-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FFY49k3qCVvYo9ALY9rCacZPJQs8AsuiaVLNP1sO8Eamth6bmx8rIYD/tDgnUndG hvM0bOBsSABGL04IFFYQpw== 0000711642-05-000477.txt : 20050815 0000711642-05-000477.hdr.sgml : 20050815 20050815162238 ACCESSION NUMBER: 0000711642-05-000477 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCOMBS REALTY PARTNERS LTD CENTRAL INDEX KEY: 0000759198 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330068732 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14570 FILM NUMBER: 051026943 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 mcrp.txt MCRP UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________to _________ Commission file number 0-14570 MCCOMBS REALTY PARTNERS (Exact name of small business issuer as specified in its charter) California 33-0068732 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MCCOMBS REALTY PARTNERS CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2005
Assets Cash and cash equivalents $ 152 Receivables and deposits 132 Restricted escrow 80 Other assets 141 Investment property: Land $ 499 Buildings and related personal property 6,313 6,812 Less accumulated depreciation (5,194) 1,618 $ 2,123 Liabilities and Partners' Deficit Liabilities Accounts payable $ 21 Tenant security deposit liabilities 27 Accrued property taxes 36 Other liabilities 72 Due to affiliates (Note D) 1,557 Mortgage note payable 4,350 Partners' Deficit General partner $ (1) Limited partners (17,169.13 units issued and outstanding) (3,939) (3,940) $ 2,123
See Accompanying Notes to Consolidated Financial Statements MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 Revenues: Rental income $ 252 $ 310 $ 513 $ 646 Other income 46 44 84 83 Casualty gain (Note F) -- 16 -- 16 Total revenues 298 370 597 745 Expenses: Operating 240 206 411 391 General and administrative 33 29 58 61 Depreciation 64 70 128 138 Interest 115 113 232 226 Property taxes 8 28 36 55 Total expenses 460 446 865 871 Net loss $ (162) $ (76) $ (268) $ (126) Net loss allocated to general partner $ -- $ -- $ -- $ -- Net loss allocated to limited partners (162) (76) (268) (126) $ (162) $ (76) $ (268) $ (126) Net loss per limited partnership unit $ (9.44) $ (4.43) $(15.61) $ (7.34)
See Accompanying Notes to Consolidated Financial Statements MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Partners' deficit at December 31, 2004 17,169.13 $ (1) $ (3,671) $ (3,672) Net loss for the six months ended June 30, 2005 -- -- (268) (268) Partners' deficit at June 30, 2005 17,169.13 $ (1) $ (3,939) $ (3,940)
See Accompanying Notes to Consolidated Financial Statements MCCOMBS REALTY PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2005 2004 Cash flows from operating activities: Net loss $ (268) $ (126) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 128 138 Amortization of loan costs 12 10 Bad debt expense 15 22 Casualty gain -- (16) Loss on early extinguishment of debt 3 -- Change in accounts: Receivables and deposits (59) (22) Other assets 4 (33) Accounts payable (27) (29) Tenant security deposit liabilities (1) (1) Accrued property taxes 36 (52) Due to affiliates 56 41 Other liabilities (10) (6) Net cash used in operating activities (111) (74) Cash flows from investing activities: Insurance proceeds received -- 16 Property improvements and replacements (71) (45) Net withdrawals from (deposits to) restricted escrows 68 (18) Net cash used in investing activities (3) (47) Cash flows from financing activities: Repayment of mortgage note payable (5,160) -- Proceeds from mortgage note payable 4,350 -- Loan costs paid (103) -- Payments on mortgage note payable (41) (47) Advances from affiliate 1,190 120 Net cash provided by financing activities 236 73 Net increase (decrease) in cash and cash equivalents 122 (48) Cash and cash equivalents at beginning of period 30 132 Cash and cash equivalents at end of period $ 152 $ 84 Supplemental disclosure of cash flow information: Cash paid for interest $ 209 $ 214
Included in property improvements and replacements for the six months ended June 30, 2005 are approximately $14,000 of property improvements and replacements which were included in accounts payable at December 31, 2004. See Accompanying Notes to Consolidated Financial Statements MCCOMBS REALTY PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Going Concern The accompanying unaudited consolidated financial statements have been prepared assuming McCombs Realty Partners (the "Partnership" or "Registrant") will continue as a going concern. The Partnership has experienced decreasing occupancy levels and suffers from a lack of cash flow from operations. The Partnership's general partner, CRPTEX, Inc., a Texas corporation (the "General Partner") is currently evaluating its options to improve the operations of the property and increase occupancy levels to improve the cash flows generated by the property. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The unaudited consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Note B - Basis of Presentation The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Note C - Plan of Reorganization On March 9, 1987, the original general partners of the Partnership, on behalf of the Partnership, filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court, Central District of California ("Court"). The Partnership continued as Debtor-In-Possession to operate its business in the ordinary course until the Court confirmed the Partnership's Plan of Reorganization (the "Plan") effective October 25, 1988. The Plan was approved by all required classes of creditors. The Plan required that the Partnership make certain payments to its secured creditors and others on or before October 20, 1995. These payments were made on or about June 25, 1995, when the Partnership refinanced the outstanding mortgages encumbering the property. The Plan also required that the Partnership make the following distributions on October 20, 1998, from available cash: 1) First, Limited Partners, both original and substitute, who made additional capital contributions under the Plan would receive a repayment of the additional contributions totaling approximately $730,000; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 2) Second, Class 12 unsecured creditors ($23,100) would be paid on their claims; 3) Third, Limited Partners who made additional capital contributions and were original Limited Partners would receive a repayment of their original capital contributions totaling approximately $9,818,000; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion of available cash less a pro-rata portion reserved for one third of the existing capital contributions of non-contributing Limited Partners would be paid based upon available funds; 4) Fourth, Limited Partners who did not make additional capital contributions would receive a repayment of one-third of their original capital contributions (i.e., one-third of $1,200,000); if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds. Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of $14,500 and loan an additional $117,500 on behalf of the Partnership. The Partnership received the $14,500 capital contribution but did not receive or require the additional $117,500 to be loaned. The payments required by number 2 above were timely made. With respect to the amounts due to the Limited Partners under numbers 1, 3, and 4 above, there were not sufficient funds available to completely satisfy these obligations at October 20, 1998. It was not anticipated that at October 20, 1998, there would be available funds to fully satisfy the unsecured claims of the Limited Partners, as indicated under the Plan. The limited partners were approached in August 1998 and asked to either approve a sale of the Partnership's sole investment property or for the General Partner to petition the Bankruptcy Court for an extension of the settlement date. The required fifty-one percent response was not received. As a result, the Partnership did not make any payments to the Limited Partners on October 20, 1998, as required by the Plan from available funds. There is no requirement, however, that the Partnership sell or again refinance the property in order to pay in part or in whole, the payments to the Limited Partners referred to above. The General Partner has determined that although all of the required payments due under the Plan to the Limited Partners were not made, that the Partnership is not in any material financial default in connection with its prior bankruptcy. In addition, the General Partner believes that it is proper for the Partnership to continue operating under the terms of its Partnership Agreement as modified by the Plan. Since the expiration of the Plan on October 20, 1998, the General Partner had reserved all excess cash to ensure that the Partnership would be able to meet its operating and capital improvement needs rather than making pro-rata payments to the limited partners in accordance with numbers 1, 3, and 4 above. During the fourth quarter of 2001, the General Partner determined that the Partnership had accumulated approximately $562,000 in excess funds. Approximately $530,000, which had been reserved since 1998 to ensure that the property was fully able to meet its operating and capital improvement needs with existing operating funds, was distributed during the year ended December 31, 2002 in accordance with number 1 above. In addition, approximately $32,000 was distributed from operations during the year ended December 31, 2002. Any additional funds will be distributed in accordance with the terms of the Partnership Agreement as modified by the Plan. Note D - Transactions with Affiliated Parties The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the General Partner receive 5% of gross receipts from the Partnership's investment property as compensation for providing property management services. The Partnership paid to such affiliates approximately $31,000 and $36,000 for the six months ended June 30, 2005 and 2004, respectively, which are included in operating expenses. Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $33,000 and $38,000 for the six months ended June 30, 2005 and 2004, respectively, which are included in general and administrative expenses. Approximately $190,000 in reimbursement of accountable administrative expenses, including related accrued interest of approximately $13,000, was owed to affiliates of the General Partner at June 30, 2005 and is included in due to affiliates. During the six months ended June 30, 2005 and 2004 an affiliate of the General Partner advanced the Partnership approximately $1,190,000 and $120,000, respectively, to fund the refinancing of the mortgage encumbering Lakewood at Pelham (as discussed in Note E), operating expenses and audit fees. These advances bear interest at the prime rate plus 2% (8.25% at June 30, 2005). Interest expense for the six months ended June 30, 2005 and 2004 was approximately $17,000 and $1,000, respectively. At June 