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 June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-11766
ANGELES PARTNERS XI
(Exact name of small business issuer as specified in its charter)
California 95-3788040
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office 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 XI
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 2,130
Receivables and deposits 1,051
Other assets 339
Investment in joint venture 163
Investment property:
Land $ 3,998
Buildings and related personal property 26,052
30,050
Less accumulated depreciation (19,406) 10,644
$ 14,327
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 198
Tenant security deposit liabilities 575
Other liabilities 445
Mortgage notes payable 30,233
Partners' Deficit
General partners $ (487)
Limited partners (39,627 units issued and outstanding) (16,637) (17,124)
$ 14,327
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,908 $ 1,792 $ 3,794 $ 3,553
Other income 94 95 181 185
Casualty gain -- 346 -- 346
Total revenues 2,002 2,233 3,975 4,084
Expenses:
Operating 617 715 1,110 1,182
General and administrative 48 53 103 97
Depreciation 366 374 744 748
Interest 716 727 1,443 1,454
Property taxes 202 201 377 402
Total expenses 1,949 2,070 3,777 3,883
Income before equity in income and
extraordinary loss on debt
extinguishment of joint venture 53 163 198 201
Equity in income of joint venture (Note D) 76 73 1,220 26
Income before equity in extraordinary
loss on debt extinguishment of joint
venture 129 236 1,418 227
Equity in extraordinary loss on debt
extinguishment (Note D) -- -- (3) --
Net income $ 129 $ 236 $ 1,415 $ 227
Net income allocated to general partners
(1%) $ 1 $ 2 $ 14 $ 2
Net income allocated to limited partners
(99%) 128 234 1,401 225
$ 129 $ 236 $ 1,415 $ 227
Net income per limited partnership unit:
Income before equity in extraordinary
loss on debt extinguishment of joint
venture $ 3.23 $ 5.90 $ 35.43 $ 5.68
Extraordinary loss -- -- (.08) --
$ 3.23 $ 5.90 $ 35.35 $ 5.68
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030
Partners' deficit at
December 31, 1998 39,627 $ (501) $(18,038) $(18,539)
Net income for the six months
ended June 30, 1999 -- 14 1,401 1,415
Partners' deficit at
June 30, 1999 39,627 $ (487) $(16,637) $(17,124)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS XI
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $1,415 $ 227
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint venture (1,220) (26)
Equity in extraordinary loss on debt extinguishment
of joint venture 3 --
Depreciation 744 748
Amortization of loan costs 56 56
Casualty gain -- (346)
Change in accounts:
Receivables and deposits 158 (37)
Other assets (49) 19
Accounts payable 140 (65)
Tenant security deposit liabilities 13 1
Other liabilities (245) 15
Net cash provided by operating activities 1,015 592
Cash flows from investing activities:
Property improvements and replacements (307) (142)
Insurance proceeds received related to casualty -- 230
Distributions from joint venture 1,086 --
Repayment of advance to joint venture 164 --
Net cash provided by investing activities 943 88
Cash flows from financing activities:
Repayment of notes payable (868) --
Payment on mortgage notes payable (167) (2)
Net cash used in financing activities (1,035) (2)
Net increase in cash and cash equivalents 923 678
Cash and cash equivalents at beginning of period 1,207 746
Cash and cash equivalents at end of period $ 2,130 $1,424
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,395 $1,397
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES PARTNERS XI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Partners
XI (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 II (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 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 Registrant's consolidated financial statements include the accounts of Fox
Run AP XI, L.P., of which the Partnership owns a 99% limited partnership
interest. The general partner of Fox Run AP XI, L.P. is AP XI Fox Run GP, LLC,
a single member limited liability corporation which is wholly-owned by the
Registrant. Thus, these entities are deemed controlled and, therefore,
consolidated by the Partnership. All 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. and Insignia Properties Trust
("IPT") 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 Managing General Partner. The Managing 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 Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership's partnership agreement provides for (i)
certain payments to affiliates for services and (ii) reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
The following expenses owed to the Managing General Partner and its affiliates
during the six months ended June 30, 1999 and 1998 were paid or accrued:
1999 1998
(in thousands)
Property management fees (included in operating
expense) $197 $184
Reimbursement for services of affiliates (included in
investment properties, general and
administrative and operating expenses) 57 73
Due to affiliates 10 470
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of the gross receipts from the
Registrant's property for providing property management services. The
Registrant paid to such affiliates approximately $197,000 and $184,000 for the
six months ended June 30, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $57,000 and
$73,000 for the six months ended June 30, 1999 and 1998, respectively. Included
in these expenses at June 30, 1999 and 1998 is approximately $4,000 and $8,000,
respectively, in reimbursements for construction oversight costs.
The decrease in "Due to affiliates" relates to the payment of amounts owed to
affiliates of the Managing General Partner for reimbursement of expenses in
prior years. The amounts had been previously accrued by the Partnership due to
the Partnership's liquidity problems in previous years. The Managing General
Partner postponed payment of the amounts until the Partnership's cash flow
position improved. In the third quarter of 1998, the Managing General Partner
determined that the Partnership had sufficient liquid assets to meet its current
operational needs and to provide the necessary maintenance and improvements to
its investment property in the near term. As a result, approximately $460,000
was repaid to an affiliate of the Managing General Partner, thereby reducing the
balance outstanding as of June 30, 1999 to approximately $10,000.
Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust,
provided financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint
Venture ("Joint Venture") (see "Note D"). Pursuant to a series of transactions,
affiliates of the Managing General Partner acquired ownership interests in AMIT.
On September 17, 1998, AMIT was merged with and into IPT, the entity which
controlled the Managing General Partner. Effective February 26, 1999, IPT was
merged into AIMCO. As a result, AIMCO became the holder of the AMIT loan.
On February 26, 1999, Princeton Meadows Golf Course was sold to an unaffiliated
third party. Upon closing, the AMIT principal balance of $1,567,000 plus
accrued interest of approximately $17,000 was paid off.
Also, the Partnership had an AMIT note payable, which was collateralized by the
Partnership's investment in the Joint Venture with a principal balance of
approximately $868,000 and accrued interest of $8,500. In June 1999, the Joint
Venture distributed a total of approximately $2,641,000 to the joint venturers
from the proceeds of the sale of the property. The Partnership's share of this
distribution represented approximately $1,086,000. Upon receipt of the
distribution funds, the Partnership repaid its AMIT note payable of
approximately $868,000 plus accrued interest of $8,500.
In addition, the Partnership made advances to the Joint Venture as deemed
appropriate by the Managing General Partner. These advances did not bear
interest nor have stated terms of repayment. In June 1999, the advance
receivable from the Joint Venture of approximately $164,000 was paid off from
the proceeds of the sale of the golf course.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,862.33 (32.46% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $77 per unit. The offer expired on July 30,
1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 705 units. As a
result, AIMCO and its affiliates currently own 11,859 units of limited
partnership interest in the Partnership representing 29.93% of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
NOTE D - INVESTMENT IN JOINT VENTURE
The Partnership had a 41.1% investment in Princeton Meadows Golf Course Joint
Venture. On February 26, 1999, the Joint Venture sold its only investment
property, Princeton Meadows Golf Course, to an unaffiliated third party. The
sale resulted in net proceeds of approximately $3,411,000 after payment of
closing costs, resulting in a gain on sale of approximately $3,108,000. In
connection with the sale, a commission of approximately $153,000 was paid to the
Managing General Partner in accordance with the Joint Venture Agreement. The
Partnership's 1999 pro-rata share of this gain is approximately $1,277,000. The
Joint Venture also recognized an extraordinary loss on early extinguishment of
debt of approximately $7,000 as a result of unamortized loan costs being written
off. The Partnership's pro-rata share of this extraordinary loss is
approximately $3,000.
Condensed balance sheet information of the Joint Venture at June 30, 1999, is as
follows (in thousands):
Assets
Cash $ 355
Other assets 51
Total $ 406
Liabilities and Partners' Capital
Other liabilities $ 15
Partners' capital 391
Total $ 406
The condensed statements of operations of the Joint Venture for the three and
six months ended June 30, 1999 and 1998 are summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(in thousands) (in thousands)
Revenues $ 61 $ 541 $ 91 $ 744
Costs and expenses (100) (364) (231) (681)
(Loss) income before gain on sale of
investment property and extraordinary
loss on extinguishment of debt (39) 177 (140) 63
Gain on sale of investment property 223 -- 3,108 --
Extraordinary loss on extinguishment
of debt -- -- (7) --
Net income $ 184 $ 177 $ 2,961 $ 63
The Partnership realized equity income of approximately $1,220,000 and $26,000
in the Joint Venture for the six months ended June 30, 1999, and 1998,
respectively. The Partnership also realized an extraordinary loss on
extinguishment of debt of $3,000 for the six months ended June 30, 1999.
The Princeton Meadows Golf Course property had an underground fuel storage tank
that was removed in 1992. This fuel storage tank caused contamination to the
area. Management installed monitoring wells in the area where the tank was
formerly buried. Some samples from these wells indicated lead and phosphorous
readings that were higher than the range prescribed by the New Jersey Department
of Environmental Protection ("DEP"). The Joint Venture notified the DEP of the
findings when they were first discovered. However, the DEP did not give any
directives as to corrective action until late 1995.
