AMIT")
in the amount of approximately $3,372,000, including accrued interest of
approximately $2,022,000, which is secured by 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. This property remains subject to foreclosure under the terms
of the second mortgage agreement. 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"),
a publicly traded real estate investment trust. As a result, AIMCO is the
current holder of the AMIT debt. The Partnership has initiated discussions to
negotiate a work-out with AIMCO. AIMCO has indicated that it is reviewing its
options with respect to this second mortgage including, seeking to obtain a
deed-in-lieu of foreclosure with respect to Bercado Shores Apartments. To the
extent the second mortgage would be foreclosed upon or deeded to AIMCO pursuant
to a deed-in-lieu of foreclosure, the Partnership would remain liable for any
deficiency.
The Partnership's note payable of approximately $572,000, including accrued
interest of approximately $201,000, due to Angeles Acceptance Pool, L.P. ("AAP")
matured in November of 1997. The Partnership is currently in negotiations with
the lender and hopes to either extend this note or settle the liability at a
reduced amount.
There can be no assurance that these negotiations with the lenders will be
successful. If the Partnership is unable to successfully complete its
negotiations with either or both of the lenders, the Partnership will be
required to explore other alternatives, including filing for protection under
Chapter 11 of the Federal Bankruptcy Code, or it is likely that the
Partnership's properties will be lost through foreclosure. No other sources of
additional financing are apparent and the General Partner currently has not
developed alternative plans to remedy the liquidity problems the Partnership is
currently experiencing.
The General Partner anticipates that Brittany Point will generate sufficient
cash flows for the next twelve months to meet its operating expenses, debt
service requirements and to fund capital expenditures. The General Partner
anticipates that Bercado Shores will generate sufficient cash flows for the next
twelve months to cover its operating expenditures, however it is not expected to
be able to completely fund desired capital expenditures or to pay its scheduled
debt service on its second mortgage to AIMCO. The Partnership's plan is to fund
these items to the extent of available cash flow. The Partnership will fund its
administrative expenses for the next twelve months by using cash on hand at
March 31, 1999, and cash flow generated during 1999.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or amounts and
classification of liabilities that may result from this uncertainty.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1999, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interests in Brittany Point AP VIII, L.P. and Brittany Point GP,
L.P. The Partnership may remove the general partner of Brittany Point AP VIII,
L.P. and Brittany Point GP, L.P.; therefore, these partnerships are controlled
and consolidated by the Partnership. All significant interpartnership balances
have been eliminated.
NOTE C - 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 Apartment
Investment and Management Company, a publicly traded real estate investment
trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a
result, AIMCO acquired a 100% ownership interest of 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 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 payments were paid or accrued to the General Partner and its
affiliates during the three months ended March 31, 1999 and 1998, respectively:
1999 1998
(in thousands)
Property management fees, included in $52 $49
operating expenses
Reimbursement for services of affiliates,
included in operating and general and
administrative expenses 36 29
Included in "Reimbursements for services of affiliates" is approximately $3,000
in construction oversight costs for the three months ended March 31, 1998. No
such costs were incurred for the three months ended March 31, 1999.
During the three months ended March 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates $52,000 and $49,000 for the three months
ended March 31, 1999 and 1998, respectively.
Affiliates of the General Partner were entitled to or received reimbursements of
accountable administrative expenses amounting to approximately $36,000 and
$29,000 for the three months ended March 31, 1999 and 1998, respectively.
In June 1990, AMIT provided secondary financing on the Partnership's investment
properties. Total indebtedness was $2,920,386 at March 31, 1999, of which
$1,350,000 is in default at March 31, 1999 (see "Note A"). Total interest
expense related to this debt was approximately $189,000 and $170,000 for the
three years ended March 31, 1999 and 1998, respectively. Accrued interest
related to this debt was approximately $2,361,000 at March 31, 1999. As
discussed in "Note A", AIMCO is now the holder of the AMIT debt.
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 is 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 March 31, 1999 and is
in default due to non-payment upon maturity in November 1997 (see "Note A").
Interest is accruing monthly at prime plus 0.75% (9.25%, average rate at March
31, 1999). Total interest expense for this loan was approximately $7,000 and
$9,000 for each of the three months ended March 31, 1999 and 1998, respectively.
Total accrued interest for this loan was approximately $201,000 at March 31,
1999.
NOTE E - SEGMENT INFORMATION
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes
in Mishawaka, Indiana and Huntsville, Alabama. The Partnership rents apartment
units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those described in the
summary of significant accounting policies in the Partnership's annual report on
Form 10-KSB for the year ended December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the three months ended March 31, 1999 and 1998 (in
thousands) is shown in the tables below. The "Other" column includes
partnership administration related items and income and expense not allocated to
the reportable segment.
