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 March 31, 2002
[ ] 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 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)
MCCOMBS REALTY PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2002
Assets
Cash and cash equivalents $ 706
Receivables and deposits 19
Restricted escrow 68
Other assets 105
Investment property:
Land $ 499
Buildings and related personal property 5,964
6,463
Less accumulated depreciation (4,340) 2,123
$ 3,021
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 34
Tenant security deposit liabilities 11
Accrued property taxes 26
Other liabilities 75
Mortgage note payable 5,444
Partners' Deficit
General partner $ --
Limited partners (17,196.39 units
issued and outstanding) (2,569) (2,569)
$ 3,021
See Accompanying Notes to Consolidated Financial Statements
b)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2002 2001
Revenues:
Rental income $ 325 $ 371
Other income 22 31
Total revenues 347 402
Expenses:
Operating 153 143
General and administrative 33 35
Depreciation 68 66
Interest 115 117
Property taxes 26 23
Total expenses 395 384
Net (loss) income $ (48) $ 18
Net (loss) income allocated to general partner (1%) $ -- $ --
Net (loss) income allocated to limited partners (99%) (48) 18
$ (48) $ 18
Net (loss) income per limited partnership unit $(2.79) $ 1.05
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, 2001 17,196.39 $ -- $ (2,521) $ (2,521)
Net loss for the three months
ended March 31, 2002 -- -- (48) (48)
Partners' deficit
at March 31, 2002 17,196.39 $ -- $ (2,569) $ (2,569)
See Accompanying Notes to Consolidated Financial Statements
d)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2002 2001
Cash flows from operating activities:
Net (loss) income $ (48) $ 18
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 68 66
Amortization of loan costs 5 5
Change in accounts:
Receivables and deposits 4 8
Other assets (25) (16)
Accounts payable 19 --
Tenant security deposit liabilities -- (1)
Accrued property taxes (75) (60)
Other liabilities (61) (35)
Net cash used in operating activities (113) (15)
Cash flows from investing activities:
Property improvements and replacements (40) (27)
Net deposits to restricted escrows (17) (17)
Net cash used in investing activities (57) (44)
Cash flows used in financing activities:
Payments on mortgage note payable (19) (18)
Net decrease in cash and cash equivalents (189) (77)
Cash and cash equivalents at beginning of period 895 782
Cash and cash equivalents at end of period $ 706 $ 705
Supplemental disclosure of cash flow information:
Cash paid for interest $ 110 $ 112
See Accompanying Notes to Consolidated Financial Statements
e)
MCCOMBS REALTY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of McCombs Realty
Partners (the "Partnership" or "Registrant"), a California limited 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. The Partnership's general partner is CRPTEX,
Inc. (the "General Partner"), a subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust. 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 month period ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2002. 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, 2001.
Note B - 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; if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds;
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; if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds;
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); if sufficient funds
were unavailable to fully satisfy this amount then a pro-rata
portion would be paid based upon available funds.
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 did not require the additional $117,500 to be loaned.
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. With respect to the amounts due to the
Limited Partners under numbers 2,4, and 5 above there were not sufficient funds
available to completely satisfy these obligations at October 20, 1998.
It was not anticipated that at October 20, 1998 there would be available funds
to fully satisfy the unsecured claims of the Limited Partners, as indicated
under the Plan. 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 Partners 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 did not make any payments to the Limited Partners on
October 20, 1998 as required by the Plan from available funds. There is no
requirement, however, that the Partnership sell or again refinance the property
in order to pay in part or in whole, the payments to the Limited Partners
referred to above. The General Partner has determined that although all of the
required payments under the Plan to the Limited Partners were not made that no
default exists and that it is proper for the Partnership to continue operating
under the terms of its Partnership Agreement as modified by the Plan.
Since the expiration of the Plan on October 20, 1998, the General Partner had
reserved all excess cash to ensure that the Partnership would be able to meet
its operating and capital improvement needs rather than making pro-rata payments
to the limited partners in accordance with numbers 2, 4, and 5 above. During the
fourth quarter of 2001, the General Partner determined that the Partnership had
accumulated approximately $562,000 in excess funds. Approximately $530,000 which
had been reserved since 1998 to ensure that the property was fully able to meet
its operating and capital improvement needs with existing operating funds was
distributed subsequent to March 31, 2002 in accordance with number 2 above. Any
additional funds will be distributed in accordance with the terms of the
Partnership Agreement as modified by the Plan.
Note C - 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.
