-----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, Fc4vjDdp8JKx2OK4gBOXaTpr6EP4/9oIVCbd/E51V6X032QGbSo2K3EF5cMbKqVq f5hws+iDkYCScq/aVrAn5w== 0000711642-02-000313.txt : 20021114 0000711642-02-000313.hdr.sgml : 20021114 20021114100201 ACCESSION NUMBER: 0000711642-02-000313 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTI BENEFIT REALTY FUND 87-1 CENTRAL INDEX KEY: 0000802200 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 943026785 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16684 FILM NUMBER: 02822198 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE CITY: GREENVILLE STATE: SC ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE CITY: GREENVILLE STATE: SC ZIP: 80222 10QSB 1 mbrf.txt MBRF 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 September 30, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-16684 MULTI-BENEFIT REALTY FUND '87-1 (Exact name of small business issuer as specified in its charter) California 94-3026785 (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) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2002
Assets Cash and cash equivalents $ 259 Receivables and deposits 124 Other assets 446 Investment properties: Land $ 1,447 Buildings and related personal property 17,805 19,252 Less accumulated depreciation (11,193) 8,059 $ 8,888 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 39 Tenant security deposit liabilities 57 Accrued property taxes 272 Other liabilities 328 Mortgage notes payable 12,298 Partners' (Deficit) Capital General Partner $ (132) Limited Partner "A" Unit holders - 96,284 units issued and outstanding (8,095) Limited Partner "B" Unit holders - 75,152 units issued and outstanding 4,121 (4,106) $ 8,888 See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 (Restated) (Restated) Revenues: Rental income $ 830 $ 876 $ 2,581 $ 2,651 Other income 86 72 269 208 Total revenues 916 948 2,850 2,859 Expenses: Operating 352 395 1,107 1,129 General and administrative 75 60 232 261 Depreciation 208 208 638 629 Interest 234 213 706 608 Property taxes 65 61 198 190 Loss on early extinguishment of debt -- 47 -- 47 Total expenses 934 984 2,881 2,864 Net loss $ (18) $ (36) $ (31) $ (5) Net loss allocated to general partner (1%) $ -- $ -- $ -- $ -- Net loss allocated to limited partners (99%) (18) (36) (31) (5) $ (18) $ (36) $ (31) $ (5) Net loss per limited partnership unit $ (0.10) $ (0.21) $ (0.18) $ (0.03) Distributions per limited partnership "A" units $ 2.05 $ 13.33 $ 7.11 $ 14.68 Distributions per limited partnership "B" units $ -- $ 13.33 $ -- $ 21.57 See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Total Partners' General Limited Partners (Deficit) Partner "A" Units "B" Units Capital Original capital contributions $ 1 $ 9,706 $ 7,538 $ 17,245 Limited partnership units at December 31, 2001 and September 30, 2002 -- 96,284 75,152 171,436 Partners' (deficit) capital at December 31, 2001 $ (125) $ (7,393) $ 4,135 $ (3,383) Distributions to partners (7) (685) -- (692) Net loss for the nine months ended September 30, 2002 -- (17) (14) (31) Partners' (deficit) capital at September 30, 2002 $ (132) $ (8,095) $ 4,121 $ (4,106) See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except unit data)
Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net loss $ (31) $ (5) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 638 629 Amortization of loan costs 20 28 Loss on early extinguishment of debt -- 47 Change in accounts: Receivables and deposits 38 (336) Other assets (10) (12) Accounts payable (48) 16 Tenant security deposit liabilities 7 (7) Accrued property taxes 119 120 Other liabilities 108 (19) Net cash provided by operating activities 841 461 Cash flows from investing activities: Property improvements and replacements (121) (482) Net withdrawals from restricted escrows 112 170 Net cash used in investing activities (9) (312) Cash flows from financing activities: Payments on mortgage notes payable (223) (62) Repayment of mortgage notes payable -- (6,000) Proceeds from mortgage notes payable -- 8,775 Loan costs paid -- (281) Distributions to partners (692) (3,042) Net cash used in financing activities (915) (610) Net decrease in cash and cash equivalents (83) (461) Cash and cash equivalents at beginning of period 342 892 Cash and cash equivalents at end of period $ 259 $ 431 Supplemental disclosure of cash flow information: Cash paid for interest $ 688 $ 564 At December 31, 2000, approximately $125,000 of property improvements and replacements were included in accounts payable and are included in property improvements and replacements at September 30, 2001. See Accompanying Notes to Consolidated Financial Statements
MULTI-BENEFIT REALTY FUND '87-1 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Multi-Benefit Realty Fund '87-1 (the "Partnership" or "Registrant") 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 ConCap Equities, Inc. (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 nine month periods ended September 30, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Limited Partnership Units The Partnership has issued two classes of Units of Depositary Receipts ("Units"), "A" Units and "B" Units. The two classes of Units are entitled to different rights and priorities as to cash distributions and Partnership allocations. The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof ("Unit holders") to participate in certain allocations and distributions of the Partnership. Effective April 1, 2002, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently. Neither of these criteria applies to the Partnership. As a result, the accompanying consolidated statements of operations have been restated to reflect the loss on early extinguishment of debt at Shadow Brook Apartments (see "Note D") in operations rather than as an extraordinary item. Note B - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. During the