-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QI/CMoB61bBU5egQJG0ecAYfow0mklPPA/P9tVdvUhxO0YojlQQy7A8L1dvJf6lC dIiU0ykuWFkIIERAJIYFkQ== 0000711642-00-000152.txt : 20000516 0000711642-00-000152.hdr.sgml : 20000516 ACCESSION NUMBER: 0000711642-00-000152 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANGELES INCOME PROPERTIES LTD II CENTRAL INDEX KEY: 0000711642 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953793526 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-11767 FILM NUMBER: 631306 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 FIRST QUARTER 10-QSB FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 0-11767 ANGELES INCOME PROPERTIES, LTD. II (Exact name of small business issuer as specified in its charter) California 95-3793526 (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___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 2000
Assets Cash and cash equivalents $ 6,035 Receivables and deposits 317 Restricted escrows 193 Other assets 338 Investment in joint venture 2 Investment properties: Land $ 1,984 Buildings and related personal property 30,615 32,599 Less accumulated depreciation (23,021) 9,578 $ 16,463 Liabilities and Partners' Deficit Liabilities Accounts payable $ 140 Tenant security deposit liabilities 278 Accrued property taxes 207 Other liabilities 338 Due to affiliates 358 Mortgage notes payable 17,726 Partners' Deficit General partners $ (465) Limited partners (99,784 units issued and outstanding) (2,119) (2,584) $ 16,463
See Accompanying Notes to Consolidated Financial Statements b) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended March 31, 2000 1999 Revenues: (restated) Rental income $1,605 $1,575 Other income 86 89 Total revenues 1,691 1,664 Expenses: Operating 526 530 General and administrative 112 71 Depreciation 423 401 Interest 351 357 Property taxes 140 138 Total expenses 1,552 1,497 Income before equity in income of joint venture, discontinued operation, and extraordinary item 139 167 Equity in income of joint venture -- 401 Income before discontinued operation and extraordinary item 139 568 Income from discontinued operation 61 98 Gain on sale of discontinued operation 2,060 -- Income before extraordinary item 2,304 666 Equity in extraordinary loss on early extinguishment of debt of joint venture -- (1) Net income $2,260 $ 665 Net income allocated to general partners $ 108 $ 7 Net income allocated to limited partners 2,152 658 $2,260 $ 665 Per limited partnership unit: Income before discontinued operation and extraordinary item $ 1.37 $ 5.63 Income from discontinued operation 0.62 0.97 Gain on sale of discontinued operation 19.58 -- Extraordinary item -- (0.01) Net income $21.57 $ 6.59
See Accompanying Notes to Consolidated Financial Statements c) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 100,000 $ 1 $50,000 $50,001 Partners' deficit at December 31, 1999 99,784 $ (487) $(4,271) $(4,758) Distribution to general partner -- (86) -- (86) Net income for the three months ended March 31, 2000 -- 108 2,152 2,260 Partners' deficit at March 31, 2000 99,784 $ (465) $(2,119) $(2,584)
See Accompanying Notes to Consolidated Financial Statements d) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2000 1999 Cash flows from operating activities: Net income $ 2,260 $ 665 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 423 467 Amortization of discounts, loan costs and lease commissions 25 24 Equity in income of joint venture -- (401) Equity in extraordinary loss on early extinguishment of debt of joint venture -- 1 Loss on disposal of property -- 35 Gain on sale of investment property (2,060) -- Change in accounts: Receivables and deposits 33 (16) Other assets 143 (36) Accounts payable 52 (67) Tenant security deposit liabilities (11) 8 Accrued property taxes 68 (36) Due to affiliates 44 -- Other liabilities (104) 18 Net cash provided by operating activities 873 662 Cash flows from investing activities: Property improvements and replacements (374) (166) Net withdrawals from restricted escrows 122 105 Proceeds from sale of investment property 2,746 -- Net cash provided by (used in) investing activities 2,494 (61) Cash flows from financing activities: Payments on mortgage notes payable (61) (54) Distributions to partners (1,500) -- Net cash used in financing activities (1,561) (54) Net increase in cash and cash equivalents 1,806 547 Cash and cash equivalents at beginning of period 4,229 2,063 Cash and cash equivalents at end of period $ 6,035 $ 2,610 Supplemental disclosure of cash flow information: Cash paid for interest $ 331 $ 338
