April 18, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Investors First-Staged Equity, L.P.
Form 10-KSB
File No. 0-14470
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-14470
INVESTORS FIRST-STAGED EQUITY L.P.
(Name of small business issuer in its charter)
Delaware 36-3310965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number
(864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $5,808,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") was
organized as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act in May 1985. Effective January 1, 1986, the General Partner, VMS
Realty Investment (formerly known as VMS Realty Partners) assigned its interest
in future profits, losses, operating cash flow and liquidation proceeds of the
Partnership to VMS Realty Investment II, which subsequently became the General
Partner. VMS Realty Investment II is a general partnership formed to be the sole
general partner of Investors First-Staged Equity L.P. and has the same
constituent partners as VMS Realty Investment, its predecessor. Effective
January 1, 1987, VMS Realty Investment II assigned its beneficial interest in
the Partnership to VMS Realty Investment. Effective January 2, 1998, the General
Partner was replaced by MAERIL, Inc., a wholly-owned subsidiary of MAE GP
Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"). Effective February 26, 1999 IPT was merged
into a subsidiary of Apartment Investment and Management Company ("AIMCO").
Thus, the General Partner is now a subsidiary of AIMCO. See "Transfer of
Control" below. The Partnership Agreement provides that the Partnership is to
terminate on December 31, 2025, unless terminated prior to such date.
The Partnership raised total equity of $48,802,000 from the sale of Limited
Partnership Interests (the Units) to the public in 1985 pursuant to a
Registration Statement filed with the Securities and Exchange Commission (the
SEC).
A total of 16,511 units were sold to the public at $3,000 per unit as of the
termination date of the offering, December 31, 1985. Limited Partners in the
Partnership paid $1,000 per unit upon subscription and executed a non-recourse
note for the remaining $2,000 per unit. The non-recourse note provided for the
optional payment, without interest, of $1,000 per unit on each of February 15,
1986 and 1987. The Partnership has collected capital contributions totaling
$48,802,000; $16,511,000 pertaining to the payments due in 1985; $16,511,000
pertaining to the payments due in 1986 and the remarketed units sold in 1986 and
$15,780,000 pertaining to the payments due in 1987 and the remarketed units sold
in 1987. As each whole unit represents capital contributions aggregating $3,000,
the final number of units sold was 16,267. At December 31, 1999, the Partnership
has 16,261.152 Units outstanding. The Limited Partners share in the ownership of
the Partnership's real estate property investments according to the number of
Limited Partnership Units held. Since the 1987 payments, the Registrant has not
received nor are limited partners required to make additional capital
contributions.
The Registrant is engaged in the business of operating and holding real estate
properties for investment. On October 2, 1985, the Partnership acquired
interests in six (6) real estate property investments, two of which, Village
Green Apartments and Woodland Meadows Apartments, were sold at foreclosure sales
to parties unaffiliated with the Partnership in May 1990 and June 1991,
respectively. East Bluff Apartments was foreclosed upon by the Federal Deposit
Insurance Corporation ("FDIC"), holder of the second mortgage, on May 23, 1994.
The Partnership sold its only commercial property, Serramonte Plaza, on December
16, 1999. The Registrant continues to own and operate two (2) residential
properties as described in "Item 2. Description of Properties". The Partnership
acquired interests in the properties by purchasing the 99.99% interest in lower
tier partnerships that owned the properties.
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
With respect to the Partnership's residential properties these services were
provided by affiliates of the General Partner for the years ended December 31,
1999 and 1998. With respect to the Partnership's sole commercial property these
services were provided by affiliates of the General Partner for the nine months
ended September 30, 1998. As of October 1, 1998 the management services were
provided by an unaffiliated party for the commercial property.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the availability of permanent mortgage financing, changes in zoning
laws, or changes in patterns or needs of users. In addition, there are risks
inherent in owning and operating residential properties because such properties
are susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the General Partner in
such market area could have a material effect on the rental market for the
apartments at the Registrant's properties and the rents that may be charged for
such apartments. While the General Partner and its affiliates own and/or control
a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership
interest in the General Partner. The General Partner does not believe that this
transaction has had or will have a material effect on the affairs and operations
of the Partnership.
<PAGE>
Item 2. Description of Properties:
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership (1) Use
Rivercrest Village Apartments 10/85 Fee ownership subject Apartment -
Sacramento, California to first and second 328 units
mortgages
Richardson Highlands Apartments 10/85 Fee ownership subject Apartment -
Marin City, California to first and second 198 units
mortgages
(1) Each of the properties is held by a Limited Partnership in which the
Registrant has a 99.99% interest.
Schedule of Properties:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation, and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Rivercrest Village 5-7 yrs 150% DB
Apartments $18,303 $12,560 17-25 S/L $ 3,975
Richardson Highlands 5-7 yrs 150% DB
Apartments 17,502 8,764 17-25 S/L 7,613
$35,805 $21,324 $11,588
</TABLE>
See "Note B" to the consolidated financial statements included in "Item 7 -
Financial Statements" for a description of the Partnership's depreciation policy
and "Note L - Change in Accounting Principle".
<PAGE>
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date (1) Maturity (1)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Rivercrest Village
Apartments
1st mortgage $11,396 7.348% 30 yrs 01/01/08 $10,053
2nd mortgage 1,333 (2) (2) (2) 1,333
Richardson Highlands
Apartments
1st mortgage 16,602 7.326% 30 yrs 01/01/05 15,502
2nd mortgage 874 (2) (2) (2) 874
Total $30,205 $27,762
</TABLE>
(1) See "Item 7. Financial Statements - Note E" for information with respect
to the Registrant's ability to repay these loans.
(2) See discussion below for information regarding the second mortgages.
In October 1990, the Partnership defaulted on the Richardson Highlands and
Rivercrest Village Subordinate notes payable (the second mortgage loans) due to
the failure to make the required monthly debt service payments. The Partnership
and the lender finalized an agreement on June 22, 1994, retroactive to July 1,
1993, to restructure the debt held on Richardson Highlands and Rivercrest
Village. The junior lien mortgages were restructured to mature on January 15,
2000, and provide for a 10% interest rate (with a 7% pay rate), based on the
"Agreed Valuation Amount", as defined in the restructure agreement. Interest
payments are payable from surplus cash. The second mortgages include a "shadow
debt" portion that is payable only in the event that the mortgages have not been
paid prior to maturity. The shadow debt portion, which is the difference between
the Agreed Valuation Amount and the Note Face Amount, for Richardson Highlands
and Rivercrest Village was approximately $858,000 and $1,307,000, respectively.
