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 September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-16684
MULTI-BENEFIT REALTY FUND '87-1
(Exact name of small business issuer as specified in its charter)
California 94-3026785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, 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)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 2,002
Receivables and deposits 251
Restricted escrows 183
Other assets 221
Investment properties:
Land $ 1,742
Buildings and related personal property 23,537
25,279
Less accumulated depreciation (12,695) 12,584
$ 15,241
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 253
Tenant security deposit liabilities 96
Accrued property taxes 382
Other liabilities 244
Mortgage notes payable 12,157
Partners' (Deficit) Capital
General Partner $ (133)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (1,853)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,095 2,109
$ 15,241
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental revenue $1,264 $1,226 $3,739 $3,670
Other income 68 88 220 244
Total revenues 1,332 1,314 3,959 3,914
Expenses:
Operating 566 621 1,628 1,705
General and administrative 58 58 181 193
Depreciation 240 257 761 765
Interest 245 249 746 748
Property taxes 100 90 300 265
Loss on disposal of property -- 23 -- 23
Total expenses 1,209 1,298 3,616 3,699
Net income $ 123 $ 16 $ 343 $ 215
Net income allocated
to general partner $ 1 $ -- $ 3 $ 2
Net income allocated
to limited partners 122 16 340 213
$ 123 $ 16 $ 343 $ 215
Net income per limited
partnership "A" and "B" units $ .71 $ .09 $ 1.98 $ 1.24
Distributions per limited
partnership "A" units $ -- $ 2.58 $ -- $ 6.11
See Accompanying Notes to Consolidated Financial Statements
c)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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
September 30, 1999 -- 96,284 75,152 171,436
Partners' (deficit) capital at
December 31, 1998 $ (136) $ (2,044) $ 3,946 $ 1,766
Net income for the nine months
ended September 30, 1999 3 191 149 343
Partners' (deficit) capital
at September 30, 1999 $ (133) $ (1,853) $ 4,095 $ 2,109
See Accompanying Notes to Consolidated Financial Statements
d)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except unit data)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income $ 343 $ 215
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 761 765
Amortization of loan costs 49 47
Loss on disposal of property -- 23
Change in accounts:
Receivables and deposits 66 (114)
Other assets (36) 5
Accounts payable 174 42
Tenant security deposit liabilities (15) (7)
Accrued property taxes 107 76
Other liabilities 5 11
Net cash provided by operating activities 1,454 1,063
Cash flows from investing activities:
Property improvements and replacements (868) (367)
Net withdrawals from (deposits to) restricted escrows 182 (46)
Net cash used in investing activities (686) (413)
Cash flows from financing activities:
Payments on mortgage notes payable (57) (52)
Distributions to partners -- (594)
Net cash used in financing activities (57) (646)
Net increase in cash and cash equivalents 711 4
Cash and cash equivalents at beginning of period 1,291 1,139
Cash and cash equivalents at end of period $2,002 $1,143
Supplemental disclosure of cash flow information:
Cash paid for interest $ 697 $ 701
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" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the fiscal 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. Because the Partnership may
remove the general partner of Hunt Club Associates, Ltd., the partnership is
controlled and consolidated by the Partnership. All significant
interpartnership balances have been eliminated.
Limited Partnership Units
The Partnership has issued two classes of Units of Depositary Receipts
("Units"), "A" Units and "B" Units. The two classes of Units are entitled to
different rights and priorities as to cash distributions and Partnership
allocations. The Units represent economic rights attributable to the limited
partnership interests in the Partnership and entitle the holders thereof ("Unit
holders") to participate in certain allocations and distributions of the
Partnership.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
The following transactions with the General Partner and/or its affiliates were
incurred during the nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $199 $194
Reimbursement for services of affiliates (included in
investment properties, operating, and general and
administrative expenses) 79 86
Partnership management fees (included in general and
administrative expense) -- 53
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $199,000 and
$194,000 for the nine months ended September 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $79,000 and $86,000 for the
nine months ended September 30, 1999 and 1998, respectively. Included in these
reimbursements is approximately $3,000 and $4,000 of construction oversight
costs incurred for the nine months ended September 30, 1999 and 1998,
respectively.
The Partnership Agreement provides for a fee equal to 9% of distributable cash
from operations (as defined in the Partnership Agreement) received by the
limited partners to be paid to the General Partner for executive and
administrative management services. A fee of approximately $53,000 was paid
during the nine months ended September 30, 1998, in association with the
distributions made during that time period. No fee was paid during the nine
months ended September 30, 1999 as no distributions have been made.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner,
commenced a tender offer to purchase up to 30,958.53 (approximately 32.15% of
the total outstanding class A units) of the class A units of limited partnership
interest and up to 25,603.38 (approximately 34.07% of the total outstanding
class B units) of the class B units of limited partnership interest in the
Partnership for a purchase price of $62 per class A unit and $10 per class B
unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO
Properties, L.P. acquired 6,788 class A units and 1,003 class B units. As a
result, AIMCO and its affiliates currently own 35,671 class A units of limited
partnership interest in the Partnership and 19,443 class B units of limited
partnership interest in the Partnership representing approximately 37.05% and
approximately 25.87%, respectively, of the total outstanding units of each such
class. 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 (see "Note G - Legal Proceedings").
