FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from ____________ to _______________
Commission file number 0-11767
ANGELES INCOME PROPERTIES, LTD. II
(Name of small business issuer in its charter)
California 95-3793526
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB Yes X or No
State issuer's revenues for its most recent fiscal year. $7,261,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of a specified date within the past 60 days. Market value
information for Registrant's partnership interests is not available. Should a
trading market develop for these interests, it is the Managing General Partner's
belief that the aggregate market value of the voting partnership interests would
not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Angeles Income Properties, Ltd. II (the "Partnership" or "Registrant") is a
publicly held limited partnership organized under the California Uniform Limited
Partnership Act pursuant to the amended Certificate and Agreement of Limited
Partnership (hereinafter referred to as the "Agreement") on October 12, 1982.
The Partnership's managing general partner is Angeles Realty Corporation II, a
California corporation (hereinafter referred to as the "Managing General
Partner" or "ARCII") and is wholly-owned by MAE GP Corporation ("MAE GP") , an
affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February
25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an
affiliate of Insignia. Thus, the Managing General Partner is now a wholly-owned
subsidiary of IPT.
The Partnership, through its public offering of Limited Partnership Units, sold
100,000 units aggregating $50,000,000. The General Partner contributed capital
in the amount of $1,000 for a 1% interest in the Partnership. The Partnership
was formed for the purpose of acquiring fee and other forms of equity interests
in various types of real property. The Partnership presently owns four
investment properties and owns a general partnership interest in a fifth
property.
The Managing General Partner of the Registrant intends to maximize the operating
results and, ultimately, the net realizable value of each of the Registrant's
properties in order to achieve the best possible return for the investors. Such
results may best be achieved through property sales, refinancing, debt
restructurings or relinquishment of the assets. The Registrant intends to
evaluate each of its holdings periodically to determine the most appropriate
strategy for each of the assets.
The Partnership has no full time employees. The Managing General Partner is
vested with full authority as to the general management and supervision of the
business and affairs of the Partnership. Limited Partners and Non-Managing
General Partners have no right to participate in the management or conduct of
such business and affairs.
The business in which the Partnership is engaged is highly competitive, and the
Partnership is not a significant factor in its industry. Each investment
property is located in or near a major urban area and, accordingly, competes for
rentals not only with similar properties in its immediate area but with hundreds
of similar properties throughout the urban area. Such competition is primarily
on the basis of location, rents, services and amenities. In addition, the
Partnership competes with significant numbers of individuals and organizations
(including similar partnerships, real estate investment trusts and financial
institutions) with respect to the sale of improved real properties, primarily on
the basis of the prices and terms of such transactions.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Type of Ownership Use
Atlanta Crossing 09/27/83 100% Leasehold Interest Retail Center
Shopping Center 169,168 s.f.
Montgomery, AL
Deer Creek Apartments 09/28/83 Fee ownership subject to Apartments
Plainsboro, NJ a first mortgage 288 units
Georgetown Apartments 11/21/83 Fee ownership subject to Apartments
South Bend, IN a first and second 200 units
mortgage
Landmark Apartments 12/16/83 Fee ownership subject to Apartments
Raleigh, NC a first mortgage 292 units
The Partnership has a 14.4% interest in the Princeton Meadows Joint Venture. The
Partnership entered into a General Partnership Agreement with Angeles Partners
XI and Angeles Partners XII, both California partnerships and affiliates of the
Managing General Partner, to form the Princeton Meadows Joint Venture ("Joint
Venture"). The property owned by the Joint Venture, as of December 31, 1997, is
summarized as follows:
Princeton Meadows 07/26/91 Fee ownership subject Golf Course
Golf Course to a first mortgage
Princeton, NJ
The Joint Venture is accounted for by the Partnership on the equity method and
is included as "Investment in joint venture" in the balance sheet included in
"Item 7."
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Atlanta Crossing
Shopping Center $ 5,232 $ 4,496 5-20 yrs (1) $ 1,682
Deer Creek Apts. 11,322 6,833 5-20 yrs (1) 3,021
Georgetown Apts. 7,236 4,891 5-20 yrs (1) 925
Landmark Apts. 12,010 8,242 5-20 yrs (1) 2,398
$ 35,800 $ 24,462 $ 8,026
(1) Straight line and accelerated
See "Note A" of the financial statements included in "Item 7." for a description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
Deer Creek Apts.
1st mortgage $ 6,235 7.33% 30 yrs 11/2003 $ 5,779
Georgetown Apts.
1st mortgage 5,332 7.83% 28.67 yrs 10/2003 4,806
2nd mortgage 173 7.83% (1) 10/2003 173
Landmark Apts.
1st mortgage 6,532 7.33% 30 yrs 11/2003 6,054
18,272 $16,812
Less unamortized
discounts (75)
$ 18,197
(1) Interest only payments
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates Occupancy
Property 1997 1996 1997 1996
Atlanta Crossing
Shopping Center (1) $ 4.46/sf $ 4.14/sf 91% 91%
Deer Creek Apartments 8,698/unit 8,451/unit 96% 95%
Georgetown Apartments 7,378/unit 7,135/unit 97% 97%
Landmark Apartments (2) 8,176/unit 7,748/unit 91% 92%
(1) The Managing General Partner signed two new leases for 1998 and hopes to
increase occupancy in 1998.
(2) Occupancy at Landmark Apartments remains low as a result of a large number
of three bedroom apartments remaining vacant due to the lack of demand for
three bedroom units in this rental market.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes and commercial buildings
in the area. The Managing General Partner believes that all of the properties
are adequately insured. The multi-family residential properties' lease terms are
for one year or less. No residential tenant leases 10% or more of the available
rental space.
The following is a schedule of the commercial lease expirations for the years
1998-2007 (dollar amounts in thousands):
Number of Annual % of Gross
Atlanta Crossing Expirations Square Feet Rent Annual Rent
1998 3 9,712 $83 12.24%
1999 2 3,560 33 4.93%
2000 2 3,200 25 3.69%
2001 2 10,658 72 10.66%
2002 1 3,970 41 5.98%
2003 1 (1) 41 6.00%
2004 2 11,971 77 11.29%
2005 1 (1) 28 4.15%
2006 2 55,009 214 31.50%
2007 1 53,820 65 9.55%
1) Includes a tenant that holds a ground lease and is not included in the
total square footage for the property (See "Note H" for further
information).