nine months ended September 30, 2002 and 2001, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $146,000 and $144,000 for the nine months ended September 30, 2002 and 2001, respectively, which is included in operating expenses. An affiliate of the General Partner received reimbursements of accountable administrative expenses amounting to approximately $83,000 and $313,000 for the nine months ended September 30, 2002 and 2001, respectively, which is included in general and administrative expenses and investment properties. Included in these amounts are fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $4,000 and $170,000 during the nine months ended September 30, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current year additions to investment properties. The Partnership Agreement provides for a fee equal to 9% of distributable cash from operations (as defined in the Partnership Agreement) received by the limited partners to be paid to the General Partner for executive and administrative management services. Fees of approximately $62,000 and $67,000 were paid for the nine months ended September 30, 2002 and 2001, respectively, in association with the distributions and are included in general and administrative expenses. An affiliate of the General Partner received approximately $88,000 for services provided in conjunction with the refinancing of the mortgage encumbering Shadow Brook Apartments in August 2001 (see "Note D"). This cost was capitalized and is included in other assets on the consolidated balance sheet. Beginning in 2001, the Partnership began insuring its properties 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 properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the nine months ended September 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $34,000 and $36,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - Distributions Upon distribution of sale proceeds from the sale of Carlin Manor during the year ended December 31, 2000, the "A" unit holders did not receive the correct priority return. As a result, at September 30, 2002 the "B" unit holders have been overpaid approximately $1,328,000 (approximately $17.67 per limited partnership "B" units). Approximately $1,303,000 of this amount is due to the "A" unit holders (approximately $13.53 per limited partnership "A" units) and approximately $25,000 is due to the General Partner. All future distributions payable to the "B" Unit holders will be paid to the "A" unit holders until the "A" unit holders receive the correct priority return. During the nine months ended September 30, 2002, the "B" unit holders were entitled to approximately $95,000 (approximately $1.26 per limited partnership "B" units and approximately $0.99 per limited partnership "A" units) in distributions. This amount was paid to the "A" unit holders to reduce the overpayment. Note D - Refinancing of Mortgage Note Payable On August 31, 2001, the Partnership refinanced the mortgage encumbering Shadow Brook Apartments. The refinancing replaced indebtedness of approximately $6,000,000 with a new mortgage of $8,775,000. The new mortgage carries a stated interest rate of 7.10% as compared to the 7.33% interest rate on the old mortgage. Payments on the mortgage loan are due monthly until the loan matures on September 1, 2021 at which time the loan will be fully amortized. Total capitalized loan costs were approximately $281,000 for the nine months ended September 30, 2001. The Partnership recognized a loss on the early extinguishment of debt of approximately $47,000 due to the write-off of unamortized loan costs. Note E - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements in certain circumstances. 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. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, do not take into account the effects of any changes to the Registrant's business and results of operations. 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; 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 properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for each of the nine months ended September 30, 2002 and 2001: Average Occupancy Property 2002 2001 Hunt Club Apartments 94% 91% Indianapolis, Indiana Shadow Brook Apartments 96% 97% West Valley City, Utah The General Partner attributes the increase in occupancy at Hunt Club Apartments to a more aggressive marketing campaign. Results of Operations The Partnership had a net loss of approximately $31,000 for the nine months ended September 30, 2002 as compared to a net loss of approximately $5,000 for the nine months ended September 30, 2001. For the three months ended September 30, 2002, the Partnership had a net loss of approximately $18,000 as compared to a net loss of approximately $36,000 for the three months ended September 30, 2001. The increase in net loss for the nine month period ended September 30, 2002 is primarily attributable to an increase in total expenses and a decrease in total revenues. The decrease in net loss for the three months ended September 30, 2002 is due to a decrease in total expenses partially offset by a decrease in total revenues. Total expenses increased for the nine months ended September 30, 2002 primarily due to an increase in interest expense partially offset by decreases in loss on early extinguishment of debt and operating and general and administrative expenses. Total expenses decreased for the three months ended September 30, 2002 primarily due to decreases in loss on early extinguishment of debt and operating expenses partially offset by an increase in interest expense. The decrease during the three and nine month periods ending September 30, 2002 in loss on early extinguishment of debt relates to the refinancing of the mortgage encumbering Shadow Brook Apartments in August 2001 as discussed in "Liquidity and Capital Resources". Operating