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 June 30, 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)
June 30, 2005
Assets
Cash and cash equivalents $ 152
Receivables and deposits 132
Restricted escrow 80
Other assets 141
Investment property:
Land $ 499
Buildings and related personal property 6,313
6,812
Less accumulated depreciation (5,194) 1,618
$ 2,123
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 21
Tenant security deposit liabilities 27
Accrued property taxes 36
Other liabilities 72
Due to affiliates (Note D) 1,557
Mortgage note payable 4,350
Partners' Deficit
General partner $ (1)
Limited partners (17,169.13 units
issued and outstanding) (3,939) (3,940)
$ 2,123
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues:
Rental income $ 252 $ 310 $ 513 $ 646
Other income 46 44 84 83
Casualty gain (Note F) -- 16 -- 16
Total revenues 298 370 597 745
Expenses:
Operating 240 206 411 391
General and administrative 33 29 58 61
Depreciation 64 70 128 138
Interest 115 113 232 226
Property taxes 8 28 36 55
Total expenses 460 446 865 871
Net loss $ (162) $ (76) $ (268) $ (126)
Net loss allocated to general
partner $ -- $ -- $ -- $ --
Net loss allocated to limited
partners (162) (76) (268) (126)
$ (162) $ (76) $ (268) $ (126)
Net loss per limited partnership
unit $ (9.44) $ (4.43) $(15.61) $ (7.34)
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 six months
ended June 30, 2005 -- -- (268) (268)
Partners' deficit
at June 30, 2005 17,169.13 $ (1) $ (3,939) $ (3,940)
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2005 2004
Cash flows from operating activities:
Net loss $ (268) $ (126)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 128 138
Amortization of loan costs 12 10
Bad debt expense 15 22
Casualty gain -- (16)
Loss on early extinguishment of debt 3 --
Change in accounts:
Receivables and deposits (59) (22)
Other assets 4 (33)
Accounts payable (27) (29)
Tenant security deposit liabilities (1) (1)
Accrued property taxes 36 (52)
Due to affiliates 56 41
Other liabilities (10) (6)
Net cash used in operating activities (111) (74)
Cash flows from investing activities:
Insurance proceeds received -- 16
Property improvements and replacements (71) (45)
Net withdrawals from (deposits to) restricted escrows 68 (18)
Net cash used in investing activities (3) (47)
Cash flows from financing activities:
Repayment of mortgage note payable (5,160) --
Proceeds from mortgage note payable 4,350 --
Loan costs paid (103) --
Payments on mortgage note payable (41) (47)
Advances from affiliate 1,190 120
Net cash provided by financing activities 236 73
Net increase (decrease) in cash and cash equivalents 122 (48)
Cash and cash equivalents at beginning of period 30 132
Cash and cash equivalents at end of period $ 152 $ 84
Supplemental disclosure of cash flow information:
Cash paid for interest $ 209 $ 214
Included in property improvements and replacements for the six months ended June
30, 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 and suffers from a lack of cash flow from operations. The
Partnership's general partner, CRPTEX, Inc., a Texas corporation (the "General
Partner") is currently evaluating its options 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
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 and six
month periods ended June 30, 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.
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
$31,000 and $36,000 for the six months ended June 30, 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 $33,000 and
$38,000 for the six months ended June 30, 2005 and 2004, respectively, which are
included in general and administrative expenses. Approximately $190,000 in
reimbursement of accountable administrative expenses, including related accrued
interest of approximately $13,000, was owed to affiliates of the General Partner
at June 30, 2005 and is included in due to affiliates.
During the six months ended June 30, 2005 and 2004 an affiliate of the General
Partner advanced the Partnership approximately $1,190,000 and $120,000,
respectively, to fund the refinancing of the mortgage encumbering Lakewood at
Pelham (as discussed in Note E), operating expenses and audit fees. These
advances bear interest at the prime rate plus 2% (8.25% at June 30, 2005).
Interest expense for the six months ended June 30, 2005 and 2004 was
approximately $17,000 and $1,000, respectively. At June 30, 2005 the total
outstanding advances and accrued interest was approximately $1,367,000 and is
included in due to affiliates.
