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 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact name of small business issuer as specified in its charter)
California 22-2385051
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, 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)
NATIONAL PROPERTY INVESTORS 5
BALANCE SHEET
(Unaudited)
June 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,565
Receivables and deposits 438
Restricted escrows 133
Other assets 228
Investment in tenant-in-common property 4,659
Investment properties:
Land $ 2,145
Buildings and related personal property 27,027
29,172
Less accumulated depreciation (21,028) 8,144
$ 15,167
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 213
Tenant security deposit liabilities 106
Accrued property taxes 136
Other liabilities 475
Mortgage notes payable 11,610
Partners' Capital (Deficit):
Limited partners' (82,513 units issued and
outstanding) $ 3,749
General partner's (1,122) 2,627
$ 15,167
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 5
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 $1,119 $1,102 $2,234 $2,165
Other income 78 83 166 195
Total revenues 1,197 1,185 2,400 2,360
Expenses:
Operating 641 656 1,209 1,298
Interest 270 275 541 551
Depreciation 294 288 588 571
General and administrative 58 88 116 130
Property taxes 62 66 124 130
Incentive compensation fee 290 -- 290 --
Loss on disposal of property -- -- 64 --
Total expenses 1,615 1,373 2,932 2,680
Equity in net income of
tenant-in-common property 4,686 21 4,705 56
Net income (loss) $4,268 $ (167) $4,173 $ (264)
Net income (loss) allocated to
general partner (3%) $ 128 $ (5) $ 125 $ (8)
Net income (loss) allocated to
limited partners (97%) 4,140 (162) 4,048 (256)
$4,268 $ (167) $4,173 $ (264)
Net income (loss) per limited
partnership unit $50.17 $(1.96) $49.06 $(3.10)
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 5
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 82,513 $ 1 $41,257 $41,258
Partners' deficit at
December 31, 1997 82,513 $ (1,247) $ (299) $(1,546)
Net income for the six months
ended June 30, 1998 -- 125 4,048 4,173
Partners' (deficit) capital at
June 30, 1998 82,513 $ (1,122) $ 3,749 $ 2,627
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 4,173 $ (264)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 588 571
Amortization of loan costs 33 33
Loss on disposal of property 64 --
Equity in net income of tenant-in-common property (4,705) (56)
Change in accounts:
Receivables and deposits (171) (110)
Other assets 40 (15)
Accounts payable 54 31
Tenant security deposit liabilities 7 3
Accrued property taxes 125 131
Other liabilities 301 (13)
Net cash provided by operating activities 509 311
Cash flows from investing activities:
Property improvements and replacements (414) (259)
Net receipts from (deposits to)
restricted escrows 214 (8)
Distributions from tenant-in-common property -- 240
Net cash used in investing activities (200) (27)
Cash flows from financing activities:
Payments of mortgage notes payable (94) (86)
Net cash used in financing activities (94) (86)
Net increase in cash and cash equivalents 215 198
Cash and cash equivalents at beginning of period 1,350 1,421
Cash and cash equivalents at end of period $ 1,565 $ 1,619
Supplemental information:
Cash paid for interest $ 510 $ 518
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of National Property Investors 5
(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 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 financial statements and footnotes
thereto included in the Partnership's annual report 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 (see "Note B").
NOTE B-CHANGE IN METHOD OF REPORTING THE OWNERSHIP OF TENANT-IN-COMMON PROPERTY
National Property Investors 5 owned a 24.028% interest in The Village Apartments
(the "Village") (see "Note D"). On June 30, 1998, the property was sold.
Through the third quarter of 1997, the Partnership consolidated its pro rata
share of assets, liabilities and operations of the Village. During the fourth
quarter of 1997, the Partnership decided to reflect its interest in the Village
utilizing the equity method due to the inability of the Partnership to control
the major operating and financial policies of the Village. Under the equity
method, the original investment is increased by advances to the Village and the
Partnership's share of the earnings of the Village. The investment is decreased
by distributions from the Village and the Partnership's share of losses of the
Village. At June 30, 1998, the Partnership's investment account had a balance
of approximately $4,659,000, which primarily represented undistributed cash from
the property sale on that date.
The statements of operations and cash flows for the periods ended June 30, 1997
have been restated to reflect this change as a change in the reporting entity.
Additionally, certain reclassifications were made in the 1997 statements of
operations to conform to the current year presentation. These changes had no
effect on the net loss of the Partnership or on the net loss per limited
partnership unit.
NOTE C - 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 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 in the six
month periods ended June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating
expenses) $120 $117
Reimbursement for services of affiliates (included
in general and administrative and operating expenses) 88 109
In addition, the Partnership paid approximately $38,000 and $17,000 during the
six month periods ended June 30, 1998 and 1997, respectively, to an affiliate of
the Managing General Partner for construction oversight reimbursements related
to capital improvements and major repair projects. These costs are included in
investment properties and operating expense. The Partnership also accrued an
incentive compensation fee of approximately $290,000 relating to the sale of the
Partnership's tenant-in-common property, the Village (see "Note D"). This fee
will be paid to the Managing General Partner once the limited partners have
received distributions equal to the Net Tangible Asset Value for each unit
($86.22 per unit), plus a six percent cumulative, non-compounded return thereon,
as defined in and dictated by the partnership agreement.
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 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 D - TENANT-IN-COMMON PROPERTY
The Partnership owned the Village as a tenant-in-common with National Property
Investors 6 ("NPI 6"), an affiliated public limited partnership. NPI 6 acquired
a 75.972% undivided interest with the Partnership owning the remaining 24.028%.
Effective December 31, 1997, the property is accounted for under the equity
method of accounting (see "Note B").
On June 30, 1998, the Village, located in Voorhees Township, New Jersey, was
sold to an unaffiliated party for an adjusted sales price of approximately
$30,102,000. After repayment of the mortgage note payable and closing expenses,
the net proceeds from the sale were approximately $18,098,000. For financial
statement purposes, the sale resulted in a gain of approximately $19,946,000.
An extraordinary loss on early extinguishment of debt of approximately $840,000,
representing prepayment penalties and the write off of the remaining unamortized
loan costs, was also recorded.
The condensed balance sheet of the Village at June 30, 1998, is summarized as
follows (in thousands):
June 30,
1998
Assets
Cash $19,442
Total $19,442
Liabilities and Partners' Capital
Accrued liabilities $ 53
Partners capital 19,389
Total $19,442
Condensed statements of operations of the Village for the three and six month
periods ended June 30, 1998 and 1997 are as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 1,099 $ 1,093 $ 2,181 $ 2,158
Other income 66 62 118 122
Gain on sale of property 19,946 -- 19,946 --
Total revenues 21,111 1,155 22,245 2,280
Expenses:
Operating and other expenses 579 627 1,192 1,167
Depreciation 197 193 395 382
Mortgage interest 240 247 485 496
Total expenses 1,016 1,067 2,072 2,045
Income before extraordinary loss 20,095 88 20,173 235
Extraordinary loss on early
extinguishment of debt (840) -- (840) --
Net income $19,255 $ 88 $19,333 $ 235
NOTE E - PROFORMA FINANCIAL INFORMATION
The following unaudited pro forma information reflects the operations of the
Partnership for the six months ended June 30, 1998 and 1997, as if the Village
had been sold prior to January 1, 1997 (in thousands).
Proforma Results
of Operations for the
Six Months Ended
June 30,
1998 1997
Revenues $2,400 $2,360
Expenses 2,642 2,680
Net loss (242) (320)
Net loss per limited partnership unit (2.84) (3.76)
These proforma adjustments are not necessarily reflective of the results that
actually would have occurred if the sale had been in effect as of and for the
periods presented or what may be achieved in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
six month periods ended June 30, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Willow Park on Lake Adelaide
Altamonte Springs, Florida 96% 95%
Oakwood Village at Lake Nan Apartments
Winter Park, Florida 95% 96%
Palisades Apartments
Montgomery, Alabama 89% 86%
The Managing General Partner attributes the increase in occupancy at Palisades
to property improvements and reduced rental rates.
On June 30, 1998, the Partnership's tenant-in-common property, the Village,
located in Voorhees Township, New Jersey, was sold to an unaffiliated party for
an adjusted sales price of approximately $30,102,000. After repayment of the
mortgage note payable and closing expenses, the net proceeds from the sale were
approximately $18,098,000. For financial statement purposes, the sale resulted
in a gain of approximately $19,946,000. An extraordinary loss on early
extinguishment of debt of approximately $840,000, representing prepayment
penalties and the write off of the remaining unamortized loan costs, was also
recorded. The Partnership's share of the net income of the tenant-in-common
property was approximately $4,686,000 and $4,705,000 for the three and six month
periods ended June 30, 1998.
The Partnership's net income for the six months ended June 30, 1998 was
approximately $4,173,000 versus a net loss of approximately $264,000 for the six
months ended June 30, 1997. The Partnership's net income for the three months
ended June 30, 1998 was approximately $4,268,000 versus a net loss of $167,000
for the three months ended June 30, 1997. The increase in net income for the
three and six months ended June 30, 1998, as compared to the corresponding
periods of 1997, is primarily attributable to the increase in the Partnership's
share of the net income of the tenant-in-common property as a result of the gain
recognized on the sale of the Village, as discussed above. Partially offsetting
the increase in equity in net income of the tenant-in-common property was the
accrual of an Incentive Compensation Fee related to the sale of the Village.
The fee is subordinated to the limited partners receiving a certain level of
distributions (see "Item 1. Note C - Transactions with Affiliated Parties").
Also contributing to the increase in net income was an increase in rental income
and decreases in operating and general and administrative expenses. Rental
revenue increased due to increased rental rates at Oakwood Village and Willow
Park, partially offset by decreased rental rates at Palisades. Operating
expenses decreased primarily as a result of a decrease in major repairs and
maintenance items. Included in operating expense for the six months ended June
30, 1998 was approximately $47,000 of major repairs and maintenance comprised
primarily of exterior building and parking lot repairs. Included in operating
expense for the six months ended June 30, 1997 was approximately $162,000 of
major repairs and maintenance comprised primarily of an exterior painting
project of approximately $111,000 at Willow Park, exterior building repairs and
landscaping. Partially offsetting the decrease in operating expense was the loss
on disposal of property relating to the write-off of the remaining basis of
roofs that were replaced at Palisades. General and administrative expenses
decreased primarily due to fewer expense reimbursements being paid to affiliates
of the Managing General Partner.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each 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 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 had cash and cash equivalents of approximately
$1,565,000 compared to approximately $1,619,000 at June 30, 1997. The net
increase in cash and cash equivalents for the six month period ended June 30,
1998 was $215,000 compared to a net increase of $198,000 for the corresponding
period of 1997. Net cash provided by operating activities increased primarily
due to an increase in rental income and fewer major repair and maintenance items
being performed in 1998, as discussed above. Net cash used in investing
activities increased due to an increase in property improvements and
replacements and decreased distributions from the tenant-in-common property
during the six months ended June 30, 1998. Net cash provided by financing
activities remained relatively constant.
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, and 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 various properties to adequately maintain the
physical assets and 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 $11,610,000 matures at various times with balloon
payments due at maturity at which time the properties will either be refinanced
or sold. Future cash distributions will depend on the levels of net cash
generated from operations, property sales, refinancings and the availability of
cash reserves. No cash distributions were made during the first six months of
1998 or during 1997. A distribution representing the Partnership's share of the
proceeds from the sale of the Village of approximately $4,349,000 and
approximately $90,000 from operations was paid to the partners on July 27, 1998.
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 of 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 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 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 to acquire limited partnership units, the management of partnerships
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. In lieu of responding to the
motion, the plaintiffs have filed an amended complaint. The Managing General
Partner believes the action to be without merit, and intends to vigorously
defend it. On June 25, 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 of the Partnership
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) Exhibits: See Exhibit Index contained herein.
b) Reports on Form 8-K: A Form 8-K dated June 30, 1998, was filed on July
15, 1998 reporting the sale of The Village Apartments, a tenant-in-common
investment.
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 5
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 13, 1998
NATIONAL PROPERTY INVESTORS 5
EXHIBIT INDEX
Exhibit Description of Exhibit
Number
10.14 Contract to Purchase and Sell dated May 1, 1998 by and
between National Property Investors 5, a California limited
partnership, and Apartment Group Limited, L.L.C. a New Jersey
Limited Liability Company, relating to the Village Apartments.
27 Financial Data Schedule