-----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, WmZjVG+ggPFhMTrcyKamhBZty1DkS9OfkEURbwkCVowSbAM+qgCNCakzGawfbp4Z hy5lNMXAGGndUqny6eME5Q== 0000720460-99-000013.txt : 19990805 0000720460-99-000013.hdr.sgml : 19990805 ACCESSION NUMBER: 0000720460-99-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANGELES PARTNERS XIV CENTRAL INDEX KEY: 0000759859 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953959771 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14284 FILM NUMBER: 99677912 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________to_________ Commission file number 0-14248 ANGELES PARTNERS XIV (Exact name of small business issuer as specified in its charter) California 95-3959771 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 55 Beattie Place, P. O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES PARTNERS XIV CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 1,132 Receivables and deposits 530 Restricted escrows 320 Other assets 373 Investment properties: Land $ 2,243 Buildings and related personal property 24,866 27,109 Less accumulated depreciation (17,882) 9,227 $ 11,582 Liabilities and Partners' Deficit Liabilities Accounts payable $ 23 Tenant security deposit liabilities 95 Accrued property taxes 431 Accrued interest 5,951 Due to affiliates 1,398 Other liabilities 101 Notes payable, including $4,576 in default 30,145 Partners' Deficit General partners $ (649) Limited partners (43,589 units issued and outstanding) (25,913) (26,562) $ 11,582 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 1,176 $ 1,295 $ 2,319 $ 2,621 Other income 38 40 80 75 Write-up of investment property -- 44 -- 44 Total revenues 1,214 1,379 2,399 2,740 Expenses: Operating 420 513 839 1,003 General and administrative 60 66 122 119 Depreciation 316 313 632 621 Interest 810 991 1,601 2,101 Property taxes 94 99 196 213 Bad debt recovery, net -- (7) -- (7) Loss on sale of investment property -- 177 -- 177 Total expenses 1,700 2,152 3,390 4,227 Net loss before extraordinary item (486) (773) (991) (1,487) Extraordinary gain on extinguishment of debt -- 5,735 -- 7,979 Net (loss) income $ (486) $ 4,962 $ (991) $ 6,492 Net (loss) income allocated to general partners (1%) $ (5) $ 50 $ (10) $ 65 Net (loss) income allocated to limited partners (99%) (481) 4,912 (981) 6,427 $ (486) $ 4,962 $ (991) $ 6,492 Per limited partnership unit: Net loss before extraordinary item $(11.04) $(17.43) $(22.51) $(33.54) Extraordinary gain on extinguishment of debt -- 129.35 -- 179.98 Net (loss) income $(11.04) $111.92 $(22.51) $146.44 See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 44,390 $ 1 $ 44,390 $ 44,391 Partners' deficit at December 31, 1998 43,589 $ (639) $(24,932) $(25,571) Net loss for the six months ended June 30, 1999 -- (10) (981) (991) Partners' deficit at June 30, 1999 43,589 $ (649) $(25,913) $(26,562) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net (loss) income $ (991) $ 6,492 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Write-up of investment property -- (44) Loss on sale of investment property -- 177 Extraordinary gain on extinguishment of debt -- (7,979) Depreciation 632 621 Amortization of discounts, loan costs, and leasing commissions 16 49 Bad debt recovery, net -- (7) Change in accounts: Receivables and deposits (148) (148) Other assets (29) 69 Accounts payable (22) -- Tenant security deposit liabilities 7 (5) Accrued property taxes 116 51 Accrued interest 844 1,259 Due to affiliates 56 71 Other liabilities 16 (4) Net cash provided by operating activities 497 602 Cash flows from investing activities: Property improvements and replacements (142) (263) Net receipts from restricted escrows 34 98 Proceeds from sale of investment property, net -- 1,847 Net cash (used in) provided by investing activities (108) 1,682 Cash flows from financing activities: Principal payments on notes payable (140) (308) Additions to notes payable -- 32 Repayment of notes payable -- (1,822) Net cash used in financing activities (140) (2,098) Net increase in cash and cash equivalents 249 186 Cash and cash equivalents at beginning of period 883 649 Cash and cash equivalents at end of period $ 1,132 $ 835 Supplemental disclosure of cash flow information: Cash paid for interest $ 715 $ 765 Supplemental disclosure of non-cash investing and financing activities: Interest on notes transferred to notes payable $ -- $ 350 See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) (in thousands) Supplemental disclosure of non-cash activities Foreclosures In January and April of 1998, Building 53 and Building 59, respectively, of the Dayton Industrial Complex were foreclosed upon by the lender. In June 1998, Building 41 of the Dayton Industrial Complex was sold to an independent third party. In connection with these non-cash transactions, the following accounts were adjusted: Building 53 Building 59 Building 41 Receivables and deposits $ (35) $ -- $ -- Other assets (9) -- -- Investment properties (660) (706) -- Property tax payable 64 26 -- Tenant security deposit liabilities 12 -- -- Accrued interest 175 688 23 Mortgage notes payable 2,697 3,599 2,105 See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - GOING CONCERN The accompanying financial statements have been prepared assuming Angeles Partners XIV (the "Partnership" or "Registrant") will continue as a going concern. The Partnership continues to incur recurring operating losses and suffers from inadequate liquidity. Recourse indebtedness of approximately $4,576,000, plus accrued interest of approximately $2,977,000 is in default at June 30, 1999, as a result of nonpayment of interest and principal upon maturity in November, 1997. The Partnership has unsecured working capital loans to Angeles Acceptance Pool, L.P. ("AAP") in the amount of approximately $4,576,000 plus related accrued interest of approximately $2,977,000 that is in default due to non-payment upon maturity in November 1997. This indebtedness is recourse to the Partnership. The Partnership does not have the means with which to satisfy this obligation. The Managing General Partner does not plan to enter into negotiations with AAP on this indebtedness at this time. The Managing General Partner believes that it is doubtful that AAP will initiate collection proceedings on this indebtedness since the estimated value of the Partnership's investment properties and other assets are significantly less than the existing first mortgages and other secured Partnership indebtedness. If AAP initiates proceedings, then the Managing General Partner will enter into negotiations to restructure this indebtedness. The Partnership realized a net loss of approximately $991,000 for the six months ended June 30, 1999. Angeles Realty Corporation II, (the "Managing General Partner" or "ARC II") expects the Partnership to continue to incur such losses from operations. The Partnership generated cash from operations of approximately $497,000 during the six months ended June 30, 1999; however, this was primarily the result of accruing interest of approximately $844,000 on its indebtedness and, to a lesser extent, $56,000 for services provided by affiliates. The Partnership has two notes to Angeles Mortgage Investment Trust ("AMIT"), an affiliate of the Managing General Partner, which are recourse to the Partnership, in the aggregate amount of approximately $2,838,000 plus related accrued interest that originally matured in March 1998. The Managing General Partner negotiated with AMIT to extend this indebtedness and in the second quarter of 1998, executed an extension through March 2002. These notes require monthly payments of excess cash flow, as defined in the terms of the promissory notes. No other sources of additional financing have been identified by the Partnership, nor does the Managing General Partner have any other plans to remedy the liquidity problems the Partnership is currently experiencing. The Managing General Partner anticipates that Fox Crest Apartments and Waterford Square Apartments will generate sufficient cash flows for the next twelve months to meet all property operating expenses, property debt service requirements and to fund capital expenditures. However, these cash flows will be insufficient to provide debt service for the unsecured Partnership indebtedness. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. NOTE B - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Managing General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the fiscal year ended December 31, 1998. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership and its 99% limited partnership interest in Waterford Square Apartments, Ltd. The Partnership may remove the general partner in Waterford Square Apartments, Ltd.; therefore, this partnership is controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. NOTE C - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust ("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 ultimately acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. 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's partnership agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Managing General Partner and affiliates during each of the six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 133 $ 132 Reimbursement for services of affiliates (included in investment property, operating, and general and administrative expenses) 56 76 Due to affiliate 1,398 1,271 Included in "Reimbursement for services of affiliates" for the six months ended June 30, 1998 is approximately $5,000 in construction oversight costs. No such costs were incurred for the six months ended June 30, 1999. During the six months ended June 30, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates $133,000 and $132,000 for the six months ended June 30, 1999 and 1998, respectively. Property management services for the Dayton Industrial Complex were performed by an unaffiliated third party for the six months ended June 30, 1998. In January 1998 and April 1998, Building 53 and Building 59 of the Dayton Industrial Complex were foreclosed upon, respectively. In June 1998, Building 41 was sold. As of June 30, 1998, the Partnership still owned Building 55 in this complex, which was subsequently sold in December 1998. Affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $56,000 and $76,000 for the six months ended June 30, 1999 and 1998, respectively. In November 1992, AAP, a Delaware limited partnership which now controls the working capital loans previously provided by Angeles Capital Investment, Inc. ("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which is wholly- owned by IPT, was, until April 14, 1995, the 1% general partner of AAP. On April 14, 1995, as part of a settlement of claims between affiliates of the General Partner and Angeles, AAD resigned as general partner of AAP and simultaneously received a .5% limited partner interest in AAP. An affiliate of Angeles now serves as the general partner of AAP. The AAP working capital loans funded the Partnership's operating deficits in prior years. Total indebtedness was approximately $4,576,000, plus accrued interest, at June 30, 1999, with monthly interest accruing at prime plus two percent. Upon maturity on November 25, 1997, the Partnership did not have the means with which to satisfy this maturing debt obligation. Total interest expense for this loan was approximately $215,000 and $240,000 for six months ended June 30, 1999 and 1998, respectively. Accrued interest payable was approximately $2,977,000 at June 30, 1999. As discussed in "Note A", AMIT provides financing (the "AMIT Loans") to the Partnership. The principal balances on the AMIT Loans totals approximately $7,603,000 at June 30, 1999, accrues interest at rates of 12% to 12.5% per annum and are recourse to the Partnership. Two of the three notes totaling $2,838,000 originally matured in March 1998. The Managing General Partner negotiated with AMIT to extend this indebtedness and in the second quarter of 1998, executed an extension through March 2002. The remaining note with a principal balance of approximately $4,765,000 matures in March 2003. Total interest expense on the AMIT Loans was approximately $629,000 and $555,000 for the six months ended June 30, 1999 and 1998, respectively. Accrued interest was approximately $2,854,000 at June 30, 1999. 