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 September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period.........to.........
Commission file number 0-8851
ANGELES PARTNERS VII
(Exact name of small business issuer as specified in its charter)
California 95-3215214
(State or other jurisdiction of (IRS 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 VII
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1998
Assets
Cash and cash equivalents $ 423
Receivables and deposits 83
Other assets 6
Investment property:
Land $ 366
Buildings and related personal property 5,395
5,761
Less accumulated depreciation (4,096) 1,665
$ 2,177
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 21
Tenant security deposit liabilities 32
Accrued property taxes 32
Other liabilities 41
Mortgage note payable 2,247
Partners' Capital (Deficit)
General partner $ 293
Limited partners (8,669 units issued and
outstanding) (489) (196)
$ 2,177
See Accompanying Notes to Financial Statements
b)
ANGELES PARTNERS VII
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 303 $ 298 $ 902 $ 872
Other income 19 18 56 48
Total revenues 322 316 958 920
Expenses:
Operating 146 140 408 402
General and administrative 19 23 81 54
Depreciation 68 70 205 205
Interest 52 54 157 165
Property taxes 10 10 32 31
Total expenses 295 297 883 857
Net income $ 27 $ 19 $ 75 $ 63
Net income allocated
to general partner (1%) $ -- $ -- $ 1 $ 1
Net income allocated
to limited partners (99%) 27 19 74 62
Net income $ 27 $ 19 $ 75 $ 63
Net income per limited
partnership unit $ 3.11 $ 2.19 $ 8.54 $ 7.15
Distributions per limited
partnership unit $ -- $ -- $ 15.11 $ --
See Accompanying Notes to Financial Statements
c) ANGELES PARTNERS VII
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 8,674 $ 88 $ 8,674 $ 8,762
Partners' capital (deficit)
at December 31, 1997 8,669 $ 293 $ (432) $ (139)
Distribution to partners -- (1) (131) (132)
Net income for the nine months
ended September 30, 1998 -- 1 74 75
Partners' capital (deficit)
at September 30, 1998 8,669 $ 293 $ (489) $ (196)
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
d)
ANGELES PARTNERS VII
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net income $ 75 $ 63
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 205 205
Change in accounts:
Receivables and deposits 4 22
Other assets 5 (10)
Accounts payable 2 1
Tenant security deposit liabilities 1 --
Accrued property taxes (8) (9)
Other liabilities 8 6
Net cash provided by
operating activities 292 278
Cash flows used in investing activities:
Property improvements and replacements (61) (64)
Cash flows used in financing activities:
Distributions to partners (132) --
Payments on mortgage note payable (92) (84)
Net cash used in financing activities (224) (84)
Net increase in cash and cash equivalents 7 130
Cash and cash equivalents at beginning of period 416 239
Cash and cash equivalents at end of period $ 423 $ 369
Supplemental disclosure of cash flow information:
Cash paid for interest $ 157 $ 165
See Accompanying Notes to Financial Statements
e)
ANGELES PARTNERS VII
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Angeles Partners VII (the
"Partnership") 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 Angeles Realty Corporation (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine
months ended September 30, 1998, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
Note B - Transactions with Affiliates
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. The Partnership Agreement (the
"Agreement") provides for payments to affiliates for services and as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following amounts were paid to the General Partner and
affiliates during the nine months ended September 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in $ 47 $ 45
operating expense)
Reimbursement for services of affiliates 37 34
(included in general and administrative
expense)
Partnership management fee (included in
general and administrative expense) (1) 22 --
(1) The Agreement provides for a fee equal to 7.5% of "net cash available for
distribution" to the limited partners (as defined in the Agreement) to be
paid to the General Partner for executive and administrative management
services.
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which receives payment on
these obligations from the agent. The amount of the Partnership's insurance
premiums that accrued to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
Note C - Distribution
An operating cash distribution of $132,000 ($15.11 per limited partnership unit)
was made during the nine months ended September 30, 1998. No cash distributions
were made during the nine months ended September 30, 1997.
Note D - Transfer of Control; Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the sole shareholder of the General Partner of the Partnership.
Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan
of Merger pursuant to which IPT is to be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of
the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to
vote all of the IPT Shares owned by it in favor of the IPT Merger and has
granted an irrevocable limited proxy to unaffiliated representatives of IPT to
vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT
Merger. As a result of AIMCO's ownership and its agreement, the vote of no
other holder of IPT is required to approve the merger. The General
Partner does not believe that this transaction will have a material effect on
the affairs and operations of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Cedarwood Apartments
Gretna, Louisiana 96% 97%
Results of Operations
The Partnership reported net income of approximately $27,000 and $75,000 for the
three and nine months ended September 30, 1998, respectively, as compared to
approximately $19,000 and $63,000 for the three and nine months ended September
30, 1997, respectively. The increase in net income is primarily attributed to
an increase in rental income. Rental income increased due to an increase in the
average rental rates at Cedarwood Apartments. An increase in other income also
contributed to the increase in net income for the year due to an increase in
interest income. Interest income increased due to higher average cash balances
for the nine months ended September 30, 1998 as compared to September 30, 1997.
