FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-9704
ANGELES PARTNERS IX
(Exact name of small business issuer as specified in its charter)
California 95-3417137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the 12 months (or for such shorter period
that the Partnership 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)
September 30, 1999
Assets
Cash and cash equivalents $ 1,688
Receivables and deposits 538
Restricted escrows 208
Other assets 459
Investment properties:
Land $ 3,083
Buildings and related personal property 35,385
38,468
Less accumulated depreciation (25,977) 12,491
$ 15,384
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 125
Tenant security deposit liabilities 121
Accrued property taxes 397
Other liabilities 235
Mortgage notes payable 19,358
Partners' Deficit
General partner $ (224)
Limited partners (19,975 units issued and
outstanding) (4,628) (4,852)
$ 15,384
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,910 $ 1,830 $ 5,701 $ 5,383
Other income 142 91 310 263
Total revenues 2,052 1,921 6,011 5,646
Expenses:
Operating 901 1,051 2,628 3,101
General and administrative 88 76 247 226
Depreciation 490 476 1,410 1,390
Interest 421 430 1,277 1,296
Property taxes 117 106 366 323
Total expenses 2,017 2,139 5,928 6,336
Net income (loss) $ 35 $ (218) $ 83 $ (690)
Net income (loss) allocated
to general partner (1%) $ -- $ (2) $ 1 $ (7)
Net income (loss) allocated
to limited partners (99%) 35 (216) 82 (683)
$ 35 $ (218) $ 83 $ (690)
Net income (loss) per limited
partnership unit $ 1.75 $(10.81) $ 4.11 $(34.19)
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 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 nine months
ended September 30, 1999 -- 1 82 83
Partners' deficit
at September 30, 1999 19,975 $ (224) $ (4,628) $ (4,852)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 83 $ (690)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,410 1,390
Amortization of loan costs and discounts 70 83
Change in accounts:
Receivables and deposits (37) (146)
Other assets (101) 33
Accounts payable (15) (185)
Tenant security deposit liabilities 7 (4)
Accrued property taxes 114 144
Other liabilities 34 (41)
Net cash provided by operating activities 1,565 584
Cash flows used in investing activities:
Property improvements and replacements (741) (543)
Net withdrawals from restricted escrows 262 162
Net cash used in investing activities (479) (381)
Cash flows used in financing activities:
Payments on mortgage notes payable (197) (182)
Net increase in cash and cash equivalents 889 21
Cash and cash equivalents at beginning of period 799 683
Cash and cash equivalents at end of period $1,688 $ 704
Supplemental disclosure of cash flow information:
Cash paid for interest $1,198 $ 1,212
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 and
nine months ended September 30, 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.
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,
Ltd.; therefore, the partnership is controlled and consolidated by the
Partnership. All significant interpartnership balances have been eliminated.
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 - 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 certain 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 nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $302 $285
Reimbursement of services of affiliates
(included in investment properties, operating
expenses and general and administrative expenses) 169 212
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $302,000 and $285,000 for the
nine months ended September 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $169,000 and $212,000 for the
nine months ended September 30, 1999 and 1998, respectively. Included in these
expenses for both the nine months ended September 30, 1999 and 1998,
respectively, is approximately $36,000 and $49,000 for construction oversight
reimbursements.
On April 13, 1998, an affiliate of the General Partner ("the Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 8,300 of the outstanding units of
limited partnership interest (approximately 41.55% of the total outstanding
units) in the Partnership at a purchase price of $325 per Unit, net to the
seller in cash. On May 11, 1998, the tender offer was closed, and the Purchaser
acquired 2,572 units (approximately 12.88% of the total outstanding units).
On August 12, 1998, another affiliate of the General Partner (the "Second
Purchaser") commenced a second tender offer for limited partnership interests in
the Partnership. The Second Purchaser offered to purchase up to 5,000 of the
outstanding units of limited partnership interest (approximately 25.03% of the
total outstanding units) in the Partnership at a purchase price of $330 per
Unit, net to the seller in cash. During the fourth quarter of 1998, the second
Purchaser closed the tender offer and acquired 1,360 units (approximately 6.81%
of the total outstanding units).
On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 6,303.27 units of limited partnership
interest (approximately 31.56% of the total outstanding units) in the
Partnership for a purchase price of $356 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As
a result, AIMCO and its affiliates currently own 6,793 units of limited
partnership interest in the Partnership representing approximately 34.01% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO (See Note E - Legal Proceedings).