The following schedule reflects information on tenants occupying 10% or more of
the leasable square feet for the commercial property:
Nature of Annual Rent Lease
Business Leased Per Square Foot Expiration
Atlanta Crossing Shopping Center
Grocery Store 53,820 $1.21 03/05/07
Discount Store 50,000 3.30 02/28/06
Real estate taxes and rates in 1997 for each property were: (dollar amounts
in thousands)
1997 1997
Billing Rate
Atlanta Crossing
Shopping Center $ 50 3.45%
Deer Creek Apartments 263 2.45%
Georgetown Apartments 128* 9.05%
Landmark Apartments 119 1.22%
*Amount per 1996 billings; tax bills for 1997 not yet received.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is unaware of any pending litigation that is not of a
routine nature. The Managing General Partner believes that any losses
experienced as a result of such proceedings will not have a material
adverse effect upon the Partnership's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The unit holders of the Partnership did not vote on any matter during the
fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Partnership, a publicly-held limited partnership, sold 100,000 Limited
Partnership Units during its offering period through February 29, 1984. No
established public trading market for Partnership Units exists, nor is one
expected to develop. As of December 31, 1997, the Partnership had 99,784
Limited Partnership Units outstanding and 3,907 Limited Partners of record.
There were no cash distributions to the Limited Partners during the year ended
December 31, 1996. Cash distributions of approximately $1,000,000 were made to
the partners during the year ended December 31, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with "Item 7. Financial Statements" and
other items contained elsewhere in this report.
Results of Operations
The Partnership's net income for the year ended December 31, 1997, was
approximately $145,000 versus a net loss of approximately $270,000 for the year
ended December 31, 1996. The increase in net income is primarily due to an
increase in total revenue partially offset by a loss recognized on the disposal
of property during 1997. Additionally, during 1996, there was an extraordinary
loss on refinancing of $173,000 due to the refinancing of Landmark Apartments
and Deer Creek Apartments as discussed below. Total revenue increased due to an
increase in rental revenue as a result of an increase in rental rates at all of
the Partnership's investment properties accompanied by overall consistent
occupancy rates and an increase in tenant reimbursements at Atlanta Crossing.
Also adding to the increase in total revenue was an increase in other income as
a result of an increase in fees collected at Deer Creek and Landmark Apartments
and an increase in interest income. Interest income increased resulting from
larger cash balances held in higher interest bearing accounts.
Contributing to the increase in net income was a decrease in general and
administrative and interest expenses. The decrease in general and
administrative expense is primarily due to a decrease in reimbursements for
services of affiliates. The decrease in interest expense resulted from lower
interest rates obtained by the refinancing of the mortgages encumbering Deer
Creek and Landmark Apartments in November 1996.
Partially offsetting the increase in net income was a loss on disposal of
property and increases in bad debt and depreciation expenses. The loss on
disposal of property at Deer Creek Apartments was approximately $180,000 and is
the result of the write-off of roofs and parking lot due to an ongoing roof
replacement project and parking lot repaving at Deer Creek Apartments. These
roofs and parking lot were not fully depreciated at the time of replacement.
Bad debt expenses increased as a result of an increase in the reserve necessary
at Atlanta Crossing Shopping Center based on a review of the tenants accounts
receivable. Depreciation expenses increased as a result of additional
depreciable assets placed in service in 1997 at Georgetown, Deer Creek and
Landmark Apartments.
The Partnership has a 14.4% investment in the Princeton Meadows Golf Course
Joint Venture. For the year ended December 31, 1997, the Partnership realized
equity in the income of the Joint Venture of approximately $13,000, compared to
equity in the loss of the Joint Venture of approximately $22,000 for the year
ended December 31, 1996, (See "Note F - Investment in Joint Venture" in "Item
7."). The increased income for the year ended December 31, 1997, compared to
the year ended December 31, 1996, is primarily attributed to an increase in
revenue. The revenue increases can be attributed to maintenance upgrades at the
golf course that have improved the appearance of the property. The property
also recognized a decrease in total expenses. The decrease in expense can be
attributed to the use of leased equipment which has lower repair and maintenance
costs and the completion of landscaping and repairs in 1996 that have improved
the appeal of the golf course.
On November 1, 1996, the Partnership refinanced the mortgages encumbering Deer
Creek Apartments and Landmark Apartments. As a result of the refinance the
Partnership incurred an extraordinary loss of approximately $173,000 on
refinancing due to the write-off of unamortized loan costs and of prepayment
penalties. The mortgage indebtedness of approximately $6,235,000 for Deer Creek
Apartments and approximately $6,532,000 for Landmark Apartments at December 31,
1997, carries a stated interest rate of 7.33% and a maturity date of November
2003. This refinancing was necessary due to the maturity of the mortgage
secured by Deer Creek Apartments in July 1996. Landmark Apartments was
refinanced to obtain a lower interest rate and to provide funds needed to help
close the Deer Creek Apartments refinancing.
Included in operating expense for the year ended December 31, 1997, is
approximately $168,000 of major repair and maintenance mainly comprised of major
landscaping, exterior building improvements, exterior painting, parking lot
repairs, and construction oversight reimbursements. Included in operating
expense for the year ended December 31, 1996, is approximately $260,000 of major
repairs and maintenance mainly comprised of major landscaping, exterior building
improvements and interior building improvements.
As part of the ongoing business plan of the Partnership, the Managing 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
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 needed 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 December 31, 1997, the Partnership held cash and cash equivalents of
approximately $3,099,000 compared to approximately $2,855,000 at December 31,
1996. For the year ended December 31, 1997, net cash increased approximately
$244,000, compared to an increase of approximately $1,147,000 during the year
ended December 31, 1996. Net cash provided by operations increased primarily
due to an increase in net income, as discussed above. Net cash used in
investing activities decreased primarily as a result of net receipts from
restricted escrows during 1997, compared to net deposits to restricted escrows
during 1996. Partially offsetting the decrease in net deposits to restricted
escrows was an increase in property improvements and replacements. This increase
is primarily due to the roof replacement project at Deer Creek Apartments. Net
cash used in financing activities increased due to a cash distribution to the
partners during 1997. During 1996, net cash provided by financing activities
resulted from net proceeds received from the refinance as discussed above.
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 DEP of the
findings when they were first discovered. However, DEP had not given 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 has 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 is in process with skimmers having
been installed at three test wells on the site. These skimmers are in place to
detect any residual gas that may still be in the ground. The expected
completion date of the compliance work should be sometime in 1999. The Joint
Venture originally recorded a liability of $199,000 for the costs of the clean-
up and has estimated that an additional $60,000 will need to be expended. Funds
from the property will be used to cover this excess.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The Partnership has
mortgage notes payable totaling approximately $18,197,000 net of discount. The
first mortgages secured by Deercreek Apartments and Landmark Apartments mature
in November 2003. The remaining debt, which is secured by Georgetown
Apartments, matures in October 2003.
The Partnership's primary source of cash is from the operations of its
properties and from financing placed on such properties. Cash from these
sources is utilized for property operations, capital improvements, and/or
repayment of debt. 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 investment properties to adequately
maintain the physical assets and other operating needs of the Partnership.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancings and property sales and the availability of cash
reserves. There were no cash distributions for the year ended December 31, 1996.
Cash distributions of approximately $1,000,000 were made to the partners during
the year ended December 31, 1997.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this annual report. The
Partnership expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Partnership's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
ITEM 7. FINANCIAL STATEMENTS
ANGELES INCOME PROPERTIES, LTD. II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1997
and 1996
Consolidated Statements of Changes in Partners' Deficit - Years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997
and 1996
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Angeles Income Properties, Ltd. II
We have audited the accompanying consolidated balance sheet of Angeles Income
Properties, Ltd. II as of December 31, 1997, and the related consolidated
statements of operations, changes in partners' deficit and cash flows for each
of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Angeles Income
Properties, Ltd. II at December 31, 1997, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 1998
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1997
Assets
Cash and cash equivalents $ 3,099
Receivables and deposits (net of allowance
for doubtful accounts of $204) 564
Restricted escrows 1,107
Other assets 700
Investment in, and advances of $46 to, joint
venture (Note F) 60
Investment properties (Notes B and E):
Land $ 2,198
Buildings and related personal
property 33,602
35,800
Less accumulated depreciation (24,462) 11,338
$ 16,868
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 220
Tenant security deposits 261
Accrued taxes 253
Other liabilities 166
Mortgage notes payable (Notes B and E) 18,197
Partners' Deficit
General partners $ (462)
Limited partners (100,000 units issued
and 99,784 outstanding) (1,767) (2,229)
$ 16,868
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $ 6,807 $ 6,504
Other income 454 364
Total revenues 7,261 6,868
Expenses:
Operating 2,734 2,751
General and administrative 250 317
Depreciation 1,814 1,759
Interest 1,462 1,537
Property taxes 565 552
Bad debt expense, net 124 27
Loss on disposal of property 180 --
Total expenses 7,129 6,943
Equity in income (loss) of joint venture (Note F) 13 (22)
Income (loss) before
extraordinary item 145 (97)
Extraordinary item - loss on
refinancing (Note J) -- (173)
Net income (loss) $ 145 $ (270)
Net income (loss) allocated
to general partners (1%) $ 1 $ (3)
Net income (loss) allocated
to limited partners (99%) 144 (267)
Net income (loss) $ 145 $ (270)
Per limited partnership unit:
Income (loss) before
extraordinary item $ 1.44 $ (.96)
Extraordinary item - loss on
refinancing -- (1.72)
Net income (loss) per limited
partnership unit $ 1.44 $ (2.68)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data))
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 100,000 $ 1 $ 50,000 $ 50,001
Partners' deficit
at December 31, 1995 99,851 $ (450) $ (654) $ (1,104)
Abandonment of Limited
Partnership Units (Note I) (67) -- -- --
Net loss for the year ended
December 31, 1996 -- (3) (267) (270)
Partners' deficit at
December 31, 1996 99,784 (453) (921) (1,374)
Distributions to partners (10) (990) (1,000)
Net income for the year ended
December 31, 1997 -- 1 144 145
Partners' deficit
at December 31, 1997 99,784 $ (462) $ (1,767) $ (2,229)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 145 $ (270)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,814 1,759
Amortization of discounts, loan costs and
lease commissions 102 91
Bad debt expense, net 124 27
Equity in (income) loss of joint venture (13) 22
Loss on disposal of property 180 --
Extraordinary item - loss on refinancing -- 173
Change in accounts:
Receivables and deposits (134) (129)
Other assets (47) (44)
Accounts payable 65 (48)
Tenant security deposit liabilities 5 11
Accrued taxes 75 64
Other liabilities (5) (74)
Net cash provided by operating
activities 2,311 1,582
Cash flows from investing activities:
Property improvements and replacements (1,365) (416)
Net withdrawals from (deposits to) restricted escrows 499 (1,192)
Advances to joint venture (3) (29)
Net cash used in investing activities (869) (1,637)
Cash flows from financing activities:
Loan costs paid (10) (309)
Payments on mortgage notes payable (188) (183)
Repayments of mortgage notes payable -- (23,974)
Proceeds from mortgage notes payable -- 25,800
Debt extinguishment costs -- (132)
Distributions to partners (1,000) --
Net cash (used in) provided by
financing activities (1,198) 1,202
Net increase in cash and cash equivalents 244 1,147
Cash and cash equivalents at beginning of year 2,855 1,708
Cash and cash equivalents at end of year $ 3,099 $ 2,855
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,380 $ 1,473
Supplemental disclosure of non-cash investing activity:
Fixed assets included in accounts payable $ 55 $ 152
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
ANGELES INCOME PROPERTIES, LTD. II
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Angeles Income Properties, Ltd. II (the "Partnership" or
"Registrant") is a California limited partnership organized on October 12, 1982
to acquire and operate residential and commercial real estate properties. The
Partnership's Managing General Partner is Angeles Realty Corporation II ("ARC
II"), an affiliate of Insignia Financial Group, Inc. As of December 31, 1997,
the Partnership operates three residential and one commercial property located
in or near major urban areas in the United States.
Principles of Consolidation: The consolidated financial statements of the
Partnership include its 99% limited partnership interests in AIP II GP, LP and
Georgetown AIP II, LP. The Partnership may remove the General Partner of both
AIP II GP, LP and Georgetown AIP II, LP; therefore, the partnerships are
controlled and consolidated by the Partnership. All significant
interpartnership balances have been eliminated.
