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, 1998
[ ] 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 0-13192
ANGELES INCOME PROPERTIES, LTD. III
(Exact name of small business issuer as specified in its charter)
California 95-3903984
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1998
Assets
Cash and cash equivalents $ 1,067
Receivables and deposits (net of allowance for
doubtful accounts of $36) 246
Other assets 244
Restricted escrows 246
Investment properties:
Land $ 1,527
Buildings and related personal property 12,989
14,516
Less accumulated depreciation (9,595) 4,921
$ 6,724
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 6
Tenant security deposit liabilities 48
Accrued property taxes 20
Other liabilities 55
Mortgage note payable 3,733
Partners' (Deficit) Capital
General partners $ (347)
Limited partners (86,778 units issued
and outstanding) 3,209 2,862
$ 6,724
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 443 $ 382 $ 881 $ 891
Other income 19 17 36 31
Total revenues 462 399 917 922
Expenses:
Operating 140 226 263 362
General and administrative 38 30 79 91
Depreciation 170 168 340 331
Interest 90 91 180 182
Property taxes 40 39 79 80
Total expenses 478 554 941 1,046
Loss before equity in income
and extraordinary gain on
debt extinguishment of
joint venture (16) (155) (24) (124)
Equity in income of
joint venture (Note B) -- 4,744 -- 4,509
(Loss) income before equity
in extraordinary gain on
debt extinguishment of
joint venture (16) 4,589 (24) 4,385
Equity in extraordinary gain
on debt extinguishment (Note B) -- 2,459 -- 2,459
Net (loss) income $ (16) $7,048 $ (24) $6,844
Net income allocated
to general partners (1%) $ -- $ 70 $ -- $ 68
Net (loss) income allocated
to limited partners (99%) (16) 6,978 (24) 6,776
Net (loss) income $ (16) $7,048 $ (24) $6,844
Net (loss) income per
limited partnership unit $ (.18) $80.41 $ (.28) $78.08
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 86,920 $ 1 $43,460 $43,461
Partners' (deficit) capital
at December 31, 1997 86,778 $(347) $ 3,235 $ 2,888
Distributions to partners -- -- (2) (2)
Net loss for the six months
ended June 30, 1998 -- -- (24) (24)
Partners' (deficit) capital
at June 30, 1998 86,778 $(347) $ 3,209 $ 2,862
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net (loss) income $ (24) $ 6,844
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Equity in income of joint venture -- (4,509)
Equity in extraordinary gain on debt extinguishment
of joint venture -- (2,459)
Depreciation 340 331
Amortization of loan costs and leasing commissions 19 21
Change in accounts:
Receivables and deposits (57) (5)
Other assets 56 22
Accounts payable (17) 41
Tenant security deposit liabilities -- (1)
Accrued property taxes (18) (19)
Other liabilities (6) (40)
Net cash provided by operating activities 293 226
Cash flows from investing activities:
Property improvements and replacements (26) (209)
Net deposits to restricted escrows (12) (12)
Net cash used in investing activities (38) (221)
Cash flows from financing activities:
Payments on mortgage note payable (22) (20)
Distributions to partners (247) --
Net cash used in financing activities (269) (20)
Net decrease in cash and cash equivalents (14) (15)
Cash and cash equivalents at beginning of period 1,081 1,371
Cash and cash equivalents at end of period $1,067 $ 1,356
Supplemental disclosure of cash flow information:
Cash paid for interest $ 172 $ 174
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. III (the "Partnership") 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, 1998, are not necessarily indicative
of the results that may be expected for the fiscal year ended December 31, 1998.