30, 2005 the total outstanding advances and accrued interest was approximately $1,367,000 and is included in due to affiliates. The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers' compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the six months ended June 30, 2005 and 2004, the Partnership was charged by AIMCO and its affiliates approximately $26,000 and $25,000, respectively, for insurance coverage and fees associated with policy claims administration. Note E - Refinancing On May 27, 2005, the Partnership obtained a mortgage in the maximum principal amount of $5,500,000 on Lakewood at Pelham Apartments. The new mortgage is comprised of an initial advance of $4,350,000 that was made to the Partnership on May 27, 2005 and an earn-out advance of $1,150,000 that is available to the Partnership based upon certain performance criteria being met prior to June 1, 2006. The existing mortgage with an outstanding principal amount of approximately $5,160,000 was repaid with proceeds from the initial advance of the new mortgage and an additional loan from an affiliate of the General Partner of approximately $1,035,000. The Partnership recognized a loss on the early extinguishment of debt of approximately $3,000 due to the write off of unamortized loan costs. Total capitalized loan costs associated with the new mortgage were approximately $103,000 during the six months ended June 30, 2005 which are included in other assets. The new mortgage requires monthly payments of interest beginning on July 1, 2005 until the loan matures June 1, 2007, with interest being equal to the average of the one month LIBOR plus 230 basis points (5.64% at June 30, 2005 with a minimum rate of 5.40%). In conjunction with the new mortgage note, the Partnership paid approximately $14,000 to enter into an interest rate cap agreement, which limits the Partnership's exposure to interest rate increases. Under this interest rate cap agreement, the Partnership's interest rate on the amounts owed to the lender will be no higher than 7.55%. Adjustments to the initial amount paid are recognized in interest expense. In addition, the new mortgage requires monthly escrow deposits for taxes, insurance and replacement reserves and a $80,000 repair reserve that was established with the lender at closing. The Partnership has the option of extending the maturity date for two additional six month periods upon delivering written notice to the lender, paying an extension fee of .25% of the outstanding principal amount of the mortgage, no event of default existing and certain performance criteria being met. As a condition of making the new mortgage, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Partnership with respect to the new mortgage. Note F - Casualty Event In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage to the laundry area. The property incurred damages of approximately $52,000. Insurance proceeds of approximately $26,000 were received during the six months ended June 30, 2003 to partially cover the damages. After writing off the undepreciated cost of the damaged asset of approximately $11,000, the Partnership realized a casualty gain of approximately $15,000 from this event during the six months ended June 30, 2003. During the three and six months ended June 30, 2004, the Partnership received additional proceeds of approximately $16,000, resulting in a casualty gain of approximately $16,000 for the three and six months ended June 30, 2004. Note G - Contingencies As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the complaint alleges AIMCO Properties L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. On June 23, 2005 the Court conditionally certified the collective action on both the on-call and overtime issues. The Court ruling allows plaintiffs to provide notice of the collective action to all non-exempt maintenance workers from August 7, 2000 through the present. Those employees will have the opportunity to opt-in to the collective action. Defendants have asked the Court to reconsider its ruling or in the alternative certify the ruling for appeal on that issue. After the notice goes out, defendants will have the opportunity to move to decertify the collective action. The Court further denied plaintiffs' Motion for Certification of the state subclass. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business. Environmental Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the General Partner believes that these measures will minimize the effects that mold could have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership's consolidated financial condition or results of operations. SEC Investigation The Central Regional Office of the United States Securities and Exchange Commission (the "SEC") continues its formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation have included AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, tax credit transactions, and tender offers for limited partnership interests. AIMCO is cooperating fully. AIMCO is not able to predict when the investigation will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. The Partnership's investment property consists of one apartment complex. The following table sets forth the average occupancy of the property for the six months ended June 30, 2005 and 2004:
Average Occupancy Property 2005 2004 Lakewood at Pelham 71% 95% Greenville, South Carolina