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. Thus, AIMCO is the current holder of the AMIT loans. On June 11, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced a tender offer to purchase up to 19,548.45 (44.85% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $0.46 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,268 units. As a result, AIMCO and its affiliates currently own 3,268 units of limited partnership interest in the Partnership representing 7.50% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. NOTE E - SALE OF INVESTMENT PROPERTY The Partnership sold Building 41 of the Dayton Industrial Complex on June 12, 1998, to an unaffiliated party for net sales proceeds of approximately $1,847,000. The Partnership realized a loss of approximately $177,000 on the sale and a related $2,128,000 extraordinary gain on the early extinguishment of debt during the second quarter of 1998. The extraordinary gain was the result of forgiveness of debt. NOTE F - INVESTMENT PROPERTY FORECLOSURES In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton Industrial Complex were foreclosed on. As a result of the foreclosures, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $2,244,000 and $3,607,000 for Buildings 53 and 59, respectively. Also in conjunction with the foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the building from its carrying value to its estimated fair value in the second quarter of 1998. NOTE G - SEGMENT REPORTING Description of the types of products and services from which reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of two apartment complexes located in Waukegan, Illinois and Huntsville, Alabama. The Partnership rents apartment units to tenants for terms that are typically less than twelve months. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those described in the summary of significant accounting policies in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the six months ended June 30, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes partnership administration related items and other income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 2,319 $ -- $ 2,319 Other income 74 6 80 Interest expense 753 848 1,601 Depreciation 632 -- 632 General and administrative expense -- 122 122 Segment loss (27) (964) (991) Total assets 11,236 346 11,582 Capital expenditures for investment properties 142 -- 142 1998 Residential Other Total Rental income $ 2,297 $ 324 $ 2,621 Other income 67 8 75 Write-up of investment property -- 44 44 Interest expense 764 1,337 2,101 Depreciation 621 -- 621 General and administrative expense -- 119 119 Loss on sale of investment property -- 177 177 Extraordinary gain on extinguishment of debt -- 7,979 7,979 Segment (loss) profit (130) 6,622 6,492 Total assets 11,527 2,172 13,699 Capital expenditures for investment properties 263 -- 263 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 complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc., ("Insignia") and entities which were, at the 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 as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks 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 filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1999 and 1998. Property 1999 1998 Waterford Square Apartments Huntsville, Alabama 95% 94% Fox Crest Apartments Waukegan, Illinois 96% 96% Results of Operations The Partnership's net loss for the six months ended June 30, 1999 was approximately $991,000 compared to net income of approximately $6,492,000 for the corresponding period in 1998. The Partnership recorded a net loss of approximately $486,000 for the three months ended June 30, 1999 compared to net income of approximately $4,962,000 for the corresponding period in 1998. The decrease in net income for the three and six month periods ended June 30, 1999 was primarily due to the foreclosure of Buildings 53 and 59 in January and April of 1998, respectively, and the sale of Building 41 of the Dayton Industrial Complex in June 1998. As a result of the foreclosures and sale, the Partnership realized an extraordinary gain on extinguishment of debt of approximately $5,735,000 and $7,979,000 for the three and six months ended June 30, 1998, respectively. The Partnership also recorded a $44,000 write-up of Building 59 from its carrying value to its estimated fair value during the six months ended June 30, 1998. In addition, a loss of $177,000 on the sale of Building 41 was also realized during the six months ended June 30, 1998. Historically, the Dayton Industrial Complex had not been able to retain tenants and had never generated any operating cash. In October 1996, the Partnership had determined that, based on economic conditions at the time as well as projected future operational cash flows, the decline in value of the property was other than temporary and recovery of the carrying value was not likely. Accordingly, the Dayton Industrial Complex's carrying value was reduced to an amount equal to its estimated fair value. The Partnership ceased making debt service payments on Buildings 53 and 59 in 1996 and the buildings were placed in receivership in 1997. In the opinion of the Managing General Partner, it was not in the Partnership's best interest to contest the foreclosure actions. In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton Industrial complex were foreclosed upon. As a result of the foreclosures, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $2,244,000 and $3,607,000 for Buildings 53 and 59, respectively. Also, in connection with the foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the building from its carrying value to its estimated fair value during the second quarter of 1998. Prior to the foreclosure of Building 53, the outstanding debt on the property was a first mortgage in the amount of approximately $1,043,000 and a second mortgage in the amount of approximately $1,669,000. Related accrued interest amounted to approximately $175,000. Prior to the foreclosure of Building 59, the outstanding debt on the property was a first mortgage in the amount of approximately $2,895,000 and a second mortgage in the amount of approximately $704,000. Related accrued interest amounted to approximately $688,000. The Partnership sold Building 41 of the Dayton Industrial Complex on June 12, 1998, to an unaffiliated party for net sales proceeds of approximately $1,847,000. The Partnership realized a loss of approximately $177,000 on the sale and a related $2,128,000 extraordinary gain on the early extinguishment of debt during the second quarter of 1998. The extraordinary gain was the result of forgiveness of debt. Prior to the sale of Building 41, the outstanding debt on the property was a first mortgage in the amount of approximately $1,104,000 and a second mortgage in the amount of approximately $2,823,000. Related accrued interest amounted to approximately $23,000. Net proceeds of $1,822,000 were used to pay down this non-recourse indebtedness and the remaining balances were forgiven. In December 1998, Building 55, the remaining building of the Dayton Industrial Complex was sold to an unaffiliated third party. Excluding the impact of the foreclosures of Building 53 and 59 and the sale of Building 41 along with the 1998 six months results of the remaining Building 55 of the Dayton Industrial Complex, net loss for the Partnership decreased approximately $46,000 for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998 primarily due to an increase in total revenues and a decrease in total expenses. Total revenues increased approximately $29,000 primarily due to an increase in average occupancy at Waterford Square Apartments and an increase in average annual rental rates at both investment properties. The decrease of approximately $17,000 in total expenses is primarily the result of reductions in operating expense, partially offset by an increase in interest expense. Operating expense declined primarily due to the completion in 1998 of painting projects and exterior building improvements at both investment properties and gutter repairs at Fox Crest Apartments. Also, insurance expense decreased at both investment properties due to a change in insurance carriers. Interest expense increased due to interest accruing on the defaulted AAP and AMIT notes. Debt balances on the AAP debt have increased as unpaid interest is added to the principal. Included in general and administrative expenses at both June 30, 1999 and 1998 are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the Managing General Partner continues to monitor 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 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 June 30, 1999, the Registrant had cash and cash equivalents of approximately $1,132,000 as compared to approximately $835,000 at June 30, 1998. Cash and cash equivalents increased approximately $249,000 for the period ended June 30, 1999 from the Registrant's fiscal year end and is primarily due to approximately $497,000 of cash provided by operating activities, which is partially offset by approximately $108,000 of cash used in investing activities and approximately $140,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements, partially offset by net receipts from restricted escrows. Cash used in financing activities consisted of payments of principal on the mortgages encumbering the Registrant's properties. The Registrant invests its working capital reserves in a money market account. The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. The Partnership continues to incur recurring operating losses and suffers from inadequate liquidity. Recourse indebtedness of approximately $4,576,000 is in default at June 30, 1999, as a result of nonpayment of interest and principal upon its maturity in November 1997. With respect to the Partnership's two apartment complexes, 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 both of the Registrant's properties are detailed below. Waterford Square Apartments: The Partnership made approximately $77,000 in capital improvements at Waterford Square Apartments for the six months ended June 30, 1999. This consisted primarily of flooring replacement, new appliances and cabinet replacements. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $517,000 of capital improvements over the next few years. The budgeted amount for the year ended December 31, 1999 is approximately $601,000 which include certain of the required improvements and consist of, but is not limited to, structural improvements, roof and flooring replacements, painting, landscaping, swimming pool repairs and appliance replacements. Fox Crest Apartments: The Partnership made approximately $65,000 in capital improvements at Fox Crest Apartments for the six months ended June 30, 1999. This consisted primarily of flooring replacements, new appliances and improvements to its recreational facility. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $515,000 of capital improvements over the next few years. The budgeted amount for the year ended December 31, 1999 is approximately $555,000 which include certain of the required improvements and consist of, but is not limited to, interior and exterior building improvements. The additional capital improvements planned for 1999 at the Partnership's properties will be made only to the extent of cash available from operations and 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. With respect to the Partnership as a whole, the sufficiency of existing liquid assets to meet future debt requirements is directly related to the level of recourse and non-recourse debt at the Partnership level. The Partnership is in default of its unsecured working capital loans to AAP in the amount of approximately $4,576,000, plus related accrued interest that was due November 25, 1997. This indebtedness is recourse to the Partnership. The Partnership does not have the means with which to satisfy this obligation. The Managing General Partner does not plan to enter into negotiations with AAP on this indebtedness at this time. The Managing General Partner believes that the possibility that AAP will initiate collection proceedings on this indebtedness is remote, as the estimated value of the Partnership's investment properties and other assets are significantly less than the existing first mortgages and other secured Partnership indebtedness. If AAP initiates proceedings, then the Managing General Partner will enter into negotiations to restructure this indebtedness. The existing first mortgage indebtedness, working capital loans and amounts due to AMIT are thought to be in excess of the value of the properties. (Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT as follows: On September 17, 1998, AMIT was merged with and into IPT, effective February 26, 1999, IPT was merged into AIMCO. Accordingly, AIMCO is the current holder of the AMIT loans.) Two AMIT Notes in the aggregate amount of approximately $2,838,000 plus related accrued interest originally matured in March 1998; these notes are recourse to the Partnership only. During 1998, the lender agreed to extend the maturity date on these notes to March 2002. At the time of the granting of the extension, an additional $28,000 in loan costs was added to the principal. These loans require monthly payments of excess cash flow, as defined in the terms of the promissory notes. The Partnership's other remaining note to AMIT for approximately $4,765,000, plus accrued interest at 12.5% per annum compounded monthly, is due March 2003 and does not require any payments until maturity. Accrued interest as of June 30, 1999 is approximately $2,373,000. The first mortgage loan encumbering Waterford Square Apartments, which is guaranteed by HUD, is scheduled to mature November 2027, at which time a balloon payment of $86,000 is due. Likewise, the first mortgage loan encumbering Fox Crest Apartments is scheduled to mature in May 2003, at which time a balloon payment of $5,445,000 is due. The Registrant is current in its payments on both of these mortgages. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. No other sources of additional financing have been identified by the Partnership, nor does the Managing General Partner have any other plans to remedy the liquidity problems the Partnership is currently experiencing. The Managing General Partner anticipates that the Fox Crest Apartments and Waterford Square Apartments will generate sufficient cash flows during 1999 to meet all property operating expenses, property debt service requirements and to fund capital expenditures. However, these cash flows will be insufficient to provide debt service for the unsecured Partnership indebtedness. If the Managing General Partner is unsuccessful in its efforts to restructure these loans, then it may be forced to liquidate the Partnership. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. There were no distributions made for either of the six months ended June 30, 1999 or 1998. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities/refinancings and property sales. The Registrant's distribution policy will be reviewed on a quarterly basis. However, based on the current default under the working capital loans, it is unlikely that a distribution will be made by the Registrant in the foreseeable future. Tender Offer On June 11, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced a tender offer to purchase up to 19,548.45 (44.85%% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $0.46 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,268 units. As a result, AIMCO and its affiliates currently own 3,268 units of limited partnership interest in the Partnership representing 7.50% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc., ("Insignia") and entities which were, at the 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 as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks 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 filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule. b) Reports on Form 8-K: No reports were filed during the quarter ended June 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS XIV By: Angeles Realty Corporation II Its Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: EX-27 2
5 This schedule contains summary financial information extracted from Angeles Partners XIV 1999 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000759859 ANGELES PARTNERS XIV 1,000 6-MOS DEC-31-1999 JUN-30-1999 1,132 0 0 0 0 0 27,109 (17,882) 11,582 0 30,145 0 0 0 (26,562) 11,582 0 2,399 0 0 3,390 0 1,601 0 0 0 0 0 0 (991) (22.51) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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