10KSB 1 mcrp.txt MCRP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT UNDER 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 (Name of small business issuer 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) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) 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___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the Partnership's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $1,400,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2004. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None 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. PART I Item 1. Description of Business McCombs Realty Partners ("Partnership" or "Registrant") is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act on June 22, 1984. The Partnership's general partner is CRPTEX, Inc., a Texas Corporation (the "General Partner" and formerly known as Capital Realty Group Property, Inc.). The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2030, unless terminated prior to such date. The Partnership sold 22,036 units of Limited Partnership Interest (the "Units") for $11,018,000 in a public offering that began December 1984 and ended December 1985. Since its initial offering, the Registrant has received approximately $730,000 of additional capital contributions from certain limited partners. In addition, under the Partnership's 1988 Plan of Reorganization (see "Item 6. Management's Discussion and Analysis or Plan of Operation"), the General Partner made a $14,500 capital contribution. The Partnership is engaged in the business of operating and holding real estate property for investment. All of the net proceeds from the offering were expended in 1985 for the acquisition and operation of one apartment complex (Lakewood at Pelham) located in Greenville, South Carolina, as well as office complexes (Airport Business Center and Crown Center) located in Georgia and California. Airport Business Center was foreclosed upon by the lender in September 1987, and Crown Center was foreclosed upon by the lender in April 1988. At December 31, 2004, the Partnership's sole investment property is Lakewood at Pelham. See "Item 2. Description of Property" for a further description of the Partnership's investment property. The original general partners of the Partnership were McCombs Corp., a California corporation and EP Partners V, a California General Partnership (the "Original General Partners"). Upon final confirmation of the Plan of Reorganization (effective January 25, 1989), CRPTEX, Inc. (then called A.B. Capital Property, Inc.) became the new General Partner of the Partnership retroactively effective to January 1, 1988. The Registrant has no employees. Property management and administrative services are provided by the General Partner and by agents retained by the General Partner. An affiliate of the General Partner has been providing such property management services. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's property. The number and quality of competitive properties, including those which may be managed by an affiliate of the General Partner in such market area could have a material effect on the rental market for the apartments at the Partnership's property and the rents that may be charged for such apartments. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's property, or restrict renovations of the property. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the General Partner believes that the Partnership's property is substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the property owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at the Partnership's property. The effect that future terrorist activities or threats of such activities could have on the Partnership's operations is uncertain and unpredictable. If the Partnership were to incur a loss at a property as a result of an act of terrorism, the Partnership could lose all or a portion of the capital invested in the property, as well as the future revenue from the property. In this regard, the Partnership has purchased insurance to cover acts of terrorism. The General Partner does not anticipate that these costs will have a negative effect on the Partnership's consolidated financial condition or results of operations. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the property owned by the Partnership. The Partnership monitors its property for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Item 6. Management's Discussion and Analysis or Plan of Operation" of this Form 10-KSB. Item 2. Description of Property The following table sets forth the Partnership's investment in property:
Date of Property Purchase Type of Ownership Use Lakewood at Pelham 01/85 Fee ownership subject to Apartment Greenville, South Carolina first mortgage (1) 271 units
(1) The property is held by a limited partnership in which the Partnership owns a 100% interest. Schedule of Property: Set forth below for the Partnership's property is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation, and Federal tax basis.
