FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11767
ANGELES INCOME PROPERTIES, LTD. II
(Exact name of small business issuer as specified in its charter)
California 95-3793526
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 6,035
Receivables and deposits 317
Restricted escrows 193
Other assets 338
Investment in joint venture 2
Investment properties:
Land $ 1,984
Buildings and related personal property 30,615
32,599
Less accumulated depreciation (23,021) 9,578
$ 16,463
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 140
Tenant security deposit liabilities 278
Accrued property taxes 207
Other liabilities 338
Due to affiliates 358
Mortgage notes payable 17,726
Partners' Deficit
General partners $ (465)
Limited partners (99,784 units issued and
outstanding) (2,119) (2,584)
$ 16,463
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Revenues: (restated)
<S> <C> <C>
Rental income $1,605 $1,575
Other income 86 89
Total revenues 1,691 1,664
Expenses:
Operating 526 530
General and administrative 112 71
Depreciation 423 401
Interest 351 357
Property taxes 140 138
Total expenses 1,552 1,497
Income before equity in income of joint venture,
discontinued operation, and extraordinary item 139 167
Equity in income of joint venture -- 401
Income before discontinued operation and extraordinary
item 139 568
Income from discontinued operation 61 98
Gain on sale of discontinued operation 2,060 --
Income before extraordinary item 2,304 666
Equity in extraordinary loss on early extinguishment
of debt of joint venture -- (1)
Net income $2,260 $ 665
Net income allocated to general partners $ 108 $ 7
Net income allocated to limited partners 2,152 658
$2,260 $ 665
Per limited partnership unit:
Income before discontinued operation and extraordinary
item $ 1.37 $ 5.63
Income from discontinued operation 0.62 0.97
Gain on sale of discontinued operation 19.58 --
Extraordinary item -- (0.01)
Net income $21.57 $ 6.59
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
c)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 100,000 $ 1 $50,000 $50,001
Partners' deficit at
December 31, 1999 99,784 $ (487) $(4,271) $(4,758)
Distribution to general partner -- (86) -- (86)
Net income for the three months
ended March 31, 2000 -- 108 2,152 2,260
Partners' deficit at
March 31, 2000 99,784 $ (465) $(2,119) $(2,584)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,260 $ 665
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 423 467
Amortization of discounts, loan costs and lease
commissions 25 24
Equity in income of joint venture -- (401)
Equity in extraordinary loss on early extinguishment
of debt of joint venture -- 1
Loss on disposal of property -- 35
Gain on sale of investment property (2,060) --
Change in accounts:
Receivables and deposits 33 (16)
Other assets 143 (36)
Accounts payable 52 (67)
Tenant security deposit liabilities (11) 8
Accrued property taxes 68 (36)
Due to affiliates 44 --
Other liabilities (104) 18
Net cash provided by operating activities 873 662
Cash flows from investing activities:
Property improvements and replacements (374) (166)
Net withdrawals from restricted escrows 122 105
Proceeds from sale of investment property 2,746 --
Net cash provided by (used in) investing
activities 2,494 (61)
Cash flows from financing activities:
Payments on mortgage notes payable (61) (54)
Distributions to partners (1,500) --
Net cash used in financing activities (1,561) (54)
Net increase in cash and cash equivalents 1,806 547
Cash and cash equivalents at beginning of period 4,229 2,063
Cash and cash equivalents at end of period $ 6,035 $ 2,610
Supplemental disclosure of cash flow information:
Cash paid for interest $ 331 $ 338
</TABLE>
At March 31, 2000 and December 31, 1999, accounts payable and property
improvements and replacements were each adjusted by approximately $157,000.
At March 31, 2000, due to affiliates and distributions to partners were adjusted
by approximately $86,000 due to the general partner distribution on the sale of
Atlanta Crossing Shopping Center.
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
e)
ANGELES INCOME PROPERTIES, LTD. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. II (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Angeles Realty Corporation II (the
"Managing General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 2000, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
Certain reclassifications have been made to the 1999 balances to conform to the
2000 presentation.
Principles of Consolidation
The consolidated financial statements of the Partnership include all accounts of
the Partnership and its 99% limited partnership interest in Georgetown AIP II,
LP and its 100% owned limited liability corporation interest in AIPL II GP, LLC.
