10QSB 1 0001.txt QUARTER ENDING SEPTEMBER 30, 2000 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-14470 INVESTORS FIRST-STAGED EQUITY L.P. (Exact name of small business issuer as specified 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) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2000
Assets Cash and cash equivalents $ 2,270 Receivables and deposits 459 Restricted escrows 495 Other assets 607 Investment properties: Land $ 6,431 Buildings and related personal property 29,849 36,280 Less accumulated depreciation (22,469) 13,811 $ 17,642 Liabilities and Partners' Deficit Liabilities Accounts payable $ 46 Accrued interest 353 Tenant security deposit liabilities 308 Disposition fee payable to affiliates of General Partner 603 Accrued taxes 110 Other liabilities 100 Advances from affiliates of General Partner 340 Mortgage notes payable 38,024 Partners' Deficit General partner $ (200) Limited partners (16,261.152 units issued and outstanding) (22,042) (22,242) $ 17,642 See Accompanying Notes to Consolidated Financial Statements
b) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (restated) (restated) Revenues: Rental income $ 1,496 $ 1,413 $ 4,361 $ 4,128 Other income 120 57 328 187 Total revenues 1,616 1,470 4,689 4,315 Expenses: Operating 501 396 1,267 1,195 General and administrative 50 45 132 136 Depreciation 380 358 1,145 1,074 Interest 8,559 560 9,675 1,654 Property taxes 111 101 321 294 Total expenses 9,601 1,460 12,540 4,353 (Loss) income from continuing operations (7,985) 10 (7,851) (38) Income from discontinued operations -- 163 -- 412 Net (loss) income $ (7,985) $ 173 $ (7,851) $ 374 Net (loss) income allocated to general partner (1%) $ (80) $ 2 $ (79) $ 4 Net (loss) income allocated to limited partners (99%) (7,905) 171 (7,772) 370 Net income $ (7,985) $ 173 $ (7,851) $ 374 Net (loss) income per limited partnership unit: (Loss) income from continuing operations $ (486.13) $ .60 $(477.95) $ (2.33) Income from discontinued operations -- 9.92 -- 25.08 Net (loss) income $(486.13) $ 10.52 $(477.95) $ 22.75 Distributions per limited partnership unit $ 50.92 $ -- $ 524.50 $ -- See Accompanying Notes to Consolidated Financial Statements
c) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Partners' deficit at December 31, 1999 16,261.152 $ (121) $ (5,741) $ (5,862) Distributions to limited partners -- -- (8,529) (8,529) Net loss for the nine months ended September 30, 2000 -- (79) (7,772) (7,851) Partners' deficit at September 30, 2000 16,261.152 $ (200) $(22,042) $(22,242) See Accompanying Notes to Consolidated Financial Statements
d) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net (loss) income $(7,851) $ 374 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 1,145 1,437 Interest on Residual Proceeds Agreement 8,000 -- Amortization of loan costs and leasing commissions 76 141 Change in accounts: Receivables and deposits 121 (134) Other assets (13) (38) Accounts payable (1) 79 Accrued interest 210 13 Tenant security deposit liabilities 32 34 Accrued property taxes 110 125 Other liabilities (35) (4) Net cash provided by operating activities 1,794 2,027 Cash flows from investing activities: Property improvements and replacements (475) (461) Net withdrawals from (deposits to) restricted escrows 47 (61) Lease commissions paid -- (39) Net cash used in investing activities (428) (561) Cash flows from financing activities: Distributions to limited partners (8,529) -- Payments on mortgage notes payable (181) (742) Net cash used in financing activities (8,710) (742) Net (decrease) increase in cash and cash equivalents (7,344) 724 Cash and cash equivalents at beginning of period 9,614 1,184 Cash and cash equivalents at end of period $ 2,270 $ 1,908 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,388 $ 2,338 See Accompanying Notes to Consolidated Financial Statements
e) INVESTORS FIRST-STAGED EQUITY L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Going Concern The accompanying consolidated financial statements have been prepared assuming Investors First-Staged Equity L.P. (the "Partnership or "Registrant") 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 nine 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 (see Note H - Mortgage Notes Payable). 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. There can be no assurance that a receiver will not be appointed for the properties or that the properties will 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 about the Partnership's ability to continue as a going concern. The consolidated 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 - Basis of Presentation The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999. Reclassifications Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation. 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. Note C - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company, ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the 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 - Transactions with Affiliates and Related 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 nine months ended September 30, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $180 $171 Reimbursement for services of affiliates (included in general and administrative expense) 93 88 Real estate brokerage commission due to general partner (included in disposition fee payable to General Partner) 603 -- During the nine months ended September 30, 2000 and 1999, 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 approximately $180,000 and $171,000 for the nine months ended September 30, 2000 and 1999, respectively. An affiliate of the General Partner was paid or accrued reimbursement of accountable administrative expenses amounting to approximately $93,000 and $88,000 for the nine months ended September 30, 2000 and 1999, respectively. 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 September 30, 2000 ranged from 4.70% to 9.50%. The unpaid balance on these advances at September 30, 2000 and the related accrued interest is approximately $340,000 and $178,000, respectively. In connection with the sale of Serramonte Plaza in December 1999, 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. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 2,497.46 limited partnership units in the Partnership representing 15.36% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of their affiliation with the General Partner. Note E - Disposition of Property/Operating Segment On December 16, 1999, Serramonte Plaza, located in Daly City, California, was sold to an unaffiliated third party. 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. Accordingly, the consolidated 1999 statement of operations has been restated to reflect this presentation. Revenues of this property were approximately $821,000 and $2,405,000 for the three and nine month periods ended September 30, 1999, respectively. Income from discontinued operations was approximately $163,000 and $412,000 for the three and nine month periods ended September 30, 1999, respectively. Note F - Segment Information 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 a commercial property. The Partnership's residential property segment consists of two apartment complexes both of which are 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 Serramonte, 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 segments are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments consist of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three and nine months ended September 30, 2000 and 1999 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments.
