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, 1998
[ ] 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 0-9567
NATIONAL PROPERTY INVESTORS III
(Exact name of small business issuer as specified in its charter)
California 13-2974428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's phone 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)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1998
Assets
Cash and cash equivalents $ 2,572
Receivables and deposits 580
Restricted escrows 893
Other assets 577
Investment properties:
Land $ 3,023
Buildings and related personal property 32,757
35,780
Accumulated depreciation (24,175) 11,605
$ 16,227
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 43
Tenant security deposit liabilities 162
Accrued property taxes 652
Other liabilities 309
Mortgage notes payable 24,379
Partners' Deficit
General partner's $ (273)
Limited partners' (48,049 units issued
and outstanding) (9,045) (9,318)
$ 16,227
See Accompanying Notes to Consolidated Financial Statements
b)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 2,018 $ 2,033 $ 4,040 $ 4,031
Other income 144 103 275 182
Total revenues 2,162 2,136 4,315 4,213
Expenses:
Operating 736 789 1,508 1,615
General and administrative 54 64 130 102
Depreciation 333 326 666 641
Interest 481 498 949 998
Property taxes 195 126 376 312
Total expenses 1,799 1,803 3,629 3,668
Net income $ 363 $ 333 $ 686 $ 545
Net income allocated
to general partner (1%) $ 4 $ 3 $ 7 $ 5
Net income allocated
to limited partners (99%) 359 330 679 540
$ 363 $ 333 $ 686 $ 545
Net income per limited
partnership unit $ 7.47 $ 6.87 $ 14.13 $ 11.24
See Accompanying Notes to Consolidated Financial Statements
c)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 48,049 $ 1 $ 24,025 $ 24,026
Partners' deficit at
December 31, 1997 48,049 $ (280) $ (9,724) $ (10,004)
Net income for the six months
ended June 30, 1998 -- 7 679 686
Partners' deficit at
June 30, 1998 48,049 $ (273) $ (9,045) $ (9,318)
See Accompanying Notes to Consolidated Financial Statements
d)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income $ 686 $ 545
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 666 641
Amortization of loan costs 40 37
Change in accounts:
Receivables and deposits 44 (69)
Other assets 19 (20)
Accounts payable 9 (224)
Tenant security deposit liabilities 4 2
Accrued property taxes 46 67
Other liabilities 14 (13)
Net cash provided by operating activities 1,528 966
Cash flows from investing activities:
Property improvements and replacements (296) (339)
Net (deposits to) withdrawals from restricted
escrows (133) 25
Net cash used in investing activities (429) (314)
Cash flows from financing activities:
Payments on mortgage notes payable (35) (69)
Loan costs paid -- (15)
Net cash used in financing activities (35) (84)
Net increase in cash and cash equivalents 1,064 568
Cash and cash equivalents at beginning of period 1,508 964
Cash and cash equivalents at end of period $ 2,572 $ 1,532
Supplemental disclosure of cash flow information:
Cash paid for interest $ 879 $ 962
See Accompanying Notes to Consolidated Financial Statements
e)
NATIONAL PROPERTY INVESTORS III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of National
Property Investors III (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 consolidated financial
statements. In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the
"Managing 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, 1998, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report of the Partnership on Form 10-KSB for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Managing General Partner is wholly-owned by
Insignia Properties Trust ("IPT"), an affiliate of Insignia Financial Group,
Inc. ("Insignia"). 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 affiliates of Insignia were incurred during the
six month periods ended June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating
expenses) $ 216 $ 211
Reimbursement for services of affiliates (included in
operating and general and administrative expenses) 84 68
In addition, $18,000 of construction oversight cost reimbursements were paid to
the Managing General Partner and its affiliates during the six months ended June
30, 1998 and 1997. These amounts are included in investment properties and
operating expenses.