For further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the fiscal year
ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - INVESTMENT IN JOINT VENTURE
The Partnership had a 33.3% investment in Northtown Mall Partners ("Joint
Venture"). On May 12, 1997, the Joint Venture sold its only investment property,
Northtown Mall, to an affiliate of the lender. The sale resulted in net
proceeds of approximately $1,200,000, after payment of closing costs, and the
gain on the sale amounted to approximately $16,243,000. As a result of the
sale, mortgage debt in the amount of approximately $8,711,000 was forgiven and
unamortized loan costs in the amount of approximately $1,327,000 were written
off. This resulted in an extraordinary gain on extinguishment of debt of
approximately $7,384,000. The economic closing of the sale of Northtown Mall
was as of April 1, 1997, at which time the Partnership was released from the
mortgage note of approximately $51,326,000. The Joint Venture was liquidated in
December 1997.
The condensed profit and loss statements for the three and six months ended June
30, 1997, for the Joint Venture are as follows (in thousands):
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
Revenue $ 31 $ 2,727
Costs and expenses (122) (3,521)
Loss before gain on sale of investment
property and extraordinary gain on
extinguishment of debt (91) (794)
Gain on sale of investment property 16,248 16,248
Extraordinary gain on extinguishment
of debt 7,384 7,384
Net income $23,541 $22,838
The Partnership realized equity income from Northtown of approximately
$4,744,000 and $4,509,000 for the three and six months ended June 30, 1997,
respectively. Equity in extraordinary gain on debt extinguishment of
approximately $2,459,000 was realized for both the three and six months ended
June 30, 1997.
NOTE C - 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 Managing General Partner is a wholly-owned
subsidiary of Insignia Properties Trust ("IPT"), an affiliate of Insignia
Financial Group, Inc. ("Insignia"). The Partnership Agreement provides for
certain payments to affiliates for services and as reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
The following payments were made to the Managing General Partner and affiliates
during the six months ended June 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in
operating expenses) $ 35 $ 35
Reimbursement for services of affiliates
(included in general and administrative
expenses and other assets) 48 62
Included in "Reimbursement for Services of Affiliates" for the period ended June
30, 1998, is approximately $2,000 in leasing commissions paid to an affiliate of
the Managing General Partner.
Included in investment properties and operating expense for the period ended
June 30, 1997, is approximately $16,000 of construction oversight
reimbursements.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
For the period January 1, 1997 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the Managing
General Partner with an insurer unaffiliated with the Managing General Partner.
An affiliate of the Managing General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the master policy. The agent assumed the
financial obligations to the affiliate of the Managing General Partner which
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations was not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of one apartment complex and one
commercial property. The following table sets forth the average occupancy of
the properties for the six months ended June 30, 1998 and 1997:
Average Occupancy
1998 1997
Lake Forest Apartments
Brandon, Mississippi 92% 91%
Poplar Square Shopping Center
Medford, Oregon 94% 93%
The Partnership realized a net loss of approximately $16,000 and $24,000,
respectively, for the three and six months ended June 30, 1998, as compared to
net income of approximately $7,048,000 and $6,844,000, respectively, for the
three and six months ended June 30, 1997. The decrease in net income for the
three and six months ended June 30, 1998, is due to the equity in income and
extraordinary gain on debt extinguishment of the joint venture, as a result of
the gains realized on the sale of Northtown in the second quarter of 1997 (see
"Note B" of the financial statements included in Item 1). For the six months
ended June 30, 1998, versus 1997, loss before equity in income of the joint
venture decreased due to a decrease in total expenses. For the three months
ended June 30, 1998, versus the same period in 1997, loss before equity in
income of the joint venture decreased due to an increase in rental income and a
decrease in total expenses.
Rental income increased during the three months ended June 30, 1998, as compared
to the three months ended June 30, 1997, due to the combined increase in
occupancy and rental rates at both Lake Forest Apartments and Poplar Square
Shopping Center during that period. For the six months ended June 30, 1998,
versus the six months ended June 30, 1997, rental income decreased due to a
decrease in average occupancy at Lake Forest Apartments during the first quarter
of 1998, due to new apartment complexes in the Brandon, Mississippi area. The
increase in occupancy at this property during the second quarter of 1998 can be
attributed to an increase in concessions. The decrease in total expenses for
the three and six months ended June 30, 1998, is a result of a decrease in
operating expense. The decrease in operating expense is due to a decrease in
administrative units expense at Lake Forest Apartments. The complex had ten
administrative units during 1997 and are currently renting them to tenants in
1998. Also, during 1997, there was the completion of a painting project and
various exterior building improvements undertaken in an effort to improve the
appearance of the property. General and administrative expense decreased during
the six months ended June 30, 1998, due to a decrease in expense reimbursements
due to the sale of Northtown Mall in 1997.
