-----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, OiHOdD4/5C4QJP/QVCE+GJnQm5F9g1CXx63J9ldRxWXc/qL7O9ImVInNzyA+XCRP 8FZdhAFCoMAD9nbsTyiHLg== 0000711642-00-000110.txt : 20000419 0000711642-00-000110.hdr.sgml : 20000419 ACCESSION NUMBER: 0000711642-00-000110 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS FIRST STAGED EQUITY L P CENTRAL INDEX KEY: 0000768834 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363310965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14470 FILM NUMBER: 603721 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 YEAR END REPORT April 18, 2000 United States Securities and Exchange Commission Washington, D.C. 20549 RE: Investors First-Staged Equity, L.P. Form 10-KSB File No. 0-14470 To Whom it May Concern: The accompanying Form 10-KSB for the year ended December 31, 1999 describes a change in the method of accounting to capitalize exterior painting and major landscaping, which would have been expensed under the old policy. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the General Partner. Please do not hesitate to contact the undersigned with any questions or comments that you might have. Very truly yours, Stephen Waters Real Estate Controller 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, 1999 [ ] 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 0-14470 INVESTORS FIRST-STAGED EQUITY L.P. (Name of small business issuer in its charter) Delaware 36-3310965 (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) 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: Units of Limited Partnership Interest (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 No___ 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 the 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. State issuer's revenues for its most recent fiscal year. $5,808,000 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 December 31, 1999. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") was organized as a limited partnership under the Delaware Revised Uniform Limited Partnership Act in May 1985. Effective January 1, 1986, the General Partner, VMS Realty Investment (formerly known as VMS Realty Partners) assigned its interest in future profits, losses, operating cash flow and liquidation proceeds of the Partnership to VMS Realty Investment II, which subsequently became the General Partner. VMS Realty Investment II is a general partnership formed to be the sole general partner of Investors First-Staged Equity L.P. and has the same constituent partners as VMS Realty Investment, its predecessor. Effective January 1, 1987, VMS Realty Investment II assigned its beneficial interest in the Partnership to VMS Realty Investment. Effective January 2, 1998, the General Partner was replaced by MAERIL, Inc., a wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"). Effective February 26, 1999 IPT was merged into a subsidiary of Apartment Investment and Management Company ("AIMCO"). Thus, the General Partner is now a subsidiary of AIMCO. See "Transfer of Control" below. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2025, unless terminated prior to such date. The Partnership raised total equity of $48,802,000 from the sale of Limited Partnership Interests (the Units) to the public in 1985 pursuant to a Registration Statement filed with the Securities and Exchange Commission (the SEC). A total of 16,511 units were sold to the public at $3,000 per unit as of the termination date of the offering, December 31, 1985. Limited Partners in the Partnership paid $1,000 per unit upon subscription and executed a non-recourse note for the remaining $2,000 per unit. The non-recourse note provided for the optional payment, without interest, of $1,000 per unit on each of February 15, 1986 and 1987. The Partnership has collected capital contributions totaling $48,802,000; $16,511,000 pertaining to the payments due in 1985; $16,511,000 pertaining to the payments due in 1986 and the remarketed units sold in 1986 and $15,780,000 pertaining to the payments due in 1987 and the remarketed units sold in 1987. As each whole unit represents capital contributions aggregating $3,000, the final number of units sold was 16,267. At December 31, 1999, the Partnership has 16,261.152 Units outstanding. The Limited Partners share in the ownership of the Partnership's real estate property investments according to the number of Limited Partnership Units held. Since the 1987 payments, the Registrant has not received nor are limited partners required to make additional capital contributions. The Registrant is engaged in the business of operating and holding real estate properties for investment. On October 2, 1985, the Partnership acquired interests in six (6) real estate property investments, two of which, Village Green Apartments and Woodland Meadows Apartments, were sold at foreclosure sales to parties unaffiliated with the Partnership in May 1990 and June 1991, respectively. East Bluff Apartments was foreclosed upon by the Federal Deposit Insurance Corporation ("FDIC"), holder of the second mortgage, on May 23, 1994. The Partnership sold its only commercial property, Serramonte Plaza, on December 16, 1999. The Registrant continues to own and operate two (2) residential properties as described in "Item 2. Description of Properties". The Partnership acquired interests in the properties by purchasing the 99.99% interest in lower tier partnerships that owned the properties. The Registrant has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. With respect to the Partnership's residential properties these services were provided by affiliates of the General Partner for the years ended December 31, 1999 and 1998. With respect to the Partnership's sole commercial property these services were provided by affiliates of the General Partner for the nine months ended September 30, 1998. As of October 1, 1998 the management services were provided by an unaffiliated party for the commercial property. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Registrant's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the General Partner in such market area could have a material effect on the rental market for the apartments at the Registrant's properties and the rents that may be charged for such apartments. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Item 2. Description of Properties: The following table sets forth the Registrant's investments in properties: Date of Property Purchase Type of Ownership (1) Use Rivercrest Village Apartments 10/85 Fee ownership subject Apartment - Sacramento, California to first and second 328 units mortgages Richardson Highlands Apartments 10/85 Fee ownership subject Apartment - Marin City, California to first and second 198 units mortgages (1) Each of the properties is held by a Limited Partnership in which the Registrant has a 99.99% interest. Schedule of Properties: Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation, and Federal tax basis.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Rivercrest Village 5-7 yrs 150% DB Apartments $18,303 $12,560 17-25 S/L $ 3,975 Richardson Highlands 5-7 yrs 150% DB Apartments 17,502 8,764 17-25 S/L 7,613 $35,805 $21,324 $11,588
See "Note B" to the consolidated financial statements included in "Item 7 - Financial Statements" for a description of the Partnership's depreciation policy and "Note L - Change in Accounting Principle". Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 1999 Rate Amortized Date (1) Maturity (1) (in thousands) (in thousands) Rivercrest Village Apartments 1st mortgage $11,396 7.348% 30 yrs 01/01/08 $10,053 2nd mortgage 1,333 (2) (2) (2) 1,333 Richardson Highlands Apartments 1st mortgage 16,602 7.326% 30 yrs 01/01/05 15,502 2nd mortgage 874 (2) (2) (2) 874 Total $30,205 $27,762
(1) See "Item 7. Financial Statements - Note E" for information with respect to the Registrant's ability to repay these loans. (2) See discussion below for information regarding the second mortgages. In October 1990, the Partnership defaulted on the Richardson Highlands and Rivercrest Village Subordinate notes payable (the second mortgage loans) due to the failure to make the required monthly debt service payments. The Partnership and the lender finalized an agreement on June 22, 1994, retroactive to July 1, 1993, to restructure the debt held on Richardson Highlands and Rivercrest Village. The junior lien mortgages were restructured to mature on January 15, 2000, and provide for a 10% interest rate (with a 7% pay rate), based on the "Agreed Valuation Amount", as defined in the restructure agreement. Interest payments are payable from surplus cash. The second mortgages include a "shadow debt" portion that is payable only in the event that the mortgages have not been paid prior to maturity. The shadow debt portion, which is the difference between the Agreed Valuation Amount and the Note Face Amount, for Richardson Highlands and Rivercrest Village was approximately $858,000 and $1,307,000, respectively. The Agreed Valuation Amounts for Richardson Highlands and Rivercrest Village were approximately $7,268,000 and $7,110,000, respectively. The Note Face Amount was $8,126,000 for Richardson Highlands and $8,417,000 for Rivercrest Village. The agreement also allowed the lender to receive fifty percent of any net proceeds from the sale or refinancing of the properties after the payment of all mortgage notes payable and subordinated debt. Prior to the restructuring of the loans, interest accrued under the terms of the original subordinate notes payable. This accrued interest of $1,732,000 for Richardson Highlands and $2,327,000 for Rivercrest Village was added to the carrying amount of the loans at the date of restructure. The debt restructurings were accounted for as a modification of terms in which total future cash payments under the restructured loans exceeded the carrying values of the loans as of the date of restructure. Consequently, the carrying amounts of the loans were not changed and no gains were recognized on the restructurings. Interest accrued at an effective interest rate of 6.14% for Richardson Highlands and 4.37% for Rivercrest Village to equate the present values of the total future cash payments under the new terms with the carrying amounts of the loans at the date of restructure. During the year ended December 31, 1998, payments of excess cash of $857,000 and $1,488,000 were made on Richardson Highlands and Rivercrest Village's second mortgages, respectively. During the year ended December 31, 1999, payments of excess cash of $55,000 and $611,000 were made on Richardson Highlands and Rivercrest Village's second mortgages, respectively. During the fourth quarter of 1999, the Partnership was notified that it is in default on the Residual Proceeds Agreements relating to Rivercrest Village Apartments and Richardson Highlands Apartments, the two remaining investment properties owned by the Partnership. These agreements require, among other things, that each property be marketed for sale six months prior to January 15, 2000, which was the maturity date of the subordinated notes payable, and that half of certain residual proceeds from the sale be paid to the lender. The Partnership did not market these properties for sale in accordance with the agreements, which also provide that the lender may commence an action for the appointment of a receiver to sell each property. If the properties are not sold within 180 days thereafter, the lender may foreclose on the properties. After notifying the Partnership of such defaults, the lender proposed that a party believed by the Partnership to be an affiliate of the lender purchase the properties. However, the General Partner believes that the Residual Proceeds Agreement may no longer be effective, since the debt was repaid in full prior to maturity. The Partnership currently is in discussions with the lender with respect to the resolution of these issues. There can be no assurance that a receiver will not be appointed for the properties or that the properties will not be sold or foreclosed upon. If the Partnership loses its remaining investment properties through sale or foreclosure, then it will be forced to terminate. Rental Rates and Occupancy: Average annual rental rates and occupancy for 1999 and 1998 for each property were as follows: Average Annual Average Rental Rates Occupancy (per unit) Property 1999 1998 1999 1998 Rivercrest Village Apartments $ 8,050 $ 7,841 93% 91% Richardson Highlands Apartments 16,007 14,929 99% 99% As noted under "Item 1. Description of Business", the real estate industry is highly competitive. Both of the properties are subject to competition from other residential apartment complexes in the area. The General Partner believes that both of the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. As of December 31, 1999, no residential tenant leases 10% or more of the available rental space. Both of the properties are in good condition subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates: Real estate taxes and rates in 1999 for each property were as follows: 1999 1999 Billing Rate (in thousands) Rivercrest Village Apartments $ 193 1.15% Richardson Highlands Apartments 210 1.36% Capital Improvements: Rivercrest Village Apartments: The Partnership completed approximately $67,000 in capital expenditures at Rivercrest Village Apartments as of December 31, 1999, consisting primarily of floor covering replacements, appliances, major landscaping, and interior and exterior building improvements. These improvements were funded from operating cash flow and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or approximately $98,400. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Richardson Highlands Apartments: The Partnership completed approximately $299,000 in capital expenditures at Richardson Highlands Apartments as of December 31, 1999, consisting primarily of floor covering and appliance replacements, roof improvements, parking lot upgrades, and exterior painting. These improvements were funded from operating cash flow and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or approximately $59,400. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Serramonte Plaza: The Partnership completed approximately $238,000 in capital improvements at Serramonte Plaza during 1999 prior to its sale in December 1999. These improvements consisted of tenant improvements and were funded from Partnership reserves and operating cash flow. Item 3. Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 1999, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Partnership Equity and Related Partner Matters The Partnership, a publicly-held limited partnership sold 16,267 limited partnership units aggregating $48,802,000. The Partnership currently has 2,549 holders of record owning an aggregate of 16,261.152 units. Affiliates of the General Partner own 2,482.46 units or approximately 15.27% at December 31, 1999. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. There were no distributions for the year ended December 31, 1999 or 1998. The following table sets forth the distributions made by the Partnership for the subsequent period January 1, 2000 - February 29, 2000: Distributions Per Limited Aggregate Partnership Unit 01/01/00 - 2/29/00 $7,700,000 (1) $473.52 (1) Distribution made entirely to limited partners of sale proceeds from sale of Serramonte Plaza during December 1999. 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/or property sales. The Partnership's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any additional distributions to its partners in 2000 or subsequent periods. Tender Offer Several tender offers were made by various parties, including affiliates of the General Partner, during the years ended December 31, 1999 and 1998. As a result of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited partnership units in the Partnership representing 15.27% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. 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 their affiliation with the General Partner. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-KSB 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. This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations The Registrant had a loss before discontinued operations and extraordinary item of approximately $106,000 for the year ended December 31, 1999 as compared to approximately $682,000 for the year ended December 31, 1998. The decrease in the loss is due to an increase in total revenues and a decrease in total expenses. The increase in total revenues was the result of an increase in rental income, which was attributable to the increase in occupancy at Rivercrest Village Apartments. The increase is also attributable to an increase in the average annual rental rates at both Rivercrest Village Apartments and Richardson Highlands Apartments. The increase in rental income was partially offset by a decrease in other income. Other income decreased primarily due to lower interest income as a result of a decrease in cash balances held in interest bearing accounts. Total expenses decreased for the year ended December 31, 1999 as a result of a decrease in both operating and general and administrative expenses which were partially offset by an increase in depreciation expense. Depreciation expense increased as a result of the significant capital improvements put in service during 1998 and 1999. Operating expense decreased as a result of a decrease in maintenance and insurance expenses. Maintenance expense decreased due to interior and exterior improvements performed at Rivercrest Village Apartments and Richardson Highlands Apartments during the year ended December 31, 1998. Insurance expense decreased due to the change in insurance carriers at the Registrant's investment properties during the fourth quarter of 1998 which resulted in lower insurance premiums. General and administrative expenses decreased as a result of a decrease in professional expenses and general costs of the Partnership. Included in general and administrative expenses for the year ended December 31, 1999 and 1998 are management reimbursements to the General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. The Registrant's net income for the year ended December 31, 1999 was approximately $11,977,000 as compared to approximately $109,000 for the year ended December 31, 1998. (See "Note F" of the consolidated financial statements for a reconciliation of these amounts to the Registrant's federal taxable income). The increase in net income is primarily attributable to the gain on sale of discontinued operations of approximately $11,735,000 on the sale of Serramonte Plaza . On December 16, 1999, Serramonte Plaza, located in Daly City, California was sold to an unaffiliated third party for approximately $20,089,000. After closing expenses and other payments of $732,000 and the assumption by the purchaser of the property's mortgage of approximately $11,637,000, the net proceeds received by the Partnership were approximately $7,720,000. The Partnership distributed the sales proceeds during January 2000 (see discussion below). In connection with the sale, the Partnership recognized an extraordinary loss on early extinguishment of debt of $103,000. See "Item 7. Financial Statements, Note E - Mortgage Notes Payable" for further details. Effective January 1, 1999, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping on a prospective basis. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the General Partner. The effect of the change in 1999 was not material. The cumulative effect, had this change been applied to prior periods, is not material. The accounting principle change will not have an effect on cash flow, funds available for distribution or fees payable to the General Partner and affiliates. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. 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 December 31, 1999, the Registrant had cash and cash equivalents of approximately $9,614,000 as compared to approximately $1,184,000 at December 31, 1998. Cash and cash equivalents increased approximately $8,430,000 from the prior year end, primarily due to approximately $2,469,000 of cash provided by operating activities and approximately $7,064,000 of cash provided by investing activities which was partially offset by approximately $1,103,000 of cash which was used in financing activities. Cash provided by investing activities consisted of net proceeds from the sale of Serramonte Plaza which was partially offset by property improvements and replacements and net deposits to restricted escrows. Cash used in financing activities consisted of repayment of mortgage notes payable and payments on mortgage notes payable. The Registrant invests its working capital reserves in money market accounts. The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. During the fourth quarter of 1999, the Partnership was notified that it is in default on the Residual Proceeds Agreements relating to Rivercrest Village Apartments and Richardson Highlands Apartments, the two remaining investment properties owned by the Partnership. These agreements require, among other things, that each property be marketed for sale six months prior to January 15, 2000, which was the maturity date of the subordinated notes payable, and that half of certain residual proceeds from the sale be paid to the lender. The Partnership did not market these properties for sale in accordance with the agreements, which also provide that the lender may commence an action for the appointment of a receiver to sell each property. If the properties are not sold within 180 days thereafter, the lender may foreclose on the properties. After notifying the Partnership of such defaults, the lender proposed that a party believed by the Partnership to be an affiliate of the lender purchase the properties. However, the General Partner believes that the Residual Proceeds Agreement may no longer be effective, since the debt was repaid in full prior to maturity. The Partnership currently is in discussions with the lender with respect to the resolution of these issues. There can be no assurance that a receiver will not be appointed for the properties or that the properties will not be sold or foreclosed upon. If the Partnership loses its remaining investment properties through sale or foreclosure, then it will be forced to terminate. As a result of the above, there is substantial doubt 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 classification of liabilities that may result from this uncertainty. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, local, legal and regulatory requirements. The Partnership is currently evaluating the capital improvement needs of the properties for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $157,800. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The additional capital expenditures will be incurred only if cash is available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed the Registrant's cash flow, if any, may be adversely affected at least in the short term. The first mortgage indebtedness of approximately $27,998,000 is amortized over 360 months with balloon payments of approximately $15,502,000 and $10,053,000 due on January 1, 2005 and January 1, 2008 respectively. No cash distributions were made to the partners for the year ended December 31, 1999 and 1998. During January 2000 the Partnership declared and paid a distribution of $7,700,000 to the limited partners ($473.52 per limited partnership unit) from the proceeds of the sale of Serramonte Plaza during December 1999. 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/or property sales. The Partnership's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after planned capital improvement expenditures, to permit any additional distributions to its partners in 2000 or subsequent periods. Tender Offer Several tender offers were made by various parties, including affiliates of the General Partner, during the years ended December 31, 1999 and 1998. As a result of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited partnership units in the Partnership representing 15.27% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. 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 their affiliation with the General Partner. Year 2000 Compliance General Description The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the Managing Agent's computer programs or hardware that had date-sensitive software or embedded chips might have recognized a date using "00" as the year 1900 rather than the year 2000. This could have resulted 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. Computer Hardware, Software and Operating Equipment In 1999, the Managing Agent completed all phases of its Year 2000 program by completing the replacement and repair of any hardware or software system or operating equipment that was not yet Year 2000 compliant. The Managing Agent's hardware and software systems and its operating equipment are now Year 2000 compliant. No material failure or erroneous results have occurred in the Managing Agent's computer applications related to the failure to reference the Year 2000 to date. Third Parties To date, the Managing Agent is not aware of any significant supplier or subcontractor (external agent) or financial institution of the Partnership that has a Year 2000 issue that would have a material impact on the Partnership's results of operations, liquidity or capital resources. However, the Managing Agent has no means of ensuring or determining the Year 2000 compliance of external agents. At this time, the Managing Agent does not believe that a Year 2000 issue of any non-compliant external agent will have a material impact on the Partnership's financial position or results of operations. Costs The total cost of the Managing Agent's Year 2000 project was approximately $3.2 million and was funded from operating cash flows. Risks Associated with the Year 2000 The Managing Agent completed all necessary phases of its Year 2000 program in 1999, and did not experience system or equipment malfunctions related to a failure to reference the Year 2000. The Managing Agent or Partnership have not been materially adversely effected by disruptions in the economy generally resulting from the Year 2000 issue. At this time, the Managing Agent does not believe that the Partnership's businesses, results of operations or financial condition will be materially adversely effected by the Year 2000 issue. Contingency Plans Associated with the Year 2000 The Managing Agent has not had to implement contingency plans such as manual workarounds or selecting new relationships for its banking or elevator operation activities in order to avoid the Year 2000 issue. Item 7. Financial Statements INVESTORS FIRST-STAGED EQUITY L.P. List of Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheet - December 31, 1999 Consolidated Statements of Operations - Years ended December 31, 1999 and 1998 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1999 and 1998 Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Investors First-Staged Equity L.P. We have audited the accompanying consolidated balance sheet of Investors First-Staged Equity L.P. as of December 31, 1999, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the two years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 Investors First-Staged Equity L.P. at December 31, 1999, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that Investors First-Staged Equity L.P. will continue as a going concern. As more fully described in Note A, the Partnership is in default under Residual Proceeds Agreements relating to Rivercrest Village Apartments and Richardson Highlands Apartments, its remaining investment properties. This condition raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to this matter is also described in Note A. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP Greenville, South Carolina February 25, 2000 INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 1999
