FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
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, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........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 registrant (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)
September 30, 1996
Assets
Cash and cash equivalents $ 881
Escrow deposits 145
Other assets 1,148
Investment properties:
Land $ 3,023
Buildings and related personal property 30,738
33,761
Less accumulated depreciation (21,883) 11,878
$ 14,052
Liabilities and Partners' Deficit
Liabilities
Accounts payable and accrued expenses $ 799
Tenants' security deposits payable 176
Mortgage payable 24,030
Partners' Deficit:
Limited partners' (48,049 units issued
and outstanding $ (10,664)
General partners' (289) (10,953)
$ 14,052
See Notes to Consolidated Financial Statements
b) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Rental income $ 1,954 $ 1,920 $ 5,633 $ 5,621
Other income 99 81 257 341
Total revenues 2,053 2,001 5,890 5,962
Expenses:
Operating 1,134 1,024 3,164 3,023
Interest 527 543 1,600 1,637
Depreciation 317 289 948 965
General and administrative 41 49 193 168
Total expenses 2,019 1,905 5,905 5,793
Income (loss) before
extraordinary loss 34 96 (15) 169
Extraordinary loss on
extinguishment of debt (75) -- (75) --
Net (loss) income $ (41) $ 96 $ (90) $ 169
Net (loss) income allocated
to general partners (1%) $ (1) $ 1 $ (1) $ 2
Net (loss) income allocated
to limited partners (99%) (40) 95 (89) 167
Net (loss) income $ (41) $ 96 $ (90) $ 169
Net (loss) income per limited
partnership unit:
Income (loss) before
extraordinary loss $ 0.70 $ 1.98 $ (0.31) $ 3.48
Extraordinary loss (1.55) -- (1.55) --
Net (loss) income per
limited partnership unit $ (0.85) $ 1.98 $ (1.86) $ 3.48
<FN>
See Notes to Consolidated Financial Statements
c) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited General Limited
Partnership Partners' Partners' Total
Units Deficit Deficit Deficit
Original capital contributions 48,049 $ 1 $ 24,025 $ 24,026
Partners' deficit at
December 31, 1995 48,049 $ (288) $ (10,575) $ (10,863)
Net loss for the nine months
ended September 30, 1996 -- (1) (89) (90)
Partners' deficit at
September 30, 1996 48,049 $ (289) $ (10,664) $ (10,953)
<FN>
See Notes to Consolidated Financial Statements
d) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net (loss) income $ (90) $ 169
Adjustments to reconcile net (loss) income to
cash provided by operating activities:
Depreciation 948 965
Amortization of mortgage costs 41 41
Extraordinary loss on extinguishment of debt 75 --
Change in accounts:
Escrow deposits 145 (218)
Other assets (375) 38
Accounts payable and accrued expenses 82 202
Tenant security deposit liabilities (37) 22
Net cash provided by operating activities 789 1,219
Cash flows from investing activities:
Property improvements and replacements (312) (355)
Cash used in investing activities (312) (355)
Cash flows from financing activities:
Mortgage principal payments (388) (362)
Repayment of mortgage note payable (16,943) --
Proceeds from refinancing 17,200 --
Loan costs (386) --
Net cash used in financing activities (517) (362)
Net (decrease) increase in cash and cash equivalents
equivalents (40) 502
Cash and cash equivalents at beginning of period 921 205
Cash and cash equivalents at end of period $ 881 $ 707
Supplemental information:
Cash paid for interest $ 1,702 $ 1,597
See 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 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 nine month
periods ended September 30, 1996, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the annual report of National Property Investors III (the
"Partnership") on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform
to the 1996 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 Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
NPI Equity is the general partner of the Partnership. NPI Equity is a
wholly-owned subsidiary of National Property Investors, Inc. ("NPI").
On August 17, 1995, the stockholders of NPI entered into an agreement to sell
to IFGP Corporation, a Delaware corporation and an affiliate of Insignia
Financial Group, Inc. ("Insignia"), a Delaware corporation, all of the issued
and outstanding common stock of NPI for an aggregate purchase price of
$1,000,000. The closing of the transactions contemplated by the above mentioned
agreement (the "Closing") occurred on January 19, 1996.
Upon the Closing, the officers and directors of NPI and the Managing General
Partner resigned and IFGP Corporation caused new officers and directors of each
of those entities to be elected.
The following transactions with affiliates of Insignia, NPI, and affiliates
of NPI were charged to expense in 1996 and 1995:
For the Nine Months Ended
September 30,
1996 1995
Property management fees (included in operating
expenses) $289,000 $288,000
Reimbursement for services of affiliates (included
in general and administrative and
operating expenses) 150,000 139,000
During the nine months ended September 30, 1996, the Partnership paid
approximately $174,000 to affiliates of the Managing General Partner for
brokerage fees incurred in connection with the September 30, 1996, refinancing
of Lakeside Apartments (see "Note C"). These charges have been capitalized as
loan costs, and will be amortized over the life of the loan.
For the period from January 19, 1996, to September 30, 1996, the Partnership
insured its properties under a master policy through an agency and 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 current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
Included in operating expenses for the nine months ended September 30, 1995,
are insurance premiums of approximately $133,000 which were paid to the Managing
General Partner under a master insurance policy arranged for by the Managing
General Partner.
