March 28, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Angeles Income Properties, Ltd. III
Form 10-KSB
File No. 0-13191
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Managing General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] 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
(Name of small business issuer in its charter)
California 95-3903984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
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 No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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. [ ]
State issuer's revenues for its most recent fiscal year. $860,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
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 on May 26, 1983, as amended (hereinafter referred to as "the
Agreement"). The Partnership's managing general partner is Angeles Realty
Corporation II, ("ARC II" or the "Managing General Partner", an affiliate of
Apartment Investment and Management Company ("AIMCO") and previously a
wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25,
1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which was an
affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 26,
1999, IPT was merged into AIMCO. Thus, the Managing General Partner is now a
wholly-owned subsidiary of AIMCO. The Elliott Accommodation Trust and the
Elliott Family Partnership, Ltd., California limited partnerships, were the
Non-Managing General Partners. Effective December 31, 1997 the Elliott Family
Partnership, Ltd. acquired the Elliott Accommodation Trust's general partner
interest in the Registrant. The Managing General Partner and the Non-Managing
General Partner are herein collectively referred to as the "General Partners".
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2038 unless terminated prior to such date.
The Registrant is engaged in the business of operating and holding real estate
properties for investment. In 1984 and 1985, during its acquisition phase, the
Registrant acquired one existing apartment complex, a mobile home park, a
shopping center and invested in three joint ventures which, in turn, owned two
shopping centers and one industrial/distribution complex. The Registrant
continues to own and operate the apartment complex (see "Item 2, Description of
Property").
Commencing March 7, 1984, the Registrant offered, pursuant to a Registration
Statement filed with the Securities and Exchange Commission, up to 160,000 units
of Limited Partnership Interest (the "Units"), at a purchase price of $500 per
Unit with a minimum purchase of 10 Units ($5,000), or 4 Units ($2,000) for an
Individual Retirement Account.
The offering terminated March 6, 1985. Upon termination of the offering, the
Registrant 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. Since its initial offering, the Registrant has not received, nor
are limited partners required to make, additional capital contributions.
The Partnership has no employees. Property management and administrative
services are provided by the Managing General Partner and by agents retained by
the Managing General Partner. Property management services are performed at the
Partnership's residential property by an affiliate of the Managing General
Partner. However, since October 1, 1998, such property management services at
the Registrant's commercial property were provided by an unrelated party (see
"Transfer of Control" below). This commercial property was sold December 30,
1999 to an unaffiliated third party.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's property. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for apartments owned by the Partnership and the rents that may be charged for
such apartments. While the Managing General Partner and its affiliates own
and/or control a significant number of apartment units in the United States,
such units represent an insignificant percentage of total apartment units in the
United States and competition for the apartments is local.
Both the income and expenses of operating the property owned by the Partnership
are subject to factors outside of the Partnership's control, such as changes in
the supply and demand for similar properties resulting from various market
conditions, increases/decreases in unemployment or population shifts, changes in
the availability of permanent mortgage financing, changes in zoning laws, or
changes in patterns or needs of users. In addition, there are risks inherent in
owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed. which resulted in no material adverse
conditions or liabilities. In no cash has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in Management's
Discussion and Analysis or Plan of Operations" included in "Item 6." of this
Form 10-KSB.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and IPT merged into AIMCO, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the
Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Item 2. Description of Property:
The following table sets forth the Partnership's investment in its property:
Date of
Property Purchase Type of Ownership Use
Lake Forest Apartments 06/27/84 Fee ownership Residential Rental
Brandon, Mississippi 136 units
<PAGE>
Schedule of Property:
Set forth below for the Registrant's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation and Federal
tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Lake Forest
Apartments $ 4,920 $ 3,122 5-40 yrs S/L $1,800
</TABLE>
See "Note A" of the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note K - Change in Accounting Principle".
Schedule of Rental Rate and Occupancy:
Average annual rental rate and occupancy for 1999 and 1998 for the property:
Average Annual Average Annual
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
Lake Forest Apartments $6,783 $6,642 92% 94%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The Partnership's property is subject to competition from
other residential apartment complexes in the area. The Managing General Partner
believes that the property is adequately insured. The apartment complex leases
its units for lease terms of one year or less. No residential tenant leases 10%
or more of the available rental space. The property is in good physical
condition, subject to normal depreciation and deterioration as is typical for
assets of this type and age.
Schedule of Real Estate Tax and Rate:
Real estate taxes and rate in 1999 for the property were:
1999 1999
Billing Rate
(in thousands)
Lake Forest Apartments $38 10.85%
Capital Improvements:
Lake Forest Apartments: The Partnership completed approximately $124,000 in
capital expenditures at Lake Forest Apartments as of December 31, 1999,
consisting primarily of sewer upgrades, appliances, floor covering replacement,
pool upgrades and recreation facility improvements. These improvements were
funded primarily from operations. The Partnership is currently evaluating the
capital improvement needs of the property for the upcoming year. The minimum
amount to be budgeted is expected to be $300 per unit or $40,800. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Item 7. Financial Statements, Note B - Transfer of Control"). The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement, settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
Managing General Partner and its affiliates terminated the proposed settlement.
Certain plaintiffs have filed a motion to disqualify some of the plaintiffs'
counsel in the action. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
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 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matter was submitted to a vote of
security holders of the Registrant through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Partnership's Common Equity and Related Security Holder
Matters
The Partnership, a publicly-held limited partnership, offered and sold 86,920
Limited Partnership Units during its offering period through March 7, 1984, and
currently has 86,738 Limited Partnership Units outstanding and 2,190 Limited
Partners of record. Affiliates of the Managing General Partner owned 33,554
units or 38.684% of the outstanding partnership units at December 31, 1999. No
public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future. During 1998, 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.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999, as well as for the subsequent period
from January 1, 2000 to March 1, 2000. (See "Item 7. Financial Statements, Note
I - Distributions" for more details).
Distribution
Per Limited
Aggregate Partnership Unit (4)
1/01/98 - 12/31/98 $ 247,000 (1) $ .02
1/01/99 - 12/31/99 1,000,000 (2) 11.41
1/01/00 - 3/01/00 1,275,000 (3) 14.55
(1) Distribution was made from operations and included payment of $245,000
which had been declared at December 31, 1997.
(2) Distribution was made from cash from operations.
(3) Consists of $70,000 of cash from operations and $1,205,000 from sale
proceeds.
(4) All distributions are distributed 99% to limited partners and 1% to
general partners.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations, after
required capital expenditures, to permit any additional distributions to its
partners in the year 2000 or subsequent periods. See "Item 2. Description of
Property - Capital Improvements" for information relating to anticipated capital
expenditures at the Partnership's property.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 33,554
limited partnership units in the Partnership representing approximately 38.684%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussions of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operations. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1999 was
approximately $2,076,000 as compared to a net loss of approximately $16,000 for
the year ended December 31, 1998 (See "Note C" of the consolidated financial
statements for a reconciliation of these amounts to the Registrant's federal
taxable income). The increase in net income is primarily attributable to the
gain on sale of discontinued operations of approximately $2,276,000 realized on
the sale of Poplar Square Shopping Center as discussed below.
The Registrant had a net loss before discontinued operations and extraordinary
loss on early extinguishment of debt of approximately $4,000 for the year ended
December 31, 1999 as compared to income of approximately $41,000 for the year
ended December 31, 1998. The increase in loss is the result of both a decrease
in total revenue and an increase in total expenses. Total revenues decreased due
to a decrease in rental income and a decrease in other income. Rental income
decreased due to a decrease in occupancy and increased concession costs at Lake
Forest Apartments. These decreases were partially offset by an increase in the
average annual rental rate at the property. Other income decreased primarily due
to a decrease in interest income due to lower cash balances invested in interest
bearing accounts as a result of the distribution made during 1999.
