March 30, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: McCombs Realty Partners
Form 10-KSB
File No. 0-14570
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
(Mark One)
[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, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-14570
MCCOMBS REALTY PARTNERS
(Name of small business issuer in its charter)
California 33-0068732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Partnership's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,501,000
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, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
McCombs Realty Partners ("Partnership" or "Registrant") is a publicly-held
limited partnership organized under the California Uniform Limited Partnership
Act on June 22, 1984. The Partnership's general partner is CRPTEX, Inc., a Texas
Corporation (the "General Partner" and formerly known as Capital Realty Group
Property, Inc.). The General Partner is a subsidiary of Apartment Investment and
Management Company ("AIMCO"). The Partnership Agreement provides that the
Partnership is to terminate on December 31, 2030, unless terminated prior to
such date.
The Partnership sold 22,036 units of Limited Partnership Interest ("Units") for
$11,018,000 in a public offering that began December 1984 and ended December
1985. Since its initial offering, the Registrant has received approximately
$730,000 of additional capital contributions from limited partners. In addition,
under the Partnership's 1988 Plan of Reorganization (see "Item 6. Management's
Discussion and Analysis or Plan of Operation"), the General Partner made a
$14,500 capital contribution. The Partnership is engaged in the business of
operating and holding real estate property for investment. All of the net
proceeds from the offering were expended in 1985 for the acquisition and
operation of one apartment complex (Lakewood at Pelham) (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.
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,
1999, the Partnership's sole investment property was Lakewood at Pelham. See
"Item 2. Description of Property" for a further description of the Partnership's
investment property.
The original general partners of the Partnership were McCombs Corp., a
California corporation and EP Partners V, a California General Partnership (the
"Original General Partners"). Upon final confirmation of the Plan of
Reorganization (effective January 25, 1989), CRPTEX, Inc. (then called A.B.
Capital Property, Inc.) became the new General Partner of the Partnership
retroactively effective to January 1, 1988.
The Registrant has no employees. Property management and administrative services
are provided by the General Partner and affiliates.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's property. The number and quality of competitive properties,
including those which may be managed by an affiliate of the General Partner in
such market area could have a material effect on the rental market for the
apartments at the Partnership's property and the rents that may be charged for
such apartments. While the General Partner and its affiliates own and/or control
a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
Both the income and expenses of operating the property owned by the Partnership
are subject to factors outside of the Partnership's control, such as changes in
supply and demand for similar properties resulting from various market
conditions, increases/decreases in unemployment or population shifts, changes in
the availability of permanent mortgage financing, changes in zoning laws, or
changes in patterns or needs of users. In addition, there are risks inherent in
owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the property
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfer of Control
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.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into 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 has had or will have a material effect on the affairs and operations
of the Partnership.
Item 2. Description of Property
The following table sets forth the Partnership's investment in property:
Date of
Property Purchase Type of Ownership Use
Lakewood at Pelham 01/85 Fee ownership subject to Apartment
Greenville, South Carolina first mortgage (1) 271 units
(1) The property is held by a limited partnership in which the Partnership
owns a 100% interest.
Schedule of Property:
Set forth below for the Partnership's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation, and Federal
tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Lakewood at Pelham
Greenville, South
Carolina $ 6,199 $ 3,723 3-25 S/L $1,501
</TABLE>
See "Note B" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note I - Change in Accounting Principle".
Schedule of Property Indebtedness:
The following table sets forth certain information relating to the loan
encumbering the Registrant's property.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (2)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Lakewood at Pelham
1st mortgage $ 5,606 8.1% (1) 07/01/05 $ 5,151
</TABLE>
(1) The principal balance is amortized over 30 years with a balloon payment due
July 1, 2005.
(2) See "Item 7. Financial Statements, Note D" for information with respect to
the Partnership's ability to repay this loan and other specific details
about the loan.
