10QSB 1 aipl4.txt AIPL4 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, 2001 [ ] 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 0-14283 ANGELES INCOME PROPERTIES, LTD. IV (Exact name of small business issuer as specified in its charter) California 95-3974194 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES INCOME PROPERTIES, LTD. IV CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2001
Assets Cash and cash equivalents $ 249 Receivables and deposits, net of allowance for doubtful accounts of $169 177 Restricted escrows 581 Other assets 359 Investment property: Land $ 2,414 Buildings and related personal property 18,205 20,619 Less accumulated depreciation (13,812) 6,807 $ 8,173 Liabilities and Partners' Deficit Liabilities Accounts payable $ 15 Tenant security deposit liabilities 16 Accrued property taxes 68 Other liabilities 216 Mortgage note payable 14,546 Partners' Deficit General partner $ (150) Limited partners (131,585 units issued and outstanding) (6,538) (6,688) $ 8,173 See Accompanying Notes to Consolidated Financial Statements
b) ANGELES INCOME PROPERTIES, LTD. IV CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 Revenues: Rental income $ 820 $ 810 $ 1,527 $ 1,741 Other income 11 20 21 42 Total revenues 831 830 1,548 1,783 Expenses: Operating 363 362 715 759 General and administrative 71 33 118 80 Depreciation 235 237 470 474 Interest 367 355 729 726 Property taxes 30 38 61 78 Bad debt expense, net 51 54 67 69 Total expenses 1,117 1,079 2,160 2,186 Net loss $ (286) $ (249) $ (612) $ (403) Net loss allocated to general partner (2%) $ (6) $ (5) $ (12) $ (8) Net loss allocated to limited partners (98%) (280) (244) (600) (395) $ (286) $ (249) $ (612) $ (403) Net loss per limited partnership unit $ (2.13) $ (1.85) $ (4.56) $ (3.00) Distributions per limited partnership unit $ -- $ 7.08 $ -- $ 7.08 See Accompanying Notes to Consolidated Financial Statements
c) ANGELES INCOME PROPERTIES, LTD. IV CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 131,800 $ 1 $65,900 $65,901 Partners' deficit at December 31, 2000 131,585 $ (138) $(5,938) $(6,076) Net loss for the six months ended June 30, 2001 -- (12) (600) (612) Partners' deficit at June 30, 2001 131,585 $ (150) $(6,538) $(6,688) See Accompanying Notes to Consolidated Financial Statements
d) ANGELES INCOME PROPERTIES, LTD. IV CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2001 2000 Cash flows from operating activities: Net loss $ (612) $ (403) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 470 474 Amortization of loan costs and leasing commissions 37 59 Bad debt expense, net 67 69 Change in accounts: Receivables and deposits 113 166 Other assets (21) (3) Accounts payable (85) (7) Tenant security deposit liabilities -- 10 Accrued property taxes (60) 78 Other liabilities 22 (31) Net cash (used in) provided by operating activities (69) 412 Cash flows from investing activities: Property improvements and replacements (11) (9) Net deposits to restricted escrows (96) (81) Net cash used in investing activities (107) (90) Cash flows from financing activities: Payments on mortgage note payable (111) (115) Distribution to partners (89) (950) Net cash used in financing activities (200) (1,065) Net decrease in cash and cash equivalents (376) (743) Cash and cash equivalents at beginning of period 625 1,170 Cash and cash equivalents at end of period $ 249 $ 427 Supplemental disclosure of cash flow information: Cash paid for interest $ 712 $ 709 A distribution of approximately $89,000 was declared and accrued at December 31, 2000. This distribution was paid during the six months ended June 30, 2001. See Accompanying Notes to Consolidated Financial Statements
e) ANGELES INCOME PROPERTIES, LTD. IV NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Angeles Income Properties, Ltd. IV (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Angeles Realty Corporation II ("ARC II" or the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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, 2000. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Principles of Consolidation The consolidated financial statements include the Partnership's majority interest in a joint venture which owns Factory Merchants AIP IV, L.P., and AIP IV Factory GP, LLC. The Partnership has the ability to control the major operating and financial policies of the joint venture. The Partnership may remove the general partner of its 99.5% owned joint venture, therefore, the joint venture is deemed controlled and therefore consolidated by the Partnership. No minority interest has been reflected for the joint venture because minority interests are limited to the extent of their equity capital, and losses in excess of the minority interest equity capital are charged against the Partnership's interest. Should the losses reverse, the Partnership would be credited with the amount of minority interest losses previously absorbed. All significant interentity balances have been eliminated. Note B - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following amounts were paid or accrued to the General Partner and affiliates during the six months ended June 30, 2001 and 2000: 2001 2000 (in thousands) Reimbursement for services of affiliates (included in general and administrative expense) $ 47 $ 14 An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $47,000 and $14,000 for the six months ended June 30, 2001 and 2000, respectively. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 28,838 limited partnership units in the Partnership representing 21.92% of the outstanding units at June 30, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Note C - Distribution During the six months ended June 30, 2001, the Partnership paid distributions of approximately $89,000 from operations, of which approximately $87,000 ($0.66 per limited partnership unit) is allocable to the limited partners. This distribution was declared and accrued as of December 31, 2000. During the six months ended June 30, 2000, the Partnership paid a cash distribution from operations of approximately $950,000, of which approximately $931,000 ($7.08 per limited partnership unit) was paid to the limited partners. Note D - Segment Reporting Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and required that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. Note E - 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, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001 to file a fourth amended complaint. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF 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 discussions 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 property consists of one commercial property. The following table sets forth the average occupancy of the property for the six months ended June 30, 2001 and 2000: Average Occupancy Property 2001 2000 Factory Merchants Mall 90% 89% Pigeon Forge, Tennessee Results from Operations The Partnership realized a net loss of approximately $612,000 for the six months ended June 30, 2001 as compared to a net loss of approximately $403,000 for the comparable period in 2000. The Partnership realized a net loss of approximately $286,000 for the three months ended June 30, 2001, as compared to a net loss of approximately $249,000 for the comparable period in 2000. The increase in net loss for the six months ended June 30, 2001 is due to a decrease in total revenues partially offset by a decrease in total expenses. Total revenues decreased due to decreases in rental and other incomes. Rental income decreased due to decreased rent revenue and percentage rent caused by increased competition in the local market for comparable commercial space. Other income decreased primarily due to lower interest income due to a decrease in cash held in interest bearing accounts. Total expenses decreased due to a decrease in operating and property tax expenses offset by an increase in general and administrative expense. Operating expense decreased due to a decrease in merchant association dues which are affected by the decrease in rental income at Factory Merchant Mall for the six months ended June 30, 2001. The decrease in property tax expense is due to a lowering of assessed value on the Partnership's remaining property. The increase in net loss for the three months ended June 30, 2001 is due to an increase in total expenses partially offset by a slight increase in total revenues. Total expenses increased primarily due to an increase in general and administrative expense. Total revenues increased due to an increase in rent income partially offset by a decrease in other income. Rent income increased due to an increase in occupancy at Factory Merchants Mall. Other income decreased primarily due to lower interest income due to a decrease in cash held in interest bearing accounts. General and administrative expense increased for the three and six months ended June 30, 2001 due to an increase in the costs of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for the three and six months ended June 30, 2001 and 2000, are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2001, the Partnership had cash and cash equivalents of approximately $249,000 as compared to approximately $427,000 at June 30, 2000. For the six months ended June 30, 2001, cash and cash equivalents decreased approximately $376,000 from the Partnership's year ended December 31, 2000. This decrease in cash and cash equivalents is due to approximately $200,000 of cash used in financing activities, approximately $107,000 of cash used in investing activities and approximately $69,000 of cash used in operating activities. Cash used in financing activities consists of payments of principal made on the mortgage encumbering Factory Merchants Mall and payment of a distribution accrued in the prior year. The cash used in investing activities consists of net deposits to restricted escrows maintained by the mortgage lender, as well as property improvements and replacements. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical asset and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for the Partnership's property is detailed below. Factory Merchants Mall During the six months ended June 30, 2001, the Partnership completed approximately $11,000 of capital improvements consisting of parking area improvements and tenant improvements. These improvements were funded from operating cash flow. The Partnership and ARC II have entered into a contract with an unrelated third party to sell their ownership in the joint venture that indirectly owns Factory Merchants Mall. The purchaser's feasibility period under the contract ended on August 10, 2001 with the closing expected no sooner than 10 days thereafter. The Partnership is to receive $49,750 for its 99.5% ownership and ARC II is to receive $250 for its 0.5% ownership of the joint venture. For a period of one year after the transaction is completed, should the lender declare a default under the mortgage debt encumbering the Factory Merchants Mall property as a result of this transfer or prior act or omission of the lower tier partnership which owns the Factory Merchants Mall property, the purchaser has the right to transfer the ownership interest back to the Partnership and ARC II with the cash being paid back to the purchaser. Assuming that the aforementioned recission right does not occur, the Partnership will then be terminated. During the six months ended June 30, 2001, the Partnership paid distributions of approximately $89,000 from operations, of which approximately $87,000 ($0.66 per limited partnership unit) is allocable to the limited partners. This distribution was declared and accrued as of December 31, 2000. During the six months ended June 30, 2000, the Partnership paid a cash distribution from operations of approximately $950,000, of which approximately $931,000 ($7.08 per limited partnership unit) was paid to the limited partners. The Registrant's distribution policy is reviewed on a monthly basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit additional distributions to its partners during the remainder of 2001 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 28,838 limited partnership units in the Partnership representing 21.92% of the outstanding units at June 30, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. 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, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001 to file a fourth amended complaint. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K: None filed during the quarter ended June 30, 2001. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES INCOME PROPERTIES, LTD. IV By: Angeles Realty Corporation II General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: