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 0-16684
MULTI-BENEFIT REALTY FUND '87-1
(Exact name of small business issuer as specified in its charter)
California 94-3026785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (i) 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
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 38
Receivables and deposits 131
Other assets 177
Investment property:
Land $ 485
Buildings and related personal property 7,659
8,144
Less accumulated depreciation (5,919) 2,225
$ 2,571
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 29
Tenant security deposit liabilities 34
Accrued property taxes 152
Other liabilities 197
Due to affiliates (Note B) 15
Mortgage note payable 3,529
Partners' (Deficiency) Capital
General Partner $ (78)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (8,329)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 7,022 (1,385)
$ 2,571
See Accompanying Notes to 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,
2004 2003 2004 2003
Revenues:
Rental income $ 306 $ 277 $ 906 $ 910
Other income 45 60 140 150
Total revenues 351 337 1,046 1,060
Expenses:
Operating 215 234 657 618
General and administrative 12 78 70 172
Depreciation 94 95 289 291
Interest 74 78 224 231
Property taxes (Note C) (9) 50 71 165
Total expenses 386 535 1,311 1,477
Loss from continuing operations (35) (198) (265) (417)
Income from discontinued operations -- 92 -- 187
Net loss $ (35) $ (106) $ (265) $ (230)
Net loss allocated to general
partner (1%) $ (1) $ (1) $ (3) $ (2)
Net loss allocated to limited
partners (99%) (34) (105) (262) (228)
$ (35) $ (106) $ (265) $ (230)
Per limited partnership unit:
Loss from continuing operations $ (0.20) $ (1.14) $ (1.53) $ (2.41)
Income from discontinued operations -- 0.53 -- 1.08
Net loss per limited partnership unit $ (0.20) $ (0.61) $ (1.53) $ (1.33)
Distributions per limited partnership
"A" units $ -- $ 1.90 $ -- $ 3.48
Distributions per limited partnership
"B" units $ -- $ -- $ -- $ --
See Accompanying Notes to 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, 2003 and
September 30, 2004 -- 96,284 75,152 171,436
Partners' (deficiency) capital at
December 31, 2003 $ (75) $ (8,182) $ 7,137 $ (1,120)
Net loss for the nine months
ended September 30, 2004 (3) (147) (115) (265)
Partners' (deficiency) capital
at September 30, 2004 $ (78) $ (8,329) $ 7,022 $ (1,385)
See Accompanying Notes to Financial Statements
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except unit data)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (265) $ (230)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 289 636
Amortization of loan costs 9 20
Bad debt 38 148
Change in accounts:
Receivables and deposits (106) (88)
Other assets (38) (41)
Accounts payable (11) 20
Tenant security deposit liabilities (8) 14
Accrued property taxes (6) 149
Other liabilities 19 90
Due to affiliates 15 --
Net cash (used in) provided by operating
activities (64) 718
Cash flow used in investing activities:
Property improvements and replacements (122) (142)
Cash flows from financing activities:
Payments on mortgage notes payable (79) (241)
Distributions to partners -- (338)
Net cash used in financing activities (79) (579)
Net decrease in cash and cash equivalents (265) (3)
Cash and cash equivalents at beginning of period 303 219
Cash and cash equivalents at end of period $ 38 $ 216
Supplemental disclosure of cash flow information:
Cash paid for interest $ 216 $ 671
See Accompanying Notes to 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, 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
an affiliate of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statements of operations for the three and nine months
ended September 30, 2004 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.
Reclassification
Certain balances from 2003 have been reclassified to conform to the current year
presentation.
Note B - 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 (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 the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$51,000 and $134,000 for the nine months ended September 30, 2004 and 2003,
respectively, which is included in operating expenses and income from
discontinued operations.
An affiliate of the General Partner charged the Partnership reimbursements of
accountable administrative expenses amounting to approximately $50,000 and
$71,000 for the nine months ended September 30, 2004 and 2003, respectively,
which is included in general and administrative expenses and investment
property. Included in these amounts are fees related to construction management
services provided by an affiliate of the General Partner of approximately $7,000
for the nine months ended September 30, 2004. There were no such fees for the
nine months ended September 30, 2003. The construction management service fees
are calculated based on a percentage of current year additions to the investment
property. At September 30, 2004, approximately $15,000 of reimbursements for
services were accrued by the Partnership and included in due to affiliates on
the accompanying consolidated balance sheet.
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 were paid for
the nine months ended September 30, 2003 in association with operating
distributions and are included in general and administrative expenses. There
were no such fees paid during the nine months ended September 30, 2004.
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, 2004 and 2003, the
Partnership was charged by AIMCO and its affiliates approximately $21,000 and
$42,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note C - Property Taxes
During 2003, the state of Indiana implemented a reassessment of property values.