The increase in total expenses is primarily the result of an increase in general
and administrative expenses and was partially offset by a decrease in operating
expenses. General and administrative expenses increased due primarily to an
increase in legal expense, increased Partnership management fees allowed to be
paid to the Managing General Partner based on "net cash available for
distributions" as defined in the Partnership Agreement and increased
professional fees. These increases were partially offset by reduced
reimbursements to the Managing General Partner. Legal expense increased due to
the settlement of a lawsuit as discussed in the Partnership's Annual Report on
Form 10-KSB at December 31, 1998. Included in general and administrative expense
for the years ended December 31, 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 audits and appraisals required by the
Partnership Agreement are also included. Operating expenses decreased due to
reduced maintenance expenses and advertising expenses which were partially
offset by an increase in payroll expenses.
On December 30, 1999, Poplar Square Shopping Center located in Medford, Oregon,
was sold to an unaffiliated third party for $5,215,000. After closing expenses
and other expenses (net) of approximately $93,000 and the assumption by the
purchaser of the property's mortgage of $3,660,000 the net proceeds received by
the Partnership were approximately $1,462,000. Subsequent to December 31, 1999
approximately $1,205,000 of the remaining net sale proceeds were distributed to
the Partners. The Partnership recorded an extraordinary loss on early
extinguishment of debt of approximately $92,000 due to the payment of loan
assumption fees and the write off of the remaining unamortized loan costs. In
addition a gain on the sale of discontinued operations of approximately
$2,276,000 was recorded as a result of writing off the net assets of the
property against the net proceeds received from the sale.
Poplar Square was the only commercial property owned by the Partnership and
represented one segment of the Partnership's operations. Due to the sale of this
property, the results of the commercial segment have been shown as income from
discontinued operations and gain on sale of discontinued operations for 1999 and
1998 and, accordingly, the statements of operations have been restated to
reflect this presentation. Revenues of this property were approximately $976,000
and $1,020,000 for 1999 and 1998, respectively. Loss from operations were
approximately $104,000 and $57,000 for 1999 and 1998, respectively. The increase
in loss from discontinued operations was due to an increase in bad debt expense,
and reduced occupancy which were partially offset by increased average rental
rates and tenant charges.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
not material. The cumulative effect, had the change been applied to prior
periods, is not material. The accounting principle change will not have an
effect on cash flow, funds available for distribution or fees payable to the
Managing General Partner and affiliates.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of this
plan, the Managing General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions needed 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
At December 31, 1999, the Registrant held cash and cash equivalents of
approximately $2,253,000, compared to approximately $1,347,000 at December 31,
1998. The increase in cash and cash equivalents of approximately $906,000 is
primarily due to approximately $1,308,000 of cash provided by investing
activities and to a lessor extent to approximately $648,000 of cash provided by
operating activities partially offset by approximately $1,050,000 of cash used
in financing activities. Cash provided by investing activities consisted
primarily of net proceeds received as a result of the sale of Poplar Square
Shopping Center and was partially offset by property improvements and
replacements. Cash used in financing activities consisted of scheduled principal
payments and the payoff of the mortgage at Poplar Square and distributions to
partners. The Registrant invests its working capital reserves in money market
accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the Partnership's property to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. The Partnership is
currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $40,800. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property. The additional capital expenditures will be incurred only if cash
is available from operations and 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 Partnership made a cash distribution from operations of approximately
$1,000,000 (approximately $990,000 to the limited partners, or $11.41 per
limited partnership unit), during the year ended December 31, 1999. Cash
distributions of approximately $247,000 were paid during the year ended December
31, 1998, of which $2,000 ($.02 per limited partnership unit) was paid from
operations for the year ended December 31, 1998 and $245,000 was paid in
relation to a distribution declared as of December 31, 1997. Subsequent to
December 31, 1999 a cash distribution of approximately $1,275,000 (approximately
$1,262,000 to the limited partners or $14.55 per limited partnership unit) was
approved and paid. Approximately $70,000 (approximately $69,000 to the limited
partners or $0.80 per limited partnership unit) of this was from operations and
approximately $1,205,000 (approximately $1,193,000 to the limited partners or
