FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 0-14248
ANGELES PARTNERS XIV
(Exact name of small business issuer as specified in its charter)
California 95-3959771
(State or other jurisdiction of (IRS 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 PARTNERS XIV
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 1,132
Receivables and deposits 530
Restricted escrows 320
Other assets 373
Investment properties:
Land $ 2,243
Buildings and related personal property 24,866
27,109
Less accumulated depreciation (17,882) 9,227
$ 11,582
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 23
Tenant security deposit liabilities 95
Accrued property taxes 431
Accrued interest 5,951
Due to affiliates 1,398
Other liabilities 101
Notes payable, including $4,576 in default 30,145
Partners' Deficit
General partners $ (649)
Limited partners (43,589 units
issued and outstanding) (25,913) (26,562)
$ 11,582
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,176 $ 1,295 $ 2,319 $ 2,621
Other income 38 40 80 75
Write-up of investment property -- 44 -- 44
Total revenues 1,214 1,379 2,399 2,740
Expenses:
Operating 420 513 839 1,003
General and administrative 60 66 122 119
Depreciation 316 313 632 621
Interest 810 991 1,601 2,101
Property taxes 94 99 196 213
Bad debt recovery, net -- (7) -- (7)
Loss on sale of investment property -- 177 -- 177
Total expenses 1,700 2,152 3,390 4,227
Net loss before
extraordinary item (486) (773) (991) (1,487)
Extraordinary gain on extinguishment
of debt -- 5,735 -- 7,979
Net (loss) income $ (486) $ 4,962 $ (991) $ 6,492
Net (loss) income allocated to
general partners (1%) $ (5) $ 50 $ (10) $ 65
Net (loss) income allocated to
limited partners (99%) (481) 4,912 (981) 6,427
$ (486) $ 4,962 $ (991) $ 6,492
Per limited partnership unit:
Net loss before extraordinary item $(11.04) $(17.43) $(22.51) $(33.54)
Extraordinary gain on extinguishment
of debt -- 129.35 -- 179.98
Net (loss) income $(11.04) $111.92 $(22.51) $146.44
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 44,390 $ 1 $ 44,390 $ 44,391
Partners' deficit at
December 31, 1998 43,589 $ (639) $(24,932) $(25,571)
Net loss for the six months
ended June 30, 1999 -- (10) (981) (991)
Partners' deficit at
June 30, 1999 43,589 $ (649) $(25,913) $(26,562)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net (loss) income $ (991) $ 6,492
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Write-up of investment property -- (44)
Loss on sale of investment property -- 177
Extraordinary gain on extinguishment of debt -- (7,979)
Depreciation 632 621
Amortization of discounts, loan costs, and
leasing commissions 16 49
Bad debt recovery, net -- (7)
Change in accounts:
Receivables and deposits (148) (148)
Other assets (29) 69
Accounts payable (22) --
Tenant security deposit liabilities 7 (5)
Accrued property taxes 116 51
Accrued interest 844 1,259
Due to affiliates 56 71
Other liabilities 16 (4)
Net cash provided by operating activities 497 602
Cash flows from investing activities:
Property improvements and replacements (142) (263)
Net receipts from restricted escrows 34 98
Proceeds from sale of investment property, net -- 1,847
Net cash (used in) provided by investing
activities (108) 1,682
Cash flows from financing activities:
Principal payments on notes payable (140) (308)
Additions to notes payable -- 32
Repayment of notes payable -- (1,822)
Net cash used in financing activities (140) (2,098)
Net increase in cash and cash equivalents 249 186
Cash and cash equivalents at beginning of period 883 649
Cash and cash equivalents at end of period $ 1,132 $ 835
Supplemental disclosure of cash flow information:
Cash paid for interest $ 715 $ 765
Supplemental disclosure of non-cash investing and
financing activities:
Interest on notes transferred to notes payable $ -- $ 350
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(in thousands)
Supplemental disclosure of non-cash activities
Foreclosures
In January and April of 1998, Building 53 and Building 59, respectively, of the
Dayton Industrial Complex were foreclosed upon by the lender. In June 1998,
Building 41 of the Dayton Industrial Complex was sold to an independent third
party. In connection with these non-cash transactions, the following accounts
were adjusted:
Building 53 Building 59 Building 41
Receivables and deposits $ (35) $ -- $ --
Other assets (9) -- --
Investment properties (660) (706) --
Property tax payable 64 26 --
Tenant security deposit liabilities 12 -- --
Accrued interest 175 688 23
Mortgage notes payable 2,697 3,599 2,105
See Accompanying Notes to Consolidated Financial Statements
ANGELES PARTNERS XIV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GOING CONCERN
The accompanying financial statements have been prepared assuming Angeles
Partners XIV (the "Partnership" or "Registrant") will continue as a going
concern. The Partnership continues to incur recurring operating losses and
suffers from inadequate liquidity. Recourse indebtedness of approximately
$4,576,000, plus accrued interest of approximately $2,977,000 is in default at
June 30, 1999, as a result of nonpayment of interest and principal upon maturity
in November, 1997.