The Agreed Valuation Amounts for Richardson Highlands and Rivercrest Village
were approximately $7,268,000 and $7,110,000, respectively. The Note Face Amount
was $8,126,000 for Richardson Highlands and $8,417,000 for Rivercrest Village.
The agreement also allowed the lender to receive fifty percent of any net
proceeds from the sale or refinancing of the properties after the payment of all
mortgage notes payable and subordinated debt.
Prior to the restructuring of the loans, interest accrued under the terms of the
original subordinate notes payable. This accrued interest of $1,732,000 for
Richardson Highlands and $2,327,000 for Rivercrest Village was added to the
carrying amount of the loans at the date of restructure. The debt restructurings
were accounted for as a modification of terms in which total future cash
payments under the restructured loans exceeded the carrying values of the loans
as of the date of restructure. Consequently, the carrying amounts of the loans
were not changed and no gains were recognized on the restructurings. Interest
accrued at an effective interest rate of 6.14% for Richardson Highlands and
4.37% for Rivercrest Village to equate the present values of the total future
cash payments under the new terms with the carrying amounts of the loans at the
date of restructure.
During the year ended December 31, 1998, payments of excess cash of $857,000 and
$1,488,000 were made on Richardson Highlands and Rivercrest Village's second
mortgages, respectively. During the year ended December 31, 1999, payments of
excess cash of $55,000 and $611,000 were made on Richardson Highlands and
Rivercrest Village's second mortgages, respectively.
During the fourth quarter of 1999, the Partnership was notified that it is in
default on the Residual Proceeds Agreements relating to Rivercrest Village
Apartments and Richardson Highlands Apartments, the two remaining investment
properties owned by the Partnership. These agreements require, among other
things, that each property be marketed for sale six months prior to January 15,
2000, which was the maturity date of the subordinated notes payable, and that
half of certain residual proceeds from the sale be paid to the lender. The
Partnership did not market these properties for sale in accordance with the
agreements, which also provide that the lender may commence an action for the
appointment of a receiver to sell each property. If the properties are not sold
within 180 days thereafter, the lender may foreclose on the properties. After
notifying the Partnership of such defaults, the lender proposed that a party
believed by the Partnership to be an affiliate of the lender purchase the
properties. However, the General Partner believes that the Residual Proceeds
Agreement may no longer be effective, since the debt was repaid in full prior to
maturity. The Partnership currently is in discussions with the lender with
respect to the resolution of these issues.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will not be sold or foreclosed upon. If the
Partnership loses its remaining investment properties through sale or
foreclosure, then it will be forced to terminate.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property
were as follows:
Average Annual Average
Rental Rates Occupancy
(per unit)
Property 1999 1998 1999 1998
Rivercrest Village Apartments $ 8,050 $ 7,841 93% 91%
Richardson Highlands Apartments 16,007 14,929 99% 99%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. Both of the properties are subject to competition from other
residential apartment complexes in the area. The General Partner believes that
both of the properties are adequately insured. Each property is an apartment
complex which leases units for lease terms of one year or less. As of December
31, 1999, no residential tenant leases 10% or more of the available rental
space. Both of the properties are in good condition subject to normal
depreciation and deterioration as is typical for assets of this type and age.
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were as follows:
1999 1999
Billing Rate
(in thousands)
Rivercrest Village Apartments $ 193 1.15%
Richardson Highlands Apartments 210 1.36%
Capital Improvements:
Rivercrest Village Apartments: The Partnership completed approximately $67,000
in capital expenditures at Rivercrest Village Apartments as of December 31,
1999, consisting primarily of floor covering replacements, appliances, major
landscaping, and interior and exterior building improvements. These improvements
were funded from operating cash flow and replacement reserves. The Partnership
is currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or approximately $98,400. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Richardson Highlands Apartments: The Partnership completed approximately
$299,000 in capital expenditures at Richardson Highlands Apartments as of
December 31, 1999, consisting primarily of floor covering and appliance
replacements, roof improvements, parking lot upgrades, and exterior painting.
These improvements were funded from operating cash flow and replacement
reserves. The Partnership is currently evaluating the capital improvement needs
of the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or approximately $59,400. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Serramonte Plaza: The Partnership completed approximately $238,000 in capital
improvements at Serramonte Plaza during 1999 prior to its sale in December 1999.
These improvements consisted of tenant improvements and were funded from
Partnership reserves and operating cash flow.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership sold 16,267 limited
partnership units aggregating $48,802,000. The Partnership currently has 2,549
holders of record owning an aggregate of 16,261.152 units. Affiliates of the
General Partner own 2,482.46 units or approximately 15.27% at December 31, 1999.
No public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
There were no distributions for the year ended December 31, 1999 or 1998. The
following table sets forth the distributions made by the Partnership for the
subsequent period January 1, 2000 - February 29, 2000:
Distributions
Per Limited
Aggregate Partnership Unit
01/01/00 - 2/29/00 $7,700,000 (1) $473.52
(1) Distribution made entirely to limited partners of sale proceeds from sale
of Serramonte Plaza during December 1999.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital expenditures to permit any additional distributions to its
partners in 2000 or subsequent periods.
Tender Offer
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited
partnership units in the Partnership representing 15.27% of the outstanding
units. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The 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.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant had a loss before discontinued operations and extraordinary item
of approximately $106,000 for the year ended December 31, 1999 as compared to
approximately $682,000 for the year ended December 31, 1998. The decrease in the
loss is due to an increase in total revenues and a decrease in total expenses.
The increase in total revenues was the result of an increase in rental income,
which was attributable to the increase in occupancy at Rivercrest Village
Apartments. The increase is also attributable to an increase in the average
annual rental rates at both Rivercrest Village Apartments and Richardson
Highlands Apartments. The increase in rental income was partially offset by a
decrease in other income. Other income decreased primarily due to lower interest
income as a result of a decrease in cash balances held in interest bearing
accounts.
Total expenses decreased for the year ended December 31, 1999 as a result of a
decrease in both operating and general and administrative expenses which were
partially offset by an increase in depreciation expense. Depreciation expense
increased as a result of the significant capital improvements put in service
during 1998 and 1999. Operating expense decreased as a result of a decrease in
maintenance and insurance expenses. Maintenance expense decreased due to
interior and exterior improvements performed at Rivercrest Village Apartments
and Richardson Highlands Apartments during the year ended December 31, 1998.
