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, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16684
MULTI-BENEFIT REALTY FUND '87-1
(Exact name of small business issuer as specified in its charter)
California 94-3026785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, 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 past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1999
Assets
Cash and cash equivalents $ 1,716
Receivables and deposits 327
Restricted escrows 254
Other assets 232
Investment properties:
Land $ 1,742
Buildings and related personal property 22,844
24,586
Less accumulated depreciation (12,192) 12,394
$14,923
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 145
Tenant security deposit liabilities 110
Accrued property taxes 313
Other liabilities 254
Mortgage notes payable 12,196
Partners' (Deficit) Capital
General Partner $ (135)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (1,966)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,006 1,905
$14,923
See Accompanying Notes to Consolidated Financial Statements
b)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $1,244 $1,220
Other income 73 68
Total revenues 1,317 1,288
Expenses:
Operating 526 507
General and administrative 49 83
Depreciation 258 252
Interest 252 250
Property taxes 93 93
Total expenses 1,178 1,185
Net income $ 139 $ 103
Net income allocated to general partner (1%) $ 1 $ 1
Net income allocated to limited partners (99%) 138 102
$ 139 $ 103
Net income per limited partnership "A" and "B" units $ .80 $ .59
Distributions per limited partnership "A" units $ -- $ 3.53
See Accompanying Notes to Consolidated Financial Statements
c)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Total
General Limited Partners Partners'
Partner "A" Units "B" Units Capital
Original capital contributions $ 1 $ 9,706 $ 7,538 $ 17,245
Limited partnership units at
December 31, 1998 and
March 31, 1999 -- 96,284 75,152 171,436
Partners' (deficit) capital at
December 31, 1998 $ (136) $ (2,044) $ 3,946 $ 1,766
Net income for the three
months ended March 31, 1999 1 78 60 139
Partners' (deficit) capital
at March 31, 1999 $ (135) $ (1,966) $ 4,006 $ 1,905
See Accompanying Notes to Consolidated Financial Statements
d)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income $ 139 $ 103
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 258 252
Amortization of loan costs 20 16
Change in accounts:
Receivables and deposits (10) (63)
Other assets (18) 16
Accounts payable 66 (14)
Tenant security deposit liabilities (1) 2
Accrued property taxes 38 38
Other liabilities 15 (8)
Net cash provided by operating activities 507 342
Cash flows from investing activities:
Property improvements and replacements (175) (48)
Net withdrawals from restricted escrows 111 50
Net cash (used in) provided by investing activities (64) 2
Cash flows from financing activities:
Payments on mortgage notes payable (18) (17)
Distributions to partners -- (343)
Net cash used in financing activities (18) (360)
Net increase (decrease) in cash and cash equivalents 425 (16)
Cash and cash equivalents at beginning of period 1,291 1,139
Cash and cash equivalents at end of period $1,716 $1,123
Supplemental disclosure of cash flow information:
Cash paid for interest $ 233 $ 234
See Accompanying Notes to Consolidated Financial Statements
e)
MULTI-BENEFIT REALTY FUND '87-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Multi-Benefit
Realty Fund '87-1 (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1999, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the year ended December 31,
1998.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interest in Hunt Club Associates, Ltd. The Partnership may remove
the General Partner of Hunt Club Associates, Ltd., therefore, the consolidated
partnership is controlled and consolidated by the Partnership. All significant
interpartnership balances have been eliminated.
Limited Partnership Units
The Partnership has issued two classes of Units of Depositary Receipts
("Units"), "A" Units and "B" Units. The two classes of Units are entitled to
different rights and priorities as to cash distributions and partnership
allocations. The Units represent economic rights attributable to the limited
partnership interests in the Partnership and entitle the holders thereof ("Unit
holders") to participate in certain allocations and distributions of the
Partnership.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for 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/or its affiliates were incurred during the three months ended March 31, 1999
and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expense) $ 65 $ 64
Reimbursements for services of affiliates (included in 26 31
general and administrative expense)
Partnership management fees (included in general and -- 31
administrative expense) (1)
(1) The Partnership Agreement provides for a fee equal to 9% of distributable
cash from operations (as defined in the Partnership Agreement) received by
the limited partners to be paid to the General Partner for executive and
administrative management services.