The Partnership has unsecured working capital loans to Angeles Acceptance Pool,
L.P. ("AAP") in the amount of approximately $4,576,000 plus related accrued
interest of approximately $2,977,000 that is in default due to non-payment upon
maturity in November 1997. This indebtedness is recourse to the Partnership.
The Partnership does not have the means with which to satisfy this obligation.
The Managing General Partner does not plan to enter into negotiations with AAP
on this indebtedness at this time. The Managing General Partner believes that it
is doubtful that AAP will initiate collection proceedings on this indebtedness
since the estimated value of the Partnership's investment properties and other
assets are significantly less than the existing first mortgages and other
secured Partnership indebtedness. If AAP initiates proceedings, then the
Managing General Partner will enter into negotiations to restructure this
indebtedness.
The Partnership realized a net loss of approximately $991,000 for the six months
ended June 30, 1999. Angeles Realty Corporation II, (the "Managing General
Partner" or "ARC II") expects the Partnership to continue to incur such losses
from operations. The Partnership generated cash from operations of approximately
$497,000 during the six months ended June 30, 1999; however, this was primarily
the result of accruing interest of approximately $844,000 on its indebtedness
and, to a lesser extent, $56,000 for services provided by affiliates.
The Partnership has two notes to Angeles Mortgage Investment Trust ("AMIT"), an
affiliate of the Managing General Partner, which are recourse to the
Partnership, in the aggregate amount of approximately $2,838,000 plus related
accrued interest that originally matured in March 1998. The Managing General
Partner negotiated with AMIT to extend this indebtedness and in the second
quarter of 1998, executed an extension through March 2002. These notes require
monthly payments of excess cash flow, as defined in the terms of the promissory
notes.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows for the next twelve months
to meet all property operating expenses, property debt service requirements and
to fund capital expenditures. However, these cash flows will be insufficient to
provide debt service for the unsecured Partnership indebtedness.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Partnership
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Managing General
Partner, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 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 fiscal year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include all of the accounts of the
Partnership and its 99% limited partnership interest in Waterford Square
Apartments, Ltd. The Partnership may remove the general partner in Waterford
Square Apartments, Ltd.; therefore, this partnership is controlled and
consolidated by the Partnership. All significant interpartnership balances have
been eliminated.
NOTE C - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
("IPT") merged into Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO ultimately 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 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's partnership agreement provides for (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 during each of the six months ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $ 133 $ 132
Reimbursement for services of affiliates
(included in investment property, operating,
and general and administrative expenses) 56 76
Due to affiliate 1,398 1,271
Included in "Reimbursement for services of affiliates" for the six months ended
June 30, 1998 is approximately $5,000 in construction oversight costs. No such
costs were incurred for the six months ended June 30, 1999.
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates $133,000 and
$132,000 for the six months ended June 30, 1999 and 1998, respectively.
Property management services for the Dayton Industrial Complex were performed by
an unaffiliated third party for the six months ended June 30, 1998. In January
1998 and April 1998, Building 53 and Building 59 of the Dayton Industrial
Complex were foreclosed upon, respectively. In June 1998, Building 41 was sold.
As of June 30, 1998, the Partnership still owned Building 55 in this complex,
which was subsequently sold in December 1998.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $56,000 and $76,000 for the
six months ended June 30, 1999 and 1998, respectively.