NOTE D - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital reserves of not less than 5% of Net Invested Capital, as defined in the
Partnership Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserve to the extent necessary to
maintain the foregoing level. Reserves, consisting of cash and cash equivalents
totaling approximately $2,002,000, exceeded the reserve requirement of
approximately $759,000 at September 30, 1999.
NOTE E - DISTRIBUTION
There were no distributions paid or declared during the nine months ended
September 30, 1999. During the nine months ended September 30, 1998, the
Partnership paid a cash distribution from operations of approximately $594,000
of which approximately $588,000 ($6.11 per limited partnership "A" Unit) was
paid to the "A" unit limited partners.
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 property 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 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 nine month periods ended September 30, 1999 and
1998, is shown in the tables below. The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
1999 Residential Other Totals
(in thousands)
Rental income $ 3,739 $ -- $ 3,739
Other income 185 35 220
Interest expense 746 -- 746
Depreciation 761 -- 761
General and administrative expense -- 181 181
Segment profit (loss) 489 (146) 343
Total assets 13,853 1,388 15,241
Capital expenditures for investment
properties 868 -- 868
1998 Residential Other Totals
(in thousands)
Rental income $ 3,670 $ -- $ 3,670
Other income 203 41 244
Interest expense 748 -- 748
Depreciation 765 -- 765
General and administrative expense -- 193 193
Segment profit (loss) 367 (152) 215
Total assets 13,750 1,058 14,808
Capital expenditures for investment
properties 367 -- 367
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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). 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 February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement ("Stipulation"), settling claims, subject to final
court approval, on behalf of the Partnership and all limited partners who own
units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the General Partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The General Partner does not anticipate that costs
associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Carlin Manor Apartments 95% 92%
Columbus, Ohio
Hunt Club Apartments 92% 96%
Indianapolis, Indiana (1)
Shadow Brook Apartments 98% 96%
West Valley City, Utah
The decrease in occupancy at Hunt Club is attributable to local market
conditions, including competition from home purchases in the area.
Results of Operations
The Partnership's net income for the nine months ended September 30, 1999, was
approximately $343,000 and $215,000, respectively. The Partnership realized net
income of approximately $123,000 and $16,000 for the three months ended
September 30, 1999 and 1998, respectively. The increase in net income for the
three and nine months ended September 30, 1999 is attributable to an increase in
total revenues combined with a decrease in total expenses. The increase in
total revenues is due to an increase in rental income partially offset by a
decrease in other income. The increase in rental income is attributable to
improved occupancy at Carlin Manor (as discussed above) and Shadow Brook
Apartments which more than offset the decrease in occupancy at the Hunt Club as
well as an increase in average rental rates at all of the Partnership's
investment properties. The decrease in other income is primarily due to a
decrease in interest income as the result of lower average cash balances held in
interest bearing accounts and a decrease in lease cancellation fees at Hunt Club
and Shadow Brook Apartments. The decrease in total expenses is primarily
attributable to a decrease in operating and general and administrative expenses,
and the fact that there was no loss on disposal of property in 1999 as there was
in 1998, partially offset by an increase in property tax expense. Operating
expense decreased as a result of decreases in insurance and utility expenses.
Insurance expense decreased due to reduced premiums as a result of a change in
insurance carriers late in 1998. The decrease in utility expense is primarily
attributable to decreased gas charges due to a milder winter season in 1999 at
Carlin Manor and offset by snow removal expenses at Hunt Club. The decrease in
general and administrative expense is due to management fees relating to
distributions paid during the nine months ended September 30, 1998. There were
no management fees earned during the nine months ended September 30, 1999, since
no distributions were paid during the period. This decrease was partially
offset by an increase in legal costs as a result of a lawsuit settlement as
previously disclosed in the Partnership's Form 10-QSB as of March 31, 1999. The
increase in property tax expense is attributuable to an increase in the
assessment value at Hunt Club.