The Partnership successfully appealed the reassessed property tax value of Hunt
Club Apartments. In the state of Indiana property tax bills are paid one year in
arrears. Thus, the 2003 property tax bills are received and paid in 2004. As a
result of the Partnership's successful appeal of the reassessed property value
an adjustment of approximately $48,000 was recorded during the third quarter of
2004. The appeal resulted in a lower assessed value which resulted in a refund
of 2002 taxes paid in 2003, a reduction in the 2003 taxes to be paid in 2004 and
a reduction in the accrual for 2004 taxes to be paid in 2005.
Note D - Contingencies
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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. 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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the General Partner and its affiliates filed a response brief in
support of the settlement and the judgment thereto. The plaintiffs have also
filed a brief in support of the settlement. On June 4, 2004, Objector filed a
reply to the briefs submitted by the General Partner and Plaintiffs. In addition
both the Objector and plaintiffs filed briefs in connection with the second
appeal. The Court of Appeals heard oral argument on both appeals on September
22, 2004 and took the matters under submission.
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. 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 consolidated 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 each of the
nine months ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Hunt Club Apartments 90% 90%
Indianapolis, Indiana
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the Partnership's remaining
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 had a net loss for the three and nine months ended September 30,
2004 of approximately $35,000 and $265,000, respectively, as compared to a net
loss of approximately $106,000 and $230,000 for the three and nine months ended
September 30, 2003, respectively. The decrease in net loss for the three months
ended September 30, 2004 was due to a decrease in total expenses and an increase
in total revenues partially offset by a decrease in income from discontinued
operations. The increase in net loss for the nine months ended September 30,
2004, was due to a decrease in income from discontinued operations and a
decrease in total revenues partially offset by a decrease in total expenses.
In accordance with the Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statements of operations reflect the operations of
Shadow Brook Apartments which sold October 28, 2003, as income from discontinued
operations. The results of the property's operations for the three and nine
months ended September 30, 2003 are included in income from discontinued
operations of approximately $92,000 and $187,000, respectively, which includes
revenues of approximately $555,000 and $1,611,000, respectively.
The Partnership's loss from continuing operations for the three and nine months
ended September 30, 2004 was approximately $35,000 and $265,000, respectively,
compared to a loss from continuing operations of approximately $198,000 and
$417,000 for the three and nine months ended September 30, 2003, respectively.
The decrease in loss from continuing operations for the three months ended
September 30, 2004 is due to a decrease in total expenses and a slight increase
in total revenues. The decrease in loss from continuing operations for the nine
months ended September 30, 2004 is due to a decrease in total expenses partially
offset by a slight decrease in total revenues.
The increase in total revenues for the three months ended September 30, 2004 was
due to an increase in rental income offset by a decrease in other income. Rental
income increased for the three months ended September 30, 2004 due to a decrease
in bad debt expense partially offset by a decrease in the average rental rates
at Hunt Club Apartments. Other income decreased primarily due to a decrease in
late charges and lease cancellation fees offset by an increase in utilities
reimbursements at Hunt Club Apartments. The decrease in total revenues for the
nine months ended September 30, 2004 was due to a decrease in other income as
discussed above. Rental income remained relatively constant for the comparable
period.
During the nine months ended September 30, 2004, total expenses decreased due to
a decrease in general and administrative and property tax expenses partially
offset by an increase in operating expenses. Depreciation and interest expenses
remained relatively constant for the comparable periods. Property tax expense
decreased due to the Partnership's appeal of the assessed value at Hunt Club
Apartments by the taxing authorities. During 2003, the state of Indiana
implemented a reassessment of property values. The Partnership successfully
appealed the reassessed property tax value of Hunt Club Apartments. In the state
of Indiana property tax bills are paid one year in arrears. Thus, the 2003
property tax bills are received and paid in 2004. As a result of the
Partnership's successful appeal of the reassessed property value an adjustment
of approximately $48,000 was recorded during the third quarter of 2004. The
appeal resulted in a lower assessed value which resulted in a refund due for
2002 taxes paid in 2003, a reduction in the 2003 taxes to be paid in 2004 and a
reduction in the accrual for 2004 taxes to be paid in 2005. Operating expenses
increased due to increases in advertising and maintenance expense. Advertising
expense increased as a result of special move-in promotions offered to attract
new tenants. Maintenance expense increased due to an increase in contract
services partially offset by a decrease in plumbing supplies/repairs.
Total expenses for the three months ended September 30, 2004 decreased due to
decreases in operating, general and administrative and property tax expenses.