Three Months Ended September 30, 2000 Residential Commercial Other Totals (discontinued) Rental income $ 1,496 $ -- $ -- $1,496 Other income 108 -- 12 120 Interest expense 8,559 -- -- 8,559 Depreciation 380 -- -- 380 General and administrative expenses -- -- 50 50 Segment (loss) (7,947) -- (38) (7,985)
Nine Months Ended September 30, 2000 Residential Commercial Other Totals (discontinued) Rental income $ 4,361 $ -- $ -- $4,361 Other income 239 -- 89 328 Interest expense 9,675 -- -- 9,675 Depreciation 1,145 -- -- 1,145 General and administrative expenses -- -- 132 132 Segment (loss) (7,808) -- (43) (7,851) Total assets 17,108 -- 534 17,642 Capital expenditures for investment properties 475 -- -- 475
Three Months Ended September 30, 1999 Residential Commercial Other Totals (discontinued) Rental income $ 1,413 $ -- $ -- $ 1,413 Other income 53 -- 4 57 Interest expense 560 -- -- 560 Depreciation 358 -- -- 358 General and administrative expense -- -- 45 45 Income from discontinued operations -- 163 -- 163 Segment profit (loss) 51 163 (41) 173
Nine Months Ended September 30, 1999 Residential Commercial Other Totals (discontinued) Rental income $ 4,128 $ -- $ -- $ 4,128 Other income 171 -- 16 187 Interest expense 1,654 -- -- 1,654 Depreciation 1,074 -- -- 1,074 General and administrative expense -- -- 136 136 Income from discontinued operations -- 412 -- 412 Segment profit (loss) 82 412 (120) 374 Total assets 17,225 8,367 768 26,360 Capital expenditures for investment properties 309 152 -- 461
Note G - Distributions A distribution of approximately $7,701,000 from the proceeds of the sale of Serramonte Plaza (approximately $473.58 per limited partnership unit) was made during the nine months ended September 30, 2000. Also, a distribution of approximately $828,000 ($828,000 paid to the limited partners or approximately $50.92 per limited partnership unit) was paid from operations. No cash distributions were paid during the nine months ended September 30, 1999. Note H - Mortgage Notes Payable 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. 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. During the fourth quarter of 1999, the Partnership was notified that it was 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 required, 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. During the third quarter of 2000, the properties were marketed for sale in accordance with the Residual Proceeds Agreements. Based upon current market conditions within the location of the properties, there has been an increase in the value of the properties and accordingly, the liability representing anticipated amount due to the lender for its fifty percent share of the expected net proceeds from the sale of the properties after the payment of all mortgage notes payable and subordinated debt has been adjusted. The increase of approximately $8,000,000 was recorded during the three months ended September 30, 2000 and is included in interest expense. As of September 30, 2000 the estimated amount that the lender is entitled to receive is approximately $10,207,000 and is based upon current sales values for the two properties. Although present market conditions reflect an increase in value of the properties, there is no guarantee that the properties will be sold at their present fair market value. Note I - 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy for these properties for the nine months ended September 30, 2000 and 1999: Average Occupancy Property 2000 1999 Rivercrest Village Apartments 93% 92% Sacramento, California Richardson Highlands Apartments 99% 99% Marin City, California Results of Operations The Registrant's net loss for the three and nine months ended September 30, 2000 was approximately $7,985,000 and $7,851,000 respectively, compared to net income of approximately $173,000 and $374,000, respectively, for the three and nine months ended September 30, 1999. The decrease in net income for the three and nine months ended September 30, 2000 is primarily attributable to a decrease in income from discontinued operations as a result of the sale of the Partnership's sole commercial property, Serramonte Plaza on December 16, 1999 and an increase in total expenses. Excluding the impact of the operations of the commercial property sold during 1999, the net loss from continuing operations for the three and nine months ended September 30, 2000 was approximately $7,985,000 and $7,851,000 respectively compared to income of approximately $10,000 and a net loss of approximately $38,000 respectively for the three and nine months ended September 30, 1999. The increase in net loss from continuing operations was due to an increase in total expenses which was partially offset by an increase in total revenues for both the three and nine months ended September 30, 2000. The increase in total revenues was the result of increases in rental income and other income. Rental income increased primarily as a result of the increase in occupancy at Rivercrest Village Apartments and an increase in average rental rates at both Rivercrest Village Apartments and Richardson Highlands Apartments. The increase in other income was primarily due to higher interest income as a result of an increase in cash balances held in interest bearing accounts. Total expenses increased for the three and nine months ended September 30, 2000 as a result of increases in operating, property tax, depreciation and interest expenses. Operating expense increased as a result of an increase in maintenance expenses predominantly at Rivercrest Village Apartments. Property tax expense increased for the nine months ended September 30, 2000 as a result of an increase in the assessed value of Richardson Highlands Apartments. Depreciation expense increased for the nine months ended September 30, 2000 as a result of significant capital improvements placed in service at the Partnership's two investment properties during the past twelve months. Interest expense increased for the three and nine months ended September 30, 2000 as a result of interest on the Residual Proceeds Agreement encumbering both of the Partnership's investment properties as discussed below. General and administrative expense remained relatively stable for the three and nine months ended September 30, 2000. Included in general and administrative expenses for the nine months ended September 30, 2000 and 1999 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. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the 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 September 30, 2000, the Registrant had cash and cash equivalents of approximately $2,270,000 as compared to approximately $1,908,000 at September 30, 1999. Cash and cash equivalents decreased approximately $7,344,000 for the nine months ended September 30, 2000 from the Registrant's year end, primarily due to approximately $8,710,000 of cash used in financing activities, and approximately $428,000 of cash used in investing activities which were partially offset by approximately $1,794,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to limited partners and, to a lesser extent, principal payments on the mortgages encumbering the Registrant's properties. Cash used in investing activities consisted of property improvements and replacements partially offset by net withdrawals from the escrow accounts maintained by the mortgage lender. The Registrant invests its working capital reserves in money market accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Partnership's properties are detailed below. Rivercrest Village Apartments Capital improvements budgeted for, but not limited to, approximately $587,000 are planned for 2000 at this property consisting primarily of roof replacements, fencing replacements, floor covering and appliance replacements, and major landscaping. As of September 30, 2000 approximately $394,000 of capital improvements have been incurred consisting primarily of roof replacements, structural improvements, siding replacements, appliances and floor covering replacements. These improvements were funded from operating cash flow and Partnership reserves. Richardson Highlands Apartments Capital improvements budgeted for, but not limited to, approximately $99,000 are planned for 2000 at this property consisting primarily of appliance and floor covering replacements, and pavement resurfacing. As of September 30, 2000 approximately $81,000 of capital improvements have been incurred consisting primarily of appliances, maintenance equipment, cabinet and floor covering replacements. These improvements were funded from operating cash flow and replacement reserves. The additional capital expenditures will be incurred only if cash is available from operations or Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $30,024,000 has maturity dates of January 2005 and January 2008, with balloon payments due at maturity, at which time the properties will either be refinanced and/or sold. 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. 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. During the fourth quarter of 1999, the Partnership was notified that it was 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 required, 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. During the third quarter of 2000, the properties were marketed for sale in accordance with the Residual Proceeds Agreements. Based upon current market conditions within the location of the properties, there has been an increase in the value of the properties and accordingly, the liability representing anticipated amount due to the lender for its fifty percent share of the expected net proceeds from the sale of the properties after the payment of all mortgage notes payable and subordinated debt has been adjusted. The increase of approximately $8,000,000 was recorded during the three months ended September 30, 2000 and is included in interest expense. As of September 30, 2000 the estimated amount that the lender is entitled to receive is approximately $10,207,000 and is based upon current sales values for the two properties. Although present market conditions reflect an increase in value of the properties, there is no guarantee that the properties will be sold at their present fair market value. There can be no assurance that a receiver will not be appointed for the properties or that the properties will 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 about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from this uncertainty. A distribution of approximately $7,701,000 from the proceeds of the sale of Serramonte Plaza (approximately $473.58 per limited partnership unit) was made during the nine month period ended September 30, 2000. Also, a cash distribution of approximately $828,000 ($828,000 paid to the limited partners or $50.92 per limited partnership unit) was paid from operations. No cash distributions were paid during the nine months ended September 30, 1999. The Registrant's distribution policy is reviewed on an annual basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, debt maturities, refinancings, and/or property sales. There can be no assurance, however, that the Registrant will generate sufficient funds from operations, after required capital improvement expenditures, to permit additional distributions to its partners during the remainder of 2000 or subsequent periods. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended September 30, 2000. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 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: November 14, 2000