$13.75 per limited partnership unit) was from sale proceeds. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, and the timing of debt maturities,
refinancings and/or property sales. The Partnership's distribution policy is
reviewed on a semi-annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit additional distributions to its partners in the
year 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of the tender offers, AIMCO and its affiliates currently own 33,554
limited partnership units in the Partnership representing approximately 38.684%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
Year 2000 Compliance
General Description
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 Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
Item 7. Financial Statements
ANGELES INCOME PROPERTIES, LTD. III
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and
1998
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
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, 1999, and the related consolidated
statements of operations, changes in partners' (deficit) capital and cash flows
for each of the two years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 at December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 2,253
Receivables and deposits, net of allowance for
doubtful accounts of $126 160
Other assets 7
Investment properties (Note E):
Land $ 657
Buildings and related personal property 4,263
4,920
Less accumulated depreciation (3,122) 1,798
$ 4,218
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 33
Tenant security deposit liabilities 20
Accrued property taxes 39
Other liabilities 180
Partners' Capital
General partners $ 7
Limited partners (86,738 units issued and
outstanding) 3,939 3,946
$ 4,218
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Revenues: (restated)
<S> <C> <C>
Rental income $ 803 $ 812
Other income 57 67
Total revenues 860 879
Expenses:
Operating 329 342
General and administrative 232 198
Depreciation 264 261
Property taxes 39 37
Total expenses 864 838
(Loss) income before discontinued operations and
extraordinary loss on early extinguishment of debt (4) 41
Loss from discontinued operations (Note F) (104) (57)
Gain on sale of discontinued operations (Note F) 2,276 --
Income (loss) before extraordinary loss on early
extinguishment of debt 2,168 (16)
Loss on early extinguishment of debt (Note F) (92) --
Net income (loss) (Note C) 2,076 (16)
Net income (loss) allocated to general partners $ 364 $ --
Net income (loss) allocated to limited partners 1,712 (16)
$2,076 $ (16)
Net (loss) income per limited partnership unit:
(Loss) income before discontinued operations and
extraordinary loss on early extinguishment of debt $ (.05) $ .47
Loss from discontinued operations (1.18) (.65)
Gain on sale of discontinued operations 22.02 --
Income (loss) before extraordinary loss on early
extinguishment of debt 20.79 (.18)
Loss on early extinguishment of debt (1.05) --
Net income (loss) per limited partnership unit $19.74 $ (.18)
Distributions per limited partnership unit $11.41 $ .02
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 86,920 $ 1 $43,460 $43,461
Partners' (deficit) capital
at December 31, 1997 86,778 $ (347) $ 3,235 $ 2,888
Net loss for the year ended
December 31, 1998 -- -- (16) (16)
Distributions to partners -- -- (2) (2)
Abandonment of partnership units
(Note G) (40) -- -- --
Partners' (deficit) capital at
December 31, 1998 86,738 (347) 3,217 2,870
Net income for the year ended
December 31, 1999 -- 364 1,712 2,076
Distributions to partners -- (10) (990) (1,000)
Partners' capital at
December 31, 1999 86,738 $ 7 $ 3,939 $ 3,946
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
ANGELES INCOME PROPERTIES, LTD. III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 2,076 $ (16)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of discontinued operations (2,276) --
Extraordinary loss on early extinguishment of debt 92 --
Depreciation 687 685
Amortization of loan costs and leasing commissions 40 37
Change in accounts:
Receivables and deposits (5) (51)
Other assets 11 --
Accounts payable 12 (2)
Tenant security deposit liabilities (1) --
Accrued property taxes (16) (38)
Other liabilities 28 45
Net cash provided by operating activities 648 660
Cash flows from investing activities:
Property improvements and replacements (124) (76)
Net proceeds from sale of discontinued operations 1,462 --
Net deposits to restricted escrows (30) (26)
Net cash provided by (used in) investing
activities 1,308 (102)
Cash flows from financing activities:
Payments on mortgage note payable (50) (45)
Distributions to partners (1,000) (247)
Net cash used in financing activities (1,050) (292)
Net increase in cash and cash equivalents 906 266
Cash and cash equivalents at beginning of the year 1,347 1,081
Cash and cash equivalents at end of year $ 2,253 $ 1,347
Supplemental disclosure of cash flow information:
Cash paid for interest $ 339 $ 344
Supplemental disclosure of non-cash activity
Extinguishment of debt in connection with the sale of
discontinued operations $ 3,660 $ --
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
ANGELES INCOME PROPERTIES, LTD. III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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" or the "Managing General Partner"), an affiliate of Apartment Investment and
Management Company ("AIMCO") and previously a wholly-owned subsidiary of MAE GP
Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which was an affiliate of Insignia Financial
Group, Inc ("Insignia"). Effective February 26, 1999, IPT was merged into AIMCO.
