UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-14570
MCCOMBS REALTY PARTNERS
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 33-0068732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCCOMBS REALTY PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 108
Receivables and deposits 59
Restricted escrow 154
Other assets 81
Investment property:
Land $ 499
Buildings and related personal property 6,237
6,736
Less accumulated depreciation (4,997) 1,739
$ 2,141
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 69
Tenant security deposit liabilities 31
Accrued property taxes 81
Other liabilities 76
Due to affiliates (Note C) 263
Mortgage note payable 5,226
Partners' Deficit
General partner $ (1)
Limited partners (17,172.43 units
issued and outstanding) (3,604) (3,605)
$ 2,141
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 282 $ 314 $ 928 $ 917
Other income 54 42 137 125
Casualty gain (Note D) -- -- 16 15
Total revenues 336 356 1,081 1,057
Expenses:
Operating 166 188 557 481
General and administrative 29 26 90 85
Depreciation 69 67 207 203
Interest 114 113 340 340
Property taxes 27 26 82 76
Total expenses 405 420 1,276 1,185
Net loss $ (69) $ (64) $ (195) $ (128)
Net loss allocated to
general partner $ -- $ -- $ -- $ --
Net loss allocated to
limited partners (69) (64) (195) (128)
$ (69) $ (64) $ (195) $ (128)
Net loss per limited
partnership unit $ (4.02) $ (3.73) $(11.36) $ (7.45)
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Partners' deficit at
December 31, 2003 17,172.43 $ (1) $ (3,409) $ (3,410)
Net loss for the nine months
ended September 30, 2004 -- -- (195) (195)
Partners' deficit
at September 30, 2004 17,172.43 $ (1) $ (3,604) $ (3,605)
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (195) $ (128)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 207 203
Amortization of loan costs 14 14
Bad debt expense 49 53
Casualty gain (16) (15)
Change in accounts:
Receivables and deposits (49) (59)
Other assets (35) (27)
Accounts payable (5) 41
Tenant security deposit liabilities (3) 13
Accrued property taxes (25) 76
Due to affiliates 64 39
Other liabilities 12 26
Net cash provided by operating activities 18 236
Cash flows from investing activities:
Insurance proceeds received 16 26
Property improvements and replacements (73) (144)
Net deposits to restricted escrow (35) (27)
Net cash used in investing activities (92) (145)
Cash flows from financing activities:
Payments on mortgage note payable (70) (65)
Advances from affiliate 120 --
Net cash provided by (used in) financing activities 50 (65)
Net (decrease) increase in cash and cash equivalents (24) 26
Cash and cash equivalents at beginning of period 132 82
Cash and cash equivalents at end of period $ 108 $ 108
Supplemental disclosure of cash flow information:
Cash paid for interest $ 320 $ 325
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of McCombs Realty
Partners (the "Partnership" or "Registrant"), a California limited partnership,
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The Partnership's general partner is CRPTEX,
Inc. (the "General Partner"). In the opinion of the General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2004. 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, 2003. The General Partner is a subsidiary of
Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust.
Note B - Plan of Reorganization
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
of Reorganization (the "Plan") effective October 25, 1988. The Plan was approved
by all required classes of creditors.
The Plan required that the Partnership make certain payments to its secured
creditors and others on or before October 20, 1995. These payments were made on
or about June 25, 1995, when the Partnership refinanced the outstanding
mortgages encumbering the property. The Plan also required that the Partnership
make the following distributions on October 20, 1998, from available cash:
1) First, Limited Partners, both original and substitute, who made
additional capital contributions under the plan would receive a
repayment of the additional contributions totaling approximately
$730,000; if sufficient funds were unavailable to fully satisfy this
amount then a pro-rata portion would be paid based upon available
funds;
2) Second, Class 12 unsecured creditors ($23,100) would be paid on
their claims;
3) Third, Limited Partners who made additional capital contributions
and were original Limited Partners would receive a repayment of
their original capital contributions totaling approximately
$9,818,000; if sufficient funds were unavailable to fully satisfy
this amount then a pro-rata portion of available cash less a
pro-rata portion reserved for one third of the existing capital
contributions of non-contributing Limited Partners would be paid
based upon available funds;
4) Fourth, Limited Partners who did not make additional capital
contributions would receive a repayment of one-third of their
original capital contributions (i.e., one-third of $1,200,000); if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds.
Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of
$14,500 and loan an additional $117,500 on behalf of the Partnership. The
Partnership received the $14,500 capital contribution but did not receive or
require the additional $117,500 to be loaned.
The payments required by number 2 above were timely made. With respect to the
amounts due to the Limited Partners under numbers 1, 3, and 4 above, there were
not sufficient funds available to completely satisfy these obligations at
October 20, 1998.
It was not anticipated that at October 20, 1998, there would be available funds
to fully satisfy the unsecured claims of the Limited Partners, as indicated
under the Plan. The limited partners were approached in August 1998 and asked to
either approve a sale of the Partnership's sole investment property or for the
General Partner to petition the Bankruptcy Court for an extension of the
settlement date. The required fifty-one percent response was not received. As a
result, the Partnership did not make any payments to the Limited Partners on
October 20, 1998, as required by the Plan from available funds. There is no
requirement, however, that the Partnership sell or again refinance the property
in order to pay in part or in whole, the payments to the Limited Partners
referred to above. The General Partner has determined that although all of the
required payments due under the Plan to the Limited Partners were not made, that
the Partnership is not in any material financial default in connection with its
prior bankruptcy. In addition, the General Partner believes that it is proper
for the Partnership to continue operating under the terms of its Partnership
Agreement as modified by the Plan.
Since the expiration of the Plan on October 20, 1998, the General Partner had
reserved all excess cash to ensure that the Partnership would be able to meet
its operating and capital improvement needs rather than making pro-rata payments
to the limited partners in accordance with numbers 1, 3, and 4 above. During the
fourth quarter of 2001, the General Partner determined that the Partnership had
accumulated approximately $562,000 in excess funds. Approximately $530,000,
which had been reserved since 1998 to ensure that the property was fully able to
meet its operating and capital improvement needs with existing operating funds,
was distributed during the year ended December 31, 2002 in accordance with
number 1 above. In addition, approximately $32,000 was distributed from
operations during the year ended December 31, 2002. Any additional funds will be
distributed in accordance with the terms of the Partnership Agreement as
modified by the Plan.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and for reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's investment property as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $53,000 and $51,000 for the nine months ended September 30, 2004
and 2003, respectively, which are included in operating expenses.
Affiliates of the General Partner were eligible to receive reimbursement of
accountable administrative expenses amounting to approximately $58,000 and
$45,000 for the nine months ended September 30, 2004 and 2003, respectively,
which are included in general and administrative expenses. Approximately
$140,000 in reimbursement of accountable administrative expenses and related
accrued interest was owed at September 30, 2004 and is included in due to
affiliates.
During the nine months ended September 30, 2004, an affiliate of the General
Partner advanced the Partnership approximately $120,000 to fund operating
expenses and audit fees. This advance accrues interest at the prime rate plus 2%
(6.75% at September 30, 2004). Interest expense for the nine months ended
September 30, 2004 was approximately $3,000. At September 30, 2004, the total
outstanding advances and accrued interest was approximately $123,000 and is
included in due to affiliates. There were no such advances made by the General
Partner to the Partnership during the nine months ended September 30, 2003.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers' compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During the nine months ended September 30, 2004 and 2003, the
Partnership was charged by AIMCO and its affiliates approximately $26,000 and
$23,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note D - Casualty Event
In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage
to the laundry area. The property incurred damages of approximately $52,000.
Insurance proceeds of approximately $26,000 were received during the nine months
ended September 30, 2003 to partially cover the damages. After writing off the
undepreciated cost of the damaged asset of approximately $11,000, the
Partnership realized a casualty gain of approximately $15,000 from this event
during the nine months ended September 30, 2003. During the nine months ended
September 30, 2004, the Partnership received additional proceeds of
approximately $16,000, resulting in a casualty gain of approximately $16,000 for
the nine months ended September 30, 2004.