At March 31, 2000 and December 31, 1999, accounts payable and property improvements and replacements were each adjusted by approximately $157,000. At March 31, 2000, due to affiliates and distributions to partners were adjusted by approximately $86,000 due to the general partner distribution on the sale of Atlanta Crossing Shopping Center. See Accompanying Notes to Consolidated Financial Statements e) ANGELES INCOME PROPERTIES, LTD. II NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Angeles Income Properties, Ltd. II (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 (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the fiscal 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. Certain reclassifications have been made to the 1999 balances to conform to the 2000 presentation. Principles of Consolidation The consolidated financial statements of the Partnership include all accounts of the Partnership and its 99% limited partnership interest in Georgetown AIP II, LP and its 100% owned limited liability corporation interest in AIPL II GP, LLC. Although legal ownership of the respective asset remains with these entities, the Partnership retains all economic benefits from the properties. As a result, the Partnership consolidates its interests in these two entities, whereby all accounts are included in the consolidated financial statements of the Partnership with all inter-entity accounts being 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 (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing 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 C - Investment in Joint Venture The Partnership has a 14.4% investment in Princeton Meadows Golf Course JV ("Joint Venture"). On February 26, 1999, the Joint Venture sold its only investment property, Princeton Meadows Golf Course, to an unaffiliated third party. The sale resulted in net proceeds of approximately $3,411,000 after payment of closing costs and repayment of mortgage principal and accrued interest. As of March 31, 1999, the Joint Venture recorded a gain on sale of approximately $2,885,000 after the write-off of underdepreciated fixed assets. Subsequent to March 31, 1999, in connection with the sale, a commission of approximately $153,000 was paid to the Joint Venture's managing general partner in accordance with the Joint Venture Agreement. The Partnership's 1999 pro-rata share of this gain at March 31, 1999 was approximately $415,000 and its equity in loss on operations of the Joint Venture at March 31, 1999 amounted to approximately $14,000. The Joint Venture also recognized an extraordinary loss on early extinguishment of debt of approximately $7,000 as a result of unamortized loan costs being written off. The Partnership's pro-rata share of this extraordinary loss is approximately $1,000. Condensed balance sheet information of the Joint Venture at March 31, 2000, is as follows (in thousands): Assets Cash $ 17 Total $ 17 Liabilities and Partners' Capital Other Liabilities $ 7 Partners' capital 10 Total $ 17 The condensed statement of operations of the Joint Venture for the three months ended March 31, 1999 is summarized as follows (in thousands): 1999 Revenue $ 30 Costs and expenses (131) Loss before gain on sale of investment property and extraordinary loss on extinguishment of debt (101) Gain on sale of investment property 2,885 Extraordinary loss on extinguishment of debt (7) Net income $2,777 The Partnership recognized its 14.4% equity income of approximately $401,000 in the Joint Venture for the three months ended March 31, 1999. The Partnership also realized an extraordinary loss on extinguishment of debt of $1,000 for the three months ended March 31, 1999. Due to the sale of Princeton Meadows Golf Course in February 1999, the Joint Venture had no operations during the three months ended March 31, 2000. In addition, the Partnership anticipates that after filing the final tax return of the Joint Venture during the second quarter of 2000, all remaining assets and liabilities of the Joint Venture will be liquidated. The Princeton Meadows Golf Course property had an underground fuel storage tank that was removed in 1992. This fuel storage tank caused contamination to the area. Management installed monitoring wells in the area where the tank was formerly buried. Some samples from these wells indicated lead and phosphorous readings that were higher than the range prescribed by the New Jersey Department of Environmental Protection ("DEP"). The Joint Venture notified the DEP of the findings when they were first discovered. However, the DEP did not give any directives as to corrective action until late 1995. In November 1995, representatives of the Joint Venture and the New Jersey DEP met and developed a plan of action to clean-up the contamination site at Princeton Meadows Golf Course. The Joint Venture engaged an engineering firm to conduct consulting and compliance work and a second firm to perform the field work necessary for the clean-up. Field work commenced with skimmers installed at three test wells on the site. These skimmers were in place to detect any residual fuel that may still be in the ground. Upon the sale of the Golf Course, as noted above, the Joint Venture was released from any further responsibility or liability with respect to the clean-up. Note D - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Managing General Partner and affiliates during the three months ended March 31, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 84 $ 85 Reimbursement for services of affiliates (included in operating expense, general and administrative expense and investment properties) 46 47 Brokerage commission (included in general partner distribution) 86 -- During the three months ended March 