Although legal ownership of the respective asset remains with these entities,
the Partnership retains all economic benefits from the properties. As a result,
the Partnership consolidates its interests in these two entities, whereby all
accounts are included in the consolidated financial statements of the
Partnership with all inter-entity accounts being eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
("IPT") merged into Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership
interest in the Managing General Partner. The Managing General Partner does not
believe that this transaction has had or will have a material effect on the
affairs and operations of the Partnership.
Note C - Investment in Joint Venture
The Partnership has a 14.4% investment in Princeton Meadows Golf Course JV
("Joint Venture"). On February 26, 1999, the Joint Venture sold its only
investment property, Princeton Meadows Golf Course, to an unaffiliated third
party. The sale resulted in net proceeds of approximately $3,411,000 after
payment of closing costs and repayment of mortgage principal and accrued
interest. As of March 31, 1999, the Joint Venture recorded a gain on sale of
approximately $2,885,000 after the write-off of underdepreciated fixed assets.
Subsequent to March 31, 1999, in connection with the sale, a commission of
approximately $153,000 was paid to the Joint Venture's managing general partner
in accordance with the Joint Venture Agreement. The Partnership's 1999 pro-rata
share of this gain at March 31, 1999 was approximately $415,000 and its equity
in loss on operations of the Joint Venture at March 31, 1999 amounted to
approximately $14,000. The Joint Venture also recognized an extraordinary loss
on early extinguishment of debt of approximately $7,000 as a result of
unamortized loan costs being written off. The Partnership's pro-rata share of
this extraordinary loss is approximately $1,000.
Condensed balance sheet information of the Joint Venture at March 31, 2000, is
as follows (in thousands):
Assets
Cash $ 17
Total $ 17
Liabilities and Partners' Capital
Other Liabilities $ 7
Partners' capital 10
Total $ 17
The condensed statement of operations of the Joint Venture for the three months
ended March 31, 1999 is summarized as follows (in thousands):
1999
Revenue $ 30
Costs and expenses (131)
Loss before gain on sale of
investment property and
extraordinary loss on
extinguishment of debt (101)
Gain on sale of investment property 2,885
Extraordinary loss on
extinguishment of debt (7)
Net income $2,777
The Partnership recognized its 14.4% equity income of approximately $401,000 in
the Joint Venture for the three months ended March 31, 1999. The Partnership
also realized an extraordinary loss on extinguishment of debt of $1,000 for the
three months ended March 31, 1999. Due to the sale of Princeton Meadows Golf
Course in February 1999, the Joint Venture had no operations during the three
months ended March 31, 2000. In addition, the Partnership anticipates that after
filing the final tax return of the Joint Venture during the second quarter of
2000, all remaining assets and liabilities of the Joint Venture will be
liquidated.
The Princeton Meadows Golf Course property had an underground fuel storage tank
that was removed in 1992. This fuel storage tank caused contamination to the
area. Management installed monitoring wells in the area where the tank was
formerly buried. Some samples from these wells indicated lead and phosphorous
readings that were higher than the range prescribed by the New Jersey Department
of Environmental Protection ("DEP"). The Joint Venture notified the DEP of the
findings when they were first discovered. However, the DEP did not give any
directives as to corrective action until late 1995.
In November 1995, representatives of the Joint Venture and the New Jersey DEP
met and developed a plan of action to clean-up the contamination site at
Princeton Meadows Golf Course. The Joint Venture engaged an engineering firm to
conduct consulting and compliance work and a second firm to perform the field
work necessary for the clean-up. Field work commenced with skimmers installed at
three test wells on the site. These skimmers were in place to detect any
residual fuel that may still be in the ground. Upon the sale of the Golf Course,
as noted above, the Joint Venture was released from any further responsibility
or liability with respect to the clean-up.
Note D - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for certain payments
to affiliates for services and 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 during the three months
ended March 31, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $ 84 $ 85
Reimbursement for services of affiliates
(included in operating expense, general and
administrative expense and investment properties) 46 47
Brokerage commission (included in general partner
distribution) 86 --
During the three months ended March 31, 2000 and 1999, 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 approximately $84,000 and
$85,000 for the three months ended March 31, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $46,000 and
$47,000 for the three months ended March 31, 2000 and 1999, respectively.