Assets Cash $ 9,614 Receivables and deposits 580 Restricted escrows 542 Other assets 670 Investment properties (Notes E & H): Land $ 6,431 Buildings and related personal property 29,374 35,805 Less accumulated depreciation (21,324) 14,481 $ 25,887 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 47 Tenant security deposit liabilities 276 Accrued interest 143 Disposition fee payable to General Partner (Note G) 603 Other liabilities 135 Advances to affiliates of General Partner 340 Mortgage notes payable (Note E) 30,205 Partners' Deficit General partner $ (121) Limited Partners (16,261.152 units issued and outstanding) (5,741) (5,862) $ 25,887 See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1999 1998 Revenues: (restated) Rental income $ 5,561 $ 5,102 Other income 247 324 Total revenues 5,808 5,426 Expenses: Operating 1,608 1,735 General and administrative 168 261 Depreciation 1,522 1,437 Interest 2,213 2,254 Property taxes 403 372 Loss on disposal of property -- 49 Total expenses 5,914 6,108 Loss before discontinued operations and extraordinary item (106) (682) Income from discontinued operations 451 521 Gain on sale of discontinued operations 11,735 -- Income (loss) before extraordinary item 12,080 (161) Extraordinary item - (loss) gain on early extinguishments of debt (103) 270 Net income $11,977 $ 109 Net income allocated to general partner $ 239 $ 1 Net income allocated to limited partners 11,738 108 $11,977 $ 109 Net income per limited partnership unit: Loss before discontinued operations and extraordinary item $ (6.46) $(41.52) Income from discontinued operations 27.49 31.72 Gain on sale of discontinued operations 707.08 -- Extraordinary item (6.27) 16.44 $721.84 $ 6.64 See Accompanying Notes to Consolidated Financial Statements INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Partners' deficit at December 31, 1997 16,267.152 $ (361) $(17,587) $(17,948) Abandonment of units (Note J) (6.000) -- -- -- Net income for the year ended December 31, 1998 -- 1 108 109 Partners' deficit at December 31, 1998 16,261.152 $ (360) $(17,479) $(17,839) Net income for the year ended December 31, 1999 -- 239 11,738 11,977 Partners' deficit at December 31, 1999 16,261.152 $ (121) $ (5,741) $ (5,862) See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P. CONSOLDIATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1999 1998 Cash flows from operating activities: Net income $11,977 $ 109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,990 1,894 Amortization of loan costs and lease commissions 193 199 Loss on disposal of property -- 49 Gain on sale of discontinued operations (11,735) -- Loss (gain) on early extinguishments of debt 103 (270) Change in accounts: Receivables and deposits 158 (26) Other assets (133) (110) Accounts payable (32) 27 Tenant security deposit liabilities 32 77 Accrued interest (123) 215 Due to affiliates of General Partner 14 -- Other liabilities 25 9 Net cash provided by operating activities 2,469 2,173 Cash flows from investing activities: Net proceeds from sale of investment property 7,720 -- Property improvements and replacements (604) (1,050) Net withdrawals from restricted escrows (52) 242 Net cash provided by (used in) investing activities 7,064 (808) Cash flows from financing activities: Payment of loan costs -- (106) Payments on mortgage notes payable (443) (2,715) Repayment of mortgage notes payable (660) -- Net cash used in financing activities (1,103) (2,821) Net increase (decrease) in cash and cash equivalents 8,430 (1,456) Cash and cash equivalents at beginning of period 1,184 2,640 Cash and cash equivalents at end of period $ 9,614 $ 1,184 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,218 $ 2,968 Supplemental disclosure of non cash activity: Extinguishment of debt in connection with the sale of discontinued operations $11,637 $ -- See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P. Notes to Consolidated Financial Statements December 31, 1999 Note A - Going Concern The accompanying financial statements have been prepared assuming Investors First-Staged Equity L.P. (the "Partnership") will continue as a going concern. During the fourth quarter of 1999, the Partnership was notified that it is in default on the Residual Proceeds Agreements relating to Rivercrest Village Apartments and Richardson Highlands Apartments, the two remaining investment properties owned by the Partnership. These agreements require, among other things, that each property be marketed for sale six months prior to January 15, 2000, which was the maturity date of the subordinated notes payable, and that half of certain residual proceeds from the sale be paid to the lender. The Partnership did not market these properties for sale in accordance with the agreements, which also provide that the lender may commence an action for the appointment of a receiver to sell each property. If the properties are not sold within 180 days thereafter, the lender may foreclose on the properties. After notifying the Partnership of such defaults, the lender proposed that a party believed by the Partnership to be an affiliate of the lender purchase the properties. However, the General Partner believes that the Residual Proceeds Agreement may no longer be effective, since the debt was repaid in full prior to maturity. The Partnership currently is in discussions with the lender with respect to the resolution of these issues. There can be no assurance that a receiver will not be appointed for the properties or that the properties will not be sold or foreclosed upon. If the Partnership loses its remaining investment properties through sale or foreclosure, then it will be forced to terminate. As a result of the above, there is substantial doubt 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 classification of liabilities that may result from this uncertainty. Note B - Summary of Significant Accounting Policies Organization Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") was organized as a limited partnership under the Delaware Revised Uniform Limited Partnership Act in May 1985. Effective January 1, 1986, VMS Realty Investment (formerly known as VMS Realty Partners) assigned its interest in future profits, losses, operating cash flow, and liquidation proceeds of the Partnership to VMS Realty Investment II, which subsequently became the General Partner. VMS Realty Investment II is a general partnership formed to be the sole general partner of Investors First-Staged Equity L.P. and has the same constituent partners as VMS Realty Investment, its predecessor. Effective January 1, 1987, VMS Realty Investment II assigned its beneficial interest in the Partnership to VMS Realty Investment. Effective January 2, 1998, the General Partner was replaced by MAERIL, Inc., a wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT") a subsidiary of Apartment Investment and Management Company ("AIMCO"). Thus, the General Partner is now a subsidiary of AIMCO. The Partnership commenced operations on October 2, 1985 and completed its acquisition of investment properties in October 1985. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2025 unless terminated prior to such date. The Partnership currently owns and operates two residential properties located in California. Principles of Consolidation The financial statements include all the accounts of the Partnership and its three 99.99% owned partnerships. The General Partner of the consolidated partnerships is MAERIL, Inc. MAERIL, Inc. may be removed as the general partner of the consolidated partnerships by the Registrant; therefore, the consolidated partnerships are controlled and consolidated by the Registrant. All significant interpartnership balances have been eliminated. Uses 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Allocations of Profits, Gains & Losses Profits, gains, and losses of the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. Profits, not including gains from property dispositions, are allocated as if they were distributions of net cash from operations. All losses, including losses attributable to property dispositions, are allocated 99% to the limited partners and 1% to the general partners. Allocation of Cash Distributions All cash distributions consisting of cash from operations shall be allocated 99% to the Limited Partners and 1% to the General Partner. The net profit of the Partnership from any sale or refinancing of the properties shall be allocated (with ordinary income being allocated first) as