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 September 30, 1999
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(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)
September 30, 1999
Assets
Cash and cash equivalents $ 703
Receivables and deposits 386
Restricted escrows 281
Other assets 236
Investment properties:
Land $ 1,527
Buildings and related personal property 13,108
14,635
Less accumulated depreciation (10,451) 4,184
$ 5,790
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 28
Tenant security deposit liabilities 49
Accrued property taxes 56
Other liabilities 86
Mortgage note payable 3,673
Partners' (Deficit) Capital
General partners $ (357)
Limited partners (86,738 units issued and
outstanding) 2,255 1,898
$ 5,790
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 494 $ 465 $1,374 $1,346
Other income 15 19 53 55
Total revenues 509 484 1,427 1,401
Expenses:
Operating 131 132 400 395
General and administrative 30 44 116 123
Depreciation 170 170 511 510
Interest 89 90 267 270
Property taxes 37 37 105 116
Total expenses 457 473 1,399 1,414
Net income (loss) $ 52 $ 11 $ 28 $ (13)
Net income allocated
to general partners (1%) $ -- $ -- $ -- $ --
Net income (loss) allocated
to limited partners (99%) 52 11 28 (13)
$ 52 $ 11 $ 28 $ (13)
Net income (loss) per limited
partnership unit $ .60 $ .13 $ .32 $ (.15)
Distributions per limited
partnership unit $ 11.41 $ -- $11.41 $ .02
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT 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, 1998 86,738 $ (347) $ 3,217 $ 2,870
Distributions to partners -- (10) (990) (1,000)
Net income for the nine months
ended September 30, 1999 -- -- 28 28
Partners' (deficit) capital
at September 30, 1999 86,738 $ (357) $ 2,255 $ 1,898
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 28 $ (13)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 511 510
Amortization of loan costs and leasing commissions 29 28
Change in accounts:
Receivables and deposits (146) (95)
Other assets 38 44
Accounts payable 7 (14)
Tenant security deposit liabilities 1 --
Accrued property taxes 56 19
Other liabilities (20) 25
Net cash provided by operating activities 504 504
Cash flows from investing activities:
Property improvements and replacements (69) (48)
Net deposits to restricted escrows (21) (20)
Lease commissions paid (21) --
Net cash used in investing activities (111) (68)
Cash flows from financing activities:
Payments on mortgage note payable (37) (34)
Distributions to partners (1,000) (247)
Net cash used in financing activities (1,037) (281)
Net (decrease) increase in cash and cash equivalents (644) 155
Cash and cash equivalents at beginning of period 1,347 1,081
Cash and cash equivalents at end of period $ 703 $ 1,236
Supplemental disclosure of cash flow information:
Cash paid for interest $ 255 $ 258
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES INCOME PROPERTIES, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Angeles Realty Corporation II (the
"Managing General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1999,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998.
Principles of Consolidation: The consolidated financial statements of the
Partnership include its 99% limited partnership interests in Poplar Square AIP
III, L.P. and Poplar Square GP LP. Because the Partnership may remove the
general partner of both Poplar Square AIP III, L.P. and Poplar Square GP LP, the
partnerships are controlled and consolidated by the Partnership. All
significant interpartnership balances have been eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
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 Partnership Agreement provides (i) for certain
payments to affiliates for services and (ii) 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 nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 32 $ 54
Reimbursement for services of affiliates
(included in general and administrative
expenses and other assets) 42 67
Lease commissions (included in other assets) -- 4
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential property as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$32,000 for both nine month periods ended September 30, 1999 and 1998.
For the nine months ended September 30, 1998, affiliates of the Managing General
Partner were entitled to receive varying percentages of gross receipts from the
Registrant's commercial property for providing property management services.
The Registrant paid to such affiliates approximately $22,000 for the nine months
ended September 30, 1998. Effective October 1, 1998 (the effective date of the
Insignia Merger), these services for the commercial property were performed by
an unrelated third party.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $42,000 and
$71,000 for the nine months ended September 30, 1999 and 1998, respectively.
The Partnership also paid approximately $4,000 in leasing commissions to an
affiliate of the Managing General Partner for the nine months ended September
30, 1998. No such fees were paid for the nine months ended September 30, 1999.
