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 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 0-9704
ANGELES PARTNERS IX
(Exact name of small business issuer as specified in its charter)
California 95-3417137
(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 IX
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1999
Assets
Cash and cash equivalents $ 1,133
Receivables and deposits 381
Restricted escrows 382
Other assets 507
Investment properties:
Land $ 3,083
Buildings and related personal property 34,751
37,834
Less accumulated depreciation (25,095) 12,739
$15,142
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 89
Tenant security deposit liabilities 117
Accrued property taxes 179
Other liabilities 208
Mortgage notes payable 19,483
Partners' Deficit
General partner's $ (225)
Limited partners' (19,975 units issued
and outstanding) (4,709) (4,934)
$15,142
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 1,886 $ 1,761
Other income 81 85
Total revenues 1,967 1,846
Expenses:
Operating 781 955
General and administrative 83 69
Depreciation 528 459
Interest 426 434
Property taxes 148 108
Total expenses 1,966 2,025
Net income (loss) $ 1 $ (179)
Net income (loss) allocated to general partner (1%) $ -- $ (2)
Net income (loss) allocated to limited partners (99%) 1 (177)
$ 1 $ (179)
Net income (loss) per limited partnership unit $ .05 $ (8.86)
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 20,000 $ 1 $20,000 $20,001
Partners' deficit at
December 31, 1998 19,975 $(225) $(4,710) $(4,935)
Net income for the three months
ended March 31, 1999 -- -- 1 1
Partners' deficit at
March 31, 1999 19,975 $(225) $(4,709) $(4,934)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 1 $ (179)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 528 459
Amortization of mortgage discounts and loan costs 25 28
Change in accounts:
Receivables and deposits 120 56
Other assets (112) 35
Accounts payable (51) (172)
Tenant security deposit liabilities 3 (3)
Accrued property taxes (104) (71)
Other liabilities 7 (23)
Net cash provided by operating activities 417 130
Cash flows from investing activities:
Property improvements and replacements (107) (132)
Net withdrawals from restricted escrows 88 224
Net cash (used in) provided by investing
activities (19) 92
Cash flows used in financing activities:
Payments on mortgage notes payable (64) (60)
Net increase in cash and cash equivalents 334 162
Cash and cash equivalents at beginning of period 799 683
Cash and cash equivalents at end of period $1,133 $ 845
Supplemental disclosure of cash flow information:
Cash paid for interest $ 401 $ 405
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES PARTNERS IX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Partners
IX (the "Partnership" or "Registrant") 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" or "ARC"),
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 fiscal year ending 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
fiscal year ended December 31, 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interest in Houston Pines, Ltd. Houston Pines Ltd. owns the Pines
of Northwest Crossing Apartments, Forest River Apartments and Rosemont Crossing
Apartments. The Partnership may remove the general partner of Houston Pines;
therefore, the partnership is controlled and consolidated by the Partnership.
All significant interpartnership balances have been eliminated. Minority
interest is immaterial and not shown separately in the consolidated financial
statements.
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. ("Insignia") and Insignia
Properties Trust merged 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, 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 - TRANSACTION 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 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/or its affiliates for
the three months ended March 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 99 $ 93
Reimbursement of services of affiliates, (included in
operating expenses and general and administrative expenses) (1) 55 59
(1) Included in "Reimbursement for services of affiliates" is approximately
$7,000 for construction oversight reimbursements in the three months ended
March 31, 1998. There were no construction oversight reimbursements 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 Registrant's
properties for providing property management services. The Registrant paid to
such affiliates approximately $99,000 and $93,000 for the three months ended
March 31, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $55,000 and $59,000 for the
three months ended March 31, 1999 and 1998, respectively.
NOTE D - SEGMENT INFORMATION
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of five apartment complexes
in Texas and Alabama. The Partnership rents apartment units to tenants for terms
that are typically twelve months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's annual report on Form 10-KSB for the fiscal year
ended December 31, 1998.