Insurance expense decreased due to the change in insurance carriers at the
Registrant's investment properties during the fourth quarter of 1998 which
resulted in lower insurance premiums.
General and administrative expenses decreased as a result of a decrease in
professional expenses and general costs of the Partnership. Included in general
and administrative expenses for the year ended December 31, 1999 and 1998 are
management reimbursements to the 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.
The Registrant's net income for the year ended December 31, 1999 was
approximately $11,977,000 as compared to approximately $109,000 for the year
ended December 31, 1998. (See "Note F" of the consolidated financial statements
for a reconciliation of these amounts to the Registrant's federal taxable
income). The increase in net income is primarily attributable to the gain on
sale of discontinued operations of approximately $11,735,000 on the sale of
Serramonte Plaza . On December 16, 1999, Serramonte Plaza, located in Daly City,
California was sold to an unaffiliated third party for approximately
$20,089,000. After closing expenses and other payments of $732,000 and the
assumption by the purchaser of the property's mortgage of approximately
$11,637,000, the net proceeds received by the Partnership were approximately
$7,720,000. The Partnership distributed the sales proceeds during January 2000
(see discussion below). In connection with the sale, the Partnership recognized
an extraordinary loss on early extinguishment of debt of $103,000. See "Item 7.
Financial Statements, Note E - Mortgage Notes Payable" for further details.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was not
material. The cumulative effect, had this change been applied to prior periods,
is not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of this
plan, the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1999, the Registrant had cash and cash equivalents of
approximately $9,614,000 as compared to approximately $1,184,000 at December 31,
1998. Cash and cash equivalents increased approximately $8,430,000 from the
prior year end, primarily due to approximately $2,469,000 of cash provided by
operating activities and approximately $7,064,000 of cash provided by investing
activities which was partially offset by approximately $1,103,000 of cash which
was used in financing activities. Cash provided by investing activities
consisted of net proceeds from the sale of Serramonte Plaza which was partially
offset by property improvements and replacements and net deposits to restricted
escrows. Cash used in financing activities consisted of repayment of mortgage
notes payable and payments on mortgage notes payable. The Registrant invests its
working capital reserves in money market accounts.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. During the fourth quarter of 1999,
the Partnership was notified that it is in default on the Residual Proceeds
Agreements relating to Rivercrest Village Apartments and Richardson Highlands
Apartments, the two remaining investment properties owned by the Partnership.
These agreements require, among other things, that each property be marketed for
sale six months prior to January 15, 2000, which was the maturity date of the
subordinated notes payable, and that half of certain residual proceeds from the
sale be paid to the lender. The Partnership did not market these properties for
sale in accordance with the agreements, which also provide that the lender may
commence an action for the appointment of a receiver to sell each property. If
the properties are not sold within 180 days thereafter, the lender may foreclose
on the properties. After notifying the Partnership of such defaults, the lender
proposed that a party believed by the Partnership to be an affiliate of the
lender purchase the properties. However, the General Partner believes that the
Residual Proceeds Agreement may no longer be effective, since the debt was
repaid in full prior to maturity. The Partnership currently is in discussions
with the lender with respect to the resolution of these issues.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will not be sold or foreclosed upon. If the
Partnership loses its remaining investment properties through sale or
foreclosure, then it will be forced to terminate.
As a result of the above, there is substantial doubt 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 classification of liabilities that may
result from this uncertainty.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with Federal,
state, local, legal and regulatory requirements. The Partnership is currently
evaluating the capital improvement needs of the properties for the upcoming
year. The minimum amount to be budgeted is expected to be $300 per unit or
$157,800. Additional improvements may be considered and will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed the Registrant's cash flow, if any, may be
adversely affected at least in the short term.
The first mortgage indebtedness of approximately $27,998,000 is amortized over
360 months with balloon payments of approximately $15,502,000 and $10,053,000
due on January 1, 2005 and January 1, 2008 respectively.
No cash distributions were made to the partners for the year ended December 31,
1999 and 1998. During January 2000 the Partnership declared and paid a
distribution of $7,700,000 to the limited partners ($473.52 per limited
partnership unit) from the proceeds of the sale of Serramonte Plaza during
December 1999. Future cash distributions will depend on the levels of net cash
generated from operations, the availability of cash reserves, and the timing of
debt maturities, refinancings and/or property sales. The Partnership's
distribution policy is reviewed on a semi-annual basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after planned capital improvement expenditures, to permit any
additional distributions to its partners in 2000 or subsequent periods.
Tender Offer
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited
partnership units in the Partnership representing 15.27% of the outstanding
units. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P.
List of Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and 1998
Consolidated Statements of Changes in Partners' Deficit - Years ended December
31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
Investors First-Staged Equity L.P.
