-----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, CeFsLOFiO4wgpQvHO02oLXPqH8uLpuwAS4U43jX1qmvoMVG726h4TMUS7KeEgnFA zU1MNOuVRVKS/fZsL/gy6w== 0000317969-98-000002.txt : 19980326 0000317969-98-000002.hdr.sgml : 19980326 ACCESSION NUMBER: 0000317969-98-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANGELES INCOME PROPERTIES LTD III CENTRAL INDEX KEY: 0000720460 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953903984 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-13192 FILM NUMBER: 98572281 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: P.O. BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 FORM 10-KSB-ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission file number 0-13192 ANGELES INCOME PROPERTIES, LTD. III (Name of small business issuer in its charter) California 95-3903984 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X] State issuer's revenues for its most recent fiscal year. $1,888,000. State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of a specified date within the past 60 days. Market value information for the Registrant's partnership interests is not available. Should a trading market develop for these interests, it is the Managing General Partner's belief that the aggregate market value of the voting partnership interests would not exceed $25,000,000. PART I ITEM 1. DESCRIPTION OF BUSINESS Angeles Income Properties, Ltd. III (the "Partnership" or "Registrant") is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act pursuant to a Certificate and Agreement of Limited Partnership dated May 26, 1983, as amended (hereinafter referred to as "the Agreement"). The Partnership's managing general partner is Angeles Realty Corporation II ("ARC II" or the "Managing General Partner"), a California corporation and wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia Financial Group ("Insignia"). Thus the Managing General Partner is now a wholly-owned subsidiary of IPT. The Elliott Accommodation Trust and the Elliott Family Partnership, Ltd., California limited partnerships, are the Non-Managing General Partners. The Managing General Partner and the Non-Managing General Partners are herein collectively referred to as the "General Partners". On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the Managing General Partner of the Partnership. The Partnership, through its public offering of Limited Partnership Units, sold 86,920 units aggregating $43,460,000. The General Partners contributed capital in the amount of $1,000 for a 1% interest in the Partnership. Holders of Limited Partnership Units shall hereinafter be referred to as "Limited Partners" and together with the General Partners, referred to as the "Partners". The Partnership was formed for the purpose of acquiring fee and other forms of equity interests in various types of real property. The Managing General Partner intends to maximize the operating results and, ultimately, the net realizable value of each of the Partnership's properties in order to achieve the best possible return for the partners. Such results may best be achieved through property sales, refinancings, debt restructurings or relinquishment of the assets. The Partnership intends to evaluate each of its holdings periodically to determine the most appropriate strategy for each of the assets. The Partnership has no full time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. Limited Partners and the Non-Managing General Partners have no right to participate in the management or conduct of such business and affairs. Insignia Residential Group, L.P., an affiliate of Insignia, provides property management services to each of the Partnership's investment properties. The business in which the Partnership is engaged is highly competitive, and the Partnership is not a significant factor in its industry. Each of its apartment and commercial properties is located in or near a major urban area and, accordingly, competes for rentals not only with similar apartment and commercial properties in its immediate area but with hundreds of similar apartment and commercial properties throughout the urban area. Such competition is primarily on the basis of location, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar partnerships, real estate investment trusts and financial institutions) with respect to the sale of improved real properties, primarily on the basis of the prices and terms of such transactions. ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the Registrant's investments in properties: Property Purchase Type of Ownership Use Poplar Square Shopping 05/15/85 Fee ownership - subject Commercial Center to a first mortgage 118,474 sq.ft. Medford, Oregon Lake Forest Apartments 06/27/84 Fee ownership Residential Rental Brandon, Mississippi 136 units The Partnership had a 33.3% investment in Northtown Mall Partners ("Northtown"). On May 12, 1997, Northtown sold its only investment property, Northtown Mall, to an affiliate of the lender (See "Note F" of the financial statements included in "Item 7.") SCHEDULE OF PROPERTIES: (dollar amounts in thousands) Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis Poplar Square Shopping Center $ 9,749 $ 6,658 5-20 yrs S/L $ 4,853 Lake Forest Apartments 4,741 2,597 5-40 yrs S/L 1,932 $ 14,490 $ 9,255 $ 6,785 See "Note A" of the financial statements included in "Item 7." for a description of the Partnership's depreciation policy. SCHEDULE OF MORTGAGES: (dollar amounts in thousands) Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 1997 Rate Amortized Date Maturity Poplar Square Shopping Center First mortgage $ 3,755 9.2% 25 yrs. 11/01/06 $ 3,167 Average annual rental rates and occupancy for 1997 and 1996 for each property: Average Annual Average Annual Rental Rates Occupancy Property 1997 1996 1997 1996 Poplar Square Shopping Center $6.76/sq.ft. $6.62/sq.ft. 93% 96% Lake Forest Apartments 6,399/unit 6,223/unit 93% 92% As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes and commercial buildings in the area. The Managing General Partner believes that all of the properties are adequately insured. The multi-family residential property's lease terms are for one year or less. No residential tenant leases 10% or more of the available rental space. Poplar Square's leases have original terms varying from 3-10 years and expire on various dates through 2003. The following is a schedule of the lease expirations for the years 1998-2003: Poplar Square Number of % of Gross Shopping Center Expirations Square Feet Annual Rent Annual Rent 1998 1 675 $ 6,683 .80% 1999 5 14,320 139,826 16.74% 2000 5 35,545 227,380 27.22% 2001 2 29,475 219,083 26.23% 2002 5 27,611 211,679 25.34% 2003 1 2,550 30,600 3.67% The following schedule reflects information on tenants occupying 10% or more of the leasable square footage of Poplar Square Shopping Center: Square Footage Annual Rent Nature of Business Leased Per Square Foot Lease Expiration Clothes Retailer 22,395 $ 7.10 01/31/01 Fabric Retailer 19,980 5.40 01/31/00 Fitness Gym 14,892 6.08 02/28/02 Craft Retailer 12,015 6.99 12/31/00 Real estate taxes and rates in 1997 for each property were: 1997 1997 Billing Rate (in thousands) Poplar Square Shopping Center (1) $100 1.39% Lake Forest Apartments 38 1.59% (1) The fiscal property tax year for this property, which ends in June, is different than the Partnership's fiscal year. ITEM 3. LEGAL PROCEEDINGS The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The security holders of the Registrant did not vote on any matter during the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Partnership, a publicly-held limited partnership, sold 86,920 Limited Partnership Units during its offering period through March 7, 1984, and currently has 86,778 Limited Partnership Units outstanding and 3,493 Limited Partners of record. There is no intention to sell additional Limited Partnership Units nor is there an established market for these units. During 1996, the number of Limited Partnership Units decreased by 40 units due to limited partners abandoning their units. In abandoning his or her Limited Partnership Units, a limited partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. During the year ended December 31, 1997, the Partnership distributed approximately $1,584,000 to the Limited Partners and $16,000 to the General Partners. There were no distributions during the year ended December 31, 1996. Future distributions will depend on the levels of net cash generated from operations, refinancings, property sales, and the availability of cash reserves. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations The Partnership recognized net income of approximately $6,738,000 for the year ended December 31, 1997, as compared to net loss of approximately $1,075,000 for the year ended December 31, 1996. The increase in net income for the year ended December 31, 1997 is due primarily to the equity in income and extraordinary gain of the joint venture, as a result of the gains realized on the sale of Northtown Mall in the second quarter of 1997 (See "Note F" of the financial statements included in "Item 7."). For the year ended December 31, 1997, versus the year ended December 31, 1996, loss before equity in income (loss) and extraordinary gain of the joint venture decreased due to an increase in rental income, partially offset by an increase in total expenses. Despite a drop in occupancy at Poplar Square Shopping Center, rental income increased during the year ended December 31, 1997, as compared to the year ended December 31, 1996, due to an increase in average annual rental rates at both investment properties and an increase in average occupancy at Lake Forest Apartments. Contributing to the overall increase in expenses was an increase in operating expense. Operating expense increased at Lake Forest Apartments due to an exterior painting project and other various exterior building improvements undertaken in an effort to improve the appearance of the property. Partially offsetting this increase in overall expenses was a decrease in general and administrative expenses due to a decrease in reimbursements for services of affiliates, excluding construction oversight costs associated with the ongoing improvements at Lake Forest Apartments. Also, interest expense decreased due to the refinancing of the mortgage debt secured by Poplar Square Shopping Center in November 1996. This debt was refinanced at a lower interest rate. On May 12, 1997, the