Joint Venture: The Partnership accounts for its 14.4% investment in Princeton
Meadows Joint Venture ("Joint Venture") using the equity method of accounting.
Allocations and Distributions to Partners: In accordance with the Partnership
Agreement, any gain from the sale or other disposition of Partnership assets
will be allocated first to the Managing General Partner to the extent of the
amount of any Brokerage Compensation and Incentive Interest to which the
Managing General Partner is entitled. Any gain remaining after said allocation
will be allocated to the General Partners and Limited Partners in proportion to
their interests in the Partnership.
The Partnership will allocate other profits and losses 1% to the General
Partners and 99% to the Limited Partners.
Except as discussed below, the Partnership will allocate distributions 1% to the
General Partners and 99% to the Limited Partners.
Upon the sale or other disposition, or refinancing, of any asset of the
Partnership, the Distributable Net Proceeds shall be distributed as follows: (i)
First, to the Partners in proportion to their interests until the Limited
Partners have received proceeds equal to their Original Capital Investment
applicable to the property; (ii) Second, to the Partners until the Limited
Partners have received distributions from all sources equal to their 6%
Cumulative Distribution; (iii) Third, to the Managing General Partner until it
has received its Brokerage Compensation; (iv) Fourth, to the Partners in
proportion to their interests until the Limited Partners have received
distributions from all sources equal to their additional 2% Cumulative
Distribution; and (v) Thereafter, 85% to the Limited Partners and Non-Managing
General Partners in proportion to their interests and 15% ("Incentive Interest")
to the Managing General Partner.
Depreciation: Depreciation is computed utilizing accelerated and straight-line
methods over the estimated useful lives of the investment properties and related
personal property. For Federal income tax purposes, depreciation is computed by
using the straight-line method over an estimated life of 5 to 20 years for
personal property and 15 to 40 years for real property.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and
in banks, money market funds and certificates of deposit with original
maturities of less than ninety days. At certain times, the amount of cash
deposited at a bank may exceed the limit on insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from all
apartment lessees for the duration of the lease and such deposits are included
in receivables and deposits. The security deposits are refunded when the tenant
vacates the apartment provided the tenant has not damaged the space and is
current on rental payments.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No adjustments for impairment of value were necessary
for the years ending December 31, 1997, or 1996.
Loan Costs: Loan costs, included in other assets on the balance sheet, of
approximately $557,000 are being amortized on a straight-line basis over the
lives of the related loans. Current accumulated amortization is approximately
$154,000 and is also included in other assets on the balance sheet. Amortization
of loan costs is included in interest expense in the accompanying statements of
operations.
Lease Commissions: Lease commissions are being amortized using the straight
line method over the term of the respective leases.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. Commercial building lease terms are generally from twelve months to
twenty five years.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value: The Partnership believes that the carrying amount of its financial
instruments (except for long-term debt) approximates their fair value due to the
short term maturity of these instruments. The fair value of the Partnership's
long term debt, after discounting the scheduled loan payments at an estimated
borrowing rate currently available to the Partnership, approximates its carrying
value.
Restricted Escrows:
Capital Improvement Reserves - At the time of the refinancing of Deer Creek and
Landmark Apartments, $1,313,000 of the proceeds for Deer Creek Apartments and
$150,000 of the proceeds for Landmark Apartments were designated for "Capital
Improvement Escrows" for certain capital improvements. At December 31, 1997,
the balance remaining in the escrows was $681,000 and $156,000, respectively,
which includes interest earned on these funds. Upon completion of the scheduled
property improvements any excess funds will be returned to the property for
property operations.
Reserve Account - In addition to the Capital Improvement Reserves, general
Reserve Accounts of $80,000 were established with the refinancing proceeds for
the Georgetown Apartments. These funds were established to cover necessary
repairs and replacements of existing improvements, debt service, out-of-pocket
expenses incurred for ordinary and necessary administrative tasks, and payment
of real property taxes and insurance premiums. The Partnership is required to
deposit net operating income (as defined in the mortgage note) from the
refinanced property to the reserve account until the reserve account equals $400
per apartment unit, or $80,000 in total. At December 31, 1997, the balance was
$91,000, which includes interest earned on these funds.
Reclassifications: Certain reclassifications have been made to the 1996
balances to conform to the 1997 presentation.
NOTE B - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows (dollar amounts in
thousands):
Monthly Principal Principal
Payment Stated Balance Balance At
Including Interest Maturity Due At December 31,
Property Interest Rate Date Maturity 1997
Deer Creek Apts.
1st mortgage $ 43 7.33% 11/2003 $ 5,779 $ 6,235
Georgetown Apts.
1st mortgage 41 7.83% 10/2003 4,806 5,332
2nd mortgage 1 7.83% 10/2003 173 173
Landmark Apts.
1st mortgage 45 7.33% 11/2003 6,054 6,532
$ 130 $ 16,812 18,272
Less unamortized discounts (75)
$ 18,197
The Partnership exercised an interest rate buy-down option for Georgetown
Apartments when the debt was refinanced, reducing the stated rate from 8.13% to
7.83%. The fee for the interest rate reduction amounted to $113,000 and is
being amortized as a mortgage discount on the interest method over the life of
the loan. The unamortized discount fee is reflected as a reduction of the
mortgage notes payable and increases the effective rate of the debt to 8.13%.
The mortgage notes payable are nonrecourse and are secured by pledge of certain
of the Partnership's rental properties and by pledge of revenues from the
respective rental properties. Certain of the notes require prepayment penalties
if repaid prior to maturity.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1997, are as follows (dollar amounts in thousands):
1998 $ 209
1999 225
2000 242
2001 261
2002 281
Thereafter 17,054
$ 18,272
NOTE C - INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
The following is a reconciliation of reported net income (loss) and Federal
taxable loss:
1997 1996
Net income (loss) as reported $ 145 $ (270)
Add (deduct):
Depreciation differences (3) (69)
Unearned income 99 13
Accrued audit (4) (3)
Other 150 (14)
Federal taxable income (loss) $ 387 $ (343)
Federal taxable loss per limited
partnership unit $ 3.84 $ (3.40)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities:
Net deficit as reported $ (2,229)
Land and buildings 3,543
Accumulated depreciation (6,856)
Syndication and distribution costs 6,148
Investment in Joint Venture 206
Unearned income 8
Accrued audit 16
Other (42)
Net assets - Federal tax basis $ 794
NOTE D - 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 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 payments were paid or
accrued to the Managing General Partner and affiliates in 1997 and in 1996:
1997 1996
Property management fees (included in
operating expense) $ 335 $ 322
Reimbursement for services of affiliates (included
in investment properties, other assets, operating
expense and general and administrative expense) 229 217
Included in "Reimbursements for services of affiliates" is approximately $54,000
in construction oversight costs for 1997. No construction oversight costs were
incurred during 1996.