We have audited the accompanying consolidated balance sheet of Investors
First-Staged Equity L.P. as of December 31, 1999, and the related consolidated
statements of operations, changes in partners' deficit and cash flows for each
of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Investors
First-Staged Equity L.P. at December 31, 1999, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared assuming
that Investors First-Staged Equity L.P. will continue as a going concern. As
more fully described in Note A, the Partnership is in default under Residual
Proceeds Agreements relating to Rivercrest Village Apartments and Richardson
Highlands Apartments, its remaining investment properties. This condition raises
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to this matter is also described in Note
A. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash $ 9,614
Receivables and deposits 580
Restricted escrows 542
Other assets 670
Investment properties (Notes E & H):
Land $ 6,431
Buildings and related personal property 29,374
35,805
Less accumulated depreciation (21,324) 14,481
$ 25,887
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 47
Tenant security deposit liabilities 276
Accrued interest 143
Disposition fee payable to General Partner (Note G) 603
Other liabilities 135
Advances to affiliates of General Partner 340
Mortgage notes payable (Note E) 30,205
Partners' Deficit
General partner $ (121)
Limited Partners (16,261.152 units issued
and outstanding) (5,741) (5,862)
$ 25,887
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1999 1998
Revenues: (restated)
Rental income $ 5,561 $ 5,102
Other income 247 324
Total revenues 5,808 5,426
Expenses:
Operating 1,608 1,735
General and administrative 168 261
Depreciation 1,522 1,437
Interest 2,213 2,254
Property taxes 403 372
Loss on disposal of property -- 49
Total expenses 5,914 6,108
Loss before discontinued operations and
extraordinary item (106) (682)
Income from discontinued operations 451 521
Gain on sale of discontinued
operations 11,735 --
Income (loss) before extraordinary item 12,080 (161)
Extraordinary item - (loss) gain on early
extinguishments of debt (103) 270
Net income $11,977 $ 109
Net income allocated to general partner $ 239 $ 1
Net income allocated to limited partners 11,738 108
$11,977 $ 109
Net income per limited partnership unit:
Loss before discontinued operations and
extraordinary item $ (6.46) $(41.52)
Income from discontinued operations 27.49 31.72
Gain on sale of discontinued
operations 707.08 --
Extraordinary item (6.27) 16.44
$721.84 $ 6.64
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Partners' deficit at
December 31, 1997 16,267.152 $ (361) $(17,587) $(17,948)
Abandonment of units (Note J) (6.000) -- -- --
Net income for the year ended
December 31, 1998 -- 1 108 109
Partners' deficit at
December 31, 1998 16,261.152 $ (360) $(17,479) $(17,839)
Net income for the year ended
December 31, 1999 -- 239 11,738 11,977
Partners' deficit at
December 31, 1999 16,261.152 $ (121) $ (5,741) $ (5,862)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $11,977 $ 109
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,990 1,894
Amortization of loan costs and lease commissions 193 199
Loss on disposal of property -- 49
Gain on sale of discontinued operations (11,735) --
Loss (gain) on early extinguishments of debt 103 (270)
Change in accounts:
Receivables and deposits 158 (26)
Other assets (133) (110)
Accounts payable (32) 27
Tenant security deposit liabilities 32 77
Accrued interest (123) 215
Due to affiliates of General Partner 14 --
Other liabilities 25 9
Net cash provided by operating activities 2,469 2,173
Cash flows from investing activities:
Net proceeds from sale of investment property 7,720 --
Property improvements and replacements (604) (1,050)
Net withdrawals from restricted escrows (52) 242
Net cash provided by (used in) investing
activities 7,064 (808)
Cash flows from financing activities:
Payment of loan costs -- (106)
Payments on mortgage notes payable (443) (2,715)
Repayment of mortgage notes payable (660) --
Net cash used in financing activities (1,103) (2,821)
Net increase (decrease) in cash and cash equivalents 8,430 (1,456)
Cash and cash equivalents at beginning of period 1,184 2,640
Cash and cash equivalents at end of period $ 9,614 $ 1,184
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,218 $ 2,968
Supplemental disclosure of non cash activity:
Extinguishment of debt in connection with the sale of
discontinued operations $11,637 $ --
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
INVESTORS FIRST-STAGED EQUITY L.P.
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Going Concern
The accompanying financial statements have been prepared assuming Investors
First-Staged Equity L.P. (the "Partnership") will continue as a going concern.
During the fourth quarter of 1999, the Partnership was notified that it is in
default on the Residual Proceeds Agreements relating to Rivercrest Village
Apartments and Richardson Highlands Apartments, the two remaining investment
properties owned by the Partnership. These agreements require, among other
things, that each property be marketed for sale six months prior to January 15,
2000, which was the maturity date of the subordinated notes payable, and that
half of certain residual proceeds from the sale be paid to the lender. The
Partnership did not market these properties for sale in accordance with the
agreements, which also provide that the lender may commence an action for the
appointment of a receiver to sell each property. If the properties are not sold
within 180 days thereafter, the lender may foreclose on the properties. After
notifying the Partnership of such defaults, the lender proposed that a party
believed by the Partnership to be an affiliate of the lender purchase the
properties. However, the General Partner believes that the Residual Proceeds
Agreement may no longer be effective, since the debt was repaid in full prior to
maturity. The Partnership currently is in discussions with the lender with
respect to the resolution of these issues.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will not be sold or foreclosed upon. If the
Partnership loses its remaining investment properties through sale or
foreclosure, then it will be forced to terminate.
As a result of the above, there is substantial doubt 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 classification of liabilities that may
result from this uncertainty.
Note B - Summary of Significant Accounting Policies
Organization
Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") was
organized as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act in May 1985. Effective January 1, 1986, VMS Realty Investment
(formerly known as VMS Realty Partners) assigned its interest in future profits,
losses, operating cash flow, and liquidation proceeds of the Partnership to VMS
Realty Investment II, which subsequently became the General Partner. VMS Realty
Investment II is a general partnership formed to be the sole general partner of
Investors First-Staged Equity L.P. and has the same constituent partners as VMS
Realty Investment, its predecessor. Effective January 1, 1987, VMS Realty
Investment II assigned its beneficial interest in the Partnership to VMS Realty
Investment. Effective January 2, 1998, the General Partner was replaced by
MAERIL, Inc., a wholly-owned subsidiary of MAE GP Corporation ("MAE GP").
Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust
("IPT") a subsidiary of Apartment Investment and Management Company ("AIMCO").
Thus, the General Partner is now a subsidiary of AIMCO. The Partnership
commenced operations on October 2, 1985 and completed its acquisition of
investment properties in October 1985. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2025 unless terminated prior to
such date. The Partnership currently owns and operates two residential
properties located in California.
Principles of Consolidation
The financial statements include all the accounts of the Partnership and its
three 99.99% owned partnerships. The General Partner of the consolidated
partnerships is MAERIL, Inc. MAERIL, Inc. may be removed as the general partner
of the consolidated partnerships by the Registrant; therefore, the consolidated
partnerships are controlled and consolidated by the Registrant. All significant
interpartnership balances have been eliminated.
Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Allocations of Profits, Gains & Losses
Profits, gains, and losses of the Partnership are allocated between general and
limited partners in accordance with the provisions of the Partnership Agreement.
Profits, not including gains from property dispositions, are allocated as if
they were distributions of net cash from operations.
All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partners.
Allocation of Cash Distributions
All cash distributions consisting of cash from operations shall be allocated 99%
to the Limited Partners and 1% to the General Partner.
The net profit of the Partnership from any sale or refinancing of the properties
shall be allocated (with ordinary income being allocated first) as follows: (i)
first, an amount equal to the aggregate deficit balances of the Partners'
capital accounts shall be allocated to each Partner that has a deficit capital
account balance in the same ratio as the deficit balance of such Partner's
capital account bears to the aggregate of the deficit balance of all Partners'
capital accounts; (ii) second, to the Limited Partners in an amount equal to the
excess of their adjusted capital contribution over the balance of their
respective capital accounts after taking into account the allocation provided
for in subparagraph (i) above; (iii) third, to the Limited Partners in an amount
equal to any unpaid preferred cumulative return; (iv) fourth, to the General
Partner in an amount equal to the excess of its adjusted capital contribution
over its capital account balance; and (v) thereafter, 85% to the Limited
Partners and 15% to the General Partner. The net loss to the Partnership from
any sale or other disposition of the properties shall be allocated as follows:
(i) first, in an amount equal to the aggregate positive balances in the
partners' capital accounts, to each partner in the same ratio as the positive
balance in such partner's capital account bears to the aggregate of all such
partners' positive capital accounts; and (ii) thereafter, 99% to the Limited
Partners and 1% to the General Partner.
In general, net proceeds from any sale or refinancing of the properties will be
allocated 85% to the Limited Partners and 15% to the General Partner, after the
Limited Partners have received an amount equal to their original capital
contributions and a cumulative 6% per annum, noncompounded, return on their
adjusted capital contributions from such proceeds.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $64,000 and $78,000
for the years ended December 31, 1999 and 1998, respectively.
Fair Value of Financial Statements
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
Cash and Cash Equivalents
Includes cash on hand and in banks, and money market accounts. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Restricted Escrows
Capital Improvement Reserve - In connection with the refinancing of
Richardson Highlands Apartments and Rivercrest Village Apartments in 1997,
approximately $835,000 of the proceeds were designated as a repair escrow
and capital improvement escrow for the funding of immediately required
capital improvements and repairs as noted in the loan documents. The
balance of these funds were expended during the year ended December 31,
1999.
Replacement Reserve - In connection with the refinancing of Richardson
Highlands Apartments and Rivercrest Village Apartments in 1997, monthly
deposits of approximately $11,000 are required each month during the term
of the loan. At December 31, 1999 the replacement reserve balance is
approximately $542,000.
Depreciation
Depreciation is computed using the following methods and estimated useful lives:
<TABLE>
<CAPTION>
GAAP BASIS TAX BASIS
Lives Lives
Method (Years) Method (Years)
<S> <C> <C> <C> <C>
Buildings and
improvements Straight-line 17-25 175% Declining 18,19 and
Balance (ACRS & 27.5
MACRS)
Personal Property 150% Declining 5 & 7 150 Declining 5 & 7
Balance (ACRS &
MACRS)
</TABLE>
Effective January 1, 1999, the Partnership changed its method to capitalize the
costs of exterior painting and major landscaping (see Note L).
Investment Properties
Investment properties consist of two apartment complexes and are stated at cost.
Acquisition fees are capitalized as a cost of real estate. In accordance with
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of investment properties that have been permanently impaired have been
written down to appraised value. No adjustment for impairment of value was
recorded in the years ended December 31, 1999 and 1998. The Partnership sold its
commercial property, Serramonte Plaza, on December 16, 1999.
Loan Costs
Loan costs, included in other assets on the balance sheet, of approximately
$810,000 are being amortized on a straight-line basis over the lives of the
related loans. Accumulated amortization is approximately $196,000 and is also
included in other assets on the consolidated balance sheet.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on rental payments.
Leases
The Partnership generally leases apartment units for twelve months or less. The
Partnership recognizes income as earned on its leases. In addition, the General
Partner's policy is to offer rental concessions during particularly slow months
or in response to heavy competition from other similar complexes in the area.
Concessions are charged against rental income as incurred.
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
See "Note I" for required disclosure.
Reclassifications
Certain reclassifications have been made to the 1998 balances to conform to the
1999 presentation.
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 IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership
interest in the General Partner. The General Partner does not believe that this
transaction has had or will have a material effect on the affairs and operations
of the Partnership.
Note D - Disposition of Property/Operating Segment
On December 16, 1999, Serramonte Plaza, located in Daly City, California, was
sold to an unaffiliated third party for $20,089,000. After closing expenses and
other payments of approximately $732,000 and the assumption by the purchaser of
the property's mortgage of $11,637,000, the net proceeds received by the
Partnership were approximately $7,720,000. The Partnership distributed the net
proceeds from the sale of the property to the limited partners during January
2000 in accordance with the Partnership Agreement. The sale of the property
resulted in a gain on sale of investment property of approximately $11,735,000.
In connection with the sale, a commission of approximately $603,000 was accrued
to the General Partner in accordance with the terms of the Partnership
Agreement.
Serramonte Plaza was the only commercial property owned by the Partnership and
represented one segment of the Partnership's operations. Due to the sale of this
property, the results of the commercial segment have been shown as income from
discontinued operations and gain on sale of discontinued operations for 1999 and
1998 and, accordingly, the statements of operations have been restated to
reflect this presentation. Revenues of this property were approximately
$3,109,000 and $3,128,000 for 1999 and 1998, respectively. Income from
operations were approximately $451,000 and $521,000 for 1999 and 1998,
respectively.
Note E - Mortgage Notes Payable
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Rivercrest Village
Apartments
1st mortgage $11,396 $ 80 7.348% 01/01/08 $10,053
2nd mortgage 1,333 (1) (1) (1) 1,333
Richardson Highlands
Apartments
1st mortgage 16,602 $ 116 7.326% 01/01/05 15,502
2nd mortgage 874 (1) (1) (1) 874
Totals $30,205 $27,762
</TABLE>
(1) See discussion below regarding the second mortgages.
All first mortgage agreements include non-recourse provisions which limit the
lenders' remedies in the event of default to the specific properties
collateralizing each loan.
In October 1990, the Partnership defaulted on the Richardson Highlands and
Rivercrest Village Subordinate notes payable (the second mortgage loans) due to
the failure to make the required monthly debt service payments. The Partnership
and the lender finalized an agreement on June 22, 1994, retroactive to July 1,
1993, to restructure the debt held on Richardson Highlands and Rivercrest
Village. The junior lien mortgages were restructured to mature on January 15,
2000, and provide for a 10% interest rate (with a 7% pay rate), based on the
"Agreed Valuation Amount", as defined in the restructure agreement. Interest
payments were payable from surplus cash. The second mortgages include a "shadow
debt" portion that was payable only in the event that the mortgages had not been
paid prior to maturity. The shadow debt portion, which was the difference
between the Agreed Valuation Amount and the Note Face Amount, for Richardson
Highlands Apartments and Rivercrest Village Apartments was approximately
$858,000 and $1,307,000, respectively. The Agreed Valuation Amounts for
Richardson Highlands Apartments and Rivercrest Village Apartments were
approximately $7,268,000 and $7,110,000, respectively. The Note Face Amount was
$8,126,000 for Richardson Highlands Apartments and $8,417,000 for Rivercrest
Village Apartments. The agreement also allowed the lender to receive fifty
percent of any net proceeds from the sale or refinancing of the properties after
the payment of all mortgage notes payable and subordinated debt.
Prior to the restructuring of the loans, interest accrued under the terms of the
original subordinate notes payable. This accrued interest of $1,732,000 for
Richardson Highlands Apartments and $2,327,000 for Rivercrest Village Apartments
was added to the carrying amount of the loans at the date of restructure. The
debt restructurings were accounted for as a modification of terms in which total
future cash payments under the restructured loans exceeded the carrying values
of the loans as of the date of restructure. Consequently, the carrying amounts
of the loans were not changed and no gains were recognized on the
restructurings. Interest accrued at an effective interest rate of 6.14% for
Richardson Highlands Apartments and 4.37% for Rivercrest Village Apartments to
equate the present values of the total future cash payments under the new terms
with the carrying amounts of the loans at the date of restructure.
During the year ended December 31, 1998, payments of excess cash of $857,000 and
$1,488,000 were made on Richardson Highlands Apartments and Rivercrest Village
Apartments second mortgages, respectively. The Partnership reduced the carrying
balance to the estimated future cash payments at December 31, 1998 of $929,000
(Richardson Highlands Apartments) and $1,944,000 (Rivercrest Village
Apartments), recognizing an extraordinary gain of $270,000. During the year
ended December 31, 1999, payments of excess cash of $55,000 and $611,000 were
made on Richardson Highlands and Rivercrest Village's second mortgages,
respectively.
During the fourth quarter of 1999, the Partnership was notified that it is in
default on the Residual Proceeds Agreements relating to Rivercrest Village
Apartments and Richardson Highlands Apartments, the two remaining investment
properties owned by the Partnership. These agreements require, among other
things, that each property be marketed for sale six months prior to January 15,
2000, which was the maturity date of the subordinated notes payable, and that
half of certain residual proceeds from the sale be paid to the lender. The
Partnership did not market these properties for sale in accordance with the
agreements, which also provide that the lender may commence an action for the
appointment of a receiver to sell each property. If the properties are not sold
within 180 days thereafter, the lender may foreclose on the properties. After
notifying the Partnership of such defaults, the lender proposed that a party
believed by the Partnership to be an affiliate of the lender purchase the
properties. However, the General Partner believes that the Residual Proceeds
Agreement may no longer be effective, since the debt was repaid in full prior to
maturity. The Partnership currently is in discussions with the lender with
respect to the resolution of these issues.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will not be sold or foreclosed upon. If the
Partnership loses its remaining investment properties through sale or
foreclosure, then it will be forced to terminate.
In connection with the sale of Serramonte Plaza, the Partnership recognized an
extraordinary loss on extinguishment of debt of $103,000 resulting from the
write off of unamortized loan costs of $243,000, offset by forgiveness of
accrued interest of approximately $140,000.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 2,456
2001 299
2002 323
2003 347
2004 368
Thereafter 26,412
$30,205
Note F - Income Taxes
The Partnership received a ruling from the Internal Revenue Service that it is
to be classified as a partnership for Federal income tax purposes. Accordingly,
no provision for income taxes is made in the consolidated financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
loss (in thousands, except per unit data):
1999 1998
Net income as reported $11,977 $ 109
Add (deduct)
Debt forgiveness 1,953 (270)
Depreciation differences 124 25
Deferred expense 360 (127)
Gain on sale of property 1,446 --
Other (587) 213
Federal taxable income (loss) $15,273 $ (50)
Federal taxable income (loss)
per limited partnership unit $927.98 $(3.05)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities as of December 31, 1999 (in
thousands):
Net deficit as reported $(5,862)
Land and buildings 2,601
Accumulated depreciation (5,494)
Syndication 6,832
Other 2,479
Net assets - Federal tax basis $ 556
Note G - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The 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 made or accrued to the
General Partner and its affiliates during the year ended December 31, 1999 and
1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $230 $216
Reimbursement for services of affiliates
(included in operating, general and
administrative expense, and investment
properties) 115 157
Real estate brokerage commission due to
general partner (included in gain on
sale of discontinued operations) 603 --
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from both of the
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates $230,000 and
$216,000 for the years ended December 31, 1999 and 1998, respectively. For the
nine months ended September 30, 1998 affiliates of the General Partner were
entitled to receive varying percentages of gross receipts from the Registrant's
commercial property for providing property management services. The Registrant
paid to such affiliates $147,000 for the nine months ended September 30, 1998.
No such fees were paid for the year ended December 31, 1999 as these services
were provided by an unrelated third party effective October 1, 1998 (the
effective date of the Insignia Merger).
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $115,000 and $157,000 for the
years ended December 31, 1999 and 1998, respectively.
During the year ended December 31, 1998, the Partnership paid affiliates of the
General Partner approximately $40,000, for loan costs which were capitalized and
included in other assets in the accompanying Consolidated Balance Sheet. These
loan costs related to the refinancing of the investment properties. There were
no such costs incurred for the year ended December 31, 1999.
In prior years the Partnership was advanced funds from a former General Partner
in order to meet its existing obligations. Interest accrues on these advances at
rates agreed to by the Partnership and the former General Partner. The interest
rates at December 31, 1999 ranged from 4.70% and 9.50%. The unpaid balance on
these advances at December 31, 1999, and the related accrued interest is
$340,000 and $143,000, respectively.
As mentioned in Note D, in connection with the sale of Serramonte Plaza, a
commission of approximately $603,000 was accrued to the General Partner in
accordance with the terms of the Partnership Agreement. Payment of the
commission will not be made until the limited partners have received
distributions equal to their original invested capital plus a 6% per annum
non-compounded cumulative preferred return on their adjusted invested capital.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited
partnership units in the Partnership representing approximately 15.27% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Note H - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
(in thousands)
Buildings Net Cost
and Related Capitalized
Personal Subsequent to
Apartment Properties Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Rivercrest Village
Sacramento, California $12,729 $ 1,230 $15,171 $ 1,902
Richardson Highlands
Marin County, California 17,476 5,196 10,455 1,851
Totals $30,205 $ 6,426 $25,626 $ 3,753
</TABLE>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Buildings
And Related
Personal Accumulated
Description Land Property Total Depreciation Construction Acquired
<S> <C> <C> <C> <C> <C> <C>
Rivercrest Village $1,231 $17,072 $18,303 $12,560 1975 10/85
Richardson Highlands 5,200 12,302 17,502 8,764 1979 10/85
Totals $6,431 $29,374 $35,805 $21,324
</TABLE>
The depreciable lives for the buildings and components are 5 to 25 years. The
depreciable lives for related personal property are 5 to 7 years.
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1999 1998
(in thousands)
Real Estate
Balance at beginning of year $48,466 $47,572
Property improvements 604 1,050
Disposition of property (13,265) (156)
Balance at end of year $35,805 $48,466
Accumulated Depreciation
Balance at beginning of year $25,949 $24,162
Additions charged to expense 1,990 1,894
Disposition of property (6,615) (107)
Balance at end of year $21,324 $25,949
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $38,406,000 and $54,962,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $26,818,000 and $36,312,000,
respectively.
Note I - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership had two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of two apartment complexes located in California. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The commercial property segment consisted of office space located in California,
which was sold on December 16, 1999. As a result of the sale of the commercial
property during 1999, the commercial segment is shown as a discontinued
operation.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership described in the summary of significant accounting
policies.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the years ended December 31, 1999 and 1998 is shown in
the tables below. The "Other" Column includes partnership administration related
items and income and expense not allocated to the reportable segments (in
thousands).
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 5,561 $ -- $ -- $ 5,561
Other income 220 -- 27 247
Interest expense 2,213 -- -- 2,213
Depreciation 1,522 -- -- 1,522
General and administrative expense -- -- 168 168
Income from discontinued operations -- 451 -- 451
Gain on sale of discontinued
operations -- 11,735 -- 11,735
Loss on extraordinary item -- (103) -- (103)
Segment profit (loss) 35 12,083 (141) 11,977
Total assets 16,677 -- 9,210 25,887
Capital expenditures 366 -- -- 366
</TABLE>
<TABLE>
<CAPTION>
1998 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 5,102 $ -- $ -- $ 5,102
Other income 247 -- 77 324
Interest expense 2,254 -- -- 2,254
Depreciation 1,437 -- -- 1,437
Loss on disposal of property (49) -- -- (49)
General and administrative expense -- -- 261 261
Income from discontinued operations -- 521 -- 521
Gain on extraordinary items 270 -- -- 270
Segment (loss) profit (228) 521 (184) 109
Total assets 17,509 8,348 624 26,481
Capital expenditures 488 562 -- 1,050
</TABLE>
Note J - Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Note K - Abandonment of Units
In 1998, the number of Limited Partnership Units decreased by six due to limited
partners abandoning these units. In abandoning his or her Limited Partnership
Units, a limited partner relinquishes all right, title and interest in the
Partnership as of the date of abandonment. However, during the year of
abandonment, the limited partner is allocated his or her share of the income or
loss for that year. The net income per limited partnership units is calculated
based on the number of units outstanding at the beginning of the year.
Note L - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was not
material. The cumulative effect, had this change been applied to prior periods,
is not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
Item 8.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The General Partner of the
Registrant is Maeril, Inc. The names and ages of, as well as the position and
offices held by the present executive officers and directors of the General
Partner are set forth below. There are no family relations between or among any
officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council. He
received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
Item 10. Executive Compensation
None of the directors and officers of the General Partner received any
remuneration from the Partnership.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Entity Number of Units Percentage
Insignia Properties LP 13.335 0.09%
(an affiliate of AIMCO)
AIMCO Properties LP
(an affiliate of AIMCO) 2,469.125 15.18%
Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, SC 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No director or officer of the General Partner owns any Units. AIMCO Properties
LP, acquired 2,469.125 Units during the current year.
Item 12. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The 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 made or accrued to the
General Partner and its affiliates during the year ended December 31, 1999 and
1998:
1999 1998
(in thousands)
Property management fees $230 $216
Reimbursement for services of affiliates 115 157
Real estate brokerage commission due to 603 --
general partner
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from both of the
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates $230,000 and
$216,000 for the years ended December 31, 1999 and 1998, respectively. For the
nine months ended September 30, 1998 affiliates of the General Partner were
entitled to receive varying percentages of gross receipts from the Registrant's
commercial property for providing property management services. The Registrant
paid to such affiliates $147,000 for the nine months ended September 30, 1998.
No such fees were paid for the year ended December 31, 1999 as these services
were provided by an unrelated third party effective October 1, 1998 (the
effective date of the Insignia Merger).
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $115,000 and $157,000 for the
years ended December 31, 1999 and 1998, respectively.
During the year ended December 31, 1998, the Partnership paid affiliates of the
General Partner approximately $40,000, for loan costs which were capitalized and
included in other assets in the accompanying Consolidated Balance Sheet. These
loan costs related to the refinancing of the investment properties. There were
no such costs incurred for the year ended December 31, 1999.
In prior years the Partnership was advanced funds from a former General Partner
in order to meet its existing obligations. Interest accrues on these advances at
rates agreed to by the Partnership and the former General Partner. The interest
rates at December 31, 1999 ranged from 4.70% and 9.50%. The unpaid balance on
these advances at December 31, 1999, and the related accrued interest is
$340,000 and $143,000, respectively.
In connection with the sale of Serramonte Plaza, a commission of approximately
$603,000 was accrued to the General Partner in accordance with the terms of the
Partnership Agreement. Payment of the commission will not be made until the
limited partners have received distributions equal to their original invested
capital plus a 6% per annum non-compounded cumulative preferred return on their
adjusted invested capital.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 2,482.46 units of
limited partnership units in the Partnership representing approximately 15.27%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the General Partner because of
their affiliation with the General Partner.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999:
A Form 8-K dated December 16, 1999, as filed with the Securities and
Exchange Commission on December 31, 1999, in connection with the
sale of Serramonte Plaza.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INVESTORS FIRST-STAGED EQUITY L.P.