The General Partner attributes the decrease in occupancy at Lakewood at Pelham to an increase in credit standards and the implementation of a strict collection policy. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors which are outside the control of the Partnership such as the local economic climate and weather can adversely or positively impact the Partnership's financial results. Results of Operations The Partnership's net loss for the three and six months ended June 30, 2005 was approximately $162,000 and $268,000, respectively, as compared to net loss of approximately $76,000 and $126,000 for the three and six months ended June 30, 2004, respectively. The increase in net loss for the three months ended June 30, 2005 is due to a decrease in total revenues and an increase in total expenses. The increase in net loss for the six months ended June 30, 2005 is due to a decrease in total revenues. The decrease in total revenues for both periods is due to a decrease in rental income and the recognition of a casualty gain during 2004 (as discussed below). Other income remained relatively constant for the comparable periods. The decrease in rental income for both periods is primarily due to the decrease in occupancy, partially offset by an increase in the average rental rate at Lakewood at Pelham. The increase in total expenses for the three months ended June 30, 2005 is due to increases in operating and interest expenses, partially offset by decreases in depreciation and property tax expenses. Total expenses remained relatively constant for the six months ended June 30, 2005 as increases in both operating and interest expenses were offset by decreases in depreciation and property tax expenses. General and administrative expenses remained relatively constant for both the three and six months ended June 30, 2005. The increase in operating expenses for both periods is primarily due to increases in advertising and contract services at Lakewood at Pelham. The increase in interest expense for both periods is primarily due to an increase in interest on advances from an affiliate of the General Partner and the loss recognized on the early extinguishment of debt associated with the refinancing of the mortgage encumbering Lakewood at Pelham (as discussed in "Liquidity and Capital Resources"), partially offset by scheduled principal payments made on the mortgage encumbering the property, which reduced the carrying balance of the loan and the refinancing of the mortgage at a lower variable interest rate. The decrease in depreciation expense for both periods is primarily due to property improvements and replacements placed into service in prior years becoming fully depreciated during the fourth quarter of 2004. The decrease in property tax expense for both periods is primarily a result of a decrease in the assessed value of Lakewood at Pelham. Included in general and administrative expenses for the three and six months ended June 30, 2005 and 2004 are management reimbursements to the General Partner as allowed under the Partnership Agreement, costs associated with quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. In October 2002, a fire occurred at Lakewood at Pelham, which resulted in damage to the laundry area. The property incurred damages of approximately $52,000. Insurance proceeds of approximately $26,000 were received during the six months ended June 30, 2003 to partially cover the damages. After writing off the undepreciated cost of the damaged asset of approximately $11,000, the Partnership realized a casualty gain of approximately $15,000 from this event during the six months ended June 30, 2003. During the three and six months ended June 30, 2004, the Partnership received additional proceeds of approximately $16,000, resulting in a casualty gain of approximately $16,000 for the three and six months ended June 30, 2004. Liquidity and Capital Resources At June 30, 2005, the Partnership had cash and cash equivalents of approximately $152,000, compared to approximately $84,000 at June 30, 2004. The increase in cash and cash equivalents of approximately $122,000, from December 31, 2004, is due to approximately $236,000 of cash provided by financing activities, partially offset by approximately $111,000 of cash used in operating activities and approximately $3,000 of cash used in investing activities. Cash provided by financing activities consisted of proceeds received related to the refinancing of the mortgage encumbering Lakewood at Pelham and advances from an affiliate of the General Partner, partially offset by the repayment of the mortgage encumbering Lakewood at Pelham, loan costs paid, and payments of principal made on the mortgage encumbering the Partnership's investment property. Cash used in investing activities consisted of property improvements and replacements, partially offset by net receipts from an escrow account maintained by the mortgage lender. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. For example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance. Capital improvements planned at the Partnership's investment property are detailed below. During the six months ended June 30, 2005, the Partnership completed approximately $57,000 of capital improvements at Lakewood at Pelham, consisting primarily of appliance and floor covering replacements. These improvements were funded from replacement reserves and operations. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. On May 27, 2005, the Partnership obtained a mortgage in the maximum principal amount of $5,500,000 on Lakewood at Pelham Apartments. The new mortgage is comprised of an initial advance of $4,350,000 that was made to the Partnership on May 27, 2005 and an earn-out advance of $1,150,000 that is available to the Partnership based upon certain performance criteria being met prior to June 1, 2006. The existing mortgage with an outstanding principal amount of approximately $5,160,000 was repaid with proceeds from the initial advance of the new mortgage and an additional loan from an affiliate of the General Partner of approximately $1,035,000. The Partnership recognized a loss on the early extinguishment of debt of approximately $3,000 due to the write off of unamortized loan costs. Total capitalized loan costs associated with the new mortgage were approximately $103,000 during the six months ended June 30, 2005 which are included in other assets. The new mortgage requires monthly payments of interest beginning on July 1, 2005 until the loan matures June 1, 2007, with interest being equal to the average of the one month LIBOR plus 230 basis points (5.64% at June 30, 2005 with a minimum rate of 5.40%). In conjunction with the new mortgage note, the Partnership paid approximately $14,000 to enter into an interest rate cap agreement, which limits the Partnership's exposure to interest rate increases. Under this interest rate cap agreement, the Partnership's interest rate on the amounts owed to the lender will be no higher than 7.55%. Adjustments to the initial amount paid are recognized in interest expense. In addition, the new mortgage requires monthly escrow deposits for taxes, insurance and replacement reserves and a $80,000 repair reserve that was established with the lender at closing. The Partnership has the option of extending the maturity date for two additional six month periods upon delivering written notice to the lender, paying an extension fee of .25% of the outstanding principal amount of the mortgage, no event of default existing and certain performance criteria being met. As a condition of making the new mortgage, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Partnership with respect to the new mortgage. On March 9, 1987, the original general partners of the Partnership, on behalf of the Partnership, filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in U.S. Bankruptcy Court, Central District of California ("Court"). The Partnership continued as Debtor-In-Possession to operate its business in the ordinary course until the Court confirmed the Partnership's Plan of Reorganization (The "Plan") effective October 25, 1988. The Plan was approved by all required classes of creditors. The Plan required that the Partnership make certain payments to its secured creditors and others on or before October 20, 1995. These payments were made on or about June 25, 1995, when the Partnership refinanced the outstanding mortgages encumbering the property. The Plan also required that the Partnership make the following distributions on October 20, 1998, from available cash: 1) First, Limited Partners, both original and substitute, who made additional capital contributions under the Plan would receive a repayment of the additional contributions totaling approximately $730,000; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds; 2) Second, Class 12 unsecured creditors ($23,100) would be paid on their claims; 3) Third, Limited Partners who made additional capital contributions and were original Limited Partners would receive a repayment of their original capital contributions totaling approximately $9,818,000; if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion of available cash less a pro-rata portion reserved for one third of the existing capital contributions of non-contributing Limited Partners would be paid based upon available funds; 4) Fourth, Limited Partners who did not make additional capital contributions would receive a repayment of one-third of their original capital contributions (i.e., one-third of $1,200,000); if sufficient funds were unavailable to fully satisfy this amount then a pro-rata portion would be paid based upon available funds. Additionally, the Plan required CRPTEX, Inc. to make a capital contribution of $14,500 and loan an additional $117,500 on behalf of the Partnership. The Partnership received the $14,500 capital contribution but did not receive or require the additional $117,500 to be loaned. The payments required by number 2 above were timely made. With respect to the amounts due to the Limited Partners under numbers 1, 3, and 4 above, there were not sufficient funds available to completely satisfy these obligations at October 20, 1998. It was not anticipated that at October 20, 1998, there would be available funds to fully satisfy the unsecured claims of the Limited Partners, as indicated under the Plan. The limited partners were approached in August 1998 and asked to either approve a sale of the Partnership's sole investment property or for the General Partner to petition the Bankruptcy Court for an extension of the settlement date. The required fifty-one percent response was not received. As a result, the Partnership did not make any payments to the Limited Partners on October 20, 1998, as required by the Plan from available funds. There is no requirement, however, that the Partnership sell or again refinance the property in order to pay in part or in whole, the payments to the Limited Partners referred to above. The General Partner has determined that although all of the required payments due under the Plan to the