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 is shown
in the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 1,886 $ -- $ 1,886
Other income 77 4 81
Interest expense 426 -- 426
Depreciation 528 -- 528
General and administrative expense -- 83 83
Segment income (loss) 80 (79) 1
Total assets 14,683 459 15,142
Capital expenditures for investment
properties 107 -- 107
1998
Residential Other Totals
Rental income $ 1,761 $ -- $ 1,761
Other income 79 6 85
Interest expense 434 -- 434
Depreciation 459 -- 459
General and administrative expense -- 69 69
Segment loss (116) (63) (179)
Total assets 15,386 598 15,984
Capital expenditures for investment
properties 132 -- 132
NOTE E - 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 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 has 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's net income.
In July 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles
Partners IX, et al. The complaint claims that the Partnership and an affiliate
of the General Partner breached certain contractual and fiduciary duties
allegedly owed to the claimant and seeks damages and injunctive relief. This
case settled on April 9, 1999. The Partnership is responsible for a portion of
the settlement costs. The expense will not have a material effect on 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 OPERATIONS
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
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 consist of five 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
Property 1999 1998
Pines of Northwest Crossing Apartments 97% 94%
Houston, Texas
Panorama Terrace Apartments 97% 89%
Birmingham, Alabama
Forest River Apartments 95% 93%
Gadsden, Alabama
Village Green Apartments 96% 93%
Montgomery, Alabama
Rosemont Crossing Apartments 93% 87%
San Antonio, Texas
The General Partner attributes the increase in occupancy at The Pines of
Northwest Crossing Apartments to the exterior building improvements made during
1998, which increased curb appeal. The increased occupancy at Panorama Terrace
Apartments, Rosemont Crossing Apartments and Village Green Apartments is
attributed to management's aggressive marketing campaigns to attract new
tenants.
RESULTS OF OPERATIONS
The Partnership's net income for the three months ended March 31, 1999 was
approximately $1,000 as compared to a net loss of approximately $179,000 for the
three months ended March 31, 1998. The increase in net income is primarily due
to an increase in total revenues and to a lesser extent a decrease in total
expenses. The increase in total revenues is primarily due to an increase in
rental income. The increase in rental income is primarily due to increases in
average rental rates at The Pines of Northwest Crossing Apartments, Forest River
Apartments, Village Green Apartments and Rosemont Crossing Apartments and
increases in average occupancy at all of the Partnership's investment
properties.
Total expenses decreased due primarily to a reduction in operating expenses,
which was partially offset by an increase in general and administrative
expenses, depreciation expense and property taxes. The decrease in operating
expenses is primarily due to a decrease in hazard insurance expense and
maintenance expenses. Hazard insurance expense decreased due to new hazard
insurance policies implemented at all five of the Partnership's investment
properties. Maintenance expense decreases are attributed to expenses being
reimbursed by insurance proceeds at The Pines of Northwest Crossing Apartments
due to a theft and from Panorama Terrace Apartments due to fire damage. In
addition, there was an exterior renovation project at The Pines of Northwest
Crossing Apartments which was completed during 1998. These repairs were
necessary to improve the appearance of the property in order to remain
competitive in the market area. Property taxes increased due to an increase in
property value at Panorama Terrace Apartments. In addition, property tax
expense at Forest River Apartments was underaccrued in 1998 and the additional
1998 expense was recorded during the three months ended March 31, 1999. The
increase in depreciation expense is primarily attributable to the capital
improvements completed during 1998 at all five of the Partnership's investment
properties.
The increase in general and administrative expense is primarily attributable to
legal expenses related to the settlement of the Everest lawsuit which was
discussed in the Partnership's annual report on Form 10-KSB for fiscal year
ended December 31, 1998. Included in general and administrative expenses at both
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 communications with investors and
regulatory agencies required by the Partnership Agreement are 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.