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. The amount
of the fee for the year ended December 31, 1999 was $228,000. This amount is
included in "Due to affiliates" and will be paid during the second quarter of
2000. The amount of the fee for the quarter ended March 31, 2000 was $44,000. It
is included in "Due to affiliates".
Pursuant to the Partnership Agreement, the Managing General Partner is entitled
to receive a distribution equal to 3% of the aggregate disposition price of sold
properties. The Partnership accrued a distribution of approximately $86,000 to
the Managing General Partner related to the sale of Atlanta Crossing Shopping
center in March 2000. This amount is subordinate to the limited partners
receiving their original capital contributions plus a cumulative preferred
return of 6% per annum of their adjusted capital investment, as defined in the
Partnership Agreement. When the limited partners receive these returns, the
distribution will be paid to the Managing General Partner. This amount is
included in "Due to affiliates" for the three months ended March 31, 2000.
Angeles Mortgage Investment Trust, ("AMIT"), a real estate investment trust,
provided financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint
Venture (see "Note C"). Pursuant to a series of transactions, affiliates of the
Managing General Partner acquired ownership interests in AMIT. On September 17,
1998, AMIT was merged with and into IPT, the entity which controlled the
Managing General Partner. Effective February 26, 1999, IPT was merged into
AIMCO. As a result, AIMCO became the holder of the AMIT loan. On February 26,
1999, Princeton Meadows Golf Course was sold to an unaffiliated third party.
Upon closing, the AMIT principal balance of $1,567,000 plus accrued interest of
approximately $17,000 was paid off.
AIMCO and its affiliates currently own 49,370 limited partnership units in the
Partnership representing 49.477% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
It is possible that AIMCO or its affiliates will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. As a result of its
ownership of 49.477% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
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.
Note E - Sale of Discontinued Operation
In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama,
was sold to an unaffiliated party for $2,875,000. After payment of closing
expenses, the net sales proceeds received by the Partnership were approximately
$2,746,000. For financial statement purposes, the sale resulted in a gain of
approximately $2,060,000, which was recognized during the three months ended
March 31, 2000.
The following pro-forma information reflects the operations of the Partnership
for the three months ended March 31, 2000 and 1999, as if Atlanta Crossing
Shopping Center had been sold January 1, 1999.
2000 1999
(in thousands, except per unit data)
Revenues $1,691 $1,664
Net income 139 567
Income per limited partnership unit 1.37 5.62
Atlanta Crossing Shopping Center was the only commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as income from discontinued operation on the consolidated statement of
operations. Accordingly, the 1999 statement of operations has been restated to
reflect this presentation. Revenues of this property were approximately $136,000
and $239,000 for the three months ended March 31, 2000 and 1999, respectively.
Income from operations was approximately $61,000 and $98,000 for the three
months ended March 31, 2000 and 1999, respectively.
Note F - Distributions
During the three months ended March 31, 2000, the Partnership paid a
distribution of approximately $1,500,000 of which approximately $1,074,000
(approximately $1,063,000 to the limited partners or $10.65 per limited
partnership unit) is from operations and approximately $426,000 (approximately
$422,000 to the limited partners or $4.23 per limited partnership unit) is from
proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The
distribution was accrued in December 1999. During the three months ended March
31, 1999, the Partnership did not pay any distributions to its partners.
Note G - Segment Reporting
The Partnership had two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of three apartment complexes in New Jersey, Indiana, and North Carolina. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less. The commercial property segment consisted 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 twelve months to twenty years. The commercial property was sold on
March 15, 2000. Therefore, the commercial segment is reflected as discontinued
operations.
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segments are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
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 three months ended March 31, 2000 and 1999 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.