<PAGE>
Schedule of Rental Rate and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for the property
were as follows:
Average Annual Average Annual
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
Lakewood at Pelham $5,634 $5,750 96% 90%
The General Partner attributes the increase in occupancy at Lakewood at Pelham
to increased marketing efforts and a stronger local economy.
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 property is an apartment
complex which leases units for terms of one year or less. No tenant leases 10%
or more of the available rental space. The property is in good physical
condition, subject to normal depreciation and deterioration as is typical for
assets of this type and age.
Schedule of Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for the property were as follows:
1999 1999
Billing Rate
(in thousands)
Lakewood at Pelham $82 1.48%
Capital Improvements:
Lakewood at Pelham
During 1999, the Partnership expended approximately $227,000 for capital
improvements at Lakewood at Pelham, consisting primarily of structural
improvements, carpet and vinyl replacement, major landscaping, exterior building
painting, and tennis court improvements. These improvements were funded from the
Partnership's operating cash flow and reserves. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $81,300.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. Partnership reserves are
sufficient to cover the estimated costs of the capital improvements planned for
the year 2000. However, the Partnership does not have sufficient assets to
fulfill its obligation under the Plan of Reorganization ("Plan") and in fact
defaulted on its obligations due October 20, 1998. See "Item 6. Management's
Discussion and Analysis or Plan of Operation" for detail as to the Partnership's
Plan with respect to meeting its short term needs under the Plan. No
distributions were declared or paid during either of the twelve months ended
December 31, 1999 or 1998, and none are expected in the future.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Partners
During the quarter ended December 31, 1999, no matters were submitted to a vote
of the Unit holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Units of Limited Partnership and Related
Partner Matters
As of December 31, 1999, the number of holders of record of the 17,196.39
Limited Partnership Units ("Units") was 1,217. Affiliates of the General Partner
owned 744 units or 4.33% at December 31, 1999. 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 1999 or 1998, nor are any
expected in the future, as certain priority claims will be required to be
satisfied per the Partnership's Plan of Reorganization. See further discussion
in "Item 6. Management's Discussion and Analysis or Plan of Operation" below.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the year ended December 31, 1999. As a result of these
tender offers, AIMCO and its affiliates currently own 744 units of limited
partnership interest in the Partnership representing 4.33% of the outstanding
units. It is possible that AIMCO or its affiliates 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matter, does not take into account the effects of
any changes to the Registrant'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.
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's net income for the year ended December 31, 1999, was
approximately $54,000 compared to a net loss of approximately $95,000 for the
year ending December 31, 1998. The increase in net income for 1999 was due to an
increase in total revenues a decrease in total expenses and the cumulative
effect on prior years of a change in accounting for the cost of exterior
painting and major landscaping (see discussion below). Total revenues increased
due to an increase in rental income, which was partially offset by a decrease in
other income. Rental income increased as a result of the improved occupancy at
the property, which more than offset the decrease in the average rental rates,
as well as a decrease in concessions. Other income decreased primarily due to
decreases in corporate unit income and tenant charges. Total expenses decreased
primarily due to decreases in operating and general and administrative expenses.
Operating expense decreased primarily due to a decrease during 1999 in
maintenance expenses due to the completion of repair and maintenance projects
during 1998. General and administrative expenses decreased primarily due to
reduced reimbursements to the General Partner. Included in general and
administrative expenses for the years ended December 31, 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.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was to
increase net income before the change by approximately $48,000 ($2.73 per
limited partnership unit). The cumulative effect adjustment of approximately
$25,000 is the result of applying the aforementioned change in accounting
principle retroactively and is included in income for 1999. The pro forma
amounts shown on the statements of operations have been adjusted for the effect
of retroactive application of this change. The accounting principle change will
not have an effect on cash flow, funds available for distribution or fees
payable to the General Partner and affiliates.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Partnership from increases in expenses. As part of this plan, the
General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, 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, 1999, the Partnership had cash and cash equivalents of
approximately $593,000 compared to approximately $350,000 at December 31, 1998.