In November 1995, representatives of the Joint Venture and the New Jersey DEP
met and developed a plan of action to clean-up the contamination site at
Princeton Meadows Golf Course. The Joint Venture engaged an engineering firm to
conduct consulting and compliance work and a second firm to perform the field
work necessary for the clean-up. Field work was in process, with skimmers
having been installed at three test wells on the site. These skimmers were in
place to detect any residual fuel that may have still been in the ground. The
completion date of field work was expected to be in 1999. The Joint Venture
originally recorded a liability of $199,000 for the costs of the clean-up. At
February 26, 1999, the balance in the liability for clean-up costs was
approximately $53,000. Upon the sale of the Golf Course, as noted above, the
Joint Venture received documents from the Purchaser releasing the Joint Venture
from any further responsibility or liability with respect to the clean-up.
NOTE E - CASUALTY
In October, 1997, there was a fire at Fox Run Apartments that completely
destroyed the clubhouse and office. In prior years, a gain was recognized only
to the extent of the loss recognized due to the write-off of assets. A casualty
gain of approximately $346,000 resulting from the receipt of insurance proceeds
was recognized during the six months ended June 30, 1998. The anticipated total
insurance proceeds expected to be received over time will approximate the costs
anticipated to be incurred to replace the assets.
NOTE F - SEGMENT REPORTING
Description of the types of products from which the reportable segment derives
its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of one apartment complex
located in Plainsboro, New Jersey. 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.
Segment information for the six months ended June 30, 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 reportable
segments.
1999 Residential Other Totals
Rental income $ 3,794 $ -- $ 3,794
Other income 163 18 181
Interest expense 1,443 -- 1,443
Depreciation 744 -- 744
General and administrative expense -- 103 103
Equity in income of joint venture -- 1,220 1,220
Equity in extraordinary loss on
debt extinguishment of
joint venture -- (3) (3)
Segment profit 283 1,132 1,415
Total assets 12,607 1,720 14,327
Capital expenditures for
investment property 307 -- 307
1998 Residential Other Totals
Rental income $ 3,553 $ -- $ 3,553
Other income 170 15 185
Casualty gain 346 -- 346
Interest expense 1,454 -- 1,454
Depreciation 748 -- 748
General and administrative expense -- 97 97
Equity in income of joint venture -- 26 26
Segment profit (loss) 283 (56) 227
Total assets 13,267 1,139 14,406
Capital expenditures for
investment property 142 -- 142
NOTE G - 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 Managing 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 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 Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The Managing General Partner does not anticipate
that costs associated with this case, if any, will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the six
months ended June 30, 1999 and 1998:
Average Occupancy
1999 1998
Fox Run Apartments
Plainsboro, New Jersey 98% 97%
Results of Operations
The Partnership's net income for the six months ended June 30, 1999 was
approximately $1,415,000 compared to approximately $227,000 for the
corresponding period in 1998. The Partnership recorded a net income of
approximately $129,000 for the three months ended June 30, 1999 compared to a
net income of approximately 236,000 for the corresponding period in 1998. The
increase in net income for the six months ended June 30, 1999 compared to the
corresponding period in 1998 is due to the recognition of the gain on disposal
of the Princeton Meadows Golf Course Joint Venture. Net income before equity in
income and extraordinary loss on debt extinguishment of joint venture for the
three and six months ended June 30, 1999 decreased as compared to the
corresponding periods in 1998 due to a decrease in total revenues offset by a
slight decrease in total expenses. The decrease in total revenues was primarily
due to the recognition of a casualty gain during the six months ended June 30,
1998, which was partially offset by an increase in rental income at Fox Run
Apartments during the six months ended June 30, 1999 due to an increase in
average occupancy and the average rental rate.
In October, 1997, there was a fire at Fox Run Apartments that completely
destroyed the clubhouse and office. In prior years, a gain was recognized only
to the extent of the loss recognized due to the write-off of assets. A casualty
gain of approximately $346,000 resulting from the receipt of insurance proceeds
was recognized during the six months ended June 30, 1998. The anticipated total
insurance proceeds expected to be received over time will approximate the costs
anticipated to be incurred to replace the assets.
Total expenses for the three and six months ended June 30, 1999 decreased
slightly, primarily due to a decrease in operating expense. A decrease in
property tax expense also contributed to the decrease in total expenses for the
six months ended June 30, 1999. The decrease in operating expense is primarily
attributable to decreases in salaries and related expenses and utilities. Also,
insurance expense decreased as a result of a change in insurance carriers.