During the three months ended March 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $65,000 and
$64,000 for the three months ended March 31, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $26,000 and $31,000 for the
three months ended March 31, 1999 and 1998, respectively.
During December 1997, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
During February 1998 the offer was completed and the Purchaser acquired 21,457
at $50 per Unit and 13,822 at $25 per Unit of the outstanding "A" and "B" Units,
respectively, which represents approximately 22% and 18% of the total
outstanding "A" and "B" Units, respectively.
NOTE D - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital reserves of not less than 5% of Net Invested Capital, as defined in the
Partnership Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserve to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents
totaling approximately $1,716,000, exceeded the reserve requirement of
approximately $759,000 at March 31, 1999.
NOTE E - DISTRIBUTION
There were no distributions paid or declared during the three months ended March
31, 1999. During the three months ended March 31, 1998, distributions of cash
from operations of approximately $343,000 ($3.53 per limited partnership "A"
Unit) were paid to the partners.
NOTE F - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has one reportable segment:
residential properties. The Partnership's residential property segment consists
of three apartment complexes in three states: Ohio, Indiana and Utah. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those of the Partnership as described in the Partnership's annual report
on Form 10-KSB for the year ended December 31, 1998.
Factors management used to identify the Partnership's reportable segments: The
Partnership's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties are
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the three months ended March 31, 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 $ 1,244 $ -- $ 1,244
Other income 62 11 73
Interest expense 252 -- 252
Depreciation 258 -- 258
General and administrative expense -- 49 49
Segment profit (loss) 177 (38) 139
Total assets 13,442 1,481 14,923
Capital expenditures for investment
properties 175 -- 175
1998
Residential Other Totals
Rental income $ 1,220 $ -- $ 1,220
Other income 54 14 68
Interest expense 250 -- 250
Depreciation 252 -- 252
General and administrative expense -- 83 83
Segment profit (loss) 172 (69) 103
Total assets 13,844 1,033 14,877
Capital expenditures for investment
properties 48 -- 48
NOTE G - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the General Partner filed a motion seeking
dismissal of the action. In lieu of responding to the motion, the plaintiffs
have filed an amended complaint. The General Partner filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to
time. The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the three months ended March 31, 1999 and 1998:
Average Occupancy
Property 1999 1998
Carlin Manor Apartments
Columbus, Ohio 91% 92%
Hunt Club Apartments
Indianapolis, Indiana (1) 93% 97%
Shadow Brook Apartments
West Valley City, Utah (2) 98% 95%
(1) The decrease in occupancy at Hunt Club is attributable to local market
conditions, including competition from other complexes in the area and home
purchases.
(2) The increase in occupancy at Shadow Brook is attributable to an aggressive
marketing campaign.
Results of Operations
The Partnership's net income for the three months ended March 31, 1999, was
approximately $139,000 compared to net income of approximately $103,000 for the
same period of 1998. The increase in net income is primarily attributable to an
increase in total revenues combined with a slight decrease in total expenses.
The increase in total revenues is primarily attributable to an increase in
rental income due to improved occupancy at Shadow Brook Apartments as well as an
increase in average rental rates at all of the Partnership's investment
properties, which more than offset the decreases in occupancy at the other
properties. The decrease in total expenses is primarily attributable to a
decrease in general and administrative expense partially offset by an increase
in operating expenses. General and administrative expenses decreased as a result
of no management fees related to distributions paid or accrued during the three
months ended March 31, 1999 as were during the same period of 1998. Included in
general and administrative expenses 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. Operating expenses
increased primarily due to increases in property and maintenance expenses
attributable to normal fluctuations in utilities and maintenance costs.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expense. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,716,000 as compared to approximately $1,123,000 at March 31,
1998. Cash and cash equivalents increased approximately $425,000 for the three
months ended March 31, 1999 from the Partnership's year ended December 31, 1998,
due to approximately $507,000 of cash provided by operating activities, which
was partially offset by approximately $64,000 of cash used in investing
activities and approximately $18,000 of cash used in financing activities. Cash
used in investing activities consisted of property improvements and replacements
offset by net withdrawals from restricted escrows. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Partnership's properties. The Partnership invests its working capital
reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Carlin Manor
During the three months ended March 31, 1999, the Partnership expended
approximately $4,000 for capital improvements at Carlin Manor consisting
primarily of new appliances. These improvements were funded from operating cash
flow. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the General
Partner on interior improvements, it is estimated that the property requires
approximately $303,000 of capital improvements over the near-term. Capital
improvements budgeted for 1999 include, but are not limited to, interior and
exterior building improvements, which are expected to cost approximately
$437,000.