In November 1992, AAP, a Delaware limited partnership which now controls the
working capital loans previously provided by Angeles Capital Investment, Inc.
("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited
partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which is wholly-
owned by IPT, was, until April 14, 1995, the 1% general partner of AAP. On
April 14, 1995, as part of a settlement of claims between affiliates of the
General Partner and Angeles, AAD resigned as general partner of AAP and
simultaneously received a .5% limited partner interest in AAP. An affiliate of
Angeles now serves as the general partner of AAP.
The AAP working capital loans funded the Partnership's operating deficits in
prior years. Total indebtedness was approximately $4,576,000, plus accrued
interest, at June 30, 1999, with monthly interest accruing at prime plus two
percent. Upon maturity on November 25, 1997, the Partnership did not have the
means with which to satisfy this maturing debt obligation. Total interest
expense for this loan was approximately $215,000 and $240,000 for six months
ended June 30, 1999 and 1998, respectively. Accrued interest payable was
approximately $2,977,000 at June 30, 1999.
As discussed in "Note A", AMIT provides financing (the "AMIT Loans") to the
Partnership. The principal balances on the AMIT Loans totals approximately
$7,603,000 at June 30, 1999, accrues interest at rates of 12% to 12.5% per annum
and are recourse to the Partnership. Two of the three notes totaling $2,838,000
originally matured in March 1998. The Managing General Partner negotiated with
AMIT to extend this indebtedness and in the second quarter of 1998, executed an
extension through March 2002. The remaining note with a principal balance of
approximately $4,765,000 matures in March 2003. Total interest expense on the
AMIT Loans was approximately $629,000 and $555,000 for the six months ended June
30, 1999 and 1998, respectively. Accrued interest was approximately $2,854,000
at June 30, 1999. Pursuant to a series of transactions, affiliates of the
Managing General Partner acquired ownership interests in AMIT. On September 17,
1998, AMIT was merged with and into IPT, the entity which controlled the
Managing General Partner. Effective February 26, 1999, IPT was merged into
AIMCO. Thus, AIMCO is the current holder of the AMIT loans.
On June 11, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 19,548.45 (44.85% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $0.46 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,268 units.
As a result, AIMCO and its affiliates currently own 3,268 units of limited
partnership interest in the Partnership representing 7.50% 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.
NOTE E - SALE OF INVESTMENT PROPERTY
The Partnership sold Building 41 of the Dayton Industrial Complex on June 12,
1998, to an unaffiliated party for net sales proceeds of approximately
$1,847,000. The Partnership realized a loss of approximately $177,000 on the
sale and a related $2,128,000 extraordinary gain on the early extinguishment of
debt during the second quarter of 1998. The extraordinary gain was the result of
forgiveness of debt.
NOTE F - INVESTMENT PROPERTY FORECLOSURES
In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton
Industrial Complex were foreclosed on. As a result of the foreclosures, the
Partnership recorded an extraordinary gain on extinguishment of debt of
approximately $2,244,000 and $3,607,000 for Buildings 53 and 59, respectively.
Also in conjunction with the foreclosure of Building 59, the Partnership
recorded a $44,000 write-up of the building from its carrying value to its
estimated fair value in the second quarter of 1998.
NOTE G - SEGMENT REPORTING
Description of the types of products and services from which reportable segment
derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes
located in Waukegan, Illinois and Huntsville, Alabama. The Partnership rents
apartment units to tenants for terms that are typically less than twelve months.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those described in the
summary of significant accounting policies 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 segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and other income and expense not allocated to the
reportable segment.
