-----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, VuumChcl5cJAR7hf8snG1qMgY3d9bc9pOlEHIUbpF0tPFIB45fLX9RQ+aLyv8GTQ meNxjg1fri50zmyCj5wBgQ== 0000711642-99-000218.txt : 19990816 0000711642-99-000218.hdr.sgml : 19990816 ACCESSION NUMBER: 0000711642-99-000218 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 000-16684 FILM NUMBER: 99688474 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-16684 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, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 1,819 Receivables and deposits 286 Restricted escrows 276 Other assets 223 Investment properties: Land $ 1,742 Buildings and related personal property 23,119 24,861 Less accumulated depreciation (12,455) 12,406 $15,010 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 127 Tenant security deposit liabilities 101 Accrued property taxes 361 Other liabilities 258 Mortgage notes payable 12,177 Partners' (Deficit) Capital General Partner $ (134) Limited Partner "A" Unit holders - 96,284 units issued and outstanding (1,922) Limited Partner "B" Unit holders - 75,152 units issued and outstanding 4,042 1,986 $15,010 See Accompanying Notes to Consolidated Financial Statements b) MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental revenue $1,231 $1,224 $2,475 $2,444 Other income 79 88 152 156 Total revenues 1,310 1,312 2,627 2,600 Expenses: Operating 536 577 1,062 1,084 General and administrative 74 52 123 135 Depreciation 263 256 521 508 Interest 249 249 501 499 Property taxes 107 82 200 175 Total expenses 1,229 1,216 2,407 2,401 Net income $ 81 $ 96 $ 220 $ 199 Net income allocated to general partners $ 1 $ 1 $ 2 $ 2 Net income allocated to limited partners 80 95 218 197 $ 81 $ 96 $ 220 $ 199 Net income per limited partnership "A" and "B" units: $ .47 $ 0.55 $ 1.27 $ 1.15 Distributions per limited partnership "A" units $ -- $ -- $ -- $ 3.54 See Accompanying Notes to Consolidated Financial Statements c) MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Total General Limited Partners Partners' Partner "A" Units "B" Units Capital Original capital contributions $ 1 $ 9,706 $ 7,538 $ 17,245 Limited partnership units at December 31, 1998 and June 30, 1999 -- 96,284 75,152 171,436 Partners' (deficit) capital at December 31, 1998 $ (136) $ (2,044) $ 3,946 $ 1,766 Net income for the six months ended June 30, 1999 2 122 96 220 Partners' (deficit) capital at June 30, 1999 $ (134) $ (1,922) $ 4,042 $ 1,986 See Accompanying Notes to Consolidated Financial Statements d) MULTI-BENEFIT REALTY FUND '87-1 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 220 $ 199 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 521 508 Amortization of loan costs 35 31 Change in accounts: Receivables and deposits 31 (38) Other assets (24) 18 Accounts payable 48 13 Tenant security deposit liabilities (10) (1) Accrued property taxes 86 (14) Other liabilities 19 11 Net cash provided by operating activities 926 727 Cash flows from investing activities: Property improvements and replacements (450) (155) Net withdrawals from restricted escrows 89 10 Net cash used in investing activities (361) (145) Cash flows from financing activities: Payments on mortgage notes payable (37) (34) Distributions to partners -- (344) Net cash used in financing activities (37) (378) Net increase in cash and cash equivalents 528 204 Cash and cash equivalents at beginning of period 1,291 1,139 Cash and cash equivalents at end of period $1,819 $1,343 Supplemental disclosure of cash flow information: Cash paid for interest $ 465 $ 468 See Accompanying Notes to Consolidated Financial Statements e) 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") 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 six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. 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 year ended December 31, 1998. Principles of Consolidation The consolidated financial statements of the Partnership include its 99% limited partnership interest in Hunt Club Associates, Ltd. The Partnership may remove the general partner of Hunt Club Associates, Ltd.; therefore, the consolidated partnership is controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. 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. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the General Partner and/or its affiliates were incurred during the six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expense) $132 $128 Reimbursements for services of affiliates (included in 48 57 operating and general and administrative expenses) Partnership management fees (included in general and -- 31 administrative expense) During the six months ended June 30, 1999 and 1998, 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 $132,000 and $128,000 for the six months ended June 30, 1999 and 1998, respectively. An affiliate of the General Partner received reimbursements of accountable administrative expenses amounting to approximately $48,000 and $57,000 for the six months ended June 30, 1999 and 1998, respectively. Included in these reimbursements is approximately $1,000 of construction oversight costs for the six months ended June 30, 1998. There were no construction oversight costs incurred for the six months ended June 30, 1999. 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. A fee of approximately $31,000 was paid during the six months ended June 30, 1998, in association with the distribution. No fee was paid during the six months ended June 30, 1999. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 30,958.53 (32.15% of the total outstanding class A units) of the class A units of limited partnership interest and up to 25,603.38 (34.07% of the total outstanding class B units) of the class B units of limited partnership interest in the Partnership for a purchase price of $62 per class A unit and $10 per Class B unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 5,414.00 class A units and 1,274.00 of the class B units. As a result, AIMCO and its affiliates currently own 33,987 class A units of limited partnership interest in the Partnership and 19,714 class B units of limited partnership interest in the Partnership representing 35.30% and 26.23%, respectively of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. NOTE D - COMMITMENT The Partnership is required by the Partnership Agreement to maintain working capital reserves of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures are made from this reserve, operating revenue shall be allocated to such reserve to the extent necessary to maintain the foregoing level. Reserves, consisting of cash and cash equivalents totaling approximately $1,819,000, exceeded the reserve requirement of approximately $759,000 at June 30, 1999. NOTE E - DISTRIBUTION There were no distributions paid or declared during the six months ended June 30, 1999. During the six months ended June 30, 1998, the Partnership paid a cash distribution from operations of approximately $344,000 ($3.54 per limited partnership "A" Unit) of which approximately $341,000 was paid to the "A" unit limited partners. NOTE F - SEGMENT REPORTING Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of three apartment complexes in three states: Ohio, Indiana and Utah. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998. Factors management used to identify the Partnership's reportable segments: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties are managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the six months ended June 30, 1999 and 1998, is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 2,475 $ -- $ 2,475 Other income 127 25 152 Interest expense 501 -- 501 Depreciation 521 -- 521 General and administrative expense -- 123 123 Segment profit (loss) 318 (98) 220 Total assets 13,582 1,428 15,010 Capital expenditures for investment properties 450 -- 450 1998 Residential Other Totals Rental income $ 2,444 $ -- $ 2,444 Other income 130 26 156 Interest expense 499 -- 499 Depreciation 508 -- 508 General and administrative expense -- 135 135 Segment profit (loss) 308 (109) 199 Total assets 13,680 1,266 14,946 Capital expenditures for investment properties 155 -- 155 NOTE G - 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. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, 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 OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for each of the six months ended June 30, 1999 and 1998: Average Occupancy Property 1999 1998 Carlin Manor Apartments Columbus, Ohio 94% 93% Hunt Club Apartments Indianapolis, Indiana (1) 92% 96% Shadow Brook Apartments West Valley City, Utah 97% 96% (1) The decrease in occupancy at Hunt Club is attributable to local market conditions, including competition from other complexes in the area and home purchases. Results of Operations The Partnership's net income for the six months ended June 30, 1999, was approximately $220,000 compared to net income of approximately $199,000 for the corresponding period in 1998. The increase in net income for the six months ended June 30, 1999 is primarily attributable to an increase in total revenues, which is offset by a slight increase in total expenses. The increase in total revenues is primarily attributable to an increase in rental revenue due to improved occupancy at Carlin Manor and Shadow Brook Apartments as well as an increase in average rental rates at all of the Partnership's investment properties, which more than offset the decrease in occupancy at Hunt Club Apartments. The slight increase in total expenses is attributable to an increase in depreciation and property tax expenses, which is offset by a decrease in operating and general and administrative expenses. Depreciation expense increased due to amounts spent on capital improvements and replacements at the investment properties during the third and fourth quarters of 1998 and the first and second quarters of 1999. The increase in property taxes is the result of an increase in the assessment value at Hunt Club. Operating expense decreased as a result of decreases in insurance and maintenance expenses. Insurance expense decreased due to reduced premiums as a result of a change in insurance carriers. The decrease in maintenance expense is primarily attributable to the completion of a major landscaping project and exterior building improvements at Hunt Club during the six months ended June 30, 1998, and decreases in contract yards and grounds expense at Hunt Club and Shadow Brook, which is partially offset by an increase in interior building improvements at Hunt Club and Carlin Manor and snow removal expenses at Hunt Club. The decrease in general and administrative expense is due to management fees relating to distributions paid during the six months ended June 30, 1998. There were no management fees earned during the six months ended June 30, 1999, since no distributions were paid during the period. The Partnership recorded net income of approximately $81,000 for the three months ended June 30, 1999, compared to net income of approximately $96,000 for the corresponding period in 1998. The decrease in net income for the three months ended June 30, 1999, compared to the same period in 1998 is primarily due to an increase in total expenses. The increase in total expenses is due to increases