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, 1998
[ ] 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.)
55 Beattie Place, 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 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. $ 7,563,000
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 December 31, 1998. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
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 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 "ARC II"). ARC II was wholly-owned by
MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged
into Insignia Properties Trust ("IPT"), a subsidiary of Apartment Investment and
Management Company ("AIMCO"). Thus, the Managing General Partner is now wholly-
owned by IPT. The Elliott Accommodation Trust and the Elliott Family
Partnership, Ltd., California limited partnerships, were the Non-Managing
General Partners. Effective December 31, 1997 the Elliott Family Partnership,
Ltd. acquired the Elliott Accommodation Trust's general partner interest in the
Registrant. The Managing General Partner and the Non-Managing General Partner
are herein collectively referred to as the "General Partners". The Partnership
Agreement provides that the Partnership is to terminate on December 31, 2037
unless terminated prior to such date.
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 and operates
three apartment properties, one commercial property and a general partnership
interest in a fifth property (See "Item 2. Properties"). Since its initial
offering, the Registrant has not received, nor are limited partners required to
make, additional capital contributions.
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 by holding and operating the properties or through
property sales or exchanges, 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.
A further description of the Partnership's business is included in Management's
Discussion and Analysis or Plan of Operation included in "Item 6" of this Form
10-KSB.
The Partnership has no full time employees. Management and administrative
services are provided by the Managing General Partner and by agents retained by
the Managing General Partner. An affiliate of the Managing General Partner
provided such property management services for the residential properties for
the years ended December 31, 1998 and 1997. Effective October 1, 1998 property
management services for the commercial properties were provided by an unrelated
party.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential and commercial properties within the
market area of the Partnership's properties. The number and quality of
competitive properties, including those which may be managed by an affiliate of
the Managing General Partner, in such market area could have a material effect
on the rental market for apartment and commercial properties owned by the
Partnership and the rents that may be charged for such properties. While the
Managing General Partner and its affiliates are a significant factor in the
United States in the apartment industry, competition for apartments and
commercial properties is local. In addition, various limited partnerships have
been formed by the Managing General Partner and/or affiliates to engage in
business which may be competitive with the Registrant.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed. See discussion of ongoing
environmental clean-up project at Princeton Meadows in Management Discussion and
Analysis or Plan of Operation included in "Item 6" of this Form 10-KSB.
Both the income and expenses of operating the remaining properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Partnership.
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
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls 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.
Subsequent Event
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 $3,452,000 after payment of closing costs,
resulting in a gain on sale of approximately $422,000. The Partnership's 1999
pro-rata share of this gain is expected to be approximately $1,305,000.
Furthermore, as a result of the sale, unamortized loan costs in the amount of
$6,500 were written off. This resulted in an extraordinary loss on early
extinguishment of debt of approximately $6,500. The Partnership's 1999 pro-rata
share of this extraordinary loss is expected to be approximately $1,000.
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 (1)
Landmark Apartments 12/16/83 Fee ownership subject to Apartments
Raleigh, NC a first mortgage 292 units
(1) Property is held by a limited partnership in which the Registrant owns a
99% interest.
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"). On February 26, 1999, the Joint Venture sold its
only investment property, Princeton Meadows Golf Course, to an unaffiliated
third party (see "Note K" of the consolidated financial statements included in
"Item 7. Financial Statements"). The property owned by the Joint Venture, as of
December 31, 1998, 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 consolidated balance sheet
included in "Item 7. Financial Statements".
SCHEDULE OF PROPERTIES:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
Atlanta Crossing
Shopping Center $ 5,313 $ 4,762 5-20 yrs (1) $ 1,514
Deer Creek Apts. 11,933 6,957 5-20 yrs (1) 4,143
Georgetown Apts. 7,387 5,275 5-20 yrs (1) 945
Landmark Apts. 12,157 8,865 5-20 yrs (1) 2,174
$36,790 $25,859 $ 8,776
(1) Straight line and accelerated.
See "Note A" of the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation
policy.
SCHEDULE OF PROPERTY INDEBTEDNESS:
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1998 Rate Amortized Date Maturity(2)
(in thousands) (in thousands)
Deer Creek Apts.
1st mortgage $ 6,170 7.33% 30 yrs 11/2003 $ 5,779
Georgetown Apts.
1st mortgage 5,257 7.83% 28.67 yrs 10/2003 4,806
2nd mortgage 173 7.83% (1) 10/2003 173
Landmark Apts.
1st mortgage 6,463 7.33% 30 yrs 11/2003 6,054
18,063 $16,812
Less unamortized
discount (64)
$17,999
(1) Interest only payments.
(2) See "Item 7. Financial Statements - Note C" for information with respect to
the Partnership's ability to prepay these loans.
