U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(As last amended by 34-31905, eff. 4/26/93)
(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, 1996
[ ] 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 0-13192
ANGELES INCOME PROPERTIES, LTD. III
California 95-3903984
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB [X]
State issuer's revenues for its most recent fiscal year. $1,779,000
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days. Market value
information for Registrant's Partnership Interests is not available. Should a
trading market develop for these Interests, it is the Managing General Partner's
belief that such trading would not exceed $25 million.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Angeles Income Properties, Ltd. III (the "Partnership" or "Registrant") is a
publicly-held limited partnership organized under the California Uniform Limited
Partnership Act pursuant to a Certificate and Agreement of Limited Partnership
dated May 26, 1983, as amended (hereinafter referred to as "the Agreement").
The Partnership's Managing General Partner is Angeles Realty Corporation II
("ARC II"), a California corporation. The Elliott Accommodation Trust and the
Elliott Family Partnership, Ltd., California limited partnerships, are the Non-
Managing General Partners. The Managing General Partner and the Non-Managing
General Partners are herein collectively referred to as the "General Partners".
The Partnership, through its public offering of Limited Partnership Units, sold
86,920 units aggregating $43,460,000. The General Partners 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 Managing General Partner of the Partner-
ship intends to maximize the operating results and, ultimately, the net
realizable value of each of the Partnership's properties in order to achieve the
best possible return for the investors. Such results may best be achieved
through property sales, refinancings, debt restructurings or relinquishment of
the assets. The Partnership intends to evaluate each of its holdings
periodically to determine the most appropriate strategy for each of the assets.
The Partnership has no full time employees. The Managing General Partner is
vested with full authority as to the general management and supervision of the
business and affairs of the Partnership. Limited Partners and the Non-Managing
General Partners have no right to participate in the management or conduct of
such business and affairs. Insignia Residential Group, L.P. provides property
management services to each of the Partnership's investment properties.
The business in which the Partnership is engaged is highly competitive, and the
Partnership is not a significant factor in its industry. Each of its apartment
and commercial properties is located in or near a major urban area and,
accordingly, competes for rentals not only with similar apartment and commercial
properties in its immediate area but with hundreds of similar apartment and
commercial properties throughout the urban area. Such competition is primarily
on the basis of location, rents, services and amenities. In addition, the
Partnership competes with significant numbers of individuals and organizations
(including similar partnerships, real estate investment trusts and financial
institutions) with respect to the sale of improved real properties, primarily on
the basis of the prices and terms of such transactions.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Registrant's investments in properties:
Property Purchase Type of Ownership Use
Poplar Square Shopping 05/15/85 Fee ownership - subject Commercial
Center to a first mortgage 166,274 sq.ft.
Medford, Oregon
Lake Forest Apartments 06/27/84 Fee ownership Residential Rental
Brandon, Mississippi 136 units
The Partnership has a 33.3% investment in Northtown Mall Partners ("Northtown").
It also had a 57% investment in Burlington Outlet Mall Joint Venture
("Burlington") and a 50% investment in Moraine West Carrollton Joint Venture
("Moraine"). The Partnership no longer has an investment in these joint
ventures due to the foreclosure of Burlington's investment property and the
dissolution of Moraine during 1995. The property owned by Northtown, as of
December 31, 1996, is summarized as follows:
Date of
Property Purchase Type of Ownership Use
Northtown Mall 06/28/85 33.3% Commercial
806,730 sq.ft.
Northtown is accounted for by the Partnership on the equity method of accounting
in accordance with its respective ownership percentage and is included on the
balance sheet in "Equity interest in net liabilities of joint venture."
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Poplar Square
Shopping Center $ 9,697 $ 6,233 5-20 yrs S/L $ 5,257
Lake Forest
Apartments 4,465 2,351 5-40 yrs S/L 1,836
$ 14,162 $ 8,584 $ 7,093
See "Note A" of the financial statements included in "Item 7." for a description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
Poplar Square
Shopping Center
First mortgage $ 3,797 9.2% 25 yrs. 11/01/06 $ 3,167
Average annual rental rate and occupancy for 1996 and 1995 for each property:
Average Annual Average Annual
Rental Rates Occupancy
Property 1996 1995 1996 1995
Poplar Square Shopping Center $4.67/sq.ft. $4.82/sq.ft. 97% 97%
Lake Forest Apartments (1) 6,223/unit 6,040/unit 92% 94%
(1) Low occupancy at Lake Forest Apartments is due to competition from new
apartment complexes in the area. This property has some physical
deficiencies and the Managing General Partner anticipates that occupancy
will improve once the physical deficiencies are addressed.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes and commercial buildings
in the area. The Managing General Partner believes that all of the properties
are adequately insured. The multi-family residential property's lease terms are
for one year or less. No residential tenant leases 10% or more of the available
rental space.
Poplar Square's leases expire on various dates through 2009. The following is a
schedule of the lease expirations for the years 1997-2006:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
Poplar Square
Shopping Center
1997 4 26,801 $ 143,616 17.00%
1998 1 675 6,684 .79%
1999 5 14,320 139,128 16.46%
2000 5 35,545 226,740 26.83%
2001 2 29,475 214,464 25.37%
2002 1 2,550 24,480 2.90%
2003-2006 1 47,800 90,000 10.65%
The following schedule reflects information on tenants occupying 10% or more of
the leasable square footage of Poplar Square Shopping Center:
Square Footage Annual Rent
Nature of Business Leased Per Square Foot Lease Expiration
Clothes Retailer 22,395 $ 7.00 01/31/01
Fabric Retailer 19,980 5.40 01/31/00
Discount Retailer 47,800 1.88 10/14/09
Real estate taxes and rates in 1996 for each property were:
1996 1996
Billing Rate
Poplar Square Shopping Center (1) $114 1.34%
Lake Forest Apartments 41 10.61%
(1)The fiscal property tax year for this property, which ends in June, is
different than the Partnership's fiscal year.
ITEM 3. LEGAL PROCEEDINGS
Angeles Corporation ("Angeles"), either directly or through an affiliate,
maintained a central disbursement account (the "account") for the properties and
partnerships managed by Angeles and its affiliates, including the Registrant.
Angeles caused the Partnership to make deposits to the account ostensibly to
fund the payment of certain obligations of the Partnership. However, of these
total deposits, at least $42,000 deposited by or on behalf of the Partnership
was used for purposes other than satisfying the liabilities of the Partnership.
Accordingly, the Partnership filed a Proof of Claim in the Angeles bankruptcy
proceedings for such amount. However, subsequently the Managing General Partner
of the Partnership has determined that the cost involved to pursue such claim
would likely exceed any amount received, if in fact such claim were to be
resolved in favor of the Partnership. Therefore, the Partnership withdrew this
claim on August 9, 1995.
The Registrant is unaware of any other pending or outstanding litigation that is
not of a routine nature. The Managing General Partner of the Registrant
believes that all such pending or outstanding litigation will be resolved
without a material adverse effect upon the business, financial condition, or
operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The security holders of the Registrant did not vote on any matter during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Partnership, a publicly-held limited partnership, sold 86,920 Limited
Partnership Units during its offering period through March 7, 1984, and
currently has 86,778 Limited Partnership Units outstanding and 3,738 Limited
Partners of record. There is no intention to sell additional Limited
Partnership Units nor is there an established market for these units. During
1996, the number of Limited Partnership Units decreased by 40 units due to
limited partners abandoning their units. In abandoning his or her Limited
Partnership Units, a limited partner relinquishes all right, title and interest
in the Partnership as of the date of abandonment.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
The Partnership recognized a net loss of $1,075,000 for the year ended December
31, 1996, as compared to net income of $224,000 for the year ended December 31,
1995. The net loss in 1996 is primarily due to the Partnership's share of
losses from the joint venture (see discussion below).
