FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period_________to_________
Commission file number 0-16210
ANGELES INCOME PROPERTIES, LTD. 6
(Exact name of small business issuer as specified in its charter)
California 95-4106139
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES INCOME PROPERTIES, LTD. 6
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 6,865
Receivables and deposits 766
Restricted escrows 299
Other assets 427
Investment properties:
Land $ 2,544
Buildings and related personal property 20,614
23,158
Less accumulated depreciation (7,532) 15,626
$23,983
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 67
Tenant security deposits liabilities 91
Accrued property taxes 362
Other liabilities 270
Due to General Partner 212
Mortgage notes payable 11,693
Partners' Capital
General partner's 113
Limited partners' (47,311 units issued
and outstanding) 11,175 11,288
$23,983
See Accompanying Notes to Financial Statements
b)
ANGELES INCOME PROPERTIES, LTD. 6
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,359 $ 1,847 $ 2,846 $ 3,617
Other income 98 114 225 252
Gain on sale of investment
property -- -- 1,783 --
Total revenues 1,457 1,961 4,854 3,869
Expenses:
Operating 476 846 1,009 1,525
General and administrative 51 114 155 218
Depreciation 210 262 431 515
Interest 245 503 574 1,005
Property tax 138 193 287 388
Total expenses 1,120 1,918 2,456 3,651
Income before
extraordinary item 337 43 2,398 218
Extraordinary loss on early
extinguishment of debt -- -- (1,011) --
Net income $ 337 $ 43 $ 1,387 $ 218
Net income allocated to
general partner $ 232 $ -- $ 296 $ 2
Net income allocated to
limited partners 105 43 1,091 216
$ 337 $ 43 $ 1,387 $ 218
Per limited partnership unit:
Income before extraordinary
item $ 2.22 $ .90 $ 44.22 $ 4.56
Extraordinary loss on early
extinguishment of debt -- -- (21.16) --
Net income $ 2.22 $ .90 $ 23.06 $ 4.56
See Accompanying Notes to Financial Statements
c)
ANGELES INCOME PROPERTIES, LTD. 6
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 47,384 $ 1 $47,384 $47,385
Partners' capital at
December 31, 1998 47,311 $ 102 $10,097 $10,199
Distributions paid -- (285) (13) (298)
Net income for the six months
ended June 30, 1999 -- 296 1,091 1,387
Partners' capital at
June 30, 1999 47,311 $ 113 $11,175 $11,288
See Accompanying Notes to Financial Statements
d)
ANGELES INCOME PROPERTIES, LTD. 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 1,387 $ 218
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 431 515
Amortization of mortgage discounts, loan costs,
and leasing commissions 37 72
Gain on sale of investment property (1,783) --
Extraordinary loss in early extinguishment of debt 1,011 --
Change in accounts:
Receivables and deposits (143) 26
Other assets 18 47
Accounts payable (28) 82
Tenant security deposit liabilities (6) 14
Accrued property taxes (15) 93
Other liabilities (438) 50
Net cash provided by operating activities 471 1,117
Cash flows from investing activities:
Property improvements and replacements (206) (262)
Lease commissions paid (7) (5)
Net withdrawals from (deposits to) restricted escrows 4 (14)
Proceeds from sale of investment property 9,292 --
Net cash provided by (used in) investing
activities 9,083 (281)
Cash flows from financing activities:
Payments on mortgage notes payable (99) (159)
Repayment of mortgage notes payable (6,423) --
Distributions paid (298) --
Prepayment penalty (787) --
Net cash used in financing activities (7,607) (159)
Net increase in cash and cash equivalents 1,947 677
Cash and cash equivalents at beginning of period 4,918 1,941
Cash and cash equivalents at end of period $ 6,865 $ 2,618
Supplemental disclosure of cash flow information:
Cash paid for interest $ 577 $ 950
See Accompanying Notes to Financial Statements
e)
ANGELES INCOME PROPERTIES, LTD. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Income
Properties, Ltd. 6 (the "Partnership" or "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 ("ARC II"
or 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 six month periods ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998.
Principles of Consolidation: The consolidated financial statements of the
Partnership include its 99% limited partnership interests in Granada AIPL 6,
Ltd., AIP 6 GP, LP, Whispering Pines AIP 6, LP and Lazy Hollow Partners, Ltd.
The Partnership may remove the general partner of all of the above partnerships;
therefore, the partnerships are controlled and consolidated by the Partnership.
