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 March 31, 2005
[ ] 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)
March 31, 2005
Assets
Cash and cash equivalents $ 79
Receivables and deposits 47
Restricted escrow 165
Other assets 71
Investment property:
Land $ 499
Buildings and related personal property 6,270
6,769
Less accumulated depreciation (5,130) 1,639
$ 2,001
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 56
Tenant security deposit liabilities 27
Accrued property taxes 28
Other liabilities 78
Due to affiliates (Note D) 414
Mortgage note payable 5,176
Partners' Deficit
General partner $ (1)
Limited partners (17,169.13 units
issued and outstanding) (3,777) (3,778)
$ 2,001
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues:
Rental income $ 261 $ 336
Other income 38 39
Total revenues 299 375
Expenses:
Operating 171 185
General and administrative 25 32
Depreciation 64 68
Interest 117 113
Property taxes 28 27
Total expenses 405 425
Net loss $ (106) $ (50)
Net loss allocated to general partner $ -- $ --
Net loss allocated to limited partners (106) (50)
$ (106) $ (50)
Net loss per limited partnership unit $(6.17) $(2.91)
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, 2004 17,169.13 $ (1) $ (3,671) $ (3,672)
Net loss for the three months
ended March 31, 2005 -- -- (106) (106)
Partners' deficit
at March 31, 2005 17,169.13 $ (1) $ (3,777) $ (3,778)
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net loss $ (106) $ (50)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 64 68
Amortization of loan costs 5 5
Bad debt expense 6 7
Change in accounts:
Receivables and deposits 35 (7)
Other assets (19) (38)
Accounts payable 8 (8)
Tenant security deposit liabilities (1) 1
Accrued property taxes 28 (79)
Other liabilities (4) 28
Due to affiliates 23 20
Net cash provided by (used in) operating activities 39 (53)
Cash flows from investing activities:
Property improvements and replacements (28) (8)
Net deposits to restricted escrows (17) (17)
Net cash used in investing activities (45) (25)
Cash flows from financing activities:
Payments on mortgage note payable (25) (23)
Advances from affiliate 80 25
Net cash provided by financing activities 55 2
Net increase (decrease) in cash and cash equivalents 49 (76)
Cash and cash equivalents at beginning of period 30 132
Cash and cash equivalents at end of period $ 79 $ 56
Supplemental disclosure of cash flow information:
Cash paid for interest $ 105 $ 107
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ -- $ 28
Included in property improvements and replacements for the three months ended
March 31, 2005 are approximately $14,000 of property improvements and
replacements which were included in accounts payable at December 31, 2004.
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The accompanying unaudited consolidated financial statements have been prepared
assuming McCombs Realty Partners (the "Partnership" or "Registrant") will
continue as a going concern. The Partnership has experienced decreasing
occupancy levels, suffers from a lack of cash, and has debt of approximately
$5,151,000 maturing in July 2005. Based upon current operations, the Partnership
does not anticipate that proceeds from the new financing will be sufficient to
repay the existing debt. If the Partnership defaults on its scheduled debt
repayment, the Partnership will risk losing its sole investment property through
foreclosure. The Partnership's general partner, CRPTEX, Inc., a Texas
corporation (the "General Partner") is currently evaluating its options with
respect to obtaining financing for the investment property. In addition, the
General Partner is currently evaluating its means to improve the operations of
the property and increase occupancy levels to improve the cash flows generated
by the property.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The unaudited consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Note B - Basis of Presentation
The accompanying unaudited consolidated financial statements of the Partnership,
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.
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 month period ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2005. 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, 2004. The General Partner is a subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
Certain reclassifications have been made to the 2004 balances to conform to the
2005 presentation.
Note C - 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 D - 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 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
$15,000 and $18,000 for the three months ended March 31, 2005 and 2004,
respectively, which are included in operating expenses.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $17,000 and
$19,000 for the three months ended March 31, 2005 and 2004, respectively, which
are included in general and administrative expenses. Approximately $170,000 in
reimbursement of accountable administrative expenses, including related accrued
interest of approximately $10,000, was owed to affiliates of the General Partner
at March 31, 2005 and is included in due to affiliates.
During the three months ended March 31, 2005 and 2004 an affiliate of the
General Partner advanced the partnership approximately $80,000 and $25,000,
respectively, to fund operating expenses and audit fees. These advances bear
interest at the prime rate plus 2% (7.75% at March 31, 2005). Interest expense
for the three months ended March 31, 2005 and 2004 was approximately $4,000 and
less than $1,000, respectively. At March 31, 2005 the total outstanding advances
and accrued interest was approximately $244,000 and is included in due to
affiliates. Subsequent to March 31, 2005, an affiliate of the General Partner
advanced approximately $76,000 to the Partnership to fund costs associated with
the anticipated refinancing of the mortgage encumbering Lakewood at Pelham.