Cash and cash equivalents increased approximately $243,000 from the
Partnership's year ended December 31, 1998. The increase is due to approximately
$332,000 of cash provided by operating activities which was partially offset by
approximately $26,000 of cash used in investing activities and approximately
$63,000 of cash used in financing activities. Cash used in investing activities
consisted of property improvements and replacements partially offset by net
receipts from escrow accounts maintained by the mortgage lender. Cash used in
financing activities consisted of principal payments on the mortgage encumbering
the Partnership's property. 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 property to adequately maintain the physical assets
and other operating needs of the Registrant and to comply with Federal, state,
and local legal and regulatory requirements. The capital improvements will be
incurred only if cash is available from operations or from 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 is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or approximately $81,300. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. Partnership reserves are
sufficient to cover the estimated costs of the capital improvements planned for
the year 2000. However, the Partnership does not have sufficient assets to
fulfill its obligation under the Plan of Reorganization ("Plan") and in fact
defaulted on its obligations due October 20, 1998. See discussion below for
detail as to the Partnership's Plan with respect to meeting its short term needs
under the Plan. No distributions were declared or paid during either of the
twelve months ended December 31, 1999 or 1998, and none are expected in the
future.
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
effective October 25, 1988. The Plan was approved by all required classes of
creditors.
The Plan required that the Partnership make the following payments on October
20, 1998:
1) First, all existing creditors, except prebankruptcy Class 12
creditors ($23,100), would be satisfied;
2) Limited Partners, both original and substitute, who made
additional capital contributions under the plan would receive a
repayment of the additional contributions totaling approximately
$730,000;
3) Class 12 creditors would be paid claims aggregating $23,100;
4) Limited Partners who made additional capital contributions and
were original Limited Partners would receive a repayment of their
original capital contributions totaling approximately $9,818,000;
5) Limited Partners who did not make additional capital
contributions would receive a repayment of one-third of their
original capital contributions (i.e., one-third of $1,200,000).
All other claims provided for in the Plan then outstanding were settled on June
25, 1995 when the Partnership refinanced the then outstanding mortgages
encumbering the property.
Additionally, the Plan required CRPTEX, Inc. 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.
To attempt to satisfy its remaining obligations under the Plan, the Partnership
would be required to sell the investment property. As an alternative, the
Partnership could seek authorization from the Limited Partners to extend the
payment date of October 20, 1998 to a future period. The limited partners were
approached in August 1998 and asked to either approve a sale of the
Partnership's sole investment property or for the General Partner to petition
the Bankruptcy Court for an extension of the settlement date. The required
fifty-one percent response was not received. As a result, the Partnership
defaulted on its obligations which were due on October 20, 1998. The General
Partner is continuing to see that the Partnership operates its business in the
ordinary course while it evaluates the best course of action to follow.
Additionally, the Partnership's mortgage indebtedness of approximately
$5,606,000 at December 31, 1999, matures in July 2005, and would require a
property sale or refinancing at that time. However, there can be no assurance
that these courses of action will be successful and that the Partnership will
have sufficient funds to meet its obligations in 2000 or beyond.
Tender Offers
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 744 units of
limited partnership interest in the Partnership representing 4.33% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Year 2000 Compliance
General Description
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 Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. To date, no material failure or erroneous results have occurred in
the Managing Agent's computer applications related to the failure to reference
the Year 2000.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
Item 7. Financial Statements
MCCOMBS REALTY PARTNERS
LIST OF FINANCIAL STATEMENTS
Report of KPMG LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and
1998
Consolidated Statements of Changes in Partners' Capital (Deficit) -
Years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
Report of KPMG LLP, Independent Auditors
The Partners
McCombs Realty Partners:
We have audited the accompanying consolidated balance sheet of McCombs Realty
Partners (a California limited partnership) as of December 31, 1999, 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, 1999. 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 as of December 31, 1999, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that McCombs Realty Partners will continue as a going concern. As discussed in
Note A to the consolidated financial statements, the Partnership was required
under its Plan of Reorganization to pay claims to limited partners and creditors
of approximately $11,000,000 during 1998. The Partnership defaulted on this
obligation in 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 A. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Note I to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/KPMG LLP
Greenville, South Carolina
February 11, 2000
<PAGE>
MCCOMBS REALTY PARTNERS
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 593
Receivables and deposits 114
Restricted escrows 221
Other assets 120
Investment property (Notes D and G):
Land $ 499
Buildings and related personal property 5,700
6,199
Less accumulated depreciation (3,723) 2,476
$ 3,524
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 147
Tenant security deposit liabilities 19
Accrued property taxes 82
Other liabilities 73
Mortgage note payable (Note D) 5,606
Partners' Capital (Deficit)
General Partner $ 1
Limited partners (17,196.39 units issued and
outstanding) (2,404) (2,403)
$ 3,524
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C>
1999 1998
Revenues:
Rental income $ 1,390 $ 1,265
Other income 111 131
Total revenues 1,501 1,396
Expenses:
Operating 580 609
General and administrative 85 97
Depreciation 249 224
Interest 475 481
Property taxes 83 80
Total expenses 1,472 1,491
Income (loss) before cumulative effect of a change in
accounting principle 29 (95)
Cumulative effect on prior years of a change in
accounting for the costs of exterior painting and
major landscaping (Note I) 25 --
Net income (loss) (Note E) $ 54 $ (95)
Net income (loss) allocated to general partner (1%) $ 1 $ (1)
Net income (loss) allocated to limited partners (99%) 53 (94)
$ 54 $ (95)
Net income (loss) per limited partnership unit:
Income (loss) before cumulative effect of a change in
accounting principle $ 1.64 $ (5.47)
Cumulative effect on prior years of a change in
accounting for the costs of exterior painting and
major landscaping 1.44 --
Net income (loss) $ 3.08 $ (5.47)
Proforma amounts assuming the new
accounting principle was applied
retroactively:
Net income (loss) $ 29 $ (109)
Net income (loss) per limited partnership unit $ 1.69 $ (6.28)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Partners' capital (deficit) at
December 31, 1997 17,199.69 $ 1 $(2,363) $(2,362)
Units abandoned (3.30) -- -- --
Net loss for the year ended
December 31, 1998 -- (1) (94) (95)
Partners' deficit at
December 31, 1998 17,196.39 -- (2,457) (2,457)
Net income for the year ended
December 31, 1999 -- 1 53 54
Partners' capital (deficit) at
December 31, 1999 17,196.39 $ 1 $(2,404) $(2,403)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 54 $ (95)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 249 224
Amortization of loan costs 19 19
Cumulative effect on prior years of change in
accounting principle (25) --
Change in accounts:
Receivables and deposits 1 (73)
Other assets (7) 1
Accounts payable 46 (65)
Tenant security deposit liabilities 1 (8)
Accrued property taxes 1 81
Other liabilities (7) 2
Net cash provided by operating activities 332 86
Cash flows from investing activities:
Property improvements and replacements (139) (56)
Net receipts from (deposits to) restricted escrows 113 (73)
Net cash used in investing activities (26) (129)
Cash flows used in financing activities:
Payments on mortgage note payable (63) (58)
Net increase (decrease) in cash and cash equivalents 243 (101)
Cash and cash equivalents at beginning of year 350 451
Cash and cash equivalents at end of year $ 593 $ 350
Supplemental disclosure of cash flow information:
Cash paid for interest $ 457 $ 462
Supplemental disclosure of non-cash transaction:
Property improvements and replacements in accounts $ 88 $ --
payable
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
MCCOMBS REALTY PARTNERS
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Going Concern
Under the Plan of Reorganization (the "Plan"; see "Note B" below) McCombs Realty
Partners (the "Partnership" or "Registrant"), a California limited partnership,
was required to pay claims to limited partners and creditors of approximately
$11,000,000 on October 20, 1998. These claims have not been paid as of December
31, 1999. 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 could
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 limited
partners were approached in August 1998 and asked to either approve a sale of
the Partnership's sole investment property or for CRPTEX, Inc. ("the General
Partner") to petition the Bankruptcy Court for an extension of the settlement
date. The required fifty-one percent response was not received. As a result, the
Partnership defaulted on its obligations which were due on October 20, 1998. The
General Partner is continuing to see that the Partnership operates its business
in the ordinary course of business while it evaluates the best course of action
to follow. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Note B - Organization and Significant Accounting Policies
Organization
The Partnership is a publicly-held limited partnership organized under the
California Uniform Limited Partnership Act on June 22, 1984. The Partnership's
general partner is CRPTEX, Inc., a Texas Corporation (formerly known as Capital
Realty Group Property, Inc.). The General Partner is a subsidiary of Apartment
Investment and Management Company ("AIMCO"). The Partnership Agreement provides
that the Partnership is to terminate on December 31, 2030, unless terminated
prior to such date.
