UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 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)
The issuer recently discovered that it had inadvertently omitted conformed
signatures on certain certifications included in its 10-QSB filing made November
14, 2002. Original signatures were complete and on file with the issuer at the
time the 10-QSB filing was made in November; however, due to a clerical error,
conformed signatures were not included in the electronic filing. This amendment
is being filed solely to correct this inadvertent clerical error.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2002
Assets
Cash and cash equivalents $ 259
Receivables and deposits 124
Other assets 446
Investment properties:
Land $ 1,447
Buildings and related personal property 17,805
19,252
Less accumulated depreciation (11,193) 8,059
$ 8,888
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 39
Tenant security deposit liabilities 57
Accrued property taxes 272
Other liabilities 328
Mortgage notes payable 12,298
Partners' (Deficit) Capital
General Partner $ (132)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (8,095)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,121 (4,106)
$ 8,888
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 Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 830 $ 876 $ 2,581 $ 2,651
Other income 86 72 269 208
Total revenues 916 948 2,850 2,859
Expenses:
Operating 352 395 1,107 1,129
General and administrative 75 60 232 261
Depreciation 208 208 638 629
Interest 234 213 706 608
Property taxes 65 61 198 190
Loss on early extinguishment
of debt -- 47 -- 47
Total expenses 934 984 2,881 2,864
Net loss $ (18) $ (36) $ (31) $ (5)
Net loss allocated to general
partner (1%) $ -- $ -- $ -- $ --
Net loss allocated to limited
partners (99%) (18) (36) (31) (5)
$ (18) $ (36) $ (31) $ (5)
Net loss per limited partnership
unit $ (0.10) $ (0.21) $ (0.18) $ (0.03)
Distributions per limited
partnership "A" units $ 2.05 $ 13.33 $ 7.11 $ 14.68
Distributions per limited
partnership "B" units $ -- $ 13.33 $ -- $ 21.57
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
September 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 (7) (685) -- (692)
Net loss for the nine months
ended September 30, 2002 -- (17) (14) (31)
Partners' (deficit) capital
at September 30, 2002 $ (132) $ (8,095) $ 4,121 $ (4,106)
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except unit data)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net loss $ (31) $ (5)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 638 629
Amortization of loan costs 20 28
Loss on early extinguishment of debt -- 47
Change in accounts:
Receivables and deposits 38 (336)
Other assets (10) (12)
Accounts payable (48) 16
Tenant security deposit liabilities 7 (7)
Accrued property taxes 119 120
Other liabilities 108 (19)
Net cash provided by operating activities 841 461
Cash flows from investing activities:
Property improvements and replacements (121) (482)
Net withdrawals from restricted escrows 112 170
Net cash used in investing activities (9) (312)
Cash flows from financing activities:
Payments on mortgage notes payable (223) (62)
Repayment of mortgage notes payable -- (6,000)
Proceeds from mortgage notes payable -- 8,775
Loan costs paid -- (281)
Distributions to partners (692) (3,042)
Net cash used in financing activities (915) (610)
Net decrease in cash and cash equivalents (83) (461)
Cash and cash equivalents at beginning of period 342 892
Cash and cash equivalents at end of period $ 259 $ 431
Supplemental disclosure of cash flow information:
Cash paid for interest $ 688 $ 564
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 September 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 nine month periods ended September 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.
Effective April 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44
and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt,"
required that all gains and losses from extinguishment of debt be aggregated
and, if material, classified as an extraordinary item. SFAS No. 145 rescinds
SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should
only be classified as extraordinary if they are unusual in nature and occur
infrequently. Neither of these criteria applies to the Partnership. As a result,
the accompanying consolidated statements of operations have been restated to
reflect the loss on early extinguishment of debt at Shadow Brook Apartments (see
"Note D") in operations rather than as an extraordinary item.
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 nine months ended September 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 $146,000 and
$144,000 for the nine months ended September 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 $83,000 and $313,000 for the
nine months ended September 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
$170,000 during the nine months ended September 30, 2002 and 2001, respectively.
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 $62,000 and $67,000
were paid for the nine months ended September 30, 2002 and 2001, respectively,
in association with the distributions and are included in general and
administrative expenses.
