UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-16684
MULTI-BENEFIT REALTY FUND '87-1
(Exact name of small business issuer as specified in its charter)
California 94-3026785
(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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 237
Receivables and deposits 163
Other assets 468
Investment properties:
Land $ 1,447
Buildings and related personal property 17,743
19,190
Less accumulated depreciation (10,985) 8,205
$ 9,073
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 45
Tenant security deposit liabilities 56
Accrued property taxes 206
Other liabilities 280
Mortgage notes payable 12,374
Partners' (Deficit) Capital
General Partner $ (130)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (7,887)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,129 (3,888)
$ 9,073
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenues:
Rental income $ 901 $ 889 $ 1,751 $ 1,775
Other income 85 69 183 136
Total revenues 986 958 1,934 1,911
Expenses:
Operating 370 352 755 734
General and administrative 98 86 157 201
Depreciation 216 212 430 421
Interest 235 199 472 395
Property taxes 67 68 133 129
Total expenses 986 917 1,947 1,880
Net income (loss) $ -- $ 41 $ (13) $ 31
Net income allocated to general
partner (1%) $ -- $ -- $ -- $ --
Net income (loss) allocated to
limited partners (99%) -- 41 (13) 31
$ -- $ 41 $ (13) $ 31
Net income (loss) per limited
partnership unit $ -- $ 0.24 $ (0.08) $ 0.18
Distributions per limited
partnership "A" units $ 5.06 $ 0.86 $ 5.06 $ 1.35
Distributions per limited
partnership "B" units $ -- $ 1.10 $ -- $ 8.24
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Total
Partners'
General Limited Partners (Deficit)
Partner "A" Units "B" Units Capital
Original capital contributions $ 1 $ 9,706 $ 7,538 $ 17,245
Limited partnership units at
December 31, 2001 and
June 30, 2002 -- 96,284 75,152 171,436
Partners' (deficit) capital at
December 31, 2001 $ (125) $ (7,393) $ 4,135 $ (3,383)
Distributions to partners (5) (487) -- (492)
Net loss for the six months
ended June 30, 2002 -- (7) (6) (13)
Partners' (deficit) capital
at June 30, 2002 $ (130) $ (7,887) $ 4,129 $ (3,888)
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except unit data)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net (loss) income $ (13) $ 31
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 430 421
Amortization of loan costs 13 19
Change in accounts:
Receivables and deposits (1) (65)
Other assets (25) (22)
Accounts payable (42) (20)
Tenant security deposit liabilities 6 (2)
Accrued property taxes 53 59
Other liabilities 60 11
Net cash provided by operating activities 481 432
Cash flows from investing activities:
Property improvements and replacements (59) (271)
Net withdrawals from restricted escrows 112 135
Net cash provided by (used in) investing
activities 53 (136)
Cash flows from financing activities:
Payments on mortgage notes payable (147) (41)
Distributions to partners (492) (757)
Net cash used in financing activities (639) (798)
Net decrease in cash and cash equivalents (105) (502)
Cash and cash equivalents at beginning of period 342 892
Cash and cash equivalents at end of period $ 237 $ 390
Supplemental disclosure of cash flow information:
Cash paid for interest $ 460 $ 375
At December 31, 2000, approximately $125,000 of property improvements and
replacements were included in accounts payable and are included in property
improvements and replacements at June 30, 2001.
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Multi-Benefit
Realty Fund '87-1 (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 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. The General Partner is an affiliate
of Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust.
Limited Partnership Units
The Partnership has issued two classes of Units of Depositary Receipts
("Units"), "A" Units and "B" Units. The two classes of Units are entitled to
different rights and priorities as to cash distributions and Partnership
allocations. The Units represent economic rights attributable to the limited
partnership interests in the Partnership and entitle the holders thereof ("Unit
holders") to participate in certain allocations and distributions of the
Partnership.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
During the six months ended June 30, 2002 and 2001, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $98,000 and
$96,000 for the six months ended June 30, 2002 and 2001, respectively, which is
included in operating expenses.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $85,000 and $108,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
general and administrative expenses and investment properties. Included in these
amounts are fees related to construction management services provided by an
affiliate of the Managing General Partner of approximately $4,000 and $7,000
during the six months ended June 30, 2002 and 2001, respectively. This fee is
related to construction management services provided by AIMCO and its
affiliates. The construction management service fees are calculated based on a
percentage of current year additions to investment properties.