Joint Venture in which the Partnership owned a 33.3% interest sold Northtown Mall, its only investment property, to an affiliate of the lender. The sale resulted in net proceeds of approximately $1,200,000, after payment of closing costs, and the gain on the sale amounted to approximately $16,243,000. The Partnership's pro-rata share of this gain is included in "Equity in income of joint venture" in the accompanying statement of operations. As a result of the sale, mortgage debt in the amount of approximately $8,711,000 was forgiven and unamortized loan costs in the amount of approximately $1,327,000 were written off. This resulted in an extraordinary gain on extinguishment of debt of approximately $7,384,000 of which the Partnership's share was approximately $2,459,000. The Partnership's pro-rata share of this gain is included in "Equity in extraordinary gain on debt extinguishment". The economic closing of the sale of Northtown Mall is as of April 1, 1997, at which time the Joint Venture was released from the mortgage note of approximately $51,326,000. Included in operating expense for the year ended December 31, 1997, is approximately $169,000 of major repairs and maintenance comprised of parking lot seal-coating and repairs, exterior building improvements, and exterior painting. For the year ended December 31, 1996, approximately $57,000 of major repairs and maintenance, comprised of exterior building improvements and parking lot resurfacing, is included in operating expense. 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 expenses. 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. Capital Resources and Liquidity At December 31, 1997, the Partnership held cash and cash equivalents of approximately $1,081,000 compared to approximately $1,371,000 at December 31, 1996. The net decrease in cash for the years ended December 31, 1997, and 1996 was approximately $290,000 and $517,000, respectively. Net cash provided by operating activities increased due to an increase in net income and an increase in other liabilities due to the timing of payments. Net cash provided by investing activities increased due to collection on advances of approximately $1,067,000 in 1997, from the joint venture as a result of the distribution of the remaining cash after the sale of Northtown Mall, compared to advances made to the Joint Venture of approximately $721,000 in 1996. Partially offsetting the collection of cash from the joint venture was an increase in cash used for property improvements and replacements at Lake Forest Apartments. Net cash used in financing activities increased due to the distribution to the partners during the fourth quarter of 1997. The mortgage indebtedness secured by the Poplar Square Shopping Center was refinanced in November 1996. As a result of the refinance, the monthly payments to service this debt decreased causing a decrease in payments on the mortgage note payable. On October 31, 1996, the Partnership, through its 99% owned subsidiary (Poplar Square AIP III, L.P.), refinanced the mortgage debt secured by Poplar Square Shopping Center. The previous indebtedness matured in June 1996. The new mortgage, in the principal amount of $3,800,000, carries a stated interest rate of 9.2% and matures November 2006. The Partnership paid off debt and related accrued interest of approximately $3,435,000 at closing. The remainder of the proceeds from the refinance were used to pay closing costs, fund tax and insurance escrows and fund repair and replacement reserves. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $3,755,000, which is secured by the Poplar Square Shopping Center investment property, matures in November 2006. Future cash distributions will depend on the levels of net cash generated from operations, property sales and the availability of cash reserves. In November 1997, the General Partner declared and paid distributions of approximately $1,584,000 to the Limited Partners ($18.25 per Limited Partnership Unit) and approximately $16,000 to the General Partners attributable primarily to cash flow from the sale of Northtown Mall. During the year ended December 31, 1996, there were no distributions paid. Future distributions will depend on the levels of net cash generated from operations, refinancings, property sales, and the availability of cash reserves. Year 2000 The Partnership is dependent upon the Managing General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The Managing General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. Other Certain items discussed in this annual report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this annual report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 7. FINANCIAL STATEMENTS ANGELES INCOME PROPERTIES, LTD. III LIST OF FINANCIAL STATEMENTS Report of Ernst & Young, LLP, Independent Auditors Consolidated Balance Sheet - December 31, 1997 Consolidated Statements of Operations - Years ended December 31, 1997 and 1996 Consolidated Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Angeles Income Properties, Ltd. III We have audited the accompanying consolidated balance sheet of Angeles Income Properties, Ltd. III as of December 31, 1997, and the related consolidated statements of operations, changes in partners' (deficit) capital and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Angeles Income Properties, Ltd. III at December 31, 1997, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /S/ ERNST & YOUNG LLP Greenville, South Carolina February 25, 1998, except for Note J, as to which the date is March 17, 1998 ANGELES INCOME PROPERTIES, LTD. III CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 1997 Assets Cash and cash equivalents $ 1,081 Receivables and deposits (net of allowance for doubtful accounts of $26) 189 Other assets 319 Restricted escrows 234 Investment properties (Notes B and E): Land $ 1,527 Buildings and related personal property 12,963 14,490 Less accumulated depreciation (9,255) 5,235 $ 7,058 Liabilities and Partners' Capital Liabilities Accounts payable $ 23 Tenant security deposits 48 Accrued taxes 38 Other liabilities 306 Mortgage note payable (Notes B and E) 3,755 Partners' (Deficit) Capital General partners $ (347) Limited partners (86,778 units issued and outstanding) 3,235 2,888 $ 7,058 See Accompanying Notes to Consolidated Financial Statements ANGELES INCOME PROPERTIES, LTD. III CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
Years Ended December 31, 1997 1996 Revenues: Rental income $ 1,802 $ 1,675 Other income 86 97 Total revenues 1,888 1,772 Expenses: Operating 737 598 General and administrative 213 237 Depreciation 671 655 Interest 363 421 Property taxes 142 143 Total expenses 2,126 2,054 Loss before equity in income (loss) and extraordinary gain on debt extinguishment of joint venture (238) (282) Equity in income (loss) of joint venture (Note F) 4,517 (793) Income (loss) before equity in extraordinary gain on debt extinguishment of joint venture 4,279 (1,075) Equity in extraordinary gain on debt extinguishment (Note F) 2,459 -- Net income (loss) $ 6,738 $ (1,075) Income (loss) allocated to general partners (1%) $ 67 $ (11) Income (loss) allocated to limited partners (99%) 6,671 (1,064) Net income (loss) $ 6,738 $ (1,075) Net income (loss) per limited partnership unit $ 76.87 $ (12.26) See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. III CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 86,920 $ 1 $ 43,460 $ 43,461 Partners' deficit at December 31, 1995 86,818 (387) (788) (1,175) Net loss for the year ended December 31, 1996 -- (11) (1,064) (1,075) Abandonment of partnership units (Note H) (40) -- -- -- Partners' deficit at December 31, 1996 86,778 (398) (1,852) (2,250) Net income for the year ended December 31, 1997 -- 67 6,671 6,738 Distributions to partners -- (16) (1,584) (1,600) Partners' (deficit) capital at December 31, 1997 86,778 $ (347)$ 3,235 $ 2,888 See Accompanying Notes to Consolidated Financial Statements ANGELES INCOME PROPERTIES, LTD. III CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1997 1996 Cash flows from operating activities: Net income (loss) $ 6,738 $ (1,075) Adjustments to reconcile net income (loss) to net cash provided by operating activities Equity in (income) loss of joint venture (4,517) 793 Equity in extraordinary gain on debt extinguishment of joint venture (2,459) -- Depreciation 671 655 Amortization of loan costs and leasing commissions 40 79 Change in accounts: Receivables and deposits 19 7 Other assets (56) (75) Accounts payable (4) 16 Tenant security deposit liabilities -- 1 Property taxes (3) (3) Other liabilities 211 (7) Net cash provided by operating activities 640 391 Cash flows from investing activities: Property improvements and replacements (328) (169) Advances to joint venture -- (721) Collection on advances from joint venture 1,067 -- Net deposits to restricted escrows (27) (207) Net cash provided by (used in) investing activities 712 (1,097) Cash flows from financing activities: Payments on mortgage note payable (42) (48) Loan costs paid -- (161) Repayment of mortgage note payable -- (3,402) Proceeds from new loan -- 3,800 Distributions to partners (1,600) -- Net cash (used in) provided by financing activities (1,642) 189 Net decrease in cash and cash equivalents (290) (517) Cash and cash equivalents at beginning of year 1,371 1,888 Cash and cash equivalents at end of year $ 1,081 $ 1,371 Supplemental disclosure of cash flow information: Cash paid for interest $ 348 $ 377 See Accompanying Notes to Consolidated Financial Statements
Angeles Income Properties, Ltd. III Notes to Consolidated Financial Statements December 31, 1997 NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization: Angeles Income Properties, Ltd. III (the "Partnership" or "Registrant") is a California limited partnership organized in May 1983 to acquire and operate residential and commercial real estate properties. The Partnership's managing general partner is Angeles Realty Corporation II ("ARC II" or the "Managing General Partner"), an affiliate of Insignia Financial Group, Inc. ("Insignia") and a wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the Managing General Partner is now a wholly-owned subsidiary of IPT. As of December 31, 1997, the Partnership operates one residential and one commercial property located in or near major urban areas in the United States. Principles of Consolidation: The consolidated financial statements of the