Also included in the consolidated financial statements are Mesa Dunes GP, LLC,
Wakonda Partners, Town and Country Partners and Mesa Dunes Partners, which are
wholly-owned by the Partnership. All significant interentity have been
eliminated.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
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 (the "Insignia Merger"). 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 payments were made to the General Partner and affiliates during
each of the six month periods ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $100 $180
Property lease commissions (included in other
assets and operating expenses) -- 16
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses) 76 141
Due from General Partner 69 --
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Partnership's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $100,000 and $154,000 for
the six months ended June 30, 1999 and 1998, respectively. For the six months
ended June 30, 1998, affiliates of the General Partner were entitled to receive
varying percentages of gross receipts from all of the Registrant's commercial
properties for providing property management services. The Registrant paid to
such affiliates approximately $26,000 for the six months ended June 30, 1998.
Effective October 1, 1998 (the effective date of the Insignia Merger), services
for the commercial properties were provided by an unrelated party.
The Partnership paid leasing commissions of approximately $16,000 to an
affiliate of the General Partner during the six months ended June 30, 1998. No
leasing commissions were paid to affiliates during the six months ended June 30,
1999. Leasing commissions are capitalized and amortized over the lives of the
respective leases. Unamortized leasing commissions are included in other
assets.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $76,000 and $141,000 for the
six months ended June 30, 1999 and 1998, respectively.
Pursuant to the Partnership Agreement, the General Partner is entitled to
receive a distribution equal to 3% of the aggregate disposition price of sold
properties. Pursuant to this provision, during the six months ended June 30,
1999, the Partnership declared and paid a distribution of approximately $285,000
payable to the General Partner related to the sale of Mesa Dunes Mobile Home
Park. In addition approximately $212,000 related to the sale of Whispering
Pines Mobile Home Park was accrued at December 31, 1998. This amount will be
paid to the General partner during the third quarter of 1999. These fees are
subordinate to the limited partners receiving a preferred return, as specified
in the Partnership Agreement. If the limited partners have not received their
preferred return when the Partnership terminates, the General Partner will
return these amounts to the Partnership.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 18,928.89 (40.01% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $318 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,226 units.
As a result, AIMCO and its affiliates currently own 8,911 units of limited
partnership interest in the Partnership representing 18.83% 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.
The Partnership has a first mortgage to Angeles Mortgage Investment Trust
("AMIT") in the amount of $3,350,000, which is secured by Wakonda Shopping
Center and Town & Country Shopping Center. Pursuant to a series of
transactions, affiliates of the General Partner acquired ownership interests in
AMIT. On September 17, 1998, AMIT was merged with and into IPT. Effective
February 26, 1999, IPT merged into AIMCO. As a result, AIMCO became the holder
of the AMIT note. The Partnership paid approximately $150,000 and $164,000 in
interest expense on this note to AMIT for each of the six months ended June 30,
1999 and 1998, respectively.
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segments derive their revenues: The Partnership has two reportable segments:
residential and commercial properties. The Partnership's residential property
segment consists of three apartment complexes in Maryland, Michigan and Texas.
The Partnership rents apartment units to tenants for terms that are typically
twelve months or less. The Partnership's commercial property segment consists
of two retail shopping centers located in Iowa. The Partnership rents
commercial space to tenants under various lease terms expiring during 1999
through 2008. Both properties lease space to various specialty retail outlets,
several fast food enterprises, discount stores and Wakonda also leases space to
a grocery store.
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 segments consist of investment properties that offer
different products and services. The reportable segments are each managed
separately, because they provide services with different types of products and
customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to reportable
segments.
1999 Residential Commercial Other Totals
Rental income $ 1,896 $ 950 $ -- $ 2,846
Other income 151 26 48 225
Interest expense 424 150 -- 574
Depreciation 265 166 -- 431
General and administrative expense -- -- 155 155
Gain on sale of property 1,783 -- -- 1,783
Loss on extraordinary item 1,011 -- -- 1,011
Segment profit (loss) 1,225 269 (107) 1,387
Total assets 14,179 6,480 3,324 23,983
Capital expenditures for
investment properties 192 14 -- 206
1998 Residential Commercial Other Totals
Rental income $ 2,825 $ 792 $ -- $ 3,617
Other income 190 32 30 252
Interest expense 841 164 -- 1,005
Depreciation 381 134 -- 515
General and administrative expense -- -- 218 218
Segment profit (loss) 347 59 (188) 218
Total assets 23,864 6,703 1,316 31,883
Capital expenditures for
investment properties 116 146 -- 262
NOTE E - SALE OF INVESTMENT PROPERTIES
On February 19, 1999, the Partnership sold Mesa Dunes Mobile Home Park to an
unaffiliated third party for distributable net sales proceeds of approximately
$2,080,000 after payoff of the first and second mortgages and payment of closing
costs. The Partnership realized a gain of approximately $1,783,000 on the sale
during the first quarter of 1999. The Partnership also realized a loss on the
early extinguishment of debt encumbering the property of approximately
$1,011,000 during the first quarter of 1999 consisting of a prepayment penalty,
the write off of unamortized loan costs and mortgage discount. The General
Partner is currently evaluating the feasibility of a distribution of the sale
proceeds.