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenue:
The Partnership has one reportable segment: residential property. The
Partnership's residential property segment consists of five apartment complexes
located in Texas (2) and Alabama (3). 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 of the Partnership as
described 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 nine months ended September 30, 1999 and 1998, 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
(in thousands)
Rental income $ 5,701 $ -- $ 5,701
Other income 300 10 310
Interest expense 1,277 -- 1,277
Depreciation 1,410 -- 1,410
General and administrative expense -- 247 247
Segment income (loss) 320 (237) 83
Total assets 15,080 304 15,384
Capital expenditures for
investment properties 741 -- 741
1998 Residential Other Totals
(in thousands)
Rental income $ 5,383 $ -- $ 5,383
Other income 244 19 263
Interest expense 1,296 -- 1,296
Depreciation 1,390 -- 1,390
General and administrative expense -- 226 226
Segment loss (483) (207) (690)
Total assets 14,961 583 15,544
Capital expenditures for
investment properties 543 -- 543
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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The complaint seeks monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June
25, 1998, the General Partner filed a motion seeking dismissal of the action.
In lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The General Partner filed demurrers to the amended complaint which
were heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement ("Stipulation"), settling claims, subject to final
court approval, on behalf of the Partnership and all limited partners who own
units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the General Partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussions of the Registrant's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Registrant's business and results
of operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of five apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Pines of Northwest Crossing Apartments 97% 95%
Houston, Texas
Panorama Terrace Apartments 96% 91%
Birmingham, Alabama
Forest River Apartments 96% 93%
Gadsden, Alabama
Village Green Apartments 96% 93%
Montgomery, Alabama
Rosemont Crossing Apartments 92% 88%
San Antonio, Texas
The General Partner attributes the increase in occupancy at Panorama Terrace
Apartments, Forest River Apartments, Rosemont Crossing Apartments, and Village
Green Apartments to management's aggressive marketing campaigns to attract new
tenants.
Results of Operations
The Partnership realized net income of approximately $35,000 and $83,000 for the
three and nine months ended September 30, 1999 as compared to net losses of
approximately $218,000 and $690,000 for the three and nine months ended
September 30, 1998. The increase in net income for the three and nine months
ended September 30, 1999 was due primarily to an increase in total revenues and
a decrease in total expenses. Total revenues increased primarily due to an
increase in rental income and, to a lesser extent, an increase in other income.
The increase in rental income is primarily due to an increase in average
occupancy at all five of the Partnership's investment properties and an increase
in average annual rental rates at Rosemont Crossing, Pines of Northwest Crossing
and the Village Green Apartments. Other income increased due to the receipt of
approximately $35,000 in insurance proceeds at Forest River Apartments from a
prior years claim which had previously been uncollectible.
Total expenses decreased primarily due to a decrease in operating expenses and,
to a lesser extent, a slight decrease in interest expense. Operating expenses
decreased primarily due to a decrease in maintenance expense and, to a lesser
extent, a decrease in insurance expense and property expense. Maintenance
expense decreased primarily due to the completion of exterior building
renovation projects at Pines of Northwest Crossing and Village Green Apartments
which were completed in 1998. Panorama Terrace and Forest River Apartments also
completed major landscaping projects during 1998. The exterior building repairs
and landscaping projects were necessary to improve the appearance of the
properties in order to remain competitive in the market areas. The decrease in
insurance expense is due to a change in the Partnership's insurance carrier late
in 1998 which resulted in lower premiums for all five of the Partnership's
properties. Interest expense decreased as a result of the reduction in the
principal balances of the mortgages through scheduled debt payments. The
decrease in total expenses was partially offset by slight increases in property
tax, depreciation, and general and administrative expenses. Property tax
expense increased due to an increase in the property values of the Panorama
Terrace and Village Green Apartments. In addition, property tax expense at
Forest River Apartments was underaccrued in 1998 and the additional tax expense
was recorded in 1999. The increase in depreciation expense resulted from an
increase in capital improvements performed at all the investment properties
during the past two years to improve the appearance of the Partnership's
investment properties.
General and administrative expense increased primarily as a result of an
increase in legal costs, which include the Partnership's portion of settlement
costs paid in 1999 related to legal issues disclosed in the Partnership's annual
report on Form 10-KSB for the year ended December 31, 1998. Included in general
and administrative expense for the nine months ended September 30, 1999 and 1998
are management reimbursements to the General Partner allowed under the
Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment 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 September 30, 1999, the Partnership had cash and cash equivalents of
approximately $1,688,000 as compared to approximately $704,000 at September 30,
1998. Cash and cash equivalents increased approximately $889,000 for the nine
months ended September 30, 1999 from the Partnership's year end, primarily due
to approximately $1,565,000 of cash provided by operating activities, which was
partially offset by approximately $479,000 of cash used in investing activities
and approximately $197,000 of cash used in financing activities. Cash used in
investing activities consisted of property improvements and replacements, which
was 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 Registrant'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.