follows: (i) first, an amount equal to the aggregate deficit balances of the Partners' capital accounts shall be allocated to each Partner that has a deficit capital account balance in the same ratio as the deficit balance of such Partner's capital account bears to the aggregate of the deficit balance of all Partners' capital accounts; (ii) second, to the Limited Partners in an amount equal to the excess of their adjusted capital contribution over the balance of their respective capital accounts after taking into account the allocation provided for in subparagraph (i) above; (iii) third, to the Limited Partners in an amount equal to any unpaid preferred cumulative return; (iv) fourth, to the General Partner in an amount equal to the excess of its adjusted capital contribution over its capital account balance; and (v) thereafter, 85% to the Limited Partners and 15% to the General Partner. The net loss to the Partnership from any sale or other disposition of the properties shall be allocated as follows: (i) first, in an amount equal to the aggregate positive balances in the partners' capital accounts, to each partner in the same ratio as the positive balance in such partner's capital account bears to the aggregate of all such partners' positive capital accounts; and (ii) thereafter, 99% to the Limited Partners and 1% to the General Partner. In general, net proceeds from any sale or refinancing of the properties will be allocated 85% to the Limited Partners and 15% to the General Partner, after the Limited Partners have received an amount equal to their original capital contributions and a cumulative 6% per annum, noncompounded, return on their adjusted capital contributions from such proceeds. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $64,000 and $78,000 for the years ended December 31, 1999 and 1998, respectively. Fair Value of Financial Statements Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. 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 to maturity, approximates its carrying balance. Cash and Cash Equivalents Includes cash on hand and in banks, and money market accounts. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Escrows Capital Improvement Reserve - In connection with the refinancing of Richardson Highlands Apartments and Rivercrest Village Apartments in 1997, approximately $835,000 of the proceeds were designated as a repair escrow and capital improvement escrow for the funding of immediately required capital improvements and repairs as noted in the loan documents. The balance of these funds were expended during the year ended December 31, 1999. Replacement Reserve - In connection with the refinancing of Richardson Highlands Apartments and Rivercrest Village Apartments in 1997, monthly deposits of approximately $11,000 are required each month during the term of the loan. At December 31, 1999 the replacement reserve balance is approximately $542,000. Depreciation Depreciation is computed using the following methods and estimated useful lives:
GAAP BASIS TAX BASIS Lives Lives Method (Years) Method (Years) Buildings and improvements Straight-line 17-25 175% Declining 18,19 and Balance (ACRS & 27.5 MACRS) Personal Property 150% Declining 5 & 7 150 Declining 5 & 7 Balance (ACRS & MACRS)
Effective January 1, 1999, the Partnership changed its method to capitalize the costs of exterior painting and major landscaping (see Note L). Investment Properties Investment properties consist of two apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," 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. Costs of investment properties that have been permanently impaired have been written down to appraised value. No adjustment for impairment of value was recorded in the years ended December 31, 1999 and 1998. The Partnership sold its commercial property, Serramonte Plaza, on December 16, 1999. Loan Costs Loan costs, included in other assets on the balance sheet, of approximately $810,000 are being amortized on a straight-line basis over the lives of the related loans. Accumulated amortization is approximately $196,000 and is also included in other assets on the consolidated balance sheet. 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. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on rental payments. Leases The Partnership generally leases apartment units for twelve months or less. The Partnership recognizes income as earned on its leases. In addition, the General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Segment Reporting 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 requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. See "Note I" for required disclosure. Reclassifications Certain reclassifications have been made to the 1998 balances to conform to the 1999 presentation. 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 IPT merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note D - Disposition of Property/Operating Segment On December 16, 1999, Serramonte Plaza, located in Daly City, California, was sold to an unaffiliated third party for $20,089,000. After closing expenses and other payments of approximately $732,000 and the assumption by the purchaser of the property's mortgage of $11,637,000, the net proceeds received by the Partnership were approximately $7,720,000. The Partnership distributed the net proceeds from the sale of the property to the limited partners during January 2000 in accordance with the Partnership Agreement. The sale of the property resulted in a gain on sale of investment property of approximately $11,735,000. In connection with the sale, a commission of approximately $603,000 was accrued to the General Partner in accordance with the terms of the Partnership Agreement. Serramonte Plaza was the only commercial property owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of this property, the results of the commercial segment have been shown as income from discontinued operations and gain on sale of discontinued operations for 1999 and 1998 and, accordingly, the statements of operations have been restated to reflect this presentation. Revenues of this property were approximately $3,109,000 and $3,128,000 for 1999 and 1998, respectively. Income from operations were approximately $451,000 and $521,000 for 1999 and 1998, respectively. Note E - Mortgage Notes Payable
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1999 Interest Rate Date Maturity (in thousands) (in thousands) Rivercrest Village Apartments 1st mortgage $11,396 $ 80 7.348% 01/01/08 $10,053 2nd mortgage 1,333 (1) (1) (1) 1,333 Richardson Highlands Apartments 1st mortgage 16,602 $ 116 7.326% 01/01/05 15,502 2nd mortgage 874 (1) (1) (1) 874 Totals $30,205 $27,762
(1) See discussion below regarding the second mortgages. All first mortgage agreements include non-recourse provisions which limit the lenders' remedies in the event of default to the specific properties collateralizing each loan. In October 1990, the Partnership defaulted on the Richardson Highlands and Rivercrest Village Subordinate notes payable (the second mortgage loans) due to the failure to make the required monthly debt service payments. The Partnership and the lender finalized an agreement on June 22, 1994, retroactive to July 1, 1993, to restructure the debt held on Richardson Highlands and Rivercrest Village. The junior lien mortgages were restructured to mature on January 15, 2000, and provide for a 10% interest rate (with a 7% pay rate), based on the "Agreed Valuation Amount", as defined in the restructure agreement. Interest payments were payable from surplus cash. The second mortgages include a "shadow debt" portion that was payable only in the event that the mortgages had not been paid prior to maturity. The shadow debt portion, which was the difference between the Agreed Valuation Amount and the Note Face Amount, for Richardson Highlands Apartments and Rivercrest Village Apartments was approximately $858,000 and $1,307,000, respectively. The Agreed Valuation Amounts for Richardson Highlands Apartments and Rivercrest Village Apartments were approximately $7,268,000 and $7,110,000, respectively. The Note Face Amount was $8,126,000 for Richardson Highlands Apartments and $8,417,000 for Rivercrest Village Apartments. The agreement also allowed the lender to receive fifty percent of any net proceeds from the sale or refinancing of the properties after the payment of all mortgage notes payable and subordinated debt. Prior to the restructuring of the loans, interest accrued under the terms of the original subordinate notes payable. This accrued interest of $1,732,000 for Richardson Highlands Apartments and $2,327,000 for Rivercrest Village Apartments was added to the carrying amount of the loans at the date of restructure. The debt restructurings were accounted for as a modification of terms in which total future cash payments under the restructured loans exceeded the carrying values of the loans as of the date of restructure. Consequently, the carrying amounts of the loans were not changed and no gains were recognized on the restructurings. Interest accrued at an effective interest rate of 6.14% for Richardson