Lake Forest Apartments conducted extensive improvements to its vacant units
during 1996, which necessitated the hiring of two additional maintenance
personnel. This resulted in increased operating expenses. General and
administrative expenses decreased due to decreases in reimbursements for
services of affiliates. The decrease in property tax expense arose from a
refund for an overpayment of property taxes on Poplar Square Shopping Center in
1995. Bad debt expense increased as a result of an increase in the reserve
required based on a review of the tenant's accounts receivable at the Poplar
Square Shopping Center. The increase in equity in loss of the joint ventures is
due to the gain recognized on the foreclosure of Burlington in 1995. The loss
on disposal of property, in 1995, relates to a roof replacement at Lake Forest
Apartments. The loss is the result of the write-off of the roof which was not
fully depreciated.
Included in maintenance expenses for the year ended December 31, 1996, is
$57,000 of major repairs and maintenance mainly comprised of interior building
improvements and parking lot resurfacing.
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
expenses. 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.
Capital Resources and Liquidity
The Partnership's primary source of cash is from the operations of its
properties. Cash from these sources is utilized for property operations, capital
improvements and/or repayment of debt.
At December 31, 1996, the Partnership had unrestricted cash of $1,371,000 versus
$1,888,000 at December 31, 1995. Net cash provided by operating activities
decreased due to a decrease in other liabilities. The increase in net cash used
in investing activities resulted from an increase in advances to the joint
venture, as well as a deposit to restricted escrows, which was required as a
result of the refinance of Poplar Square Shopping Center. A distribution from
Moraine was also received in 1995, which did not occur in 1996. Net cash
provided by financing activities resulted from the refinancing of Poplar Square
Shopping Center in October 1996.
On October 31, 1996, the Partnership, through it 99.99% owned subsidiary (Poplar
Square AIP III, L.P.), refinanced the mortgage debt secured by Poplar Square
Shopping Center. The previous indebtedness matured in June 1996. The new
mortgage, in the principal amount of $3,800,000, carries a stated interest rate
of 9.2% and matures November 2006. The Partnership paid off debt and related
accrued interest of approximately $3,435,000 at closing. The remainder of the
proceeds from the refinance were used to pay closing costs, fund tax and
insurance escrows and fund repair and replacement reserves.
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 properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. Future
cash distributions will depend on the levels of net cash generated from
operations, property sales and the availability of cash reserves.
Northtown is in default on its non-recourse mortgage note payable due to
allowing a mechanics lien to remain on its mortgaged property which is in
violation of its mortgage agreement. The Partnership incurred significant costs
for tenant improvements and other expenditures for a new tenant during 1996. In
November 1996, the lender and the Partnership disagreed on the funding for these
costs, resulting in the Partnership refusing to authorize any further
disbursements from its "Improvements and Leasing Commissions Reserve Escrow" to
pay the remaining balance of approximately $1 million due to the contractors and
other vendors. In January 1997, the contractors filed a mechanics lien against
the property. The Partnership and the lender is presently in negotiations to
settle their disagreement over the funding of the tenant improvements. Upon
settlement, the Partnership will authorize the remaining payments to the
contractors and vendors and ensure that the mechanics lien will be removed.
There can be no assurance that these negotiations will be successful. On March
15, 1991, Northtown and the holder of the Northtown Mall mortgage note payable
entered into an Option Agreement ("Option") whereby the lender has the right and
an option to purchase the Northtown Mall property on the terms and conditions as
set forth in the Option. The purchase price of the property, as set forth in
the Option, is defined as the fair market value of the property. Such Option
can be exercised by written notice by the lender at specified dates. The Option
expires in 2006. In accordance with the Option, the lender gave notice to
Northtown in November 1996, that it intended to exercise this Option. The
lender and Northtown have begun the determination of the property's fair value
as defined in the Option and in the loan agreement. If the determined fair
value exceeds the annual appraisal by more than 5%, the lender may withdraw its
exercise of the Option and the Option continues in full force. The fair value
of the property, as defined in the Option and loan agreement, has not been
determined; therefore, Northtown cannot presently determine if the property will
be sold.
ITEM 7. FINANCIAL STATEMENTS
ANGELES INCOME PROPERTIES, LTD. III
LIST OF FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and
1995
Consolidated Statement of Changes in Partners' Deficit - Years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Angeles Income Properties, Ltd. III
We have audited the accompanying consolidated balance sheet of Angeles Income
Properties, Ltd. III as of December 31, 1996, 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, 1996. 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. III as of December 31, 1996, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Greenville, South Carolina
February 14, 1997
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED BALANCE SHEET
(in thousands, expect unit data)
December 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 1,371
Restricted--tenant security deposits 48
Accounts receivable, less allowance
of $26 11
Escrows for taxes 114
Other assets 303
Restricted escrows 207
Investment properties (Notes B and E):
Land $ 1,527
Buildings and related personal
property 12,635
14,162
Less accumulated depreciation (8,584) 5,578
$ 7,632
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 27
Tenant security deposits 48
Accrued taxes 41
Other liabilities 60
Mortgage note payable (Notes B and E) 3,797
Equity interest in net liabilities of
joint venture, net of advances of
$1,653 (Note F) 5,909
Partners' Deficit
General partners $ (398)
Limited partners (86,778
units issued and outstanding) (1,852) (2,250)
$ 7,632
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended December 31,
1996 1995
Revenues:
Rental income $ 1,682 $ 1,701
Other income 97 101
Total revenues 1,779 1,802
Expenses:
Operating 411 345
General and administrative 237 295
Maintenance 187 181
Depreciation 655 645
Interest 421 413
Property taxes 143 161
Bad debt expense (recovery), net 7 (10)
Total expenses 2,061 2,030
Loss before equity in (loss) income of joint ventures (282) (228)
Equity in (loss) income of joint venture(s) (Note F) (793) 460
Loss on disposal of property -- (8)
Net (loss) income $ (1,075) $ 224
(Loss) income allocated to general partners (1%) $ (11) $ 2
(Loss) income allocated to limited partners (99%) (1,064) 222
Net (loss) income $ (1,075) $ 224
Net (loss) income per limited partnership unit $ (12.26) $ 2.56
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 86,920 $ 1 $ 43,460 $ 43,461
Partners' deficit at
December 31, 1994 86,818 $ (389) $ (1,010) $ (1,399)
Net income for the year ended
December 31, 1995 -- 2 222 224
Partners' deficit at
December 31, 1995 86,818 (387) (788) (1,175)
Net loss for the year ended
December 31, 1996 -- (11) (1,064) (1,075)
Abandonment of partnership
units (Note H) (40) -- -- --
Partners' deficit at
December 31, 1996 86,778 $ (398) $ (1,852) $ (2,250)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,075) $ 224
Adjustments to reconcile net (loss) income
to net cash provided by operating activities
Equity in loss (income) of joint ventures 793 (460)
Depreciation 655 645
Amortization of loan costs and leasing commissions 79 61
Bad debt expense (recovery), net 7 (10)
Loss on disposal of property -- 8
Change in accounts:
Restricted cash (1) 3
Accounts receivable 25 12
Escrows for taxes 4 (20)
Other assets (75) (46)
Accounts payable 16 1
Tenant security deposit liabilities 1 (4)
Property taxes (3) (14)
Other liabilities (35) 34
Net cash provided by operating activities 391 434
Cash flows from investing activities:
Property improvements and replacements (169) (167)
Advances to joint venture (721) (482)
Distributions from joint venture -- 966
Deposits to restricted escrows (207) --
Net cash (used in) provided by investing activities (1,097) 317
Cash flows used in financing activities:
Payments on mortgage notes payable (48) (49)
Payment of loan costs (161) (35)
Repayment of mortgage note payable (3,402) --
Proceeds from new loan 3,800 --
Net cash provided by (used in) financing activities 189 (84)
Net (decrease) increase in cash and (517) 667
cash equivalents
Cash and cash equivalents at beginning of year 1,888 1,221
Cash and cash equivalents at end of year $ 1,371 $ 1,888
Supplemental disclosure of cash flow information:
Cash paid for interest $ 377 $ 382
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
Angeles Income Properties, Ltd. III
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Angeles Income Properties, Ltd. III (the "Partnership" or
"Registrant") is a California limited partnership organized in May 1983 to
acquire and operate residential and commercial real estate properties. The
Partnership's Managing General Partner is Angeles Realty Corporation II ("ARC
II"), an affiliate of Insignia Financial Group, Inc. As of December 31, 1996,
the Partnership operates one residential and one commercial property located in
or near major urban areas in the United States.
