FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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)
June 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 536
Receivables and deposits 568
Restricted escrows 283
Other assets 305
Investment in joint venture 2
Investment properties:
Land $ 1,984
Buildings and related personal property 30,998
32,982
Less accumulated depreciation (23,464) 9,518
$ 11,212
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 166
Tenant security deposit liabilities 282
Accrued property taxes 176
Other liabilities 217
Due to affiliates 108
Mortgage notes payable 17,669
Partners' Deficit
General partners $ (514)
Limited partners (99,784 units issued and
outstanding) (6,892) (7,406)
$ 11,212
</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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues: (Restated) (Restated)
<S> <C> <C> <C> <C>
Rental income $ 1,610 $ 1,567 $ 3,215 $ 3,142
Other income 158 119 244 208
Total revenues 1,768 1,686 3,459 3,350
Expenses:
Operating 550 531 1,076 1,061
General and administrative 50 78 162 149
Depreciation 443 380 866 781
Interest 335 357 686 714
Property taxes 107 143 247 281
Total expenses 1,485 1,489 3,037 2,986
Income before equity in income of
joint venture, discontinued operation,
and extraordinary item 283 197 422 364
Equity in income of joint venture -- 26 -- 427
Income before discontinued operation and
extraordinary item 283 223 422 791
Income (loss) from discontinued operation 55 (48) 116 50
Gain on sale of discontinued operation -- -- 2,060 --
Income before extraordinary item 338 175 2,598 841
Equity in extraordinary loss on early
extinguishment of debt of joint venture -- -- -- (1)
Net income $ 338 $ 175 $ 2,598 $ 840
Net income allocated to general partners 3 2 111 8
Net income allocated to limited partners 335 173 2,487 832
$ 338 $ 175 $ 2,598 $ 840
Per limited partnership unit:
Income before discontinued operation
and extraordinary item $ 2.81 $ 2.21 $ 4.19 $ 7.85
Income (loss) from discontinued operation 0.55 (0.48) 1.15 0.50
Gain on sale of discontinued operation -- -- 19.58 --
Extraordinary item -- -- -- (0.01)
Net income $ 3.36 $ 1.73 $ 24.92 $ 8.34
Distributions per limited partnership unit $ 51.19 $ -- $ 51.19 $ --
</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)
Distributions to partners -- (138) (5,108) (5,246)
Net income for the six months
ended June 30, 2000 -- 111 2,487 2,598
Partners' deficit at
June 30, 2000 99,784 $ (514) $(6,892) $(7,406)
</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>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,598 $ 840
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 866 853
Amortization of discounts, loan costs and lease
commissions 45 49
Bad debt expense, net -- 75
Equity in income of joint venture -- (427)
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 (218) 18
Other assets 158 (42)
Accounts payable 78 (6)
Tenant security deposit liabilities (7) 13
Accrued property taxes 37 (19)
Due to affiliates (206) --
Other liabilities (225) (53)
Net cash provided by operating activities 1,066 1,337
Cash flows from investing activities:
Property improvements and replacements (757) (265)
Net withdrawals from restricted escrows 32 54
Proceeds from sale of investment property 2,746 --
Distributions from joint venture -- 380
Repayment of advances to joint venture -- 46
Net cash provided by investing activities 2,021 215
Cash flows from financing activities:
Payments on mortgage notes payable (120) (110)
Distributions to partners (6,660) --
Net cash used in financing activities (6,780) (110)
Net (decrease) increase in cash and cash equivalents (3,693) 1,442
Cash and cash equivalents at beginning of period 4,229 2,063
Cash and cash equivalents at end of period $ 536 $ 3,505
Supplemental disclosure of cash flow information:
Cash paid for interest $ 664 $ 674
</TABLE>
At December 31, 1999, approximately $157,000 of property improvements and
replacements were included in accounts payable.
At June 30, 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.
Distributions to partners of approximately $1,500,000 were declared at December
31, 1999 and paid in January 2000.
