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 March 31, 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)
March 31, 1999
Assets
Cash and cash equivalents $ 1,079
Receivables and deposits 661
Restricted escrows 294
Other assets 359
Investment properties:
Land $ 2,243
Buildings and related personal property 24,770
27,013
Less accumulated depreciation (17,566) 9,447
$ 11,840
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 42
Tenant security deposit liabilities 89
Accrued property taxes 513
Accrued interest 5,519
Due to affiliates 1,377
Other liabilities 159
Notes payable, including $4,576 in default 30,217
Partners' Deficit
General partners $ (644)
Limited partners (43,589 units (25,432)
issued and outstanding) (26,076)
$ 11,840
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 1,143 $ 1,326
Other income 42 35
Total revenues 1,185 1,361
Expenses:
Operating 419 490
General and administrative 62 53
Depreciation 316 308
Interest 791 1,110
Property taxes 102 114
Total expenses 1,690 2,075
Loss before extraordinary item (505) (714)
Extraordinary gain on extinguishment of debt -- 2,244
Net (loss) income $ (505) $ 1,530
Net (loss) income allocated to general partners (1%) $ (5) $ 15
Net (loss) income allocated to limited partners (99%) (500) 1,515
$ (505) $ 1,530
Per limited partnership unit:
Loss before extraordinary item $(11.47) $(16.10)
Extraordinary gain on extinguishment of debt -- 50.62
Net (loss) income $(11.47) $ 34.52
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 three months
ended March 31, 1999 -- (5) (500) (505)
Partners' deficit at
March 31, 1999 43,589 $ (644) $(25,432) $(26,076)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS XIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net (loss) income $ (505) $ 1,530
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Extraordinary gain on extinguishment of debt -- (2,244)
Depreciation 316 308
Amortization of discounts, loan costs, and
leasing commissions 7 7
Change in accounts:
Receivables and deposits (279) (119)
Other assets (6) 48
Accounts payable (3) (2)
Tenant security deposit liabilities 1 (3)
Accrued property taxes 198 63
Accrued interest 412 694
Due to affiliates 35 35
Other liabilities 74 (25)
Net cash provided by operating activities 250 292
Cash flows from investing activities:
Property improvements and replacements (46) (79)
Net receipts from restricted escrows 60 66
Net cash provided by (used in) investing activities 14 (13)
Cash flows from financing activities:
Principal payments on notes payable (68) (80)
Additions to notes payable -- 32
Net cash used in financing activities (68) (48)
Net increase in cash and cash equivalents 196 231
Cash and cash equivalents at beginning of period 883 649
Cash and cash equivalents at end of period $ 1,079 $ 880
Supplemental disclosure of cash flow information:
Cash paid for interest $ 360 $ 394
Supplemental disclosure of non-cash investing and
financing activities:
Interest on notes transferred to notes payable $ -- $ 186
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 1998, Building 53 of the Dayton Industrial Complex was foreclosed
upon by the lender. In connection with this non-cash transaction, the following
accounts were adjusted:
Building 53
Receivables and deposits $ (35)
Other assets (9)
Investment properties (660)
Accounts payable --
Tenant security deposit liabilities 12
Property tax payable 64
Accrued interest 175
Mortgage notes payable 2,697
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 $2,864,000 is in default at March 31, 1999,
as a result of nonpayment of interest and principal upon maturity in November,
1997.
The Partnership realized a net loss of approximately $505,000 for the three
months ended March 31, 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 $250,000 during the three months ended March 31, 1999; however,
this was primarily the result of accruing interest of approximately $412,000 on
its indebtedness and, to a lesser extent, $35,000 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.
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 $2,864,000 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.
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 month period ended March 31, 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
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 three months ended March 31, 1999 and 1998:
Three months ended
March 31,
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $ 66 $ 65
Reimbursement for services of affiliates
(included in investment property, operating,
and general and administrative expenses) 35 38
Due to affiliate 1,377 1,235
Included in "Reimbursement for services of affiliates" for the three months
ended March 31, 1998 is approximately $3,000 in construction oversight costs.
No such costs were incurred for the three months ended March 31, 1999.
During the three months ended March 31, 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 $66,000
and $65,000 for the three months ended March 31, 1999 and 1998, respectively.
Property management services for the Dayton Industrial Complex were performed by
an unaffiliated third party for the three months ended March 31, 1998. In
January 1998, Building 53 of the Dayton Industrial Complex was foreclosed upon.
As of March 31, 1998, the Partnership still owned three buildings in this
complex. During the course of 1998, the remaining buildings were either sold or
lost to foreclosure, with Building 59 being foreclosed upon in April 1998 and
Buildings 41 and 59 being sold in June and December 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $35,000 and $38,000 for the
three months ended March 31, 1999 and 1998, respectively.
In November 1992, AAP, a Delaware limited partnership which now controls the
working capital loan 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.
These working capital loans funded the Partnership's operating deficits in prior
years. Total indebtedness was approximately $4,576,000, plus accrued interest,
at March 31, 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 $102,000 and $120,000 for three months ended March 31,
1999 and 1998, respectively. Accrued interest payable was approximately
$2,864,000 at March 31, 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 March 31, 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 November 2027. 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 $310,000 and $273,000 for
the three months ended March 31, 1999 and 1998, respectively. Accrued interest
was approximately $2,534,000 at March 31, 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
Insignia Properties Trust ("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.
