FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
(As last amended by 34-31905, eff. 4/26/93)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period.........to.........
Commission file number 0-14570
MCCOMBS REALTY PARTNERS, LTD.
(Exact name of small business issuer as specified in its charter)
California 33-0068732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,506,000.
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1997. Market value information for the
Registrant's partnership interests is not available. Should a trading market
develop for these interests, it is the General Partner's belief that the
aggregate market value of the voting partnership interests would not exceed
$25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
McCombs Realty Partners, Ltd. ("Partnership" or "Registrant") is a publicly-held
limited partnership organized under the California Uniform Limited Partnership
Act on June 22, 1984. The Partnership's managing general partner is CRPTEX,
Inc., a Texas Corporation ("the General Partner" and formerly known as Capital
Realty Group Properties, Inc.).
The Partnership sold 22,036 units of Limited Partnership Interest ("Units") for
$11,018,000 in a public offering that began December 1984 and ended December
1985. All of the net proceeds from that offering were expended for the
acquisition and operation of one apartment complex (Lakewood at Pelham)
(formerly known as Pelham Place) located in Greenville, South Carolina, as well
as office complexes (Airport Business Center and Crown Center) located in
Georgia and California.
The properties were purchased in 1985. Airport Business Center was foreclosed
upon by the lender in September 1987, and Crown Center was foreclosed upon by
the lender in April 1988. At December 31, 1997, the Partnership's sole property
was Lakewood at Pelham.
The Original General Partners of the Partnership were McCombs Corp., a
California corporation and EP Partners V, a California General Partnership (the
"Original General Partners").
The Original General Partners endorsed the General Partner (then called A.B.
Capital Properties, Inc.) to be the new General Partner of the Partnership, and
the General Partner solicited proxies from the Limited Partners of the
Partnership to approve the removal of the Original General Partners and the
admission of the new General Partner as the General Partner of the Partnership.
Upon a favorable vote in person and by proxy of Limited Partners holding at
least 51% of the outstanding Units and upon approval of the bankruptcy court in
December 1987, the General Partner was approved as the General Partner of the
Partnership. Upon final confirmation of the Plan of Reorganization (effective
January 26, 1989), the General Partner became General Partner of the Partnership
retroactively effective to January 1, 1988.
On September 21, 1994, Capital Realty Group, Corporation ("CRGC"), the parent of
the General Partner, entered into a Stock Purchase Agreement ("Agreement") with
Insignia Financial Group, Inc. ("Insignia") and several of its affiliates
whereby Metropolitan Asset Enhancement, L.P., an affiliate of Insignia,
purchased affiliates of CRCG including the General Partner of the Partnership.
Under the terms of the Agreement, affiliates of Insignia commenced providing
property management and administrative services to the Partnership upon HUD
approval of the Agreement. The Agreement became effective November 30, 1994,
and the name of the General Partner of the Partnership was changed to CRPTEX,
Inc.
Prior to February 25, 1998, the Managing General Partner was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE
GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of
Insignia. Thus, the Managing General Partner is now a wholly-owned subsidiary
of IPT. On March 17, 1998, Insignia entered into an agreement to merge its
national residential property management operations, and its controlling
interest in IPT, with Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust. The closing, which is anticipated
to happen in the third quarter of 1998, is subject to customary conditions,
including government approvals and the approval of Insignia's shareholders. If
the closing occurs, AIMCO will then control the General Partner of the
Partnership.
A further description of the Partnership's business is included in Management's
Discussion and Analysis or Plan of Operation included in "Item 6" of this Form
10-KSB.
The Partnership is engaged in the business of owning and operating income-
producing real properties such as apartment complexes and office buildings. As
of December 31, 1997, the Partnership owned one apartment complex in Greenville,
South Carolina.