RENTAL RATES AND OCCUPANCY:
Average annual rental rate and occupancy for 1998 and 1997 for each property:
Average Annual Average Annual
Rental Rates Occupancy
Property 1998 1997 1998 1997
Atlanta Crossing
Shopping Center (1) $4.51/sf $4.46/sf 59% 91%
Deer Creek Apartments 8,920/unit 8,698/unit 97% 96%
Georgetown Apartments 7,624/unit 7,378/unit 96% 97%
Landmark Apartments 8,308/unit 8,176/unit 92% 91%
(1) Bruno's, an anchor tenant, declared bankruptcy and vacated Atlanta Crossing
in February of 1998. This tenant was subleasing the space and the previous
tenant is liable for, and the Partnership expects that it will pay, its
rental payment through the year 2007. It is unknown to what extent this
vacancy will negatively impact the performance of the shopping center in
the future. Atlanta Crossing's average occupancy for 1998 shown above
represents the center's physical occupancy. Because the original tenant
has continued making the rental payments, the center's economic average
occupancy for the years ended December 31, 1998 and 1997 is 90% and 91%,
respectively.
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. Each residential property is an apartment complex which
leases its units for lease terms of one year or less. No residential tenant
leases 10% or more of the available rental space. All of the properties are in
good physical condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
SCHEDULE OF LEASE EXPIRATIONS:
The following is a schedule of the commercial lease expirations for the years
1999-2008:
Number of Annual % of Gross
Atlanta Crossing Expirations Square Feet Rent Annual Rent
(in thousands)
1999 2 3,560 33 4.67%
2000 2 3,200 25 3.50%
2001 2 10,658 72 10.12%
2002 1 3,970 41 5.68%
2003 3 10,688(1) 118 16.48%
2004 2 11,971(1) 77 10.71%
2005 1 --(1) 28 3.93%
2006 2 55,009 214 29.88%
2007 1 53,820 65 9.06%
2008 -- -- -- --
(1) Includes a tenant that holds a ground lease and is not included in the
total square footage for the property (See "Note I" 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
SCHEDULE OF REAL ESTATE TAXES AND RATES:
Real estate taxes and rates in 1998 for each property were:
1998 1998
Billing Rate
(in thousands)
Atlanta Crossing
Shopping Center $ 50 3.45%
Deer Creek Apartments 281 2.62%
Georgetown Apartments 128* 9.08%
Landmark Apartments 113 1.15%
*Amount per 1997 billings; tax bills for 1998 not yet received.
CAPITAL IMPROVEMENTS:
Atlanta Crossing
During 1998, the Partnership spent approximately $81,000 on capital
improvements, which consisted primarily of tenant improvements. These
improvements were funded from operating cash flow. 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 the property requires approximately $300,000
of capital improvements over the near term. The Partnership has budgeted, but
is not limited to, capital improvements of approximately $58,000 for 1999 which
consists of tenant improvements.
Deer Creek
During 1998, the Partnership spent approximately $1,239,000 on capital
improvements consisting primarily of a major siding and exterior lighting
project. These improvements were funded from capital improvement reserves and
operating cash flow. 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 the
property requires approximately $535,000 of capital improvements over the near
term. The Partnership has budgeted, but is not limited to, capital improvements
of approximately $649,000 for 1999 which includes landscaping and irrigation
improvements, parking lot and pool repairs, exterior painting, and other
interior and exterior building improvements.
Georgetown
During 1998, the Partnership spent approximately $150,000 on capital
improvements which consisted primarily of roof replacement, carpet replacement,
appliances and other building improvements. These improvements were funded from
operating cash flow. 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 the
property requires approximately $259,000 of capital improvements over the near
term. The Partnership has budgeted, but is not limited to, capital improvements
of approximately $683,000 for 1999 which included roof replacement, parking lot
repairs, exterior painting, and other interior and exterior building
improvements.
Landmark
During 1998, the Partnership spent approximately $147,000 on capital
improvements consisting primarily of carpet replacement, appliances, office
furniture and equipment and other building improvements. These improvements
were primarily funded from capital and replacement reserves. 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 the property requires approximately $378,000
of capital improvements over the near term. The Partnership has budgeted, but
is not limited to, capital improvements of approximately $458,000 for 1999 which
includes landscaping and irrigation improvements, parking lot repairs, siding
replacement, exterior painting and carpet replacements.
The capital improvements planned for 1999 at the Partnership's property will be
made only to the extent of cash available from operations and Partnership
reserves.
ITEM 3. 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 and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The 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, to be material to
the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's net income.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The unit holders of the Partnership did not vote on any matter during the
quarter ended December 31, 1998.
PART II
ITEM 5.MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Partnership, a publicly-held limited partnership, offered and sold 100,000
Limited Partnership Units aggregating $50,000,000. The Partnership currently
has 3,025 holders of record owning an aggregate of 99,784 units. Affiliates of
the Managing General Partner owned 22,248 units or 22.297% at December 31, 1998.
No public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
Cash distributions from operations of approximately $1,487,000 ($14.75 per
limited partnership unit) and $1,000,000 ($9.92 per limited partnership unit)
were made to the partners during the years ended December 31, 1998 and 1997,
respectively. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and the availability of
cash reserves. The Partnership's distribution policy will be reviewed on a
quarterly basis. There can be no assurance, however, that the Partnership will
generate sufficient funds from operations after required capital expenditures to
permit any distributions to its partners in 1999 or subsequent periods.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussions
of the Registrant's business and results of operations, including forward-
looking statements pertaining to such matters, does not take into account the
effects of any changes to the Registrant's business and results of operations.