in general and administrative, property tax, and depreciation expenses which were slightly offset by decreased operating expenses. The increase in general and administrative expense is primarily attributable to an increase in legal costs as a result of the settlement of the Everest Case as previously disclosed in the first quarter of 1999. Included in general and administrative expenses at both June 30, 1999 and 1998, are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 1999, the Partnership had cash and cash equivalents of approximately $1,819,000 as compared to approximately $1,343,000 at June 30, 1998. Cash and cash equivalents increased approximately $528,000 for the six months ended June 30, 1999, from the Partnership's year ended December 31, 1998, due to approximately $926,000 of cash provided by operating activities, which was partially offset by approximately $361,000 of cash used in investing activities and approximately $37,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements, which is partially offset by net withdrawals from restricted escrows maintained by the mortgage lender. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Partnership's properties. The Partnership invests its working capital reserves in money market 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. Capital improvements planned for each of the Partnership's properties are detailed below. Carlin Manor During the six months ended June 30, 1999, the Partnership expended approximately $118,000 for capital improvements at Carlin Manor consisting primarily of structural repairs, carpet and flooring replacement, swimming pool and recreational facility repairs, and new appliances. These improvements were funded from operating cash flow and replacement reserves. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $303,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $437,000 which include certain of the required improvements, and consist of interior and exterior building improvements. Hunt Club During the six months ended June 30, 1999, the Partnership expended approximately $131,000 for capital improvements and replacements at Hunt Club consisting primarily of carpet and flooring replacement, new appliances, painting, roof repairs and heating, plumbing, and fencing improvements. These improvements were funded from operating cash flow and replacement reserves. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $303,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $386,000 which include certain of the required improvements, and consist of landscaping, carpet replacement, plumbing improvements, and other structural improvements. Shadow Brook During the six months ended June 30, 1999, the Partnership expended approximately $201,000 for capital improvements and replacements at Shadow Brook consisting primarily of carpet and floor replacement, plumbing upgrades, landscaping and swimming pool and recreational facility repairs. These improvements were funded from operating cash flow and replacement reserves. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $303,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $260,000 which include certain of the required improvements, and consist of roof replacement, major carpet replacement, landscaping, parking lot repairs and building improvements. The additional capital improvements planned for 1999 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. 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 $12,177,000 is amortized over varying periods and requires one balloon payment in October 2000 and two in November 2003. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. There were no distributions paid or declared during the six months ended June 30, 1999. During the six months ended June 30, 1998, the Partnership paid a cash distribution from operations of approximately $344,000 ($3.54 per limited partnership "A" Unit) of which approximately $341,000 was paid to the "A" unit limited partners. The Partnership's distribution policy will be reviewed on a quarterly 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 in 1999 or subsequent periods. Tender Offer On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 30,958.53 (32.15% of the total outstanding class A units) of the class A units of limited partnership interest and up to 25,603.38 (34.07%% of the total outstanding class B units) of the class B units of limited partnership interest in the Partnership for a purchase price of $62 per class A unit and $10 per Class B unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 5,414.00 class A units and 1,274.00 of the class B units. As a result, AIMCO and its affiliates currently own 33,987 class A units of limited partnership interest in the Partnership and 19,714 class B units of limited partnership interest in the Partnership representing 35.30% and 26.23%, respectively of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 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. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K : None filed for the quarter ended June 30, 1999. 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/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: August 13, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Multi-Benefit Realty Fund '87-1 1999 Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000802200 MULTI-BENEFIT REALTY FUND '87-1 1,000 6-MOS DEC-31-1999 JUN-30-1999 1,819 0 0 0 0 0 24,861 12,455 15,010 0 12,177 0 0 0 1,986 15,010 0 2,627 0 0 2,407 0 501 0 0 0 0 0 0 220 1.27 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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