Included in operating expenses for the nine months ended September 30, 1995,
is a fee of $1,200 relating to a successful appeal of real estate taxes assessed
against a Partnership property.
NOTE C - REFINANCING AND EXTRAORDINARY LOSS
On September 30, 1996, the Partnership refinanced the mortgage encumbering
Lakeside Apartments on an interim basis. The refinancing replaced indebtedness
of $16,943,000 with a new mortgage in the amount of $17,200,000. The mortgage
was refinanced at a rate equal to 8% through October 31, 1996, and a rate equal
to 2.5% plus LIBO rate from November 1, 1996, through November 15, 1996.
Payments of interest only are due on the first day of each month until the loan
matures on November 15, 1996. The Managing General Partner is currently working
to secure permanent financing for the property and expects to have such
financing in place during the fourth quarter. Total capitalized loan costs
associated with the new mortgage were approximately $386,000. The early
extinguishment of debt resulted in an extraordinary loss of approximately
$75,000 due to the write-off of unamortized loan costs.
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 nine month
periods ended September 30, 1996 and 1995:
Average Occupancy
Property 1996 1995
Lakeside Apartments 92% 95%
Lisle, Illinois
Pinetree Apartments 92% 95%
Charlotte, North Carolina
Summerwalk Apartments
Winter Park, Florida 90% 94%
The Managing General Partner attributes the decline in occupancy at Lakeside
to new construction in the area and leasing specials offered by competitors.
The Managing General Partner attributes the decreases in occupancy at Pinetree
and Summerwalk to the eviction of tenants who were not paying their rents.
Occupancy at Summerwalk has improved during the third quarter of 1996 due to the
return of college students to the area as compared to the second quarter of
1996.
The Partnership's net loss for the nine month period ended September 30,
1996, was approximately $90,000 versus net income of $169,000 for the
corresponding period of 1995. For the three month period ended September 30,
1996, the Partnership reported a net loss of $41,000 versus net income of
$96,000 for the corresponding three months of 1995. This change in net income
for the nine month period ended September 30, 1996, is primarily attributable to
a decrease in other income, an increase in operating expenses and general and
administrative expenses, and the recognition of an extraordinary loss due to the
early extinguishment of debt. The decrease in other income is due to Lakeside
receiving $110,000 for the renewal of a laundry contract in 1995. The increase
in operating expense is due to a large increase in the real estate tax bill at
Lakeside Apartments. As noted in "Item 1, Note B - Transactions with Affiliated
Parties," the Partnership reimburses the Managing General Partner and its
affiliates for its costs involved in the management and administration of all
partnership activities. While overall expense reimbursements have increased
during the nine month period ended September 30, 1996, the recurring expenses
subsequent to the transition efforts to the new administration are expected to
more closely approximate historical levels. The increase in expense
reimbursements during the nine month period ended September 30, 1996, is
directly attributable to the combined transition efforts of the Greenville,
South Carolina, and Atlanta, Georgia, administrative offices during the year-
end close, preparation of the 1995 10-K and tax return (including the limited
partner K-1's), filing of the first two quarterly reports and transition of
asset management responsibilities to the new administration. Finally, the
Partnership recognized an extraordinary loss on the early extinguishment of debt
in 1996 as discussed in "Item 1, Note C - Refinancing of Debt and Extraordinary
Loss".
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 September 30, 1996, the Partnership had unrestricted cash of approximately
$881,000 as compared to approximately $707,000 at September 30, 1995. Net cash
provided by operations decreased primarily due to the decrease in the change in
accounts payable and accrued expenses, as well as a decrease in tenant security
deposits caused by the timing of payments. Net cash used in investing
activities decreased slightly due to a decrease in property improvements and
replacements. Finally, there was an increase in the net cash used in financing
activities due to the refinancing of Lakeside Apartments with a new $17,200,000
mortgage, replacing the prior mortgage of $16,943,000. This increase is also
due to the Partnership incurring approximately $386,000 in new loan costs.
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 Partnership had a balloon payment of approximately $4,582,000 on
Summerwalk Apartments due in September 1996. The financing has been extended
through December 1, 1996, by the lender. The Managing General Partner is
currently negotiating for replacement financing and feels confident that it can
be found. However, if replacement financing can not be found or if the current
financing is not extended, it is possible that the Partnership could sell the
property or lose the property through foreclosure. If the property is lost
through foreclosure, the Partnership would not recognize a loss for financial
statement purposes.
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 $24,030,000 is being amortized over varying periods
with balloon payments due at maturity at which time the properties will either
be refinanced or sold. The Partnership recently secured interim financing for
Lakeside Apartments(see "Item 1 - Note C - Refinancing of Debt and Extraordinary
Loss") and extended the current financing on Summerwalk Apartments. The
Managing General Partner is currently negotiating for long-term financing on
both of Lakeside and Summerwalk. These negotiations should be completed during
the fourth quarter of 1996. Future cash distributions will depend on the levels
of cash generated from operations, a property sale, a property refinancing and
the availability of cash reserves. No cash distributions were paid during the
first nine months of 1996 and 1995.
PART II - OTHER INFORMATION
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 September 30,
1996.
SIGNATURE
In connection 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.
MANAGING GENERAL PARTNER
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 6, 1996