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 and six month periods ended June 30, 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 June 30, 1999, the Joint Venture recorded a gain on sale of
approximately $3,108,000 after the write-off of undepreciated fixed assets. 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 June 30, 1999
was approximately $448,000 and its equity in loss on operations of the Joint
Venture at June 30, 1999 amounted to approximately $21,000. 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 June 30, 2000, is as
follows (in thousands):
Assets
Cash $ 16
Total $ 16
Liabilities and Partners' Capital
Other Liabilities $ 6
Partners' capital 10
Total $ 16
The condensed statement of operations of the Joint Venture for the three and six
months ended June 30, 1999 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
<S> <C> <C>
Revenues $ 61 $ 91
Costs and expenses (100) (231)
Loss before gain on sale of investment
property and extraordinary loss on
extinguishment of debt (39) (140)
Gain on sale of investment property 223 3,108
Extraordinary loss on extinguishment
of debt -- (7)
Net income $ 184 $2,961
</TABLE>
The Partnership recognized its 14.4% equity income of approximately $427,000 in
the Joint Venture for the six months ended June 30, 1999. The Partnership also
realized an extraordinary loss on extinguishment of debt of $1,000 for the six
months ended June 30, 1999. Due to the sale of Princeton Meadows Golf Course in
February 1999, the Joint Venture had no operations during the six months ended
June 30, 2000. Therefore, the Partnership did not recognize any equity in income
of the Joint Venture for the six months ended June 30, 2000. In addition, the
Partnership anticipates that after filing the final tax return of the Joint
Venture during the third quarter of 2000, all remaining assets and liabilities
of the Joint Venture will be liquidated.
<PAGE>
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 six months
ended June 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $ 169 $ 169
Reimbursement for services of affiliates
(included in operating expense, general and
administrative expense and investment properties) 81 114
Due (to) from affiliate (108) 26
Disposition fee (included in general partner
distribution) 86 --
During the six months ended June 30, 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 $169,000 for both of the
six months ended June 30, 2000 and 1999.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $81,000 and
$114,000 for the six months ended June 30, 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 quarter ended June 30, 2000 was $22,000. It is included in
"Due to affiliates" on the consolidated balance sheet.
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" on the consolidated balance sheet for the six
months ended June 30, 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 49,727 limited partnership units in the
Partnership representing 49.83% 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. In this
regard, on July 24, 2000, an affiliate of AIMCO commenced a tender offer to
purchase any and all of the remaining Partnership interests for a purchase price
of $165.00. 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 49.83% 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 six months ended June
30, 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 $195,000
and $271,000 for the six months ended June 30, 2000 and 1999, respectively.
Revenues of this property were approximately $59,000 and $32,000 for the three
month periods ended June 30, 2000 and 1999, respectively. Income from operations
was approximately $116,000 and $50,000 for the six months ended June 30, 2000
and 1999, respectively. Income (loss) from operations was approximately $55,000
and $(48,000) for the three month periods ended June 30, 2000 and 1999,
respectively.
Note F - Distributions
During the six months ended June 30, 2000, the Partnership paid a distribution
that was accrued in December 1999 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. During the six months ended June 30, 2000, the Partnership
declared and paid distributions of approximately $5,246,000 (approximately
$5,108,000 to the limited partners or $51.19 per limited partnership unit) of
which approximately $2,450,000 (approximately $2,426,000 to the limited partners
or $24.31 per limited partnership unit) is from operations and approximately
$2,796,000 (approximately $2,682,000 to the limited partners or $26.88 per
limited partnership unit) is from proceeds from the sale of Atlanta Crossing
Shopping Center. Pursuant to the Partnership Agreement, 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. During the six
months ended June 30, 1999, the Partnership did not pay any distributions to its
partners.
<PAGE>
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership had two reportable segments:
residential properties and commercial properties. The Partnership's residential
property segment consists of three apartment complexes, one each 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.
Measurement of segment profit or loss: 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.