Note E - Contingencies
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. On March 5, 2004 the plaintiffs filed
an amended complaint also naming NHP Management Company, which is also an
affiliate of the General Partner. 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 defendants have
filed an answer to the amended complaint denying the substantive allegations.
Some discovery has taken place and settlement negotiations continue. Although
the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not
believe that the ultimate outcome will have a material adverse effect on its
financial condition or results of operations. Similarly, the General Partner
does not believe that the ultimate outcome will have a material adverse effect
on the Partnership's financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the General Partner does not
believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Lakewood at Pelham 93% 89%
Greenville, South Carolina
The General Partner attributes the increase in occupancy at Lakewood at Pelham
to resident retention efforts and new marketing strategies.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
general economic conditions and weather. As part of the ongoing business plan of
the Partnership, the General Partner monitors the rental market environment of
its investment property to assess the feasibility of increasing rents,
maintaining or increasing occupancy levels and protecting the Partnership from
increases in expenses. As part of this plan, the General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, 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. Further,
a number of factors that are outside the control of the Partnership such as the
local economic climate and weather can adversely or positively affect the
Partnership's financial results.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
2004 was approximately $69,000 and $195,000, respectively, as compared to
approximately $64,000 and $128,000 for the three and nine months ended September
30, 2003. The increase in net loss for the three months ended September 30, 2004
is due to a decrease in total revenues, partially offset by a decrease in total
expenses. The increase in net loss for the nine months ended September 30, 2004
is due to an increase in total expenses, partially offset by an increase in
total revenues. The decrease in total revenues for the three months ended
September 30, 2004 is due to a decrease in rental income, partially offset by an
increase in other income. The increase in total revenues for the nine months
ended September 30, 2004 is due to increases in both rental and other income.
The decrease in rental income for the three months ended September 30, 2004 is
primarily due to decreases in occupancy and the average rental rate at Lakewood
at Pelham. The increase in rental income for the nine months ended September 30,
2004 is primarily due to an increase in occupancy, partially offset by a
decrease in the average rental rate at the property. The increase in other
income for both the three and nine months ended September 30, 2004 is primarily
due to increases in utility reimbursements and laundry income, partially offset
by a decrease in late charges at the property.
The decrease in total expenses for the three months ended September 30, 2004 is
due to a decrease in operating expenses. General and administrative,
depreciation, interest, and property tax expenses remained relatively constant
for the three months ended September 30, 2004. The decrease in operating
expenses for the three months ended September 30, 2004 is primarily due to a
decrease in contract maintenance expense, partially offset by an increase in
payroll related expenses at Lakewood at Pelham.
The increase in total expenses for the nine months ended September 30, 2004 is
due to increases in operating, general and administrative, and property tax
expenses. Both depreciation and interest expense remained relatively constant
for the nine months ended September 30, 2004. The increase in operating expenses
for the nine months ended September 30, 2004 is primarily due to an increase in
payroll related expenses at the Partnership's investment property. The increase
in property tax expense for the nine months ended September 30, 2004 is due to
an increase in the tax rate at the property. The increase in general and
administrative expenses for the nine months ended September 30, 2004 is
primarily due to an increase in management reimbursements to the General Partner
as allowed under the Partnership Agreement, partially offset by a decrease in
professional expenses associated with the administration of the Partnership.
Also included in general and administrative expenses for the three and nine
months ended September 30, 2004 and 2003 are costs associated with quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement.
In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage
to the laundry area. The property incurred damages of approximately $52,000.
Insurance proceeds of approximately $26,000 were received during the nine months
ended September 30, 2003 to partially cover the damages. After writing off the
undepreciated cost of the damaged asset of approximately $11,000, the
Partnership realized a casualty gain of approximately $15,000 from this event
during the nine months ended September 30, 2003. During the nine months ended
September 30, 2004, the Partnership received additional proceeds of
approximately $16,000, resulting in a casualty gain of approximately $16,000 for
the nine months ended September 30, 2004.
