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, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14570
MCCOMBS REALTY PARTNERS
(Exact name of small business issuer as specified in its charter)
California 33-0068732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
MCCOMBS REALTY PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2001
Assets
Cash and cash equivalents $ 832
Receivables and deposits 20
Restricted escrows 45
Other assets 103
Investment property:
Land $ 499
Buildings and related personal property 5,904
6,403
Less accumulated depreciation (4,200) 2,203
$ 3,203
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 31
Tenant security deposit liabilities 11
Accrued property taxes 75
Other liabilities 88
Mortgage note payable 5,483
Partners' Deficit
General partner $ --
Limited partners (17,196.39 units
issued and outstanding) (2,485) (2,485)
$ 3,203
See Accompanying Notes to Consolidated Financial Statements
b)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 363 $ 374 $ 1,120 $ 1,110
Other income 31 32 87 84
Total revenues 394 406 1,207 1,194
Expenses:
Operating 173 156 478 494
General and administrative 32 55 102 184
Depreciation 65 65 201 210
Interest 117 118 350 352
Property taxes 26 21 75 64
Total expenses 413 415 1,206 1,304
Net (loss) income $ (19) $ (9) $ 1 $ (110)
Net (loss) income allocated to
general partner (1%) $ -- $ -- $ -- $ (1)
Net (loss) income allocated to
limited partners (99%) (19) (9) 1 (109)
$ (19) $ (9) $ 1 $ (110)
Net (loss) income per limited
partnership unit $ (1.10) $(.52) $ .06 $ (6.34)
See Accompanying Notes to Consolidated Financial Statements
c)
MCCOMBS REALTY PARTNERS
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, 2000 17,196.39 $ -- $(2,486) $(2,486)
Net income for the nine months
ended September 30, 2001 -- -- 1 1
Partners' deficit at
September 30, 2001 17,196.39 $ -- $(2,485) $(2,485)
See Accompanying Notes to Consolidated Financial Statements
d)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income (loss) $ 1 $ (110)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 201 210
Amortization of loan costs 14 13
Change in accounts:
Receivables and deposits 11 86
Other assets (12) (10)
Accounts payable 16 (16)
Tenant security deposit liabilities (6) (1)
Accrued property taxes (8) (18)
Other liabilities (18) 13
Net cash provided by operating activities 199 167
Cash flows from investing activities:
Property improvements and replacements (94) (174)
Net withdrawals from restricted escrows -- 134
Net cash used in investing activities (94) (40)
Cash flows used in financing activities:
Payments on mortgage note payable (55) (51)
Net increase in cash and cash equivalents 50 76
Cash and cash equivalents at beginning of period 782 593
Cash and cash equivalents at end of period $ 832 $ 669
Supplemental disclosure of cash flow information:
Cash paid for interest $ 335 $ 339
At December 31, 1999, approximately $88,000 of property improvements and
replacements were included in accounts payable.
See Accompanying Notes to Consolidated Financial Statements
e)
MCCOMBS REALTY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
Under the Plan of Reorganization (the "Plan"; see "Note C" below) McCombs Realty
Partners (the "Partnership" or "Registrant"), a California limited partnership,
was required to pay claims to limited partners and creditors of approximately
$11,000,000 on October 20, 1998. These claims have not been paid as of September
30, 2001. This raises substantial doubt about the Partnership's ability to
continue as a going concern. In order to attempt to satisfy the remaining claims
under the Plan, the Partnership would be required to sell the investment
property. As an alternative to the sale of the property, the Partnership could
attempt to obtain authorization from the Court and the limited partners to
extend the settlement date of October 20, 1998, to a future period. The limited
partners were approached in August 1998 and asked to either approve a sale of
the Partnership's sole investment property or for CRPTEX, Inc. ("the General
Partner") to petition the Bankruptcy Court for an extension of the settlement
date. The required fifty-one percent response was not received. As a result, the
Partnership defaulted on its obligations which were due on October 20, 1998. The
General Partner is continuing to see that the Partnership operates its business
in the ordinary course while it evaluates the best course of action to follow.
The consolidated financial statements do not include any adjustments that might
result from the outcome of 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, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2001. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2000 for the Partnership. The General Partner
is an affiliate of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust.
Principles of Consolidation:
The Partnership's consolidated financial statements include the accounts of
Pelham Place, L.P., a South Carolina limited partnership. Pelham Place, L.P. is
the limited partnership which holds title to Lakewood at Pelham. Pelham Place,
L.P. is wholly-owned by the Partnership. All interpartnership transactions have
been eliminated.