Gross Carrying Accumulated Depreciable Federal Property Value Depreciation Life Method Tax Basis (in thousands) (in thousands) Lakewood at Pelham Greenville, South Carolina $ 6,755 $ 5,066 3-30 yrs S/L $ 932
See "Note B - Organization and Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness: The following table sets forth certain information relating to the loan encumbering the Registrant's property.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 2004 Rate Amortized Date Maturity (2) (in thousands) (in thousands) Lakewood at Pelham 1st mortgage $ 5,201 8.1% (1) 07/01/05 $ 5,151
(1) The principal balance is amortized over 30 years with a balloon payment due July 1, 2005. (2) See "Note C - Mortgage Note Payable" to the consolidated financial statements included in "Item 7. Financial Statements" for other specific details about the fixed rate loan. Schedule of Rental Rate and Occupancy: Average annual rental rate and occupancy for 2004 and 2003 for the property were as follows: Average Annual Average Annual Rental Rate Occupancy (per unit) Property 2004 2003 2004 2003 Lakewood at Pelham $5,171 $5,278 90% 91% As noted under "Item 1. Description of Business", the real estate industry is highly competitive. The Partnership's property is subject to competition from other residential apartment complexes in the area. The General Partner believes that the property is adequately insured. The property is an apartment complex which leases units for terms of one year or less. No tenant leases 10% or more of the available rental space. The property is in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Schedule of Real Estate Taxes and Rate: Real estate taxes and rate in 2004 for the property were as follows: 2004 2004 Billing Rate (in thousands) Lakewood at Pelham $69 1.50% Capital Improvements: Lakewood at Pelham The Partnership completed approximately $92,000 of capital improvements at Lakewood at Pelham during the year ended December 31, 2004, consisting primarily of air conditioning upgrades and appliance and floor covering replacements. These improvements were funded from operations and insurance proceeds. 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. 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. Item 3. Legal Proceedings As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Item 4. Submission of Matters to a Vote of Partners During the quarter ended December 31, 2004, no matters were submitted to a vote of the Unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Units of Limited Partnership and Related Partner Matters As of December 31, 2004, the number of holders of record of the 17,169.13 Limited Partnership Units (the "Units") was 1,007. Affiliates of the General Partner owned 4,558.50 Units or 26.55% at December 31, 2004. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. In 2004, the number of Units decreased by 3.3 Units, due to Limited Partners abandoning their Units. In abandoning his or her Units, a Limited Partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. The loss per Limited Partnership Unit in the consolidated statements of operations included in "Item 7. Financial Statements" is calculated based on the number of Units outstanding at the end of the year. There were no distributions to the partners during the years ended December 31, 2004 and 2003. Future cash distributions will depend on the levels of net cash generated from operations, the timing of the debt maturity, refinancing and/or property sale. The Partnership is currently planning on refinancing the debt encumbering Lakewood at Pelham prior to its July 2005 maturity. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital improvements to permit any distributions to its partners in 2005 or subsequent periods. Any additional funds will be distributed in accordance with the terms of the Partnership Agreement as modified by the Partnership's Plan of Reorganization ("the Plan") (as discussed in "Item 6. Management's Discussion and Analysis or Plan of Operation"). See "Item 2. Description of Property - Capital Improvements" for information relating to capital expenditures at the property. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 4,558.50 Units in the Partnership representing 26.55% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. 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. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. 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 that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership's financial results. Results of Operations The Partnership's net loss for the year ended December 31, 2004 was approximately $262,000 as compared to net loss of approximately $195,000 for the year ended December 31, 2003. The increase in net loss is due to an increase in total expenses and a decrease in total revenues. The increase in total expenses is due to increases in both operating and depreciation expenses, partially offset by decreases in both general and administrative and property tax expenses. Interest expense remained relatively constant for the comparable periods. The increase in operating expenses is primarily due to an increase in payroll related expenses at Lakewood at Pelham. The increase in depreciation expense is a result of property improvements and replacements placed into service at the Partnership's investment property during the past twelve months. The decrease in property tax expense is due to a successful appeal of the property taxes charged in 2004 which resulted in a reassessment of the property's value. The decrease in general and administrative expenses is primarily due to decreases in the cost of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement and audit fees. Also included in general and administrative expenses for the years ended December 31, 2004 and 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies. The decrease in total revenues is due to a decrease in rental income, partially offset by an increase in other income. The decrease in rental income is primarily due to decreases in the average rental rate and occupancy and an increase in bad debt expense at the Partnership's investment property. Other income increased primarily due to increases in utility reimbursements, laundry income, and cleaning and damage fees, partially offset by a decrease in late charges at Lakewood at Pelham. 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 year ended December 31, 2003 to partially cover the damages. After writing off the undepreciated cost of the damaged asset of approximately $11,000, the Partnership recognized a casualty gain of approximately $15,000 from this event during the year ended December 31, 2003. During the year ended December 31, 2004, the Partnership received additional proceeds of approximately $16,000, resulting in a casualty gain of approximately $16,000 for the year ended December 31, 2004. Liquidity and Capital Resources At December 31, 2004, the Partnership had cash and cash equivalents of approximately $30,000 as compared to approximately $132,000 at December 31, 2003. The decrease in cash and cash equivalents of approximately $102,000 is due to approximately $91,000 of cash used in investing activities and approximately $71,000 of cash used in operating activities, partially offset by approximately $60,000 of cash provided by financing activities. Cash used in investing activities consisted of property improvements and replacements and net deposits to an escrow account maintained by the mortgage lender, partially offset by insurance proceeds received. Cash provided by financing activities consisted of advances from an affiliate of the General Partner, partially offset by payments of principal made on the mortgage encumbering the Partnership's investment property. 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. 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 improvements will be incurred only if cash is available from operations or from Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The mortgage indebtedness encumbering Lakewood at Pelham of approximately $5,201,000 is being amortized over 30 years with a balloon payment of approximately $5,151,000 due July 2005. The General Partner will attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure. 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 Units in the Partnership representing 26.55% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. 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 A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Summary of Significant Accounting Policies" which is included in the consolidated financial statements in "Item 7. Financial Statements". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. 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 a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment property. These factors include, but are not limited to, changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause 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 7. Financial Statements MCCOMBS REALTY PARTNERS LIST OF FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet - December 31, 2004 Consolidated Statements of Operations - Years ended December 31, 2004 and 2003 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 2004 and 2003 Consolidated Statements of Cash Flows - Years ended December 31, 2004 and 2003 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm The Partners McCombs Realty Partners We have audited the accompanying consolidated balance sheet of McCombs Realty Partners as of December 31, 2004, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of McCombs Realty Partners at December 31, 2004, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As more fully described in Note A to the consolidated financial statements, the Partnership has inadequate liquidity due to declining operating results. In addition, the investment property's mortgage matures in July 2005 with a balloon payment of $5,151,000 due at that time. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The 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. /S/ERNST & YOUNG, LLP Greenville, South Carolina March 21, 2005 MCCOMBS REALTY PARTNERS CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 2004
Assets Cash and cash equivalents $ 30 Receivables and deposits 88 Restricted escrow 148 Other assets 57 Investment property (Notes C and F): Land $ 499 Buildings and related personal property 6,256 6,755 Less accumulated depreciation (5,066) 1,689 $ 2,012 Liabilities and Partners' Deficit Liabilities Accounts payable $ 62 Tenant security deposit liabilities 28 Other liabilities 82 Due to affiliates (Note E) 311 Mortgage note payable (Note C) 5,201 Partners' Deficit General Partner $ (1) Limited partners (17,169.13 units issued and outstanding) (3,671) (3,672) $ 2,012 See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2004 2003 Revenues: Rental income $ 1,181 $ 1,233 Other income 203 168 Casualty gain (Note G) 16 15 Total revenues 1,400 1,416 Expenses: Operating 754 649 General and administrative 106 132 Depreciation 276 271 Interest 455 453 Property taxes 71 106 Total expenses 1,662 1,611 Net loss (Note D) $ (262) $ (195) Net loss allocated to general partner $ -- $ -- Net loss allocated to limited partners (262) (195) $ (262) $ (195) Net loss per limited partnership unit $(15.26) $(11.36) See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Partners' deficit at December 31, 2002 17,172.43 $ (1) $(3,214) $(3,215) Net loss for the year ended December 31, 2003 -- -- (195) (195) Partners' deficit at December 31, 2003 17,172.43 (1) (3,409) (3,410) Abandonment of Limited Partnership Units (Note H) (3.3) -- -- -- Net loss for the year ended December 31, 2004 -- -- (262) (262) Partners' deficit at December 31, 2004 17,169.13 $ (1) $(3,671) $(3,672) See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2004 2003 Cash flows from operating activities: Net loss $ (262) $ (195) Adjustments to reconcile net loss to net cash (used in)provided by operating activities: Depreciation 276 271 Amortization of loan costs 19 19 Bad debt expense 77 64 Casualty gain (16) (15) Change in accounts: Receivables and deposits (106) (84) Other assets (16) (15) Accounts payable (26) 58 Tenant security deposit liabilities (6) 16 Accrued property taxes (106) 106 Due to affiliates 77 79 Other liabilities 18 3 Net cash (used in) provided by operating activities (71) 307 Cash flows from investing activities: Insurance proceeds received 16 26 Property improvements and replacements (78) (158) Net deposits to restricted escrow (29) (38) Net cash used in investing activities (91) (170) Cash flows from financing activities: Payments on mortgage note payable (95) (87) Advances from affiliate 155 -- Net cash provided by (used in) financing activities 60 (87) Net (decrease) increase in cash and cash equivalents (102) 50 Cash and cash equivalents at beginning of year 132 82 Cash and cash equivalents at end of year $ 30 $ 132 Supplemental disclosure of cash flow information: Cash paid for interest $ 425 $ 433 Supplemental disclosure of non-cash activity: Property improvements and replacements in accounts payable $ 14 $ -- See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS Notes to Consolidated Financial Statements December 31, 2004 Note A - Going Concern The accompanying consolidated financial statements have been prepared assuming McCombs Realty Partners (the "Partnership") will continue as a going concern. The Partnership has decreasing occupancy levels, suffers from a lack of cash, and has debt of approximately $5,151,000 maturing in July of 2005. Based upon current operations, the Partnership does not anticipate that proceeds from the new financing will be sufficient to repay the existing debt. If the Partnership defaults on its scheduled debt repayment, the Partnership will risk losing its sole investment property through foreclosure. The Partnership's general partner, CRPTEX, Inc., a Texas corporation (the "General Partner") is currently evaluating its options with respect to obtaining financing for the investment property. The General Partner is currently evaluating its means to improve the operations of the property and increase occupancy levels to improve the cash flows generated by the property. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The 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 - Organization and Summary of Significant Accounting Policies Organization The Partnership is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act on June 22, 1984. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2030, unless terminated prior to such date. The Partnership operates one apartment property located in South Carolina. Under the Partnership Agreement, the maximum liability of the Limited Partners is the amount of their capital contributions. Since its initial offering, the Partnership has received approximately $730,000 of additional capital contributions from certain limited partners. In addition, per the Plan of Reorganization (The "Plan") (see below), the General Partner made a $14,500 capital contribution. There were 17,169.13 and 17,172.43 Limited Partnership units (the "Units") outstanding at December 31, 2004 and 2003, respectively (see "Note H - Abandonment of Limited Partnership Units"). 