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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-16116
ANGELES OPPORTUNITY PROPERTIES, LTD.
(Exact name of small business issuer as specified in its charter)
California 95-4052473
(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 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 785
Receivables and deposits 306
Restricted escrows 137
Other assets 137
Investment properties:
Land $ 1,018
Buildings and related personal property 7,639
8,657
Less accumulated depreciation (2,430) 6,227
$ 7,592
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 31
Tenant security deposit liabilities 27
Accrued property taxes 177
Other liabilities 80
Mortgage notes payable 5,400
Partners' Capital (Deficit):
General partner $ (104)
Limited partners (12,425 units issued and
outstanding) 1,981 1,877
$ 7,592
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 593 $ 592 $ 1,766 $ 1,745
Other income 31 35 96 108
Total revenues 624 627 1,862 1,853
Expenses:
Operating 244 252 708 759
General and administrative 36 58 117 130
Depreciation 69 72 219 216
Interest 109 110 329 330
Property taxes 62 59 176 177
Total expenses 520 551 1,549 1,612
Net income $ 104 $ 76 $ 313 $ 241
Net income allocated
to general partner (1%) $ 1 $ 1 $ 3 $ 2
Net income allocated
to limited partners (99%) 103 75 310 239
$ 104 $ 76 $ 313 $ 241
Net income per limited
partnership unit $ 8.29 $ 6.04 $ 24.95 $ 19.24
Distributions per limited
partnership unit $ 39.84 $ -- $ 39.84 $ 19.96
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 12,425 $ 1 $12,425 $12,426
Partners' (deficit) capital at
December 31, 1998 12,425 $ (102) $ 2,166 $ 2,064
Distributions to partners -- (5) (495) (500)
Net income for the nine months
ended September 30, 1999 -- 3 310 313
Partners' (deficit) capital
at September 30, 1999 12,425 $ (104) $ 1,981 $ 1,877
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES OPPORTUNITY PROPERTIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income $ 313 $ 241
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 219 216
Amortization of loan costs and discount 24 24
Change in accounts:
Receivables and deposits (52) 15
Other assets (23) 6
Accounts payable 13 3
Tenant security deposit liabilities -- (4)
Accrued property taxes (58) (47)
Other liabilities (9) 27
Net cash provided by operating activities 427 481
Cash flows from investing activities:
Property improvements and replacements (240) (79)
Net withdrawals from (deposits to) restricted escrows 57 (24)
Net cash used in investing activities (183) (103)
Cash flows used in financing activities:
Payments on mortgage notes payable (19) (17)
Distributions to partners (500) (250)
Net cash used in financing activities (519) (267)
Net (decrease) increase in cash and cash equivalents (275) 111
Cash and cash equivalents at beginning of period 1,060 697
Cash and cash equivalents at end of period $ 785 $ 808
Supplemental disclosure of cash flow information:
Cash paid for interest $ 304 $ 306
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES OPPORTUNITY PROPERTIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles
Opportunity Properties, Ltd. (the "Partnership" or the "Registrant") 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 Angeles Realty Corporation II (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, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interests in New Lake Meadows LP and Lakewood AOPL Ltd. The
Partnership may remove the general partner of both of these 99% owned
partnerships; therefore, the partnerships are controlled and consolidated by the
Partnership. All significant interpartnership balances have been eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
("IPT") merged into Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation. As a result, AIMCO acquired 100% ownership interest in the General
Partner. The General Partner does not believe that this transaction will have a
material effect on the affairs and operations of the Partnership.
NOTE C - 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 certain payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
The following transactions with the General Partner and its affiliates were
incurred during the nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 94 $ 91
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses and investment properties) 40 55
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from both of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $94,000 and
$91,000 for the nine months ended September 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursements of accountable
administrative expense amounting to approximately $40,000 and $55,000 for the
nine months ended September 30, 1999 and 1998, respectively.
On August 12, 1998, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 5,000 of the outstanding Units of
limited partnership interest in the Partnership at $325.00 per Unit, net to the
seller in cash. As a result of the tender offer, the Purchaser acquired 969 of
the outstanding limited partner units of the Partnership.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 4,970.06 (approximately 40.00% of the
total outstanding units) units of the limited partnership interest in the
Partnership for a purchase price of $347 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 744 units. As
a result, AIMCO and its affiliates currently own 2,118 units of limited
partnership interest in the Partnership representing approximately 17.05% of the
total outstanding units. It is possible that AIMCO or its affiliate will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO (see "Note F - Legal Proceedings").