Segment Reporting:
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also established standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. The General Partner believes that
segment-based disclosures will not result in a more meaningful presentation than
the consolidated financial statements as currently presented.
Note C - Plan of Reorganization
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
effective October 25, 1988. The Plan was approved by all required classes of
creditors.
The Plan required that the Partnership make the following payments on October
20, 1998:
1) First, all existing creditors, except prebankruptcy Class 12
creditors ($23,100), would be satisfied;
2) Limited Partners, both original and substitute, who made additional
capital contributions under the Plan would receive a repayment of
the additional contributions totaling approximately $730,000;
3) Class 12 creditors would be paid claims aggregating $23,100;
4) Limited Partners who made additional capital contributions and were
original Limited Partners would receive a repayment of their
original capital contributions totaling approximately $9,818,000;
5) Limited Partners who did not make additional capital contributions
would receive a repayment of one-third of their original capital
contributions (i.e., one-third of $1,200,000).
Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of
$14,500 and loan or expend an additional $117,500 on behalf of the Partnership
on an as-needed basis. The Partnership received the $14,500 capital contribution
but has not required the additional $117,500.
The payments required by numbers 1 and 3 above were timely satisfied. In
addition, all other claims provided for in the Plan then outstanding were
settled on June 25, 1995 when the Partnership refinanced the then outstanding
mortgages encumbering the property. However, the Partnership was unable to
satisfy the amounts due to the limited partners indicated in numbers 2, 4 and 5
above and is in default on these obligations.
Note D - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and for reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following transactions with the General Partner
and its affiliates were incurred during each of the nine months ended September
30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 60 $ 59
Reimbursement for services of affiliates (included in
general and administrative expenses and investment property) 55 58
During the nine months ended September 30, 2001 and 2000, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Partnership's investment property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$60,000 and $59,000 for the nine months ended September 30, 2001 and 2000,
respectively.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $55,000 and $58,000 for the
nine months ended September 30, 2001 and 2000, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 3,229.5 limited partnership
units in the Partnership representing 18.78% 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 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 voting on certain
amendments to the Partnership Agreement and voting to remove the General
Partner. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the General Partner because of
its affiliation with the General Partner.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussions of the Partnership'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 Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2001 and 2000:
Average Occupancy
Property 2001 2000
Lakewood at Pelham 95% 97%
Greenville, South Carolina
Results of Operations
The Registrant's net (loss) income for the three and nine months ended September
30, 2001 was approximately ($19,000) and $1,000, respectively, compared to net
losses of approximately $9,000 and 110,000, respectively for the three and nine
months ended September 30, 2000. The increase in net loss for the three months
ended September 30, 2001 is due to a decrease in total revenues, which was
partially offset by a decrease in total expenses. The decrease in total revenues
is primarily due to a decrease in rental income. The decrease in rental income
is primarily due to a decrease in occupancy and increased concessions, which
more than offset an increase in the average rental rate at the Partnership's
investment property. Other income remained relatively constant for the three
months ended September 30, 2001. The decrease in total expenses for the three
months ended September 30, 2001 is due to a decrease in general and
administrative expenses, which was partially offset by an increase in operating
expenses. The increase in operating expenses is primarily due to an increase in
insurance expense at the Partnership's investment property due to an increase in
premiums.
The increase in net income for the nine months ended September 30, 2001 is
primarily due to a decrease in total expenses, and to a lesser extent, an
increase in total revenues. The decrease in total expenses is primarily due to
decreases in operating expenses and general and administrative expenses
partially offset by an increase in property tax expense. Operating expenses
decreased primarily due to decreases in maintenance expense and payroll related
expenses, partially offset by an increase in the insurance premium at the
Partnership's investment property. Property tax expense increased for the nine
months ended September 30, 2001 due to an increase in the tax rate at the
Partnership's investment property. Depreciation expense and interest expense
remained relatively constant for the comparable periods.
General and administrative expenses decreased for both the three and nine months
ended September 30, 2001 primarily due to a decrease in professional fees
associated with the management of the Partnership. Included in general and
administrative expense at both September 30, 2001 and 2000 are management
reimbursements to the General Partner allowed under the Partnership Agreement.
Also included are costs associated with the quarterly and annual communications
with investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
The increase in total revenues for the nine months ended September 30, 2001 is
due primarily to an increase in rental income. Rental income increased primarily
due to an increase in the average rental rate, which more than offset the
decrease in occupancy and an increase in concessions at the Partnership's
investment property. Other income remained relatively constant for the nine
months ended September 30, 2001.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Partnership from increases in expenses. As part of this plan, the
General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2001, the Partnership had cash and cash equivalents of
approximately $832,000 compared to approximately $669,000 at September 30, 2000.
The increase in cash and cash equivalents of approximately $50,000 for the nine
months ended September 30, 2001, from the Partnership's calendar year end, is
due to approximately $199,000 of cash provided by operating activities, which
was partially offset by approximately $94,000 of cash used in investing
activities and approximately $55,000 of cash used in financing activities. Cash
used in investing activities consisted of property improvements and
replacements. Cash used in financing activities consisted of payments of
principal made on the mortgage encumbering the Partnership's investment
property. The Partnership invests its working capital reserves in interest
bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership including satisfaction of remaining
claims related to the Partnership's Plan of Reorganization, as described below,
and to comply with Federal, state, local, legal and regulatory requirements.
Capital improvements planned at the Partnership's investment property are
detailed below.
For 2001, the Partnership has budgeted approximately $88,000 for capital
improvements at Lakewood at Pelham, consisting primarily of floor covering
replacement and interior and exterior building improvements. The Partnership
completed approximately $94,000 of budgeted and non-budgeted capital
expenditures at Lakewood at Pelham as of September 30, 2001, consisting
primarily of structural improvements, interior building improvements, and floor
covering replacement. These improvements were funded by operations.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. Current Partnership reserves are
sufficient to cover the estimated costs of the capital improvements planned for
the year 2001. However, the Partnership does not have sufficient assets to
fulfill its obligation under the Plan of Reorganization ("Plan") and in fact
defaulted on its obligations due October 20, 1998. See discussion below for
detail as to the Partnership's Plan with respect to meeting its short term needs
under the Plan. No distributions were declared or paid during either of the nine
month periods ended September 30, 2001 or 2000.
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
effective October 25, 1988. The Plan was approved by all required classes of
creditors.
The Plan required that the Partnership make the following payments on October
20, 1998:
1) First, all existing creditors, except prebankruptcy Class 12
creditors ($23,100), would be satisfied;
2) Limited Partners, both original and substitute, who made additional
capital contributions under the Plan would receive a repayment of
the additional contributions totaling approximately $730,000;
3) Class 12 creditors would be paid claims aggregating $23,100;
4) Limited Partners who made additional capital contributions and were
original Limited Partners would receive a repayment of their
original capital contributions totaling approximately $9,818,000;
5) Limited Partners who did not make additional capital contributions
would receive a repayment of one-third of their original capital
contributions (i.e., one-third of $1,200,000).
Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of
$14,500 and loan or expend an additional $117,500 on behalf of the Partnership
on an as-needed basis. The Partnership received the $14,500 capital contribution
but has not required the additional $117,500.
The payments required by numbers 1 and 3 above were timely satisfied. In
addition, all other claims provided for in the Plan then outstanding were
settled on June 25, 1995 when the Partnership refinanced the then outstanding
mortgages encumbering the property. However, the Partnership was unable to
satisfy the amounts due to the limited partners indicated in numbers 2, 4, and 5
above and is in default on these obligations.
To attempt to satisfy its remaining obligations under the Plan, the Partnership
would be required to sell the investment property. As an alternative, the
Partnership could seek authorization from the Limited Partners to extend the
payment date of October 20, 1998 to a future period. The limited partners were
approached in August 1998 and asked to either approve a sale of the
Partnership's sole investment property or for the General Partner to petition
the Bankruptcy Court for an extension of the settlement date. The required
fifty-one percent response was not received. As a result, the Partnership
defaulted on its obligations which were due on October 20, 1998. The General
Partner is continuing to see that the Partnership operates its business in the
ordinary course while it evaluates the best course of action to follow.
Additionally, the Partnership's mortgage indebtedness of approximately
$5,483,000 at September 30, 2001, matures in July 2005 with a balloon payment
due, and would require a property sale or refinancing at that time. However,
there can be no assurance that these courses of action will be successful and
that the Partnership will have sufficient funds to meet its obligations in 2001
or beyond.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 3,229.5 limited partnership
units in the Partnership representing 18.78% 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 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 voting on certain
amendments to the Partnership Agreement and voting to remove the General
Partner. When voting on matters, AIMCO would in all likelihood vote the Units it
acquired in a manner favorable to the interest of the General Partner because of
its affiliation with the General Partner.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCCOMBS REALTY PARTNERS
By: CRPTEX, INC.
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 8, 2001