During the three months ended March 31, 2002 and 2001, 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 $18,000 and $19,000 for
the three months ended March 31, 2002 and 2001, respectively, which are included
in operating expenses.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $19,000 and $20,000 for the
three months ended March 31, 2002 and 2001, respectively, which are included in
general and administrative expenses.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the three months ended March 31,
2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $19,000 and $25,000, respectively, for insurance coverage and fees
associated with policy claims administration.
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 discussion 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 three
months ended March 31, 2002 and 2001:
Average Occupancy
Property 2002 2001
Lakewood at Pelham 85% 95%
Greenville, South Carolina
The General Partner attributes the decrease in occupancy at Lakewood at Pelham
to increased market competition as a result of the slowdown in the economy in
the Greenville area.
Results of Operations
The Registrant's net loss for the three months ended March 31, 2002, was
approximately $48,000 as compared to net income of approximately $18,000 for the
three months ended March 31, 2001. The decrease in net income is due to a
decrease in total revenues and an increase in total expenses. Total revenues
decreased primarily due to a decrease in rental income and, to a lesser extent,
a decrease in other income. Rental income decreased primarily due to a decrease
in occupancy, slightly offset by an increase in the average rental rate, at the
Registrant's investment property. The decrease in other income is primarily due
to a decrease in interest income.
The increase in total expenses is due to an increase in operating expenses.
Operating expenses increased primarily due to an increase in insurance expense
as a result of a higher insurance premium at the investment property. General
and administrative, depreciation, interest and property tax expenses remained
relatively constant for the comparable periods. Included in general and
administrative expenses at both March 31, 2002 and 2001 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.
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 March 31, 2002, the Partnership had cash and cash equivalents of
approximately $706,000 as compared to approximately $705,000 at March 31, 2001.
The decrease in cash and cash equivalents of approximately $189,000, from the
Partnership's calendar year end, is due to approximately $113,000 of cash used
in operating activities, approximately $57,000 of cash used in investing
activities, and approximately $19,000 of cash used in financing activities. Cash
used in investing activities consisted of property improvements and replacements
and, to a lesser extent, net deposits to escrow accounts maintained by the
mortgage lender. 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 and to comply with Federal, state
and local legal and regulatory requirements. Capital improvements planned at the
Partnership's investment property are detailed below.
For 2002, the Partnership has budgeted approximately $94,000 for capital
improvements at Lakewood at Pelham, consisting primarily of interior building
improvements and floor covering replacement. The Partnership completed
approximately $40,000 in capital expenditures at Lakewood at Pelham as of March
31, 2002, consisting primarily of structural building improvements and floor
covering replacement. These improvements were funded from operations. Additional
improvements may be considered and will depend on the physical condition of the
property as well as the anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from 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 mortgage indebtedness on Lakewood at Pelham of approximately $5,444,000 is
being amortized over 30 years with a balloon payment due July 2005. The General
Partner may attempt to refinance such indebtedness and/or sell the property
prior to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing such property through
foreclosure.
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
of Reorganization (The "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; if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds;
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; if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds;
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); if sufficient funds
were unavailable to fully satisfy this amount then a pro-rata
portion would be paid based upon available funds.
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 did not require the additional $117,500 to be loaned.
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. With respect to the amounts due to the
Limited Partners under numbers 2,4, and 5 above there were not sufficient funds
available to completely satisfy these obligations at October 20, 1998.
It was not anticipated that at October 20, 1998 there would be available funds
to fully satisfy the unsecured claims of the Limited Partners, as indicated
under the Plan. 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 Partners 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 did not make any payments to the Limited Partners on
October 20, 1998 as required by the Plan from available funds. There is no
requirement, however, that the Partnership sell or again refinance the property
in order to pay in part or in whole, the payments to the Limited Partners
referred to above. The General Partner has determined that although all of the
required payments under the Plan to the Limited Partners were not made that no
default exists and that it is proper for the Partnership to continue operating
under the terms of its Partnership Agreement as modified by the Plan.
Since the expiration of the Plan on October 20, 1998, the General Partner had
reserved all excess cash to ensure that the Partnership would be able to meet
its operating and capital improvement needs rather than making pro-rata payments
to the limited partners in accordance with numbers 2, 4, and 5 above. During the
fourth quarter of 2001, the General Partner determined that the Partnership had
accumulated approximately $562,000 in excess funds. Approximately $530,000 which
had been reserved since 1998 to ensure that the property was fully able to meet
its operating and capital improvement needs with existing operating funds was
distributed subsequent to March 31, 2002 in accordance with number 2 above. Any
additional funds will be distributed in accordance with the terms of the
Partnership Agreement as modified by the Plan.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 3,636.5 limited partnership units in
the Partnership representing 21.15% of the outstanding units at March 31, 2002.
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 March 31, 2002.
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: May 13, 2002