The Partnership Agreement provides for a fee equal to 9% of distributable cash
from operations (as defined in the Partnership Agreement) received by the
limited partners to be paid to the General Partner for executive and
administrative management services. Fees of approximately $44,000 and $67,000
were paid for the six months ended June 30, 2002 and 2001, respectively, in
association with the distributions and are included in general and
administrative expenses.
Beginning in 2001, the Partnership began insuring its properties 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 properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$34,000 and $36,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Distributions
Upon distribution of sale proceeds from the sale of Carlin Manor during the year
ended December 31, 2000, the "A" unit holders did not receive the correct
priority return. As a result, at June 30, 2002 the "B" unit holders have been
overpaid approximately $1,366,000 (approximately $18.18 per limited partnership
"B" units). Approximately $1,341,000 of this amount is due to the "A" unit
holders (approximately $13.93 per limited partnership "A" units) and
approximately $25,000 is due to the General Partner. All future distributions
payable to the "B" Unit holders will be paid to the "A" unit holders until the
"A" unit holders receive the correct priority return. During the six months
ended June 30, 2002, the "B" unit holders were entitled to approximately $56,000
(approximately $0.75 per limited partnership "B" units and approximately $0.58
per limited partnership "A" units) in distributions. This amount was paid to the
"A" unit holders to reduce the overpayment.
Note D - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF 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 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 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 of the properties for each of
the six months ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Hunt Club Apartments 95% 92%
Indianapolis, Indiana
Shadow Brook Apartments 96% 97%
West Valley City, Utah
The General Partner attributes the increase in occupancy at Hunt Club Apartments
to a more aggressive marketing campaign.
Results of Operations
The Partnership had net loss of approximately $13,000 for the six months ended
June 30, 2002 as compared to net income of approximately $31,000 for the six
months ended June 30, 2001. For the three months ended June 30, 2002, the
Partnership had approximately zero net income as compared to net income of
approximately $41,000 for the three months ended June 30, 2001. The decrease in
net income for both the three and six month periods ended June 30, 2002 is
primarily attributable to an increase in total expenses partially offset by an
increase in total revenues.
Total expenses increased for the three and six month periods ended June 30, 2002
due primarily to increased interest expense. For the six months ended June 30,
2002, this increase was partially offset by reduced general and administrative
expenses. Interest expense increased for the three and six month periods due to
the refinance of the mortgage at Shadow Brook Apartments in September 2001,
which increased the debt balance. General and administrative expenses decreased
for the six months ended June 30, 2000 due to decreased Partnership management
fees due to reduced distributions from operations during 2002 and reduced costs
of services included in the management reimbursements to the General Partner as
allowed under the Partnership Agreement. For the three months ended June 30,
2002 general and administrative expenses increased due to the timing of the
operating distributions during 2002 as compared to 2001. Also included in
general and administrative expenses for the three and six months ended June 30,
2002 and 2001 are costs associated with the quarterly and annual communications
with investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
Total revenues increased for the six months ended June 30, 2002 due to increased
other income partially offset by reduced rental income. Total revenues increased
for the three months ended June 30, 2002 due to increased rental and other
income. Other income increased for the three and six month periods due to
increased utility reimbursements at both of the Partnership's properties and
increased corporate unit rent at Shadow Brook Apartments. These increases were
partially offset by reduced interest income due to lower average cash balances
in interest bearing accounts. Rental income decreased for the six months ended
June 30, 2001 due to reduced occupancy at Shadow Brook and increased bad debt
expenses at both of the Partnership's properties, partially offset by increased
occupancy at Hunt Club Apartments. Rental income increased for the three months
ended June 30, 2002 due to increased occupancy at Hunt Club Apartments.
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 expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$237,000 as compared to approximately $390,000 at June 30, 2001. Cash and cash
equivalents decreased approximately $105,000 for the six months ended June 30,
2002, from December 31, 2001, due to approximately $639,000 of cash used in
financing activities, which was partially offset by approximately $481,000 of
cash provided by operating activities and approximately $53,000 of cash provided
by investing activities. Cash used in financing activities consisted of
distributions to partners and, to a lesser extent, of payments of principal made
on the mortgages encumbering the Partnership's properties. Cash provided by
investing activities consisted of property improvements and replacements which
were partially offset by net withdrawals from restricted escrows maintained by
the mortgage lender. 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 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 Registrant's properties are detailed below.