Accordingly, actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
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, 1998, was
approximately $60,000 compared to approximately $145,000 for the year ended
December 31, 1997. (See "Note D" of the financial statements for a
reconciliation of these amounts to the Registrant's federal taxable income).
The decrease in net income is primarily due to an increase in total expenses
which was partially offset by an increase in total revenues. Rental income
increased due to increased rental rates at all the Partnership's properties,
increased occupancy at Deer Creek and Landmark Apartments and increased tenant
reimbursements at Atlanta Crossing. The increase in expenses is primarily due to
an increase in operating and general and administrative expenses offset by a
decrease in loss on disposal of property. The increase in operating expenses was
primarily due to increased spending on major repairs and maintenance. These
repairs were mostly related to a renovation project at Landmark Apartments.
This renovation project includes the correction of drainage problems and related
foundation repairs along with exterior building repairs and painting in order to
improve the appearance of the property. General and administrative expenses
increased due to increased legal costs, appraisal fees, printing and mailing
costs and Partnership reimbursements as well as a management fee accrued to the
Managing General Partner based on a percentage of positive cash flow as allowed
in the Partnership Agreement. Included in general and administrative expenses at
both December 31, 1998 and 1997, are reimbursements to the Managing General
Partner allowed under the Partnership Agreement associated with its management
of the partnership. 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 recorded losses on disposal of property of approximately
$157,000 and $180,000 for the years ended December 31, 1998 and 1997,
respectively. The 1998 loss resulted from the write-off of siding at Deer Creek
Apartments, while the 1997 loss resulted from the write-off of roofs and parking
lot at Deer Creek. Both of these losses were the result of the write-off of
assets not fully depreciated at the time of replacement.
The Partnership has a 14.4% investment in the Princeton Meadows Golf Course
Joint Venture. For the year ended December 31, 1998, the Partnership realized
equity in the loss of the Joint Venture of approximately $2,000, compared to
equity in the income of the Joint Venture of approximately $13,000 for the year
ended December 31, 1997, (See "Note G - Investment in Joint Venture" in "Item
7"). The loss is primarily attributable to a decrease in revenue as a result of
poor weather conditions. On February 26, 1999, the Joint Venture sold Princeton
Meadows Golf Course to an unaffiliated third party (see "Note K" of the
financial statements in "Item 7")
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
The Partnership held cash and cash equivalents of approximately $2,063,000 at
December 31, 1998, compared to approximately $3,099,000 at December 31, 1997.
The decrease in cash and cash equivalents is due to approximately $1,417,000 of
cash used in investing activities and approximately $1,695,000 used in financing
activities which was offset by approximately $2,076,000 of cash provided by
operations. Cash used in investing activities consisted of property
improvements and replacements which was slightly offset by net withdrawals from
escrow accounts maintained by the mortgage lenders. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Partnership's properties and distributions to the partners. The Partnership
invests its working capital reserves in money market accounts.
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 an additional $45,000 in 1997. The Managing General Partner believes the
liability recorded of approximately $53,000 at December 31, 1998, is sufficient
to cover all remaining costs associated with this incident. Upon the sale of
the Golf Course, as noted below, the Joint Venture received documents from the
Purchaser releasing the Joint Venture from any further responsibility or
liability with respect to the clean-up.
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 $3,452,000 after payment of closing costs,
resulting in a gain on sale of approximately $2,032,000. The Partnerships' 1999
pro-rata share of this gain is expected to be approximately $422,000.
Furthermore, as a result of the sale, unamortized loan costs in the amount of
$6,500 were written off. This resulted in an extraordinary loss on early
extinguishment of debt of approximately $6,500. The Partnership's 1999 pro-rata
share of this extraordinary gain is expected to be approximately $1,000.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. The Partnership
has budgeted approximately $1,848,000 in capital improvements for all of the
Partnership's properties in 1999. Budgeted capital improvements at Atlanta
Crossing Shipping Center include tenant improvements. Budgeted capital
improvements at Deer Creek Apartments include landscaping and irrigation
improvements, parking lot and pool repairs, exterior painting and other interior
and exterior building improvements. Budgeted capital improvements at Georgetown
Apartments include siding and roof replacement, parking lot repairs, exterior
painting and other interior and exterior building improvements. Budgeted
capital improvements at Landmark Apartments include siding replacement,
landscaping and irrigation improvements, parking lot repairs, carpet
replacement, exterior painting and other interior and exterior building
improvements. The capital expenditures will be incurred only if cash is
available from operations or from Partnership reserves. To the extent that such
budgeted capital improvements are completed, the Partnership's distributable
cash flow, if any, may be adversely affected.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $17,999,000, net of discount, is amortized over
periods ranging from approximately 29 to 30 years with balloon payments due in
2003. The Managing General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity date. If the properties
cannot be refinanced or sold for a sufficient amount, the Partnership will risk
losing such properties through foreclosure.