Hunt Club
During the three months ended March 31, 1999, the Partnership expended
approximately $44,000 for capital improvements and replacements at Hunt Club
consisting of roof repairs, carpet and floor replacement, signage and electrical
and heating upgrades. These improvements were funded from operating cash flow.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$303,000 of capital improvements over the near-term. Capital improvements
budgeted for 1999 include, but are not limited to, landscaping, carpet
replacement, plumbing improvements, and other structural improvements, which are
expected to cost approximately $386,000.
Shadow Brook
During the three months ended March 31, 1999, the Partnership expended
approximately $127,000 for capital improvements and replacements at Shadow Brook
consisting of plumbing upgrades and carpet and floor replacement. These
improvements were funded from operating cash flow and replacement reserves.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$303,000 of capital improvements over the near-term. Capital improvements
budgeted for 1999 include, but are not limited to, roof replacement, major
carpet replacement, landscaping, parking lot repairs and building improvements,
which are expected to cost approximately $260,000.
The additional capital improvements planned for 1999 at the Partnership's
properties will be made only to the extent of cash available from operations and
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.
The Partnership's assets are currently thought to be sufficient for any near-
term needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $12,196,000 is amortized over varying periods and
requires one balloon payment in October 2000 and two in November 2003. The
General Partner will attempt to refinance such indebtedness and/or sell the
properties prior to such maturity dates. If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership will risk losing such
properties through foreclosure.
There were no distributions paid or declared during the three months ended March
31, 1999. During the three months ended March 31, 1998, distributions of cash
from operations of approximately $343,000 ($3.53 per limited partnership "A"
Unit), were paid to the partners. The Partnership's distribution policy will be
reviewed on a quarterly basis. Future cash distributions will depend on the
levels of net cash generated from operations, the availability of cash reserves,
and the timing of debt maturities, refinancings and/or property sales. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations after required capital expenditures to permit further
distributions to its partners in 1999 or subsequent periods.
Potential Tender Offer
On October 1, 1998, Insignia merged into AIMCO, a real estate investment trust,
whose Class A Common Shares are listed on the New York Stock Exchange. As a
result of such merger, AIMCO and AIMCO Properties, L.P., a Delaware limited
partnership and the operating partnership of AIMCO ("AIMCO OP") acquired
indirect control of the General Partner. AIMCO and its affiliates currently own
29.675% and 24.54%, respectively, of the "A" and "B" Units of limited
partnership interests in the Partnership. AIMCO is presently considering whether
it will engage in an exchange offer for additional limited partnership interests
in the Partnership. There is a substantial likelihood that, within a short
period of time, AIMCO OP will offer to acquire limited partnership interests in
the Partnership for cash or preferred units or common units of limited
partnership interests in AIMCO OP. While such an exchange offer is possible, no
definite plans exist as to when or whether to commence such an exchange offer,
or as to the terms of any such exchange offer, and it is possible that none will
occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-QSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers, routers and
desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
March 31, 1999, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by July 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the General Partner filed a motion seeking
dismissal of the action. In lieu of responding to the motion, the plaintiffs
have filed an amended complaint. The General Partner filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K :
None filed for the quarter ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MULTI-BENEFIT REALTY FUND '87-1
By: CONCAP EQUITIES, INC.
General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: May 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Multi-Benefit Realty Fund '87-1 1999 First Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000802200
<NAME> MULTI- BENEFIT REALTY FUND '87-1
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,716
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,586
<DEPRECIATION> (12,192)
<TOTAL-ASSETS> 14,923
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,196
0
0
<COMMON> 0
<OTHER-SE> 1,905
<TOTAL-LIABILITY-AND-EQUITY> 14,923
<SALES> 0
<TOTAL-REVENUES> 1,317
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-PRIMARY> .80<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