Partially offsetting the increase in net income for the comparable nine month
periods was an increase in general and administrative expenses. General and
administrative expenses increased primarily due to the payment of a partnership
management fee of $22,000 in May 1998. The fee was paid for executive and
administrative management services and was equal to 7.5% of "net cash available
for distributions" pursuant to the Partnership Agreement.
Included in operating expense for the nine months ended September 30, 1998, is
$6,000 of major repairs and maintenance comprised mainly of major landscaping,
parking lot improvements and window coverings. Included in operating expense
for the nine months ended September 30, 1997, is $8,000 of major repairs and
maintenance comprised mainly of major landscaping, window coverings and swimming
pool repairs.
The General Partner continues to monitor the rental market environment at its
apartment property to assess the feasibility of increasing rents, to maintain or
increase the occupancy level and to protect the Partnership from increases in
expense. The General Partner expects to be able, at a minimum, to continue
protecting the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, rental concessions and rental rate reductions needed to offset
softening market conditions could affect the ability to sustain this plan.
Liquidity and Capital Resources
At September 30, 1998, the Partnership had cash and cash equivalents of
approximately $423,000 compared to approximately $369,000 for the nine months
ended September 30, 1997. The net increase in cash and cash equivalents for the
nine months ended September 30, 1998 and 1997 was $7,000 and $130,000,
respectively. Net cash provided by operating activities increased due to the
increase in net income as discussed above. Net cash used in investing
activities is a result of property improvements and replacements purchased
during 1998. Net cash used in financing activities increased due to an
operating distribution made in 1998.
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 property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with federal, state
and local legal and regulatory requirements. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The General Partner
is currently assessing the need for capital improvements at the Partnership's
sole property. To the extent that additional capital improvements are required,
the Partnership's distributable cash flow, if any, may be adversely effected at
least in the short term. The mortgage indebtedness of $2,247,000 is being
amortized over twenty-eight years with a maturity date of May 2007. The General
Partner will attempt to refinance such indebtedness or sell the property prior
to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing such property through
foreclosure. An operating cash distribution of $132,000 ($15.11 per limited
partnership unit) was made during the nine months ended September 30, 1998. No
cash distributions were made during the nine months ended September 30, 1997.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings, property sales and the availability of cash reserves.
The Partnership's distribution policy will be reviewed on a quarterly basis.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations to permit distributions to its partners in 1998
or subsequent periods.
Transfer of Control; Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the entity which controls the General Partner of the Partnership.
Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan
of Merger pursuant to which IPT is to be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of
the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to
vote all of the IPT Shares owned by it in favor of the IPT Merger and has
granted an irrevocable limited proxy to unaffiliated representatives of IPT
to vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the
IPT Merger. As a result of AIMCO's ownership and its agreement, the vote of no
other holder of IPT is required to approve the merger. The General Partner
does not believe that this transaction will have a material effect on the
affairs and operations of the Partnership.
Year 2000
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 to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any 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.
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 are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the General Partner was to the security systems,
elevators, heating-ventilation-air-conditioning systems, telephone systems and
switches, and sprinkler systems. The General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse affect upon
the operations of the Partnership.
RISK ASSOCIATED WITH THE YEAR 2000
The General Partner believes that the Managing Agent has an effective program in
place to resolve the Year 2000 issue in a timely manner and has appropriate
contingency plans in place for critical applications that could affect the
Partnership's operations. To date, the General Partner is not aware of any
external agent with a Year 2000 issue that would materially impact the
Partnership's results of operations, liquidity or capital resources. However,
the General Partner has no means of ensuring that external agents will be Year
2000 compliant. The General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution 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.
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 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership 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. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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 to acquire limited partnership units, the
management of partnerships by Insignia Affiliates as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. 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 recently filed an amended complaint. The General
Partner has filed demurrers to the amended complaint which are scheduled to be
heard on January 8, 1999. The General Partner believes the action to be without
merit, and intends to vigorously defend it.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such pending
or outstanding litigation will be resolved without a material adverse effect
upon the business, financial condition, or operations of the Partnership.
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, 1998.
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 VII
By: Angeles Realty Corporation
General Partner
By: /s/ Patrick Foye
Patrick Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Angeles Partners VII 1998 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000310303
<NAME> ANGELES PARTNERS VII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 423
<SECURITIES> 0
<RECEIVABLES> 83
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,761
<DEPRECIATION> 4,096
<TOTAL-ASSETS> 2,177
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,247
0
0
<COMMON> 0
<OTHER-SE> (196)
<TOTAL-LIABILITY-AND-EQUITY> 2,177
<SALES> 0
<TOTAL-REVENUES> 958
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> 8.54<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