On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 31,737 units of limited
partnership interest in the Partnership (approximately 36.59% of the total
outstanding units) for a purchase price of $78 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,234
units. As a result, AIMCO and its affiliates currently own 18,609 units of
limited partnership interest in the Partnership representing approximately
21.45% of the total outstanding units. It is possible that AIMCO or its
affiliate will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Note E - Legal Proceedings").
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which reportable segment
derives its revenues:
The Partnership has two reportable segments:
Residential properties and commercial properties. The Partnership's residential
property segment consists of one apartment complex located in Brandon,
Mississippi. The Partnership rents apartment units to tenants for terms that
are typically twelve months or less. The commercial property segment consists
of a retail shopping center located in Medford, Oregon. This property leases
space to clothing, fabric and craft retailers, a fitness center and various
other specialty retail outlets.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those described in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the nine months ended September 30, 1999 and 1998 is
shown (in thousands) in the tables below. The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segments.
1999 Residential Commercial Other Totals
Rental income $ 601 $ 773 $ -- $ 1,374
Other income 19 6 28 53
Interest expense -- 267 -- 267
Depreciation 193 318 -- 511
General and administrative expense -- -- 116 116
Segment profit (loss) 146 (30) (88) 28
Total assets 2,251 3,334 205 5,790
Capital expenditures 69 -- -- 69
1998 Residential Commercial Other Totals
Rental income $ 601 $ 745 $ -- $ 1,346
Other income 19 2 34 55
Interest expense -- 270 -- 270
Depreciation 193 317 -- 510
General and administrative expense -- -- 123 123
Segment profit (loss) 139 (63) (89) (13)
Total assets 2,122 3,619 1,053 6,794
Capital expenditures 36 12 -- 48
NOTE E - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner
entities, past tender offers by Insignia Affiliates to acquire limited
partnership units, the management of partnerships by Insignia Affiliates and the
Insignia Merger (see "Note B - Transfer of Control"). The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement
("Stipulation"), settling claims, subject to final court approval, on behalf of
the Partnership and all limited partners who own units as of November 3, 1999.
The Court has preliminarily approved the Settlement and scheduled a final
approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
Managing General Partner will make tender offers for all outstanding limited
partnership interests in 49 partnerships, including the Registrant, subject to
the terms and conditions set forth in the Stipulation, and has agreed to
establish a reserve to pay an additional amount in settlement to qualifying
class members (the "Settlement Fund"). At the final approval hearing,
Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in
part from the Settlement Fund. The Managing General Partner does not anticipate
that costs associated with this case will be material to the Partnership's
overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of one apartment complex and one
commercial property. The following table sets forth the average occupancy of
the properties for the nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Lake Forest Apartments 92% 93%
Brandon, Mississippi
Poplar Square Shopping Center 92% 95%
Medford, Oregon
The Managing General Partner attributes the decrease in occupancy at Poplar
Square Shopping Center to the bankruptcy of one of the tenants during the first
quarter of 1999. This property is currently under contract for sale. The sale
which is subject to the purchaser's due diligence and other customary
conditions, is expected to close during the fourth quarter of 1999. There can
be no assurance, however, that the sale will be consummated.
Results from Operations
The Registrant's net income for the nine month period ended September 30, 1999
was approximately $28,000 as compared to a net loss of approximately $13,000 for
the nine months ended September 30, 1998. The Registrant's net income for the
three months ended September 30, 1999 was approximately $52,000 as compared to
net income of approximately $11,000 for the three months ended September 30,
1998. The increase in net income for both the three and nine months ended
September 30, 1999 is due to an increase in total revenues and a decrease in
total expenses. The increase in total revenues is attributable to an increase
in rental income due to increased average annual rental rates at both properties
despite the decrease in occupancy at both Lake Forest Apartments and Poplar
Square Shopping Center. The decrease in total expenses is the result of small
changes in all of the expenses, none of which are individually significant.
Included in general and administrative expenses for the nine months ended
September 30, 1999 and 1998 are reimbursements to the Managing General Partner
allowed under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment 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.