CAPITAL RESOURCES AND LIQUIDITY
At March 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,133,000 as compared to approximately $845,000 at March 31,
1998. Cash and cash equivalents increased approximately $334,000 for the three
months ended March 31, 1999 from the Partnership's year end, primarily due to
approximately $417,000 of cash provided by operating activities, which was
partially offset by approximately $19,000 of cash used in investing activities
and approximately $64,000 of cash used in financing activities. Cash used in
investing activities consisted of property improvements and replacements,
partially offset by withdrawals from escrow accounts maintained by the mortgage
lender. Cash used in financing activities consisted of payments of principal
made on the mortgages encumbering the Partnership's properties. The Partnership
invests its working capital reserves in money market accounts.
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 various properties 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. Capital
improvements planned for each of the Partnership's properties are detailed
below.
The Pines of Northwest Crossing Apartments
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
$304,000 of capital improvements over the near term. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, parking
lot repairs, exterior painting, air conditioning units and roof replacement.
These improvements are budgeted for, but not limited to, approximately $432,000.
As of March 31, 1999 approximately $48,000 has been incurred consisting
primarily of appliance and flooring replacements, air conditioning units and
other building improvements.
Panorama Terrace Apartments
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
$511,000 of capital improvements over the near term. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, parking
lot repairs, roof replacement and other structural repairs. These improvements
are budgeted for, but not limited to, approximately $527,000. As of March 31,
1999 approximately $10,000 has been incurred consisting primarily of appliance
and flooring replacements.
Forest River Apartments
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
$235,000 of capital improvements over the near term. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, roof
replacement and other structural improvements. These improvements are budgeted
for, but not limited to, approximately $209,000. As of March 31, 1999
approximately $18,000 has been incurred consisting primarily of appliance and
flooring replacements.
Village Green Apartments
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
$101,000 of capital improvements over the near term. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, perimeter
fencing, and appliances. These improvements are budgeted for, but not limited
to, approximately $191,000. As of March 31, 1999 approximately $16,000 has been
incurred consisting primarily of appliance and flooring replacements.
Rosemont Crossing Apartments
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
$677,000 of capital improvements over the near term. Capital improvements
planned for 1999 consist primarily of carpet and vinyl replacement. These
improvements are budgeted for, but not limited to, approximately $60,000. As of
March 31, 1999 approximately $15,000 has been incurred consisting primarily of
appliance and flooring replacements.
The additional capital expenditures will be incurred only if cash is available
from operations or from partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $19,483,000, net of discounts, is amortized over
periods ranging from approximately 29 to 30 years with balloon payments due in
2002 and 2003. The General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity date. If the properties cannot
be refinanced or sold for a sufficient amount, the Partnership may risk losing
such properties through foreclosure.
No cash distributions were paid to the partners during the three months ended
March 31, 1999 and 1998, respectively. Future cash distributions will depend on
the levels of net cash generated from operations, timing of debt maturities,
property sales, refinancings 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 after required capital improvements to permit
distributions to its partners in 1999 or subsequent periods.
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 30.078% 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 limited partnership interests in the Partnership for cash or
preferred units or common units of limited partnerships 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-QSB 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 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 has 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's net income.
In July 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles
Partners IX, et al. The complaint claims that the Partnership and an affiliate
of the General Partner breached certain contractual and fiduciary duties
allegedly owed to the claimant and seeks damages and injunctive relief. This
case settled on April 9, 1999. The Partnership is responsible for a portion of
the settlement costs. The expense will not have a material effect on 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) No reports on Form 8-K were filed during the three months ended
March 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS IX
By: Angeles Realty Corporation
General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners IX 1999 First Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000313499
<NAME> ANGELES PARTNERS IX
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,133
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 37,834
<DEPRECIATION> 25,095
<TOTAL-ASSETS> 15,142
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 19,483
0
0
<COMMON> 0
<OTHER-SE> (4,934)
<TOTAL-LIABILITY-AND-EQUITY> 15,142
<SALES> 0
<TOTAL-REVENUES> 1,967
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 426
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1
<EPS-PRIMARY> .05<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