Hunt Club
Approximately $106,000 was budgeted for capital improvements for the year 2002
at Hunt Club Apartments consisting primarily of appliance and floor covering
replacements. During the six months ended June 30, 2002, the Partnership
completed approximately $25,000 of capital improvements at Hunt Club Apartments,
consisting primarily of floor covering replacements. These improvements were
funded from replacement reserves. Additional capital 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 and replacement reserves.
Shadow Brook
Approximately $116,000 was budgeted for capital improvements for the year 2002
at Shadow Brook Apartments consisting primarily of floor covering replacements,
exterior painting, major landscaping, and appliances. During the six months
ended June 30, 2002, the Partnership completed approximately $34,000 of capital
improvements at Shadow Brook Apartments, consisting primarily of office
computers and floor covering replacements. These improvements were funded from
operating cash flow. Additional capital 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 and replacement reserves.
The additional capital expenditures for 2002 at the Partnership's properties
will be made only to the extent of cash available from operations and
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.
The Partnership's assets are currently thought to be sufficient for any
near-term needs (exclusive of capital improvements) of the Partnership. The
mortgage indebtedness of approximately $12,374,000 is amortized over 20 years
and matures September 1, 2020 and September 1, 2021 at which time the loans are
scheduled to be fully amortized.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ 492 $ 5.06 $ 757 $ 9.59
The limited partner portion of the distribution during the six months ended June
30, 2002 was approximately $487,000 to "A" unit holders or $5.06 per limited
partnership "A" unit and zero to "B" unit holders. The limited partner portion
of the distribution during the six months ended June 30, 2001 was approximately
$130,000 to "A" Unit holders or $1.35 per limited partnership "A" units and
approximately $619,000 to "B" unit holders or $8.24 per limited partnership "B"
units. The Partnership's cash available for distribution is reviewed on a
monthly basis. 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. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit further distributions to its
partners during the remainder of 2002 or subsequent periods.
Upon distribution of sale proceeds from the sale of Carlin Manor during the year
ended December 31, 2000, the "A" unit holders did not receive the correct
priority return. As a result, at June 30, 2002 the "B" unit holders have been
overpaid approximately $1,366,000 (approximately $18.18 per limited partnership
"B" unit). Approximately $1,341,000 of this amount is due to the "A" unit
holders (approximately $13.93 per limited partnership "A" unit) and
approximately $25,000 is due to the General Partner. All future distributions
payable to the "B" Unit holders will be paid to the "A" unit holders until the
"A" unit holders receive the correct priority return. During the six months
ended June 30, 2002, the "B" unit holders were entitled to approximately $56,000
(approximately $0.75 per limited partnership "B" units and approximately $0.58
per limited partnership "A" units) in distributions. This amount was paid to the
"A" unit holders to reduce the overpayment.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 62,527 "A" and 39,384 "B" Units of
Depository Receipts ("Units") in the Partnership representing 64.94% and 52.41%
of the outstanding "A" and "B" Units, respectively, at June 30, 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
units of limited partnership interest in the Partnership in exchange for cash or
a combination of cash and units in the operating partnership of AIMCO either
through private purchases or tender offers. In this regard, on June 25, 2002, a
tender offer by AIMCO Properties, L.P., to acquire any and all of the units not
owned by affiliates of AIMCO for a purchase price of $18.00 per unit and $5.00
per unit for "A" and "B" units, respectively, expired. Pursuant to this offer,
AIMCO acquired 647 and 717 units of "A" and "B" units, respectively, during the
quarter ended June 30, 2002. Under the Partnership Agreement, units holders
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. As a result of
its ownership of 64.94% and 52.41% of the outstanding "A" and "B" Units,
respectively, AIMCO is in a position to control all such voting decisions with
respect to the Registrant. Although the General Partner owes fiduciary duties to
the limited partners of the Partnership, the General Partner also owed fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the General
Partner, as general partner, to the Partnerships and its limited partners may
come into conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Agreement of Limited Partnership, incorporated by
reference to Exhibit A-5 to the Prospectus of the Registrant
dated December 10, 1986 as filed with the Commission pursuant
to Rule 424(b) under the Act.
Exhibit 3.2, Certificate of Limited Partnership
(incorporated by reference to Registration Statement of
Registrant (File No. 33-8908) filed December 10, 1986, as
amended to date).
Exhibit 99, Certification of Chief Executive Officer and
Chief Financial Officer.
b) Reports on Form 8-K filed during the quarter ended June 30,
2002:
None.
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.
MULTI-BENEFIT REALTY FUND '87-1
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Multi-Benefit Realty
Fund '87-1 (the "Partnership"), for the quarterly period ended June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of
the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial
Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.