31, 2000 and 1999, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties for providing property management services. The Registrant paid to such affiliates approximately $84,000 and $85,000 for the three months ended March 31, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $46,000 and $47,000 for the three months ended March 31, 2000 and 1999, respectively. The Partnership Agreement provides for a fee equal to 10% of "Net cash flow from operations," as defined in the Partnership Agreement to be paid to the Managing General Partner for executive and administrative management services. The amount of the fee for the year ended December 31, 1999 was $228,000. This amount is included in "Due to affiliates" and will be paid during the second quarter of 2000. The amount of the fee for the quarter ended March 31, 2000 was $44,000. It is included in "Due to affiliates". Pursuant to the Partnership Agreement, the Managing General Partner is entitled to receive a distribution equal to 3% of the aggregate disposition price of sold properties. The Partnership accrued a distribution of approximately $86,000 to the Managing General Partner related to the sale of Atlanta Crossing Shopping center in March 2000. This amount is subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 6% per annum of their adjusted capital investment, as defined in the Partnership Agreement. When the limited partners receive these returns, the distribution will be paid to the Managing General Partner. This amount is included in "Due to affiliates" for the three months ended March 31, 2000. Angeles Mortgage Investment Trust, ("AMIT"), a real estate investment trust, provided financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint Venture (see "Note C"). Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into IPT, the entity which controlled the Managing General Partner. Effective February 26, 1999, IPT was merged into AIMCO. As a result, AIMCO became the holder of the AMIT loan. On February 26, 1999, Princeton Meadows Golf Course was sold to an unaffiliated third party. Upon closing, the AMIT principal balance of $1,567,000 plus accrued interest of approximately $17,000 was paid off. AIMCO and its affiliates currently own 49,370 limited partnership units in the Partnership representing 49.477% 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. As a result of its ownership of 49.477% of the outstanding units, AIMCO is in a position to significantly influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Managing General Partner because of their affiliation with the Managing General Partner. Note E - Sale of Discontinued Operation In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama, was sold to an unaffiliated party for $2,875,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $2,746,000. For financial statement purposes, the sale resulted in a gain of approximately $2,060,000, which was recognized during the three months ended March 31, 2000. The following pro-forma information reflects the operations of the Partnership for the three months ended March 31, 2000 and 1999, as if Atlanta Crossing Shopping Center had been sold January 1, 1999. 2000 1999 (in thousands, except per unit data) Revenues $1,691 $1,664 Net income 139 567 Income per limited partnership unit 1.37 5.62 Atlanta Crossing Shopping Center 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 operation on the consolidated statement of operations. Accordingly, the 1999 statement of operations has been restated to reflect this presentation. Revenues of this property were approximately $136,000 and $239,000 for the three months ended March 31, 2000 and 1999, respectively. Income from operations was approximately $61,000 and $98,000 for the three months ended March 31, 2000 and 1999, respectively. Note F - Distributions During the three months ended March 31, 2000, the Partnership paid a distribution of approximately $1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the limited partners or $10.65 per limited partnership unit) is from operations and approximately $426,000 (approximately $422,000 to the limited partners or $4.23 per limited partnership unit) is from proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The distribution was accrued in December 1999. During the three months ended March 31, 1999, the Partnership did not pay any distributions to its partners. Note G - Segment Reporting The Partnership had two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of three apartment complexes in New Jersey, Indiana, and North Carolina. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consisted of a retail shopping center located in Montgomery, Alabama. This property leased space to a discount store, various specialty retail outlets, and several restaurants at terms ranging from twelve months to twenty years. The commercial property was sold on March 15, 2000. Therefore, the commercial segment is reflected as discontinued operations. 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. The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three months ended March 31, 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.