<TABLE>
<CAPTION>
2000 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,605 $ -- $ -- $ 1,605
Other income 76 -- 10 86
Interest expense 351 -- -- 351
Depreciation 423 -- -- 423
General and administrative
expense -- -- 112 112
Income from discontinued
operation -- 61 -- 61
Gain on sale of discontinued
operation -- 2,060 -- 2,060
Segment profit (loss) 241 2,121 (102) 2,260
Total assets 12,975 -- 3,488 16,463
Capital expenditures for
investment properties 211 6 -- 217
1999 Residential Commercial Other Totals
(discontinued)
Rental income $ 1,575 $ -- $ -- $ 1,575
Other income 81 -- 8 89
Interest expense 357 -- -- 357
Depreciation 401 -- -- 401
General and administrative
expense -- -- 71 71
Equity in income of
joint venture -- -- 401 401
Income from discontinued
operation -- 98 -- 98
Equity in extraordinary
loss on the early
extinguishment of debt
of joint venture -- -- (1) (1)
Segment profit (loss) 230 98 337 665
Total assets 12,675 1,055 2,023 15,753
Capital expenditures for
investment properties 166 -- -- 166
</TABLE>
Note H - 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 action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek 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 filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for both
of the three months ended March 31, 2000 and 1999:
Average Occupancy
Property 2000 1999
Deer Creek Apartments 97% 98%
Plainsboro, New Jersey
Georgetown Apartments 96% 95%
South Bend, Indiana
Landmark Apartments 90% 94%
Raleigh, North Carolina
The Managing General Partner attributes the decrease in occupancy at Landmark
Apartments to increased competition in the Raleigh, North Carolina area.
Results of Operations
The Partnership's net income for the three months ended March 31, 2000, was
approximately $2,260,000 compared to approximately $665,000 for the three months
ended March 31, 1999. The increase in net income for the three months ended
March 31, 2000 is primarily attributable to the sale of Atlanta Crossing
Shopping Center in March 2000 (see discussion below).
Excluding the operations of and the gain on the sale of the discontinued
operation discussed above, the Partnership had income from continuing operations
before the extraordinary item of approximately $139,000 for the three months
ended March 31, 2000, compared to approximately $568,000 for the three months
ended March 31, 1999. The decrease in income is due primarily to the decrease in
equity in income of the joint venture due to the sale of Princeton Meadows Golf
Course, as discussed below.
Excluding the operations of and the gain on the sale of the discontinued
operation and the equity in income of the joint venture, the Partnership had
income of approximately $139,000 for the three months ended March 31, 2000,
compared to approximately $167,000 for the three months ended March 31, 1999.
The decrease in income for the three months ended March 31, 2000 is due to an
increase in total expenses which was partially offset by an increase in total
revenues.
The increase in total revenues is due to an increase in rental income which was
slightly offset by a decrease in other income. The increase in rental income is
the result of increased average rental rates at all of the Partnership's
residential properties which more than offset the decrease in occupancy at
Landmark Apartments and Deer Creek Apartments. The decrease in other income is
primarily due to a decrease in tenant charges at Deer Creek Apartments.
Total expenses increased for the three months ended March 31, 2000 primarily due
to an increase in depreciation expense and general and administrative expense.
Depreciation expense increased due to capital improvements completed during the
past twelve months that are now being depreciated. General and administrative
expenses increased due to Partnership management fees accrued at March 31, 2000.
Included in general and administrative expenses at both March 31, 2000 and 1999
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.
In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama,
was sold to an unaffiliated party for $2,875,000. After payment of closing
expenses, the net sales proceeds received by the Partnership were approximately
$2,746,000. For financial statement purposes, the sale resulted in a gain of
approximately $2,060,000, which was recognized during the three months ended
March 31, 2000.
Atlanta Crossing Shopping Center was the only commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as income from discontinued operation on the consolidated statement of
operations. Accordingly, the 1999 statement of operations has been restated to
reflect this presentation. Revenues of this property were approximately $136,000
and $239,000 for the three months ended March 31, 2000 and 1999, respectively.
Income from operations was approximately $61,000 and $98,000 for the three
months ended March 31, 2000 and 1999, respectively.
The Partnership has a 14.4% investment in Princeton Meadows Golf Course Joint
Venture. On February 26, 1999, the Joint Venture sold the Princeton Meadows Golf
Course to an unaffiliated third party for gross sale proceeds of $5,100,000. The
Joint Venture received net proceeds of $3,411,000 after payment of closing
costs, and repayment of the mortgage principal and accrued interest. As of March
31, 1999, the Joint Venture recorded a gain on sale of approximately $2,885,000
after the write-off of undepreciated fixed assets. For the three months ended
March 31, 1999, the Partnership realized equity in income of the Joint Venture
of approximately $401,000, which included its equity in the gain on disposal of
Princeton Meadows Golf Course of $415,000. For the three months ended March 31,
2000, Princeton Meadows Golf Course did not have any operations, therefore, the
Partnership did not recognize any equity earnings from the Joint Venture.