NOTE D - DISTRIBUTIONS
During the nine months ended September 30, 1999, a distribution of $500,000
($495,000 to the limited partners, $39.84 per limited partnership unit) was paid
to the partners from cash from operations. During the nine months ended
September 30, 1998, a distribution of $250,000 ($248,000 to the limited
partners, $19.96 per limited partnership unit) was paid to the partners
consisting of cash from operations.
NOTE E - SEGMENT REPORTING
Description of the types of products and services from which reportable segments
derives its revenues: The Partnership has one reportable segment: residential
properties. The Partnership's residential property segment consists of two
apartment complexes in the state of Texas. The Partnership rents apartment
units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. 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, 1998.
Factors management used to identify the enterprise's reportable segments: The
Partnership's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties is
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the nine months ended September 30, 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.
1999 Residential Other Totals
(in thousands)
Rental income $ 1,766 $ -- $ 1,766
Other income 78 18 96
Interest expense 329 -- 329
Depreciation 219 -- 219
General and administrative expense -- 117 117
Segment profit (loss) 412 (99) 313
Total assets 7,329 263 7,592
Capital expenditures for
investment properties 240 -- 240
1998 Residential Other Totals
(in thousands)
Rental income $ 1,745 $ -- $ 1,745
Other income 86 22 108
Interest expense 330 -- 330
Depreciation 216 -- 216
General and administrative expense -- 130 130
Segment profit (loss) 349 (108) 241
Total assets 7,016 700 7,716
Capital expenditures for
investment properties 79 -- 79
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The complaint seeks monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June
25, 1998, the General Partner filed a motion seeking dismissal of the action.
In lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The General Partner filed demurrers to the amended complaint which
were heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement ("Stipulation"), settling claims, subject to final
court approval, on behalf of the Partnership and all limited partners who own
units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the General Partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The General Partner does not anticipate that costs
associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 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 Partnership from time to time.
The discussions of the Partnership'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 Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy for each of the properties for
the nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Lake Meadows Apartments 96% 98%
Garland, Texas
Lakewood Apartments 94% 96%
Tomball, Texas
Results from Operations
The Partnership reported net income of approximately $313,000 and $241,000 for
the nine months ended September 30, 1999 and 1998, respectively. The
Partnership reported net income of approximately $104,000 and $76,000 for the
three months ended September 30, 1999 and 1998, respectively. The increase in
net income is attributable to an increase in rental revenues for the nine months
ended September 30, 1999, and a decrease in total expenses for the three and
nine months ended September 30, 1999. The increase in rental income is
attributable to increased rental rates at both of the Partnership's investment
properties, which offset the slight decrease in occupancy.
The decrease in total expenses is primarily attributable to a decrease in
operating and general and administrative expenses during the three and nine
months ended September 30, 1999. The decrease in operating expenses is primarily
attributable to decreases in repairs and maintenance expense and property
insurance. The decrease in insurance expense is the result of lower premiums
due to a change in policy carrier for the investment properties. The decrease
in repairs and maintenance expense is due to the completion in 1998 of
landscaping and exterior building repair work at Lakewood Apartments. The
decrease in general and administrative expense is primarily attributable to a
decrease in general partner reimbursements and audit fees offset by an increase
in legal expense related to a litigation settlement, as previously disclosed in
the Partnership's Form 10-QSB for the quarterly period ended June 30, 1999.
Included in general and administrative expenses for the nine months ended
September 30, 1999 and 1998 are reimbursements to the General Partner allowed
under the Partnership Agreement associated with its management of the
Partnership. 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, 1999, the Partnership had cash and cash equivalents of
approximately $785,000 compared to approximately $808,000 for the corresponding
period in 1998. The net decrease in cash and cash equivalents was approximately
$275,000 from the year ended December 31, 1998, and is due to approximately
$519,000 and $183,000 of cash used in financing and investing activities,
respectively, offset by approximately $427,000 of cash provided by operating
activities. Cash used in financing activities consisted of distributions to the
partners and, to a lesser extent, payments of principal made on the mortgages
encumbering the Partnership's investment properties. Cash used in investing
activities consisted primarily of property improvements and replacements, which
were partially offset by net withdrawals from restricted escrows maintained by
the mortgage lenders. The Partnership 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 for
each of the Partnership's properties are detailed below.