Cash distributions from operations of approximately $1,487,000 and $1,000,000
were paid to the partners during the years ended December 1998 and 1997,
respectively. The Partnership's distribution policy will be reviewed on a
quarterly basis. There can be no assurance, however, that the Partnership will
generate sufficient funds from operations after required capital expenditures to
permit distributions to its partners in 1999 or subsequent periods.
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and 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
December 31, 1998, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.
Computer software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
ITEM 7. FINANCIAL STATEMENTS
ANGELES INCOME PROPERTIES, LTD. II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1998
Consolidated Statements of Operations - Years ended December 31, 1998 and 1997
Consolidated Statements of Changes in Partners' Deficit - Years ended December
31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1998 and 1997
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, 1998, 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, 1998. 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, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 3, 1999
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1998
Assets
Cash and cash equivalents $ 2,063
Receivables and deposits (net of allowance
for doubtful accounts of $321) 654
Restricted escrows 852
Other assets 659
Investment in, and advances of $46 to, joint
venture (Note G) 58
Investment properties (Notes C and F):
Land $ 2,198
Buildings and related personal
property 34,592
36,790
Less accumulated depreciation (25,859) 10,931
$ 15,217
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 119
Tenant security deposit liabilities 269
Accrued property taxes 254
Other liabilities 232
Mortgage notes payable (Notes C and F) 17,999
Partners' Deficit
General partners $ (476)
Limited partners (99,784 units issued
and outstanding) (3,180) (3,656)
$ 15,217
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,
1998 1997
Revenues:
Rental income $7,083 $6,788
Other income 480 454
Total revenues 7,563 7,242
Expenses:
Operating 2,997 2,715
General and administrative 344 250
Depreciation 1,867 1,814
Interest 1,439 1,462
Property taxes 580 565
Bad debt expense, net 117 124
Loss on disposal of property 157 180
Total expenses 7,501 7,110
Equity in (loss) income of joint venture (Note G) (2) 13
Net income $ 60 $ 145
Net income allocated to general partners (1%) $ 1 $ 1
Net income allocated to limited partners (99%) 59 144
$ 60 $ 145
Net income per limited partnership unit $ .59 $ 1.44
Distributions per limited partnership unit $14.75 $ 9.92
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, 1996 99,784 $ (453) $ (921) $ (1,374)
Distribution 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)
Distribution to partners -- (15) (1,472) (1,487)
Net income for the year ended
December 31, 1998 -- 1 59 60
Partners' deficit at
December 31, 1998 99,784 $ (476) $ (3,180) $ (3,656)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997
Cash flows from operating activities:
Net income $ 60 $ 145
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,867 1,814
Amortization of discounts, loan costs and
lease commissions 96 102
Bad debt expense, net 117 124
Equity in loss (income) of joint venture 2 (13)
Loss on disposal of property 157 180
Change in accounts:
Receivables and deposits (207) (134)
Other assets (45) (47)
Accounts payable (46) 65
Tenant security deposit liabilities 8 5
Accrued property taxes 1 75
Other liabilities 66 (5)
Net cash provided by operating activities 2,076 2,311
Cash flows from investing activities:
Property improvements and replacements (1,672) (1,365)
Net withdrawals from restricted escrows 255 499
Advances to joint venture -- (3)
Net cash used in investing activities (1,417) (869)
Cash flows from financing activities:
Loan costs paid -- (10)
Payments on mortgage notes payable (208) (188)
Distributions to partners (1,487) (1,000)
Net cash used in financing activities (1,695) (1,198)
Net (decrease) increase in cash and cash equivalents (1,036) 244
Cash and cash equivalents at beginning of year 3,099 2,855
Cash and cash equivalents at end of year $ 2,063 $ 3,099
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,360 $ 1,380
Supplemental disclosure of non-cash investing activity:
Fixed assets included in accounts payable $ -- $ 55
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. II
Notes to Consolidated Financial Statements
December 31, 1998
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, responsible for management of the
Partnership's business, is Angeles Realty Corporation II ("ARC II"). ARC II was
wholly-owned by MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE
GP was merged into Insignia Properties Trust ("IPT"), a subsidiary of Apartment
Investment and Management Company ("AIMCO"). Thus, the Managing General Partner
is now wholly-owned by IPT. The Elliott Accommodation Trust and the Elliott
Family Partnership, Ltd., California limited partnerships, were the Non-Managing
General Partners. Effective December 31, 1997 the Elliott Family Partnership,
Ltd. acquired the Elliott Accommodation Trust's general partner interest in the
Registrant. The Managing General Partner and the Non-Managing General Partner
are herein collectively referred to as the "General Partners" (See "Note B -
Transfer of Control"). The directors and officers of the Managing General
Partner also serve as executive officers of AIMCO. The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2037 unless
terminated prior to such date. The Partnership commenced operations on October
12, 1982. As of December 31, 1998, the Partnership operates three residential
properties 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, LLC and
Georgetown AIP II, LP. The Partnership may remove the general partner of both
AIP II GP, LLC 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
(See "Note G").
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:
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.
Second, to the partners until the limited partners have received distributions
from all sources equal to their 6% cumulative distribution; Third, to the
Managing General Partner until it has received its brokerage compensation;
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 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 provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
over 27 1/2 years and (2) personal property additions over 7 years.
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 consist of three apartment
complexes and one commercial shopping center and are stated at cost.
Acquisition fees are capitalized as a cost of real estate. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate 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. Costs of investment properties
that have been permanently impaired have been written down to appraised value.
No adjustments for impairment of value were necessary for the years ending
December 31, 1998, or 1997.
Loan Costs: Loan costs, included in other assets on the consolidated 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 $224,000 and is also included in other assets on the consolidated
balance sheet. Amortization of loan costs is included in interest expense in
the accompanying consolidated 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. The Partnership recognizes income as earned on its residential leases.
Commercial building lease terms are generally from twelve months to twenty-five
years. For leases containing fixed rental increases during their term, rents are
recognized on a straight-line basis over the terms of the lease. For all other
commercial leases, rents are recognized over the terms of the leases as earned.
In addition, the Managing General Partner's policy is to offer rental
concessions during periods of declining occupancy or in response to heavy
competition from other similar complexes in the area. Concessions are charged
against rental income as incurred.
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: SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", as amended by SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate fair
value. Fair value is defined in the SFAS as the amount at which the instruments
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. 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 to maturity, approximates its carrying balance.
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, 1998,
the balance remaining in the escrows was $470,000 and $98,000, 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, 1998, the
balance was $95,000, which includes interest earned on these funds.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("Statement 131"), which is effective for years beginning after
December 15, 1997. Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial report. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. (See "Note L" for detailed disclosures
of the Partnership's segments).
Advertising: The Partnership expenses the cost of advertising as incurred.
Advertising costs of approximately $58,000 and $64,000 for the years ended
December 31, 1998 and 1997, respectively, were charged to operating expense as
incurred.
Reclassifications: Certain reclassifications have been made to the 1997
balances to conform to the 1998 presentation.
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
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls 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 - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1998 Interest Rate Date Maturity
(in thousands) (in thousands)
Deer Creek Apts.
1st mortgage $ 6,170 $ 43 7.33% 11/2003 $ 5,779
Georgetown Apts.
1st mortgage 5,257 41 7.83% 10/2003 4,806
2nd mortgage 173 1 7.83% 10/2003 173
Landmark Apts.
1st mortgage 6,463 45 7.33% 11/2003 6,054
$18,063 $ 130 $16,812
Less unamortized
discounts (64)
$17,999
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 effective 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, 1998, are as follows (in thousands):
1999 $ 225
2000 242
2001 261
2002 281
2003 17,054
$18,063
NOTE D - 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
consolidated financial statements of the Partnership.
The following is a reconciliation of reported net income and Federal taxable
income loss (in thousands, except per unit data):
1998 1997
Net income as reported $ 60 $ 145
Add (deduct):
Depreciation differences 999 (3)
Unearned income (45) 99
Accrued audit 23 (4)
Other 271 150
Federal taxable income $1,308 $ 387
Federal taxable income per limited
partnership unit $12.98 $3.84
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net deficit as reported $(3,656)
Land and buildings 4,039
Accumulated depreciation (6,194)
Syndication and distribution costs 6,148
Investment in Joint Venture 197
Unearned income 151
Accrued audit 39
Other (109)
Net assets - Federal tax basis $ 615
NOTE E - 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 1998 and in 1997:
1998 1997
(in thousands)
Property management fees (included in operating expense) $350 $335
Partnership management fees (included in general and
administrative expense)(1) 45 --
Reimbursement for services of affiliates (included in
investment properties, operating expense and general
and administrative expense) (2) 264 211
(1) The Partnership Agreement provides for a fee equal to 10% of "net cash flow
from operations", as defined in the Partnership Agreement to be paid to the
Managing General Partner for executive and administrative management
services.
(2) Included in "Reimbursements for services of affiliates" is approximately
$90,000 and $54,000 in construction oversight costs for 1998 and 1997,
respectively.
Additionally, the Partnership paid approximately $57,000 and $18,000 during the
year ended December 31, 1998 and December 31, 1997, respectively, to an
affiliate of the Managing General Partner for lease commissions at the
Partnership's commercial property. These lease commissions are included in
other assets and are amortized over the terms of the respective leases.
During the years ended December 31, 1998 and 1997, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates $327,000 and $315,000 for the years ended
December 31, 1998 and 1997 respectively. During the year ended December 31, 1997
and for the nine months ending September 30, 1998 affiliates of the Managing
General Partner were entitled to varying percentages of gross receipts from the
Registrant's commercial property for providing property management services.
These services were performed by affiliates of the Managing General Partner
during 1997 and for the nine months ending September 31, 1998 and were
approximately $23,000 and $20,000. Effective October 1, 1998 (the effective
date of the Insignia Merger), these services for the commercial properties were
provided by an unrelated party.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $264,000 and
$211,000 for the years ended December 31, 1998 and 1997, respectively.