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 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 recent 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. Allocation of Profits, Gains and Losses Partnership income, gains, and losses are generally allocated 98% to the Limited Partners, 1% to the General Partner, and 1% to a special Limited Partner interest, which percentage was subsequently transferred to CRPTEX. Losses are not allocated to CRPTEX's General Partner capital balance or the special Limited Partner capital balance, if the allocation of loss creates a negative capital balance. Notwithstanding the above allocations, gains from the sale or other disposition of the Partnership's property are allocated first to the General Partner to the extent distributions of sale or refinancing proceeds (as defined) are received; next, to partners with deficit balances in their capital accounts and, thereafter, to the partners in an amount equal to their pro rata share of the total capital balance. Net loss per Limited Partnership unit is based on the number of Limited Partnership units outstanding (17,169.13 and 17,172.43 in 2004 and 2003, respectively) and the net loss allocated to the Limited Partners in accordance with the Partnership Agreement as amended by the Plan of Reorganization. Allocation of Cash Distributions Prior to the effective date of the Partnership's Plan of Reorganization (October 25, 1988), cash available for distribution (as defined in the Partnership Agreement) was distributed 90% to the Limited Partners and 1% to the General Partner for their interest in profits and losses and 9% to the General Partner as a partnership management fee, which was considered an expense of the Partnership. The General Partner was not to receive the 9% Partnership management fee during any year in which the Limited Partners did not receive cash distributions equal to 4% per annum on their adjusted capital contributions. Adjusted capital contributions are defined as original capital contributed, less distributions constituting a return of unused capital or cash proceeds from the sale or refinancing of Partnership properties. In accordance with the Plan of Reorganization, CRPTEX waived the subordinated Partnership management fee in return for the ability to receive real estate commissions that are not subordinated to the cumulative return (as defined in the Partnership Agreement). Accordingly under the Plan of Reorganization, cash available for distribution shall be distributed 99% to the Limited Partners and 1% to the General Partner. However, CRPTEX is entitled to 1% of the amounts allocated to the Limited Partners and 1% of the amounts allocated to the General Partner. Net proceeds from the sale or refinancing of the Partnership's property will be distributed in cash to the Limited Partners who made additional capital contributions pursuant to the Partnership's Plan of Reorganization until distributions equal the additional capital contributions. Next, the Limited Partners who made additional capital contributions and who are original Limited Partners will receive distributions equal to their capital contributions. Next, the Limited Partners who did not make additional capital contributions will receive distributions equal to one-third of their existing capital contribution. Thereafter, 16% of the remaining proceeds shall be distributed to CRPTEX and 84% to the Limited Partners. Notwithstanding the above, the Plan of Reorganization provides that, in connection with distributions resulting from the sale or refinancing of the Partnership's property, 1% of each such distribution that would otherwise be paid to the Limited Partners and 1% of each such distribution that would otherwise be paid to the special Limited Partner interest will be paid to CRPTEX. Principles of Consolidation The consolidated financial statements of the Partnership 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. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Investment Property Investment property consists of one apartment complex and is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership capitalizes all expenditures in excess of $250 that clearly relate to the acquisition and installation of real and personal property components. These expenditures include costs incurred to replace existing property components, costs incurred to add a material new feature to a property, and costs that increase the useful life or service potential of a property component. These capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement or Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were recorded in the years ended December 31, 2004 or 2003. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the investment property and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years, and (2) personal property additions over 5 years. Leases 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 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. Segment Reporting 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 requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 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. Deferred Costs Loan costs of approximately $193,000, less accumulated amortization of approximately $182,000, are included in other assets and are being amortized over the term of the related loan agreement. Amortization expense for both 2004 and 2003 was approximately $19,000 and is included in interest expense. Amortization expense is expected to be approximately $11,000 in 2005, at which time loan costs will be fully amortized. Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limits on insured deposits. Cash balances include approximately $24,000 at December 31, 2004 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on rental payments. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $28,000 and $23,000 for the years ended December 31, 2004 and 2003, respectively. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments approximate their fair value due to the short term maturity of these instruments, including the mortgage encumbering Lakewood at Pelham. Restricted Escrow - Replacement Reserve At the time of the refinancing of the mortgage note payable in 1995, a replacement reserve account was established. This reserve is to be used for capital replacements at the apartment complex. At December 31, 2004, the account balance was approximately $148,000, which includes interest earned on these funds. Note C - Mortgage Note Payable The terms of the mortgage note payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2004 Interest Rate Date Maturity (in thousands) (in thousands) Lakewood at Pelham 1st mortgage $ 5,201 $ 43 8.1% 07/01/05 $ 5,151