On May 12, 1997, the Joint Venture in which the Partnership owned a 33.3%
interest sold Northtown Mall, its only investment property, to an affiliate of
the lender (see Note B). The economic closing of the sale of Northtown Mall was
as of April 1, 1997, at which time the joint venture was released from the
mortgage note of approximately $51,326,000. For the six months ended June 30,
1997, the Partnership realized equity in income of the joint venture of
approximately $4,509,000 and equity in extraordinary gain on debt extinguishment
of approximately $2,459,000.
Included in operating expenses for the six months ended June 30, 1998, is
approximately $3,000 of major repairs and maintenance comprised primarily of
office equipment. Included in operating expenses for the six months ended June
30, 1997, is approximately $82,000 of major repairs and maintenance, comprised
primarily of parking lot seal-coating and repairs, exterior building repairs,
and exterior painting.
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.
At June 30, 1998, the Partnership had cash and cash equivalents of approximately
$1,067,000 compared to approximately $1,356,000 at June 30, 1997. Cash and cash
equivalents decreased approximately $14,000 and $15,000 for the periods ended
June 30, 1998 and 1997, respectively. Net cash provided by operating activities
increased as a result of a decrease in other assets offset by an increase in
receivables and deposits and a decrease in accounts payable. The decrease in
other assets and the increase in receivables and deposits is due to the timing
of the payment of property taxes. The decrease in accounts payable is due to
the timing of the payment of invoices. Net cash used in investing activities
decreased due to a decrease in property improvements and replacements at Lake
Forest Apartments. Net cash used in financing activities resulted from the
payments on the mortgage note encumbering the Poplar Square Shopping Center and
the distribution to partners during the six months ended June 30, 1998.
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. The
mortgage indebtedness of approximately $3,733,000, which is secured by the
Poplar Square Shopping Center investment property matures in November 2006, at
which time the property will either be refinanced or sold. A cash distribution
from operations of approximately $247,000 was made during the six months ended
June 30, 1998, with $245,000 of this amount being used to satisfy the liability
at December 31, 1997. No cash distributions were made during the six months
ended June 30, 1997. Future cash distributions will depend on the levels of net
cash generated from operations, property sales and the availability of cash
reserves.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and its affiliates of interests in certain general partner
entities, past tender offers by Insignia affiliates to acquire limited
partnership units, the management of partnerships by Insignia affiliates as well
as a recently announced agreement between Insignia and Apartment Investment and
Management Company. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. In lieu of responding to the
motion, the plaintiffs have filed an amended complaint. The Managing General
Partner believes this action to be without merit, and intends to vigorously
defend it. On June 25, 1998, the Managing General Partner filed a motion seeking
dismissal of the action.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner 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 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:
No reports on form 8-K were filed during the six months ended June
30, 1998.
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. III
By: Angeles Realty Corporation II
Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President/Director
By: /s/Robert D. Long
Robert D. Long
Vice President/CAO
Date: August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Angeles Income Properties, Ltd. III 1998 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000720460
<NAME> ANGELES INCOME PROPERTIES, LTD. III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,067
<SECURITIES> 0
<RECEIVABLES> 246
<ALLOWANCES> 36
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,516
<DEPRECIATION> 9,595
<TOTAL-ASSETS> 6,724
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 3,733
0
0
<COMMON> 0
<OTHER-SE> 2,862
<TOTAL-LIABILITY-AND-EQUITY> 6,724
<SALES> 0
<TOTAL-REVENUES> 917
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24)
<EPS-PRIMARY> (.28)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