See "Note B - Transfer of Control". Thus the Managing General Partner is now a
wholly-owned subsidiary of AIMCO. The Elliott Accommodation Trust and the
Elliott Family Partnership, Ltd., California limited partnerships, were the
Non-Managing General Partners. Effective December 31, 1997 the Elliott Family
Partnership, Ltd., acquired the Elliott Accommodation Trust's general partner
interest in the Registrant. The Managing General Partner and the Non-Managing
General Partner are herein collectively referred to as the "General Partners".
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2038, unless terminated prior to such date. As of December 31,
1999, the Partnership operates one residential property in Mississippi.
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. Poplar Square GP LP is the general partner of
Poplar Square AIP III and ARC II is the general partner of Poplar Square GP LP.
Both general partners of the consolidated partnerships may be removed by the
Registrant; therefore, the partnerships are controlled and consolidated by the
Partnership. All significant interpartnership balances have been eliminated.
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.
Allocations and Distributions to Partners: In accordance with the Partnership
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 0.5% to the Managing General
Partner, 0.5% 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; and (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 provided by the straight-line method over the
estimated lives of the apartment property and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 year
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
over 27 1/2 years and (2) personal property additions over 5 years.
Effective January 1, 1999 the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (see Note K).
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in
banks and money market accounts. At certain times, the amount of cash deposited
at a bank may exceed the limit on insured deposits.
Investment Property: Investment property consists of one apartment complex and
is stated at cost. Acquisition fees are capitalized as a cost of real estate. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Partnership records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No adjustments for
impairment of value were necessary for the years ended December 31, 1999 or
1998.
Tenant Security Deposits: The Partnership requires security deposits from all
apartment lessees for the duration of the lease and such deposits are included
in receivables and deposits. The security deposits are refunded when the tenant
vacates the apartment provided the tenant has not damaged the space and is
current on rental payments.
Leases: The Partnership generally leases apartment units for twelve month terms
or less. The Partnership recognizes income as earned on its leases. In addition,
the Managing General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from similar
complexes in the area. Concessions are charged against rental income as
incurred.
Fair Value: SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", as amended by SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate fair
value. Fair value is defined in the SFAS as the amount at which the instruments
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. The Partnership believes that the carrying
amount of its financial instruments approximates their fair value due to the
short term maturity of these instruments.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. (See "Note H" for required disclosure).
Advertising: The Partnership expenses the cost of advertising as incurred.
Advertising costs of approximately $18,000 and $28,000 for the years ended
December 31, 1999 and 1998, respectively, were charged to operating expense as
incurred.