The mortgage note payable is a fixed rate mortgage which carries a stated interest rate of 8.1% and is being amortized over 30 years with a balloon payment due July 1, 2005. The mortgage note payable is secured by a pledge of the Partnership's rental property and by a pledge of revenues from the respective rental property. The investment property may not be sold subject to the existing indebtedness. Additionally, the mortgage note payable requires a prepayment penalty if repaid prior to maturity. Note D - Income Taxes The Partnership received a ruling from the Internal Revenue Service that it is to be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data): 2004 2003 Net loss as reported $ (262) $ (195) Add (deduct) Depreciation and amortization 156 143 Other (100) 14 Federal taxable loss $ (206) $ (38) Federal taxable loss per limited partnership unit $ (2.67) $(2.21) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of partners' deficit (in thousands): Total partner's deficit - financial statement basis $(3,672) Current year tax basis net loss under financial statement net loss 56 Prior year cumulative tax basis net loss over financial statement net loss (846) Total partner's deficit - Federal income tax basis $(4,462) Note E - 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 $68,000 for each of the years ended December 31, 2004 and 2003, which are included in operating expenses. Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $66,000 and $85,000 for the years ended December 31, 2004 and 2003, respectively, which are included in general and administrative expenses. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursements of accountable administrative expenses were adjusted based on actual costs (see Note I). Approximately $151,000 in reimbursement of accountable administrative expenses, including related accrued interest of approximately $7,000, was owed to affiliates of the General Partner at December 31, 2004 and is included in due to affiliates. During the year ended December 31, 2004, an affiliate of the General Partner advanced the Partnership approximately $155,000 to fund operating expenses and audit fees. This advance accrues interest at the prime rate plus 2% (7.25% at December 31, 2004). Interest expense for the year ended December 31, 2004 was approximately $5,000. At December 31, 2004, the total outstanding advances and accrued interest was approximately $160,000 and is included in due to affiliates. There were no such advances made by the General Partner to the Partnership during the year ended December 31, 2003. The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $25,000 and $23,000, respectively, for insurance coverage and fees associated with policy claims administration. 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 December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. 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. Note F - Investment Property and Accumulated Depreciation Initial Cost To Partnership (in thousands)
Buildings Cost And Related Written Down Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Lakewood at Pelham $ 5,201 $ 695 $ 6,730 $ (670)
Gross Amount At Which Carried At December 31, 2004 (in thousands) Buildings And Related Date of Personal Accumulated Construc- Date Depreciable Description Land Property Total Depreciation tion Acquired Life-Years (in thousands) Lakewood at Pelham $ 499 $ 6,256 $ 6,755 $ 5,066 1980 01/85 3-30
Reconciliation of "investment property and accumulated depreciation": Years Ended December 31, 2004 2003 (in thousands) Investment Property Balance at beginning of year $ 6,671 $ 6,536 Property improvements 92 158 Disposal of property (8) (23) Balance at end of year $ 6,755 $ 6,671 Accumulated Depreciation Balance at beginning of year $ 4,798 $ 4,539 Additions charged to expense 276 271 Disposal of property (8) (12) Balance at end of year $ 5,066 $ 4,798 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2004 and 2003 is approximately $9,387,000 and $9,311,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2004 and 2003 is approximately $8,455,000 and $8,335,000, respectively. Note G - 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 year ended December 31, 2003 to partially cover the damages. After writing off the undepreciated costs of the damaged asset of approximately $11,000, the Partnership recognized a casualty gain of approximately $15,000 from this event during the year ended December 31, 2003. During the year ended December 31, 2004, the Partnership received additional proceeds of approximately $16,000, resulting in a casualty gain of approximately $16,000 for the year ended December 31, 2004. Note H - Abandonment of Limited Partnership Units In 2004, the number of Limited Partnership Units decreased by 3.3 Units due to Limited Partners abandoning their Units. In abandoning his or her Units, a Limited Partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. The loss per Unit in the accompanying consolidated statements of operations is calculated based on the number of Units outstanding at the end of the year. Note I - Fourth-Quarter Adjustments During 2004, the Partnership successfully appealed the assessed value of Lakewood at Pelham. For the first three quarters of 2004, the Partnership recorded property tax expense based on the property's assessed value prior to the successful appeal. During the fourth quarter of 2004, the Partnership recorded an adjustment to receivables and deposits and property tax expense of approximately ($38,000) as a result of the successful appeal. Subsequent to December 31, 2004, the Partnership received a refund of approximately $38,000 related to the overpayment of property taxes for 2004. The Partnership's policy is to record management reimbursements to the General Partner as allowed under the Partnership Agreement on a quarterly basis, using estimated financial information furnished by an affiliate of the General Partner. For the first three quarters of 2003, these reimbursements of accountable administrative expenses were based on estimated amounts. During the fourth quarter of 2003, the Partnership recorded an adjustment to management reimbursements to the General Partner of approximately $24,000 due to a difference in the estimated costs and the actual costs incurred. The actual management reimbursements to the General Partner for the year ended December 31, 2003 were approximately $83,000, as compared to the estimated management reimbursements to the General Partner for the nine months ended September 30, 2003 of approximately $45,000. The adjustment to management reimbursements was included in general and administrative expenses. Note J - Contingencies As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business. Environmental Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the General Partner believes that these measures will eliminate, or at least minimize, the effects that mold could have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership's consolidated financial condition or results of operations. SEC Investigation As previously disclosed, the Central Regional Office of the United States Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation include AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict when the matter will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 8A. 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 fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 8B. Other Information None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act The Partnership has no directors or officers. The names of the directors and officers of CRPTEX, Inc. (the "General Partner" and formerly Capital Realty Group Properties, Inc.), their ages and the nature of all positions with CRPTEX, Inc. presently held by them are set forth below. There are no family relationships between or among any officers or directors. Martha L. Long 45 Director and Senior Vice President Harry G. Alcock 42 Director and Executive Vice President Miles Cortez 61 Executive Vice President, General Counsel and Secretary Patti K. Fielding 41 Executive Vice President Paul J. McAuliffe 48 Executive Vice President and Chief Financial Officer Thomas M. Herzog 42 Senior Vice President and Chief Accounting Officer Stephen B. Waters 43 Vice President Martha L. Long has been a Director and Senior Vice President of the General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed as a Director of the General Partner in October 2004 and was appointed Executive Vice President of the General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding was appointed Treasurer of AIMCO in January 2005. Ms. Fielding is responsible for debt financing and the treasury department. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a Vice President. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000. Stephen B. Waters was appointed Vice President of the General Partner in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibilities for real estate and partnership accounting with AIMCO. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 10. Executive Compensation No remuneration was paid to the General Partner nor its directors or any of its officers during the year ended December 31, 2004. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units (the "Units") of the Registrant as of December 31, 2004. Entity Number of Units Percentage AIMCO Properties, L.P. (an affiliate of AIMCO) 4,558.50 26.55% AIMCO Properties, L.P. is indirectly ultimately owned by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. No officers or directors of CRPTEX, Inc. own any Units in the Partnership. No general partners or officers or directors of the General Partner of the Partnership possess the right to acquire a beneficial ownership of interests of the Partnership. Item 12. Certain Relationships and Related Transactions 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 $68,000 for each of the years ended December 31, 2004 and 2003, which are included in operating expenses on the consolidated statements of operations included in "Item 7. Financial Statements". Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $66,000 and $85,000 for the years ended December 31, 2004 and 2003, respectively, which are included in general and administrative expenses. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursements of accountable administrative expenses were adjusted based on actual costs (see Note I to the consolidated financial statements included in "Item 7. Financial Statements"). Approximately $151,000 in reimbursement of accountable administrative expenses, including related accrued interest of approximately $7,000, was owed to affiliates of the General Partner at December 31, 2004 and is included in due to affiliates on the consolidated balance sheet included in "Item 7. Financial Statements". During the year ended December 31, 2004, an affiliate of the General Partner advanced the Partnership approximately $155,000 to fund operating expenses and audit fees. This advance accrues interest at the prime rate plus 2% (7.25% at December 31, 2004). Interest expense for the year ended December 31, 2004 was approximately $5,000. At December 31, 2004, the total outstanding advances and accrued interest was approximately $160,000 and is included in due to affiliates on the consolidated balance sheet included in "Item 7. Financial Statements". There were no such advances made by the General Partner to the Partnership during the year ended December 31, 2003. The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $25,000 and $23,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 4,558.50 Units in the Partnership representing 26.55% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. 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. Item 13. Exhibits See Exhibit Index. Item 14. Principal Accountant Fees and Services The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2005. The aggregate fees billed for services rendered by Ernst & Young LLP for 2004 and 2003 are described below. Audit Fees. Fees for audit services totaled approximately $28,000 and $32,000, respectively. Fees for audit services also include fees for the reviews of the Partnership's Quarterly Reports on Form 10-QSB. Tax Fees. Fees for tax services totaled approximately $10,000 and $8,000 for 2004 and 2003, respectively. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has 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 /s/Stephen B. Waters By: Stephen B. Waters Vice President Date: March 30, 2005 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Harry G. Alcock Director and Executive Date: March 30, 2005 Harry G. Alcock Vice President /s/Martha L. Long Director and Senior Vice Date: March 30, 2005 Martha L. Long President /s/Stephen B. Waters Vice President Date: March 30, 2005 Stephen B. Waters EXHIBIT INDEX Exhibit 3.1 Amended and Restated Certificate and Agreement of Limited Partners of McCombs Realty Partners, a California Limited Partnership, incorporated by reference to the exhibits to the Registrant's Annual Report filed on Form 10-K, filed on April 13, 1990. 3.2 Certificate of Limited Partnership of the Partnership, incorporated by reference to the exhibits to the Registrant's Annual Report filed on Form 10-K, filed on April 13, 1990. 10(a) Mortgage and Security Agreement dated June 29, 1995 between Pelham Place, L.P. and First Union National Bank of North Carolina, securing Pelham Place Apartments, is incorporated by reference to Exhibit 10JJ(a) of the Registrant's Quarterly Report on Form 10-QSB for the Quarter ended June 30, 1995. (b) Promissory Note dated June 29, 1995 between Pelham Place, L.P., a South Carolina limited partnership, and First Union National Bank of North Carolina, a national banking association, is incorporated by reference to Exhibit 10JJ(b) to the Registrant's Quarterly Report on Form 10-QSB for the Quarter ended June 30, 1995. (c) Assignment of Leases and Rents dated June 29, 1995 between Pelham Place, L.P., and First Union National Bank of North Carolina, securing Pelham Place Apartments, is incorporated by reference to Exhibit 10JJ(c) to the Registrant's Quarterly Report on Form 10-QSB for the Quarter ended June 30, 1995. (d) Agreement of Limited Partnership for Pelham Place, L.P., between Pelham Place, GP, a South Carolina limited partnership, is incorporated by reference to Exhibit 28A to the Registrant's Quarterly Report on Current Report on Form 10-QSB for the Quarter ended June 30, 1995. 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification 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 annual report on Form 10-KSB 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: March 30, 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 annual report on Form 10-KSB 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: March 30, 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 Annual Report on Form 10-KSB of McCombs Realty Partners (the "Partnership"), for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Martha L. Long Name: Martha L. Long Date: March 30, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: March 30, 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.