On April 24, 1998, an affiliate of the Managing General Partner ("the
Purchaser") commenced a tender offer for limited partnership interests in the
Partnership. The Purchaser offered to purchase up to 40,000 of the outstanding
units of limited partnership interest ("Units") in the Partnership at a purchase
price of $150 per Unit, net to the seller in cash. On May 21, 1998, the tender
offer was officially closed with 8,908 Limited Partner Units being acquired by
the Purchaser.
On August 13, 1998, an affiliate of the Managing General Partner (the
"Purchaser") commenced a second tender offer for limited partnership interests
in the Partnership. The Purchaser offered to purchase up to 30,000 of the
outstanding units of limited partnership interest ("Units") in the Partnership
at $175 per Unit, net to the seller in cash. The Purchaser acquired 5,864 units
pursuant to this tender offer.
AIMCO currently owns, through its affiliates, a total of 22,248 limited
partnership units or 22.296%. Consequently, AIMCO could be in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Managing General Partner because of their
affiliation with the Managing General Partner.
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an 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 current's year's
master policy. The agent assumed the financial obligations to the affiliate of
the Managing General Partner which receives payments 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.
Angeles Mortgage Investment Trust, ("AMIT"), a real estate investment trust,
provides financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint
Venture ("Joint Venture"), (see "Note G" below). The AMIT Loan had a principal
balance of $1,567,000 at December 31, 1998, accrues interest at a rate of 12.5%
per annum and matures on September 1, 2000, at which time the outstanding
principal and any unpaid interest is due. Interest expense on the debt secured
by the Joint Venture was approximately $196,000 for the years ended December 31,
1998 and 1997, respectively. Accrued interest was $18,000 at December 31, 1998.
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 controls the Managing General Partner.
Effective February 26, 1999, IPT was merged into AIMCO. As a result, AIMCO is
the current 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.
NOTE F - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Atlanta Crossing
Shopping Center $ -- $ 213 $ 6,071 $ (971)
Deer Creek Apts. 6,170 953 8,863 2,117
Georgetown Apts. 5,430 294 6,545 548
Landmark Apts. 6,463 738 9,885 1,534
Totals $18,063 $ 2,198 $31,364 $ 3,228
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1998
(in thousands)
Buildings
And
Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Atlanta Crossing
Shopping Center $ 213 $ 5,100 $ 5,313 $ 4,762 09/27/83 5-20
Deer Creek Apts. 953 10,980 11,933 6,957 09/28/83 5-20
Georgetown Apts. 294 7,093 7,387 5,275 11/21/83 5-20
Landmark Apts. 738 11,419 12,157 8,865 12/16/83 5-20
Totals $ 2,198 $34,592 $36,790 $25,859
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1998 1997
(in thousands)
Investment Properties
Balance at beginning of year $35,800 $35,109
Property improvements 1,617 1,267
Write-offs due to replacements (627) (576)
Balance at end of year $36,790 $35,800
Accumulated Depreciation
Balance at beginning of year $24,462 $23,044
Additions charged to expense 1,867 1,814
Write-offs due to replacements (470) (396)
Balance at end of year $25,859 $24,462
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $40,829,000 and $39,343,000,
respectively. The accumulated depreciation taken for Federal income tax
purposes at December 31, 1998 and 1997, is approximately $32,053,000 and
$31,317,000.
NOTE G - INVESTMENT IN JOINT VENTURE
Condensed balance sheet information of the Joint Venture at December 31, 1998,
is as follows (in thousands):
Assets
Cash $ 118
Deferred charges and other assets 169
Investment properties, net 2,036
Total $2,323
Liabilities and Partners' Capital
Notes payable to AMIT (Note E) $1,567
Other liabilities 671
Partners' capital 85
Total $2,323
The condensed profit and loss statement of the Joint Venture is summarized as
follows:
Year Ended December 31,
(in thousands)
1998 1997
Revenue $ 1,667 $ 1,628
Costs and expenses (1,681) (1,535)
Net income (loss) $ (14) $ 93
The Partnership's 14.4% equity interest in the loss of the Joint Venture for the
year ended December 31, 1998, was approximately $2,000. The equity interest in
the income of the Joint Venture for the year ended December 31, 1997, was
approximately $13,000.
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 approximately $53,000 at December 31, 1998, is sufficient to cover
all remaining costs associated with this incident. Upon the sale of the Golf
Course, as discussed below, the Joint Venture received documents from the
Purchaser releasing the Joint Venture from any further responsibility or
liability with respect to the clean-up.
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 $3,452,000 after payment of closing costs,
resulting in a gain on sale of approximately $2,932,000. The Partnership's 1999
pro-rata share of this gain is expected to be approximately $422,000.
Furthermore, as a result of the sale, unamortized loan costs in the amount of
$6,500 were written off. This resulted in an extraordinary loss on early
extinguishment of debt of approximately $6,500. The Partnership's 1999 pro-rata
share of this extraordinary loss is expected to be approximately $1,000.
NOTE H - 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, 1998, the Partnership had minimum future rentals under
noncancellable leases with terms ranging from twelve months to twenty years.