The Registrant has no employees. Management and administrative services are
performed by the General Partner and affiliates. Since December 1, 1994, the
manager of the properties owned by the Partnership has been Insignia and its
affiliates. Insignia and its affiliates also provide accounting and
administrative services to the Partnership and receive a management fee for
services as set forth in and limited by the agreement governing the Partnership.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's property is subject to competition from similar properties in
the vicinity in which the property is located. In addition, various limited
partnerships have been formed by the General Partner and/or its affiliates to
engage in business which may be competitive with the Registrant.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership Use
Lakewood at Pelham 01/85 Fee ownership subject Apartment
Greenville, South Carolina to first mortgage. 271 units
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross Federal
Carrying Accumulated Tax
Property Value Depreciation Rate Method Basis
Lakewood at Pelham
Greenville, South
Carolina $5,891 $3,250 3-25 S/L $1,921
See "Note A" to the financial statements in "Item 7" for a further description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Lakewood at Pelham
1st mortgage $5,727 8.1% (1) 07/01/05 $5,151
<FN>
(1) The principal balance is amortized over 30 years with a balloon payment due
July 1, 2005.
</FN>
</TABLE>
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates Occupancy
Property 1997 1996 1997 1996
Lakewood at Pelham $5,530/unit $5,451/unit 94% 92%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The property of the Partnership is subject to competition
from other residential apartment complexes in the area. The General Partner
believes that the property is adequately insured. The multifamily residential
property's lease terms are for one year or less. No residential tenant leases
10% or more of the available rental space.
SCHEDULE OF REAL ESTATE TAXES AND RATES:
(dollar amounts in thousands):
1997 1997
Billing Rate
Lakewood at Pelham Apartments $ 77 1.27%
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner believes that all such matters are
adequately covered by insurance and will be resolved without a material adverse
effect upon the business, financial condition, operations, or liquidity of the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matter was submitted to a
vote of security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
PARTNER MATTERS
As of December 31, 1997, the number of holders of record of Limited Partnership
Units ("Units") was 1,262. No public trading market has developed for the
Units, and it is not anticipated that such a market will develop in the future.
No distributions were made in 1997 or 1996. At this time, management does not
anticipate a cash distribution during 1998. Future distributions will depend on
the levels of cash generated from operations, refinancings, property sales, and
the availability of cash reserves.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership had net income for the year ended December 31, 1997, of
approximately $11,000 as compared to a net loss of approximately $62,000 for the
corresponding period in 1996. The increase in net income for 1997 was primarily
due to an increase in rental income and a decrease in operating and interest
expenses. Rental income increased due to an increase in both occupancy and the
average annual rental rate. Operating expense decreased due to interior and
exterior painting projects and the repaving project completed at Lakewood at
Pelham during 1996. Additionally, interest expense decreased as a result of an
under-accrual at December 31, 1995. These items are partially offset by an
increase in operating expense due to rental concessions incurred in order to
increase and maintain higher occupancy levels. Also offsetting the above
increases in net income is a decrease in other income as a result of lower lease
cancellation fees and the 1996 settlement receipt from the South Carolina
Department of Transportation.
Included in operating expense in 1997 is approximately $8,000 of major repairs
and maintenance comprised of exterior building improvements. Included in
operating expense in 1996 is approximately $56,000 of major repairs and
maintenance comprised of major landscaping, parking lot repairs, exterior
painting and exterior and interior building improvements.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Partnership from increases in 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 December 31, 1997, the Partnership had cash and cash equivalents of
approximately $451,000 as compared to approximately $386,000 at December 31,
1996. The net increase in cash and cash equivalents for the year ended December
31, 1997 is $65,000. The net decrease in cash and cash equivalents for the year
ended December 31, 1996 is $302,000. Net cash provided by operating activities
increased due to the increase in net income as described above, a decrease in
receivables and deposits primarily due to a decrease in escrows for taxes, and a
decrease in the change in accounts payable related to the timing of payments.
Partially offsetting the increase was an increase in accrued property taxes due
to the timing of payments. Net cash used in investing activities decreased due
to a decrease in purchases of property improvements and replacements. Net cash
used in financing activities remained stable.
The Partnership has no material capital programs scheduled to be performed in
1998, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations, is received from the capital
reserve account, or from cash and cash equivalents on hand.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The mortgage
indebtedness of approximately $5,727,000 has a maturity date of July 1, 2005, at
which time the property will be sold or the debt refinanced. No cash
distributions were recorded in 1997 or 1996. Future cash distributions will
depend on the level of net cash generated from operations, sale of the property,
and the availability of cash reserves.
On March 9, 1987, the original General Partners, on behalf of the Partnership,
filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in
U.S. Bankruptcy Court, Central District Court of California ("Court"). The
Partnership continued as Debtor-In-Possession to operate its business in the
ordinary course subject to control of the Court until the Court confirmed the
Partnership's Plan of Reorganization ("Plan") effective October 25, 1988. The
Plan was approved by all required classes of creditors.
The Plan provides for the following claim priorities as of December 31, 1997:
1) First, all creditors, except Class 12 creditors ($23,100), will be
satisfied;
2) Limited Partners, both original and substitute, who made additional
capital contributions will be paid claims in the amount of the
additional contributions of approximately $730,000 on October 20, 1998;
3) Class 12 creditors will be paid claims aggregating $23,100 on October
20, 1998;
4) Limited Partners who made additional capital contributions and who were
original Limited Partners will be paid existing capital contributions
of approximately $9,818,000 on October 20, 1998;
5) Limited Partners who did not make additional capital contributions will
be paid one-third of existing capital contributions (one-third of
$1,200,000) on October 20, 1998.
All other claims noted in the Plan were settled on June 25, 1995 when the
Partnership refinanced the then outstanding mortgages encumbering the property.
Additionally, the Plan calls for CRPTEX, Inc. (the "General Partner") to make a
capital contribution of $14,500 and loan or expend an additional $117,500 on
behalf of the Partnership on an as needed basis. The Partnership received the
$14,500 capital contribution but has not required the additional $117,500.
In order to attempt to satisfy the remaining claims under the Plan, the
Partnership would be required to sell the investment property. As an
alternative to the sale of the property the Partnership may attempt to obtain
authorization from the Court and the limited partners to extend the settlement
date of October 20, 1998 to a future period.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ITEM 7. FINANCIAL STATEMENTS
MCCOMBS REALTY PARTNERS, LTD.
LIST OF FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1997 and 1996
Consolidated Statements of Changes in Partners' Capital (Deficit) - Years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
Report of KPMG Peat Marwick LLP, Independent Auditors
Independent Auditors' Report
The Partners
McCombs Realty Partners, Ltd.
We have audited the accompanying consolidated balance sheet of McCombs Realty
Partners, Ltd. as of December 31, 1997, and the related consolidated statements
of operations, changes in partners' capital (deficit) and cash flows for each of
the years in the two year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McCombs Realty
Partners, Ltd. as of December 31, 1997, and the results of its operations and
its cash flows for each of the years in the two year period ended December 31,
1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that McCombs Realty Partners, Ltd. will continue as a going concern. As
discussed in Note G to the consolidated financial statements, the Partnership is
required under its Plan of Reorganization to pay claims to limited partners and
creditors of approximately $11,000,000 during 1998. This raises substantial
doubt about the Partnership's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note G. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/KPMG Peat Marwick LLP
Greenville, South Carolina
February 11, 1998
MCCOMBS REALTY PARTNERS, LTD.
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents $ 451
Receivables and deposits 42
Restricted escrows 261
Other assets 152
Investment properties:
Land $ 499
Buildings and related personal property 5,392
5,891
Less accumulated depreciation (3,250) 2,641
$ 3,547
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 78
Tenant security deposit liabilities 26
Other liabilities 78
Mortgage note payable 5,727
Partners' Capital (Deficit)
General partner 1
Limited partners (17,199.69 units
outstanding) (2,363) (2,362)
$ 3,547
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
MCCOMBS REALTY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $1,396 $1,336
Other income 110 147
Total revenues 1,506 1,483
Expenses:
Operating 653 695
General and administrative 67 55
Depreciation 210 190
Interest 486 529
Property taxes 79 76
Total expenses 1,495 1,545
Net income (loss) $ 11 $ (62)
Net income (loss) allocated to general
partner (1%) $ -- $ (1)
Net income (loss) allocated to limited
partners (99%) 11 (61)
$ 11 $ (62)
Net income (loss) per limited partnership unit $ .64 $(3.55)
See Accompanying Notes to Consolidated Financial Statements
MCCOMBS REALTY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Partners' capital (deficit)
at December 31, 1995 17,199.69 $ 2 $(2,313) $(2,311)
Net loss for the year
ended December 31, 1996 -- (1) (61) (62)
Partners' capital (deficit)
at December 31, 1996 17,199.69 1 (2,374) (2,373)
Net income for the year ended
December 31, 1997 -- -- 11 11
Partners' capital (deficit)
at December 31, 1997 17,199.69 $ 1 $(2,363) $(2,362)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
MCCOMBS REALTY PARTNERS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11 $ (62)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 210 190
Amortization of loan costs 19 19
Change in accounts:
Receivables and deposits 95 (98)
Other assets 1 (2)
Accounts payable 43 (140)
Tenant security deposit liabilities (1) 3
Accrued property taxes (76) 76
Other liabilities 4 3
Net cash provided by (used in)
operating activities 306 (11)
Cash flows from investing activities:
Property improvements and replacements (115) (172)
Deposits to restricted escrows (72) (69)
Net cash used in investing activities (187) (241)
Cash flows from financing activities:
Payments on mortgage note payable (54) (50)
Net cash used in financing activities (54) (50)
Net increase (decrease) in cash and cash equivalents 65 (302)
Cash and cash equivalents at beginning of year 386 688
Cash and cash equivalents at end of year $ 451 $ 386
Supplemental disclosure of cash flow information:
Cash paid for interest $ 466 $ 470
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
McCOMBS REALTY PARTNERS, LTD.
Notes to Consolidated Financial Statements
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: McCombs Realty Partners, Ltd., a California Limited Partnership
("Partnership"), was formed on June 22, 1984, for the purpose of acquiring and
operating certain real properties. The Partnership commenced operations in
January 1985 when a minimum of 2,400 Limited Partnership units ($1,200,000) had
been subscribed and issued. The Partnership will be dissolved on December 31,
2030, or earlier under certain circumstances. The Partnership operates one
apartment property located in Greenville, South Carolina.
Under the Partnership Agreement, the maximum liability of the Limited Partners
is the amount of their capital contributions. There were 17,199.69 Limited
Partnership units outstanding at December 31, 1997 and 1996. No additional
capital contribution is required from any Limited Partner under the Partnership
Agreement.
Prior to February 25, 1998, the General Partner was a wholly-owned subsidiary of
MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged
into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia
Financial Group, Inc. ("Insignia"). Thus, the Managing General Partner is now a
wholly-owned subsidiary of IPT.
Plan of Reorganization: On March 9, 1987, the original General Partners, on
behalf of the Partnership, filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code in U.S. Bankruptcy Court, Central District Court of
California (Court). The Partnership continued as Debtor-In-Possession to
operate its business in the ordinary course subject to control of the Court
until the Court confirmed the Partnership's Plan of Reorganization (Plan)
effective October 25, 1988. The Plan was approved by all required classes of
creditors.
The Plan provides for the following claim priorities as of December 31, 1997:
1) First, all creditors, except Class 12 creditors ($23,100), will be
satisfied;
2) Limited Partners, both original and substitute, who made additional
capital contributions will be paid claims in the amount of the
additional contributions of approximately $730,000 on October 20, 1998;
3) Class 12 creditors will be paid claims aggregating $23,100 on October
20, 1998;
4) Limited Partners who made additional capital contributions and who were
original Limited Partners will be paid existing capital contributions
of approximately $9,818,000 on October 20, 1998;
5) Limited Partners who did not make additional capital contributions will
be paid one-third of existing capital contributions (one-third of
$1,200,000) on October 20, 1998.
All other claims noted in the Plan were settled on June 25, 1995 when the
Partnership refinanced the then outstanding mortgages encumbering the property.
Additionally, the Plan calls for CRPTEX, Inc. (the "General Partner") to make a
capital contribution of $14,500 and loan or expend an additional $117,500 on
behalf of the Partnership on an as needed basis. The Partnership received the
$14,500 capital contribution but has not required the additional $117,500.
Allocation of Profits, Gains and Losses: Partnership income, gains and losses
are generally allocated 98% to the Limited Partners, 1% to the General Partner,
CRPTEX, Inc., ("CRPTEX"), a Texas corporation, and 1% to a special Limited
Partner interest, which percentage was subsequently transferred to CRPTEX.
Losses are not allocated to CRPTEX's General Partner capital balance or the
special Limited Partner capital balance, if the allocation of loss creates a
negative capital balance.
Notwithstanding the above allocations, gains from the sale or other disposition
of Partnership properties are allocated first to the General Partner to the
extent distributions of sale or refinancing proceeds (as defined) are received;
next, to partners with deficit balances in their capital accounts and,
thereafter, to the partners in an amount equal to their pro rata share of the
total capital balance.
Net (loss) income per Limited Partnership unit is based on the number of Limited
Partnership units outstanding (17,199.69 in 1997, and 1996) and the net (loss)
income allocated to the Limited Partners in accordance with the Partnership
Agreement as amended by the Plan of Reorganization.
Allocation of Cash Distributions: Prior to the effective date of the
Partnership's Plan of Reorganization (October 25, 1988) cash available for
distribution (as defined in the Partnership Agreement) was distributed 90% to
the Limited Partners and 1% to the General Partner for their interest in profits
and losses and 9% to the General Partner as a partnership management fee, which
was considered an expense of the Partnership. The General Partner was not to
receive the 9% partnership management fee during any year in which the Limited
Partners did not receive cash distributions equal to 4% per annum on their
adjusted capital contributions. Adjusted capital contributions are defined as
original capital contributed, less distributions constituting a return of unused
capital or cash proceeds from the sale or refinancing of Partnership properties.
In accordance with the Plan of Reorganization, CRPTEX waived the subordinated
Partnership management fee in return for the ability to receive real estate
commissions that are not subordinated to the cumulative return (as defined in
the Partnership Agreement). During the continuing operations of the
Partnership, if all transfers contemplated by the Plan of Reorganization are
being made and there exists cash available for distribution, as defined in the
Partnership Agreement, CRPTEX shall receive 1% of same as a Partnership
administration fee.
Net proceeds from the sale or refinancing of the Partnership's properties will
be distributed in cash to the Limited Partners who made additional capital
contributions pursuant to the Partnership's Plan of Reorganization until
distributions equal the additional capital contributions. Next, the Limited
Partners who made additional capital contributions and who are original Limited
Partners will receive distributions equal to their capital contributions. Next,
the Limited Partners who did not make additional capital contributions will
receive distributions equal to one-third of their existing capital contribution.
Thereafter, 16% of the remaining proceeds shall be distributed to CRPTEX and 84%
to the Limited Partners.
Notwithstanding the above, the Plan of Reorganization provides that, in
connection with distributions resulting from the sale or refinancing of the
Partnership's properties, 1% of each such distribution that would otherwise be
paid to the Limited Partners and 1% of each such distribution that would
otherwise be paid to the special Limited Partner interest will be paid to
CRPTEX.
In order to increase the Partnership's cash reserves to a level sufficient to
meet anticipated liquidity requirements, CRPTEX has not authorized any
distributions to the partners during the years ended December 31, 1997 and 1996.
Principles of Consolidation: The Partnership's consolidated financial
statements include the accounts of Pelham Place, L.P., a South Carolina limited
partnership, as of December 31, 1997. Pelham Place, L.P. is the limited
partnership which holds title to Lakewood at Pelham (formerly known as Pelham
Place Apartments). Pelham Place, L.P. is wholly-owned by the Partnership. All
intercompany transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.
