FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14470
INVESTORS FIRST-STAGED EQUITY L.P.
(Exact name of small business issuer as specified 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)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 2,270
Receivables and deposits 459
Restricted escrows 495
Other assets 607
Investment properties:
Land $ 6,431
Buildings and related personal property 29,849
36,280
Less accumulated depreciation (22,469) 13,811
$ 17,642
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 46
Accrued interest 353
Tenant security deposit liabilities 308
Disposition fee payable to affiliates of General
Partner 603
Accrued taxes 110
Other liabilities 100
Advances from affiliates of General Partner 340
Mortgage notes payable 38,024
Partners' Deficit
General partner $ (200)
Limited partners (16,261.152 units issued and
outstanding) (22,042) (22,242)
$ 17,642
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
b)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(restated) (restated)
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,496 $ 1,413 $ 4,361 $ 4,128
Other income 120 57 328 187
Total revenues 1,616 1,470 4,689 4,315
Expenses:
Operating 501 396 1,267 1,195
General and administrative 50 45 132 136
Depreciation 380 358 1,145 1,074
Interest 8,559 560 9,675 1,654
Property taxes 111 101 321 294
Total expenses 9,601 1,460 12,540 4,353
(Loss) income from continuing operations (7,985) 10 (7,851) (38)
Income from discontinued operations -- 163 -- 412
Net (loss) income $ (7,985) $ 173 $ (7,851) $ 374
Net (loss) income allocated to general
partner (1%) $ (80) $ 2 $ (79) $ 4
Net (loss) income allocated to limited
partners (99%) (7,905) 171 (7,772) 370
Net income $ (7,985) $ 173 $ (7,851) $ 374
Net (loss) income per limited partnership unit:
(Loss) income from continuing operations $ (486.13) $ .60 $(477.95) $ (2.33)
Income from discontinued operations -- 9.92 -- 25.08
Net (loss) income $(486.13) $ 10.52 $(477.95) $ 22.75
Distributions per limited partnership
unit $ 50.92 $ -- $ 524.50 $ --
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
c)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
Partners' deficit at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 16,261.152 $ (121) $ (5,741) $ (5,862)
Distributions to limited
partners -- -- (8,529) (8,529)
Net loss for the nine months
ended September 30, 2000 -- (79) (7,772) (7,851)
Partners' deficit
at September 30, 2000 16,261.152 $ (200) $(22,042) $(22,242)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
d)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $(7,851) $ 374
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 1,145 1,437
Interest on Residual Proceeds Agreement 8,000 --
Amortization of loan costs and leasing commissions 76 141
Change in accounts:
Receivables and deposits 121 (134)
Other assets (13) (38)
Accounts payable (1) 79
Accrued interest 210 13
Tenant security deposit liabilities 32 34
Accrued property taxes 110 125
Other liabilities (35) (4)
Net cash provided by operating activities 1,794 2,027
Cash flows from investing activities:
Property improvements and replacements (475) (461)
Net withdrawals from (deposits to) restricted escrows 47 (61)
Lease commissions paid -- (39)
Net cash used in investing activities (428) (561)
Cash flows from financing activities:
Distributions to limited partners (8,529) --
Payments on mortgage notes payable (181) (742)
Net cash used in financing activities (8,710) (742)
Net (decrease) increase in cash and cash equivalents (7,344) 724
Cash and cash equivalents at beginning of period 9,614 1,184
Cash and cash equivalents at end of period $ 2,270 $ 1,908
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,388 $ 2,338
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
e)
INVESTORS FIRST-STAGED EQUITY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The accompanying consolidated financial statements have been prepared assuming
Investors First-Staged Equity L.P. (the "Partnership or "Registrant") 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 nine 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 (see Note H - Mortgage Notes Payable). 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.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will 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 about the Partnership's
ability to continue as a going concern. The consolidated 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 - Basis of Presentation
The accompanying unaudited consolidated financial statements of the Partnership
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
<PAGE>
Reclassifications
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation.
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.
Note C - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO 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 - Transactions with Affiliates and Related 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 nine months ended September 30,
2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $180 $171
Reimbursement for services of affiliates
(included in general and administrative
expense) 93 88
Real estate brokerage commission due to
general partner (included in disposition
fee payable to General Partner) 603 --
During the nine months ended September 30, 2000 and 1999, 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 approximately
$180,000 and $171,000 for the nine months ended September 30, 2000 and 1999,
respectively.
<PAGE>
An affiliate of the General Partner was paid or accrued reimbursement of
accountable administrative expenses amounting to approximately $93,000 and
$88,000 for the nine months ended September 30, 2000 and 1999, respectively.
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 September 30, 2000 ranged from 4.70% to 9.50%. The unpaid balance on
these advances at September 30, 2000 and the related accrued interest is
approximately $340,000 and $178,000, respectively.