(in thousands)
1999 $ 699
2000 702
2001 640
2002 575
2003 472
Thereafter 1,502
$4,590
NOTE I - 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, 1998 and
1997, was approximately $61,000 and $56,000, respectively. 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, 1998, the aggregate minimum rental payments under the land
leases were as follows:
(in thousands)
1999 $ 60
2000 61
2001 61
2002 61
2003 61
Thereafter 1,159
$1,463
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. Loan costs in connection with this
refinancing were $10,000 and $309,000 for the years ended December 31, 1997 and
1996, respectively.
NOTE K - SUBSEQUENT EVENT
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 $3,452,000 after payment of closing costs,
resulting in a gain on sale of approximately $2,932,000. The Partnership's 1999
pro-rata share of this gain is expected to be approximately $422,000.
Furthermore, as a result of the sale, unamortized loan costs in the amount of
$6,500 were written off. This resulted in an extraordinary loss on early
extinguishment of debt of approximately $6,500. The Partnership's 1999 pro-rata
share of this extraordinary loss is expected to be approximately $1,000.
NOTE L - SEGMENT REPORTING
Description of types of products and services from which each reportable segment
derives its revenue
As defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" the Partnership has two reportable segments: residential
properties and commercial properties. The Partnership's residential property
segment consists of three apartment complexes in three states in the United
States. The Partnership rents apartment units to people for terms that are
typically twelve months or less. The commercial property segment consists of a
retail shopping center located in Montgomery, Alabama. This property leased
space to a discount store, various specialty retail outlets, and several
restaurants at terms ranging from 12 months to twenty years.
Measurement of segment profit or loss
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
Factors management used to identify the Partnership's reportable segments
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the years 1998 and 1997 is shown in the tables below (in
thousands). The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segments.
1998
Residential Commercial Other Totals
Rental income $ 6,170 $ 913 $ -- $ 7,083
Other income 375 8 97 480
Interest expense (1,439) -- -- (1,439)
Depreciation (1,601) (266) -- (1,867)
General and administrative expense -- -- (344) (344)
Loss on disposal of assets (157) -- -- (157)
Equity in loss of Joint Venture -- -- (2) (2)
Segment profit (loss) 138 171 (249) 60
Total assets 13,091 1,111 1,015 15,217
Capital expenditures for investment
Properties 1,537 80 -- 1,617
1997
Residential Commercial Other Totals
Rental income $ 6,005 $ 783 $ -- $ 6,788
Other income 366 8 80 454
Interest expense (1,462) -- -- (1,462)
Depreciation (1,537) (277) -- (1,814)
General and administrative expense -- -- (250) (250)
Loss on disposal of assets (180) -- -- (180)
Equity in income of Joint Venture -- -- 13 13
Segment profit (loss) 254 47 (156) 145
Total assets 13,677 1,110 2,081 16,868
Capital expenditures for investment
properties 1,349 16 -- 1,365
NOTE M - 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 and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were scheduled to be 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, to be material to the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. These
expenses will not have a material effect on the Partnership's net income.
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL
DISCLOSURES
There were no disagreements with Ernst & Young, LLP regarding the 1998 or 1997
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
The names of the directors and executive officers of Angeles Realty Corporation
II ("ARC II" or Managing General Partner), the Managing General Partner of
Angeles Income Properties, Ltd. II (the "Partnership" or "Registrant") as of
December 31, 1998, their ages and the nature of all positions with ARC II
presently held by them are as follows:
Name Age Position
Patrick J. Foye 41 Executive Vice President and Director
Timothy R. Garrick 42 Vice President - Accounting and Director
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the Managing General Partner since October
1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting
Services of Insignia Financial Group since June of 1997. From 1992 until June
of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from
1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to
1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney.
Mr. Garrick received his B.S. Degree from the University of South Carolina and
is a Certified Public Accountant.
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
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of October 31, 1998.
Entity Number of Units Percentage
Cooper River Properties, LLC
(an affiliate of AIMCO) 5,864 5.877%
Insignia Properties LP
(an affiliate of AIMCO) 3,950 3.959%
Broad River Properties, LLC
(an affiliate of AIMCO) 8,908 8.927%
AIMCO Properties, LP
(an affiliate of AIMCO) 3,526 3.534%
Cooper River Properties LLC, Insignia Properties LP and Broad River Properties,
LLC are indirectly ultimately owned by AIMCO. Their business address is 55
Beattie Place, Greenville, SC 29602. AIMCO Properties LLC is also owned by
AIMCO and its business address is 1873 South Bellaire Street, 17th Floor,
Denver, CO 80222. No director or officer of the Managing General Partner owns
any Units.
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the Managing General Partner. AIMCO and its
affiliates currently own 22.296% of the limited partnership interests in the
Partnership. AIMCO is presently considering whether it will engage in an
exchange offer for additional limited partnership interests in the Partnership.