Reclassifications: Certain reclassifications have been made to the 1998 balances
to conform to the 1999 presentation:
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and IPT merged into AIMCO, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the
Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, 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 consolidated financial statements of the Partnership.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (in thousands, except per unit data):
1999 1998
Net income (loss) as reported $2,076 $ (16)
Add (deduct):
Depreciation differences 104 46
Gain on sale of Poplar Square (1,697) --
Other 135 36
Federal taxable income $ 618 $ 66
Federal taxable income per limited
partnership unit $ 7.05 $ .75
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported $ 3,946
Land and buildings (61)
Accumulated depreciation 63
Syndication and distribution costs 5,807
Other 737
Net assets - Federal tax basis $10,492
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 (i) certain payments
to affiliates for services and (ii) reimbursement of certain expenses incurred
by affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Managing General Partner and affiliates in 1999 and in 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expense) $ 43 $ 65
Partnership management fees (included in other
liabilities, general and administrative expense) (1) 47 27
Reimbursement for services of affiliates (included in
investment properties, operating expense and
general and administrative expense) 55 92
(1) The Partnership Agreement provides for a fee equal to 10% of "net cash
flow from operations", as defined in the Partnership Agreement to be paid
to the Managing General Partner for executive and administrative
management services.
During the years ended December 31, 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
$43,000 for both the years ended December 31, 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 $22,000 during 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 party.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $55,000 and
$92,000 for the years ended December 31, 1999 and 1998, respectively. Included
in "Reimbursement for Services of Affiliates" for the year ended December 31,
1998, is approximately $4,000 in leasing commissions paid to an affiliate of the
Managing General Partner. No such fees were paid during 1999.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of tender offer, AIMCO and its affiliates currently own 33,554 limited
partnership units in the Partnership representing approximately 38.684% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note E - Real Estate and Accumulated Depreciation
Initial Cost
To Partnership
(in thousands)
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Lake Forest Apts. $ -- $ 657 $ 3,160 $ 1,103
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Lake Forest Apts. $ 657 $ 4,263 $ 4,920 $ 3,122 6/27/84 40
</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":
Years Ended December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $14,566 $14,490
Property improvements and replacements 124 76
Sale of discontinued operations (9,770) --
Balance at end of year $ 4,920 $14,566
Accumulated Depreciation
Balance at beginning of year $ 9,940 $ 9,255
Additions charged to expense 687 685
Sale of discontinued operations (7,505) --
Balance at end of year $ 3,122 $ 9,940
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $4,859,000 and $16,478,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $3,059,000 and $10,256,000.
Note F - Sale of Discontinued Operations
On December 30, 1999, Poplar Square Shopping Center located in Medford, Oregon,
was sold to an unaffiliated third party for $5,215,000. After closing expenses
and other payments (net) of approximately $93,000 and the assumption by the
purchaser of the property's mortgage of $3,660,000 the net proceeds received by
the Partnership were approximately $1,462,000. Subsequent to December 31, 1999
approximately $1,205,000 of the remaining net sale proceeds were distributed to
the partners. The Partnership recorded an extraordinary loss on early
extinguishment of debt of approximately $92,000 due to the payment of loan
assumption fees and the write off of the remaining unamortized loan costs.
The Poplar Square Shopping Center sale transaction is summarized as follows
(amounts in thousands):
Net sales price, net of selling costs $ 5,034,000
Net real estate (1) (2,265,000)
Other assets (493,000)
Gain on sale of real estate $ 2,276,000
(1) Net of accumulated depreciation of approximately $7,505,000.
Poplar Square was the only commercial property owned by the Partnership and
represented one segment of the Partnership's operations. Due to the sale of this
property, the results of the commercial segment have been shown as income from
discontinued operations and gain on sale of discontinued operations for 1999 and
1998 and, accordingly, the statements of operations have been restated to
reflect this presentation. Revenues of this property were approximately $976,000
and $1,020,000 for 1999 and 1998, respectively. Loss from operations were
approximately $104,000 and $57,000 for 1999 and 1998, respectively.
Note G - Abandonment of Limited Partnership Units
In 1998, 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 income or loss 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.
Note H - Segment Reporting
Description of the types of products and services from which reportable segment
derives its revenues:
The Partnership had two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of one apartment complex located in Mississippi. The Partnership rents apartment
units to tenants for terms that are typically twelve months or less. The
commercial property segment consisted of a shopping center located in Oregon,
which was sold on December 30, 1999. As a result of the sale of the commercial
property during 1999 the commercial segment is shown as discontinued operations.