Partnership include its 99% limited partnership interests in Poplar Square AIP III, L.P. and Poplar Square GP LP. The Partnership may remove the General Partner of both Poplar Square AIP III, L.P. and Poplar Square GP LP; therefore, the partnerships are controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Allocations and Distributions to Partners: In accordance with the Agreement, any gain from the sale or other disposition of Partnership assets will be allocated first to the Managing General Partner to the extent of the amount of any Incentive Interest (as defined below) to which the Managing General Partner is entitled. Any gain remaining after said allocation will be allocated to the General Partners and Limited Partners in proportion to their interests in the Partnership; provided that the gain shall first be allocated to Partners with negative account balances, in proportion to such balances, in an amount equal to the sum of such negative capital account balances. The Partnership will allocate other profits and losses .5% to the Managing General Partner, .5% to the Non-Managing General Partners, and 99% to the Limited Partners. Except as discussed below, the Partnership will allocate distributions 1% to the General Partners and 99% to the Limited Partners. Upon the sale or other disposition, or refinancing of any asset of the Partnership, the Distributable Net Proceeds shall be distributed as follows: (i) First, to the Partners in proportion to their interest until the Limited Partners have received proceeds equal to their Original Capital Investment applicable to the property; (ii) Second, to the Partners until Limited Partners have received distributions from all sources equal to their 6% Cumulative Distribution, (iii) Third, to the Managing General Partner until it has received its Brokerage Compensation; (iv) Fourth, to the Partners in proportion to their interests until the Limited Partners have received distributions from all sources equal to their additional 2% Cumulative Distribution; and (v) Thereafter, 85% to the Partners in proportion to their interests and 15% ("Incentive Interest") to the Managing General Partner. Depreciation: Depreciation is computed utilizing the straight-line method over the estimated lives of the investment properties and related personal property. For Federal income tax purposes, depreciation is computed by using the straight- line method over an estimated life of 5 to 20 years for personal property and 15 to 40 years for real property. Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and in banks, money market funds, and certificates of deposit with original maturities of less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Investment Properties: Investment properties are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the years ended December 31, 1997 or 1996. Loan Costs: Loan costs of approximately $157,000 are included in other assets in the accompanying balance sheet and are being amortized on a straight-line basis over the life of the loan. At December 31, 1997, accumulated amortization is approximately $20,000. Lease Commissions: Lease commissions are included in other assets and are being amortized using the straight-line method over the term of the respective leases. Fair Value: The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying balance. Leases: The Partnership generally leases apartment units for twelve-month terms or less. Commercial building lease terms are generally for terms of 3 to 10 years. Several tenants have percentage rent clauses which provide for additional rent upon the tenant achieving certain objectives. Percentage rent recognized was approximately $3,000 and $2,000 in 1997 and 1996, respectively. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain reclassifications have been made to the 1996 balances to conform to the 1997 presentation. NOTE B - MORTGAGE NOTE PAYABLE (in thousands) The principle terms of the mortgage note payable are as follows: Monthly Principal Principal Payment Stated Balance Balance At Including Interest Maturity Due At December 31, Property Interest Rate Date Maturity 1997 Poplar Square Shopping Center First mortgage $ 32 9.2% 11/01/06 $ 3,167 $ 3,755 On October 31, 1996, the Partnership, through its 99% owned subsidiary (Poplar Square AIP III, L.P.), refinanced the mortgage debt secured by Poplar Square Shopping Center. The previous indebtedness had matured in June 1996. The Partnership paid off the previous mortgage debt and related accrued interest of approximately $3,435,000 at closing. The remainder of the proceeds from the refinance were used to pay closing costs, fund tax and insurance escrows and fund repair and replacement reserves. Scheduled principal payments of the mortgage note payable subsequent to December 31, 1997, are as follows (in thousands): 1998 $ 45 1999 50 2000 54 2001 60 2002 65 Thereafter 3,481 $ 3,755 The mortgage note payable is non-recourse and is secured by pledge of the Partnership's investment property and by pledge of revenues from the investment property. NOTE C - INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income (loss) and Federal taxable income (loss): 1997 1996 (in thousands) Net income (loss) as reported $ 6,738 $ (1,075) Add (deduct): Depreciation differences 36 31 Joint venture differences (1,243) 202 Other 28 (54) Federal taxable income (loss) $ 5,559 $ (896) Federal taxable income (loss) per limited partnership unit $ 60.86 $ (10.23) The following is a reconciliation between the Partnership's reported amount and Federal tax basis of net assets and liabilities: Net assets as reported $ 2,888 Land and buildings 1,912 Accumulated depreciation (362) Syndication and distribution costs 5,807 Other 811 Net assets - Federal tax basis $11,056 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 as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates in 1997 and in 1996: 1997 1996 (in thousands) Property management fees (included in $ 70 $ 64 operating expenses) Reimbursement for services of affiliates including approximately $27,000 of construction services reimbursements for the year ended December 31, 1997 (included in operating and general and administrative expenses, investment property, and other assets) 197 225 Included in "Reimbursement for services of affiliates" for the years ended December 31, 1997 and 1996, is approximately $35,000 and $4,000, respectively, in leasing commissions paid to an affiliate of the Managing General Partner. Included in "Reimbursement for services of affiliates" in 1996 is a $38,000 brokerage commission paid relating to the refinance of the mortgage secured by Poplar Square Shopping Center, which was capitalized as a loan cost. For the period from January 1, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION Initial Cost To Partnership (in thousands) Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Description Encumbrance Land Property Acquisition Poplar Square Shopping Center $ 3,755 $ 957 $ 10,302 $ (1,510) Lake Forest Apts. -- 657 3,160 924 Totals $ 3,755 $ 1,614 $ 13,462 $ (586)
Gross Amount At Which Carried At December 31, 1997 (in thousands) Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years Poplar Square Shopping Center $ 870 $ 8,879 $ 9,749 $ 6,658 05/15/85 5-20 Lake Forest Apartments 657 4,084 4,741 2,597 06/27/84 5-40 Totals $ 1,527 $ 12,963 $ 14,490 $ 9,255
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 3 to 10 years. Reconciliation of "Investment Properties and Accumulated Depreciation": Years Ended December 31, 1997 1996 (in thousands) Investment Properties Balance at beginning of year $ 14,162 $ 13,993 Property improvements and replacements 328 169 Balance at end of year $ 14,490 $ 14,162 Accumulated Depreciation Balance at beginning of year $ 8,584 $ 7,929 Additions charged to expense 671 655 Balance at end of year $ 9,255 $ 8,584 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1997 and 1996, is $16,402,000 and $16,075,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 and 1996, is $9,617,000 and $8,982,000. NOTE F - INVESTMENT IN JOINT VENTURE The Partnership had a 33.3% investment in Northtown Mall Partners ("Northtown"). On May 12, 1997, Northtown sold its only investment property, Northtown Mall, to an affiliate of the lender. The sale resulted in net proceeds of approximately $1,200,000, after payment of closing costs, and the gain on the sale amounted to approximately $16,243,000. The Partnership's pro-rata share of this gain is included in "Equity in income of joint venture" in the accompanying statement of operations. As a result of the sale, mortgage debt in the amount of approximately $8,711,000 was forgiven and unamortized loan costs in the amount of approximately $1,327,000 were written off. This resulted in an extraordinary gain on extinguishment of debt of approximately $7,384,000. The Partnership's pro-rata share of this gain is included in "Equity in extraordinary gain on debt extinguishment" in the accompanying statement of operations. The economic closing of the sale of Northtown Mall is as of April 1, 1997, at which time the Partnership was released from the mortgage note of approximately $51,326,000. Northtown was liquidated in December, 1997. The condensed profit and loss statements for Northtown are as follows: Northtown 1997 1996 Revenues $ 2,738 $ 10,765 Costs and expenses (3,529) (13,136) Loss before gain on sale of investment property and extraordinary gain on extinguishment of debt (791) (2,371) Gain on sale of investment property 16,243 -- Extraordinary gain on extinguishment of debt 7,384 -- Net income (loss) $ 22,836 $ (2,371) The Partnership realized equity income from Northtown of approximately $4,517,000 and equity in extraordinary gain on debt extinguishment of approximately $2,459,000 for the year ended December 31, 1997. The Partnership realized equity loss of approximately $793,000 for the year ended December 31, 1996. NOTE G - OPERATING LEASES Tenants of the commercial property are responsible for their own utilities and maintenance of their space, and payment of their proportionate share of common area maintenance, utilities, insurance and real estate taxes. Tenants may be required to pay a security deposit. Bad debt expense has been within the Managing General Partner's expectations. As of December 31, 1997, the Partnership had minimum future rentals under noncancellable leases with tenants with initial or remaining terms in excess of one