In connection with the sale of Serramonte Plaza in December 1999, 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.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 2,497.46 limited partnership
units in the Partnership representing 15.36% of the outstanding units. A number
of these units were acquired pursuant to tender offers made by AIMCO or its
affiliates. 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, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. 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 E - Disposition of Property/Operating Segment
On December 16, 1999, Serramonte Plaza, located in Daly City, California, was
sold to an unaffiliated third party. 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.
Accordingly, the consolidated 1999 statement of operations has been restated to
reflect this presentation. Revenues of this property were approximately $821,000
and $2,405,000 for the three and nine month periods ended September 30, 1999,
respectively. Income from discontinued operations was approximately $163,000 and
$412,000 for the three and nine month periods ended September 30, 1999,
respectively.
<PAGE>
Note F - Segment Information
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 a
commercial property. The Partnership's residential property segment consists of
two apartment complexes both of which are 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
Serramonte, 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 segments are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments consist of 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 three and nine months ended September 30, 2000 and
1999 is shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segments.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,496 $ -- $ -- $1,496
Other income 108 -- 12 120
Interest expense 8,559 -- -- 8,559
Depreciation 380 -- -- 380
General and administrative expenses -- -- 50 50
Segment (loss) (7,947) -- (38) (7,985)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 4,361 $ -- $ -- $4,361
Other income 239 -- 89 328
Interest expense 9,675 -- -- 9,675
Depreciation 1,145 -- -- 1,145
General and administrative expenses -- -- 132 132
Segment (loss) (7,808) -- (43) (7,851)
Total assets 17,108 -- 534 17,642
Capital expenditures for investment
properties 475 -- -- 475
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,413 $ -- $ -- $ 1,413
Other income 53 -- 4 57
Interest expense 560 -- -- 560
Depreciation 358 -- -- 358
General and administrative expense -- -- 45 45
Income from discontinued operations -- 163 -- 163
Segment profit (loss) 51 163 (41) 173
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 4,128 $ -- $ -- $ 4,128
Other income 171 -- 16 187
Interest expense 1,654 -- -- 1,654
Depreciation 1,074 -- -- 1,074
General and administrative expense -- -- 136 136
Income from discontinued operations -- 412 -- 412
Segment profit (loss) 82 412 (120) 374
Total assets 17,225 8,367 768 26,360
Capital expenditures for investment
properties 309 152 -- 461
</TABLE>
<PAGE>
Note G - Distributions
A distribution of approximately $7,701,000 from the proceeds of the sale of
Serramonte Plaza (approximately $473.58 per limited partnership unit) was made
during the nine months ended September 30, 2000. Also, a distribution of
approximately $828,000 ($828,000 paid to the limited partners or approximately
$50.92 per limited partnership unit) was paid from operations. No cash
distributions were paid during the nine months ended September 30, 1999.
Note H - Mortgage Notes Payable
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. 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.
During the fourth quarter of 1999, the Partnership was notified that it was 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 required, 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.
During the third quarter of 2000, the properties were marketed for sale in
accordance with the Residual Proceeds Agreements. Based upon current market
conditions within the location of the properties, there has been an increase in
the value of the properties and accordingly, the liability representing
anticipated amount due to the lender for its fifty percent share of the expected
net proceeds from the sale of the properties after the payment of all mortgage
notes payable and subordinated debt has been adjusted. The increase of
approximately $8,000,000 was recorded during the three months ended September
30, 2000 and is included in interest expense. As of September 30, 2000 the
estimated amount that the lender is entitled to receive is approximately
$10,207,000 and is based upon current sales values for the two properties.
Although present market conditions reflect an increase in value of the
properties, there is no guarantee that the properties will be sold at their
present fair market value.
<PAGE>
Note I - 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussions of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy for these properties for the
nine months ended September 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Rivercrest Village Apartments 93% 92%
Sacramento, California
Richardson Highlands Apartments 99% 99%
Marin City, California
Results of Operations
The Registrant's net loss for the three and nine months ended September 30, 2000
was approximately $7,985,000 and $7,851,000 respectively, compared to net income
of approximately $173,000 and $374,000, respectively, for the three and nine
months ended September 30, 1999. The decrease in net income for the three and
nine months ended September 30, 2000 is primarily attributable to a decrease in
income from discontinued operations as a result of the sale of the Partnership's
sole commercial property, Serramonte Plaza on December 16, 1999 and an increase
in total expenses.
Excluding the impact of the operations of the commercial property sold during
1999, the net loss from continuing operations for the three and nine months
ended September 30, 2000 was approximately $7,985,000 and $7,851,000
respectively compared to income of approximately $10,000 and a net loss of
approximately $38,000 respectively for the three and nine months ended September
30, 1999. The increase in net loss from continuing operations was due to an
increase in total expenses which was partially offset by an increase in total
revenues for both the three and nine months ended September 30, 2000. The
increase in total revenues was the result of increases in rental income and
other income. Rental income increased primarily as a result of the increase in
occupancy at Rivercrest Village Apartments and an increase in average rental
rates at both Rivercrest Village Apartments and Richardson Highlands Apartments.