A director of Insignia Financial Group, Inc. is affiliated with a professional
legal association that received fees of $24,000 in connection with the 1996
refinancing of Deercreek Apartments and Landmark Apartments (See "Note J").
For the period from January 1, 1996, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency and insurer unaffiliated
with the Managing General Partner. An affiliate of the Managing General Partner
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the master
policy. The agent assumed the financial obligations to the affiliate of the
Managing General Partner who receives payment on these obligations from the
agent. The amount of the Partnership's insurance premiums that accrued to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
Effective February 25, 1998, MAE GP Corporation ("MAE GP") was merged into
Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the
Managing General Partner is now a wholly-owned subsidiary of IPT.
Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust,
provided financing to the Joint Venture, which is secured by the Joint Venture's
investment property known as the Princeton Meadows Golf Course, in the amount of
$1,567,000. Total interest expense was $196,000 and $200,000 for the years ended
December 31, 1997 and 1996, respectively.
In November 1992, MAE GP Corporation ("MAE GP") acquired 1,675,113 Class B
Common Shares of AMIT. The terms of the Class B shares provide that they are
convertible, in whole or in part, into Class A Common Shares of AMIT on the
basis of 1 Class A share for every 49 Class B shares (however, in connection
with the settlement agreement described in the following paragraph, MAE GP
agreed not to convert the Class B shares so long at AMIT's option is
outstanding). These Class B Shares entitle the holder to receive 1% of the
distributions of net cash distributed by AMIT (however, in connection with the
settlement agreement described in the following paragraph, MAE GP agreed to
waive its right to receive dividends and distributions so long as AMIT's option
is outstanding). The holder of the Class B shares is also entitled to vote on
the same basis as the holders of Class A shares, providing the holder with
approximately 39% of the total voting power of AMIT (unless and until converted
to Class A shares, in which case the percentage of the vote controlled
represented by such shares would approximate 1.3% of the total voting power of
AMIT).
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B shares owned by it. This option can be exercised
at the end of 10 years or when all loans made by AMIT to partnerships which were
affiliated with MAE GP as of November 9, 1994 (which is the date of execution of
a definitive settlement agreement), have been paid in full. In connection with
such settlement, AMIT delivered to MAE GP cash in the sum of $250,000 at closing
(which occurred April 14, 1995), as payment for the option. If and when the
option is exercised, AMIT will be required to remit to MAE GP an additional
$94,000.
Simultaneously with the grant of the option and as part of the settlement, MAE
GP also executed an irrevocable proxy in favor of AMIT, which provides that the
holder of the Class B shares is permitted to vote those shares on all matters
except those involving transactions between AMIT and MAE GP affiliated borrowers
or the election of any MAE GP affiliate as an officer or trustee of AMIT. With
respect to such matters, the trustees of AMIT are required to vote (pursuant to
the irrevocable proxy) the Class B shares (as a single block) in the same manner
as a majority of the Class A shares are voted (to be determined without
consideration of the votes of "Excess Class A Shares" (as defined in Section
6.13 of AMIT's Declaration of Trust)).
Between its acquisition of the Class B shares (in November 1992) and March 31,
1995, MAE GP declined to vote these shares. Since that date, MAE GP voted its
shares at the 1995 and 1996 annual meetings in connection with the election of
trustees and other matters. In February 1998, MAE GP was merged into Insignia
Properties Trust, and in connection with that merger, MAE GP dividended all of
the Class B shares to its sole stockholder, Metropolitan Asset enhancement, L.P.
("MAE"). As a result, MAE, as the holder of the Class B shares, is now subject
to the terms of the settlement agreement, option and irrevocable proxy described
in the two preceding paragraphs. Neither MAE GP nor MAE has exerted and intends
to exert any management control over or participate in the management of AMIT.
However, subject to the terms of the proxy described below, MAE may choose to
vote the Class B shares as it deems appropriate in the future.
Liquidity Assistance L.L.C., which is an affiliate of the General Partner, MAE
and Insignia Financial Group, Inc. ("Insignia") (which provides property
management and partnership administration services to the Partnership), owned
96,800 Class A shares of AMIT at December 31, 1997. These Class A shares
represent approximately 2.2% of the total voting power of AMIT.
On April 3, 1997, Insignia and AMIT entered into a non-binding agreement in
principle contemplating, among other things, a business combination of AMIT and
Insignia Properties Trust, an entity then owned 98% by Insignia and its
affiliates ("IPT"). On July 18, 1997, IPT, Insignia and MAE GP entered into a
definitive merger agreement pursuant to which (subject to shareholder approval
and certain other conditions, including the receipt by
AMIT of a fairness opinion from its investment bankers) AMIT would be merged
with and into IPT, with each Class A share and Class B share being converted
into 1.625 and 0.0332 common shares of IPT, respectively. The foregoing
exchange ratios are subject to adjustment to account for dividends paid by AMIT
from January 1, 1997 and dividends paid by IPT from February 1, 1997. It is
anticipated that Insignia and its affiliates (including MAE) would own
approximately 57% of post-merger IPT when this transaction is consummated.
NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Atlanta Crossing
Shopping Center $ -- $ 213 $ 6,071 $ (1,052)
Deer Creek Apts. 6,235 953 8,863 1,506
Georgetown Apts. 5,505 294 6,545 397
Landmark Apts. 6,532 738 9,885 1,387
Totals $ 18,272 $ 2,198 $ 31,364 $ 2,238
Less unamortized
discounts (75)
$ 18,197
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Atlanta Crossing
Shopping Center $ 213 $ 5,019 $ 5,232 $ 4,496 09/27/83 5-20
Deer Creek Apts. 953 10,369 11,322 6,833 09/28/83 5-20
Georgetown Apts. 294 6,942 7,236 4,891 11/21/83 5-20
Landmark Apts. 738 11,272 12,010 8,242 12/16/83 5-20
Totals $ 2,198 $ 33,602 $ 35,800 $ 24,462
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1997 1996
(in thousands)
Investment Properties
Balance at beginning of year $ 35,109 $ 34,541
Property improvements 1,267 568
Write-offs due to replacements (576) --
Balance at end of year $ 35,800 $ 35,109
Accumulated Depreciation
Balance at beginning of year $ 23,044 $ 21,285
Additions charged to expense 1,814 1,759
Write-offs due to replacements (396) --
Foreclosure of Executive Plaza -- --
Balance at end of year $ 24,462 $ 23,044
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is $39,343,000 and $37,944,000, respectively. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1997 and 1996, is $31,317,000 and $29,368,000.
NOTE F - INVESTMENT IN JOINT VENTURE
Condensed balance sheet information of the Joint Venture at December 31, 1997,
is as follows (in thousands):
Assets
Cash $ 167
Deferred charges and other assets 175
Investment properties, net 2,011
Total $ 2,353
Liabilities and Partners' Capital
Notes payable to AMIT (Note D) $ 1,567
Other liabilities 693
Partners' capital 93
Total $ 2,353
The condensed profit and loss statement of the Joint Venture is summarized as
follows:
Year Ended
December 31,
(in thousands)
1997 1996
Revenue $ 1,628 $ 1,417
Costs and expenses (1,535) (1,567)
Net income (loss) $ 93 $ (150)
The Partnership's 14.4% equity interest in the income of the Joint Venture for
the year ended December 31, 1997, was approximately $13,000. The equity
interest in the loss of the Joint Venture for the year ended December 31, 1996,
was approximately $22,000.
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 slightly higher than the range prescribed by the New Jersey
Department of Environmental Protection ("DEP"). The Joint Venture notified DEP
of the findings when they were first discovered. However, DEP had not given 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 has 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 is in process with skimmers having
been at three test wells on the site. These skimmers are in place to detect any
residual gas that may still be in the ground. The expected completion date of
the compliance work should be sometime in 1999. The Joint Venture originally
recorded a liability of $199,000 for the costs of the clean-up and an additional
$45,000 in 1997. The Managing General Partner believes that the liability
recorded of $60,000 at December 31, 1997, is sufficient to cover all remaining
costs associated with this incident.
NOTE G - OPERATING LEASES
Tenants of the commercial properties are responsible for their own utilities and
maintenance of their space, and payment of their proportionate share of common
area maintenance, utilities, insurance and real estate taxes. Tenants are
generally not required to pay a security deposit. Bad debt expense has been
within the Managing General Partner's expectations.
As of December 31, 1997, the Partnership had minimum future rentals under
noncancellable leases with terms ranging from twelve months to twenty five
years.
(in thousands)
1998 $ 628
1999 586
2000 585
2001 523
2002 458
Thereafter 1,271
$ 4,051
NOTE H - GROUND LEASE
The Partnership assumed three operating leases in connection with the
acquisition of a leasehold interest in the Atlanta Crossing Shopping Center.
The aggregate annual lease expense for the years ended December 31, 1997 and
1996, was approximately $56,000 each year. Such amounts are included in the
statements of operations as operating expenses. The terms of these leases
provide for increases in rent every five years, based on the Consumer Price
Index.
As of December 31, 1997, the aggregate minimum rental payments under the land
leases were as follows (in thousands):
1998 $ 58
1999 58
2000 59
2001 59
2002 59
Thereafter 1,180
Total $1,473
NOTE I - ABANDONED LIMITED PARTNERSHIP UNITS
In 1996, the number of Limited Partnership Units decreased by 67 units due to
limited partners abandoning their units. In abandoning his or her Limited
Partnership Unit, a limited partner relinquishes all right, title and interest
in the Partnership as of the date of abandonment. However, during the year of
abandonment, the Limited Partner will still be allocated his or her share of the
income or loss. The income or loss per Limited Partnership Unit in the
accompanying Statements of Operations is calculated based on the number of units
outstanding at the beginning of the year.
NOTE J - REFINANCINGS
On November 1, 1996, the Partnership refinanced the mortgages encumbering Deer
Creek Apartments and Landmark Apartments. As a result of the refinance, the
Partnership incurred a $173,000 loss on refinancing due to the write-off of
unamortized loan costs and prepayment penalties incurred. The new mortgage
indebtedness of $6,300,000 for Deer Creek Apartments and $6,600,000 for Landmark
Apartments carries a stated interest rate of 7.33% and a maturity date of
November 2003. This refinancing was necessary due to the maturity of the
mortgage secured by Deer Creek Apartments in July 1996. Landmark Apartments was
refinanced to obtain a lower interest rate and to provide funds needed to help
close the Deer Creek Apartments refinancing.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no disagreements with Ernst & Young, LLP regarding the 1997 or 1996
audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Angeles Realty Corporation II ("ARC II" or the "Managing General Partner"), the
Partnership's managing general partner is a wholly-owned subsidiary of MAE GP
Corporation ("MAE GP"), an affiliate of Insignia Financial Group, Inc.
("Insignia").
The names of the directors and executive officers of ARC II, the Partnership's
Managing General Partner as of December 31, 1997, their ages and the nature of
all positions with ARC II presently held by them are as follows:
Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust
("IPT"), which is an affiliate of Insignia. Thus the Managing General Partner
is now a wholly-owned subsidiary of IPT.
Name Age Position
Carroll D. Vinson 57 President and Director
Robert D. Long, Jr. 30 Vice President and Chief
Accounting Officer
William H. Jarrard, Jr. 51 Vice President
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Carroll D. Vinson has been President and Director of the Managing General
Partner and President of Metropolitan Asset Enhancement, L.P., and subsidiaries
since August 1994. He has acted as Chief Operating Officer of IPT, an affiliate
of the Managing General Partner, since May 1997. During 1993 to August 1994,
Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and
engaged in various other investment and consulting activities which included
portfolio acquisitions, asset dispositions, debt restructurings and financial
reporting. Briefly, in early 1993, Mr. Vinson served as President and Chief
Executive Officer of Angeles Corporation, a real estate investment firm. From
1991 to 1993, Mr. Vinson was employed by Insignia in various capacities
including Managing Director - President during 1991.