An affiliate of the General Partner received approximately $88,000 for services
provided in conjunction with the refinancing of the mortgage encumbering Shadow
Brook Apartments in August 2001 (see "Note D"). This cost was capitalized and is
included in other assets on the consolidated balance sheet.
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 nine months ended September
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 September 30, 2002 the "B" unit holders have
been overpaid approximately $1,328,000 (approximately $17.67 per limited
partnership "B" units). Approximately $1,303,000 of this amount is due to the
"A" unit holders (approximately $13.53 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 nine months
ended September 30, 2002, the "B" unit holders were entitled to approximately
$95,000 (approximately $1.26 per limited partnership "B" units and approximately
$0.99 per limited partnership "A" units) in distributions. This amount was paid
to the "A" unit holders to reduce the overpayment.
Note D - Refinancing of Mortgage Note Payable
On August 31, 2001, the Partnership refinanced the mortgage encumbering Shadow
Brook Apartments. The refinancing replaced indebtedness of approximately
$6,000,000 with a new mortgage of $8,775,000. The new mortgage carries a stated
interest rate of 7.10% as compared to the 7.33% interest rate on the old
mortgage. Payments on the mortgage loan are due monthly until the loan matures
on September 1, 2021 at which time the loan will be fully amortized. Total
capitalized loan costs were approximately $281,000 for the nine months ended
September 30, 2001. The Partnership recognized a loss on the early
extinguishment of debt of approximately $47,000 due to the write-off of
unamortized loan costs.
Note E - 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. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
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 Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
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 nine months ended September 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Hunt Club Apartments 94% 91%
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 a net loss of approximately $31,000 for the nine months
ended September 30, 2002 as compared to a net loss of approximately $5,000 for
the nine months ended September 30, 2001. For the three months ended September
30, 2002, the Partnership had a net loss of approximately $18,000 as compared to
a net loss of approximately $36,000 for the three months ended September 30,
2001. The increase in net loss for the nine month period ended September 30,
2002 is primarily attributable to an increase in total expenses and a decrease
in total revenues. The decrease in net loss for the three months ended September
30, 2002 is due to a decrease in total expenses partially offset by a decrease
in total revenues.
Total expenses increased for the nine months ended September 30, 2002 primarily
due to an increase in interest expense partially offset by decreases in loss on
early extinguishment of debt and operating and general and administrative
expenses. Total expenses decreased for the three months ended September 30, 2002
primarily due to decreases in loss on early extinguishment of debt and operating
expenses partially offset by an increase in interest expense. The decrease
during the three and nine month periods ending September 30, 2002 in loss on
early extinguishment of debt relates to the refinancing of the mortgage
encumbering Shadow Brook Apartments in August 2001 as discussed in "Liquidity
and Capital Resources". Operating expenses decreased during the three and nine
month periods ending September 30, 2002 primarily due to decreases in property
expense as a result of decreases in utility expense at Hunt Club Apartments and
salary and related benefit expenses at both of the Partnership's properties.
General and administrative expenses decreased for the nine months ended
September 30, 2000 primarily due to decreases in professional expenses
associated with the management of the Partnership. Also included in general and
administrative expenses for the three and nine months ended September 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. Interest expense increased during the three and nine
months ending September 30, 2002 due to the refinancing of the mortgage
encumbering Shadow Brook Apartments during August 2001, which increased the debt
balance at the property, as discussed in "Liquidity and Capital Resources".
Total revenues decreased for the three and nine months ended September 30, 2002
due to decreased rental income partially offset by increased other income.
Rental income decreased due to increased bad debt expenses at both of the
Partnership's properties, decreased occupancy at Shadow Brook Apartments,
increased concessions at both of the Partnership's properties and decreased
average rental rates at Hunt Club Apartments. These decreases were partially
offset by increased occupancy at Hunt Club Apartments and increased average
rental rates at Shadow Brook Apartments. Other income increased due to increased
utility reimbursements at both of the Partnership's properties and increased
non-refundable administrative fees at Shadow Brook Apartments and increased
lease cancellation fees at Hunt Club Apartments. These increases were partially
offset by reduced interest income due to lower average cash balances maintained
in interest bearing accounts.
