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 June 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, P.O. 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)
June 30, 1999
Assets
Cash and cash equivalents $ 1,819
Receivables and deposits 286
Restricted escrows 276
Other assets 223
Investment properties:
Land $ 1,742
Buildings and related personal property 23,119
24,861
Less accumulated depreciation (12,455) 12,406
$15,010
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 127
Tenant security deposit liabilities 101
Accrued property taxes 361
Other liabilities 258
Mortgage notes payable 12,177
Partners' (Deficit) Capital
General Partner $ (134)
Limited Partner "A" Unit holders -
96,284 units issued and outstanding (1,922)
Limited Partner "B" Unit holders -
75,152 units issued and outstanding 4,042 1,986
$15,010
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental revenue $1,231 $1,224 $2,475 $2,444
Other income 79 88 152 156
Total revenues 1,310 1,312 2,627 2,600
Expenses:
Operating 536 577 1,062 1,084
General and administrative 74 52 123 135
Depreciation 263 256 521 508
Interest 249 249 501 499
Property taxes 107 82 200 175
Total expenses 1,229 1,216 2,407 2,401
Net income $ 81 $ 96 $ 220 $ 199
Net income allocated
to general partners $ 1 $ 1 $ 2 $ 2
Net income allocated
to limited partners 80 95 218 197
$ 81 $ 96 $ 220 $ 199
Net income per limited
partnership "A" and "B" units: $ .47 $ 0.55 $ 1.27 $ 1.15
Distributions per limited
partnership "A" units $ -- $ -- $ -- $ 3.54
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
June 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 six
months ended June 30, 1999 2 122 96 220
Partners' (deficit) capital
at June 30, 1999 $ (134) $ (1,922) $ 4,042 $ 1,986
See Accompanying Notes to Consolidated Financial Statements
d)
MULTI-BENEFIT REALTY FUND '87-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 220 $ 199
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 521 508
Amortization of loan costs 35 31
Change in accounts:
Receivables and deposits 31 (38)
Other assets (24) 18
Accounts payable 48 13
Tenant security deposit liabilities (10) (1)
Accrued property taxes 86 (14)
Other liabilities 19 11
Net cash provided by operating activities 926 727
Cash flows from investing activities:
Property improvements and replacements (450) (155)
Net withdrawals from restricted escrows 89 10
Net cash used in investing activities (361) (145)
Cash flows from financing activities:
Payments on mortgage notes payable (37) (34)
Distributions to partners -- (344)
Net cash used in financing activities (37) (378)
Net increase in cash and cash equivalents 528 204
Cash and cash equivalents at beginning of period 1,291 1,139
Cash and cash equivalents at end of period $1,819 $1,343
Supplemental disclosure of cash flow information:
Cash paid for interest $ 465 $ 468
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 and six month
periods ended June 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 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 (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 six months ended June 30, 1999
and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expense) $132 $128
Reimbursements for services of affiliates (included in 48 57
operating and general and administrative expenses)
Partnership management fees (included in general and -- 31
administrative expense)
During the six months ended June 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 $132,000 and
$128,000 for the six months ended June 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $48,000 and $57,000 for the
six months ended June 30, 1999 and 1998, respectively. Included in these
reimbursements is approximately $1,000 of construction oversight costs for the
six months ended June 30, 1998. There were no construction oversight costs
incurred for the six months ended June 30, 1999.
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 $31,000 was paid
during the six months ended June 30, 1998, in association with the distribution.
No fee was paid during the six months ended June 30, 1999.
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 (32.15% of the total
outstanding class A units) of the class A units of limited partnership interest
and up to 25,603.38 (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 5,414.00 class A
units and 1,274.00 of the class B units. As a result, AIMCO and its affiliates
currently own 33,987 class A units of limited partnership interest in the
Partnership and 19,714 class B units of limited partnership interest in the
Partnership representing 35.30% and 26.23%, respectively of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
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 $1,819,000, exceeded the reserve requirement of
approximately $759,000 at June 30, 1999.
NOTE E - DISTRIBUTION
There were no distributions paid or declared during the six months ended June
30, 1999. During the six months ended June 30, 1998, the Partnership paid a
cash distribution from operations of approximately $344,000 ($3.54 per limited
partnership "A" Unit) of which approximately $341,000 was paid to the "A" unit
limited 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 six months ended June 30, 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 $ 2,475 $ -- $ 2,475
Other income 127 25 152
Interest expense 501 -- 501
Depreciation 521 -- 521
General and administrative expense -- 123 123
Segment profit (loss) 318 (98) 220
Total assets 13,582 1,428 15,010
Capital expenditures for investment
properties 450 -- 450
1998
Residential Other Totals
Rental income $ 2,444 $ -- $ 2,444
Other income 130 26 156
Interest expense 499 -- 499
Depreciation 508 -- 508
General and administrative expense -- 135 135
Segment profit (loss) 308 (109) 199
Total assets 13,680 1,266 14,946
Capital expenditures for investment
properties 155 -- 155
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.