Under the Partnership Agreement, the maximum liability of the Limited Partners
is the amount of their capital contributions. Since its initial offering, the
Partnership has received approximately $730,000 of additional capital
contributions from limited partners. In addition, per the Plan of Reorganization
(see below), the General Partner made a $14,500 capital contribution. There were
17,196.39 Limited Partnership units outstanding at December 31 1999 and 1998.
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"). Effective October 1, 1998, the General
Partner became a subsidiary of AIMCO (see "Note C - Transfer of Control"). The
directors and officers of the General Partner also serve as executive officers
of AIMCO.
Plan of Reorganization
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District of California
("Court"). The Partnership continued as Debtor-In-Possession to operate its
business in the ordinary course until the Court confirmed the Partnership's Plan
effective October 25, 1988. The Plan was approved by all required classes of
creditors.
The Plan required that the Partnership make the following payments on October
20, 1998:
1) First, all existing creditors, except prebankruptcy Class 12
creditors ($23,100), would be satisfied;
2) Limited Partners, both original and substitute, who made
additional capital contributions under the plan would receive a
repayment of the additional contributions totaling approximately
$730,000;
3) Class 12 creditors would be paid claims aggregating $23,100;
4) Limited Partners who made additional capital contributions and
were original Limited Partners would receive a repayment of their
original capital contributions totaling approximately $9,818,000;
5) Limited Partners who did not make additional capital
contributions would receive a repayment of one-third of their
original capital contributions (i.e., one-third of $1,200,000).
All other claims provided for in the Plan then outstanding were settled on June
25, 1995 when the Partnership refinanced the then outstanding mortgages
encumbering the property.
Additionally, the Plan required CRPTEX, Inc. 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, and 1% to a special Limited Partner
interest, which percentage was subsequently transferred to CRPTEX. Losses are
not allocated to CRPTEX's General Partner capital balance or the special Limited
Partner capital balance, if the allocation of loss creates a negative capital
balance.
Notwithstanding the above allocations, gains from the sale or other disposition
of the Partnership's property are allocated first to the General Partner to the
extent distributions of sale or refinancing proceeds (as defined) are received;
next, to partners with deficit balances in their capital accounts and,
thereafter, to the partners in an amount equal to their pro rata share of the
total capital balance.
Net income (loss) per Limited Partnership unit is based on the number of Limited
Partnership units outstanding (17,196.39 in 1999 and 1998) and the net income
(loss) allocated to the Limited Partners in accordance with the Partnership
Agreement as amended by the Plan of Reorganization.