Highlands Apartments and 4.37% for Rivercrest Village Apartments to equate the present values of the total future cash payments under the new terms with the carrying amounts of the loans at the date of restructure. During the year ended December 31, 1998, payments of excess cash of $857,000 and $1,488,000 were made on Richardson Highlands Apartments and Rivercrest Village Apartments second mortgages, respectively. The Partnership reduced the carrying balance to the estimated future cash payments at December 31, 1998 of $929,000 (Richardson Highlands Apartments) and $1,944,000 (Rivercrest Village Apartments), recognizing an extraordinary gain of $270,000. During the year ended December 31, 1999, payments of excess cash of $55,000 and $611,000 were made on Richardson Highlands and Rivercrest Village's second mortgages, respectively. During the fourth quarter of 1999, the Partnership was notified that it is in default on the Residual Proceeds Agreements relating to Rivercrest Village Apartments and Richardson Highlands Apartments, the two remaining investment properties owned by the Partnership. These agreements require, among other things, that each property be marketed for sale six months prior to January 15, 2000, which was the maturity date of the subordinated notes payable, and that half of certain residual proceeds from the sale be paid to the lender. The Partnership did not market these properties for sale in accordance with the agreements, which also provide that the lender may commence an action for the appointment of a receiver to sell each property. If the properties are not sold within 180 days thereafter, the lender may foreclose on the properties. After notifying the Partnership of such defaults, the lender proposed that a party believed by the Partnership to be an affiliate of the lender purchase the properties. However, the General Partner believes that the Residual Proceeds Agreement may no longer be effective, since the debt was repaid in full prior to maturity. The Partnership currently is in discussions with the lender with respect to the resolution of these issues. There can be no assurance that a receiver will not be appointed for the properties or that the properties will not be sold or foreclosed upon. If the Partnership loses its remaining investment properties through sale or foreclosure, then it will be forced to terminate. In connection with the sale of Serramonte Plaza, the Partnership recognized an extraordinary loss on extinguishment of debt of $103,000 resulting from the write off of unamortized loan costs of $243,000, offset by forgiveness of accrued interest of approximately $140,000. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 1999 are as follows (in thousands): 2000 $ 2,456 2001 299 2002 323 2003 347 2004 368 Thereafter 26,412 $30,205 Note F - Income Taxes The Partnership received a ruling from the Internal Revenue Service that it is to be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): 1999 1998 Net income as reported $11,977 $ 109 Add (deduct) Debt forgiveness 1,953 (270) Depreciation differences 124 25 Deferred expense 360 (127) Gain on sale of property 1,446 -- Other (587) 213 Federal taxable income (loss) $15,273 $ (50) Federal taxable income (loss) per limited partnership unit $927.98 $(3.05) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities as of December 31, 1999 (in thousands): Net deficit as reported $(5,862) Land and buildings 2,601 Accumulated depreciation (5,494) Syndication 6,832 Other 2,479 Net assets - Federal tax basis $ 556 Note G - 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 (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 made or accrued to the General Partner and its affiliates during the year ended December 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $230 $216 Reimbursement for services of affiliates (included in operating, general and administrative expense, and investment properties) 115 157 Real estate brokerage commission due to general partner (included in gain on sale of discontinued operations) 603 -- During the years ended December 31, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from both of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates $230,000 and $216,000 for the years ended December 31, 1999 and 1998, respectively. For the nine months ended September 30, 1998 affiliates of the General Partner were entitled to receive varying percentages of gross receipts from the Registrant's commercial property for providing property management services. The Registrant paid to such affiliates $147,000 for the nine months ended September 30, 1998. No such fees were paid for the year ended December 31, 1999 as these services were provided by an unrelated third party effective October 1, 1998 (the effective date of the Insignia Merger). An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $115,000 and $157,000 for the years ended December 31, 1999 and 1998, respectively. During the year ended December 31, 1998, the Partnership paid affiliates of the General Partner approximately $40,000, for loan costs which were capitalized and included in other assets in the accompanying Consolidated Balance Sheet. These loan costs related to the refinancing of the investment properties. There were no such costs incurred for the year ended December 31, 1999. In prior years the Partnership was advanced funds from a former General Partner in order to meet its existing obligations. Interest accrues on these advances at rates agreed to by the Partnership and the former General Partner. The interest rates at December 31, 1999 ranged from 4.70% and 9.50%. The unpaid balance on these advances at December 31, 1999, and the related accrued interest is $340,000 and $143,000, respectively. As mentioned in Note D, in connection with the sale of Serramonte Plaza, a commission of approximately $603,000 was accrued to the General Partner in accordance with the terms of the Partnership Agreement. Payment of the commission will not be made until the limited partners have received distributions equal to their original invested capital plus a 6% per annum non-compounded cumulative preferred return on their adjusted invested capital. Several tender offers were made by various parties, including affiliates of the General Partner, during the years ended December 31, 1999 and 1998. As a result of these tender offers, AIMCO and its affiliates currently own 2,482.46 limited partnership units in the Partnership representing approximately 15.27% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. 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 their affiliation with the General Partner. Note H - Real Estate and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Net Cost and Related Capitalized Personal Subsequent to Apartment Properties Encumbrances Land Property Acquisition (in thousands) (in thousands) Rivercrest Village Sacramento, California $12,729 $ 1,230 $15,171 $ 1,902 Richardson Highlands Marin County, California 17,476 5,196 10,455 1,851 Totals $30,205 $ 6,426 $25,626 $ 3,753
Gross Amount At Which Carried At December 31, 1999 (in thousands)
Buildings And Related Personal Accumulated Description Land Property Total Depreciation Construction Acquired Rivercrest Village $1,231 $17,072 $18,303 $12,560 1975 10/85 Richardson Highlands 5,200 12,302 17,502 8,764 1979 10/85 Totals $6,431 $29,374 $35,805 $21,324
The depreciable lives for the buildings and components are 5 to 25 years. The depreciable lives for related personal property are 5 to 7 years. Reconciliation of "Investment Properties and Accumulated Depreciation": Years Ended December 31, 1999 1998 (in thousands) Real Estate Balance at beginning of year $48,466 $47,572 Property improvements 604 1,050 Disposition of property (13,265) (156) Balance at end of year $35,805 $48,466 Accumulated Depreciation Balance at beginning of year $25,949 $24,162 Additions charged to expense 1,990 1,894 Disposition of property (6,615) (107) Balance at end of year $21,324 $25,949 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1999 and 1998, is approximately $38,406,000 and $54,962,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1999 and 1998, is approximately $26,818,000 and $36,312,000, respectively. Note I - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership had two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of two apartment complexes located in California. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consisted of office space located in California, which was sold on December 16, 1999. As a result of the sale of the commercial property during 1999, the commercial segment is shown as a discontinued operation. Measurement of segment profit or loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segment are the same as those of the Partnership described in the summary of significant accounting policies. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the years ended December 31, 1999 and 1998 is shown in the tables below. The "Other" Column includes partnership administration related items and income and expense not allocated to the reportable segments (in thousands).