Principles of Consolidation: The financial statements include all of the
accounts of the Partnership and its majority owned partnerships. All
significant interpartnership balances have been eliminated. Minority interest
is immaterial and is not shown separately in the financial statements.
Investment in Joint Venture: The Partnership accounts for its investment in
joint venture using the equity method of accounting (see "Note F"). Under the
equity method, the Partnership records its equity interest in earnings or losses
of the joint venture. The investment in the joint venture will be recorded at an
amount less than zero (a liability) to the extent of the Partnership's share of
net liabilities of the joint venture.
Allocations and Distributions to Partners: In accordance with the 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 Incentive Interest (as defined below) 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; provided that the gain shall first be allocated to Partners with
negative account balances, in proportion to such balances, in an amount equal to
the sum of such negative capital account balances. The Partnership will
allocate other profits and losses .5% to the Managing General Partner, .5% to
the Non-Managing General Partners, and 99% to the Limited Partners.
Except as discussed below, the Partnership will allocate distributions 1% to the
General Partners and 99% to the Limited Partners.
Upon the sale or other disposition, or refinancing of any asset of the
Partnership, the Distributable Net Proceeds shall be distributed as follows:
(i) First, to the Partners in proportion to their interest until the Limited
Partners have received proceeds equal to their Original Capital Investment
applicable to the property; (ii) Second, to the Partners until Limited Partners
have received distributions from all sources equal to their 6% Cumulative
Distribution, (iii) Third, to the Managing General Partner until it has received
its Brokerage Compensation; (iv) Fourth, to the Partners in proportion to their
interests until the Limited Partners have received distributions from all
sources equal to their additional 2% Cumulative Distribution; and (v)
Thereafter, 85% to the Partners in proportion to their interests and 15%
("Incentive Interest") to the Managing General Partner.
Depreciation: Depreciation is computed utilizing the straight-line method over
the estimated lives of the investment properties and related personal property.
For Federal income tax purposes, depreciation is computed by using the straight-
line method over an estimated life of 5 to 20 years for personal property and 15
to 40 years for real property.
Cash and Cash Equivalents: The Partnership considers all highly liquid
investments with a maturity when purchased of three months or less to be cash
equivalents. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Investment Properties: Prior to the fourth quarter of 1995, investment
properties were carried at the lower of cost or estimated fair value, which was
determined using the higher of the property's non-recourse debt amount, when
applicable, or the net operating income of the investment property capitalized
at a rate deemed reasonable for the type of property. During the fourth quarter
of 1995 the Partnership adopted "FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Loan Costs: Loan costs of $161,000 are included in "Other assets" in the
accompanying balance sheet and are being amortized on a straight-line basis over
the life of the loan. At December 31, 1996, accumulated amortization is $4,000.
Lease Commissions: Lease commissions are included in "other assets" and are
being amortized using the straight-line method over the term of the respective
leases.
Fair Value: In 1995, the Partnership implemented "Statement of Financial
Accounting Standards No. 107, Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and cash equivalents approximates fair
value due to short-term maturities. The Partnership estimates the fair value of
its fixed rate mortgage by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership (see "Note B").
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. Commercial building lease terms are generally for twelve months to 16
years. Several tenants have percentage rent clauses which provide for additional
rent upon the tenant achieving certain objectives. Percentage rent recognized
was $2,000 and $14,000 in 1996 and 1995, respectively.
Tenant Security Deposits: The Partnership generally requires security deposits
from apartment lessees for the duration of the lease. Deposits are refunded
when the tenant vacates the apartment space if there has been no damage to the
unit.
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.
Reclassifications: Certain reclassifications have been made to the 1995
balances to conform to the 1996 presentation.
NOTE B - MORTGAGE NOTE PAYABLE
(in thousands)
The principal terms of the mortgage note payable are as follows:
Monthly Principal Principal
Payment Stated Balance Balance At
Including Interest Maturity Due At December 31,
Property Interest Rate Date Maturity 1996
Poplar Square
Shopping Center
First mortgage $ 32 9.2% 11/01/06 $ 3,167 $ 3,797
On October 31, 1996, the Partnership, through its 99.99% owned subsidiary
(Poplar Square AIP III, L.P.), refinanced the mortgage debt secured by Poplar
Square Shopping Center. The previous indebtedness had matured in June 1996. The
Partnership paid off the previous mortgage debt and related accrued interest of
approximately $3,435,000 at closing. The remainder of the proceeds from the
refinance were used to pay closing costs, fund tax and insurance escrows and
fund repair and replacement reserves.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 1996, are as follows (in thousands):
1997 $ 41
1998 45
1999 50
2000 55
2001 60
Thereafter 3,546
$ 3,797
The mortgage note payable is non-recourse and is secured by pledge of the
Partnership's investment property and by pledge of revenues from the investment
property.
The estimated fair value of the Partnership's debt approximates its carrying
amount.
NOTE C - INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Differences between the net income (loss) as reported and Federal taxable income
(loss) result primarily from differences in methods of accounting for joint
ventures and depreciation over different methods and lives and on differing cost
bases of the properties. The following is a reconciliation of reported net
(loss) income and Federal taxable loss:
1996 1995
(in thousands)
Net (loss) income as reported $ (1,075) $ 224
Add (deduct):
Depreciation differences 31 30
Joint venture differences 202 (2,541)
Other (54) 44
Federal taxable loss $ (896) $ (2,243)
Federal taxable loss per
limited partnership unit $ (10.23) $ (25.58)
The following is a reconciliation between the Partnership's reported amount and
Federal tax basis of net assets and liabilities:
Net deficiency as reported $ (2,250)
Land and buildings 1,913
Accumulated depreciation (398)
Syndication and distribution costs 5,807
Investment in joint ventures 1,964
Other (182)
Net assets - Federal tax basis $ 6,854
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 payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following payments were made to the Managing General Partner and affiliates
in 1996 and in 1995:
1996 1995
(in thousands)
Property management fees $ 64 $ 71
Reimbursement for services of
affiliates 225 235
Included in "Reimbursement for services of affiliates" in 1996 is a $38,000
brokerage commission paid relating to the refinance of the mortgage secured by
Poplar Square Shopping Center; they were capitalized as loan costs.