NOTE E - 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 three months ended March 31, 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 $ 1,143 $ -- $ 1,143
Other income 38 4 42
Interest expense 377 414 791
Depreciation 316 -- 316
General and administrative expense -- 62 62
Segment loss (33) (472) (505)
Total assets 11,456 384 11,840
Capital expenditures for
investment properties 46 -- 46
1998 Residential Other Total
Rental income $ 1,145 $ 181 $ 1,326
Other income 31 4 35
Interest expense 385 725 1,110
Depreciation 308 -- 308
General and administrative expense -- 53 53
Extraordinary gain on
extinguishment of debt -- 2,244 2,244
Segment (loss) profit (39) 1,569 1,530
Total assets 11,690 4,892 16,582
Capital expenditures for
investment properties 79 -- 79
NOTE F - 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, county of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on 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 three
months ended March 31, 1999 and March 31, 1998.
Property 1999 1998
Waterford Square Apartments
Huntsville, Alabama 95% 94%
Fox Crest Apartments
Waukegan, Illinois 94% 96%
Results of Operations
The Partnership realized a net loss of approximately $505,000 for the three
months ended March 31, 1999 as compared to a net income of approximately
$1,530,000 for the three months ended March 31, 1998. The decrease in net
income is primarily attributable to the foreclosure of Building 53 of the Dayton
Industrial Complex in January 1998. As a result of the foreclosure, an
extraordinary gain on extinguishment of debt for approximately $2,244,000 was
recorded for the three months ended March 31, 1998.
In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton
Industrial complex were foreclosed on. In June and December 1998, Buildings 41
and 55 of the Dayton Industrial complex were sold. 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. 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.
Excluding the impact of the foreclosure of Building 53 along with the 1998 three
months results of the remaining buildings of the Dayton Industrial Complex, net
loss for the Partnership increased approximately $23,000 for the three months
ended March 31, 1999 as compared to the three months ended March 31, 1998
primarily due to an increase in total expenses. The increase in total expenses
is primarily attributable to an increase in operating, general and
administrative and interest expenses. Operating expense increased primarily due
to an increase in advertising and marketing expenses at Fox Crest Apartments,
which is partially offset by a decrease in insurance premiums at both of the
Registrant's investment properties due to a change in insurance carriers.
General and administrative expense increased primarily as a result of an
increase in legal expense due to the settlement of the Everest case in March
1999 as discussed in "Item 1. Financial Statements, Note F - Legal Proceedings".
Interest expense increased due to interest accruing on the defaulted AAP debt.
Debt balances have increased as unpaid interest is added to the principal.
Included in general and administrative expenses at both March 31, 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 March 31, 1999, the Registrant had cash and cash equivalents of approximately
$1,079,000 as compared to approximately $880,000 at March 31, 1998. Cash and
cash equivalents increased approximately $196,000 for the period ended March 31,
1999 from the Registrant's fiscal year end and is primarily due to approximately
$250,000 of cash provided by operating activities and to a lesser extent,
approximately $14,000 of cash provided by investing activities, which is
partially offset by approximately $68,000 of cash used in financing activities.
Cash provided by investing activities consisted of net receipts from restricted
escrows partially offset by property improvements and replacements. 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 March 31,
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 $29,000 in
capital improvements at Waterford Square Apartments for the three months ended
March 31, 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 near
term. The budgeted amount for the year ended December 31, 1999 is approximately
$601,000 consisting of, but not limited to, structural improvements, roof and
flooring replacements, painting, landscaping, swimming pool repairs and
appliance replacements.
Fox Crest Apartments: The Partnership made approximately $17,000 in capital
improvements at Fox Crest Apartments for the three months ended March 31, 1999.
This consisted primarily of carpet replacements and new appliances. 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 near term. The budgeted amount for
the year ended December 31, 1999 is approximately $555,000 consisting of, but
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.) The 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 March 31, 1999 is approximately $2,154,000. 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 the three months periods ended March 31,
1999 and 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.
Potential Tender Offer
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the Managing General Partner. AIMCO is presently
considering whether it will engage in an exchange offer for limited partnership
interests in the Partnership. There is a substantial likelihood that, within a
short period of time, AIMCO OP will offer to acquire limited partnership
interests in the Partnership for cash or preferred units or common units of
limited partnerships interests in AIMCO OP. While such an exchange offer is
possible, no definite plans exist as to when or whether to commence such an
exchange offer, or as to the terms of any such exchange offer, and it is
possible that none will occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-QSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, 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
March 31, 1999, had completed approximately 75% 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 July
31, 1999.
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.
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 the testing process is
expected to be completed by July 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
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 May 1999.
The Managing Agent has updated data transmission standards with two of the three
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 June 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 $2.8 million ($0.6 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, county of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on 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 on form 8-K were filed during the three months ended
March 31, 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: May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners XIV 1999 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,079
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 27,013
<DEPRECIATION> (17,566)
<TOTAL-ASSETS> 11,840
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 30,217
0
0
<COMMON> 0
<OTHER-SE> (26,076)
<TOTAL-LIABILITY-AND-EQUITY> 11,840
<SALES> 0
<TOTAL-REVENUES> 1,185
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505)
<EPS-PRIMARY> (11.47)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