(See "Note F - Sale of Discontinued Operations" for further discussion regarding
the commercial property sale).
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the summary of significant accounting
policies.
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 years ended December 31, 1999 and 1998 is shown in
the tables below. The "Other" column includes Partnership administration related
items and income and expense not allocated to the reportable segments (in
thousands).
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 803 $ -- $ -- $ 803
Other income 25 -- 32 57
Depreciation 264 -- -- 264
General and administrative expense -- -- 232 232
Loss from discontinued operations -- (104) -- (104)
Gain on sale of discontinued
operations -- 2,276 -- 2,276
Loss on early extinguishment of debt -- (92) -- (92)
Segment profit (loss) 196 2,080 (200) 2,076
Total assets 2,322 -- 1,896 4,218
Capital expenditures for investment
property 124 -- -- 124
1998 Residential Commercial Other Totals
(discontinued)
Rental income $ 812 $ -- $ -- $ 812
Other income 27 -- 40 67
Depreciation 261 -- -- 261
General and administrative expense -- -- 198 198
Loss from discontinued operations -- (57) -- (57)
Segment profit (loss) 199 (57) (158) (16)
Total assets 2,057 3,582 1,116 6,755
Capital expenditures for investment
properties 55 21 -- 76
</TABLE>
Note I - Distributions
The Partnership made a cash distribution from operations of approximately
$1,000,000 (approximately $990,000 was paid to limited partners, or $11.41 per
limited partnership unit), during the year ended December 31, 1999. Cash
distributions of approximately $247,000 were paid during the year ended December
31, 1998, of which $2,000 ($.02 per limited partnership unit) was paid from
operations for the year ended December 31, 1998 and $245,000 was paid in
relation to a distribution payable as of December 31, 1997. Subsequent to
December 31, 1999 a cash distribution of approximately $1,275,000 ($1,262,000 to
the limited partners or $14.55 per limited partnership unit) was approved and
paid. Approximately $70,000 of this was from operations and approximately
$1,205,000 was from sale proceeds.
Note J - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note K - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
not material. The cumulative effect, had this change been applied to prior
periods, is not material. The accounting principle change will not have an
effect on cash flow, funds available for distribution or fees payable to the
Managing General Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountant on Accounting and Financial
Disclosures
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Angeles Income Properties, Ltd. III (the "Partnership" or "Registrant") has no
officers or directors. The Managing General Partner is Angeles Realty
Corporation II ("ARC II" or "Managing General Partner"), which was a
wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25,
1998, MAE GP was merged into Insignia Properties Trust ("IPT"). Effective
February 26, 1999, IPT was merged into Apartment Investment and Management
Company ("AIMCO"). Thus, the Managing General Partner is now a wholly-owned
subsidiary of AIMCO.
The names of the director and executive officers of ARC II, their ages and the
nature of all positions with ARC II presently held are as follows:
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Managing
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Forms 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO Properties, L.P. and its joint filers failed to timely file a Form 3 with
respect to its acquisition of Units and AIMCO and its joint filers failed to
timely file a Form 4 with respect to its acquisition of Units.
Item 10. Executive Compensation
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the Managing General Partner.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Entity Number of Units Percentage
AIMCO Properties LLP
(an affiliate of AIMCO) 22,079 25.455%
Cooper River Properties, LLC
(an affiliate of AIMCO) 11,470 13.224%
Insignia Properties LP
(an affiliate of AIMCO) 5 .005%
Cooper River Properties LLC and Insignia Properties LP are indirectly ultimately
owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South
Carolina 29602. AIMCO Properties LP is indirectly ultimately controlled by
AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado
80222.
No director or officer of the Managing General Partner owns any Units. The
Managing General Partner owns 100 Units as required by the terms of the
Partnership Agreement governing the Partnership.