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, general
liability 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 six months ended June 30, 2005
and 2004, the Partnership was charged by AIMCO and its affiliates approximately
$26,000 and $25,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note E - Refinancing
On May 27, 2005, the Partnership obtained a mortgage in the maximum principal
amount of $5,500,000 on Lakewood at Pelham Apartments. The new mortgage is
comprised of an initial advance of $4,350,000 that was made to the Partnership
on May 27, 2005 and an earn-out advance of $1,150,000 that is available to the
Partnership based upon certain performance criteria being met prior to June 1,
2006. The existing mortgage with an outstanding principal amount of
approximately $5,160,000 was repaid with proceeds from the initial advance of
the new mortgage and an additional loan from an affiliate of the General Partner
of approximately $1,035,000. The Partnership recognized a loss on the early
extinguishment of debt of approximately $3,000 due to the write off of
unamortized loan costs. Total capitalized loan costs associated with the new
mortgage were approximately $103,000 during the six months ended June 30, 2005
which are included in other assets. The new mortgage requires monthly payments
of interest beginning on July 1, 2005 until the loan matures June 1, 2007, with
interest being equal to the average of the one month LIBOR plus 230 basis points
(5.64% at June 30, 2005 with a minimum rate of 5.40%). In conjunction with the
new mortgage note, the Partnership paid approximately $14,000 to enter into an
interest rate cap agreement, which limits the Partnership's exposure to interest
rate increases. Under this interest rate cap agreement, the Partnership's
interest rate on the amounts owed to the lender will be no higher than 7.55%.
Adjustments to the initial amount paid are recognized in interest expense. In
addition, the new mortgage requires monthly escrow deposits for taxes, insurance
and replacement reserves and a $80,000 repair reserve that was established with
the lender at closing. The Partnership has the option of extending the maturity
date for two additional six month periods upon delivering written notice to the
lender, paying an extension fee of .25% of the outstanding principal amount of
the mortgage, no event of default existing and certain performance criteria
being met. As a condition of making the new mortgage, the lender required AIMCO
Properties, L.P., an affiliate of the Partnership, to guarantee the obligations
and liabilities of the Partnership with respect to the new mortgage.
Note F - Casualty Event
In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage
to the laundry area. The property incurred damages of approximately $52,000.
Insurance proceeds of approximately $26,000 were received during the six months
ended June 30, 2003 to partially cover the damages. After writing off the
undepreciated cost of the damaged asset of approximately $11,000, the
Partnership realized a casualty gain of approximately $15,000 from this event
during the six months ended June 30, 2003. During the three and six months ended
June 30, 2004, the Partnership received additional proceeds of approximately
$16,000, resulting in a casualty gain of approximately $16,000 for the three and
six months ended June 30, 2004.
Note G - Contingencies
As previously disclosed, 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 excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
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.
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, and potential fines or
penalties imposed by such agencies in connection therewith, 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, operation and management 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
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") continues its 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 have included 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, tax credit transactions, and
tender offers for limited partnership interests. 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 six
months ended June 30, 2005 and 2004:
Average Occupancy
Property 2005 2004
Lakewood at Pelham 71% 95%
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 and six months ended June 30, 2005 was
approximately $162,000 and $268,000, respectively, as compared to net loss of
approximately $76,000 and $126,000 for the three and six months ended June 30,
2004, respectively. The increase in net loss for the three months ended June 30,
2005 is due to a decrease in total revenues and an increase in total expenses.
The increase in net loss for the six months ended June 30, 2005 is due to a
decrease in total revenues. The decrease in total revenues for both periods is
due to a decrease in rental income and the recognition of a casualty gain during
2004 (as discussed below). Other income remained relatively constant for the
comparable periods. The decrease in rental income for both periods is primarily
due to the decrease in occupancy, partially offset by an increase in the average
rental rate at Lakewood at Pelham.
The increase in total expenses for the three months ended June 30, 2005 is due
to increases in operating and interest expenses, partially offset by decreases
in depreciation and property tax expenses. Total expenses remained relatively
constant for the six months ended June 30, 2005 as increases in both operating
and interest expenses were offset by decreases in depreciation and property tax
expenses. General and administrative expenses remained relatively constant for
both the three and six months ended June 30, 2005. The increase in operating
expenses for both periods is primarily due to increases in advertising and
contract services at Lakewood at Pelham. The increase in interest expense for
both periods is primarily due to an increase in interest on advances from an
affiliate of the General Partner and the loss recognized on the early
extinguishment of debt associated with the refinancing of the mortgage
encumbering Lakewood at Pelham (as discussed in "Liquidity and Capital
Resources"), partially offset by scheduled principal payments made on the
mortgage encumbering the property, which reduced the carrying balance of the
loan and the refinancing of the mortgage at a lower variable interest rate. The
decrease in depreciation expense for both periods is primarily due to property
improvements and replacements placed into service in prior years becoming fully
depreciated during the fourth quarter of 2004. The decrease in property tax
expense for both periods is primarily a result of a decrease in the assessed
value of Lakewood at Pelham. Included in general and administrative expenses for
the three and six months ended June 30, 2005 and 2004 are management
reimbursements to the General Partner as allowed under the Partnership
Agreement, costs associated with quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage
to the laundry area. The property incurred damages of approximately $52,000.