Allocation of Cash Distributions
Prior to the effective date of the Partnership's Plan of Reorganization (October
25, 1988), cash available for distribution (as defined in the Partnership
Agreement) was distributed 90% to the Limited Partners and 1% to the General
Partner for their interest in profits and losses and 9% to the General Partner
as a partnership management fee, which was considered an expense of the
Partnership. The General Partner was not to receive the 9% Partnership
management fee during any year in which the Limited Partners did not receive
cash distributions equal to 4% per annum on their adjusted capital
contributions. Adjusted capital contributions are defined as original capital
contributed, less distributions constituting a return of unused capital or cash
proceeds from the sale or refinancing of Partnership properties. In accordance
with the Plan of Reorganization, CRPTEX waived the subordinated Partnership
management fee in return for the ability to receive real estate commissions that
are not subordinated to the cumulative return (as defined in the Partnership
Agreement). During the continuing operations of the Partnership, if all
transfers contemplated by the Plan of Reorganization are 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 property will be
distributed in cash to the Limited Partners who made additional capital
contributions pursuant to the Partnership's Plan of Reorganization until
distributions equal the additional capital contributions. Next, the Limited
Partners who made additional capital contributions and who are original Limited
Partners will receive distributions equal to their capital contributions. Next,
the Limited Partners who did not make additional capital contributions will
receive distributions equal to one-third of their existing capital contribution.
Thereafter, 16% of the remaining proceeds shall be distributed to CRPTEX and 84%
to the Limited Partners.
Notwithstanding the above, the Plan of Reorganization provides that, in
connection with distributions resulting from the sale or refinancing of the
Partnership's property, 1% of each such distribution that would otherwise be
paid to the Limited Partners and 1% of each such distribution that would
otherwise be paid to the special Limited Partner interest will be paid to
CRPTEX.
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, 1999 and 1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include the accounts of
Pelham Place, L.P., a South Carolina limited partnership. Pelham Place, L.P. is
the limited partnership which holds title to Lakewood at Pelham (formerly known
as Pelham Place Apartments). Pelham Place, L.P. is wholly-owned by the
Partnership. All interpartnership 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
The investment property is stated at cost. Acquisition fees are capitalized as a
cost of real estate. In accordance with "Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", the Partnership records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets. No adjustments for impairment of value were recorded in the years
ended December 31, 1999 and 1998.
Depreciation
Depreciation is provided by the straight-line method over the estimated lives of
the investment property and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (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 5
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.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping (Note I).
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on leases. 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 income as incurred.
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
See "Note H" for required disclosure.
Loan Costs
Loan costs of approximately $193,000, less accumulated amortization of
approximately $87,000, are included in other assets and are being amortized on a
straight-line basis over the life of the loan.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limits 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. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on rental payments.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $21,000 and $28,000
for the years ended December 31, 1999 and 1998, respectively.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying 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 to
maturity, 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, 1999, the balance remaining in the escrow was
approximately $21,000. 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, 1999, the account
balance was approximately $200,000, which includes interest earned on
these funds.
Note C - 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 Property Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation. As a result, AIMCO acquired 100% ownership
interest in the General Partner. The General Partner does not believe that this
transaction has had or will have a material effect on the affairs and operations
of the Partnership.
Note D - Mortgage Note Payable
The principle terms of mortgage note payable is as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Lakewood at Pelham
1st mortgage $ 5,606 $ 43 8.1% 07/01/05 $ 5,151
</TABLE>
The mortgage indebtedness carries a stated interest rate of 8.1% and is being
amortized over 30 years with a balloon payment due July 1, 2005. The investment
property may not be sold subject to the existing indebtedness. Additionally, the
mortgage note requires a prepayment penalty if repaid prior to maturity.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 1999 are as follows (in thousands):
2000 $ 68
2001 74
2002 81
2003 87
2004 95
Thereafter 5,201
$ 5,606
Note E - Income Taxes
The Partnership received a ruling from the Internal Revenue Service that it is
to be classified as a partnership for Federal income tax purposes. Accordingly,
no provision for income taxes is made in the consolidated financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (loss) (in thousands, except per unit data):
1999 1998
Net income (loss) as reported $ 54 $ (95)
Add (deduct)
Depreciation and amortization 15 (253)
Other (1) 1
Federal taxable income (loss) $ 68 $ (347)
Federal taxable income (loss) per
limited partnership unit $ 3.91 $(19.97)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of partners' deficit:
1999 1998
(in thousands)
Total partner's deficit - financial
statement basis $(2,403) $(2,457)
Current year tax basis net income (loss)
over financial statement net income (loss) 14 (252)
Prior year cumulative tax basis net loss
over financial statement net income (loss) (936) (684)
Total partner's deficit - federal
income tax basis $(3,325) $(3,393)
Note F - 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 certain payments to affiliates for
services and for reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following transactions with the General Partner
and its affiliates were incurred during each of the years ended December 31,
1999 and 1998 (in thousands):
1999 1998
Property management fees (included in operating
expenses) $ 76 $ 74
Reimbursement for services from affiliates
(included in operating expenses, general and
administrative expenses and investment properties) 46 56
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Partnership's
investment property as compensation for providing property management services.