1999 Residential Commercial Other Totals (discontinued) Rental income $ 5,561 $ -- $ -- $ 5,561 Other income 220 -- 27 247 Interest expense 2,213 -- -- 2,213 Depreciation 1,522 -- -- 1,522 General and administrative expense -- -- 168 168 Income from discontinued operations -- 451 -- 451 Gain on sale of discontinued operations -- 11,735 -- 11,735 Loss on extraordinary item -- (103) -- (103) Segment profit (loss) 35 12,083 (141) 11,977 Total assets 16,677 -- 9,210 25,887 Capital expenditures 366 -- -- 366
1998 Residential Commercial Other Totals (discontinued) Rental income $ 5,102 $ -- $ -- $ 5,102 Other income 247 -- 77 324 Interest expense 2,254 -- -- 2,254 Depreciation 1,437 -- -- 1,437 Loss on disposal of property (49) -- -- (49) General and administrative expense -- -- 261 261 Income from discontinued operations -- 521 -- 521 Gain on extraordinary items 270 -- -- 270 Segment (loss) profit (228) 521 (184) 109 Total assets 17,509 8,348 624 26,481 Capital expenditures 488 562 -- 1,050
Note J - Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Note K - Abandonment of Units In 1998, the number of Limited Partnership Units decreased by six due to limited partners abandoning these 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 allocated his or her share of the income or loss for that year. The net income per limited partnership units is calculated based on the number of units outstanding at the beginning of the year. Note L - Change in Accounting Principle Effective January 1, 1999, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping on a prospective basis. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the General Partner. The effect of the change in 1999 was not material. The cumulative effect, had this change been applied to prior periods, is not material. The accounting principle change will not have an effect on cash flow, funds available for distribution or fees payable to the General Partner and affiliates. Item 8.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act The Registrant has no officers or directors. The General Partner of the Registrant is Maeril, Inc. The names and ages of, as well as the position and offices held by the present executive officers and directors of the General Partner are set forth below. There are no family relations between or among any officers or directors. Name Age Position Patrick J. Foye 42 Executive Vice President and Director Martha L. Long 40 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the General Partner and AIMCO since October 1998, as a result of the acquisition of Insignia Financial Group, Inc. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal year and Form 5 and amendments thereto furnished to the Registrant with respect to its most recent fiscal year, the Registrant is not aware of any director, officer, beneficial owner of more than ten percent of the units of limited partnership interest in the Registrant that failed to file on a timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. Item 10. Executive Compensation None of the directors and officers of the General Partner received any remuneration from the Partnership. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units of the Registrant as of December 31, 1999. Entity Number of Units Percentage Insignia Properties LP 13.335 0.09% (an affiliate of AIMCO) AIMCO Properties LP (an affiliate of AIMCO) 2,469.125 15.18% Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business address is 55 Beattie Place, Greenville, SC 29602. AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado 80222. No director or officer of the General Partner owns any Units. AIMCO Properties LP, acquired 2,469.125 Units during the current year. Item 12. Certain Relationships and Related Transactions 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 (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 made or accrued to the General Partner and its affiliates during the year ended December 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees $230 $216 Reimbursement for services of affiliates 115 157 Real estate brokerage commission due to 603 -- general partner During the years ended December 31, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from both of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates $230,000 and $216,000 for the years ended December 31, 1999 and 1998, respectively. For the nine months ended September 30, 1998 affiliates of the General Partner were entitled to receive varying percentages of gross receipts from the Registrant's commercial property for providing property management services. The Registrant paid to such affiliates $147,000 for the nine months ended September 30, 1998. No such fees were paid for the year ended December 31, 1999 as these services were provided by an unrelated third party effective October 1, 1998 (the effective date of the Insignia Merger). An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $115,000 and $157,000 for the years ended December 31, 1999 and 1998, respectively. During the year ended December 31, 1998, the Partnership paid affiliates of the General Partner approximately $40,000, for loan costs which were capitalized and included in other assets in the accompanying Consolidated Balance Sheet. These loan costs related to the refinancing of the investment properties. There were no such costs incurred for the year ended December 31, 1999. In prior years the Partnership was advanced funds from a former General Partner in order to meet its existing obligations. Interest accrues on these advances at rates agreed to by the Partnership and the former General Partner. The interest rates at December 31, 1999 ranged from 4.70% and 9.50%. The unpaid balance on these advances at December 31, 1999, and the related accrued interest is $340,000 and $143,000, respectively. In connection with the sale of Serramonte Plaza, a commission of approximately $603,000 was accrued to the General Partner in accordance with the terms of the Partnership Agreement. Payment of the commission will not be made until the limited partners have received distributions equal to their original invested capital plus a 6% per annum non-compounded cumulative preferred return on their adjusted invested capital. Several tender offers were made by various parties, including affiliates of the General Partner, during the years ended December 31, 1999 and 1998. As a result of these tender offers, AIMCO and its affiliates currently own 2,482.46 units of limited partnership units in the Partnership representing approximately 15.27% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. 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 their affiliation with the General Partner. PART IV Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 18, Independent Accountants' Preferability Letter for Change in Accounting Principle, is filed as an exhibit to this report. Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. (b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999: A Form 8-K dated December 16, 1999, as filed with the Securities and Exchange Commission on December 31, 1999, in connection with the sale of Serramonte Plaza. 