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, 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)
September 30, 1997
Assets
Cash and cash equivalents $ 1,464
Receivable and deposits 916
Other assets 563
Investment properties:
Land $ 3,023
Buildings and related personal property 31,916
34,939
Accumulated depreciation (23,163) 11,776
$ 14,719
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 141
Tenant security deposits payable 159
Accrued property taxes 537
Other liabilities 233
Mortgage notes payable 23,894
Partners' Deficit
Limited partners' (48,049 units issued
and outstanding) $ (9,963)
General partner's (282) (10,245)
$ 14,719
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $ 2,043 $ 1,954 $ 6,099 $ 5,633
Other income 105 99 287 257
Total revenues 2,148 2,053 6,386 5,890
Expenses:
Operating 1,211 1,134 3,163 3,164
Interest 499 527 1,497 1,600
Depreciation 336 317 977 948
General and administrative 44 41 146 193
Total expenses 2,090 2,019 5,783 5,905
Net income (loss) before
extraordinary item 58 34 603 (15)
Extraordinary loss on early
extinguishment of debt -- (75) -- (75)
Net income (loss) $ 58 $ (41) $ 603 $ (90)
Net income (loss) allocated
to general partner (1%) $ 1 $ (1) $ 6 $ (1)
Net income (loss) allocated
to limited partners (99%) 57 (40) 597 (89)
58 (41) 603 $ (90)
Net income (loss) per
limited partnership unit:
Income (loss) before
extraordinary item $ 1.19 $ .70 $ 12.42 $ (.31)
Extraordinary loss -- (1.55) -- (1.54)
Net income (loss) per
limited partnership unit $ 1.19 $ (.85) $ 12.42 $ (1.85)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
c) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<caption
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 nine months
ended September 30, 1997 -- 6 597 603
Partners' deficit at
September 30, 1997 48,049 $ (282) $ (9,963) $ (10,245)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
d) NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 603 $ (90)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 977 948
Amortization of loan costs 56 41
Loss on disposal of property 17 --
Extraordinary loss on early extinguishment
of debt -- 75
Change in accounts:
Receivables and deposits (37) (43)
Other assets (35) (43)
Accounts payable (156) (87)
Tenant security deposits payable (12) (37)
Accrued property taxes (17) 117
Other liabilities (10) 52
Net cash provided by operating activities 1,386 933
Cash flows from investing activities:
Deposits to restricted escrows (162) (492)
Withdrawals from restricted escrows 135 348
Property improvements and replacements (739) (312)
Net cash used in investing activities (766) (456)
Cash flows from financing activities:
Mortgage principal payments (104) (388)
Repayment of mortgage notes payable -- (16,943)
Proceeds from refinancing -- 17,200
Loan costs (16) (386)
Net cash used in financing activities (120) (517)
Net increase (decrease) in cash and cash equivalents 500 (40)
Cash and cash equivalents at beginning of period 964 921
Cash and cash equivalents at end of period $ 1,464 $ 881
Supplemental information:
Cash paid for interest $ 1,441 $ 1,702
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
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 nine month periods ended September 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"), the sole stockholder of NPI Equity. 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 nine month periods ended September 30, 1997 and
1996 (in thousands):
For the Nine Months Ended
September 30,
1997 1996
Property management fees (included in operating
expenses) $317 $289
Reimbursement for services of affiliates, including
$41,000 and $1,000 of construction services
reimbursements in 1997 and 1996, respectively
(included in investment properties and operating
and general and administrative expenses) 143 148
For the period from January 19, 1996 to August 31, 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.
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 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.
NOTE C - REFINANCING AND EXTRAORDINARY LOSS
On September 30, 1996, the Partnership refinanced the mortgage encumbering
Lakeside Apartments on an interim basis. The mortgage was refinanced into a
short-term temporary loan at 8% interest. During the fourth quarter of 1996,
the Partnership entered into permanent refinancing effective November 1, 1996,
with an interest rate equal to 7.33%. Interest on the old mortgage was 8.25%.
The refinancing replaced indebtedness of $17,042,000, including accrued interest
of approximately $99,000, with a new mortgage in the amount of $17,200,000.
Payments of interest only are due on the first day of each month until the loan
matures on November 1, 2003. The prior note was scheduled to mature in August
1999. Total capitalized loan costs were approximately $386,000 at September 30,
1996. The Partnership recognized an extraordinary loss on early extinguishment
of debt in the amount 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, 1997 and 1996:
Average Occupancy
Property 1997 1996
Lakeside Apartments 96% 92%
Lisle, Illinois
Pinetree Apartments 94% 92%
Charlotte, North Carolina
Summerwalk Apartments 98% 90%
Winter Park, Florida
The Managing General Partner attributes the increases in occupancy to enhanced
marketing efforts.
The Partnership realized net income of approximately $58,000 and $603,000 for
the three and nine month periods ended September 30, 1997, respectively. During
the three and nine month periods ended September 30, 1996, the Partnership
realized net losses of approximately $41,000 and $90,000, respectively.
Included in the net losses for the three and nine month periods ended September
30, 1996, is an extraordinary loss on early extinguishment of debt of
approximately $75,000 as discussed in "Item 1. Note C - Refinancing and
Extraordinary Loss." This increase in net income for the three and nine month
periods ended September 30, 1997, is primarily attributable to an increase in
rental income and a decrease in interest expense. The increase in rental income
is due to the increase in occupancy and rental rates at the Partnership's
properties. The decrease in interest expense is primarily due to the refinancing
of the mortgage encumbering Lakeside Apartments in 1996 at a lower interest
rate. 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 nine
month period ended September 30, 1997, is primarily 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.
Included in operating expense for the nine months ended September 30, 1997 and
1996, is approximately $167,000 and $83,000, respectively, of major repairs and
maintenance expense comprised primarily of major landscaping and parking lot
repairs at Lakeside Apartments in 1997 and interior and exterior building
repairs at all the properties in 1996.
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, 1997, the Partnership had unrestricted cash of approximately
$1,464,000 as compared to approximately $881,000 at September 30, 1996. Net
cash provided by operations increased primarily due to the increase in net
income, as noted above. Partially offsetting the increase in cash provided by
operations was a change in accounts payable and property taxes due to the timing
of payments. Net cash used in investing activities increased due to fewer
restricted escrow withdrawals combined with increased property improvement and
replacement expenditures. Partially offsetting these increases in cash used in
investing activities was a decrease in deposits in restricted escrows. Net cash
used in financing activities decreased primarily due to a reduction in mortgage
principal payments due to the refinancing of the mortgage encumbering Lakeside
Apartments in 1996, which requires interest only payments. Also included in
cash used in financing activities for the nine months ended September 30, 1997
and 1996, were loan costs incurred with the refinancing of Lakeside.
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 $23,894,000 is being amortized over varying periods
with balloon payments due at maturity at which time the properties will either
be refinanced or sold. The Managing General Partner is in negotiations with the
current lender of the Summerwalk mortgage to refinance this indebtedness;
however, there can be no assurances that these negotiations will be successful.
The loan with an original maturity of December 1996 has been formally extended
through December 31, 1997. The Partnership continues to pay debt service to the
lender while replacement financing is arranged. However, if replacement
financing is not found, 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% co-tenancy 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 nine 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 September 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: October 31, 1997