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 September 30, 2002, the Partnership had cash and cash equivalents of
approximately $259,000 as compared to approximately $431,000 at September 30,
2001. Cash and cash equivalents decreased approximately $83,000 for the nine
months ended September 30, 2002, from December 31, 2001, due to approximately
$915,000 of cash used in financing activities and approximately $9,000 of cash
used in investing activities, which was partially offset by approximately
$841,000 of cash provided by operating 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 used in 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. The General Partner monitors
developments in the area of legal and regulatory compliance and is studying new
federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act
of 2002 mandates or suggests additional compliance measures with regard to
governance, disclosure, audit and other areas. In light of these changes, the
Partnership expects that it will incur higher expenses related to compliance,
including increased legal and audit fees. Capital improvements planned for each
of the Partnership's properties are detailed below.
Hunt Club
Approximately $113,000 was budgeted for capital improvements for the year 2002
at Hunt Club Apartments consisting primarily of appliance and floor covering
replacements. During the nine months ended September 30, 2002, the Partnership
completed approximately $59,000 of capital improvements at Hunt Club Apartments,
consisting primarily of floor covering replacements and water heater
improvements. These improvements were funded from operating cash flow and
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.
Shadow Brook
Approximately $125,000 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 nine months
ended September 30, 2002, the Partnership completed approximately $62,000 of
capital improvements at Shadow Brook Apartments, consisting primarily of
plumbing upgrades, office computers and appliance 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.
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.
On August 31, 2001, the Partnership refinanced the mortgage encumbering Shadow
Brook Apartments. The refinancing replaced indebtedness of approximately
$6,000,000 with a new mortgage of $8,775,000. The new mortgage carries a stated
interest rate of 7.10% as compared to the 7.33% interest rate on the old
mortgage. Payments on the mortgage loan are due monthly until the loan matures
on September 1, 2021 at which time the loan will be fully amortized. Total
capitalized loan costs were approximately $281,000 for the nine months ended
September 30, 2001. The Partnership recognized a loss on the early
extinguishment of debt of approximately $47,000 due to the write-off of
unamortized loan costs.
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 $12,298,000 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 nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Per Limited Nine Months Per Limited
Ended Partnership Ended Partnership
September 30, 2002 Unit September 30, 2001 Unit
Operations $ 692 $ 7.11 $ 757 $ 9.59
Refinancing
proceeds (1) -- -- 2,285 26.66
$ 692 $ 7.11 $3,042 $36.25
(1) Refinance proceeds from Shadow Brook Apartments.
The limited partner portion of the distribution during the nine months ended
September 30, 2002 was approximately $685,000 to "A" unit holders or $7.11 per
limited partnership "A" unit and zero to "B" unit holders. The limited partner
portion of the distribution during the nine months ended September 30, 2001 was
approximately $1,413,000 to "A" Unit holders or $14.68 per limited partnership
"A" units and approximately $1,621,000 to "B" unit holders or $21.57 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 September 30, 2002 the "B" unit holders have
been overpaid approximately $1,328,000 (approximately $17.67 per limited
partnership "B" unit). Approximately $1,303,000 of this amount is due to the "A"
unit holders (approximately $13.53 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 nine months
ended September 30, 2002, the "B" unit holders were entitled to approximately
$95,000 (approximately $1.26 per limited partnership "B" units and approximately
$0.99 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 62,627 "A" and 39,384 "B" Units of
Depository Receipts ("Units") in the Partnership representing 65.04% and 52.41%
of the outstanding "A" and "B" Units, respectively, at September 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. 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 65.04% 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 owes fiduciary duties to AIMCO as its sole stockholder. As a
result, the duties of the General Partner, as general partner, to the
Partnership 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.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
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. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
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.
3-38908) 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 September
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: January 9, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Multi-Benefit Realty
Fund '87-1;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Multi-Benefit Realty
Fund '87-1;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities, Inc., equivalent of
the chief financial officer of the Partnership
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 September 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: November 13, 2002
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 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.