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Managing General Partner. An affiliate of the
Managing General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which were later acquired by the
agent who placed the current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner, who
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrance Land Property Acquisition
Poplar Square
Shopping Center $ 3,797 $ 957 $ 10,302 $ (1,562)
Lake Forest Apts. -- 657 3,160 648
Totals $ 3,797 $ 1,614 $ 13,462 $ (914)
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1996
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Poplar Square
Shopping Center $ 870 $ 8,827 $ 9,697 $ 6,233 05/15/85 5-20
Lake Forest
Apartments 657 3,808 4,465 2,351 06/27/84 5-40
Totals $ 1,527 $ 12,635 $ 14,162 $ 8,584
</TABLE>
The depreciable lives included above are for the buildings and components. The
depreciable lives for related personal property are for 3 to 10 years.
Reconciliation of "Investment Properties and Accumulated Depreciation":
Year Ended December 31,
1996 1995
(in thousands)
Investment Properties
Balance at beginning of year $ 13,993 $ 13,859
Property improvements and
replacements 169 167
Disposal of property -- (33)
Balance at end of year $ 14,162 $ 13,993
Accumulated Depreciation
Balance at beginning of year $ 7,929 $ 7,309
Additions charged to expense 655 645
Disposal of property (25)
Balance at end of year $ 8,584 $ 7,929
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, is $16,075,000 and $15,906,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996 and
1995, is $8,982,000 and $8,358,000.
NOTE F - INVESTMENT IN JOINT VENTURE
The Partnership has a 33.3% investment in Northtown Mall Partners ("Northtown")
which is shown as "Equity interest in net liabilities of joint venture". The
Partnership had a 57% investment in Burlington Outlet Mall Joint Venture
("Burlington") and a 50% investment in Moraine West Carrollton Joint Venture
("Moraine"). The Partnership no longer has an investment in these joint
ventures due to the foreclosure of Burlington's investment property and the
dissolution of Moraine during 1995 as discussed below. The condensed balance
sheet information as of December 31, 1996 for Northtown is as follows: (in
thousands)
Northtown
Cash $ 277
Accounts receivable 857
Other assets 5,264
Investment property, net 26,806
Total assets $ 33,204
Mortgage note payable $ 51,387
Other liabilities 1,368
Due to partners 3,285
Partners' deficit (22,836)
Total liabilities and partners'
deficit $ 33,204
The condensed statements of operations information for the joint ventures are as
follows:
Northtown Burlington Moraine
1996
Revenues $ 10,765 $ -- $ --
Costs and expenses (13,136) -- --
Net loss $ (2,371) $ -- $ --
1995
Revenues $ 11,036 $ 230 $ 13
Costs and expenses (13,024) (762) (1)
(Loss) income before gain on
foreclosure and loss on
disposal of property (1,988) (532) 12
Gain on foreclosure of property -- 2,607 --
Loss on disposal of property (141) -- --
Net (loss) income $ (2,129) $ 2,075 $ 12
The Partnership's equity in the loss of the joint venture was $793,000 for the
year ended December 31, 1996, and the Partnership's equity in the income of the
joint ventures was $460,000 for the year ended December 31, 1995. This increase
in loss can be primarily attributed to the gain recognized on the foreclosure of
Burlington in 1995.
Northtown:
The net loss at Northtown Mall increased from 1995 to 1996 due to a loss in
tenants, which decreased revenues, and an increase in maintenance expense. The
$141,000 loss on disposal of property at Northtown Mall in 1995 is the result of
a roof replacement at the investment property. This loss is due to the write-
off of the old roof which was not fully depreciated. Northtown is in default on
its non-recourse mortgage note payable due to allowing a mechanics lien to
remain on its mortgaged property which is in violation of its mortgage
agreement. The Partnership incurred significant costs for tenant improvements
and other expenditures for a new tenant during 1996. In November 1996, the
lender and the Partnership disagreed on the funding for these costs, resulting
in the Partnership refusing to authorize any further disbursements from its
"Improvements and Leasing Commissions Reserve Escrow" to pay the remaining
balance of approximately $1 million due to the contractors and other vendors.
In January 1997, the contractors filed a mechanics lien against the property.
The Partnership and the lender are presently in negotiations to settle their
disagreement over the funding of the tenant improvements. Upon settlement, the
Partnership will authorize the remaining payments to the contractors and vendors
and ensure that the mechanics lien will be removed. There can be no assurance
that these negotiations will be successful.
On March 15, 1991, Northtown and the holder of the Northtown Mall mortgage note
payable entered into an Option Agreement ("Option") whereby the lender has the
right and an option to purchase the Northtown Mall property on the terms and
conditions as set forth in the Option. The purchase price of the property, as
set forth in the Option, is defined as the fair market value of the property.
Such Option can be exercised by written notice by the lender at specified dates.
The option expires in 2006. In accordance with the Option, the lender gave
notice to Northtown in November 1996, that it intended to exercise this Option.
The lender and Northtown have begun the determination of the property's fair
value as defined in the Option and in the loan agreement. If the determined
fair value exceeds the annual appraisal by more than 5%, the lender may withdraw
its exercise of the Option and the Option continues in full force. The fair
value of the property, as defined in the Option and loan agreement, has not been
determined; therefore, Northtown cannot presently determine if the property will
be sold.
Burlington:
On October 30, 1995, Burlington lost its investment property, the Burlington
Outlet Mall located in Burlington, NC, through foreclosure by an unaffiliated
mortgage holder. The property was not generating sufficient cash flow to meet
debt service requirements. The non-payment of principal and interest constituted
a default under the terms of the mortgage agreement and allowed the holder of
the nonrecourse mortgage to foreclose on the property. Burlington recognized a
gain of $2,607,000 as a result of the foreclosure (of which the Partnership's
share was $1,486,000), and subsequently the General Partners decided to
terminate the joint venture. All remaining cash was used to pay the joint
venture's liabilities in 1996, at which time Burlington was dissolved.
Moraine:
The sale of Moraine to an affiliate of the third party managing agent closed on
July 21, 1994. Moraine received a net amount of $2,199,000 in proceeds after
satisfying all indebtedness. Moraine realized a $141,000 gain on the
transaction of which the Partnership's share was $70,000. Moraine made a final
distribution of $1,931,000 in 1995, of which the Partnership's share was
$966,000, and the joint venture was then dissolved.