Property tax expense decreased for the six months ended June 30, 1999 due to the
timing of the receipt of tax bills for 1999 and 1998 which affected the accruals
recorded at June 30, 1999 and 1998.
General and administrative expense remained relatively constant for the six
months ended June 30, 1999. Included in general and administrative expense at
both June 30, 1999 and 1998 are management reimbursements to the Managing
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.
The Partnership had a 41.1% investment in Princeton Meadows Golf Course Joint
Venture. On February 26, 1999, the Joint Venture sold the Princeton Meadows Golf
Course to an unaffiliated third party for gross sale proceeds of $5,100,000.
The Joint Venture received net proceeds of $3,411,000 after payment of closing
costs, resulting in a gain on sale of approximately $3,108,000. For the six
months ended June 30, 1999 the Partnership realized equity in income of the
Joint Venture of approximately $1,220,000, which included its equity in the gain
on disposal of Princeton Meadows Golf Course of $1,277,000 and the equity in
loss on operations of $57,000, as compared to equity in income of the Joint
Venture of approximately $26,000 for the six months ended June 30, 1998.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment at its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing 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
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1999, the Partnership had cash and cash equivalents of approximately
$2,130,000 as compared to approximately $1,424,000 at June 30, 1998. Cash and
cash equivalents increased approximately $923,000 for the period June 30, 1999,
from the Registrant's fiscal year-end and is primarily due to approximately
$1,015,000 of cash provided by operating activities and approximately $943,000
of cash provided by investing activities, which is partially offset by
approximately $1,035,000 of cash used in financing activities. Cash provided by
investing activities consisted of distributions from the joint venture and
repayment of advances to the joint venture, which is partially offset by
property improvements and replacements. Cash used in financing activities
consisted of payments of principal made on the mortgages encumbering Fox Run
Apartments and the repayment of the AMIT note payable. The Registrant invests
its working capital reserves in a money market cash account.
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 asset
and other operating needs of the Partnership and to comply with Federal, state
and local legal and regulatory requirements.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Fox Run Apartments
requires approximately $2,192,000 of capital improvements over the next few
years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $2,021,000 for 1999 at the property, which include
certain of the required improvements and consist of roof repairs, landscaping
and irrigation improvements, and parking lot repairs. As of June 30, 1999, the
Partnership spent approximately $307,000 on capital improvements at Fox Run
Apartments, primarily consisting of interior decorating, parking lot repairs,
carpet and cabinet replacements, landscaping, appliance replacements, water
heater upgrades and other building improvements. These improvements were funded
from cash flow. The additional capital improvements planned for 1999 at the
Partnership's property will be incurred only if cash is available from
operations and Partnership reserves. To the extent that such budgeted capital
improvements are completed, the Registrant's distributable cash flow, if any,
may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $30,233,000 encumbering Fox Run is being amortized
over periods ranging from 15 to 30 years with a balloon payment of $29,107,000
due January 2002. The Managing General Partner may attempt to refinance such
indebtedness and/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.
There were no cash distributions during the six months ended June 30, 1999 and
1998. Subsequent to the quarter ended June 30, 1999, the Managing General
Partner approved a distribution of approximately $200,000, of which $198,000 is
to be paid to limited partners ($5.00 per limited partnership unit). Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancing, and/or sale of the property. 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 planned
capital expenditures, to permit distributions to its partners in 1999 or
subsequent periods.
Tender Offer
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,862.33 (32.46% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $77 per unit. The offer expired on July 30,
1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 705 units. As a
result, AIMCO and its affiliates currently own 11,859 units of limited
partnership interest in the Partnership representing 29.93% of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
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 Managing 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 June 30, 1999, had completed approximately 90% 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
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
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 no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 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
June 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 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 July,
1999. The Managing Agent has updated data transmission standards with all of the
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 September 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 $2.9 million ($0.7 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 Managing 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 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 Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The Managing General Partner does not anticipate
that costs associated with this case, if any, will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 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 XI
By: Angeles Realty Corporation II
Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and administration
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners XI 1999 Second Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000702986
<NAME> ANGELES PARTNERS XI
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,130
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 30,050
<DEPRECIATION> 19,406
<TOTAL-ASSETS> 14,327
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 30,233
0
0
<COMMON> 0
<OTHER-SE> (17,124)
<TOTAL-LIABILITY-AND-EQUITY> 14,327
<SALES> 0
<TOTAL-REVENUES> 3,975
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,443
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,415
<EPS-BASIC> 35.35<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
