FORM 10-QSB---QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14570
MCCOMBS REALTY PARTNERS
(Exact name of small business issuer as specified in its charter)
California 33-0068732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
MCCOMBS REALTY PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
Assets
Cash and cash equivalents $ 436
Receivables and deposits 28
Restricted escrows 238
Other assets 125
Investment property:
Land $ 499
Buildings and related personal property 5,740
6,239
Less accumulated depreciation (3,795) 2,444
$ 3,271
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 8
Tenant security deposit liabilities 20
Accrued property taxes 21
Other liabilities 64
Mortgage note payable 5,588
Partners' Capital (Deficit)
General partner $ 1
Limited partners (17,196.39 units
issued and outstanding) (2,431) (2,430)
$ 3,271
See Accompanying Notes to Consolidated Financial Statements
b)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Revenues: (Restated)
<S> <C> <C>
Rental income $ 366 $ 318
Other income 19 38
Total revenues 385 356
Expenses:
Operating 148 145
General and administrative 53 23
Depreciation 72 59
Interest 117 120
Property taxes 22 23
Total expenses 412 370
Loss before cumulative effect of a change in
accounting principle (27) (14)
Cumulative effect on prior years of a change in
accounting for the cost of exterior painting and
major landscaping -- 25
Net (loss) income $ (27) $ 11
Net (loss) income allocated to general partner (1%) $ -- $ --
Net (loss) income allocated to limited partners (99%) (27) 11
$ (27) $ 11
Per limited partnership unit:
Loss before cumulative effect of a change in
accounting principle $(1.57) $ (.80)
Cumulative effect on prior years of a change in
accounting principle -- 1.44
$(1.57) $ .64
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
Partners' capital (deficit) at
<S> <C> <C> <C> <C>
December 31, 1999 17,196.39 $ 1 $ (2,404) $ (2,403)
Net loss for the three months
ended March 31, 2000 -- -- (27) (27)
Partners' capital (deficit)
at March 31, 2000 17,196.39 $ 1 $ (2,431) $ (2,430)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d)
MCCOMBS REALTY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities: (Restated)
<S> <C> <C>
Net (loss) income $ (27) $ 11
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 72 59
Amortization of loan costs 5 5
Cumulative effect on prior years of a change in
accounting principle -- (25)
Change in accounts:
Receivables and deposits 86 60
Other assets (10) (17)
Accounts payable (51) 7
Tenant security deposit liabilities 1 --
Accrued property taxes (61) (59)
Other liabilities (9) (16)
Net cash provided by operating activities 6 25
Cash flows from investing activities:
Property improvements and replacements (128) (9)
Net deposits to restricted escrows (17) (19)
Net cash used in investing activities (145) (28)
Cash flows used in financing activities:
Payments on mortgage note payable (18) (15)
Net decrease in cash and cash equivalents (157) (18)
Cash and cash equivalents at beginning of period 593 350
Cash and cash equivalents at end of period $ 436 $ 332
Supplemental disclosure of cash flow information:
Cash paid for interest $ 112 $ 115
At March 31, 2000, property improvements and replacements and accounts payable
were both adjusted by approximately $88,000.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e)
MCCOMBS REALTY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
Under the Plan of Reorganization (the "Plan"; see "Note C" 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 March 31,
2000. 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 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 - Basis of Presentation
The accompanying unaudited consolidated financial statements of the Partnership
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2000, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999 for the Partnership.
Principles of Consolidation:
The Partnership's consolidated financial statements 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.
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. This accounting change was first reported
during the fourth quarter of 1999. Accordingly, net income for the first quarter
of 1999 has been restated to reflect the accounting change as if it were
reported then. This adjustment decreased net income before the cumulative effect
of the accounting change for the first quarter of 1999 by approximately $2,000
($.12 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
accounting principle change will not have an effect on cash flow, funds
available for distribution or fees payable to the General Partner and
affiliates.
Note C - Plan of Reorganization
On March 9, 1987, the original general partners of the Partnership, on behalf of
the Partnership, filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code in U.S. Bankruptcy Court, Central District 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 effective October 25, 1988. The Plan was
approved by all required classes of creditors.
The Plan provides for the following claim priorities as of March 31, 2000:
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.
Note D - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation.
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 E - 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 as 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 three months ended March 31,
2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 20 $ 18
Reimbursement for services of affiliates (included in
general and administrative expenses) 10 14
During the three months ended March 31, 2000 and 1999, 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 $20,000 and $18,000 for
the three months ended March 31, 2000 and 1999, respectively.
Affiliates of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $10,000 and $14,000 for the
three months ended March 31, 2000 and 1999, respectively.
