UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
[ ] 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 0-16684
MULTI-BENEFIT REALTY FUND '87-1
(Exact name of registrant 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)
September 30, 2003
Assets
Cash and cash equivalents $ 216
Receivables and deposits 110
Other assets 442
Assets held for sale 4,948
Investment property:
Land $ 485
Buildings and related personal property 7,507
7,992
Less accumulated depreciation (5,534) 2,458
$ 8,174
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 56
Tenant security deposit liabilities 36
Accrued property taxes 232
Other liabilities 262
Mortgage note payable 3,633
Liabilities related to assets held for sale 8,516
Partners' (Deficiency) Capital
General Partner $ (136)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (8,496)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,071 (4,561)
$ 8,174
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,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 277 $ 318 $ 910 $ 1,016
Other income 60 47 150 124
Total revenues 337 365 1,060 1,140
Expenses:
Operating 234 181 618 549
General and administrative 78 75 172 232
Depreciation 95 95 291 293
Interest 78 79 231 236
Property taxes 50 38 165 118
Total expenses 535 468 1,477 1,428
Loss from continuing operations (198) (103) (417) (288)
Income from discontinued operations 92 85 187 257
Net loss $ (106) $ (18) $ (230) $ (31)
Net loss allocated to general
partner (1%) $ (1) $ -- $ (2) $ --
Net loss allocated to limited
partners (99%) (105) (18) (228) (31)
$ (106) $ (18) $ (230) $ (31)
Per limited partnership unit:
Loss from continuing operations (1.14) (0.59) (2.41) (1.66)
Income from discontinued operations 0.53 0.49 1.08 1.48
Net loss per limited partnership unit $ (0.61) $ (0.10) $ (1.33) $ (0.18)
Distributions per limited partnership
"A" units $ 1.90 $ 2.05 $ 3.48 $ 7.11
Distributions per limited partnership
"B" units $ -- $ -- $ -- $ --
See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
(Unaudited)
(in thousands, except unit data)
Total
Partners'
General Limited Partners (Deficiency)
Partner "A" Units "B" Units Capital
Original capital contributions $ 1 $ 9,706 $ 7,538 $ 17,245
Limited partnership units at
December 31, 2002 and
September 30, 2003 -- 96,284 75,152 171,436
Partners' (deficiency) capital at
December 31, 2002 $ (131) $ (8,033) $ 4,171 $ (3,993)
Distributions to partners (3) (335) -- (338)
Net loss for the nine months
ended September 30, 2003 (2) (128) (100) (230)
Partners' (deficiency) capital
at September 30, 2003 $ (136) $ (8,496) $ 4,071 $ (4,561)
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,
2003 2002
Cash flows from operating activities:
Net loss $ (230) $ (31)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 636 638
Amortization of loan costs 20 20
Bad debt 148 78
Change in accounts:
Receivables and deposits (88) (40)
Other assets (41) (10)
Accounts payable 20 (48)
Tenant security deposit liabilities 14 7
Accrued property taxes 149 119
Other liabilities 90 108
Net cash provided by operating activities 718 841
Cash flows from investing activities:
Property improvements and replacements (142) (121)
Net withdrawals from restricted escrows -- 112
Net cash used in investing activities (142) (9)
Cash flows from financing activities:
Payments on mortgage notes payable (241) (223)
Distributions to partners (338) (692)
Net cash used in financing activities (579) (915)
Net decrease in cash and cash equivalents (3) (83)
Cash and cash equivalents at beginning of period 219 342
Cash and cash equivalents at end of period $ 216 $ 259
Supplemental disclosure of cash flow information:
Cash paid for interest $ 671 $ 688
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, 2003, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2003. 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, 2002. The General Partner is
an affiliate of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
business enterprises report information about long-lived assets that are either
being held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as discontinued
operations on the statement of operations. As a result, the accompanying
consolidated statements of operations as of January 1, 2002 have been restated
to reflect the operations of Shadow Brook Apartments, which was sold October 28,
2003, as income from discontinued operations.
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) payments to affiliates for services
and (ii) reimbursement of certain expenses incurred by affiliates on behalf of
the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from both of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$134,000 and $146,000 for the nine months ended September 30, 2003 and 2002,
respectively, which is included in operating expenses and discontinued
operations.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $71,000 and $125,000 for the
nine months ended September 30, 2003 and 2002, respectively, which is included
in general and administrative expenses.
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 $30,000 and $62,000
were paid for the nine months ended September 30, 2003 and 2002, respectively,
in association with operating distributions and are included in general and
administrative expenses.