1999
Residential Other Totals
Rental income $ 928 $ -- $ 928
Other income 55 1 56
Interest expense 470 7 477
Depreciation 170 -- 170
General and administrative expense -- 49 49
Segment loss (176) (55) (231)
Total assets 5,129 175 5,304
Capital expenditures for investment
properties 61 -- 61
1998
Residential Other Totals
Rental income $ 916 $ -- $ 916
Other income 48 2 50
Interest expense 463 9 472
Depreciation 168 -- 168
General and administrative expense -- 36 36
Segment loss (176) (43) (219)
Total assets 5,249 276 5,525
Capital expenditures for investment
properties 72 -- 72
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 the time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates as well as a recently announced agreement
between Insignia and AIMCO. 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 filed an amended complaint. The
General Partner filed demurrers to the amended complaint which were heard during
February 1999. No ruling on such demurrers has been received. The General
Partner does not anticipate that costs associated with this case, if any, 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 Registrant from time to time.
The discussion 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
operation. 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 consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 1999 and 1998:
Average Occupancy
1999 1998
Bercado Shores Apartments
Mishawaka, Indiana 90% 93%
Brittany Point Apartments
Huntsville, Alabama 95% 91%
The increase in occupancy at Brittany Point Apartments is attributable to an
increase in concessions offered to attract new tenants.
Results of Operations
The Partnership realized a net loss of approximately $231,000 for the three
months ended March 31, 1999, compared to a net loss of approximately $219,000
for the three months ended March 31, 1998. The increase in net loss is the
result of an increase in total expenses, partially offset by an increase in
total revenues. Total revenues increased primarily due to an increase in rental
income. The increase in rental income is primarily attributable to an increase
in average annual rental rates at both of the Partnership's properties and an
increase in occupancy at Brittany Point.
Total expenses increased primarily due to increases in operating and general and
administrative expenses, which was partially offset by a decrease in property
taxes. The increase in operating expense is primarily attributable to increases
in advertising and contract services at Brittainy Point and increases in
utilities and salaries and related expenses at Bercado Shores. In addition,
maintenance expense increased at Bercado Shores due to repair expenses exceeding
insurance proceeds relating to a windstorm, which occurred in the fourth quarter
of 1998. These increases in expenses were partially offset by a decrease in tax
service fees, which were paid in 1998 to defend a tax appeal at Bercado Shores.
The increase in general and administrative expense is primarily due to an
increase in reimbursement for services of affiliates and legal expense.
Property taxes decreased due to the successful appeal of tax rates at Bercado
Shores in 1998.
Included in general and administrative expenses for each of the three month
periods ended March 31, 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 each of its investment properties 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.
Liquidity and Capital Resources
At March 31, 1999, the Partnership had cash and cash equivalents of
approximately $280,000 as compared to approximately $378,000 at March 31, 1998.
Cash and cash equivalents decreased approximately $37,000 for the period ended
March 31, 1999, from the Registrant's fiscal year end and is primarily due to
$76,000 of cash used in financing activities and $61,000 of cash used in
investing activities, which was partially offset by $100,000 of cash provided by
operating activities (of which $138,000 represents accrued interest owed on
notes payable). Cash used in financing activities consisted of principal
payments made on mortgages encumbering the Partnership's properties. Cash used
in investing activities consisted of property improvements and replacements for
both of the Partnership's properties. The Partnership invests its working
capital reserves in money market accounts.
With respect to the Partnership's two apartment complexes, the sufficiency of
existing liquid assets to meet future liquidity and capital expenditure
requirements is directly related to the level of capital expenditures required
at the properties to adequately maintain the physical assets and other operating
needs of the Registrant and to comply with Federal, state, and local legal and
regulatory requirements. The General Partner anticipates that Brittany Point
will generate sufficient cash flows for the next twelve months to meet its
operating expenses, debt service requirements and to fund capital expenditures.
The General Partner anticipates that Bercado Shores will generate sufficient
cash flows for the next twelve months to cover its operating expenditures,
however it is not expected to be able to completely fund desired capital
expenditures or to pay its scheduled debt service on its second mortgage to
AIMCO. The Partnership's plan is to fund these items to the extent of available
cash flow. The Partnership will fund its administrative expenses for the next
twelve months by using cash on hand at March 31, 1999, and cash flow generated
during 1999. Capital improvements planned for each of the Registrant's
properties are detailed below.
Bercado Shores Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
General Partner on interior improvements, it is estimated that the property
requires approximately $1,404,000 of capital improvements over the near term.