Factors management used to identify the enterprise's reportable segment: 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 and six month periods ended June 30, 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>
Three months ended
June 30, 2000 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,610 $ -- $ -- $ 1,610
Other income 126 -- 32 158
Interest expense 335 -- -- 335
Depreciation 443 -- -- 443
General and administrative
expense -- -- 50 50
Income from discontinued
operation -- 55 -- 55
Segment profit (loss) 301 55 (18) 338
Six months ended
June 30, 2000 Residential Commercial Other Totals
(discontinued)
Rental income $ 3,215 $ -- $ -- $ 3,215
Other income 202 -- 42 244
Interest expense 686 -- -- 686
Depreciation 866 -- -- 866
General and administrative
expense -- -- 162 162
Income from discontinued
operation -- 116 -- 116
Gain on sale of discontinued
operation -- 2,060 -- 2,060
Segment profit (loss) 542 2,176 (120) 2,598
Total assets 11,020 -- 136 11,156
Capital expenditures for
investment properties 594 6 -- 600
Three months ended
June 30, 1999 Residential Commercial Other Totals
(discontinued)
Rental income $ 1,567 $ -- $ -- $ 1,567
Other income 102 -- 17 119
Interest expense 357 -- -- 357
Depreciation 380 -- -- 380
General and administrative
expense -- -- 78 78
Equity in income of
joint venture -- -- 26 26
Loss from discontinued
operation -- (48) -- (48)
Segment profit (loss) 258 (48) (35) 175
Six months ended
June 30, 1999 Residential Commercial Other Totals
(discontinued)
Rental income $ 3,142 $ -- $ -- $ 3,142
Other income 183 -- 25 208
Interest expense 714 -- -- 714
Depreciation 781 -- -- 781
General and administrative
expense -- -- 149 149
Equity in income of
joint venture -- -- 427 427
Income from discontinued
operation -- 50 -- 50
Equity in extraordinary
loss on the early
extinguishment of debt
of joint venture -- -- (1) (1)
Segment profit 488 50 302 840
Total assets 12,920 883 2,084 15,887
Capital expenditures for
investment properties 265 -- -- 265
</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, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 six months ended June 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Deer Creek Apartments 98% 98%
Plainsboro, New Jersey
Georgetown Apartments 96% 94%
South Bend, Indiana
Landmark Apartments 89% 93%
Raleigh, North Carolina
The Managing General Partner attributes the decrease in occupancy at Landmark
Apartments to increased competition in the Raleigh, North Carolina area and an
increase in home purchases.
Results of Operations
The Partnership's net income for the six months ended June 30, 2000 was
approximately $2,598,000 compared to approximately $840,000 for the six months
ended June 30, 1999. The Partnership's net income for the three month period
ended June 30, 2000 was approximately $338,000 compared to approximately
$175,000 for the three month period ended June 30, 1999. The increase in net
income for the six months ended June 30, 2000 is 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, the Partnership had income from continuing operations before the
extraordinary item of approximately $422,000 for the six months ended June 30,
2000, compared to approximately $791,000 for the six months ended June 30, 1999.
The Partnership had income from continuing operations before the extraordinary
item of approximately $283,000 for the three month period ended June 30, 2000,
compared to approximately $223,000 for the three month period ended June 30,
1999. The decrease in income for the six months ended June 30, 2000 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 $422,000 for the six months ended June 30, 2000,
compared to approximately $364,000 for the six months ended June 30, 1999.
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 $283,000 for the three month period ended June 30, 2000,
compared to approximately $197,000 for the three month period ended June 30,
1999. The increase in income for the six months ended June 30, 2000 is due to an
increase in total revenues which was partially offset by an increase in total
expenses. The increase in income for the three month period ended June 30, 2000
is due to an increase in total revenues and, to a lesser extent, a slight
decrease in total expenses.
The increase in total revenues for the three and six month periods ended June
30, 2000 is due to an increase in rental income and 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. The increase in other income is primarily due
to an increase in interest income as a result of a higher cash balance in
interest-bearing accounts.