Robert D. Long, Jr. has been Vice President of the Managing General Partner
since August 1994. Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"),
an affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice
President and Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an
accountant for Insignia until joining MAE in 1993. Prior to joining Insignia,
Mr. Long was an auditor for the State of Tennessee and was associated with the
accounting firm of Harsman Lewis and Associates.
William H. Jarrard, Jr. has been President and Director of the Managing General
Partner since December 1992. He has acted as Senior Vice President of IPT,
since May 1997. Mr. Jarrard previously acted as Managing Director - Partnership
Administration of Insignia from January 1991 through September 1997 and served
as Managing Director - Partnership Administration and Asset Management from July
1994 until January 1996.
Daniel M. LeBey has been Vice President and Secretary of the Managing General
Partner since January 29, 1998 and Insignia's Assistant Secretary since April
30, 1997. Since July 1996 he has also served as Insignia's Associate General
Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with the
law firm of Alston & Bird LLP, Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
since December 1992 and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of ARC II. The Partnership has no plan, nor does the
Partnership presently propose a plan, which will result in any remuneration
being paid to any officer or director upon termination of employment. However,
certain fees and other payments have been made to the Partnership's Managing
General Partner and its affiliates, as described in "Item 12.".
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 1997, no person owned of record more than 5% of Limited
Partnership Units of the Partnership nor was any person known by the Partnership
to own of record and beneficially, or beneficially only, more than 5% of such
securities.
The Partnership knows of no contractual arrangements, the operation of the terms
of which may at a subsequent date result in a change in control of the
Partnership, except for: Article 12.1 of the Agreement, which provide that upon
a vote of the Limited Partners holding more than 50% of the then outstanding
Limited Partnership Units the General Partners may be expelled from the
Partnership upon 90 days written notice. In the event that successor general
partners have been elected by Limited Partners holding more than 50% of the then
outstanding Limited Partnership Units and if said Limited Partners elect to
continue the business of the Partnership, the Partnership is required to pay in
cash to the expelled General Partners an amount equal to the accrued and unpaid
management fee described in Article 10 of the Agreement and to purchase the
General Partners' interest in the Partnership on the effective date of the
expulsion, which shall be an amount equal to the difference between (i) the
balance of the General Partners' capital account and (ii) the fair market value
of the share of Distributable Net Proceeds to which the General Partners would
be entitled. Such determination of the fair market value of the share of
Distributable Net Proceeds is defined in Article 12.2(b) of the Agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 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 payments were paid or
accrued to the Managing General Partner and affiliates in 1997 and in 1996:
1997 1996
Property management fees $ 335 $ 322
Reimbursement for services of affiliates
229 217
Included in "Reimbursements for services of affiliates" is approximately $54,000
in construction oversight costs for 1997. No construction oversight costs were
incurred during 1996.
A director of Insignia Financial Group, Inc. is affiliated with a professional
legal association that received fees of $24,000 in connection with the 1996
refinancing of Deercreek Apartments and Landmark Apartments.
For the period from January 1, 1996, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency and insurer unaffiliated
with the Managing General Partner. An affiliate of the Managing General Partner
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the master
policy. The agent assumed the financial obligations to the affiliate of the
Managing General Partner who receives payment on these obligations from the
agent. The amount of the Partnership's insurance premiums that accrued to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
Effective February 25, 1998, MAE GP Corporation ("MAE GP") was merged into
Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the
Managing General Partner is now a wholly-owned subsidiary of IPT.
Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust,
provided financing to the Joint Venture, which is secured by the Joint Venture's
investment property known as the Princeton Meadows Golf Course, in the amount of
$1,567,000. Total interest expense was $196,000 and $200,000 for the years ended
December 31, 1997 and 1996, respectively.
In November 1992, MAE GP Corporation ("MAE GP") acquired 1,675,113 Class B
Common Shares of AMIT. The terms of the Class B shares provide that they are
convertible, in whole or in part, into Class A Common Shares of AMIT on the
basis of 1 Class A share for every 49 Class B shares (however, in connection
with the settlement agreement described in the following paragraph, MAE GP
agreed not to convert the Class B shares so long at AMIT's option is
outstanding). These Class B Shares entitle the holder to receive 1% of the
distributions of net cash distributed by AMIT (however, in connection with the
settlement agreement described in the following paragraph, MAE GP agreed to
waive its right to receive dividends and distributions so long as AMIT's option
is outstanding). The holder of the Class B shares is also entitled to vote on
the same basis as the holders of Class A shares, providing the holder with
approximately 39% of the total voting power of AMIT (unless and until converted
to Class A shares, in which case the percentage of the vote controlled
represented by such shares would approximate 1.3% of the total voting power of
AMIT).
As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an
option to acquire the Class B shares owned by it. This option can be exercised
at the end of 10 years or when all loans made by AMIT to partnerships which were
affiliated with MAE GP as of November 9, 1994 (which is the date of execution of
a definitive settlement agreement), have been paid in full. In connection with
such settlement, AMIT delivered to MAE GP cash in the sum of $250,000 at closing
(which occurred April 14, 1995), as payment for the option. If and when the
option is exercised, AMIT will be required to remit to MAE GP an additional
$94,000.
Simultaneously with the grant of the option and as part of the settlement, MAE
GP also executed an irrevocable proxy in favor of AMIT, which provides that the
holder of the Class B shares is permitted to vote those shares on all matters
except those involving transactions between AMIT and MAE GP affiliated borrowers
or the election of any MAE GP affiliate as an officer or trustee of AMIT. With
respect to such matters, the trustees of AMIT are required to vote (pursuant to
the irrevocable proxy) the Class B shares (as a single block) in the same manner
as a majority of the Class A shares are voted (to be determined without
consideration of the votes of "Excess Class A Shares" (as defined in Section
6.13 of AMIT's Declaration of Trust)).
Between its acquisition of the Class B shares (in November 1992) and March 31,
1995, MAE GP declined to vote these shares. Since that date, MAE GP voted its
shares at the 1995 and 1996 annual meetings in connection with the election of
trustees and other matters. In February 1998, MAE GP was merged into Insignia
Properties Trust, and in connection with that merger, MAE GP dividended all of
the Class B shares to its sole stockholder, Metropolitan Asset enhancement, L.P.