Insurance proceeds of approximately $26,000 were received during the six months
ended June 30, 2003 to partially cover the damages. After writing off the
undepreciated cost of the damaged asset of approximately $11,000, the
Partnership realized a casualty gain of approximately $15,000 from this event
during the six months ended June 30, 2003. During the three and six months ended
June 30, 2004, the Partnership received additional proceeds of approximately
$16,000, resulting in a casualty gain of approximately $16,000 for the three and
six months ended June 30, 2004.
Liquidity and Capital Resources
At June 30, 2005, the Partnership had cash and cash equivalents of approximately
$152,000, compared to approximately $84,000 at June 30, 2004. The increase in
cash and cash equivalents of approximately $122,000, from December 31, 2004, is
due to approximately $236,000 of cash provided by financing activities,
partially offset by approximately $111,000 of cash used in operating activities
and approximately $3,000 of cash used in investing activities. Cash provided by
financing activities consisted of proceeds received related to the refinancing
of the mortgage encumbering Lakewood at Pelham and advances from an affiliate of
the General Partner, partially offset by the repayment of the mortgage
encumbering Lakewood at Pelham, loan costs paid, and payments of principal made
on the mortgage encumbering the Partnership's investment property. Cash used in
investing activities consisted of property improvements and replacements,
partially offset by net receipts from 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 six months ended June 30, 2005, the Partnership completed
approximately $57,000 of capital improvements at Lakewood at Pelham, consisting
primarily of appliance and floor covering replacements. These improvements were
funded from replacement reserves and 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.
On May 27, 2005, the Partnership obtained a mortgage in the maximum principal
amount of $5,500,000 on Lakewood at Pelham Apartments. The new mortgage is
comprised of an initial advance of $4,350,000 that was made to the Partnership
on May 27, 2005 and an earn-out advance of $1,150,000 that is available to the
Partnership based upon certain performance criteria being met prior to June 1,
2006. The existing mortgage with an outstanding principal amount of
approximately $5,160,000 was repaid with proceeds from the initial advance of
the new mortgage and an additional loan from an affiliate of the General Partner
of approximately $1,035,000. The Partnership recognized a loss on the early
extinguishment of debt of approximately $3,000 due to the write off of
unamortized loan costs. Total capitalized loan costs associated with the new
mortgage were approximately $103,000 during the six months ended June 30, 2005
which are included in other assets. The new mortgage requires monthly payments
of interest beginning on July 1, 2005 until the loan matures June 1, 2007, with
interest being equal to the average of the one month LIBOR plus 230 basis points
(5.64% at June 30, 2005 with a minimum rate of 5.40%). In conjunction with the
new mortgage note, the Partnership paid approximately $14,000 to enter into an
interest rate cap agreement, which limits the Partnership's exposure to interest
rate increases. Under this interest rate cap agreement, the Partnership's
interest rate on the amounts owed to the lender will be no higher than 7.55%.
Adjustments to the initial amount paid are recognized in interest expense. In
addition, the new mortgage requires monthly escrow deposits for taxes, insurance
and replacement reserves and a $80,000 repair reserve that was established with
the lender at closing. The Partnership has the option of extending the maturity
date for two additional six month periods upon delivering written notice to the
lender, paying an extension fee of .25% of the outstanding principal amount of
the mortgage, no event of default existing and certain performance criteria
being met. As a condition of making the new mortgage, the lender required AIMCO
Properties, L.P., an affiliate of the Partnership, to guarantee the obligations
and liabilities of the Partnership with respect to the new mortgage.
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
June 30, 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
As previously disclosed, 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 excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
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 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: August 15, 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.
10.2 Loan Agreement dated May 27, 2005 between Pelham Place,
L.P., a South Carolina limited partnership and GMAC
Commercial Mortgage Bank, (incorporated by reference to the
Partnership's Current Report on Form 8-K dated May 27,
2005).
10.3 Promissory Note A dated May 27, 2005 between Pelham Place,
L.P., a South Carolina limited partnership and GMAC
Commercial Mortgage Bank, (incorporated by reference to the
Partnership's Current Report on Form 8-K dated May 27,
2005).
10.4 Promissory Note B dated May 27, 2005 between Pelham Place,
L.P., a South Carolina limited partnership and GMAC
Commercial Mortgage Bank, (incorporated by reference to the
Partnership's Current Report on Form 8-K dated May 27,
2005).
10.5 Guaranty dated May 27, 2005 by AIMCO Properties, L.P., for the
benefit of GMAC Commercial Mortgage Bank, (incorporated by
reference to the Partnership's Current Report on Form 8-K
dated May 27, 2005).
10.6 Rate Cap Provider - Consent and Acknowledgement dated May 27,
2005 by and among GMAC Commercial Mortgage Bank, Pelham Place,
L.P., a South Carolina Limited Partnership, and SMBC,
(incorporated by reference to the Partnership's Current Report
on Form 8-K dated May 27, 2005).
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: August 15, 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: August 15, 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 June 30, 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: August 15, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 15, 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.