expenses decreased during the three and nine month periods ending September 30, 2002 primarily due to decreases in property expense as a result of decreases in utility expense at Hunt Club Apartments and salary and related benefit expenses at both of the Partnership's properties. General and administrative expenses decreased for the nine months ended September 30, 2000 primarily due to decreases in professional expenses associated with the management of the Partnership. Also included in general and administrative expenses for the three and nine months ended September 30, 2002 and 2001 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. Interest expense increased during the three and nine months ending September 30, 2002 due to the refinancing of the mortgage encumbering Shadow Brook Apartments during August 2001, which increased the debt balance at the property, as discussed in "Liquidity and Capital Resources". Total revenues decreased for the three and nine months ended September 30, 2002 due to decreased rental income partially offset by increased other income. Rental income decreased due to increased bad debt expenses at both of the Partnership's properties, decreased occupancy at Shadow Brook Apartments, increased concessions at both of the Partnership's properties and decreased average rental rates at Hunt Club Apartments. These decreases were partially offset by increased occupancy at Hunt Club Apartments and increased average rental rates at Shadow Brook Apartments. Other income increased due to increased utility reimbursements at both of the Partnership's properties and increased non-refundable administrative fees at Shadow Brook Apartments and increased lease cancellation fees at Hunt Club Apartments. These increases were partially offset by reduced interest income due to lower average cash balances maintained in interest bearing accounts. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 2002, the Partnership had cash and cash equivalents of approximately $259,000 as compared to approximately $431,000 at September 30, 2001. Cash and cash equivalents decreased approximately $83,000 for the nine months ended September 30, 2002, from December 31, 2001, due to approximately $915,000 of cash used in financing activities and approximately $9,000 of cash used in investing activities, which was partially offset by approximately $841,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to partners and, to a lesser extent, of payments of principal made on the mortgages encumbering the Partnership's properties. Cash used in investing activities consisted of property improvements and replacements which were partially offset by net withdrawals from restricted escrows 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 properties 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 and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. 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, including increased legal and audit fees. Capital improvements planned for each of the Partnership's properties are detailed below. Hunt Club Approximately $113,000 was budgeted for capital improvements for the year 2002 at Hunt Club Apartments consisting primarily of appliance and floor covering replacements. During the nine months ended September 30, 2002, the Partnership completed approximately $59,000 of capital improvements at Hunt Club Apartments, consisting primarily of floor covering replacements and water heater improvements. These improvements were funded from operating cash flow and replacement reserves. Additional capital improvements may be considered and will depend on the physical condition of the property as well as the anticipated cash flow generated by the property. Shadow Brook Approximately $125,000 was budgeted for capital improvements for the year 2002 at Shadow Brook Apartments consisting primarily of floor covering replacements, exterior painting, major landscaping, and appliances. During the nine months ended September 30, 2002, the Partnership completed approximately $62,000 of capital improvements at Shadow Brook Apartments, consisting primarily of plumbing upgrades, office computers and appliance and floor covering replacements. These improvements were funded from operating cash flow. Additional capital improvements may be considered and will depend on the physical condition of the property as well as the anticipated cash flow generated by the property. The additional capital expenditures for 2002 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. On August 31, 2001, the Partnership refinanced the mortgage encumbering Shadow Brook Apartments. The refinancing replaced indebtedness of approximately $6,000,000 with a new mortgage of $8,775,000. The new mortgage carries a stated interest rate of 7.10% as compared to the 7.33% interest rate on the old mortgage. Payments on the mortgage loan are due monthly until the loan matures on September 1, 2021 at which time the loan will be fully amortized. Total capitalized loan costs were approximately $281,000 for the nine months ended September 30, 2001. The Partnership recognized a loss on the early extinguishment of debt of approximately $47,000 due to the write-off of unamortized loan costs. The Partnership's assets are currently thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $12,298,000 is amortized over 20 years and matures September 1, 2020 and September 1, 2021 at which time the loans are scheduled to be fully amortized. The Partnership distributed the following amounts during the nine months ended September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Per Limited Nine Months Per Limited Ended Partnership Ended Partnership September 30, 2002 Unit September 30, 2001 Unit Operations $ 692 $ 7.11 $ 757 $ 9.59 Refinancing proceeds (1) -- -- 2,285 26.66 $ 692 $ 7.11 $3,042 $36.25 (1) Refinance proceeds from Shadow Brook Apartments.
The limited partner portion of the distribution during the nine months ended September 30, 2002 was approximately $685,000 to "A" unit holders or $7.11 per limited partnership "A" unit and zero to "B" unit holders. The limited partner portion of the distribution during the nine months ended September 30, 2001 was approximately $1,413,000 to "A" Unit holders or $14.68 per limited partnership "A" units and approximately $1,621,000 to "B" unit holders or $21.57 per limited partnership "B" units. The Partnership's cash available for distribution is reviewed on a monthly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit further distributions to its partners during the remainder of 2002 or subsequent periods. Upon distribution of sale proceeds from the sale of Carlin Manor during the year ended December 31, 2000, the "A" unit holders did not receive the correct priority return. As a result, at September 30, 2002 the "B" unit holders have been overpaid approximately $1,328,000 (approximately $17.67 per limited partnership "B" unit). Approximately $1,303,000 of this amount is due to the "A" unit holders (approximately $13.53 per limited partnership "A" units) and approximately $25,000 is due to the General Partner. All future distributions payable to the "B" Unit holders will be paid to the "A" unit holders until the "A" unit holders receive the correct priority return. During the nine months ended September 30, 2002, the "B" unit holders were entitled to approximately $95,000 (approximately $1.26 per limited partnership "B" units and approximately $0.99 per limited partnership "A" units) in distributions. This amount was paid to the "A" unit holders to reduce the overpayment. Other In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 62,627 "A" and 39,384 "B" Units of Depository Receipts ("Units") in the Partnership representing 65.04% and 52.41% of the outstanding "A" and "B" Units, respectively, at September 30, 2002. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, units holders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 65.04% and 52.41% of the outstanding "A" and "B" Units, respectively, AIMCO is in a position to control all such voting decisions with respect to the Registrant. 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 Investment properties are 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 properties. These factors include 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 an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. ITEM 3. CONTROLS AND PROCEDURES 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, within 90 days of the filing date of this quarterly report, evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the Partnership's internal controls since the date of evaluation. The Partnership does not believe any significant deficiencies or material weaknesses exist in the Partnership's internal controls. Accordingly, no corrective actions have been taken. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 3.1, Agreement of Limited Partnership, incorporated by reference to Exhibit A-5 to the Prospectus of the Registrant dated December 10, 1986 as filed with the Commission pursuant to Rule 424(b) under the Act. Exhibit 3.2, Certificate of Limited Partnership (incorporated by reference to Registration Statement of Registrant (File No. 3-38908) filed December 10, 1986, as amended to date). Exhibit 99, Certification of Chief Executive Officer and Chief Financial Officer. b) Reports on Form 8-K filed during the quarter ended September 30, 2002: None. 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. MULTI-BENEFIT REALTY FUND '87-1 By: CONCAP EQUITIES, INC. General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: November 13, 2002 CERTIFICATION I, Patrick J. Foye, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Multi-Benefit Realty Fund '87-1; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 _______________________ Patrick J. Foye Executive Vice President of ConCap Equities, Inc., equivalent of the chief executive officer of the Partnership CERTIFICATION I, Paul J. McAuliffe, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Multi-Benefit Realty Fund '87-1; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 _______________________ Paul J. McAuliffe Executive Vice President and Chief Financial Officer of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership Exhibit 99 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 Multi-Benefit Realty Fund '87-1 (the "Partnership"), for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the chief executive officer of the Partnership, and Paul J. McAuliffe, 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/ Patrick J. Foye Name: Patrick J. Foye Date: November 13, 2002 /s/ Paul J. McAuliffe Name: Paul J. McAuliffe Date: November 13, 2002 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----