The increase in other income was primarily due to higher interest income as a
result of an increase in cash balances held in interest bearing accounts.
Total expenses increased for the three and nine months ended September 30, 2000
as a result of increases in operating, property tax, depreciation and interest
expenses. Operating expense increased as a result of an increase in maintenance
expenses predominantly at Rivercrest Village Apartments. Property tax expense
increased for the nine months ended September 30, 2000 as a result of an
increase in the assessed value of Richardson Highlands Apartments. Depreciation
expense increased for the nine months ended September 30, 2000 as a result of
significant capital improvements placed in service at the Partnership's two
investment properties during the past twelve months. Interest expense increased
for the three and nine months ended September 30, 2000 as a result of interest
on the Residual Proceeds Agreement encumbering both of the Partnership's
investment properties as discussed below.
General and administrative expense remained relatively stable for the three and
nine months ended September 30, 2000. Included in general and administrative
expenses for the nine months ended September 30, 2000 and 1999 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.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this plan,
the 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 September 30, 2000, the Registrant had cash and cash equivalents of
approximately $2,270,000 as compared to approximately $1,908,000 at September
30, 1999. Cash and cash equivalents decreased approximately $7,344,000 for the
nine months ended September 30, 2000 from the Registrant's year end, primarily
due to approximately $8,710,000 of cash used in financing activities, and
approximately $428,000 of cash used in investing activities which were partially
offset by approximately $1,794,000 of cash provided by operating activities.
Cash used in financing activities consisted of distributions to limited partners
and, to a lesser extent, principal payments on the mortgages encumbering the
Registrant's properties. Cash used in investing activities consisted of property
improvements and replacements partially offset by net withdrawals from the
escrow accounts maintained by the mortgage lender. The Registrant invests its
working capital reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Rivercrest Village Apartments
Capital improvements budgeted for, but not limited to, approximately $587,000
are planned for 2000 at this property consisting primarily of roof replacements,
fencing replacements, floor covering and appliance replacements, and major
landscaping. As of September 30, 2000 approximately $394,000 of capital
improvements have been incurred consisting primarily of roof replacements,
structural improvements, siding replacements, appliances and floor covering
replacements. These improvements were funded from operating cash flow and
Partnership reserves.
Richardson Highlands Apartments
Capital improvements budgeted for, but not limited to, approximately $99,000 are
planned for 2000 at this property consisting primarily of appliance and floor
covering replacements, and pavement resurfacing. As of September 30, 2000
approximately $81,000 of capital improvements have been incurred consisting
primarily of appliances, maintenance equipment, cabinet and floor covering
replacements. These improvements were funded from operating cash flow and
replacement reserves.
The additional capital expenditures will be incurred only if cash is available
from operations or Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $30,024,000 has maturity dates of January 2005 and
January 2008, with balloon payments due at maturity, at which time the
properties will either be refinanced and/or sold.
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. 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.
During the fourth quarter of 1999, the Partnership was notified that it was 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 required, 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.
During the third quarter of 2000, the properties were marketed for sale in
accordance with the Residual Proceeds Agreements. Based upon current market
conditions within the location of the properties, there has been an increase in
the value of the properties and accordingly, the liability representing
anticipated amount due to the lender for its fifty percent share of the expected
net proceeds from the sale of the properties after the payment of all mortgage
notes payable and subordinated debt has been adjusted. The increase of
approximately $8,000,000 was recorded during the three months ended September
30, 2000 and is included in interest expense. As of September 30, 2000 the
estimated amount that the lender is entitled to receive is approximately
$10,207,000 and is based upon current sales values for the two properties.
Although present market conditions reflect an increase in value of the
properties, there is no guarantee that the properties will be sold at their
present fair market value.
There can be no assurance that a receiver will not be appointed for the
properties or that the properties will 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 about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classification of liabilities that may
result from this uncertainty.
A distribution of approximately $7,701,000 from the proceeds of the sale of
Serramonte Plaza (approximately $473.58 per limited partnership unit) was made
during the nine month period ended September 30, 2000. Also, a cash distribution
of approximately $828,000 ($828,000 paid to the limited partners or $50.92 per
limited partnership unit) was paid from operations. No cash distributions were
paid during the nine months ended September 30, 1999. The Registrant's
distribution policy is reviewed on an annual basis. Future cash distributions
will depend on the levels of net cash generated from operations, the
availability of cash reserves, debt maturities, refinancings, and/or property
sales. There can be no assurance, however, that the Registrant will generate
sufficient funds from operations, after required capital improvement
expenditures, to permit additional distributions to its partners during the
remainder of 2000 or subsequent periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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: November 14, 2000