Liquidity and Capital Resources
At both September 30, 2004 and 2003, the Partnership had cash and cash
equivalents of approximately $108,000. The decrease in cash and cash equivalents
of approximately $24,000, from December 31, 2003, is due to approximately
$92,000 of cash used in investing activities, partially offset by approximately
$50,000 of cash provided by financing activities and approximately $18,000 of
cash provided by operating activities. Cash used in investing activities
consisted of property improvements and replacements and net deposits to an
escrow account maintained by the mortgage lender, partially offset by insurance
proceeds received. Cash provided by financing activities consisted of advances
from an affiliate of the General Partner, partially offset by payments of
principal made on the mortgage encumbering the Partnership's investment
property. The Partnership invests its working capital reserves in interest
bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with Federal, state
and local legal and regulatory requirements. The General Partner monitors
developments in the area of legal and regulatory compliance. For example, 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 at the Partnership's investment property are detailed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $73,000 of capital improvements at Lakewood at Pelham, consisting
primarily of appliance and floor covering replacements. These improvements were
funded from operations and insurance proceeds. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $78,000 in capital improvements during the remainder
of 2004. Additional capital improvements may be considered and will depend on
the physical condition of the property as well as the anticipated cash flow
generated by the property and replacement reserves.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The mortgage indebtedness encumbering Lakewood at Pelham of approximately
$5,226,000 is being amortized over 30 years with a balloon payment of
approximately $5,151,000 due July 2005. The General Partner will attempt to
refinance such indebtedness and/or sell the property prior to such maturity
date. If the property cannot be refinanced or sold for a sufficient amount, the
Partnership will risk losing such property through foreclosure.
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
of Reorganization (The "Plan") effective October 25, 1988. The Plan was approved
by all required classes of creditors.
The Plan required that the Partnership make certain payments to its secured
creditors and others on or before October 20, 1995. These payments were made on
or about June 25, 1995, when the Partnership refinanced the outstanding
mortgages encumbering the property. The Plan also required that the Partnership
make the following distributions on October 20, 1998, from available cash:
1) First, Limited Partners, both original and substitute, who made
additional capital contributions under the plan would receive a
repayment of the additional contributions totaling approximately
$730,000; if sufficient funds were unavailable to fully satisfy this
amount then a pro-rata portion would be paid based upon available
funds;
2) Second, Class 12 unsecured creditors ($23,100) would be paid on
their claims;
3) Third, Limited Partners who made additional capital contributions
and were original Limited Partners would receive a repayment of
their original capital contributions totaling approximately
$9,818,000; if sufficient funds were unavailable to fully satisfy
this amount then a pro-rata portion of available cash less a
pro-rata portion reserved for one third of the existing capital
contributions of non-contributing Limited Partners would be paid
based upon available funds;
4) Fourth, Limited Partners who did not make additional capital
contributions would receive a repayment of one-third of their
original capital contributions (i.e., one-third of $1,200,000); if
sufficient funds were unavailable to fully satisfy this amount then
a pro-rata portion would be paid based upon available funds.
Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of
$14,500 and loan an additional $117,500 on behalf of the Partnership. The
Partnership received the $14,500 capital contribution but did not receive or
require the additional $117,500 to be loaned.
The payments required by number 2 above were timely made. With respect to the
amounts due to the Limited Partners under numbers 1, 3, and 4 above, there were
not sufficient funds available to completely satisfy these obligations at
October 20, 1998.
It was not anticipated that at October 20, 1998, there would be available funds
to fully satisfy the unsecured claims of the Limited Partners, as indicated
under the Plan. The limited partners were approached in August 1998 and asked to
either approve a sale of the Partnership's sole investment property or for the
General Partner to petition the Bankruptcy Court for an extension of the
settlement date. The required fifty-one percent response was not received. As a
result, the Partnership did not make any payments to the Limited Partners on
October 20, 1998, as required by the Plan from available funds. There is no
requirement, however, that the Partnership sell or again refinance the property
in order to pay in part or in whole, the payments to the Limited Partners
referred to above. The General Partner has determined that although all of the
required payments due under the Plan to the Limited Partners were not made, that
the Partnership is not in any material financial default in connection with its
prior bankruptcy. In addition, the General Partner believes that it is proper
for the Partnership to continue operating under the terms of its Partnership
Agreement as modified by the Plan.