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 three months ended March 31, 2005, the Partnership was
charged by AIMCO and its affiliates approximately $16,000 for hazard insurance
coverage and fees associated with policy claims administration. Additional
charges will be incurred by the Partnership during 2005 as other insurance
policies renew later in the year. The Partnership was charged by AIMCO and its
affiliates approximately $25,000 for insurance coverage and fees associated with
policy claims administration during the year ended December 31, 2004.
Note E - Contingencies
AIMCO Properties L.P. and NHP Management Company, both affiliates of the General
Partner, are defendants in a lawsuit alleging that they willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The complaint attempts to
bring 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. and NHP Management Company failed
to compensate maintenance workers for time that they were required to be
"on-call." Additionally, the complaint alleges AIMCO Properties L.P. and NHP
Management Company 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. Oral argument relating to the certification of the collective
action took place on May 12, 2005 and the parties await a ruling from the Court.
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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its property, the Partnership
could potentially be liable for environmental liabilities or costs associated
with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the General Partner believes that these measures will
eliminate, or at least minimize, the effects that mold could have on residents.
To date, the Partnership has not incurred any material costs or liabilities
relating to claims of mold exposure or to abate mold conditions. Because the law
regarding mold is unsettled and subject to change the General Partner can make
no assurance that liabilities resulting from the presence of or exposure to mold
will not have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
SEC Investigation
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.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation 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 three
months ended March 31, 2005 and 2004:
Average Occupancy
Property 2005 2004
Lakewood at Pelham 73% 97%
Greenville, South Carolina
The General Partner attributes the decrease in occupancy at Lakewood at Pelham
to an increase in credit standards and the implementation of a strict collection
policy.
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 which are outside the control of the Partnership such as the
local economic climate and weather can adversely or positively impact the
Partnership's financial results.
Results of Operations
The Partnership's net loss for the three months ended March 31, 2005 was
approximately $106,000 as compared to a net loss of approximately $50,000 for
the three months ended March 31, 2004. The increase in net loss is due to a
decrease in total revenues, partially offset by a decrease in total expenses.
The decrease in total revenues is due to a decrease in rental income. Other
income remained relatively constant for the comparable periods. The decrease in
rental income is due to the decrease in occupancy, partially offset by an
increase in the average rental rate, at Lakewood at Pelham.
The decrease in total expenses is due to decreases in both operating and general
and administrative expenses. Depreciation, interest and property tax expenses
remained relatively constant for the comparable periods. The decrease in
operating expenses is primarily due to a decrease in contract maintenance
expense at the Partnership's investment property. The decrease in general and
administrative expenses is primarily due to decreases in management
reimbursements to the General Partner as allowed under the Partnership Agreement
and audit fees. Also included in general and administrative expenses for the
three months ended March 31, 2005 and 2004 are costs associated with quarterly
and annual communications with investors and regulatory agencies.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $79,000, compared to approximately $56,000 at March 31, 2004. The
increase in cash and cash equivalents of approximately $49,000, from December
31, 2004, is due to approximately $55,000 of cash provided by financing
activities and approximately $39,000 of cash provided by operating activities,
partially offset by approximately $45,000 of cash used in investing activities.
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. Cash used in
investing activities consisted of property improvements and replacements and net
deposits to an escrow account maintained by the mortgage lender. The Partnership
invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the 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 at the Partnership's investment
property are detailed below.
During the three months ended March 31, 2005, the Partnership completed
approximately $14,000 of capital improvements at Lakewood at Pelham, consisting
primarily of floor covering replacement. These improvements were funded from
operations. The Partnership regularly evaluates the capital improvement needs of
the property. While the Partnership has no material commitments for property
improvements and replacements, certain routine capital expenditures are
anticipated during 2005. Such capital expenditures will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
The capital expenditures will be incurred only if cash is available from
operations or from Partnership reserves. To the extent that 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
$5,176,000 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. Subsequent to
March 31, 2005, an affiliate of the General Partner advanced approximately
$76,000 to the Partnership to fund costs associated with the anticipated
refinancing of the mortgage encumbering Lakewood at Pelham.
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
March 31, 2005. 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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
AIMCO Properties L.P. and NHP Management Company, both affiliates of the General
Partner, are defendants in a lawsuit alleging that they willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The complaint attempts to
bring 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. and NHP Management Company failed
to compensate maintenance workers for time that they were required to be
"on-call." Additionally, the complaint alleges AIMCO Properties L.P. and NHP
Management Company 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. Oral argument relating to the certification of the collective
action took place on May 12, 2005 and the parties await a ruling from the Court.
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 5. OTHER INFORMATION
None.
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: May 13, 2005
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 of the equivalent of the Chief Executive
Officer and Chief Financial Officer 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: May 13, 2005
/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: May 13, 2005
/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 March 31, 2005 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: May 13, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 13, 2005
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.