(Registrant)
By: Maeril, Inc.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: April 18, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date: April 18, 2000
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date: April 18, 2000
Martha L. Long and Controller
EXHIBIT INDEX
Exhibit Description
3 The Partnership Agreement is incorporated by reference to the
Form 10-K dated December 31, 1987 (file number 0-14470).
10A Assignment and Assumption Agreement dated May 23, 1994 between
the Federal Deposit Insurance Corporation, VMS Apartment
Portfolio Associates I, VMS Apartment Portfolio Associates,
Ltd., and Investors First-Staged Equity L.P. related to East
Bluff Apartments is incorporated by reference to the Form
10-QSB dated June 30, 1994.
10B Contracts related to debt restructure:
a) Restated note dated July 1, 1993 between VMS Apartment
Portfolio Associates Ltd. and the Federal Deposit
Insurance Corporation related to Rivercrest Village is
incorporated by reference to the Form 10-QSB dated June
30, 1994.
b) Modification of Security Agreement between Investors
First-Staged Equity, L.P., VMS Apartment Portfolio
Associates, Ltd., and the Federal Deposit Insurance
Corporation dated July 1, 1993 related to Rivercrest
Village is incorporated by reference to the Form 10-QSB
dated June 30, 1994.
10C Contracts related to debt restructure:
a) Restated note dated July 1, 1993 between VMS Apartment
Portfolio Associates Ltd. and the Federal Deposit
Insurance Corporation related to Richardson Highlands is
incorporated by reference to the Form 10-QSB dated June
30, 1994.
b) Modification of Security Agreement between Investors
First-Staged Equity, L.P., VMS Apartment Portfolio
Associates, Ltd., and the Federal Deposit Insurance
Corporation dated July 1, 1993 related to Richardson
Highlands is incorporated by reference to the Form
10-QSB dated June 30, 1994.
10D Contracts related to sale of buildings and land at Serramonte Plaza:
a) CONTRACT OF SALE executed August 28, 1996, made and
entered into by and between Serramonte Plaza, a
California limited partnership, and Daly City Partners,
LLC, a California limited liability company.
b) FIRST AMENDMENT TO CONTRACT OF SALE entered into
effective as of September 27, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
c) SECOND AMENDMENT TO CONTRACT OF SALE entered into
effective as of October 7, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
d) THIRD AMENDMENT TO CONTRACT OF SALE entered into
effective as of October 14, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
e) FOURTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of November 1996, by and between Serramonte
Plaza, a California limited partnership, and Daly City
Partners, LLC, a California limited liability company.
f) FIFTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of January 1997, by and between Serramonte
Plaza, a California limited partnership, and Daly City
Partners, LLC, a California limited liability company.
g) SIXTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of March 20, 1997, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
h) ASSIGNMENT AND ASSUMPTION OF LEASES.
i) BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT.
10E Contracts related to debt refinancing of Rivercrest Apartments:
a) Promissory note dated December 31, 1997 between VMS
Apartment Portfolio Associates III and Lehman Brothers
Holdings, Inc.
b) Deed of Trust, Security Agreement, Fixture Filing and
Assignment of Leases and Rents by VMS Apartment
Portfolio Associates III to Commonwealth Land Title
Insurance Company for the benefit of Lehman Brothers
Holdings, Inc. dated December 31, 1997.
c) Absolute Assignment of Leases and Rents by VMS
Apartment Portfolio Associates III to Lehman Brothers
Holdings, Inc. dated December 31, 1997.
10F Contracts related to debt refinancing of Richardson Highlands
Apartments.
a) Promissory note dated December 31, 1997 between VMS
Apartment Portfolio Associates II and Lehman Brothers
Holdings, Inc.
b) Deed of Trust, Security Agreement, Fixture Filing and
Assignment of Leases and Rents by VMS Apartment
Portfolio Associates II to Commonwealth Land Title
Insurance Company for the benefit of Lehman Brothers
Holdings, Inc. dated December 31, 1997.
c) Absolute Assignment of Leases and Rents by VMS
Apartment Portfolio Associates II to Lehman Brothers
Holdings, Inc. dated December 31, 1997.
10.1 Contract for sale of real estate for Serramonte
Plaza dated December 16, 1999, between Investors First-
Staged Equity, a Delaware limited partnership and
Strategic Acquisition Corporation.
10.2 First amendment to contract for sale of real estate for
Serramonte Plaza dated December 16, 1999 between
Investors First-Staged Equity, a Delaware limited
partnership and Strategic Acquisition Corporation.
(Filed with Form 8-K December 31, 1999)
10.3 Second amendment to contract for sale of real estate for
Serramonte Plaza dated December 16, 1999 between
Investors First-Staged Equity, a Delaware limited
partnership and Strategic Acquisition Corporation.
(Filed with Form 8-K December 31, 1999)
10.4 Third amendment to contract for sale of real estate for
Serramonte Plaza dated December 16, 1999 between
Investors First-Staged Equity, a Delaware limited
partnership and Strategic Acquisition Corporation.
(Filed with Form 8-K December 31, 1999)
10.5 Fourth amendment to contract for sale of real estate for
Serramonte Plaza dated December 16, 1999 between
Investors First-Staged Equity, a Delaware limited
partnership and Strategic Acquisition Corporation.
(Filed with Form 8-K December 31, 1999)
10.6 Fifth amendment to contract for sale of real estate for
Serramonte Plaza dated December 16, 1999 between
Investors First-Staged Equity, a Delaware limited
partnership and Strategic Acquisition Corporation.
(Filed with Form 8-K December 31, 1999)
18 Independent Accountants' Preferability letter for
Change in Accounting Principle.
27 Financial Data Schedule.
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
Maeril, Inc.
General Partner of Investors First-Staged Equity L.P.
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note L of Notes to the Consolidated Financial Statements of Investors
First-Staged Equity L.P. included in its Form 10-KSB for the year ended December
31, 1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Investors
First-Staged Equity 1999 Fourth Quarter 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000768834
<NAME> Investors First-Staged Equity
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,614
<SECURITIES> 0
<RECEIVABLES> 580
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 35,805
<DEPRECIATION> (21,324)
<TOTAL-ASSETS> 25,887
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 30,205
0
0
<COMMON> 0
<OTHER-SE> (5,862)
<TOTAL-LIABILITY-AND-EQUITY> 25,887
<SALES> 0
<TOTAL-REVENUES> 5,808
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,213
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (103)
<CHANGES> 0
<NET-INCOME> 11,977
<EPS-BASIC> 721.84 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