The Partnership paid to such affiliates approximately $76,000 and $74,000 for
the years ended December 31, 1999 and 1998, respectively.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $46,000 and $56,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 744 units of
limited partnership interest in the Partnership representing 4.33% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Note G - Real Estate and Accumulated Depreciation
Initial Cost
To Partnership
(in thousands)
<TABLE>
<CAPTION>
Buildings
and Related Cost
Written Down
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Lakewood at Pelham $ 5,606 $ 695 $ 6,730 $(1,226)
</TABLE>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Lakewood at
Pelham $ 499 $ 5,700 $ 6,199 $ 3,723 1980 01/85 3-25
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1999 1998
(in thousands)
Real Estate
Balance at beginning of year $ 5,947 $ 5,891
Property improvements 227 56
Cumulative effect on prior years
of change in accounting principle 25 --
Balance at end of year $ 6,199 $ 5,947
Accumulated Depreciation
Balance at beginning of year $ 3,474 $ 3,250
Additions charged to expense 249 224
Balance at end of year $ 3,723 $ 3,474
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $8,842,000 and $8,615,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $7,341,000 and $7,115,000,
respectively.
Note H - Segment Information
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential property. The
Partnership's residential property segment consists of one apartment complex
located in Greenville, SC. 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 segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
Segment information for the years 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 $ 1,390 $ -- $ 1,390
Other income 101 10 111
Interest expense 475 -- 475
Depreciation 249 -- 249
General and administrative expense -- 85 85
Cumulative effort on prior years of
change in accounting principle 25 -- 25
Segment income (loss) 129 (75) 54
Total assets 3,278 246 3,524
Capital expenditures for investment
property 227 -- 227
1998 Residential Other Totals
Rental income $ 1,265 $ -- $ 1,265
Other income 117 14 131
Interest expense 481 -- 481
Depreciation 224 -- 224
General and administrative expense -- 97 97
Segment loss (12) (83) (95)
Total assets 3,080 324 3,404
Capital expenditures for investment
property 56 -- 56
Note I - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was to
increase net income before the change by approximately $48,000 ($2.73 per
limited partnership unit). The cumulative effect adjustment of approximately
$25,000 is the result of applying the aforementioned change in accounting
principle retroactively and is included in income for 1999. The pro forma
amounts shown on the statements of operations have been adjusted for the effect
of retroactive application of this change. The accounting principle change will
not have an effect on cash flow, funds available for distribution or fees
payable to the General Partner and affiliates.
The effect of the new method for each quarter of 1999 on net income and net
income per limited partnership unit before the cumulative effect is as follows:
Increase/(decrease) in Per limited
Net income partnership unit
First Quarter $(2,000) $(0.12)
Second Quarter (2,000) (0.12)
Third Quarter (2,000) (0.11)
Fourth Quarter 54,000 3.08
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Partnership has no directors or officers. The names of the director and
executive officers of CRPTEX, Inc. (the "General Partner" and formerly Capital
Realty Group Properties, Inc.), their ages and the nature of all positions with
CRPTEX, Inc. presently held by them are set forth below. There are no family
relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council. He
received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Forms 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
Item 10. Executive Compensation
No remuneration was paid to the General Partner nor any of its directors or
officers during the year ended December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Entity Number of Units Percentage
AIMCO Properties L.P.