Item 12. Certain Relationships and Related Transactions
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) certain payments
to affiliates for services and (ii) reimbursement of certain expenses incurred
by affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Managing General Partner and affiliates in 1999 and in 1998:
1999 1998
(in thousands)
Property management fees $ 43 $ 65
Partnership management fees (1) 47 27
Reimbursement for services of affiliates 55 92
(1) The Partnership Agreement provides for a fee equal to 10% of "net cash
flow from operations", as defined in the Partnership Agreement to be paid
to the Managing General Partner for executive and administrative
management services.
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts of the
Registrant's residential property as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$43,000 for both the years ended December 31, 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 $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 properties were performed by an unrelated
party.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $55,000 and
$92,000 for the years ended December 31, 1999 and 1998, respectively. Included
in "Reimbursement for Services of Affiliates" for the year ended December 31,
1998, is approximately $4,000 in leasing commissions paid to an affiliate of the
Managing General Partner. No such fees were paid during 1999.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 33,554
limited partnership units in the Partnership representing approximately 38.684%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the Managing General Partner
because of their affiliation with the Managing General Partner.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle, filed as an exhibit to this report.
27 Financial Data Schedule, filed as an exhibit to this report.
(b) Reports on Form 8-K filed in the fourth quarter of year 1999:
Form 8-K dated December 30, 1999 disclosing sale of Poplar Square Shopping
Center to SB Management Corporation.
<PAGE>
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
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:
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/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
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 of Real Property with Exhibits -
Lake Forest Apartments filed in Form 8K dated June 28, 1984,
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 8K dated May 15,
1985, incorporated herein by reference.
10.4 Agreement of Purchase and Sale of Real Property with Exhibits
- Northtown Mall filed in Form 8K 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.
10.11 Promissory Note - Northtown Mall filed in 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, a subsidiary of MAE GP Corporation, filed in
Form 8-K dated December 31, 1993, which is incorporated herein
by reference.
10.15 Promissory Note-dated October 31, 1996, between Poplar Square
AIP III. L.P., and Union Capital Investments, LLC.
10.16 Purchase and Sale Contract between Poplar Square AIP III, L.P.
and SB Management Corporation dated August 12, 1999 filed in
Form 8-K dated December 30, 1999, which is incorporated herein
by reference.
10.17 Amendment to Purchase and Sale Contract between Poplar Square
AIP III, L.P. and SB Management Corporation filed in Form 8-K
dated December 30, 1999, which is incorporated herein by
reference.
10.18 Second Amendment to Purchase and Sale Contract between Poplar
Square AIP III, L.P. and SB Management Corporation filed in
Form 8-K dated December 30, 1999, which is incorporated herein
by reference.
10.19 Third Amendment to Purchase and Sale Contract between Poplar
Square AIP III, L.P. and SB Management Corporation filed in
Form 8-K dated December 30, 1999, which is incorporated herein
by reference.
10.20 Fourth Amendment to Purchase and Sale Contract between Poplar
Square AIP III, L.P. and SB Management Corporation filed in
Form 8-K dated December 30, 1999, which is incorporated herein
by reference.
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.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle.
27 Financial Data Schedule.
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
Angeles Realty Corporation II
Managing General Partner of Angeles Income Properties, Ltd. III
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note K of Notes to the Consolidated Financial Statements of Angeles Income
Properties, Ltd. III included in its Form 10-KSB for the year ended December 31,
1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
Managing General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties, Ltd. III 1999 Fourth Quarter 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000720460
<NAME> Angeles Income Properties, Inc. III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,253
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 4,920
<DEPRECIATION> 3,122
<TOTAL-ASSETS> 4,218
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,946
<TOTAL-LIABILITY-AND-EQUITY> 4,218
<SALES> 0
<TOTAL-REVENUES> 860
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (104)
<EXTRAORDINARY> (92)
<CHANGES> 0
<NET-INCOME> 2,076
<EPS-BASIC> 19.74 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