Depreciation: Depreciation is determined using the straight-line method over
the estimated useful lives of the apartment properties and related personal
property. For Federal income tax purposes, the accelerated cost recovery method
is used (1) for real property over 18 years for additions after March 15, 1984,
and before May 9, 1985, and 19 years for additions after May 8, 1985, and before
January 1, 1987, and (2) for personal property over 5 years for additions prior
to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions
after December 31, 1986, the modified accelerated cost recovery method is used
for depreciation of (1) real property additions over 27 1/2 years, and (2)
personal property additions over 7 years. Effective generally for property
placed in service on or after May 13, 1993, the Revenue Reconciliation Act of
1993 increases the depreciation period from 31.5 to 39 years, although
transition rules apply to property placed in service before 1994.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on leases. In addition,
the General Partner finds it necessary to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged to expense as incurred.
Loan Costs: Loan costs of approximately $193,000 net of accumulated
amortization of approximately $48,000 are included in other assets and are being
amortized on a straight-line basis over the life of the loan.
Cash and Cash Equivalents: Includes cash on hand and in banks, demand deposits,
money market funds, and certificates of deposit with original maturities less
than 90 days. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. The security deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on its
rental payments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately $23,000
and $28,000 for the years ended December 31, 1997 and 1996, respectively.
Fair Value of Financial Instruments: The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The fair
value of the Partnership's long term debt, after discounting the scheduled loan
payments at an estimated borrowing rate currently available to the Partnership,
approximates its carrying balance.
Restricted Escrows:
Repair and Remediation Reserve: At the time of the refinancing of the
Lakewood at Pelham mortgage note payable in 1995, $92,250 of the proceeds were
designated for a repair and remediation reserve for certain deferred
maintenance. At December 31, 1997, the balance remaining in the escrow was
$92,250. Upon completion of the scheduled deferred maintenance, any excess
funds will be returned for property operations.
Replacement Reserve: In addition to the Repair and Remediation Reserve for
Lakewood at Pelham, a replacement reserve account was also established at the
time of refinancing. This reserve is to be used for capital replacements at the
apartment complex. At December 31, 1997, the account balance was approximately
$169,000, which includes interest earned on these funds
Reclassifications: Certain reclassifications have been made to the 1996
information to conform to the 1997 presentation.
NOTE B - MORTGAGE NOTE PAYABLE
The principle terms of the mortgage note payable are as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Lakewood at Pelham
1st mortgage $ 5,727 $ 43 8.1% 07/01/05 $ 5,151
</TABLE>
On June 29, 1995, the Partnership refinanced the four mortgages encumbering
Pelham Place Apartments. The total indebtedness refinanced was approximately
$5,702,000, net of discounts which carried stated interest rates from 0% to
10.5% with maturity dates ranging from September 1995 to October 1998. The new
mortgage indebtedness of $5,850,000 carries a stated interest rate of 8.1% and
is amortized over 30 years with a balloon payment due July 1, 2005.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 1997, are as follows (in thousands):
1998 $ 58
1999 63
2000 68
2001 74
2002 81
Thereafter 5,383
$5,727
NOTE C - INCOME TAXES
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reportable in
the income tax returns of its partners.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (loss) (in thousands, except per unit data):
1997 1996
Net income (loss) as reported $ 11 $ (62)
Add (deduct):
Depreciation and amortization (262) (228)
Other 2 (27)
Federal taxable loss $ (249) $ (317)
Federal taxable loss per limited
partnership unit $(14.33) $(18.25)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of partners' capital (deficit) (in thousands):
1997 1996
Total partner's deficit - financial
statement basis $(2,362) $(2,373)
Current year tax basis net loss over
financial statement net income (loss) (260) (255)
Prior year cumulative tax basis net loss over
financial statement net income (loss) (424) (169)
Total partner's deficit - federal
income tax basis $(3,046) $(2,797)
NOTE D - 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 payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. Property management fees are included in operating expense on the
consolidated statements of operations. Reimbursements for services from
affiliates are included in general and administrative expense and operating
expense in the consolidated statements of operations. Fees paid to Insignia and
its affiliates in 1997 and 1996 are as follows:
Years Ended December 31,
1997 1996
(in thousands)
Property management fees $75 $71
Reimbursement for services from affiliates (1) 36 36
(1) Included in "Reimbursements for services from affiliates" for 1997 and 1996
is approximately $2,000 and $1,000 in reimbursements for construction
oversight costs, respectively.