Lake Meadows Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$208,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $196,000
for 1999 at this property which include certain of the required improvements and
consist of appliances, building equipment, and floor replacement. During the
nine months ended September 30, 1999, the Partnership expended approximately
$64,000 for capital improvements at the property, consisting primarily of
structural improvements and floor covering replacement. These expenditures were
funded from operating cash flow and replacement reserves.
Lakewood Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$240,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $191,000
for 1999 at this property which include certain of the required improvements and
consist of floor replacement, landscaping, roof replacement, and interior
building improvements. During the nine months ended September 30, 1999, the
Partnership expended approximately $176,000 for capital improvements at the
property, consisting primarily of landscaping, structural improvements, and
floor covering replacements. These expenditures were funded from operating cash
flow and the Partnership's replacement reserves.
The additional capital expenditures will be incurred only to the extent of cash
available from operations and from the Partnership's reserves. To the extent
that such budgeted capital improvements are completed, the Partnership's
distributable cash flow, if any, may be adversely affected at least in the short
term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $5,400,000, net of discount, is interest only or
is being amortized over 343 months with balloon payments due at maturity dates
of October and November 2003. The General Partner will attempt to refinance
such indebtedness and/or sell the properties prior to such maturity dates. If
the properties cannot be refinanced or sold for a sufficient amount, the
Partnership will risk losing such properties through foreclosure.
During the nine months ended September 30, 1999, a distribution of $500,000
($495,000 to the limited partners, $39.84 per limited partnership unit) was paid
to the partners consisting of cash from operations. During the nine months
ended September 30, 1998, a distribution of $250,000 ($248,000 to the limited
partners, $19.96 per limited partnership unit) was paid to the partners
consisting of cash from operations. The Partnership's distribution policy is
reviewed on a semi-annual basis. 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. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations after required capital expenditures to permit further
distributions to its partners in the remainder of 1999 or subsequent periods.
Tender Offers
On August 12, 1998, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 5,000 of the outstanding Units of
limited partnership interest in the Partnership at $325.00 per Unit, net to the
seller in cash. As a result of the tender offer, the Purchaser acquired 969 of
the outstanding limited partner units of the Partnership.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 4,970.06 (40.00% of the total
outstanding units) units of the limited partnership interest in the Partnership
for a purchase price of $347 per unit. The offer expired on July 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 744 units. As a result,
AIMCO and its affiliates currently own 2,118 units of limited partnership
interest in the Partnership representing 17.05% of the total outstanding units.
It is possible that AIMCO or its affiliate will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO (see
"Part I. Financial Information, Note F - Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
General Partner filed a motion seeking dismissal of the action. In lieu of
responding to the motion, the plaintiffs have filed an amended complaint. The
General Partner filed demurrers to the amended complaint which were heard
February 1999. Pending the ruling on such demurrers, settlement negotiations
commenced. On November 2, 1999, the parties executed and filed a Stipulation of
Settlement ("Stipulation"), settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. The Court has preliminarily approved the Settlement and scheduled a
final approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
General Partner will make tender offers for all outstanding limited partnership
interests in 49 partnerships, including the Registrant, subject to the terms and
conditions set forth in the Stipulation, and has agreed to establish a reserve
to pay an additional amount in settlement to qualifying class members (the
"Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will
make an application for attorneys' fees and reimbursement of expenses, to be
paid in part by the partnerships and in part from the Settlement Fund. The
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES OPPORTUNITY PROPERTIES, LTD.
(A California Limited Partnership)
By: Angeles Realty Corporation II
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:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Opportunity Properties, Ltd. 1999 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000789282
<NAME> ANGELES OPPORTUNITY PROPERTIES, LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 785
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,657
<DEPRECIATION> (2,430)
<TOTAL-ASSETS> 7,592
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,400
0
0
<COMMON> 0
<OTHER-SE> 1,877
<TOTAL-LIABILITY-AND-EQUITY> 7,592
<SALES> 0
<TOTAL-REVENUES> 1,862
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-BASIC> 24.95<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