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 and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. 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
filed an amended complaint. The General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF 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 discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two commercial properties and
three apartment complexes. The following table sets forth the average occupancy
of the properties for each of the six months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Lazy Hollow Apartments
Columbia, Maryland 97% 97%
Homestead Apartments (1)
East Lansing, Michigan 96% 91%
Casa Granada Apartments
Harlingen, Texas 94% 92%
Wakonda Shopping Center
Des Moines, Iowa 85% 86%
Town & Country Shopping Center
Cedar Rapids, Iowa (2) 100% 83%
(1) The increase in occupancy at Homestead Apartments is due to increased
marketing efforts.
(2) The increase in occupancy at Town & Country Shopping Center is due to the
addition of four new tenants in the third and fourth quarters of 1998.
Results of Operations
The Partnership realized net income of approximately $1,387,000 versus net
income of approximately $218,000 for the six month periods ended June 30, 1999
and 1998, respectively. The increase in net income is due primarily to an
increase in total revenues resulting from the gain of approximately $1,783,000
realized on the sale of Mesa Dunes Mobile Home Park partially offset by the
extraordinary loss on early extinguishment of debt of approximately $1,011,000
during the first quarter of 1999. See below for a discussion of this property
sale. As a result of the property sale during the six months ended June 30,
1999, the Partnership realized decreases in rental and other income in addition
to operating expenses, depreciation, interest expenses, and property taxes.
Excluding Mesa Dunes and Whispering Pines Mobile Home Park that were sold in
February 1999 and July 1998, respectively, the Partnership realized net income
of approximately $578,000 and $92,000 for the six month period ended June 30,
1999 and 1998, respectively. Excluding Mesa Dunes and Whispering Pines, the
Partnership realized net income of approximately $349,000 for the three months
ended June 30, 1999, as compared to a net loss of approximately $30,000 for the
comparable period in 1998. The increase in net income at the Partnership's
remaining properties is due to an increase in rental income combined with
decreases in operating and general and administrative expenses partially offset
by an increase in depreciation expense. Rental income increased due to rental
rate increases at all of the remaining properties and improved occupancy at all
of the remaining properties other than Wakonda Shopping Center. The decrease in
operating expense is due to decreases in advertising, maintenance, and common
area expenses. Advertising expense declined due to a decline in advertising due
to improved occupancy at the commercial properties. The decrease in maintenance
expense is due to exterior building repairs at Homestead in 1998. The decrease
in common area expenses is due to parking lot repairs performed at Wakonda in
1998. The decrease in general and administrative expenses is due to a decline
in general partner reimbursements. The increase in depreciation expense is due
to property improvements and replacements placed into service at the remaining
properties over the last twelve months.
Included in general and administrative expenses at both June 30, 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 required.
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 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 June 30, 1999, the Partnership held cash and cash equivalents of
approximately $6,865,000 versus approximately $2,618,000 at June 30, 1998. For
the six months ended June 30, 1999, cash increased by approximately $1,947,000
from the Partnership's year ended December 31, 1998. The increase in cash and
cash equivalents is due to approximately $9,083,000 of cash provided by
investing activities and approximately $471,000 of cash provided by operating
activities which was partially offset by approximately $7,607,000 of cash used
by financing activities. Cash provided by investing activities consisted
primarily of the proceeds from the sale of Mesa Dunes in the first quarter of
1999 and to a lesser extent net withdrawals from restricted escrows maintained
by the mortgage lenders which was partially offset by property improvements and
replacements and lease commissions. Cash used in financing activities consisted
primarily of the repayments of the mortgages encumbering Mesa Dunes and to a
lesser extent prepayment penalties on the Mesa Dunes mortgages, distributions
paid to the partners, and payments on mortgages encumbering the remaining
properties. The Registrant invests its working capital reserves in money market
accounts.
On February 19, 1999, the Partnership sold Mesa Dunes Mobile Home Park to an
unaffiliated third party for distributable net sales proceeds of approximately
$2,080,000 after payoff of the first and second mortgages and payment of closing
costs. The Partnership realized a gain of approximately $1,783,000 on the sale
during the first quarter of 1999. The Partnership also realized a loss on the
early extinguishment of debt encumbering the property of approximately
$1,011,000 during the first quarter of 1999 consisting of a prepayment penalty
and the write off of unamortized loan costs and mortgage discount. The General
Partner is currently evaluating the feasibility of a distribution of the sale
proceeds.