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
its property under a master policy through an agency and insurer unaffiliated
with the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
NOTE E - REAL ESTATE AND ACCUMULATED DEPRECIATION
Investment Property
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Cost
Buildings Capitalized
and Related (Written Down)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Lakewood at Pelham
Greenville, South Carolina $5,727 $ 695 $6,730 $(1,534)
</TABLE>
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Gross Amount at Which Carried
At December 31, 1997
Buildings
And
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Lakewood at Pelham
Greenville, South Carolina $499 $5,392 $ 5,891 $ 3,250 1980 01/85 3-25
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation" (in thousands):
Years Ended December 31,
1997 1996
Investment Properties
Balance at beginning of year $5,776 $5,604
Property improvements 115 172
Balance at end of year $5,891 $5,776
Accumulated Depreciation
Balance at beginning of year $3,040 $2,850
Additions charged to expense 210 190
Balance at end of year $3,250 $3,040
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996 is approximately $8,559,000 and approximately
$8,444,000, respectively. Accumulated depreciation for Federal income tax
purposes at December 31, 1997 and 1996 is approximately $6,638,000 and
approximately $6,165,000, respectively.
NOTE F - CONTINGENCIES
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner believes that all such matters are
adequately covered by insurance and will be resolved without a material adverse
effect upon the business, financial condition, statement of operations, or
liquidity of the Partnership.
NOTE G - GOING CONCERN
Under the Plan of Reorganization described in Note A, the Partnership is
required to pay claims to limited partners and creditors of approximately
$11,000,000 during 1998. This raises substantial doubt about the Partnership's
ability to continue as a going concern. In order to attempt to satisfy the
remaining claims under the Plan, the Partnership would be required to sell the
investment property. As an alternative to the sale of the property the
Partnership may attempt to obtain authorization from the Court and the limited
partners to extend the settlement date of October 20, 1998 to a future period.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PART III
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The Partnership has no directors or officers. The names of the directors and
executive officers of CRPTEX, Inc. (formerly Capital Realty Group Properties,
Inc.), the Partnership's General Partner, and an affiliate of Metropolitan Asset
Enhancement, L.P., ("MAE"), their ages and the nature of all positions with
CRPTEX, Inc. presently held by them are as follows:
Prior to February 25, 1998, the General Partner was a wholly-owned subsidiary of
MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged
into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia
Financial Group, Inc. ("Insignia"). Thus, the General Partner is now a wholly-
owned subsidiary of IPT.
Name Age Position
Carroll D. Vinson 57 President and Director
Robert D. Long, Jr. 30 Vice President and Chief
Accounting Officer (CAO)
William H. Jarrard, Jr. 51 Vice President
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Carroll D. Vinson has been President and Director of the General Partner and
President of MAE and subsidiaries since August of 1994. He has acted as Chief
Operating Officer of IPT, parent of the General Partner, since May 1997. During
1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co.
(regional CPA firm) and engaged in various other investment and consulting
activities which included portfolio acquisitions, asset dispositions, debt
restructurings and financial reporting. Briefly, in early 1993, Mr. Vinson
served as President and Chief Executive Officer of Angeles Corporation, a real
estate investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia
in various capacities including Managing Director - President during 1991.
Robert D. Long, Jr. has been Vice President and Chief Accounting Officer of the
General Partner since August 1994. Mr. Long joined MAE in September 1993.
Since 1994 he has acted as Vice President and Chief Accounting Officer of the
MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in
1993. Prior to joining Insignia, Mr. Long was an auditor for the State of
Tennessee and was associated with the accounting firm of Harsman Lewis and
Associates.
William H. Jarrard, Jr. has been Vice President of the General Partner since
December 1994. He has acted as Senior Vice President of IPT since May 1997.
Mr. Jarrard previously acted as Managing Director - Partnership Administration
of Insignia From January 1991 through September 1997 and served as Managing
Director - Partnership Administration and Asset Management of Insignia from July
1994 until January 1996.