The Partnership insures 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, 2003 and 2002, the
Partnership was charged by AIMCO and its affiliates approximately $42,000 and
$50,000, 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, 2003 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" 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 nine months
ended September 30, 2003, the "B" unit holders were not entitled to any
distributions.
Subsequent to September 30, 2003, the Partnership distributed approximately
$5,884,000 of sale proceeds from the sale of Shadow Brook Apartments (see Note D
- - Subsequent Event). Due to the prior overpayment to "B" unit holders, the "A"
unit holders received approximately $1,303,000 and the General Partner received
approximately $25,000 of funds that otherwise would have been paid to the "B"
unit holders.
Note D - Subsequent Event
On October 28, 2003, the Partnership sold Shadow Brook Apartments to an
unrelated third party for a gross sale price of $14,750,000. The net proceeds
realized by the Partnership were approximately $6,108,000 after payment of
closing costs and assumption of the mortgage by the buyer. The Partnership
expects to recognize a gain of approximately $9,565,000 during the fourth
quarter of 2003 as a result of the sale. In addition, the Partnership expects to
recognize a loss on extinguishment of debt of approximately $251,000 as a result
of unamortized loan costs being written off. The accompanying statements of
operations have been restated as of January 1, 2002 to reflect the operations of
Shadow Brook Apartments as income from discontinued operations and includes
revenues of approximately $1,611,000 and $1,711,000 for the nine months ended
September 30, 2003 and 2002, respectively.
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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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 Heller
action was brought as a purported derivative action, and asserted claims for,
among other things, breach of fiduciary duty, unfair competition, conversion,
unjust enrichment, and judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make at least
one round of tender offers to purchase all of the partnership interests in the
Partnerships within one year of final approval, if it is granted, and to provide
partners with the independent appraisals at the time of these tenders. The
proposed settlement also provided for the limitation of the allowable costs
which the General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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, 2003 and 2002:
Average Occupancy
Property 2003 2002
Hunt Club Apartments 90% 94%
Indianapolis, Indiana
Shadow Brook Apartments 95% 96%
West Valley City, Utah
The General Partner attributes the decrease in occupancy at Hunt Club Apartments
to a slow economy and lower mortgage interest rates which have encouraged home
ownership.
Results of Operations
On October 28, 2003, the Partnership sold Shadow Brook Apartments to an
unrelated third party for a gross sale price of $14,750,000. The net proceeds
realized by the Partnership were approximately $6,108,000 after payment of
closing costs and assumption of the mortgage by the buyer. The Partnership
expects to recognize a gain of approximately $9,565,000 during the fourth
quarter of 2003 as a result of the sale. In addition, the Partnership expects to
recognize a loss on extinguishment of debt of approximately $251,000 as a result
of unamortized loan costs being written off. The accompanying statements of
operations have been restated as of January 1, 2002 to reflect the operations of
Shadow Brook Apartments as income from discontinued operations and includes
revenues of approximately $1,611,000 and $1,711,000 for the nine months ended
September 30, 2003 and 2002, respectively.
The Partnership recognized income from discontinued operations of approximately
$187,000 and $257,000 for the nine months September 30, 2003 and 2002,
respectively. The Partnership recognized income from discontinued operations of
approximately $92,000 and $85,000 for the three months ended September 30, 2003
and 2002, respectively. The decrease in income from discontinued operations for
the nine month period was due to a decrease in rental revenue as a result of a
slight decrease in occupancy, a decrease in average rental rates and an increase
in bad debt and concession expenses at Shadow Brook Apartments. The increase in
income for the three month period was due primarily to increases in lease
cancellation fees and late charges at Shadow Brook Apartments.
The Partnership recognized losses from continuing operations of approximately
$417,000 and $288,000 for the nine months ended September 30, 2003 and 2002,
respectively. The Partnership recognized losses from continuing operations of
approximately $198,000 and $103,000 for the three months ended September 30,
2003 and 2002, respectively. The increase in losses from continuing operations
for the respective periods was due to a decrease in total revenues and an
increase in total expenses.
Total revenues decreased for the three and nine months ended September 30, 2003
due to a decrease in rental income partially offset by an increase in other
income. Rental income decreased primarily due to decreases in both occupancy and
average rental rates and an increase in bad debt expense at Hunt Club
Apartments. Other income increased primarily due to an increase in lease
cancellation fees and late charges partially offset by a decrease in utilities
reimbursements at Hunt Club Apartments.
Total expenses increased for the three and nine months ended September 30, 2003
due primarily to increases in operating and property tax expenses. The increase
in total expenses for the nine months ended September 30, 2003 was partially
offset by a decrease in general and administrative expense. Depreciation and
interest expenses remained relatively constant for the comparable periods.