Liquidity and Capital Resources
At September 30, 1999, the Registrant had cash and cash equivalents of
approximately $703,000 as compared to approximately $1,236,000 at September 30,
1998. The net decrease in cash and cash equivalents was approximately $644,000
for the nine months ended September 30, 1999, from the Registrant's fiscal year
end. The decrease in cash and cash equivalents is due to approximately
$1,037,000 of cash used in financing activities and approximately $111,000 of
cash used in investing activities, which is partially offset by approximately
$504,000 of cash provided by operating activities. Cash used in financing
activities consisted primarily of distributions to partners and, to a lesser
extent, payments of principal made on the mortgage encumbering Poplar Square
Shopping Center. Cash used in investing activities consisted of property
improvements and replacements, net deposits to escrow accounts maintained by the
mortgage lender and lease commissions paid to the third party management company
for new leases signed at Poplar Square Shopping Center. The Registrant invests
its working capital reserves in a money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, and local legal and regulatory requirements. Capital
improvements planned for both of the Registrant's properties are detailed below.
Poplar Square Shopping Center: Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that Poplar Square Shopping Center requires approximately $479,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $11,000 for 1999, which
include certain of the required improvements and consist of tenant improvements
and exterior lighting upgrades. As of September 30, 1999, no expenditures for
capital improvements have been incurred.
Lake Forest Apartments: Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that Lake
Forest Apartments requires approximately $147,000 of capital improvements over
the next few years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $149,000 for 1999, which include certain
of the required improvements and consist of carpet and roof replacements. As of
September 30, 1999, approximately $69,000 has been incurred consisting primarily
of sewer replacements, air conditioning unit and plumbing upgrades, flooring and
appliance replacements. These improvements were funded from cash flow from
operations.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $3,673,000 encumbering Poplar Square Shopping
Center is amortized over 25 years with a balloon payment of approximately
$3,167,000 due November 2006. The Managing General Partner will attempt to
refinance such indebtedness and/or sell the property prior to such maturity
date. If the property cannot be refinanced or sold for a sufficient amount, the
Registrant will risk losing such property through foreclosure.
The Partnership made an operating cash distribution of approximately $1,000,000
during the nine months ended September 30, 1999, of which, approximately
$990,000 was paid to limited partners (approximately $11.41 per limited
partnership unit). A cash distribution from operations of approximately
$247,000 was paid during the nine months ended September 30, 1998, to the
limited partners (approximately $2.85 per limited partnership unit) with
$245,000 of this amount being paid to satisfy a liability at December 31, 1997.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancings, and/or property sales. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations, after
planned capital expenditures, to permit any additional distributions to its
partners during the remainder of 1999 or subsequent periods.
Tender Offer
On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 31,737 units of the limited
partnership interest in the Partnership (approximately 36.59% of the total
outstanding units) for a purchase price of $78 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,234
units. As a result, AIMCO and its affiliates currently own 18,609 units of
limited partnership interest in the Partnership representing approximately
21.45% of the total outstanding units. It is possible that AIMCO or its
affiliate will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (See "Item 1. Financial Statements, Note E -
Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The 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 entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such
demurrers, settlement negotiations commenced. On November 2, 1999, the
parties executed and filed a Stipulation of Settlement ("Stipulation"),
settling claims, subject to final court approval, on behalf of the
Partnership and all limited partners who own units as of November
3, 1999. The Court has preliminarily approved the Settlement and scheduled a
final approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
Managing General Partner will make tender offers for all outstanding limited
partnership interests in 49 partnerships, including the Registrant, subject
to the terms and conditions set forth in the Stipulation, and has agreed to
establish a reserve to pay an additional amount in settlement to qualifying
class members (the "Settlement Fund"). At the final approval hearing,
Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate
that costs associated with this case will be material to the Partnership's
overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
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/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties, Ltd. III 1999 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 703
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,635
<DEPRECIATION> 10,451
<TOTAL-ASSETS> 5,790
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 3,673
0
0
<COMMON> 0
<OTHER-SE> 1,898
<TOTAL-LIABILITY-AND-EQUITY> 5,790
<SALES> 0
<TOTAL-REVENUES> 1,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-BASIC> .32<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