("MAE"). As a result, MAE, as the holder of the Class B shares, is now subject
to the terms of the settlement agreement, option and irrevocable proxy described
in the two preceding paragraphs. Neither MAE GP nor MAE has exerted and intends
to exert any management control over or participate in the management of AMIT.
However, subject to the terms of the proxy described below, MAE may choose to
vote the Class B shares as it deems appropriate in the future.
Liquidity Assistance L.L.C., which is an affiliate of the General Partner, MAE
and Insignia Financial Group, Inc. ("Insignia") (which provides property
management and partnership administration services to the Partnership), owned
96,800 Class A shares of AMIT at December 31, 1997. These Class A shares
represent approximately 2.2% of the total voting power of AMIT.
On April 3, 1997, Insignia and AMIT entered into a non-binding agreement in
principle contemplating, among other things, a business combination of AMIT and
Insignia Properties Trust, an entity then owned 98% by Insignia and its
affiliates ("IPT"). On July 18, 1997, IPT, Insignia and MAE GP entered into a
definitive merger agreement pursuant to which (subject to shareholder approval
and certain other conditions, including the receipt by AMIT of a fairness
opinion from its investment bankers) AMIT would be merged with and into IPT,
with each Class A share and Class B share being converted into 1.625 and 0.0332
common shares of IPT, respectively. The foregoing exchange ratios are subject
to adjustment to account for dividends paid by AMIT from January 1, 1997 and
dividends paid by IPT from February 1, 1997. It is anticipated that Insignia
and its affiliates (including MAE) would own approximately 57% of post-merger
IPT when this transaction is consummated.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B: Refer to
Exhibit Index.
(b) No reports on Form 8-K were filed during the fourth quarter of
1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES INCOME PROPERTIES, LTD. II
(A California Limited Partnership)
(Registrant)
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President, Director
Date: March 13, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities on the date
indicated.
/s/Carroll D. Vinson President, Director Date: March 13, 1998
Carroll D. Vinson
/s/Robert D. Long, Jr. Vice President and Chief Date: March 13, 1998
Robert D. Long, Jr. Accounting Officer
ANGELES INCOME PROPERTIES, LTD. II
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3.1 Amendment Agreement of Limited Partnership of
the Partnership dated October 12, 1982 filed in
Form 10K dated November 30, 1983, incorporated
herein by reference
3.2 Amended Agreement of Limited Partnership of the
Partnership dated March 31, 1983 filed in the
Prospectus, of the Partnership, as Exhibit A,
dated March 31, 1983 incorporated herein by
reference
10.1 Agreement of Purchase and of Real Property with
Exhibits - Executive Plaza filed in Form 8K
dated September 27, 1983, incorporated herein by
reference
10.2 Agreement of Purchase and Sale of Real Property
with Exhibits - Atlanta Crossing Shopping Center
filed in Form 8K dated September 27, 1983,
incorporated herein by reference.
10.3 Agreement of Purchase and Sale of Real Property
with Exhibits - Deer Creek Apartments filed in
Form 8K dated September 28, 1983, incorporated
herein by reference.
10.4 Agreement of Purchase and Sale of Real Property
with Exhibits - Georgetown Apartments filed in
Form 8K dated November 21, 1983, incorporated
herein by reference
10.5 Agreement of Purchase and Sale of Real Property
with Exhibits - Landmark Apartments filed in
Form 8K dated December 16, 1983, incorporated
herein by reference
10.6 Multifamily Note - Deer Creek Apartments, dated
June 11, 1986 filed in Form 10K dated February
25, 1987, incorporated herein by reference.
10.7 Multifamily Note - Georgetown Apartments, dated
June 16, 1985, incorporated herein by reference.
10.8 Additional Financing - Deer Creek Apartments,
dated September 22, 1987. Funded November 1988
filed in Form 10K dated March 29, 1989,
incorporated herein by reference.
10.9 Additional Financing - Georgetown Apartments,
dated September 22, 1989, incorporated herein by
reference.
10.10 Purchase and Sale Agreement with Exhibits -
dated July 26, 1991 between Princeton Golf
Course Joint Venture and Lincoln Property
Company No. 199 filed in Form 10-K dated March
27, 1992, incorporated herein by reference.
10.11 Princeton Golf Course Joint Venture Agreement
with Exhibits - dated August 21, 1991 between
the Partnership, Angeles Partners XI and Angeles
Partners XII filed in Form 10-K dated March 27,
1992, incorporated herein by reference.
10.12 Stock Purchase Agreement dated November 24, 1992
showing the purchase of 100% of the outstanding
stock of Angeles Realty Corporation II, a
subsidiary of MAE GP Corporation, filed in Form
8-K dated December 31, 1993, which is
incorporated herein by reference.
10.13 Deed in Lieu of Foreclosure between Executive
Plaza, L.P. and Capshaw Investment Company,
L.L.C. dated March 20, 1995, incorporated herein
by reference.
10.14 Multifamily Note - Deercreek Apartments between
Angeles Income Properties, Ltd. II and Lehman
Brothers Holdings, Inc. d/b/a Lehman Capital, a
division of Lehman Brothers Holdings, Inc. dated
November 1, 1996.
10.15 Multifamily Note - Landmark Apartments between
Angeles Income Properties, Ltd. II and Lehman
Brothers Holdings, Inc. d/b/a Lehman Capital, a
division of Lehman Brothers Holdings, Inc. dated
November 1, 1996.
16 Letter from the Registrant's former accountant
regarding its concurrence with the statements
made by the registrant is incorporated by
reference to the Exhibit filed with Form 8-K
dated September 1, 1993.
27 Financial Data Schedule is filed as an Exhibit
to this report.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties, Ltd. II 1997 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000711642
<NAME> ANGELES INCOME PROPERTIES, LTD. II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,099
<SECURITIES> 0
<RECEIVABLES> 564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,800
<DEPRECIATION> (24,462)
<TOTAL-ASSETS> 16,868
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 18,197
0
0
<COMMON> 0
<OTHER-SE> (2,229)
<TOTAL-LIABILITY-AND-EQUITY> 16,868
<SALES> 0
<TOTAL-REVENUES> 7,261
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,462
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145
<EPS-PRIMARY> 1.44<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