Limited Partners were not made, that the Partnership is not in any material financial default in connection with its prior bankruptcy. In addition, the General Partner believes that it is proper for the Partnership to continue operating under the terms of its Partnership Agreement as modified by the Plan. Since the expiration of the Plan on October 20, 1998, the General Partner had reserved all excess cash to ensure that the Partnership would be able to meet its operating and capital improvement needs rather than making pro-rata payments to the limited partners in accordance with numbers 1, 3, and 4 above. During the fourth quarter of 2001, the General Partner determined that the Partnership had accumulated approximately $562,000 in excess funds. Approximately $530,000 which had been reserved since 1998 to ensure that the property was fully able to meet its operating and capital improvement needs with existing operating funds, was distributed during the year ended December 31, 2002 in accordance with number 1 above. In addition, approximately $32,000 was distributed from operations during the year ended December 31, 2002. Any additional funds will be distributed in accordance with the terms of the Partnership Agreement as modified by the Plan. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 4,558.50 limited partnership units (the "Units") in the Partnership representing 26.55% of the outstanding Units at June 30, 2005. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets The Partnership's investment property is recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of the property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment property. These factors include, but are not limited to, changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause impairment of the Partnership's asset. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. ITEM 3. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the complaint alleges AIMCO Properties L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. On June 23, 2005 the Court conditionally certified the collective action on both the on-call and overtime issues. The Court ruling allows plaintiffs to provide notice of the collective action to all non-exempt maintenance workers from August 7, 2000 through the present. Those employees will have the opportunity to opt-in to the collective action. Defendants have asked the Court to reconsider its ruling or in the alternative certify the ruling for appeal on that issue. After the notice goes out, defendants will have the opportunity to move to decertify the collective action. The Court further denied plaintiffs' Motion for Certification of the state subclass. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS See Exhibit Index. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MCCOMBS REALTY PARTNERS By: CRPTEX, INC. General Partner By: /s/Martha L. Long Martha L. Long Senior Vice President By: /s/Stephen B. Waters Stephen B. Waters Vice President Date: August 15, 2005 EXHIBIT INDEX Exhibit 3.1 Amended and Restated Certificate and Agreement of Limited Partners of McCombs Realty Partners, a California Limited Partnership, incorporated by reference to the exhibits to the Registrant's Annual Report filed on Form 10-K, filed on April 13, 1990. 3.2 Certificate of Limited Partnership of the Partnership, incorporated by reference to the exhibits to the Registrant's Annual Report filed on Form 10-K, filed on April 13, 1990. 10.2 Loan Agreement dated May 27, 2005 between Pelham Place, L.P., a South Carolina limited partnership and GMAC Commercial Mortgage Bank, (incorporated by reference to the Partnership's Current Report on Form 8-K dated May 27, 2005). 10.3 Promissory Note A dated May 27, 2005 between Pelham Place, L.P., a South Carolina limited partnership and GMAC Commercial Mortgage Bank, (incorporated by reference to the Partnership's Current Report on Form 8-K dated May 27, 2005). 10.4 Promissory Note B dated May 27, 2005 between Pelham Place, L.P., a South Carolina limited partnership and GMAC Commercial Mortgage Bank, (incorporated by reference to the Partnership's Current Report on Form 8-K dated May 27, 2005). 10.5 Guaranty dated May 27, 2005 by AIMCO Properties, L.P., for the benefit of GMAC Commercial Mortgage Bank, (incorporated by reference to the Partnership's Current Report on Form 8-K dated May 27, 2005). 10.6 Rate Cap Provider - Consent and Acknowledgement dated May 27, 2005 by and among GMAC Commercial Mortgage Bank, Pelham Place, L.P., a South Carolina Limited Partnership, and SMBC, (incorporated by reference to the Partnership's Current Report on Form 8-K dated May 27, 2005). 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of McCombs Realty Partners; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 15, 2005 /s/Martha L. Long Martha L. Long Senior Vice President of CRPTEX, Inc., equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Stephen B. Waters, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of McCombs Realty Partners; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 15, 2005 /s/Stephen B. Waters Stephen B. Waters Vice President of CRPTEX, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of McCombs Realty Partners (the "Partnership"), for the quarterly period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Martha L. Long Name: Martha L. Long Date: August 15, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: August 15, 2005 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----