2000 Residential Commercial Other Totals (discontinued) Rental income $ 1,605 $ -- $ -- $ 1,605 Other income 76 -- 10 86 Interest expense 351 -- -- 351 Depreciation 423 -- -- 423 General and administrative expense -- -- 112 112 Income from discontinued operation -- 61 -- 61 Gain on sale of discontinued operation -- 2,060 -- 2,060 Segment profit (loss) 241 2,121 (102) 2,260 Total assets 12,975 -- 3,488 16,463 Capital expenditures for investment properties 211 6 -- 217 1999 Residential Commercial Other Totals (discontinued) Rental income $ 1,575 $ -- $ -- $ 1,575 Other income 81 -- 8 89 Interest expense 357 -- -- 357 Depreciation 401 -- -- 401 General and administrative expense -- -- 71 71 Equity in income of joint venture -- -- 401 401 Income from discontinued operation -- 98 -- 98 Equity in extraordinary loss on the early extinguishment of debt of joint venture -- -- (1) (1) Segment profit (loss) 230 98 337 665 Total assets 12,675 1,055 2,023 15,753 Capital expenditures for investment properties 166 -- -- 166
Note H - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The action 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 plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing 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, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Superior Court of the State of California, County of San Mateo, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of class plaintiffs' counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. Certain plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in the action. The Managing 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 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 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 three apartment complexes. The following table sets forth the average occupancy of the properties for both of the three months ended March 31, 2000 and 1999: Average Occupancy Property 2000 1999 Deer Creek Apartments 97% 98% Plainsboro, New Jersey Georgetown Apartments 96% 95% South Bend, Indiana Landmark Apartments 90% 94% Raleigh, North Carolina The Managing General Partner attributes the decrease in occupancy at Landmark Apartments to increased competition in the Raleigh, North Carolina area. Results of Operations The Partnership's net income for the three months ended March 31, 2000, was approximately $2,260,000 compared to approximately $665,000 for the three months ended March 31, 1999. The increase in net income for the three months ended March 31, 2000 is primarily attributable to the sale of Atlanta Crossing Shopping Center in March 2000 (see discussion below). Excluding the operations of and the gain on the sale of the discontinued operation discussed above, the Partnership had income from continuing operations before the extraordinary item of approximately $139,000 for the three months ended March 31, 2000, compared to approximately $568,000 for the three months ended March 31, 1999. The decrease in income is due primarily to the decrease in equity in income of the joint venture due to the sale of Princeton Meadows Golf Course, as discussed below. Excluding the operations of and the gain on the sale of the discontinued operation and the equity in income of the joint venture, the Partnership had income of approximately $139,000 for the three months ended March 31, 2000, compared to approximately $167,000 for the three months ended March 31, 1999. The decrease in income for the three months ended March 31, 2000 is due to an increase in total expenses which was partially offset by an increase in total revenues. The increase in total revenues is due to an increase in rental income which was slightly offset by a decrease in other income. The increase in rental income is the result of increased average rental rates at all of the Partnership's residential properties which more than offset the decrease in occupancy at Landmark Apartments and Deer Creek Apartments. The decrease in other income is primarily due to a decrease in tenant charges at Deer Creek Apartments. Total expenses increased for the three months ended March 31, 2000 primarily due to an increase in depreciation expense and general and administrative expense. Depreciation expense increased due to capital improvements completed during the past twelve months that are now being depreciated. General and administrative expenses increased due to Partnership management fees accrued at March 31, 2000. Included in general and administrative expenses at both March 31, 2000 and 1999 are reimbursements to the Managing General Partner allowed under the Partnership Agreement associated with its management of the Partnership. 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. In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama, was sold to an unaffiliated party for $2,875,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $2,746,000. For financial statement purposes, the sale resulted in a gain of approximately $2,060,000, which was recognized during the three months ended March 31, 2000. Atlanta Crossing Shopping Center 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 operation on the consolidated statement of operations. Accordingly, the 1999 statement of operations has been restated to reflect this presentation. Revenues of this property were approximately $136,000 and $239,000 for the three months ended March 31, 2000 and 1999, respectively. Income from operations was approximately $61,000 and $98,000 for the three months ended March 31, 2000 and 1999, respectively. The Partnership has a 14.4% investment in Princeton Meadows Golf Course Joint Venture. On February 26, 1999, the Joint Venture sold the Princeton Meadows Golf Course to an unaffiliated third party for gross sale proceeds of $5,100,000. The Joint Venture received net proceeds of $3,411,000 after payment of closing costs, and repayment of the mortgage principal and accrued interest. As of March 31, 1999, the Joint Venture recorded a gain on sale of approximately $2,885,000 after the write-off of undepreciated fixed assets. For the three months ended March 31, 1999, the Partnership realized equity in income of the Joint Venture of approximately $401,000, which included its equity in the gain on disposal of Princeton Meadows Golf Course of $415,000. For the three months ended March 31, 2000, Princeton Meadows Golf Course did not have any operations, therefore, the Partnership did not recognize any equity earnings from the Joint Venture. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing 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 Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At March 31, 2000, the Partnership had cash and cash equivalents of approximately $6,035,000 compared to approximately $2,610,000 at March 31, 1999. The increase in cash and cash equivalents of approximately $1,806,000 since December 31, 1999 is due to approximately $873,000 of cash provided by operating activities and approximately $2,494,000 of cash provided by investing activities which was partially offset by approximately $1,561,000 of cash used in financing activities. Cash provided by investing activities consisted primarily of proceeds from the sale of Atlanta Crossing Shopping Center, and to a lesser extent, net withdrawals from escrow accounts maintained by the mortgage lenders, which was partially offset by property improvements and replacements. Cash used in financing activities consisted primarily of distributions to the partners and, to a lesser extent, payments of principal made on the mortgages encumbering the Partnership's properties. 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 various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Deer Creek During the three months ended March 31, 2000, the Partnership spent approximately $98,000 on capital improvements consisting primarily of appliances, exterior painting, air conditioning unit replacements, and major landscaping. These improvements were funded from Partnership reserves. The Partnership evaluated the capital improvement needs of the property for the year. The amount budgeted is approximately $233,000, consisting primarily of interior and exterior building improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Georgetown During the three months ended March 31, 2000, the Partnership spent approximately $82,000 on capital improvements consisting primarily of carpet and vinyl replacement, structural improvements, and appliances. These improvements were funded from Partnership reserves and operating cash flow. The Partnership evaluated the capital improvement needs of the property for the year. The amount budgeted is approximately $500,000, consisting primarily of carpet and vinyl replacement, roof replacement, and structural improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Landmark During the three months ended March 31, 2000, the Partnership spent approximately $31,000 on capital improvements consisting primarily of carpet and vinyl replacement and appliances. These improvements were funded from operating cash flow. The Partnership evaluated the capital improvement needs of the property for the year. The amount budgeted is approximately $88,000, consisting primarily of swimming pool improvements, air conditioning unit replacements, carpet and vinyl replacement, and major landscaping. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Atlanta Crossing During the three months ended March 31, 2000, the Partnership spent approximately $6,000 on capital improvements consisting of tenant improvements. The property was sold March 15, 2000. 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. The mortgage indebtedness of approximately $17,726,000, net of discount, is amortized over periods ranging from 29 to 30 years with balloon payments due in 2003. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. During the three months ended March 31, 2000, the Partnership paid a distribution of approximately $1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the limited partners or $10.65 per limited partnership unit) is from operations and approximately $426,000 (approximately $422,000 to the limited partners or $4.23 per limited partnership unit) is from proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The distribution was accrued in December 1999. During the three months ended March 31, 1999, the Partnership did not pay any distributions to its partners. Future cash distributions will depend on the levels of cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. The Partnership's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit additional distributions to its partners during the remainder of 2000 or subsequent periods. 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 Managing General Partner and several of their affiliated partnerships and corporate entities. The action 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 I. Financial Statements, Note B - Transfer of Control"). The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing 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, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Superior Court of the State of California, County of San Mateo, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of class plaintiffs' counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. Certain plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in the action. The Managing 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 filed in the first quarter of 2000: None. 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. II By: Angeles Realty Corporation II Managing 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: EX-27 2 FIRST QUARTER 10-QSB
5 This schedule contains summary financial information extracted from ANGELES INCOME PROPERTIES, LTD. II 2000 First Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000711642 ANGELES INCOME PROPERTIES, LTD. II 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 6,035 0 317 0 0 0 32,599 (23,021) 16,463 0 17,726 0 0 0 (2,584) 16,463 0 1,691 0 0 1,552 0 351 0 0 0 0 0 0 2,260 21.57 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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