NOTE G - OPERATING LEASES
Tenants of the commercial property 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, 1996, the Partnership had minimum future rentals under
noncancellable leases with tenants with terms ranging from twelve months to
sixteen years. (in thousands)
1997 $ 767
1998 685
1999 661
2000 442
2001 178
Thereafter 110
$ 2,843
NOTE H - ABANDONMENT OF LIMITED PARTNERSHIP UNITS
In 1996, the number of Limited Partnership Units decreased by 40 units due to
limited partners abandoning their units. In abandoning his or her Limited
Partnership Units, a limited partner relinquishes all right, title and interest
in the Partnership as of the date of abandonment. However, during the year of
abandonment, the limited partner is still allocated his or her share of net
income or loss for that year. The (loss) income per Limited Partnership Unit in
the accompanying Statements of Operations is calculated based on the number of
units outstanding at the beginning of the year.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with Ernst & Young LLP regarding the 1996 or 1995
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"), the Partnership's Managing General Partner as of December 31,
1996, their ages and the nature of all positions with ARC II presently held by
them are as follows:
Name Age Position
Carroll D. Vinson 56 President, Director
Robert D. Long, Jr. 29 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 50 Vice President
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
Carroll D. Vinson has been President of Metropolitan Asset Enhancement, L.P.,
and subsidiaries since August of 1994. Prior to that, during 1993 to August
1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and
engaged in various other investment and consulting activities. Briefly, in
early 1993, Mr. Vinson served as President and Chief Executive Officer of
Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr.
Vinson was employed by Insignia in various capacities including Managing
Director-President during 1991. From 1986 to 1990, Mr. Vinson was President and
a Director of U.S. Shelter Corporation, a real estate services company, which
sold substantially all of its assets to Insignia in December 1990.
Robert D. Long, Jr. is Controller and Principal Accounting Officer. Prior to
joining Metropolitan Asset Enhancement, L.P., he was an auditor for the State of
Tennessee and was associated with the accounting firm of Harshman Lewis and
Associates. He is a graduate of the University of Memphis.
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration & Asset Management from July 1994 until January 1996.
John K. Lines, Esq. has been Insignia's General Counsel since June 1994 and
General Counsel and Secretary since July 1994. From May 1993 until June 1994,
Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with BANC ONE CORPORATION, Columbus, Ohio.
From May 1984 until October 1991, Mr. Lines was an attorney with Squire Sanders
& Dempsey, Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of the Managing General Partner and
has served as Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of ARC II. The Partnership has no plan, nor does the
Partnership presently propose a plan, which will result in any remuneration
being paid to any officer or director upon termination of employment. However,
fees and other payments have been made to the Partnership's Managing General
Partner and its affiliates, as described in "Note D" of the Financial Statements
included under "Item 7.", which is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 1997, no person owned of record more than 5% of Limited
Partnership Units of the Partnership nor was any person known by the Partnership
to own of record and beneficially, or beneficially only, more than 5% of such
securities.
The Partnership knows of no contractual arrangements, the operation of the terms
of which may at a subsequent date result in a change in control of the
Partnership, except for: Article 12.1 of the Agreement, which provides that upon
a vote of the Limited Partners holding more than 50% of the then outstanding
Limited Partnership Units the General Partners may be expelled from the
Partnership upon 90 days written notice. In the event that successor general
partners have been elected by Limited Partners holding more than 50% of the then
outstanding Limited Partnership Units and if said Limited Partners elect to
continue the business of the Partnership, the Partnership is required to pay in
cash to the expelled General Partners an amount equal to the accrued and unpaid
management fee described in Article 10 of the Agreement and to purchase the
General Partners' interest in the Partnership on the effective date of the
expulsion, which shall be an amount equal to the difference between (i) the
balance of the General Partners' capital account and (ii) the fair market value
of the share of Distributable Net Proceeds to which the General Partners would
be entitled. Such determination of the fair market value of the share of
Distributable Net Proceeds is defined in Article 12.2(b) of the Agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred between the Partnership and any officer or
director of ARC II.
During the year ended December 31, 1996, the transactions that occurred between
the Partnership and ARC II and affiliates of ARC II pursuant to the terms of the
Agreement are disclosed under "Note D" of the Partnership's Financial Statements
included under "Item 7.", which is hereby incorporated by reference.
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: None.
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. III
(A California Limited Partnership)
(Registrant)
By: Angeles Realty Corporation II
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
Date: March 26, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities on the date
indicated.
/s/ Carroll D. Vinson President, Director Date: March 26, 1997
Carroll D. Vinson
/s/ Robert D. Long, Jr. Controller and Principal Date: March 26, 1997
Robert D. Long, Jr. Accounting Officer
ANGELES INCOME PROPERTIES, LTD. III
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amended Certificate and Agreement of the Limited Partnership
file in Form S-11 dated June 2, 1983, which is incorporated
herein by reference.
10.1 Agreement of Purchase and Sale of Real Property with Exhibits
- Lake Forest Apartments file in Form 8-K dated June 28,
19984, which is incorporated herein by reference.
10.3 Agreement of Purchase and Sale of Real Property with Exhibits
- Poplar Square Shopping Center filed in Form 8-K dated May
15, 1985, which is incorporated herein by reference.
10.4 Agreement of Purchase and Sale of Real Property with Exhibits
- Northtown Mall filed in Form 8-K dated July 15, 1985, which
is incorporated herein by reference.
10.5 General Partnership Agreement of Northtown Partners filed in
Form 10-K dated October 31, 1986, which is incorporated herein
by reference.
10.6 Agreement of Purchase and Sale of Real Property with Exhibits
- Burlington Mall Partners filed in Form 8-K dated December
19, 1985, which is incorporated herein by reference.
10.7 Agreement of Purchase and Sale of Real Property Exhibits -
Moraine-West Carrollton Partners file in Form 8-K dated
December 20, 1985, which is incorporated herein by reference.
10.9 Promissory Note - Burlington Outlet Mall filed in Form 10-K
dated December 31, 1989, which is incorporated herein by
reference.
10.10 Agreement of Purchase and Sale of Real Property - Lake
Highlander Mobile Home Park filed in Form 8-k dated January
10, 1991, which is incorporated herein by reference.
10.11 Promissory Note - Northtown Mall filed Form 10-K dated
December 31, 1990, which is 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 by IAP GP Corporation, a subsidiary of MAE GP
Corporation, filed in Form 8-K dated December 31, 1992, which
is incorporated herein by reference.
10.13 Agreement of Purchase and Sale of Real Property - Moraine West
Carrollton Partners filed in Form 8-K dated July 21, 1994,
which was incorporated herein by reference.
10.14 Foreclosure of Burlington Outlet Mall by lender in the
Burlington Outlet Mall Joint Venture.
10.15 Promissory Note - dated October 31, 1996, between Poplar
Square AIP III, L.P., and Union Capital Investments, LLL.
16.1 Letter from 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties Ltd. III 1996 Year-End 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000720460
<NAME> ANGELES INCOME PROPERTIES LTD. III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,371
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,162
<DEPRECIATION> 8,584
<TOTAL-ASSETS> 7,632
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 3,797
0
0
<COMMON> 0
<OTHER-SE> (2,250)
<TOTAL-LIABILITY-AND-EQUITY> 7,632
<SALES> 0
<TOTAL-REVENUES> 1,779
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> (1,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,075)
<DISCONTINUED> 0
<EXTRAORDINARY> (793)
<CHANGES> 0
<NET-INCOME> (1,075)
<EPS-PRIMARY> (12.26)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
PROMISSORY NOTE
$3,800,000.00
October 31, 1996
Medford, Oregon
FOR VALUE RECEIVED, the undersigned, POPLAR SQUARE AIP III, L.P., A SOUTH
CAROLINA LIMITED PARTNERSHIP("Borrower"), jointly and severally, if more than
one, promises to pay to the order of UNION CAPITAL INVESTMENTS, LLC, a Georgia
limited liability company ("Lender"), at the office of Lender at 5901-A
Peachtree Dunwoody Road, Suite 220, Atlanta, Georgia 30328, or at such other
place as Lender may designate to Borrower in writing from time to time, the
principal sum of Three Million Eight Hundred Thousand and NO/100 DOLLARS
($3,800,000.00), together with interest on so much thereof as is from time to
time outstanding and unpaid, from the date of the advance of the principal
evidenced hereby, at the rate of 9.2% per annum (the "Note Rate"), in lawful
money of the United States of America, which shall at the time of payment be
legal tender in payment of all debts and dues, public and private.