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 to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $6,035,000 compared to approximately $2,610,000 at March 31, 1999.
The increase in cash and cash equivalents of approximately $1,806,000 since
December 31, 1999 is due to approximately $873,000 of cash provided by operating
activities and approximately $2,494,000 of cash provided by investing activities
which was partially offset by approximately $1,561,000 of cash used in financing
activities. Cash provided by investing activities consisted primarily of
proceeds from the sale of Atlanta Crossing Shopping Center, and to a lesser
extent, net withdrawals from escrow accounts maintained by the mortgage lenders,
which was partially offset by property improvements and replacements. Cash used
in financing activities consisted primarily of distributions to the partners
and, to a lesser extent, payments of principal made on the mortgages encumbering
the Partnership's properties. The Partnership invests its working capital
reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements planned for each of the Registrant's properties are detailed below.
Deer Creek
During the three months ended March 31, 2000, the Partnership spent
approximately $98,000 on capital improvements consisting primarily of
appliances, exterior painting, air conditioning unit replacements, and major
landscaping. These improvements were funded from Partnership reserves. The
Partnership evaluated the capital improvement needs of the property for the
year. The amount budgeted is approximately $233,000, consisting primarily of
interior and exterior building improvements. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Georgetown
During the three months ended March 31, 2000, the Partnership spent
approximately $82,000 on capital improvements consisting primarily of carpet and
vinyl replacement, structural improvements, and appliances. These improvements
were funded from Partnership reserves and operating cash flow. The Partnership
evaluated the capital improvement needs of the property for the year. The amount
budgeted is approximately $500,000, consisting primarily of carpet and vinyl
replacement, roof replacement, and structural improvements. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Landmark
During the three months ended March 31, 2000, the Partnership spent
approximately $31,000 on capital improvements consisting primarily of carpet and
vinyl replacement and appliances. These improvements were funded from operating
cash flow. The Partnership evaluated the capital improvement needs of the
property for the year. The amount budgeted is approximately $88,000, consisting
primarily of swimming pool improvements, air conditioning unit replacements,
carpet and vinyl replacement, and major landscaping. Additional improvements may
be considered and will depend on the physical condition of the property as well
as replacement reserves and anticipated cash flow generated by the property.
Atlanta Crossing
During the three months ended March 31, 2000, the Partnership spent
approximately $6,000 on capital improvements consisting of tenant improvements.
The property was sold March 15, 2000.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $17,726,000, net of discount, is amortized over
periods ranging from 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 may risk losing such
properties through foreclosure.
During the three months ended March 31, 2000, the Partnership paid a
distribution of approximately $1,500,000 of which approximately $1,074,000
(approximately $1,063,000 to the limited partners or $10.65 per limited
partnership unit) is from operations and approximately $426,000 (approximately
$422,000 to the limited partners or $4.23 per limited partnership unit) is from
proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The
distribution was accrued in December 1999. During the three months ended March
31, 1999, the Partnership did not pay any distributions to its partners. Future
cash distributions will depend on the levels of cash generated from operations,
the availability of cash reserves and the timing of debt maturities,
refinancings and/or property sales. The Partnership's distribution policy is
reviewed on a semi-annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations after required
capital expenditures to permit additional distributions to its partners during
the remainder of 2000 or subsequent periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item I. Financial Statements, Note B - Transfer
of Control"). The plaintiffs seek 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 filed demurrers to the amended complaint which were
heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement, settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the Managing General Partner and its
affiliates terminated the proposed settlement. Certain plaintiffs have filed a
motion to disqualify some of the plaintiffs' counsel in the action. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K filed in the first quarter of 2000:
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES INCOME PROPERTIES, LTD. II
By: Angeles Realty Corporation II
Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ANGELES
INCOME PROPERTIES, LTD. II 2000 First Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000711642
<NAME> ANGELES INCOME PROPERTIES, LTD. II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,035
<SECURITIES> 0
<RECEIVABLES> 317
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 32,599
<DEPRECIATION> (23,021)
<TOTAL-ASSETS> 16,463
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 17,726
0
0
<COMMON> 0
<OTHER-SE> (2,584)
<TOTAL-LIABILITY-AND-EQUITY> 16,463
<SALES> 0
<TOTAL-REVENUES> 1,691
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,260
<EPS-BASIC> 21.57 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