Depreciation and interest expenses remained relatively constant for the
comparable periods. Property tax expense decreased as discussed above. Operating
expense decreased due to decreases in property and maintenance expense. Property
expense decreased due to a decrease in water. Maintenance expense decreased due
to decreases in plumbing supplies and contract services for the quarter at Hunt
Club Apartments.
General and administrative expenses decreased for both the three and nine months
ended September 30, 2004 as a result of the sale of Shadow Brook Apartments
during 2003 which resulted in a decrease in accountable reimbursements paid to
an affiliate of the General Partner as allowed under the Partnership Agreement.
In addition fees paid to the General Partner in connection with distributions
made from operations decreased and there was also a decrease in audit fees. 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.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $38,000 as compared to approximately $216,000 at September 30,
2003. Cash and cash equivalents decreased approximately $265,000 from December
31, 2003 due to approximately $64,000, $79,000 and $122,000 of cash used in
operating, financing and investing activities, respectively. Cash used in
financing activities consisted of principal payments made on the mortgage
encumbering the Partnership's property. 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 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. Capital improvements planned for the Partnership's property are
detailed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $122,000 of capital improvements at Hunt Club Apartments,
consisting primarily of plumbing enhancements, furniture and fixture
improvements, appliances and floor covering replacements, interior painting,
structural improvements and HVAC 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
$27,000 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.
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 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 $3,529,000 is
amortized over 20 years and matures September 1, 2020 at which time the loan is
scheduled to be fully amortized.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited
Nine months Ended Partnership Nine Months Ended Partnership
September 30, 2004 Unit September 30, 2003 Unit
Operations $ -- $ -- $ 338 $ 3.48
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, as of December 31, 2002, the "B" Unit holders had
received excess distributions of approximately $1,328,000 (approximately $17.67
per "B" Unit). Approximately $1,303,000 of this amount was due to the "A" Unit
holders (approximately $13.53 per "A" Unit) and approximately $25,000 was due to
the General Partner. All future distributions payable to the "B" Unit holders
were to be paid to the "A" Unit holders until the "A" Unit holders received the
correct priority return. Accordingly, the limited partner portion of the
distribution during the nine months ended September 30, 2003 was approximately
$335,000 to the "A" unit holders or $3.48 per limited partnership unit and zero
to "B" unit holders. During the year ended December 31, 2003, the Partnership
distributed approximately $5,884,000 of sale proceeds from the sale of Shadow
Brook Apartments and approximately $339,000 from operations. 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 during 2003. There were
no distributions made during the nine months ended September 30, 2004.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing, and/or property sale. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit distributions to its partners in
2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 63,163 "A" and 40,151 "B" Units of
Depository Receipts ("Units") in the Partnership representing 65.60% and 53.43%
of the outstanding "A" and "B" Units, respectively, 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. As a result of its ownership of 65.60% and 53.43% 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 property is 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 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 an 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
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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. 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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the General Partner and its affiliates filed a response brief in
support of the settlement and the judgment thereto. The plaintiffs have also
filed a brief in support of the settlement. On June 4, 2004, Objector filed a
reply to the briefs submitted by the General Partner and Plaintiffs. In addition
both the Objector and plaintiffs filed briefs in connection with the second
appeal. The Court of Appeals heard oral argument on both appeals on September
22, 2004 and took the matters under submission.
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. 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 consolidated financial condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index attached.
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/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 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.
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).
4 Depositary Agreement (Incorporated by reference to
Registration Statement of Registrant (File No. 33-8908)
filed December 10, 1986, as amended by date).
10.22 Multifamily Note dated August 31, 2000, by and between Hunt
Club Associates, Ltd., a Texas limited partnership, and
ARCS Commercial Mortgage Co., L.P., a California limited
partnership relating to Hunt Club Apartments. (Incorporated
by reference to the Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2000.)
10.24 Purchase and Sale Contract between Multi-Benefit Realty Fund
'87-1 and RDO Properties, LLC, dated August 7, 2003.
(Incorporated by reference to the Current Report on Form 8-K
dated October 28, 2003.)
10.25 Amendment to Purchase and Sale Contract between Multi-Benefit
Realty Fund '87-1 and RDO Properties, LLC, dated September 11,
2003. (Incorporated by reference to the Current Report on Form
8-K dated October 28, 2003.)
10.26 Second Amendment to Purchase and Sale Contract between
Multi-Benefit Realty Fund '87-1 and RDO Properties, LLC, dated
September 18, 2003. (Incorporated by reference to the Current
Report on Form 8-K dated October 28, 2003.)
10.27 Third Amendment to Purchase and Sale Contract between
Multi-Benefit Realty Fund '87-1 and RDO Properties, LLC, dated
October 10, 2003. (Incorporated by reference to the Current
Report on Form 8-K dated October 28, 2003.)
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 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 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 ConCap Equities,
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 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 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 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,
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.