(an affiliate of AIMCO) 744 4.33%
AIMCO Properties, L.P. is indirectly ultimately owned by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No officers or directors or CRPTEX, Inc., own any Limited Partnership Units in
the Partnership.
No general partners or officers or directors of the General Partner of the
Partnership possess the right to acquire a beneficial ownership of interests of
the Partnership.
Item 12. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and for reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following transactions with the General Partner
and its affiliates were incurred during each of the years ended December 31,
1999 and 1998 (in thousands):
1999 1998
Property management fees $ 76 $ 74
Reimbursement for services from affiliates 46 56
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Partnership's investment property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$76,000 and $74,000 for the years ended December 31, 1999 and 1998,
respectively.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $46,000 and $56,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 744 units of
limited partnership interest in the Partnership representing 4.33% of the
outstanding units. It is possible that AIMCO or its affiliates 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCCOMBS REALTY PARTNERS
By: CRPTEX, Inc.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date: March 30, 2000
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date: March 30, 2000
Martha L. Long and Controller
EXHIBIT INDEX
Exhibit
2.1 Agreement and Plan of Merger, dated as of October 1, 1998,
by and between AIMCO and IPT; filed in Current Report on
Form 8-K on October 16, 1998.
10(a) Mortgage and Security Agreement dated June 29, 1995 between
Pelham Place, L.P. and First Union National Bank of North
Carolina, securing Pelham Place Apartments, is incorporated by
reference to Exhibit 10JJ(a) of the Registrant's Quarterly
Report on Form 10-QSB for the Quarter ended June 30, 1995.
(b) Promissory Note dated June 29, 1995 between Pelham Place,
L.P., a South Carolina limited partnership, and First Union
National Bank of North Carolina, a national banking
association, is incorporated by reference to Exhibit 10JJ(b)
to the Registrant's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1995.
(c) Assignment of Leases and Rents dated June 29, 1995 between
Pelham Place, L.P., and First Union National Bank of North
Carolina, securing Pelham Place Apartments, is incorporated by
reference to Exhibit 10JJ(c) to the Registrant's Quarterly
Report on Form 10-QSB for the Quarter ended June 30, 1995.
(d) Agreement of Limited Partnership for Pelham Place, L.P.,
between Pelham Place, GP, a South Carolina limited
partnership, is incorporated by reference to Exhibit 28A to
the Registrant's Quarterly Report on Current Report on Form
10-QSB for the Quarter ended June 30, 1995.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle.
27 Financial Data Schedule.
Exhibit 18
February 11, 2000
Mr. Patrick J. Foye
Executive Vice President
CRPTEX, Inc.
General Partner of McCombs Realty Partners
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note I of Notes to the Consolidated Financial Statements of McCombs Realty
Partners included in its Form 10-KSB for the year ended December 31, 1999
describes a change in the method of accounting to capitalize exterior painting
and major landscaping, which would have been expensed under the old policy. You
have advised us that you believe that the change is to a preferable method in
your circumstances because it provides a better matching of expenses with the
related benefit of the expenditures and is consistent with policies currently
being used by your industry and conforms to the policies of the General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from McCombs
Realty Partners 1999 Fourth Quarter 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000759198
<NAME> McCombs Realty Partners
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 593
<SECURITIES> 0
<RECEIVABLES> 114
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 6,199
<DEPRECIATION> 3,723
<TOTAL-ASSETS> 3,524
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 5,606
0
0
<COMMON> 0
<OTHER-SE> (2,403)
<TOTAL-LIABILITY-AND-EQUITY> 3,524
<SALES> 0
<TOTAL-REVENUES> 1,501
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 475
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-BASIC> 3.08 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