Complete capital improvements planned for 1999 have yet to be determined. As of
March 31, 1999, the Partnership has started approximately $28,000 of capital
improvements at the property, consisting primarily of appliance and flooring
replacements. These improvements were funded from operating cash flow.
Brittany Point Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
General Partner on interior improvements, it is estimated that the property
requires approximately $301,000 of capital improvements over the near term.
Capital improvements planned for 1999 include, but are not limited to, carpet
and vinyl replacement, landscaping and parking lot upgrades, recreational
facility enhancements, roof replacement, and structural improvements. Such
improvements are expected to cost approximately $366,000. As of March 31, 1999,
the Partnership completed approximately $33,000 of capital improvements at the
property, consisting primarily of flooring, appliance and heating unit
replacements. These improvements were funded from operating cash flow.
The additional capital improvements planned for 1999 at the Partnership's
properties will be made only to the extent of cash available from operations and
Partnership reserves.
With respect to the Partnership as a whole the sufficiency of existing liquid
assets to meet future debt requirements is directly related to the level of
recourse and non-recourse debt at the Partnership level. The Partnership's
second mortgage to Angeles Mortgage Investment Trust ("AMIT") in the amount of
$1,350,000 plus accrued interest, which is secured by 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. This property remains subject to foreclosure under the terms
of the second mortgage agreement. 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, a publicly traded real estate investment trust.
As a result, AIMCO is the current holder of the AMIT note. The Partnership has
initiated discussions to negotiate a work-out with AIMCO. AIMCO has indicated
that it is reviewing its options with respect to this second mortgage including,
seeking to obtain a deed-in-lieu of foreclosure with respect to Bercado Shores
Apartments. To the extent the second mortgage would be foreclosed upon or
deeded to AIMCO pursuant to a deed-in-lieu of foreclosure, the Partnership would
remain liable for any deficiency.
The Partnership's note payable of approximately $572,000, including accrued
interest of approximately $201,000, due to Angeles Acceptance Pool, L.P. ("AAP")
matured in November of 1997. The Partnership is currently in negotiations with
the lender and hopes to either extend this note or settle the liability at a
reduced amount.
There can be no assurance that these negotiations with the lenders will be
successful. If the Partnership is unable to successfully complete its
negotiations with either or both of the lenders, the Partnership will be
required to explore other alternatives, including the filing for protection
under Chapter 11 of the Federal Bankruptcy Code, or it is likely that the
Partnership's properties will be lost through foreclosure. No other sources of
additional financing are apparent and the General Partner currently has not
developed alternative plans to remedy the liquidity problems the Partnership is
currently experiencing. As a result of the above, there is substantial doubt
about the Partnership's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or amounts and
classifications of liabilities that may result from these uncertainties.
There were no distributions paid for the three months ended March 31, 1999 or
1998. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. The Registrant's distribution
policy will be reviewed on a quarterly basis. However, based on the current
financial condition and the default on the AMIT mortgage and the AAP note, it is
unlikely that a distribution will be made by the Registrant in the foreseeable
future.
Potential Tender Offer
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the General Partner. AIMCO and its affiliates
currently own 0.204% of the limited partnership interests in the Partnership.
AIMCO is presently considering whether it will engage in an exchange offer for
additional limited partnership interests in the Partnership. There is a
substantial likelihood that, within a short period of time, AIMCO OP will offer
to acquire additional limited partnership interests in the Partnership for cash
or preferred units or common units of limited partnership interests in AIMCO OP.
While such an exchange offer is possible, no definite plans exist as to when or
whether to commence such an exchange offer, or as to the terms of any such
exchange offer, and it is possible that none will occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, 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
March 31, 1999, had completed approximately 75% of 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. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
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.
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 the testing process is
expected to be completed by July 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
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 continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
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 $2.8 million ($0.6 million expensed
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 (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at the time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates as well as a recently announced agreement
between Insignia and AIMCO. 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 filed an amended complaint. The
General Partner filed demurrers to the amended complaint which were heard during
February 1999. No ruling on such demurrers has been received. The General
Partner does not anticipate that costs associated with this case, if any, 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 March 31, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
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/ Carla R. Stoner
Carla R. Stoner
Senior Vice President - Finance
and Administration
Date: May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this schedule contains summary financial information extracted from Angeles
Partners VIII 1999 First Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000276779
<NAME> ANGELES PARTNERS VII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 280
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,666
<DEPRECIATION> (11,302)
<TOTAL-ASSETS> 5,304
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 16,587
0
0
<COMMON> 0
<OTHER-SE> (15,035)
<TOTAL-LIABILITY-AND-EQUITY> 5,304
<SALES> 0
<TOTAL-REVENUES> 984
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231)
<EPS-PRIMARY> (19.47)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