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. INVESTORS FIRST-STAGED EQUITY L.P. (Registrant) By: Maeril, Inc. Its 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: April 18, 2000 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated. /s/Patrick J. Foye Executive Vice President Date: April 18, 2000 Patrick J. Foye and Director /s/Martha L. Long Senior Vice President Date: April 18, 2000 Martha L. Long and Controller EXHIBIT INDEX Exhibit Description 3 The Partnership Agreement is incorporated by reference to the Form 10-K dated December 31, 1987 (file number 0-14470). 10A Assignment and Assumption Agreement dated May 23, 1994 between the Federal Deposit Insurance Corporation, VMS Apartment Portfolio Associates I, VMS Apartment Portfolio Associates, Ltd., and Investors First-Staged Equity L.P. related to East Bluff Apartments is incorporated by reference to the Form 10-QSB dated June 30, 1994. 10B Contracts related to debt restructure: a) Restated note dated July 1, 1993 between VMS Apartment Portfolio Associates Ltd. and the Federal Deposit Insurance Corporation related to Rivercrest Village is incorporated by reference to the Form 10-QSB dated June 30, 1994. b) Modification of Security Agreement between Investors First-Staged Equity, L.P., VMS Apartment Portfolio Associates, Ltd., and the Federal Deposit Insurance Corporation dated July 1, 1993 related to Rivercrest Village is incorporated by reference to the Form 10-QSB dated June 30, 1994. 10C Contracts related to debt restructure: a) Restated note dated July 1, 1993 between VMS Apartment Portfolio Associates Ltd. and the Federal Deposit Insurance Corporation related to Richardson Highlands is incorporated by reference to the Form 10-QSB dated June 30, 1994. b) Modification of Security Agreement between Investors First-Staged Equity, L.P., VMS Apartment Portfolio Associates, Ltd., and the Federal Deposit Insurance Corporation dated July 1, 1993 related to Richardson Highlands is incorporated by reference to the Form 10-QSB dated June 30, 1994. 10D Contracts related to sale of buildings and land at Serramonte Plaza: a) CONTRACT OF SALE executed August 28, 1996, made and entered into by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. b) FIRST AMENDMENT TO CONTRACT OF SALE entered into effective as of September 27, 1996, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. c) SECOND AMENDMENT TO CONTRACT OF SALE entered into effective as of October 7, 1996, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. d) THIRD AMENDMENT TO CONTRACT OF SALE entered into effective as of October 14, 1996, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. e) FOURTH AMENDMENT TO CONTRACT OF SALE entered into effective as of November 1996, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. f) FIFTH AMENDMENT TO CONTRACT OF SALE entered into effective as of January 1997, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. g) SIXTH AMENDMENT TO CONTRACT OF SALE entered into effective as of March 20, 1997, by and between Serramonte Plaza, a California limited partnership, and Daly City Partners, LLC, a California limited liability company. h) ASSIGNMENT AND ASSUMPTION OF LEASES. i) BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT. 10E Contracts related to debt refinancing of Rivercrest Apartments: a) Promissory note dated December 31, 1997 between VMS Apartment Portfolio Associates III and Lehman Brothers Holdings, Inc. b) Deed of Trust, Security Agreement, Fixture Filing and Assignment of Leases and Rents by VMS Apartment Portfolio Associates III to Commonwealth Land Title Insurance Company for the benefit of Lehman Brothers Holdings, Inc. dated December 31, 1997. c) Absolute Assignment of Leases and Rents by VMS Apartment Portfolio Associates III to Lehman Brothers Holdings, Inc. dated December 31, 1997. 10F Contracts related to debt refinancing of Richardson Highlands Apartments. a) Promissory note dated December 31, 1997 between VMS Apartment Portfolio Associates II and Lehman Brothers Holdings, Inc. b) Deed of Trust, Security Agreement, Fixture Filing and Assignment of Leases and Rents by VMS Apartment Portfolio Associates II to Commonwealth Land Title Insurance Company for the benefit of Lehman Brothers Holdings, Inc. dated December 31, 1997. c) Absolute Assignment of Leases and Rents by VMS Apartment Portfolio Associates II to Lehman Brothers Holdings, Inc. dated December 31, 1997. 10.1 Contract for sale of real estate for Serramonte Plaza dated December 16, 1999, between Investors First- Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. 10.2 First amendment to contract for sale of real estate for Serramonte Plaza dated December 16, 1999 between Investors First-Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. (Filed with Form 8-K December 31, 1999) 10.3 Second amendment to contract for sale of real estate for Serramonte Plaza dated December 16, 1999 between Investors First-Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. (Filed with Form 8-K December 31, 1999) 10.4 Third amendment to contract for sale of real estate for Serramonte Plaza dated December 16, 1999 between Investors First-Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. (Filed with Form 8-K December 31, 1999) 10.5 Fourth amendment to contract for sale of real estate for Serramonte Plaza dated December 16, 1999 between Investors First-Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. (Filed with Form 8-K December 31, 1999) 10.6 Fifth amendment to contract for sale of real estate for Serramonte Plaza dated December 16, 1999 between Investors First-Staged Equity, a Delaware limited partnership and Strategic Acquisition Corporation. (Filed with Form 8-K December 31, 1999) 18 Independent Accountants' Preferability letter for Change in Accounting Principle. 27 Financial Data Schedule. Exhibit 18 February 7, 2000 Mr. Patrick J. Foye Executive Vice President Maeril, Inc. General Partner of Investors First-Staged Equity L.P. 55 Beattie Place P.O. Box 1089 Greenville, South Carolina 29602 Dear Mr. Foye: Note L of Notes to the Consolidated Financial Statements of Investors First-Staged Equity L.P. included in its Form 10-KSB for the year ended December 31, 1999 describes a change in the method of accounting to capitalize exterior painting and major landscaping, which would have been expensed under the old policy. You have advised us that you believe that the change is to a preferable method in your circumstances because it provides a better matching of expenses with the related benefit of the expenditures and is consistent with policies currently being used by your industry and conforms to the policies of the General Partner. There are no authoritative criteria for determining a preferable method based on the particular circumstances; however, we conclude that the change in the method of accounting for exterior painting and major landscaping is to an acceptable alternative method which, based on your business judgment to make this change for the reasons cited above, is preferable in your circumstances. Very truly yours, /s/ Ernst & Young LLP EX-27 2 YEAR END 10-KSB
5 This schedule contains summary financial information extracted from Investors First-Staged Equity 1999 Fourth Quarter 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000768834 Investors First-Staged Equity 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 9,614 0 580 0 0 0 35,805 (21,324) 25,887 0 30,205 0 0 0 (5,862) 25,887 0 5,808 0 0 5,914 0 2,213 0 0 0 0 (103) 0 11,977 721.84 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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