year as follows (in thousands): 1998 $ 822 1999 788 2000 582 2001 323 2002 130 Thereafter 6 $ 2,651 NOTE H - ABANDONMENT OF LIMITED PARTNERSHIP UNITS In 1996, the number of Limited Partnership Units decreased by 40 units due to limited partners abandoning their units. In abandoning his or her Limited Partnership Units, a limited partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. However, during the year of abandonment, the limited partner is still allocated his or her share of net income or loss for that year. The income or loss per Limited Partnership Unit in the accompanying Statements of Operations is calculated based on the number of units outstanding at the beginning of the year. NOTE I - DISTRIBUTIONS In November 1997, the Managing General Partner declared and paid distributions to the Limited Partners of approximately $1,584,000 ($18.25 per Limited Partnership Unit) and $16,000 to the General Partners, primarily attributable to cash flow from the sale of Northtown Mall. NOTE J - SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the Managing General Partner of the Partnership. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with Ernst & Young LLP regarding the 1997 or 1996 audits of the Partnership's financial statements. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Angeles Realty Corporation II ("ARC II" or the "Managing General Partner"), is a wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia Financial Group, Inc. ("Insignia"). Thus the Managing General Partner is now a wholly-owned subsidiary of IPT. The names of the directors and executive officers of ARC II, their ages and the nature of all positions with ARC II presently held are as follows: Name Age Position Carroll D. Vinson 57 President and Director Robert D. Long, Jr. 30 Vice President and Chief Accounting Officer William H. Jarrard, Jr. 51 Vice President Daniel M. LeBey 32 Secretary Kelley M. Buechler 40 Assistant Secretary Carroll D. Vinson has been President and Director of the Managing General Partner and President of Metropolitan Asset Enhancement, L.P.("MAE") and subsidiaries since August 1994. He has acted as Chief Operating Officer of IPT, since May 1997. During 1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and engaged in various other investment and consulting activities which included portfolio acquisitions, asset dispositions, debt restructurings and financial reporting. Briefly, in early 1993, Mr. Vinson served as President and Chief Executive Officer of Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia in various capacities including Managing Director - President during 1991. Robert D. Long, Jr. has been Vice President of the Managing General Partner since August 1994. Mr. Long joined MAE, an affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice President and Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was an auditor for the State of Tennessee and was associated with the accounting firm of Harsman Lewis and Associates. William H. Jarrard, Jr. has been Vice President of the Managing General Partner since December 1992. He has acted as Senior Vice President of IPT since May 1997. Mr. Jarrard previously acted as Managing Director - Partnership Administration of Insignia from January 1991 through September 1997 and served as Managing Director - Partnership Administration and Asset Management of Insignia from July 1994 until January 1996. Daniel M. LeBey has been Secretary of the Managing General Partner since January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has also served as Insignia's Associate General Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP, Atlanta, Georgia. Kelley M. Buechler has been Assistant Secretary of the Managing General Partner since December 1992 and Assistant Secretary of Insignia since 1991. ITEM 10. EXECUTIVE COMPENSATION No direct form of compensation or remuneration was paid by the Partnership to any officer or director of ARC II. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. However, certain fees and other payments have been made to the Partnership's Managing General Partner and its affiliates, as described in "Item 12. Certain Relationships and Related Transactions" below. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, no person owned of record more than 5% of Limited Partnership Units of the Partnership nor was any person known by the Partnership to own of record and beneficially, or beneficially only, more than 5% of such securities. The Partnership knows of no contractual arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership, except for: Article 12.1 of the Agreement, which provides that upon a vote of the Limited Partners holding more than 50% of the then outstanding Limited Partnership Units the General Partners may be expelled from the Partnership upon 90 days written notice. In the event that successor general partners have been elected by Limited Partners holding more than 50% of the then outstanding Limited Partnership Units and if said Limited Partners elect to continue the business of the Partnership, the Partnership is required to pay in cash to the expelled General Partners an amount equal to the accrued and unpaid management fee described in Article 10 of the Agreement and to purchase the General Partners' interest in the Partnership on the effective date of the expulsion, which shall be an amount equal to the difference between (i) the balance of the General Partners' capital account and (ii) the fair market value of the share of Distributable Net Proceeds to which the General Partners would be entitled. Such determination of the fair market value of the share of Distributable Net Proceeds is defined in Article 12.2(b) of the Agreement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No transactions have occurred between the Partnership and any officer or director of ARC II. 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 as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates in 1997 and in 1996: 1997 1996 (in thousands) Property management fees $ 70 $ 64 Reimbursement for services of affiliates including approximately $27,000 of construction services reimbursements for the year ended December 31, 1997 197 225 Included in "Reimbursement for services of affiliates" for the years ended December 31, 1997 and 1996, is approximately $35,000 and $4,000, respectively, in leasing commissions paid to an affiliate of the Managing General Partner. Included in "Reimbursement for services of affiliates" in 1996 is a $38,000 brokerage commission paid relating to the refinance of the mortgage secured by Poplar Square Shopping Center, which was capitalized as a loan cost. For the period from January 1, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the Managing General Partner of the Partnership. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-B: Refer to Exhibit Index. (b) Reports on Form 8-K: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES INCOME PROPERTIES, LTD. III A California Limited Partnership) (Registrant) By: Angeles Realty Corporation II By: /s/ Carroll D. Vinson Carroll D. Vinson President Date: March 24, 1998 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated. /s/ Carroll D. Vinson President, Director Date: March 24, 1998 Carroll D. Vinson /s/ Robert D. Long, Jr. Vice President and Date: March 24, 1998 Robert D. Long, Jr. Chief Accounting Officer ANGELES INCOME PROPERTIES, LTD. III EXHIBIT INDEX Exhibit Number Description of Exhibit 3.1 Amended Certificate and Agreement of the Limited Partnership file in Form S-11 dated June 2, 1983, which is incorporated herein by reference. 10.1 Agreement of Purchase and Sale of Real Property with Exhibits - Lake Forest Apartments file in Form 8-K dated June 28, 1984, which is incorporated herein by reference. 10.3 Agreement of Purchase and Sale of Real Property with Exhibits - Poplar Square Shopping Center filed in Form 8-K dated May 15, 1985, which is incorporated herein by reference. 10.4 Agreement of Purchase and Sale of Real Property with Exhibits - Northtown Mall filed in Form 8-K dated July 15, 1985, which is incorporated herein by reference. 10.5 General Partnership Agreement of Northtown Partners filed in Form 10-K dated October 31, 1986, which is incorporated herein by reference. 10.6 Agreement of Purchase and Sale of Real Property with Exhibits - Burlington Mall Partners filed in Form 8-K dated December 19, 1985, which is incorporated herein by reference. 10.7 Agreement of Purchase and Sale of Real Property Exhibits - Moraine-West Carrollton Partners file in Form 8-K dated December 20, 1985, which is incorporated herein by reference. 10.9 Promissory Note - Burlington Outlet Mall filed in Form 10-K dated December 31, 1989, which is incorporated herein by reference. 10.10 Agreement of Purchase and Sale of Real Property - Lake Highlander Mobile Home Park filed in Form 8-k dated January 10, 1991, which is incorporated herein by reference. 10.11 Promissory Note - Northtown Mall filed Form 10-K dated December 31, 1990, which is incorporated herein by reference. 10.12 Stock Purchase Agreement dated November 24, 1992 showing the purchase of 100% of the outstanding stock of Angeles Realty Corporation II by IAP GP Corporation, a subsidiary of MAE GP Corporation, filed in Form 8-K dated December 31, 1992, which is incorporated herein by reference. 10.13 Agreement of Purchase and Sale of Real Property - Moraine West Carrollton Partners filed in Form 8-K dated July 21, 1994, which was incorporated herein by reference. 10.14 Foreclosure of Burlington Outlet Mall by lender in the Burlington Outlet Mall Joint Venture. 10.15 Promissory Note - dated October 31, 1996, between Poplar Square AIP III, L.P., and Union Capital Investments, LLL. 16.1 Letter from Registrant's former accountant regarding its concurrence with the statements made by the Registrant is incorporated by reference to the Exhibit filed with Form 8-K dated September 1, 1993. 27 Financial Data Schedule. EX-27 2
5 This schedule contains summary financial information extracted from Angeles Income Properties,Ltd. III 1997 Year-End 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000720460 ANGELES INCOME PROPERTIES, LTD. III 1,000 12-MOS DEC-31-1997 DEC-31-1997 1,081 0 0 0 0 0 14,490 9,255 7,058 0 3,755 0 0 0 2,888 7,058 0 1,888 0 0 2,126 0 363 0 0 4,279 0 2,459 0 6,738 76.87 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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