AIMCO and its affiliates currently own 744 limited partnership units in the
Partnership representing 4.33% of the outstanding units. A number of these units
were acquired pursuant to tender offers made by AIMCO or its affiliates. It is
possible that AIMCO or its affiliates will 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 F - 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 properties. The Partnership's residential segment consists of one
apartment complex located in Greenville, South Carolina. 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 of the Partnership as described in
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999.
Segment information for the three month periods ended March 31, 2000 and 1999,
is shown in the tables below. The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
2000 Residential Other Totals
(in thousands)
Rental income $ 366 $ -- $ 366
Other income 19 -- 19
Interest expense 117 -- 117
Depreciation 72 -- 72
General and administrative expense -- 53 53
Segment profit (loss) 26 (53) (27)
Total assets 3,037 234 3,271
Capital expenditures for investment
property 40 -- 40
1999
Residential Other Totals
Rental income $ 318 $ -- $ 318
Other income 35 3 38
Interest expense 120 -- 120
Depreciation 59 -- 59
General and administrative expense -- 23 23
Cumulative effect on prior years of
change in accounting principle 25 -- 25
Segment profit (loss) 31 (20) 11
Total assets 3,050 282 3,332
Capital expenditures for investment
property 9 -- 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussions of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment property consists of one apartment complex. The
average occupancy of Lakewood at Pelham Apartments for the three month periods
ended March 31, 2000 and 1999, was 98% and 91%, respectively. The General
Partner attributes the increase in occupancy at Lakewood at Pelham to increased
marketing efforts and property improvements made which improved the property's
curb appeal.
Results of Operations
The Partnership reported a net loss for the three months ended March 31, 2000,
of approximately $27,000 as compared to net income of approximately $11,000 for
the corresponding period in 1999. The net loss for the three months ended March
31, 2000, was primarily due to the cumulative effect on prior years of a change
in accounting principle recognized in 1999 and an increase in total expenses,
which was partially offset by an increase in total revenues. Total expenses
increased primarily due to increases in general and administrative expenses and
depreciation expense. Depreciation expense increased due to an increase in
depreciable assets due to property improvements and replacements completed in
the past twelve months. General and administrative expenses increased primarily
due to an increase in professional expenses necessary to operate the
partnership. Included in general and administrative expenses for the three
months ended March 31, 2000 and 1999, 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.
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, an increase in the average
rental rate, as well as a decrease in concessions. Other income decreased
primarily due to decreases in corporate unit income, tenant charges and interest
income. Interest income decreased due to lower cash balances in interest bearing
accounts.
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. This accounting change was first reported
during the fourth quarter of 1999. Accordingly, net income for the first quarter
of 1999 has been restated to reflect the accounting change as if it were
reported then. This adjustment decreased net income before the cumulative effect
of the accounting change for the first quarter of 1999 by approximately $2,000
($.12 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
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 March 31, 2000, the Partnership had cash and cash equivalents of
approximately $436,000 as compared to approximately $332,000 at March 31, 1999.
The net decrease in cash and cash equivalents was approximately $157,000 from
the year ended December 31, 1999. The decrease in cash and cash equivalents is
due to approximately $145,000 of cash used in investing activities and
approximately $18,000 of cash used in financing activities partially offset by
approximately $6,000 of cash provided by operating activities. Cash used in
investing activities consisted primarily of property improvements and
replacements and, to a lesser extent, of net deposits to escrow accounts
maintained by the mortgage lender. Cash used in financing activities consisted
of payments of principal made on the mortgage encumbering the Partnership's
investment property. The Partnership invests its working capital reserves in a
money market account.
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 including satisfaction of remaining
claims related to the Partnership's Plan of Reorganization, as described below,
and to comply with Federal, state, and local legal and regulatory requirements.
Capital improvements planned at the Partnership's investment property are
detailed below.
Approximately $88,000 has been budgeted for capital improvements at Lakewood at
Pelham for the year 2000, consisting primarily of carpet and vinyl replacement,
lighting upgrades, structural improvements, and appliance replacements. During
the three months ended March 31, 2000, the Partnership expended approximately
$40,000 of budgeted capital improvements at Lakewood at Pelham, consisting
primarily of carpet and vinyl replacement and installing and painting handrails.
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
three months ended March 31, 2000 or 1999, 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
$5,588,000 at March 31, 2000 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCCOMBS REALTY PARTNERS
By: CRPTEX, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: May 8, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from McCombs
Realty Partners 2000 First Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000759198
<NAME> McCombs Realty Partners
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 436
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 6,239
<DEPRECIATION> 3,795
<TOTAL-ASSETS> 3,271
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 5,588
0
0
<COMMON> 0
<OTHER-SE> (2,430)
<TOTAL-LIABILITY-AND-EQUITY> 3,271
<SALES> 0
<TOTAL-REVENUES> 385
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27)
<EPS-BASIC> (1.57)<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
