10QSB 1 mcrp.txt MCRP FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-14570 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 preceding 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 a) MCCOMBS REALTY PARTNERS CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2001
Assets Cash and cash equivalents $ 782 Receivables and deposits 23 Restricted escrows 44 Other assets 104 Investment property: Land $ 499 Buildings and related personal property 5,888 6,387 Less accumulated depreciation (4,135) 2,252 $ 3,205 Liabilities and Partners' Deficit Liabilities Accounts payable $ 18 Tenant security deposit liabilities 14 Accrued property taxes 49 Other liabilities 89 Mortgage note payable 5,501 Partners' Deficit General partner $ -- Limited partners (17,196.39 units issued and outstanding) (2,466) (2,466) $ 3,205 See Accompanying Notes to Consolidated Financial Statements
b) MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 Revenues: Rental income $ 386 $ 370 $ 757 $ 736 Other income 25 33 56 52 Total revenues 411 403 813 788 Expenses: Operating 162 190 305 338 General and administrative 35 76 70 129 Depreciation 70 73 136 145 Interest 116 117 233 234 Property taxes 26 21 49 43 Total expenses 409 477 793 889 Net income (loss) $ 2 $ (74) $ 20 $ (101) Net income (loss) allocated to general partner (1%) $ -- $ (1) $ -- $ (1) Net income (loss) allocated to limited partners (99%) 2 (73) 20 (100) $ 2 $ (74) $ 20 $ (101) Net income (loss) per partnership unit $ .12 $(4.25) $ 1.16 $(5.82) See Accompanying Notes to Consolidated Financial Statements
c) 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, 2000 17,196.39 $ -- $(2,486) $(2,486) Net income for the six months ended June 30, 2001 -- -- 20 20 Partners' deficit at June 30, 2001 17,196.39 $ -- $(2,466) $(2,466) See Accompanying Notes to Consolidated Financial Statements
d) MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2001 2000 Cash flows from operating activities: Net income (loss) $ 20 $ (101) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 136 145 Amortization of loan costs 10 8 Change in accounts: Receivables and deposits 8 81 Other assets (9) (5) Accounts payable 3 (13) Tenant security deposit liabilities (3) 1 Accrued property taxes (34) (39) Other liabilities (17) 16 Net cash provided by operating activities 114 93 Cash flows from investing activities: Property improvements and replacements (78) (152) Net receipts from (deposits to) restricted escrows 1 (17) Net cash used in investing activities (77) (169) Cash flows used in financing activities: Payments on mortgage note payable (37) (34) Net decrease in cash and cash equivalents -- (110) Cash and cash equivalents at beginning of period 782 593 Cash and cash equivalents at end of period $ 782 $ 483 Supplemental disclosure of cash flow information: Cash paid for interest $ 224 $ 226 At December 31, 1999, approximately $88,000 of property improvements and replacements were included in accounts payable. See Accompanying Notes to Consolidated Financial Statements
e) MCCOMBS REALTY PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Going Concern Under the Plan of Reorganization (the "Plan"; see "Note C" below) McCombs Realty Partners (the "Partnership" or "Registrant"), a California limited partnership, was required to pay claims to limited partners and creditors of approximately $11,000,000 on October 20, 1998. These claims have not been paid as of June 30, 2001. This raises substantial doubt about the Partnership's ability to continue as a going concern. In order to attempt to satisfy the remaining claims under the Plan, the Partnership would be required to sell the investment property. As an alternative to the sale of the property, the Partnership could attempt to obtain authorization from the Court and the limited partners to extend the settlement date of October 20, 1998, to a future period. The limited partners were approached in August 1998 and asked to either approve a sale of the Partnership's sole investment property or for CRPTEX, Inc. ("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 defaulted on its obligations which were due on October 20, 1998. The General Partner is continuing to see that the Partnership operates its business in the ordinary course while it evaluates the best course of action to follow. The consolidated financial statements do not include any adjustments that might 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. The Partnership's general partner is CRPTEX, Inc., an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. 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, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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, 2000 for the Partnership. Principles of Consolidation: The Partnership's consolidated financial statements include the accounts of Pelham Place, L.P., a South Carolina limited partnership. Pelham Place, L.P. is the limited partnership which holds title to Lakewood at Pelham. Pelham Place, L.P. is wholly-owned by the Partnership. All interpartnership transactions have been eliminated. Segment Reporting: Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and required that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. 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 effective October 25, 1988. The Plan was approved by all required classes of creditors. The Plan required that the Partnership make the following payments on October 20, 1998: 1) First, all existing creditors, except prebankruptcy Class 12 creditors ($23,100), would be satisfied; 2) 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; 3) Class 12 creditors would be paid claims aggregating $23,100; 4) 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; 5) 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). Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of $14,500 and loan or expend an additional $117,500 on behalf of the Partnership on an as-needed basis. The Partnership received the $14,500 capital contribution but has not required the additional $117,500. The payments required by numbers 1 and 3 above were timely satisfied. In addition, all other claims provided for in the Plan then outstanding were settled on June 25, 1995 when the Partnership refinanced the then outstanding mortgages encumbering the property. However, the Partnership was unable to satisfy the amounts due to the limited partners indicated in numbers 2, 4 and 5 above and is in default on these obligations. Note D - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the General Partner and its affiliates were incurred during each of the six months ended June 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $ 40 $ 39 Reimbursement for services of affiliates (included in general and administrative expenses) 37 24 During the six months ended June 30, 2001 and 2000, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's investment property as compensation for providing property management services. The Partnership paid to such affiliates approximately $40,000 and $39,000 for the six months ended June 30, 2001 and 2000, respectively. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $37,000 and $24,000 for the six months ended June 30, 2001 and 2000, respectively. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 3,229.5 limited partnership units in the Partnership representing 18.78% of the outstanding units. 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 limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussions of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. 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, 2001 and 2000: Average Occupancy Property 2001 2000 Lakewood at Pelham 96% 97% Greenville, South Carolina Results of Operations The Registrant's net income for the three and six months ended June 30, 2001 was approximately $2,000 and $20,000, respectively, compared to net losses of approximately $74,000 and $101,000, respectively, for the three and six months ended June 30, 2000. The increase in net income for both the three and six months ended June 30, 2001 is primarily due to a decrease in total expenses, and to a lesser extent, an increase in total revenues. The decrease in total expenses is primarily due to decreases in operating expenses and general and administrative expenses, and to a lesser extent, a decrease in depreciation expense. Operating expenses decreased primarily due to decreases in maintenance expenses and payroll related expenses. The decrease in depreciation expense is primarily due to fixed assets placed into service in previous years becoming fully depreciated in 2001. Interest expense and property tax expense remained relatively constant for the comparable periods. General and administrative expenses decreased due primarily to a decrease in professional fees associated with the management of the Partnership, which was partially offset by an increase in the costs of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses at both June 30, 2001 and 2000 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. The increase in total revenues for both the three and six months ended June 30, 2001 is due to an increase in rental income. Rental income increased primarily due to an increase in the average rental rate, which more than offset the decrease in occupancy at the Partnership's investment property. The increase in total revenues for the three months ended June 30, 2001 was partially offset by a decrease in other income. Other income decreased for the three months ended June 30, 2001 primarily due to a decrease in interest income. Other income remained relatively constant for the six months ended June 30, 2001. 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, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2001, the Partnership had cash and cash equivalents of approximately $782,000 compared to approximately $483,000 at June 30, 2000. There was no net change in cash and cash equivalents, from the Partnership's calendar year end, as approximately $114,000 of cash provided by operating activities was offset by approximately $77,000 of cash used in investing activities and approximately $37,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements, which was partially offset by net receipts from escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of payments of principal made on the mortgage encumbering the Partnership's investment property. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and other operating needs of the Partnership including satisfaction of remaining claims related to the Partnership's Plan of Reorganization, as described below, and to comply with Federal, state, local, legal and regulatory requirements. Capital improvements planned at the Partnership's investment property are detailed below. For 2001, the Partnership has budgeted approximately $88,000 for capital improvements at Lakewood at Pelham, consisting primarily of floor covering replacement and interior and exterior building improvements. The Partnership completed approximately $78,000 of budgeted and non-budgeted capital expenditures at Lakewood at Pelham as of June 30, 2001, consisting primarily of interior building improvements, structural improvements, and floor covering replacement. These improvements were funded from operations and replacement reserves. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. Current Partnership reserves are sufficient to cover the estimated costs of the capital improvements planned for the year 2001. However, the Partnership does not have sufficient assets to fulfill its obligation under the Plan of Reorganization ("Plan") and in fact defaulted on its obligations due October 20, 1998. See discussion below for detail as to the Partnership's Plan with respect to meeting its short term needs under the Plan. No distributions were declared or paid during either of the six month periods ended June 30, 2001 or 2000. 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 effective October 25, 1988. The Plan was approved by all required classes of creditors. The Plan required that the Partnership make the following payments on October 20, 1998: 1) First, all existing creditors, except prebankruptcy Class 12 creditors ($23,100), would be satisfied; 2) 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; 3) Class 12 creditors would be paid claims aggregating $23,100; 4) 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; 5) 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). Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of $14,500 and loan or expend an additional $117,500 on behalf of the Partnership on an as-needed basis. The Partnership received the $14,500 capital contribution but has not required the additional $117,500. The payments required by numbers 1 and 3 above were timely satisfied. In addition, all other claims provided for in the Plan then outstanding were settled on June 25, 1995 when the Partnership refinanced the then outstanding mortgages encumbering the property. However, the Partnership was unable to satisfy the amounts due to the limited partners indicated in numbers 2, 4, and 5 above and is in default on these obligations. To attempt to satisfy its remaining obligations under the Plan, the Partnership would be required to sell the investment property. As an alternative, the Partnership could seek authorization from the Limited Partners to extend the payment date of October 20, 1998 to a future period. 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 defaulted on its obligations which were due on October 20, 1998. The General Partner is continuing to see that the Partnership operates its business in the ordinary course while it evaluates the best course of action to follow. Additionally, the Partnership's mortgage indebtedness of approximately $5,501,000 at June 30, 2001, matures in July 2005 with a balloon payment due, and would require a property sale or refinancing at that time. However, there can be no assurance that these courses of action will be successful and that the Partnership will have sufficient funds to meet its obligations in 2001 or beyond. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 3,229.5 limited partnership units in the Partnership representing 18.78% of the outstanding units. 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 limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K: None filed during the quarter ended June 30, 2001. 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/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: August 6, 2001