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 six months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Carlin Manor Apartments
Columbus, Ohio 94% 93%
Hunt Club Apartments
Indianapolis, Indiana (1) 92% 96%
Shadow Brook Apartments
West Valley City, Utah 97% 96%
(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.
Results of Operations
The Partnership's net income for the six months ended June 30, 1999, was
approximately $220,000 compared to net income of approximately $199,000 for the
corresponding period in 1998. The increase in net income for the six months
ended June 30, 1999 is primarily attributable to an increase in total revenues,
which is offset by a slight increase in total expenses. The increase in total
revenues is primarily attributable to an increase in rental revenue due to
improved occupancy at Carlin Manor and 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 decrease in occupancy at Hunt Club
Apartments. The slight increase in total expenses is attributable to an
increase in depreciation and property tax expenses, which is offset by a
decrease in operating and general and administrative expenses. Depreciation
expense increased due to amounts spent on capital improvements and replacements
at the investment properties during the third and fourth quarters of 1998 and
the first and second quarters of 1999. The increase in property taxes is the
result of an increase in the assessment value at Hunt Club. Operating expense
decreased as a result of decreases in insurance and maintenance expenses.
Insurance expense decreased due to reduced premiums as a result of a change in
insurance carriers. The decrease in maintenance expense is primarily
attributable to the completion of a major landscaping project and exterior
building improvements at Hunt Club during the six months ended June 30, 1998,
and decreases in contract yards and grounds expense at Hunt Club and Shadow
Brook, which is partially offset by an increase in interior building
improvements at Hunt Club and Carlin Manor and snow removal expenses at Hunt
Club. The decrease in general and administrative expense is due to management
fees relating to distributions paid during the six months ended June 30, 1998.
There were no management fees earned during the six months ended June 30, 1999,
since no distributions were paid during the period.
The Partnership recorded net income of approximately $81,000 for the three
months ended June 30, 1999, compared to net income of approximately $96,000 for
the corresponding period in 1998. The decrease in net income for the three
months ended June 30, 1999, compared to the same period in 1998 is primarily due
to an increase in total expenses. The increase in total expenses is due to
increases in general and administrative, property tax, and depreciation expenses
which were slightly offset by decreased operating expenses. The increase in
general and administrative expense is primarily attributable to an increase in
legal costs as a result of the settlement of the Everest Case as previously
disclosed in the first quarter of 1999.
Included in general and administrative expenses at both June 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 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 June 30, 1999, the Partnership had cash and cash equivalents of approximately
$1,819,000 as compared to approximately $1,343,000 at June 30, 1998. Cash and
cash equivalents increased approximately $528,000 for the six months ended June
30, 1999, from the Partnership's year ended December 31, 1998, due to
approximately $926,000 of cash provided by operating activities, which was
partially offset by approximately $361,000 of cash used in investing activities
and approximately $37,000 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 Partnership's properties are detailed below.
Carlin Manor
During the six months ended June 30, 1999, the Partnership expended
approximately $118,000 for capital improvements at Carlin Manor consisting
primarily of structural repairs, carpet and flooring replacement, swimming pool
and recreational facility repairs, and new appliances. 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 six months ended June 30, 1999, the Partnership expended
approximately $131,000 for capital improvements and replacements at Hunt Club
consisting primarily of carpet and flooring replacement, new appliances,
painting, roof repairs and heating, plumbing, and fencing improvements. 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, and other structural improvements.
Shadow Brook
During the six months ended June 30, 1999, the Partnership expended
approximately $201,000 for capital improvements and replacements at Shadow Brook
consisting primarily of carpet and floor replacement, plumbing upgrades,
landscaping and swimming pool and recreational facility repairs. 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, major carpet replacement, landscaping, parking lot repairs and
building improvements.
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 $12,177,000 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 six months ended June
30, 1999. During the six months ended June 30, 1998, the Partnership paid a
cash distribution from operations of approximately $344,000 ($3.54 per limited
partnership "A" Unit) of which approximately $341,000 was paid to the "A" unit
limited 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.
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 (32.15% of the total
outstanding class A units) of the class A units of limited partnership interest
and up to 25,603.38 (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 5,414.00
class A units and 1,274.00 of the class B units. As a result, AIMCO and its
affiliates currently own 33,987 class A units of limited partnership interest in
the Partnership and 19,714 class B units of limited partnership interest in the
Partnership representing 35.30% and 26.23%, respectively of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
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 June 30, 1999, had completed approximately 90% 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
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
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 no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 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
June 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 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 July,
1999. The Managing Agent has updated data transmission standards with all of the
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 September 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 $2.9 million ($0.7 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.
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 June 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/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Multi-Benefit Realty Fund '87-1 1999 Second 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,819
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,861
<DEPRECIATION> 12,455
<TOTAL-ASSETS> 15,010
<CURRENT-LIABILITIES> 0
<BONDS> 12,177
0
0
<COMMON> 0
<OTHER-SE> 1,986
<TOTAL-LIABILITY-AND-EQUITY> 15,010
<SALES> 0
<TOTAL-REVENUES> 2,627
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 501
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220
<EPS-BASIC> 1.27<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
