FORM 10-QSB--QUARTERLY 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, 1997
[ ] 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, 1997
Assets
Cash and cash equivalents $ 1,532
Receivable and deposits 896
Other assets 566
Investment properties:
Land $ 3,023
Buildings and related personal property 31,571
34,594
Accumulated depreciation (22,865) 11,729
$ 14,723
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 73
Tenant security deposits payable 173
Accrued property taxes 621
Other liabilities 230
Mortgage notes payable, including
$4,501 in default 23,929
Partners' Deficit
Limited partners' (48,049 units issued
and outstanding $ (10,020)
General partner's (283) (10,303)
$ 14,723
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,
1997 1996 1997 1996
Revenues:
Rental income $ 2,044 $ 1,842 $ 4,056 $ 3,679
Other income 106 89 182 158
Total revenues 2,150 1,931 4,238 3,837
Expenses:
Operating 929 1,114 1,952 2,030
Interest 498 536 998 1,073
Depreciation 326 322 641 631
General and administrative 64 80 102 152
Total expenses 1,817 2,052 3,693 3,886
Net income (loss) $ 333 $ (121) $ 545 $ (49)
Net income (loss) allocated
to general partner (1%) $ 3 $ (1) $ 5 $ --
Net income (loss) allocated
to limited partners (99%) 330 (120) 540 (49)
$ 333 (121) 545 (49)
Net income (loss) per
limited partnership unit $ 6.87 $ (2.50) $ 11.24 $ (1.01)
See Accompanying Notes to Consolidated Financial Statements
c) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 48,049 $ 1 $ 24,025 $ 24,026
Partners' deficit at
December 31, 1996 48,049 $ (288) $ (10,560) $ (10,848)
Net income for the six months
ended June 30, 1997 -- 5 540 545
Partners' deficit at
June 30, 1997 48,049 $ (283) $ (10,020) $ (10,303)
<FN>
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,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 545 $ (49)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 641 631
Amortization of loan costs 37 27
Change in accounts:
Receivables and deposits (69) (242)
Other assets (20) (73)
Accounts payable (224) (55)
Tenant security deposits payable 2 (23)
Accrued property taxes 67 186
Other liabilities (13) 26
Net cash provided by operating activities 966 428
Cash flows from investing activities:
Deposits to restricted escrows (99) (166)
Withdrawals from restricted escrows 124 7
Property improvements and replacements (339) (205)
Net cash used in investing activities (314) (364)
Cash flows from financing activities:
Mortgage principal payments (69) (290)
Loan costs (15) --
Net cash used in financing activities (84) (290)
Net increase (decrease) in cash and cash equivalents 568 (226)
Cash and cash equivalents at beginning of period 964 921
Cash and cash equivalents at end of period $ 1,532 $ 695
Supplemental information:
Cash paid for interest $ 962 $ 1,181
<FN>
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, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1997. 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, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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.
Pursuant to a series of transactions which closed during 1996, affiliates of
Insignia Financial Group, Inc. ("Insignia") acquired all of the issued and
outstanding shares of stock of NPI Equity and National Property Investors, Inc.
("NPI"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI Equity and NPI.
On March 29, 1996, an affiliate of Insignia acquired the corporate general
partners owning 1% of the subsidiary Partnership which owns the Pinetree
Apartments.
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were incurred during the six month periods ended June 30, 1997 and 1996 (in
thousands):
For the Six Months Ended
June 30,
1997 1996
Property management fees (included in operating
expenses) $211 $190
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses) 68 120
For the period from January 19, 1996 to June 30, 1997, 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.
NOTE C - MORTGAGE NOTE PAYABLE IN DEFAULT
The mortgage encumbering Summerwalk Apartments is currently in default due to
the failure of making a balloon payment of approximately $4,582,000 at the
December 1996 maturity. The Managing General Partner is in negotiations with
the current lender to refinance this indebtedness; however, there can be no
assurance that these negotiations will be successful.
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, 1997 and 1996:
Average Occupancy
Property 1997 1996
Lakeside Apartments 97% 90%
Lisle, Illinois
Pinetree Apartments 93% 92%
Charlotte, North Carolina
Summerwalk Apartments 98% 86%
Winter Park, Florida
The Managing General Partner attributes the increase in occupancy at Lakeside
and Summerwalk to enhanced marketing efforts.
The Partnership realized net income of approximately $333,000 and $545,000 for
the three and six month periods ended June 30, 1997, respectively. During the
three and six month periods ended June 30, 1996, the Partnership realized net
losses of approximately $121,000 and $49,000, respectively. This increase in
net income for the three and six month periods ended June 30, 1997, is primarily
attributable to an increase in rental income and a decrease in interest and
general and administrative expenses. The increase in rental income is due to
the increase in occupancy at Lakeside and Summerwalk as discussed above. 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. The decrease in general and administrative expenses during the
three and six month periods ended June 30, 1997, is due to a decrease in
reimbursements to affiliates, which is directly attributable to the transition
and relocation of the administrative offices during the first quarter of 1996.
The decrease in interest expense is primarily due to the refinancing of the
mortgage encumbering Lakeside Apartments in the fourth quarter of 1996 at a
lower interest rate. Included in operating expense for the six months ended June
30, 1997 and 1996, is approximately $33,000 and $31,000, respectively, of major
repairs and maintenance expense comprised primarily of exterior building
repairs.
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, 1997, the Partnership had unrestricted cash of approximately
$1,532,000 as compared to approximately $695,000 at June 30, 1996. Net cash
provided by operations increased primarily due to the increase in net income
noted above. In addition, cash provided by operations was also affected by a
change in timing of collections of receivables. Net cash used in investing
activities decreased due to decreased restricted escrow deposits and increased
restricted escrow withdrawals offsetting increased property improvement and
replacement expenditures. Net cash used in financing activities decreased
primarily due to the refinancing of the mortgage encumbering Lakeside Apartments
in the fourth quarter of 1996, which requires interest only payments.
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
(see discussion of the Summerwalk Apartments mortgage indebtedness below). The
mortgage indebtedness of $23,929,000 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 is currently in default on its mortgage
encumbering Summerwalk Apartments as it failed to make a balloon payment of
approximately $4,582,000 at the December 1996 maturity. The Managing General
Partner is in negotiations with the current lender to refinance this
indebtedness; however, there can be no assurances that these negotiations will
be successful. While the loan has not been formally extended, the Partnership
continues to pay debt service to the lender while an extension of the loan or
alternative financing is arranged. However, if replacement financing is not
found or if the current financing is not extended, the Partnership will have to
sell the property or risk losing the property through foreclosure. If the
property is lost through foreclosure, the Partnership would not recognize a loss
for financial statement purposes. In connection with the efforts to obtain
replacement financing, the Partnership acquired the 10% interest in the property
previously held by an unaffiliated third party for $50,000 in January, 1997.
Future cash distributions will depend on the levels of cash generated from
operations, property sales, property refinancings and the availability of cash
reserves. No cash distributions were paid during the first six months of 1997 or
1996.
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 June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly 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, 1997