Total expenses increased for the six months ended June 30, 2000 primarily due to
increases in operating, depreciation, and general and administrative expenses
partially offset by a decrease in property tax expense. Total expenses decreased
slightly for the three months ended June 30, 2000 due to a decrease in property
tax expense and general and administrative expenses partially offset by an
increase in operating expenses and depreciation expense. Operating expenses
increased for the three and six month periods ended June 30, 2000 due to an
increase in utility expense at Deer Creek Apartments. Depreciation expense
increased for the three and six month periods ended June 30, 2000 due to capital
improvements completed during the past twelve months. Property tax expense
decreased for the three and six month periods ended June 30, 2000 due to the
timing of the receipt of the property tax bills. General and administrative
expenses increased for the six months ended June 30, 2000 due to an increase in
professional fees associated with the administration of the Partnership. General
and administrative expenses decreased for the three month period ended June 30,
2000 due to reduced Partnership management fees accrued at June 30, 2000.
Included in general and administrative expenses at both June 30, 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 six months ended June
30, 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 $195,000
and $271,000 for the six months ended June 30, 2000 and 1999, respectively.
Revenues of this property were approximately $59,000 and $32,000 for the three
months ended June 30, 2000 and 1999, respectively. Income from operations was
approximately $116,000 and $50,000 for the six months ended June 30, 2000 and
1999, respectively. Income (loss) from operations was approximately $55,000 and
$(48,000) for the three month periods ended June 30, 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 June
30, 1999, the Joint Venture recorded a gain on sale of approximately $3,108,000
after the write-off of undepreciated fixed assets. For the six months ended June
30, 1999 the Partnership realized equity in income of the Joint Venture of
approximately $427,000 which included its equity in the gain on disposal of
Princeton Meadows Golf Course of $448,000. For the six months ended June 30,
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 June 30, 2000, the Partnership had cash and cash equivalents of approximately
$536,000 compared to approximately $3,505,000 at June 30, 1999. The decrease in
cash and cash equivalents of approximately $3,693,000 since December 31, 1999 is
due to approximately $6,780,000 of cash used in financing activities which was
partially offset by approximately $2,021,000 of cash provided by investing
activities and approximately $1,066,000 of cash provided by operating
activities. 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. 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.
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 six months ended June 30, 2000, the Partnership spent approximately
$222,000 on budgeted and non-budgeted capital improvements consisting primarily
of parking lot resurfacing, appliances, exterior painting, air conditioning unit
replacements, and major landscaping. These improvements were funded from
Partnership reserves and operating cash flow. The Partnership has evaluated the
capital improvement needs of the property for the year 2000. 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 six months ended June 30, 2000, the Partnership spent approximately
$262,000 on capital improvements consisting primarily of carpet and vinyl
replacement, structural improvements, submetering improvements, and appliances.
These improvements were funded from Partnership reserves and operating cash
flow. The Partnership has evaluated the capital improvement needs of the
property for the year 2000. The amount budgeted is approximately $559,000,
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 six months ended June 30, 2000, the Partnership spent approximately
$110,000 on budgeted and non-budgeted 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 has evaluated the capital improvement needs of the property for the
year 2000. The amount budgeted is approximately $95,000, consisting primarily of
swimming pool improvements, air conditioning unit replacements, carpet and vinyl
replacement, appliances, 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 six months ended June 30, 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 $17,669,000, 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 six months ended June 30, 2000, the Partnership paid a distribution
that was accrued in December 1999 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. During the six months ended June 30, 2000, the Partnership
declared and paid distributions of approximately $5,246,000 (approximately
$5,108,000 to the limited partners or $51.19 per limited partnership unit) of
which approximately $2,450,000 (approximately $2,426,000 to the limited partners
or $24.31 per limited partnership unit) is from operations and approximately
$2,796,000 (approximately $2,682,000 to the limited partners or $26.88 per
limited partnership unit) is from proceeds from the sale of Atlanta Crossing
Shopping Center. Pursuant to the Partnership Agreement, 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. During the six
months ended June 30, 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, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 during the quarter ended June 30, 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:
