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 March 31, 2002 [ ] 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 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 a) MCCOMBS REALTY PARTNERS CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 2002
Assets Cash and cash equivalents $ 706 Receivables and deposits 19 Restricted escrow 68 Other assets 105 Investment property: Land $ 499 Buildings and related personal property 5,964 6,463 Less accumulated depreciation (4,340) 2,123 $ 3,021 Liabilities and Partners' Deficit Liabilities Accounts payable $ 34 Tenant security deposit liabilities 11 Accrued property taxes 26 Other liabilities 75 Mortgage note payable 5,444 Partners' Deficit General partner $ -- Limited partners (17,196.39 units issued and outstanding) (2,569) (2,569) $ 3,021 See Accompanying Notes to Consolidated Financial Statements
b) MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended March 31, 2002 2001 Revenues: Rental income $ 325 $ 371 Other income 22 31 Total revenues 347 402 Expenses: Operating 153 143 General and administrative 33 35 Depreciation 68 66 Interest 115 117 Property taxes 26 23 Total expenses 395 384 Net (loss) income $ (48) $ 18 Net (loss) income allocated to general partner (1%) $ -- $ -- Net (loss) income allocated to limited partners (99%) (48) 18 $ (48) $ 18 Net (loss) income per limited partnership unit $(2.79) $ 1.05 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, 2001 17,196.39 $ -- $ (2,521) $ (2,521) Net loss for the three months ended March 31, 2002 -- -- (48) (48) Partners' deficit at March 31, 2002 17,196.39 $ -- $ (2,569) $ (2,569) See Accompanying Notes to Consolidated Financial Statements
d) MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2002 2001 Cash flows from operating activities: Net (loss) income $ (48) $ 18 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation 68 66 Amortization of loan costs 5 5 Change in accounts: Receivables and deposits 4 8 Other assets (25) (16) Accounts payable 19 -- Tenant security deposit liabilities -- (1) Accrued property taxes (75) (60) Other liabilities (61) (35) Net cash used in operating activities (113) (15) Cash flows from investing activities: Property improvements and replacements (40) (27) Net deposits to restricted escrows (17) (17) Net cash used in investing activities (57) (44) Cash flows used in financing activities: Payments on mortgage note payable (19) (18) Net decrease in cash and cash equivalents (189) (77) Cash and cash equivalents at beginning of period 895 782 Cash and cash equivalents at end of period $ 706 $ 705 Supplemental disclosure of cash flow information: Cash paid for interest $ 110 $ 112 See Accompanying Notes to Consolidated Financial Statements
e) MCCOMBS REALTY PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of McCombs Realty Partners (the "Partnership" or "Registrant"), a California limited partnership, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Partnership's general partner is CRPTEX, Inc. (the "General Partner"), a subsidiary 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 month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. 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, 2001. Note B - Plan of Reorganization On March 9, 1987, the original general partners of the Partnership, on behalf of the Partnership, filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court, Central District of California ("Court"). The Partnership continued as Debtor-In-Possession to operate its business in the ordinary course until the Court confirmed the Partnership's Plan 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; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 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; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 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); 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 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 did not require the additional $117,500 to be loaned. 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. With respect to the amounts due to the Limited Partners under numbers 2,4, and 5 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 Partners 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 under the Plan to the Limited Partners were not made that no default exists and 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 2, 4, and 5 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 subsequent to March 31, 2002 in accordance with number 2 above. Any additional funds will be distributed in accordance with the terms of the Partnership Agreement as modified by the Plan. Note C - Transactions with Affiliated Parties The Partnership has no employees and 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. During the three months ended March 31, 2002 and 2001, 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 $18,000 and $19,000 for the three months ended March 31, 2002 and 2001, respectively, which are included in operating expenses. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $19,000 and $20,000 for the three months ended March 31, 2002 and 2001, respectively, which are included in general and administrative expenses. Beginning in 2001, the Partnership began insuring 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, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $19,000 and $25,000, respectively, for insurance coverage and fees associated with policy claims administration. 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 discussion 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 three months ended March 31, 2002 and 2001: Average Occupancy Property 2002 2001 Lakewood at Pelham 85% 95% Greenville, South Carolina The General Partner attributes the decrease in occupancy at Lakewood at Pelham to increased market competition as a result of the slowdown in the economy in the Greenville area. Results of Operations The Registrant's net loss for the three months ended March 31, 2002, was approximately $48,000 as compared to net income of approximately $18,000 for the three months ended March 31, 2001. The decrease in net income is due to a decrease in total revenues and an increase in total expenses. Total revenues decreased primarily due to a decrease in rental income and, to a lesser extent, a decrease in other income. Rental income decreased primarily due to a decrease in occupancy, slightly offset by an increase in the average rental rate, at the Registrant's investment property. The decrease in other income is primarily due to a decrease in interest income. The increase in total expenses is due to an increase in operating expenses. Operating expenses increased primarily due to an increase in insurance expense as a result of a higher insurance premium at the investment property. General and administrative, depreciation, interest and property tax expenses remained relatively constant for the comparable periods. Included in general and administrative expenses at both March 31, 2002 and 2001 are management reimbursements to the General Partner allowed under the Partnership Agreement. Also included are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. 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 March 31, 2002, the Partnership had cash and cash equivalents of approximately $706,000 as compared to approximately $705,000 at March 31, 2001. The decrease in cash and cash equivalents of approximately $189,000, from the Partnership's calendar year end, is due to approximately $113,000 of cash used in operating activities, approximately $57,000 of cash used in investing activities, and approximately $19,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements and, to a lesser extent, net deposits to 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 and to comply with Federal, state and local legal and regulatory requirements. Capital improvements planned at the Partnership's investment property are detailed below. For 2002, the Partnership has budgeted approximately $94,000 for capital improvements at Lakewood at Pelham, consisting primarily of interior building improvements and floor covering replacement. The Partnership completed approximately $40,000 in capital expenditures at Lakewood at Pelham as of March 31, 2002, consisting primarily of structural building improvements and floor covering replacement. These improvements were funded from operations. Additional improvements may be considered and will depend on the physical condition of the property as well as the anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The mortgage indebtedness on Lakewood at Pelham of approximately $5,444,000 is being amortized over 30 years with a balloon payment due July 2005. The General Partner may attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure. On March 9, 1987, the original general partners of the Partnership, on behalf of the Partnership, filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court, Central District of California ("Court"). The Partnership continued as Debtor-In-Possession to operate its business in the ordinary course until the Court confirmed the Partnership's Plan of Reorganization (The "Plan") effective October 25, 1988. The Plan was approved by all required classes of creditors. The Plan required that the Partnership make 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; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 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; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 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); 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 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 did not require the additional $117,500 to be loaned. 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. With respect to the amounts due to the Limited Partners under numbers 2,4, and 5 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 Partners 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 under the Plan to the Limited Partners were not made that no default exists and 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 2, 4, and 5 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 subsequent to March 31, 2002 in accordance with number 2 above. Any additional funds will be distributed in accordance with the terms of the Partnership Agreement as modified by the Plan. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 3,636.5 limited partnership units in the Partnership representing 21.15% of the outstanding units at March 31, 2002. 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 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 March 31, 2002. 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: May 13, 2002