Daniel M. LeBey has been Secretary of the General Partner since January 29, 1998
and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has
also served as Insignia's Associate General Counsel. From September 1992 until
June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP,
Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the General Partner since
December 1994 and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No remuneration was paid to the General Partner nor any of its directors and
officers during the year ended December 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
No person owns of record or is known by the Partnership to own
beneficially more than 5% of the outstanding Interests of the
Partnership as of December 31, 1997.
(b) Security ownership of management.
No officers or directors of CRPTEX, Inc., the General Partner of the
Partnership, own any Limited Partnership Interests in the Partnership.
No general partners, officers or directors of the General Partners of
the Partnership possess the right to acquire a beneficial ownership of
Interests of the Partnership.
(c) Change in control.
On March 17, 1998, Insignia entered into an agreement to merge its
national residential property management operations, and its controlling
interest in IPT, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing,
which is anticipated to happen in the third quarter of 1998, is subject
to customary conditions, including government approvals and the approval
of Insignia's shareholders. If the closing occurs, AIMCO will then
control the General Partner of the Partnership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner received no cash distributions from operations as General or
Limited Partners during or with respect to, the fiscal year ended December 31,
1997. See "Item 1. Description of Business," "Item 10. Executive Compensation"
and "Item 11. Security Ownership of Certain Beneficial Owners and Management"
for a discussion of transactions with the General Partner.
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 payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. Property management fees are included in operating expense on the
consolidated statements of operations. Reimbursements for services from
affiliates are included in general and administrative expense and operating
expense in the consolidated statements of operations. Fees paid to Insignia and
its affiliates in 1997 and 1996 are as follows (in thousands):
Years Ended December 31,
1997 1996
Property management fees $75 $71
Reimbursement for services from affiliates (1) 36 36
(1) Included in "Reimbursements for services from affiliates" for 1997 and 1996
is approximately $2,000 and $1,000 in reimbursements for construction
oversight costs, respectively.
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
its property under a master policy through an agency and insurer unaffiliated
with the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
ITEM 13. EXHIBITS AND REPORT 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 filed during the fourth quarter of 1997:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MCCOMBS REALTY PARTNERS, LTD.
BY: CRPTEX, Inc.
General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President and Director
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities and on the dates indicated below.
CRPTEX, Inc.
By: /s/Carroll D. Vinson President and Director
Carroll D. Vinson
By: /s/Robert D. Long, Jr. Vice President and Chief
Robert D. Long, Jr. Accounting Officer
EXHIBIT INDEX
Exhibit
10(a) Mortgage and Security Agreement dated June 29, 1995 between Pelham
Place, L.P. and First Union National Bank of North Carolina, securing
Pelham Place Apartments, is incorporated by reference to Exhibit
10JJ(a) of the Registrant's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1995.
(b) Promissory Note dated June 29, 1995 between Pelham Place, L.P., a
South Carolina limited partnership, and First Union National Bank of
North Carolina, a national banking association, is incorporated by
reference to Exhibit 10JJ(b) to the Registrant's Quarterly Report on
Form 10-QSB for the Quarter ended June 30, 1995.
(c) Assignment of Leases and Rents dated June 29, 1995 between Pelham
Place, L.P., and First Union National Bank of North Carolina, securing
Pelham Place Apartments, is incorporated by reference to Exhibit
10JJ(c) to the Registrant's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1995.
(d) Agreement of Limited Partnership for Pelham Place, L.P. between Pelham
Place, GP, a South Carolina limited partnership, is incorporated by
reference to Exhibit 28A to the Registrant's Quarterly Report on Form
10-QSB for the Quarter ended June 30, 1995.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from McCombs
Realty Partners, Ltd. 1997 Year-End 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000759198
<NAME> MCCOMBS REALTY PARTNERS, LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 451
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,891
<DEPRECIATION> (3,250)
<TOTAL-ASSETS> 3,547
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,727
0
0
<COMMON> 0
<OTHER-SE> (2,362)
<TOTAL-LIABILITY-AND-EQUITY> 3,547
<SALES> 0
<TOTAL-REVENUES> 1,506
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> .50<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