Since the expiration of the Plan on October 20, 1998, the General Partner had
reserved all excess cash to ensure that the Partnership would be able to meet
its operating and capital improvement needs rather than making pro-rata payments
to the limited partners in accordance with numbers 1, 3, and 4 above. During the
fourth quarter of 2001, the General Partner determined that the Partnership had
accumulated approximately $562,000 in excess funds. Approximately $530,000 which
had been reserved since 1998 to ensure that the property was fully able to meet
its operating and capital improvement needs with existing operating funds, was
distributed during the year ended December 31, 2002 in accordance with number 1
above. In addition, approximately $32,000 was distributed from operations during
the year ended December 31, 2002. Any additional funds will be distributed in
accordance with the terms of the Partnership Agreement as modified by the Plan.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 4,558.50 limited partnership units
(the "Units") in the Partnership representing 26.55% of the outstanding Units at
September 30, 2004. 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. 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
The Partnership's investment property is recorded at cost, less accumulated
depreciation, unless considered impaired. If events or circumstances indicate
that the carrying amount of the 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 property. 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
asset.
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 evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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
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. On March 5, 2004 the plaintiffs filed
an amended complaint also naming NHP Management Company, which is also an
affiliate of the General Partner. 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 defendants have
filed an answer to the amended complaint denying the substantive allegations.
Some discovery has taken place and settlement negotiations continue. Although
the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not
believe that the ultimate outcome will have a material adverse effect on its
financial condition or results of operations. Similarly, the General Partner
does not believe that the ultimate outcome will have a material adverse effect
on the Partnership's financial condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCCOMBS REALTY PARTNERS
By: CRPTEX, INC.
General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 12, 2004
EXHIBIT INDEX
Exhibit
3.1 Amended and Restated Certificate and Agreement of Limited
Partners of McCombs Realty Partners, a California Limited
Partnership, incorporated by reference to the exhibits to the
Registrant's Annual Report filed on Form 10-K, filed on April
13, 1990.
3.2 Certificate of Limited Partnership of the Partnership,
incorporated by reference to the exhibits to the Registrant's
Annual Report filed on Form 10-K, filed on April 13, 1990.
10(a) Mortgage and Security Agreement dated June 29, 1995 between
Pelham Place, L.P. and First Union National Bank of North
Carolina, securing Pelham Place Apartments, is incorporated
by reference to Exhibit 10JJ(a) of the Registrant's
Quarterly Report on Form 10-QSB for the Quarter ended June
30, 1995.
(b) Promissory Note dated June 29, 1995 between Pelham Place,
L.P., a South Carolina limited partnership, and First Union
National Bank of North Carolina, a national banking
association, is incorporated by reference to Exhibit 10JJ(b)
to the Registrant's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1995.
(c) Assignment of Leases and Rents dated June 29, 1995 between
Pelham Place, L.P., and First Union National Bank of North
Carolina, securing Pelham Place Apartments, is incorporated by
reference to Exhibit 10JJ(c) to the Registrant's Quarterly
Report on Form 10-QSB for the Quarter ended June 30, 1995.
(d) Agreement of Limited Partnership for Pelham Place, L.P.,
between Pelham Place, GP, a South Carolina limited
partnership, is incorporated by reference to Exhibit 28A to
the Registrant's Quarterly Report on Current Report on Form
10-QSB for the Quarter ended June 30, 1995.
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.
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.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of McCombs Realty
Partners;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 12, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of CRPTEX,
Inc., equivalent of the chief
executive officer of the
Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of McCombs Realty
Partners;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 12, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of CRPTEX,
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 McCombs Realty
Partners (the "Partnership"), for the quarterly period ended September 30, 2004
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Martha L. Long, as the equivalent of the chief executive officer of
the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: November 12, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 12, 2004
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.