ARTICLE I - TERMS AND CONDITIONS
1.01 Payment of Principal and Interest. Said interest shall be computed
hereunder based on a 360-day year and based on twelve (12) 30-day months for
each full calendar month and on the actual number of days elapsed for any
partial month in which interest is being calculated. In computing the number of
days during which interest accrues, the day on which funds are initially
advanced shall be included regardless of the time of day such advance is made,
and the day on which funds are repaid shall be included unless repayment is
credited prior to close of business. Payments in federal funds immediately
available in the place designated for payment received by Lender prior to 2:00
p.m. local time at said place of payment on a day on which Lender is open for
business shall be credited prior to close of business, while other payments may,
at the option of Lender, not be credited until immediately available to Lender
in federal funds in the place designated for payment prior to 2:00 p.m. local
time at said place of payment on a day on which Lender is open for business.
Such principal and interest shall be payable in equal consecutive monthly
installments of $32,411.50 each, beginning on the date that is (x) the first
day of the second full calendar month following the date of this Note or (y) on
the first day of the first full calendar month following the date hereof in the
event the advance of the principal amount evidenced by this Note is the first
day of a calendar month, and continuing on the first day of each and every month
thereafter through and including November 1, 2006 (the "Maturity Date"), at
which time the entire outstanding principal balance hereof, together with all
accrued but unpaid interest thereon, shall be due and payable in full. Each
such monthly installment shall be applied first to the payment of accrued
interest and then to reduction of principal. If the advance of the principal
amount evidenced by this Note is made on a date other than the first day of a
calendar month, then Borrower shall pay to Lender contemporaneously with the
execution hereof interest at the foregoing interest rate for a period from the
date hereof through and including the first day of the next succeeding calendar
month.
1.02 Prepayment.
(a) This Note may be prepaid in whole but not in part (except as
otherwise specifically provided herein) at any time after the date of the 24th
monthly installment of principal and interest due hereunder (the "Lockout
Expiration Date"), provided (i) written notice of such prepayment is received by
Lender not more than sixty (60) days and not less than thirty (30) days prior to
the date of such prepayment, (ii) such prepayment is received on the first day
of a calendar month (or, if such prepayment is not received on the first day of
a calendar month, interest is paid through the last day of said calendar month)
and is accompanied by all interest accrued hereunder and all other sums due
hereunder or under the other Loan Documents, and (iii) if such prepayment occurs
on or prior to the date of the 114th monthly installment of principal and
interest due hereunder (the "Yield Maintenance Expiration Date), Lender is paid
a prepayment fee as set forth in this Section 1.02. In the event that such
prepayment occurs on or prior to the date of the 48th monthly installment of
principal and interest due hereunder, Lender must be paid a prepayment fee equal
to the greater of (A) five percent (5%) of the principal amount being prepaid,
and (B) "Yield Maintenance" (as hereunder defined), and if such prepayment
occurs after the 48th monthly installment of principal and interest due
hereunder but on or prior to the date of the 114th monthly installment of
principal and interest due hereunder, Lender must be paid a prepayment fee equal
to the greater of (A) one percent (1.0%) of the principal amount being prepaid,
and (B), "Yield Maintenance" (as hereunder defined). For purposes of this Note,
the term "Yield Maintenance" shall mean the positive excess of (i) the present
value ("PV") of all future installments of principal and interest due under this
Note including the principal amount due at maturity (collectively, "All Future
Payments"), discounted at an interest rate per annum equal to the sum of (a) the
Treasury Constant Maturity Yield Index published during the second full week
preceding the date on which such premium is payable for instruments having a
maturity coterminous with the remaining term of this Note, and (b) fifty (50)
basis points, over (ii) the principal amount of this Note outstanding
immediately before such prepayment [(PV of All Future Payments) - (principal
balance at time of prepayment) = prepayment fee]. "Treasury Constant Maturity
Yield Index" shall mean the average yield for "This Week" as reported by the
Federal Reserve Board in Federal Reserve Statistical Release H.15 (519). If
there is no Treasury Constant Maturity Yield Index for instruments having a
maturity coterminous with the remaining term of this Note, then the index shall
be equal to the weighted average yield to maturity of the Treasury Constant
Maturity Yield Indices with maturities next longer and shorter than such
remaining average life to maturity, calculated by averaging (and rounding
upward to the nearest whole multiple of 1/100 of 1% per annum, if the average is
not such a multiple) the yields of the relevant Treasury Constant Maturity Yield
Indices (rounded, if necessary, to the nearest 1/100 of 1% with any figure of
1/200 of 1% or above rounded upward). In the event that any prepayment fee is
due hereunder, Lender shall deliver to Borrower a statement setting forth the
amount and determination of the prepayment fee, and, provided that Lender shall
have in good faith applied the formula described above, Borrower shall not have
the right to challenge the calculation or the method of calculation set forth in
any such statement in the absence of manifest error, which calculation may be
made by Lender on any day during the thirty (30) day period preceding the date
of such prepayment. Lender shall not be obligated or required to have actually
reinvested the prepaid principal balance at the Treasury Constant Maturity Yield
or otherwise as a condition to receiving the prepayment fee. No prepayment fee
or premium shall be due or payable in connection with any prepayment of the
indebtedness evidenced by the Note made on or after the Yield Maintenance
Expiration Date, or upon prepayment resulting from application of insurance or
condemnation proceeds as provided in the Security Instrument at any time during
the loan term. With regard to any prepayment made hereunder (whether prior to
or after the Yield Maintenance Expiration Date), if the prior written notice
required in (i) above has not been received by Lender, the prepayment fee shall
be increased by an amount equal to the lesser of (i) thirty (30) days' unearned
interest computed on the outstanding principal balance of this Note so prepaid
and (ii) unearned interest computed on the outstanding principal balance of this
Note so prepaid for the period from, and including, the date of prepayment
through the Maturity Date.
(b) Partial prepayments of this Note shall not be permitted, except
partial prepayments resulting from Lender applying insurance or condemnation
proceeds to reduce the outstanding principal balance of this Note as provided in
the Security Instrument, in which event no prepayment fee or premium shall be
due. No notice of prepayment shall be required under the circumstance specified
in the preceding sentence. No principal amount repaid may be reborrowed.
Partial payments of principal shall be applied to the unpaid principal balance
evidenced hereby but such application shall not reduce the amount of the fixed
monthly installments required to be paid pursuant to Section 1.01 above.
(c) Except as otherwise expressly provided in Section 1.02(b) above,
the prepayment fees provided above shall be due, to the extent permitted by
applicable law, under any and all circumstances where all or any portion of this
Note is paid prior to the Maturity Date, whether such prepayment is voluntary or
involuntary, even if such prepayment results from Lender's exercise of its
rights upon Borrower's default and acceleration of the Maturity Date of this
Note (irrespective of whether foreclosure proceedings have been commenced), and
shall be in addition to any other sums due hereunder or under any of the other
Loan Documents. Borrower acknowledges that, in establishing the Note Rate,
Lender has assumed and taken into account the fact that the loan evidenced
hereby will not be prepaid (other than at the times, and on the terms, herein
provided) and that there will be no prohibited transfer of the Security Property
or any other event which would cause Lender to accelerate the Maturity Date.