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 next few years. Capital improvements
planned for 1999, which include certain of the required improvements and consist
of carpet and vinyl replacement, landscaping, parking lot improvement, air
conditioning units and roof replacements. These improvements are budgeted for,
but not limited to, approximately $432,000 for 1999. As of September 30, 1999
approximately $296,000 has been incurred consisting primarily of floor covering
replacements, parking lot improvements, roof replacements, appliances and air
conditioning unit replacements. The air conditioning replacements are
substantially complete as of the nine months ended September 30, 1999. These
improvements were funded from replacement reserves and operating cash flows.
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 next few years. Capital improvements
planned for 1999 which includes certain of the required improvements and consist
of carpet and vinyl replacement, landscaping, parking lot improvements, roof
replacement and other structural improvements. These improvements are budgeted
for, but not limited to, approximately $527,000 for 1999. As of September 30,
1999 approximately $38,000 has been incurred consisting primarily of floor
covering replacements. These improvements were funded from operating cash flow.
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 next few years. Capital improvements
planned for 1999 which include certain of the required improvements and 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 for 1999. As of September 30, 1999 approximately
$80,000 has been incurred consisting primarily of appliance and floor covering
replacements and other building improvements. These improvements were funded
from operating cash flow and replacement reserves.
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 next few years. Capital improvements
planned for 1999 which includes certain of the required improvements and consist
of carpet and vinyl replacement, landscaping, perimeter fencing, and appliances.
These improvements are budgeted for, but not limited to, approximately $191,000
for 1999. As of September 30, 1999 approximately $85,000 has been incurred
consisting primarily of floor covering replacements. These improvements were
funded from replacement reserves.
Rosemont Crossing Apartment
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 next few years. Capital improvements
planned for 1999 which include certain of the required improvements and consist
of carpet and vinyl replacement. These improvements are budgeted for, but not
limited to, approximately $60,000 for 1999. During 1999 it was determined that
additional work needed to be performed at the property during the current year
and accordingly an additional $580,000 was added to budgeted improvements for
the year. As of September 30, 1999 approximately $242,000 has been incurred
consisting primarily of structural repairs and floor covering replacement.
These improvements were funded from operating cash flows and replacement
reserves.
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 $19,358,000, net of discounts, is amortized over
periods ranging from approximately twenty-nine to thirty 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 dates. 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 nine months ended
September 30, 1999 and 1998. The Partnership's distribution policy is reviewed
on an annual basis. Future cash distributions will depend on the levels of net
cash generated from operations, availability of cash reserves, and the timing of
the debt maturities, property sales and/or refinancings. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after required capital improvement expenditures, to permit
distributions to its partners in 1999 or subsequent periods.
Tender Offer
On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 6,303.27 units of limited partnership
interest (approximately 31.56% of the total outstanding units) in the
Partnership for a purchase price of $356 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As
a result, AIMCO and its affiliates currently own 6,793 units of limited
partnership interest in the Partnership representing approximately 34.01% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. (See "Item 1. Financial Statements, Note E - Legal
Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I _ Financial Information, Item 1. Financial Statements, Note B _ Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
General Partner filed a motion seeking dismissal of the action. In lieu of
responding to the motion, the plaintiffs have filed an amended complaint. The
General Partner filed demurrers to the amended complaint which were heard
February 1999. Pending the ruling on such demurrers, settlement negotiations
commenced. On November 2, 1999, the parties executed and filed a Stipulation of
Settlement ("Stipulation"), settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. The Court has preliminarily approved the Settlement and scheduled a
final approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
General Partner will make tender offers for all outstanding limited partnership
interests in 49 partnerships, including the Registrant, subject to the terms and
conditions set forth in the Stipulation, and has agreed to establish a reserve
to pay an additional amount in settlement to qualifying class members (the
"Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will
make an application for attorneys' fees and reimbursement of expenses, to be
paid in part by the partnerships and in part from the Settlement Fund.
The General Partner does not anticipate that costs associated with this case
will be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS IX
By: Angeles Realty Corporation
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners IX 1999 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,688
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 38,468
<DEPRECIATION> 25,977
<TOTAL-ASSETS> 15,384
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 19,358
0
0
<COMMON> 0
<OTHER-SE> (4,852)
<TOTAL-LIABILITY-AND-EQUITY> 15,384
<SALES> 0
<TOTAL-REVENUES> 6,011
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,277
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-BASIC> 4.11<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