1999 Residential Other Totals
Rental income $ 2,319 $ -- $ 2,319
Other income 74 6 80
Interest expense 753 848 1,601
Depreciation 632 -- 632
General and administrative expense -- 122 122
Segment loss (27) (964) (991)
Total assets 11,236 346 11,582
Capital expenditures for
investment properties 142 -- 142
1998 Residential Other Total
Rental income $ 2,297 $ 324 $ 2,621
Other income 67 8 75
Write-up of investment property -- 44 44
Interest expense 764 1,337 2,101
Depreciation 621 -- 621
General and administrative expense -- 119 119
Loss on sale of investment
property -- 177 177
Extraordinary gain on
extinguishment of debt -- 7,979 7,979
Segment (loss) profit (130) 6,622 6,492
Total assets 11,527 2,172 13,699
Capital expenditures for
investment properties 263 -- 263
NOTE H - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, 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 the 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 as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. The complaint seeks monetary damages and equitable relief, including
judicial dissolution of the Partnership. 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 filed an amended complaint. The Managing General
Partner has filed demurrers to the amended complaint which were heard during
February 1999. No ruling on such demurrers has been received. The Managing
General Partner does not anticipate that costs associated with this case, if
any, 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 OPERATION
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 two apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 1999 and 1998.
Property 1999 1998
Waterford Square Apartments
Huntsville, Alabama 95% 94%
Fox Crest Apartments
Waukegan, Illinois 96% 96%
Results of Operations
The Partnership's net loss for the six months ended June 30, 1999 was
approximately $991,000 compared to net income of approximately $6,492,000 for
the corresponding period in 1998. The Partnership recorded a net loss of
approximately $486,000 for the three months ended June 30, 1999 compared to net
income of approximately $4,962,000 for the corresponding period in 1998. The
decrease in net income for the three and six month periods ended June 30, 1999
was primarily due to the foreclosure of Buildings 53 and 59 in January and April
of 1998, respectively, and the sale of Building 41 of the Dayton Industrial
Complex in June 1998. As a result of the foreclosures and sale, the Partnership
realized an extraordinary gain on extinguishment of debt of approximately
$5,735,000 and $7,979,000 for the three and six months ended June 30, 1998,
respectively. The Partnership also recorded a $44,000 write-up of Building 59
from its carrying value to its estimated fair value during the six months ended
June 30, 1998. In addition, a loss of $177,000 on the sale of Building 41 was
also realized during the six months ended June 30, 1998.
Historically, the Dayton Industrial Complex had not been able to retain tenants
and had never generated any operating cash. In October 1996, the Partnership
had determined that, based on economic conditions at the time as well as
projected future operational cash flows, the decline in value of the property
was other than temporary and recovery of the carrying value was not likely.
Accordingly, the Dayton Industrial Complex's carrying value was reduced to an
amount equal to its estimated fair value. The Partnership ceased making debt
service payments on Buildings 53 and 59 in 1996 and the buildings were placed in
receivership in 1997. In the opinion of the Managing General Partner, it was not
in the Partnership's best interest to contest the foreclosure actions. In
January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton
Industrial complex were foreclosed upon. As a result of the foreclosures, the
Partnership recorded an extraordinary gain on extinguishment of debt of
approximately $2,244,000 and $3,607,000 for Buildings 53 and 59, respectively.
Also, in connection with the foreclosure of Building 59, the Partnership
recorded a $44,000 write-up of the building from its carrying value to its
estimated fair value during the second quarter of 1998. Prior to the foreclosure
of Building 53, the outstanding debt on the property was a first mortgage in the
amount of approximately $1,043,000 and a second mortgage in the amount of
approximately $1,669,000. Related accrued interest amounted to approximately
$175,000. Prior to the foreclosure of Building 59, the outstanding debt on the
property was a first mortgage in the amount of approximately $2,895,000 and a
second mortgage in the amount of approximately $704,000. Related accrued
interest amounted to approximately $688,000. The Partnership sold Building 41
of the Dayton Industrial Complex on June 12, 1998, to an unaffiliated party for
net sales proceeds of approximately $1,847,000. The Partnership realized a loss
of approximately $177,000 on the sale and a related $2,128,000 extraordinary
gain on the early extinguishment of debt during the second quarter of 1998. The
extraordinary gain was the result of forgiveness of debt. Prior to the sale of
Building 41, the outstanding debt on the property was a first mortgage in the
amount of approximately $1,104,000 and a second mortgage in the amount of
approximately $2,823,000. Related accrued interest amounted to approximately
$23,000. Net proceeds of $1,822,000 were used to pay down this non-recourse
indebtedness and the remaining balances were forgiven.