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, and local legal and regulatory requirements. Capital improvements for
each of the Partnership's properties are detailed below.
Town and Country Shopping Center
During the six months ended June 30, 1999, the Partnership completed
approximately $3,000 of capital improvements at Town and Country Shopping Center
consisting of tenant improvements. These improvements were funded from cash
flow from operations. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $1,308,000 of capital improvements over the next
few years. Capital improvements scheduled for 1999 at this property, which
include certain of the required improvements, consist of, but are not limited
to, tenant improvements. These improvements are expected to cost approximately
$1,308.000.
Wakonda Shopping Center
During the six months ended June 30, 1999, the Partnership completed
approximately $11,000 of capital improvements at Wakonda Shopping Center
consisting of tenant improvements. These improvements were funded from cash
flow from operations. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $326,000 of capital improvements over the next
few years. Capital improvements scheduled for 1999 at this property, which
include certain of the required improvements, consist of, but are not limited
to, tenant improvements and building improvements. These improvements are
expected to cost approximately $38,000.
Homestead Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $39,000 of capital improvements at Homestead Apartments consisting
primarily of roof repairs. These improvements were funded from cash flow from
operations. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $183,000 of capital improvements over the next
few years. Capital improvements scheduled for 1999 at this property, which
include certain of the required improvements, consist of, but are not limited
to, tenant improvements and building improvements. These improvements are
expected to be paid from replacement reserves and operating cash flow. These
improvements are expected to cost approximately $183,000.
Casa Granada Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $22,000 of capital improvements at Casa Granada Apartments
primarily consisting of appliances and floor covering replacement. These
improvements were funded from cash flow from operations. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $429,000
of capital improvements over the next few years. Capital improvements scheduled
for 1999 at this property, which include certain of the required improvements,
consist of, but are not limited to, interior and exterior building improvements.
These improvements are expected to cost approximately $429,000.
Lazy Hollow Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $130,000 of capital improvements at Lazy Hollow Apartments
consisting of HVAC and floor covering replacements. These improvements were
funded from cash flow from operations. Based on a report received from an
independent third party consultant analyzing necessary exterior improvements and
estimates made by the Managing General Partner on interior improvements, it is
estimated that the property requires approximately $444,000 of capital
improvements over the next few years. Capital improvements scheduled for 1999
at this property, which include certain of the required improvements, consist
of, but are not limited to, interior and exterior building improvements. These
improvements are expected to be cost approximately $586,000.
Mesa Dunes Mobile Home Park
Before the sale of this property, the Partnership completed approximately $1,000
of capital improvements consisting primarily of building improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from 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 Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. At June 30, 1999,
the mortgage indebtedness of approximately $11,693,000 has maturity dates
ranging from September 1999 to July 2019. The mortgage encumbering Casa Granda
Apartments matures in September 1999. The General Partner is currently
evaluating the refinancing of this debt. The General Partner will attempt to
refinance such remaining 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 six months ended June 30, 1999, the Partnership declared and paid a
distribution of approximately $285,000 payable to the General Partner in
connection with the sale of Mesa Dunes Mobile Home Park. However, this fee is
subordinate to the limited partners receiving a preferred return, as specified
in the partnership agreement. If the limited partners have not received their
preferred return when the Partnership terminates, the General Partner will
return these amounts to the Partnership. In addition the Partnership paid a
distribution of approximately $13,000 for state withholding taxes paid on behalf
of the non-resident limited partners. There were no cash distributions during
the six months ended June 30, 1998. The Partnership's distribution policy will
be reviewed on a semi-annual basis. Future cash distributions will depend on
the levels of net cash generated from and the availability of cash reserves,
operations, and the timing of debt matures, refinancings, and/or property sales.
There can be no assurance, however, that the Partnership will generate funds
from operations after required capital improvements to permit distributions to
its partners in 1999 or subsequent periods.
Tender Offer
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 18,928.89 (40.01% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $318 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,226 units.
As a result, AIMCO and its affiliates currently own 8,911 units of limited
partnership interest in the Partnership representing 18.83% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the 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 and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. 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
filed an amended complaint. The General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES INCOME PROPERTIES, LTD. 6
By: Angeles Realty Corporation II
General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance
and Administration
Date: August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties, Ltd. 6 1999 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000812564
<NAME> ANGELES INCOME PROPERTIES, LTD. 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,865
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,158
<DEPRECIATION> 7,532
<TOTAL-ASSETS> 23,983
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,693
0
0
<COMMON> 0
<OTHER-SE> 11,288
<TOTAL-LIABILITY-AND-EQUITY> 23,983
<SALES> 0
<TOTAL-REVENUES> 4,854
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,387
<EPS-BASIC> 23.06<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