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner but with an insurer unaffiliated with the Managing
General Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums that accrued to the benefit of the
affiliate of the Managing General Partner by virtue of the agent's obligations
was not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
NOTE C - SUBSEQUENT EVENT
Subsequent to June 30, 1998, a fire occurred at Lakeside Apartments which
damaged one building at the complex, consisting of 24 units. The fire is
covered by insurance with a deductible of $10,000. The Managing General Partner
does not currently have adequate information to estimate the total costs for
repairs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy for each of the six month
periods ended June 30, 1998 and 1997:
Average Occupancy
Property 1998 1997
Lakeside Apartments 94% 97%
Lisle, Illinois
Pinetree Apartments 92% 93%
Charlotte, North Carolina
Summerwalk Apartments 98% 98%
Winter Park, Florida
The Partnership realized net income of approximately $363,000 and $686,000 for
the three and six month periods ended June 30, 1998, respectively. During the
three and six month periods ended June 30, 1997, the Partnership realized net
income of approximately $333,000 and $545,000, respectively. Net income for the
three and six months ended June 30, 1998, increased primarily as a result of an
increase in other income and a decrease in operating and interest expenses.
Rental revenue decreased for the three month period ended June 30, 1998, versus
the same period in 1997 due to a decrease in occupancy at Lakeside Apartments.
The increase in other income for the three and six month periods is attributable
to an increase in interest income resulting from increased cash balances in
interest- bearing accounts and an increase in fees collected from the tenants at
Lakeside Apartments. Operating expenses decreased for the three and six month
periods as a result of a decrease in property and maintenance related expenses.
Property expenses decreased as a result of a decrease in utilities expenses at
Lakeside and Summerwalk Apartments and expenses associated with administrative
units at Lakeside Apartments. Maintenance expenses decreased due to an overall
decrease in maintenance requirements at the Partnership's rental properties
including decreases in contract painting expenses and other maintenance
materials at Lakeside Apartments. General and administrative expenses decreased
for the three month period ended June 30, 1998, as a result of a decrease in tax
and license fees and tax and accounting expenses. For the six month period
ended June 30, 1998, general and administrative expenses increased as a result
of increases in reimbursements for services of affiliates. The decrease in
interest expense is primarily the result of the refinancing of the first
mortgage note encumbering Summerwalk Apartments on December 23, 1997. The new
note carries a stated interest rate of 7.13% replacing the previous note that
carried an interest rate of 9.75%. The increases in net income were partially
offset by an increase in property tax expense. The increase in property taxes
is due to adjustments made at Lakeside Apartments in 1997 to adjust for the
overaccrual of taxes in the previous year and to record a tax refund received in
1997 relating to the 1995 tax year.
Included in operating expenses for the six months ended June 30, 1998, was
approximately $21,000 of major repairs and maintenance comprised primarily of
exterior building improvements at Lakeside and Summerwalk. Included in
operating expenses for the six months ended June 30, 1997, was approximately
$33,000 of exterior building improvements at Summerwalk.
As part of the ongoing business plan of the Partnership, the Managing 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 Managing 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
Managing General Partner will be able to sustain such a plan.
At June 30, 1998, the Partnership held cash and cash equivalents of
approximately $2,572,000, compared to approximately $1,532,000 for the
corresponding period in 1997. The increase in net cash and cash equivalents was
approximately $1,064,000 for the six month period ended June 30, 1998, compared
to approximately $568,000 for the corresponding period in 1997. Net cash
provided by operating activities increased primarily as a result of an increase
in net income, as discussed above, and an increase in cash provided by accounts
payable and accounts receivable due to the timing of payments and receipts. Net
cash used in investing activities increased as a result of an increase in net
deposits to restricted escrows. Net cash used in financing activities decreased
as a result of a decrease in mortgage principle payments and loan costs paid in
association with the refinancing of Summerwalk Apartments in 1997.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. At the present time, the Partnership has no outstanding amounts due
under this line of credit. Based on present plans, the Managing General Partner
does not anticipate the need to borrow in the near future. Other than cash and
cash equivalents, the line of credit is the Partnership's only unused source of
liquidity.
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 the other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness of approximately $24,379,000 is being amortized over
varying periods with balloon payments due over periods ranging from July 2001 to
January 2008, at which time the properties will either be refinanced or sold.
Future cash distributions will depend on the levels of cash generated from
operations, property sales, property refinancings and the availability of cash
reserves.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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 NUANCES, 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 Managing 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 its 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. The Managing General Partner believes the
action to be without merit, and intends to vigorously defend it. On June 24,
1998, the Managing General Partner filed a motion seeking dismissal of the
action.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner believes that all such
pending or outstanding litigation will be resolved without a material adverse
effect upon the business, financial condition or operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K: None were filed during the quarter ended June 30, 1998.
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.
NATIONAL PROPERTY INVESTORS III
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: August 4, 1998