In December 1998, Building 55, the remaining building of the Dayton Industrial
Complex was sold to an unaffiliated third party.
Excluding the impact of the foreclosures of Building 53 and 59 and the sale of
Building 41 along with the 1998 six months results of the remaining Building 55
of the Dayton Industrial Complex, net loss for the Partnership decreased
approximately $46,000 for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998 primarily due to an increase in total revenues
and a decrease in total expenses. Total revenues increased approximately
$29,000 primarily due to an increase in average occupancy at Waterford Square
Apartments and an increase in average annual rental rates at both investment
properties. The decrease of approximately $17,000 in total expenses is
primarily the result of reductions in operating expense, partially offset by an
increase in interest expense. Operating expense declined primarily due to the
completion in 1998 of painting projects and exterior building improvements at
both investment properties and gutter repairs at Fox Crest Apartments. Also,
insurance expense decreased at both investment properties due to a change in
insurance carriers. Interest expense increased due to interest accruing on the
defaulted AAP and AMIT notes. Debt balances on the AAP debt have increased as
unpaid interest is added to the principal.
Included in general and administrative expenses at both June 30, 1999 and 1998
are management 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 continues to monitor the rental market environment of each of its
investment properties to assess the feasibility of increasing rents, maintaining
or increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1999, the Registrant had cash and cash equivalents of approximately
$1,132,000 as compared to approximately $835,000 at June 30, 1998. Cash and
cash equivalents increased approximately $249,000 for the period ended June 30,
1999 from the Registrant's fiscal year end and is primarily due to approximately
$497,000 of cash provided by operating activities, which is partially offset by
approximately $108,000 of cash used in investing activities and approximately
$140,000 of cash used in financing activities. Cash used in investing
activities consisted of property improvements and replacements, partially offset
by net receipts from restricted escrows. Cash used in financing activities
consisted of payments of principal on the mortgages encumbering the Registrant's
properties. The Registrant invests its working capital reserves in a money
market account.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
incur recurring operating losses and suffers from inadequate liquidity.
Recourse indebtedness of approximately $4,576,000 is in default at June 30,
1999, as a result of nonpayment of interest and principal upon its maturity in
November 1997.
With respect to the Partnership's two apartment complexes, the sufficiency of
existing liquid assets to meet future liquidity and capital expenditure
requirements is directly related to the level of capital expenditures required
at the various properties to adequately maintain the physical assets and other
operating needs of the Partnership and to comply with Federal, state and local
legal and regulatory requirements. Capital improvements planned for both of the
Registrant's properties are detailed below.
Waterford Square Apartments: The Partnership made approximately $77,000 in
capital improvements at Waterford Square Apartments for the six months ended
June 30, 1999. This consisted primarily of flooring replacement, new appliances
and cabinet replacements. 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 the
property requires approximately $517,000 of capital improvements over the next
few years. The budgeted amount for the year ended December 31, 1999 is
approximately $601,000 which include certain of the required improvements and
consist of, but is not limited to, structural improvements, roof and flooring
replacements, painting, landscaping, swimming pool repairs and appliance
replacements.
Fox Crest Apartments: The Partnership made approximately $65,000 in capital
improvements at Fox Crest Apartments for the six months ended June 30, 1999.
This consisted primarily of flooring replacements, new appliances and
improvements to its recreational facility. 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 the property requires approximately $515,000 of capital
improvements over the next few years. The budgeted amount for the year ended
December 31, 1999 is approximately $555,000 which include certain of the
required improvements and consist of, but is not limited to, interior and
exterior building improvements.
The additional capital improvements planned for 1999 at the Partnership's
properties will be made only to the extent of cash 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.
With respect to the Partnership as a whole, the sufficiency of existing liquid
assets to meet future debt requirements is directly related to the level of
recourse and non-recourse debt at the Partnership level. The Partnership is in
default of its unsecured working capital loans to AAP in the amount of
approximately $4,576,000, plus related accrued interest that was due November
25, 1997. This indebtedness is recourse to the Partnership. The Partnership
does not have the means with which to satisfy this obligation. The Managing
General Partner does not plan to enter into negotiations with AAP on this
indebtedness at this time. The Managing General Partner believes that the
possibility that AAP will initiate collection proceedings on this indebtedness
is remote, as the estimated value of the Partnership's investment properties and
other assets are significantly less than the existing first mortgages and other
secured Partnership indebtedness. If AAP initiates proceedings, then the
Managing General Partner will enter into negotiations to restructure this
indebtedness.