The following provisions relating to Borrower's payment of a premium in the
event of an acceleration are intended to compensate Lender in the event that
this assumption proves to be incorrect. No tender of a prepayment of this Note
with respect to which a prepayment fee is due shall be effective unless such
prepayment is accompanied by the prepayment fee. If, prior to the Lockout
Expiration Date, Lender exercises its option to declare the entire unpaid
principal balance due and payable and/or causes to be recorded a notice of
default in accordance with any applicable statute or law following the
occurrence of a default, there shall be due and payable in the absence of
reinstatement in accordance with any applicable statute or law, in addition to
the unpaid principal balance and accrued interest and any other sums due
hereunder or under any of the other Loan Documents, a prepayment fee computed as
provided in Section 1.02(a) above plus an additional prepayment fee of one
percent (1%) of the principal balance of this Note.
/s/ R.L.
PLEASE INITIAL
1.03 Security. The indebtedness evidenced by this Note and the
obligations created hereby are secured by that certain Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing (the "Security Instrument") from
Borrower, as trustor, to ____________ Title Insurance Company of ___________, as
trustee, in favor of Lender, as beneficiary, dated on or about the date hereof,
concerning property located in Jackson County, Oregon. The Security Instrument
together with this Note and all other documents to or of which Lender is a party
or beneficiary now or hereafter evidencing, securing, guarantying, modifying or
otherwise relating to the indebtedness evidenced hereby, are herein referred to
collectively as the "Loan Documents". All of the terms and provisions of the
Loan Documents are incorporated herein by reference. Some of the Loan Documents
are to be recorded on or about the date hereof in the appropriate public
records.
1.04 Default. It is hereby expressly agreed that should any default
occur in the payment of principal or interest as stipulated above and such
payment is not made within five (5) days of the date such payment is due
(provided that no grace period is provided for the payment of principal and
interest due on the Maturity Date), or should any other default occur under any
of the Loan Documents which is not cured within any applicable grace or cure
period, then a default shall exist hereunder, and in such event the indebtedness
evidenced hereby, including all sums advanced or accrued hereunder or under any
other Loan Document, and all unpaid interest accrued thereon, shall, at the
option of Lender and without notice to Borrower, at once become due and payable
and may be collected forthwith, whether or not there has been a prior demand for
payment and regardless of the stipulated date of maturity. In the event that
any payment is not received by Lender on the date when due (subject to the
applicable grace period), then in addition to any default interest payments due
hereunder, Borrower shall also pay to Lender a late charge in an amount equal to
five percent (5.0%) of the amount of such overdue payment. So long as any
default exists hereunder, regardless of whether or not there has been an
acceleration of the indebtedness evidenced hereby, and at all times after
maturity of the indebtedness evidenced hereby (whether by acceleration or
otherwise), interest shall accrue on the outstanding principal balance of this
Note at a rate per annum equal to four percent (4.0%) plus the interest rate
which would be in effect hereunder absent such default or maturity, or if such
increased rate of interest may not be collected under applicable law, then
simple interest at the maximum rate of interest, if any, which may be collected
from Borrower under applicable law (the "Default Interest Rate"), and such
default interest shall be immediately due and payable. Borrower acknowledges
that it would be extremely difficult or impracticable to determine
Lender's actual damages resulting from any late payment or default, and such
late charges and default interest are reasonable estimates of those damages and
do not constitute a penalty. The remedies of Lender in this Note or in the Loan
Documents, or at law or in equity, shall be cumulative and concurrent, and may
be pursued singly, successively or together in Lender's discretion. Time is of
the essence of this Note. In the event this Note, or any part hereof, is
collected by or through an attorney-at-law, Borrower agrees to pay all costs of
collection including, but not limited to, reasonable attorney's fees.
1.05 Exculpation. Notwithstanding anything in the Loan Documents to
the contrary, but subject to the qualifications hereinbelow set forth, Lender
agrees that (i) Borrower shall be liable upon the indebtedness evidenced hereby
and for the other obligations arising under the Loan Documents to the full
extent (but only to the extent) of the security therefor and any rents and
leases assigned to Lender, the same being all properties (whether real or
personal), rights, estates and interests now or at any time hereafter securing
the payment of this Note and/or the other obligations of Borrower under the Loan
Documents (collectively, the "Security Property") and any interest of Lender as
assignee under any assignment of rents and/or leases; (ii) if default occurs in
the timely and proper payment of all or any part of such indebtedness evidenced
hereby or in the timely and proper performance of the other obligations of
Borrower under the Loan Documents, any proceedings brought by Lender against
Borrower shall be limited to the preservation, enforcement and foreclosure, or
any thereof, of the liens, security titles, estates, assignments, rights and
security interests now or at any time hereafter securing the payment of this
Note and/or the other obligations of Borrower under the Loan Documents, and
exercise of power of sale and/or other rights granted under the Security
Instrument and the exercise of any rights set forth in the Security Instrument
or any other instrument given to secure this Note, or in any assignment of rents
and leases contained in the Security Instrument or in any separate instrument
affecting the Security Property and given in connection with this Note, and no
attachment, execution or other writ of process shall be sought, issued or levied
upon any assets, properties or funds of Borrower other than the Security
Property except with respect to the liability described below in this section;
and (iii) in the event of a foreclosure or enforcement of such liens, security
titles, estates, assignments, rights or security interests securing the payment
of this Note and/or the other obligations of Borrower under the Loan Documents,
whether by judicial proceedings or exercise of power of sale, no judgment for
any deficiency upon the indebtedness evidenced hereby shall be sought or
obtained by Lender against Borrower, except with respect to the liability
described below in this section; provided, however, that, notwithstanding the
foregoing provisions of this section, Borrower shall be fully and personally
liable and subject to legal action (a) for proceeds paid under any insurance
policies (or paid as a result of any other claim or cause of action against any
person or entity) by reason of damage, loss or destruction to all or any portion
of the Security Property, to the full extent of such proceeds not previously
delivered to Lender, but which, under the terms of the Loan Documents, should
have been delivered to Lender; (b) for proceeds or awards resulting from the
condemnation or other taking in lieu of condemnation of all or any portion of
the Security Property, or any of them, to the full extent of such proceeds or
awards not previously delivered to Lender, but which, under the terms of the
Loan Documents, should have been delivered to Lender; (c) for all tenant
security deposits or other refundable deposits paid to or held by Borrower or
any other person or entity in connection with leases of all or any portion of
the Security Property which are not applied in accordance with the terms of the
applicable lease or other agreement; (d) for rent and other payments received
from tenants under leases of all or any portion of the Security Property paid
more than one month in advance; (e) for rents, issues, profits and revenues of
all or any portion of the Security Property received or applicable to a period
after any notice of default from Lender hereunder or under the Loan Documents in
the event of any default by Borrower hereunder or thereunder which are not
either applied to the ordinary and necessary expenses of owning and operating
the Security Property or paid to Lender; (f) for damage to all or any portion of
the Security Property as a result of the intentional misconduct or gross
negligence of Borrower or any of its principals, officers or general partners,
or any agent or employee of any such persons, or any removal of all or any
portion of the Security Property in violation of the terms of the Loan
Documents, to the full extent of the losses or damages incurred by Lender on
account of such damage or removal; (g) for failure to pay any valid taxes,
assessments, mechanic's liens, materialmen's liens or other liens which could
create liens on any portion of the Security Property which would be superior to
the lien or security title of the Security Instrument or the other Loan
Documents, to the full extent of the amount claimed by any such lien claimant;
(h) for all obligations and indemnities of Borrower under the Loan Documents
relating to hazardous or toxic substances or compliance with environmental laws
and regulations to the full extent of any losses or damages (including those
resulting from diminution in value of any Security Property) incurred by Lender
as a result of the existence of such hazardous or toxic substances or failure to
comply with environmental laws or regulations; and (i) for fraud or material
misrepresentation by Borrower or any of its principals, officers, or general
partners, any guarantor, any indemnitor or any agent, employee or other person
authorized or apparently authorized to make statements or representations on
behalf of Borrower, any principal, officer or partner of Borrower, any guarantor
or any indemnitor, to the full extent of any losses, damages and expenses of
Lender on account thereof. References herein to particular sections of the Loan
Documents shall be deemed references to such sections as affected by other
provisions of the Loan Documents relating thereto. Nothing contained in this
section shall (i) be deemed to be a release or impairment of the indebtedness
evidenced by this Note or the other obligations of Borrower under the Loan
Documents or the lien of the Loan Documents upon the Security Property; or (ii)
preclude Lender from foreclosing the Loan Documents in case of any default or
from enforcing any of the other rights of Lender except as stated in this
section; or (iii) limit or impair in any way whatsoever the Hazardous Substances
Indemnity Agreement or the Indemnity and Guaranty Agreement, both of which are
of even date and executed and delivered in connection with the indebtedness
evidenced by this Note, or release, relieve, reduce, waive or impair in any way
whatsoever, any obligation of any party to either of such Agreements.