Included in general and administrative expenses at both September 30, 1999 and
1998, are reimbursements to the General Partner allowed under the Partnership
Agreement associated with its management of the Partnership. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in 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 September 30, 1999, the Partnership had cash and cash equivalents of
approximately $2,002,000 as compared to approximately $1,143,000 at September
30, 1998. Cash and cash equivalents increased approximately $711,000 for the
nine months ended September 30, 1999, from the Partnership's year ended December
31, 1998, due to approximately $1,454,000 of cash provided by operating
activities, which was partially offset by approximately $686,000 of cash used in
investing activities and approximately $57,000 of cash used in financing
activities. Cash used in investing activities consisted of property
improvements and replacements, which is partially offset by net withdrawals from
restricted escrows maintained by the mortgage lender. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Partnership's properties. The Partnership invests its working capital
reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements
planned for each of the Registrant's properties are detailed below.
Carlin Manor
During the nine months ended September 30, 1999, the Partnership expended
approximately $271,000 for capital improvements at Carlin Manor consisting
primarily of carpet and flooring replacement, structural improvements, air
conditioning upgrades, swimming pool and recreational facility improvements, and
new appliances. The air conditioning, pool and recreational facility projects
are substantially complete as of September 30, 1999. These improvements were
funded from operating cash flow and replacement reserves. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $303,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $437,000 which include certain
of the required improvements, and consist of interior and exterior building
improvements.
Hunt Club
During the nine months ended September 30, 1999, the Partnership expended
approximately $273,000 for capital improvements and replacements at Hunt Club
consisting primarily of carpet and flooring replacement, plumbing, landscaping,
fencing and other improvements. The plumbing and landscaping projects are
approximately 75% complete as of September 30, 1999. These improvements were
funded from operating cash flow and replacement reserves. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $303,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $386,000 which include certain
of the required improvements, and consist of landscaping, carpet replacement,
plumbing improvements, fencing, and other structural improvements.
Shadow Brook
During the nine months ended September 30, 1999, the Partnership expended
approximately $324,000 for capital improvements and replacements at Shadow Brook
consisting primarily of roof replacements, carpet and flooring replacement,
parking lot resurfacing, recreational facility upgrades, and structural
improvements. The roof replacements, and recreational facility upgrades are
substantially complete as of September 30, 1999. These improvements were funded
from operating cash flow and replacement reserves. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $303,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $260,000 which include certain
of the required improvements, and consist of roof replacement, carpet
replacement, landscaping, parking lot resurfacing, recreational facility
upgrades, and building improvements.
The additional capital expenditures 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 $12,157,000 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 nine months ended
September 30, 1999. During the nine months ended September 30, 1998, the
Partnership paid a cash distribution from operations of approximately $594,000
of which approximately $588,000 ($6.11 per limited partnership "A" Unit) was
paid to the "A" unit limited partners. The Partnership's distribution policy is
reviewed on a semi-annual 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 during the remainder of 1999 or subsequent
periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner,
commenced a tender offer to purchase up to 30,958.53 (approximately 32.15% of
the total outstanding class A units) of the class A units of limited partnership
interest and up to 25,603.38 (approximately 34.07% of the total outstanding
class B units) of the class B units of limited partnership interest in the
Partnership for a purchase price of $62 per class A unit and $10 per class B
unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO
Properties, L.P. acquired 6,788 class A units and 1,003 class B units. As a
result, AIMCO and its affiliates currently own 35,671 class A units of limited
partnership interest in the Partnership and 19,443 class B units of limited
partnership interest in the Partnership representing approximately 37.05% and
approximately 25.87%, respectively, of the total 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 (see "Item 1.
Financial Statements, Note G - Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed 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.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). 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
February 1999. Pending the ruling on such demurrers, settlement negotiations
commenced. On November 2, 1999, the parties executed and filed a Stipulation of
Settlement ("Stipulation"), settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. The Court has preliminarily approved the Settlement and scheduled a
final approval hearing for December 10, 1999. In exchange for a release of all
claims, the Stipulation provides that, among other things, an affiliate of the
General Partner will make tender offers for all outstanding limited partnership
interests in 49 partnerships, including the Registrant, subject to the terms and
conditions set forth in the Stipulation, and has agreed to establish a reserve
to pay an additional amount in settlement to qualifying class members (the
"Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will
make an application for attorneys' fees and reimbursement of expenses, to be
paid in part by the partnerships and in part from the Settlement Fund. The
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MULTI-BENEFIT REALTY FUND '87-1
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Multi-Benefit Realty Fund '87-1 1999 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,002
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2><F1>
<PP&E> 25,279
<DEPRECIATION> (12,695)
<TOTAL-ASSETS> 15,241
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,157
0
0
<COMMON> 0
<OTHER-SE> 2,109
<TOTAL-LIABILITY-AND-EQUITY> 15,241
<SALES> 0
<TOTAL-REVENUES> 3,959
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 746
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343
<EPS-BASIC> 1.98<F2>
<EPS-DILUTED> 0
<FN>
<F2>Multiplier is 1.
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