There is a substantial likelihood that, within a short period of time, AIMCO OP
will offer to acquire limited partnership interests in the Partnership for cash
or preferred units or common units of limited partnerships interests in AIMCO
OP. While such an exchange offer is possible, no definite plans exist as to when
or whether to commence such an exchange offer, or as to the terms of any such
exchange offer, and it is possible that none will occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
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 the balance
of the general partners' capital account and 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 Managing General Partner and the Non-Managing General Partner each received
cash distributions of $8,000 from refinance proceeds during the year ended
December 31, 1998. During the year ended December 31, 1997, they each received
$5,000 in cash from operations. For a description of the share of cash
distributions from operations or refinancings if any, to which the general
partners are entitled, reference is made to "Item 7. Financial Statements - Note
A".
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 1998 and in 1997:
1998 1997
(in thousands)
Property management fees $350 $335
Partnership management fees (1) 45 --
Reimbursement for services of affiliates (2) 264 211
(1) The Partnership Agreement provides for a fee equal to 10% of "net cash flow
from operations", as defined in the Partnership Agreement to be paid to the
Managing General Partner for executive and administrative management
services.
(2) Included in "Reimbursements for services of affiliates" is approximately
$90,000 and $54,000 in construction oversight costs for 1998 and 1997,
respectively.
Additionally, the Partnership paid approximately $57,000 and $18,000 during the
year ended December 31, 1998 and December 31, 1997, respectively, to an
affiliate of the Managing General Partner for lease commissions at the
Partnership's commercial property. These lease commissions are included in
other assets and are amortized over the terms of the respective leases.
During the years ended December 31, 1998 and 1997, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates $327,000 and $315,000 for the years ended
December 31, 1998 and 1997 respectively. During the years ended December 31,
1997 and for the nine months ending September 30, 1998 affiliates of the
Managing General Partner were entitled to varying percentages of gross receipts
from the Registrant's commercial property for providing property management
services. These services were performed by affiliates of the Managing General
Partner during 1997 and for the nine months ending September 31, 1998 and were
approximately $23,000 and $20,000. Effective October 1, 1998 (the effective
date of the Insignia Merger), these services for the commercial property were
provided by an unrelated party.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $264,000 and
$211,000 for the years ended December 31, 1998 and 1997, respectively.
On April 24, 1998, an affiliate of the Managing General Partner ("the
Purchaser") commenced a tender offer for limited partnership interests in the
Partnership. The Purchaser offered to purchase up to 40,000 of the outstanding
units of limited partnership interest ("Units") in the Partnership at a purchase
price of $150 per Unit, net to the seller in cash. On May 21, 1998, the tender
offer was officially closed with 8,908 Limited Partner Units being acquired by
the Purchaser.
On August 13, 1998, an affiliate of the Managing General Partner (the
"Purchaser") commenced a second tender offer for limited partnership interests
in the Partnership. The Purchaser offered to purchase up to 30,000 of the
outstanding units of limited partnership interest ("Units") in the Partnership
at $175 per Unit, net to the seller in cash. The Purchaser acquired 5,864 units
pursuant to this tender offer.
AIMCO currently owns, through its affiliates, a total of 22,248 limited
partnership units or 22.296%. Consequently, AIMCO could be in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Managing General Partner because of their
affiliation with the Managing General Partner.
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an 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 current year's
master policy. The agent assumed the financial obligations to the affiliate of
the Managing General Partner which receives payment on these obligations from
the agent. The amount of the Partnership's insurance premiums that accrued to
the benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
Angeles Mortgage Investment Trust, ("AMIT"), a real estate investment trust,
provides financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint
Venture ("Joint Venture"), (see "Note G" below). The AMIT Loan had a principal
balance of $1,567,000 at December 31, 1998, accrues interest at a rate of 12.5%
per annum and matures on September 1, 2000, at which time the outstanding
principal and any unpaid interest is due. Interest expense on the debt secured
by the Joint Venture was approximately $196,000 for the years ended December 31,
1998 and 1997, respectively. Accrued interest was $18,000 at December 31, 1998.
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 controls the Managing General Partner.
Effective February 26, 1999, IPT was merged into AIMCO. As a result, AIMCO is
the current 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.
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) Reports on Form 8-K filed during the fourth quarter of 1998:
Current Report on Form 8-K dated October 1, 1998 and filed on October 16,
1998 disclosing change in control of Registrant from Insignia Financial
Group, Inc. to AIMCO.
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/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
Date: March 26, 1999
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/ Patrick J. Foye Executive Vice President Date: March 26, 1999
Patrick J. Foye and Director
/s/ Timothy R. Garrick Vice President - Accounting Date: March 26, 1999
Timothy R. Garrick and Director
ANGELES INCOME PROPERTIES, LTD. II
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT incorporated by reference to Exhibit 2.1 filed
with Registrant's Current Report on Form 8-K dated October 1, 1998.
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties, Ltd. II 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,063
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 36,790
<DEPRECIATION> 25,859
<TOTAL-ASSETS> 15,217
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 17,999
0
0
<COMMON> 0
<OTHER-SE> (3,656)
<TOTAL-LIABILITY-AND-EQUITY> 15,217
<SALES> 0
<TOTAL-REVENUES> 7,563
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,439
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> .59<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