ARTICLE II - GENERAL CONDITIONS
2.01 No Waiver; Amendment. No failure to accelerate the debt
evidenced hereby by reason of default hereunder, acceptance of a partial or past
due payment, or indulgences granted from time to time shall be construed (i) as
a novation of this Note or as a reinstatement of the indebtedness evidenced
hereby or as a waiver of such right of acceleration or of the right of Lender
thereafter to insist upon strict compliance with the terms of this Note, or (ii)
to prevent the exercise of such right of acceleration or any other right granted
hereunder or under any other Loan Document or by any applicable laws; and
Borrower hereby expressly waives the benefit of any statute or rule of law or
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing. Borrower consents to any
extension of time for the payment hereof, release of all or any part of the
security for the payment hereof or release of any party liable for this
obligation. No extension of the time for the payment of this Note or any
installment due hereunder or release of any party, made by agreement with any
person now or hereafter liable for the payment of this Note shall operate to
release, discharge, modify, change or affect the original liability of Borrower
under this Note, either in whole or in part unless Lender agrees otherwise in
writing. This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
2.02 Waivers. Presentment for payment, demand, protest and notice of
demand, protest and nonpayment and all other notices are hereby waived by
Borrower. Borrower hereby further waives and renounces, to the fullest extent
permitted by law, all rights to the benefits of any statute of limitations and
any moratorium, reinstatement, marshaling, forbearance, valuation, stay,
extension, redemption, appraisement, exemption and homestead now or hereafter
provided by the Constitution and laws of the United States of America and of
each state thereof, both as to itself and in and to all of its property, real
and personal, against the enforcement and collection of the obligations
evidenced by this Note or the other Loan Documents. In addition, Borrower
waives any rights it may have under California Civil Code Sections 2819 and 2822
or any comparable laws of the state in which the Property is located.
2.03 Limit of Validity. The provisions of this Note and of all
agreements between Borrower and Lender, whether now or existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of this Note or otherwise, shall the amount paid, or agreed to be
paid ("Interest"), to Lender for the use, forbearance or retention of the money
loaned under this Note exceed the maximum amount permissible under applicable
law. If, from any circumstance whatsoever, performance or fulfillment of any
provision hereof or of any agreement between Borrower and Lender shall, at the
time performance or fulfillment of such provision shall be due, exceed the limit
for Interest prescribed by law or otherwise transcend the limit of validity
prescribed by applicable law, then ipso facto the obligation to be performed or
fulfilled shall be reduced to such limit and if, from any circumstance
whatsoever, Lender shall ever receive anything of value deemed Interest by
applicable law in excess of the maximum lawful amount, an amount equal to any
excessive Interest shall be applied to the reduction of the principal balance
owing under this Note in the inverse order of its maturity (whether or not then
due) or at the option of Lender be paid over to Borrower, and not to the payment
of Interest. All Interest (including any amounts or payments deemed to be
Interest) paid or agreed to be paid to Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal balance of this Note so that the
Interest thereof for such full period will not exceed the maximum amount
permitted by applicable law. This Section 2.03 will control all agreements
between Borrower and Lender.
2.04 Use of Funds. Borrower hereby warrants, represents and covenants
that no funds disbursed hereunder shall be used for personal, family or
household purposes.
2.05 Unconditional Payment. Borrower is and shall be obligated to pay
principal, interest and any and all other amounts which become payable hereunder
or under the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or set off. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
2.06 Miscellaneous. This Note shall be interpreted, construed and
enforced according to the laws of the State of Oregon. The terms and provisions
hereof shall be binding upon and inure to the benefit of Borrower and Lender and
their respective heirs, executors, legal representatives, successors,
successors-in-title and assigns, whether by voluntary action of the parties or
by operation of law. As used herein, the terms "Borrower" and "Lender" shall be
deemed to include their respective heirs, executors, legal representatives,
successors, successors-in-title and assigns, whether by voluntary action of the
parties or by operation of law. If Borrower consists of more than one person or
entity, each shall be jointly and severally liable to perform the obligations of
Borrower under this Note. All personal pronouns used herein, whether used in
the masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. Titles of articles and
sections are for convenience only and in no way define, limit, amplify or
describe the scope or intent of any provisions hereof. Time is of the essence
with respect to all provisions of this Note. This Note and the other Loan
Documents contain the entire agreements between the parties hereto relating to
the subject matter hereof and thereof and all prior agreements relative hereto
and thereto which are not contained herein or therein are terminated.
2.07 Whether or not suit or action is instituted to enforce any of the
terms of this Note, Lender shall be entitled to recover its attorneys' fees and
costs. In the event suit is instituted or bankruptcy proceedings occur, the
prevailing party shall be entitled to recover its attorneys' fees and costs in
such proceedings, at trial, on any appeal, and on any petition for review, in
addition to all other sums provided by law. Even though other provisions in
this Note may refer to recovery of attorneys' fees and costs, this Section shall
also apply to every instance in which suit or action is instituted or bankruptcy
proceedings occur.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first above written.
POPLAR SQUARE AIP III, L.P., a South Carolina
limited partnership
By:POPLAR SQUARE GP LIMITED PARTNERSHIP, a South
Carolina limited partnership and sole general
partner of Poplar Square AIP III, L.P.
By:GP SERVICES IX, INC., a South Carolina
corporation and sole general partner of Poplar
Square GP Limited Partnership
By: /s/ Robert D. Long, Jr.
Name: Robert D. Long, Jr.
Title: Vice President