The existing first mortgage indebtedness, working capital loans and amounts due
to AMIT are thought to be in excess of the value of the properties. (Pursuant
to a series of transactions, affiliates of the Managing General Partner acquired
ownership interests in AMIT as follows: On September 17, 1998, AMIT was merged
with and into IPT, effective February 26, 1999, IPT was merged into AIMCO.
Accordingly, AIMCO is the current holder of the AMIT loans.) Two AMIT Notes in
the aggregate amount of approximately $2,838,000 plus related accrued interest
originally matured in March 1998; these notes are recourse to the Partnership
only. During 1998, the lender agreed to extend the maturity date on these notes
to March 2002. At the time of the granting of the extension, an additional
$28,000 in loan costs was added to the principal. These loans require monthly
payments of excess cash flow, as defined in the terms of the promissory notes.
The Partnership's other remaining note to AMIT for approximately $4,765,000,
plus accrued interest at 12.5% per annum compounded monthly, is due March 2003
and does not require any payments until maturity. Accrued interest as of June
30, 1999 is approximately $2,373,000. The first mortgage loan encumbering
Waterford Square Apartments, which is guaranteed by HUD, is scheduled to mature
November 2027, at which time a balloon payment of $86,000 is due. Likewise, the
first mortgage loan encumbering Fox Crest Apartments is scheduled to mature in
May 2003, at which time a balloon payment of $5,445,000 is due. The Registrant
is current in its payments on both of these mortgages. The Managing General
Partner will attempt to refinance such indebtedness and/or sell the properties
prior to such maturity dates. If the properties cannot be refinanced or sold
for a sufficient amount, the Registrant will risk losing such properties through
foreclosure.
No other sources of additional financing have been identified by the
Partnership, nor does the Managing General Partner have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. The
Managing General Partner anticipates that the Fox Crest Apartments and Waterford
Square Apartments will generate sufficient cash flows during 1999 to meet all
property operating expenses, property debt service requirements and to fund
capital expenditures. However, these cash flows will be insufficient to provide
debt service for the unsecured Partnership indebtedness. If the Managing
General Partner is unsuccessful in its efforts to restructure these loans, then
it may be forced to liquidate the Partnership.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
There were no distributions made for either of the six months ended June 30,
1999 or 1998. 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 property sales. The Registrant's distribution
policy will be reviewed on a quarterly basis. However, based on the current
default under the working capital loans, it is unlikely that a distribution will
be made by the Registrant in the foreseeable future.
Tender Offer
On June 11, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 19,548.45 (44.85%% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $0.46 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,268 units.
As a result, AIMCO and its affiliates currently own 3,268 units of limited
partnership interest in the Partnership representing 7.50% 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.
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 June 30, 1999, had completed approximately 90% of 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. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
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 no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 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
June 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 continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
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 expensed
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 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 the 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 as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. The complaint seeks monetary damages and equitable relief, including
judicial dissolution of the Partnership. 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 filed an amended complaint. The Managing General
Partner has filed demurrers to the amended complaint which were heard during
February 1999. No ruling on such demurrers has been received. The Managing
General Partner does not anticipate that costs associated with this case, if
any, 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.
b) Reports on Form 8-K:
No reports were filed during the quarter ended June 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 PARTNERS XIV
By: Angeles Realty Corporation II
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners XIV 1999 Second Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000759859
<NAME> ANGELES PARTNERS XIV
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,132
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 27,109
<DEPRECIATION> (17,882)
<TOTAL-ASSETS> 11,582
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 30,145
0
0
<COMMON> 0
<OTHER-SE> (26,562)
<TOTAL-LIABILITY-AND-EQUITY> 11,582
<SALES> 0
<TOTAL-REVENUES> 2,399
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,601
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (991)
<EPS-BASIC> (22.51)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