Operating expenses increased primarily due to increases in utilities and
contract cleaning and repairs partially offset by decreases in salaries and
related employee expenses and management fees at Hunt Club Apartments. Property
tax expense increased at Hunt Club Apartments which is located in Indiana.
During 2003, Indiana adjusted its methodology for assessing property tax values
and rates, which has resulted in a significant increase in property tax expense.
General and administrative expenses decreased for the nine months ended
September 30, 2003 primarily due to reduced costs of services included in the
management reimbursements paid to an affiliate of the General Partner as allowed
under the Partnership Agreement and decreased fees paid to the General Partner
in connection with distributions made from operations. Also included in general
and administrative expenses 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 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, the General Partner may use
rental concessions and rental rate reductions to offset softening market
conditions, accordingly, there is no guarantee that the General Partner will be
able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $216,000 as compared to approximately $259,000 at September 30,
2002. Cash and cash equivalents decreased approximately $3,000 for the nine
months ended September 30, 2003, from December 31, 2002, due to approximately
$579,000 and $142,000 of cash used in financing and investing activities,
respectively, partially offset by approximately $718,000 of cash used in
operating activities. Cash used in financing activities consisted of
distributions to partners and principal payments made on the mortgages
encumbering the Partnership's investment properties. Cash used in investing
activities consisted of property improvements and replacements. 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
During the nine months ended September 30, 2003, the Partnership completed
approximately $55,000 of capital improvements at Hunt Club Apartments,
consisting primarily of floor covering and appliance replacements and water
heater upgrades. These improvements were funded from operating cash flow. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $13,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering and siding replacements and exterior
concrete upgrades. 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
During the nine months ended September 30, 2003, the Partnership completed
approximately $87,000 of capital improvements at Shadow Brook Apartments,
consisting primarily of water heater and furniture and fixture upgrades,
appliance and floor covering replacements and air conditioning improvements.
These improvements were funded from operating cash flow. Capital improvements of
approximately $6,000 were expended during the period October 1, 2003 to October
28, 2003 when the property was sold, consisting primarily of appliances and
floor covering replacements.
The additional capital expenditures for 2003 at the Partnership's property 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 thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering Hunt Club Apartments of approximately $3,633,000 is
being amortized over 20 years and matures September 1, 2020, at which time the
mortgage is scheduled to be fully amortized. The mortgage indebtedness
encumbering Shadow Brook Apartments of approximately $8,347,000 at September 30,
2003 was assumed by the buyer in connection with the sale of the property.
The Partnership distributed the following amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Nine Months Ended Partnership Nine Months Ended Partnership
September 30, 2003 Unit September 30, 2002 Unit
Operations $ 338 $ 3.48 $ 692 $ 7.11
The limited partner portion of the distribution during the nine months ended
September 30, 2003 was approximately $335,000 to "A" unit holders or $3.48 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, 2002 was
approximately $685,000 to "A" unit holders or $7.11 per limited partnership "A"
unit and zero to "B" Unit holders. 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 2003 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, 2003 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" 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 nine months
ended September 30, 2003, the "B" unit holders were not entitled to any
distributions.
Subsequent to September 30, 2003, the Partnership distributed approximately
$5,884,000 of sale proceeds from the sale of Shadow Brook Apartments (see "Item
1. Financial Statements, Note D - Subsequent Event"). Due to the prior
overpayment to "B" unit holders, the "A" unit holders received approximately
$1,303,000 and the General Partner received approximately $25,000 of funds that
otherwise would have been paid to "B" unit holders.
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, 2003. 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 in exchange for cash or a combination of cash and units in
AIMCO Properties, L.P., the operating partnership of AIMCO, either through
private purchases or tender offers. Pursuant to the Partnership Agreement,
unitholders holding a majority of the Units are entitled to take action with
respect to a variety of matters that include, but are not limited to, 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 and its affiliates are in a position to
control all such voting decisions with respect to the Partnership. 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, but are not limited
to, 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 impairment of 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 and
the Partnership fully reserves all balances outstanding over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of 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, has evaluated
the effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, 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 concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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 Heller
action was brought as a purported derivative action, and asserted claims for,
among other things, breach of fiduciary duty, unfair competition, conversion,
unjust enrichment, and judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make at least
one round of tender offers to purchase all of the partnership interests in the
Partnerships within one year of final approval, if it is granted, and to provide
partners with the independent appraisals at the time of these tenders. The
proposed settlement also provided for the limitation of the allowable costs
which the General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
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 31.1, Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2, Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1, Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 12, 2003
Exhibit 31.1
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 12, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 12, 2003
/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 32.1
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,
2003 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 12, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 12, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.