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, 2000
[ ] 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.)
55 Beattie Place, PO 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 III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2000
Assets
Cash and cash equivalents $ 951
Receivables and deposits 727
Restricted escrows 580
Other assets 683
Investment properties:
Land $ 3,023
Buildings and related personal property 35,978
39,001
Less accumulated depreciation (26,851) 12,150
$ 15,091
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 155
Tenant security deposit liabilities 223
Accrued property taxes 624
Other liabilities 382
Mortgage notes payable 26,968
Partners' Deficit
General partner $ (276)
Limited partners (48,049 units
issued and outstanding) (12,985) (13,261)
$ 15,091
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,
2000 1999 2000 1999
Revenues:
Rental income $ 2,232 $ 2,114 $ 6,480 $ 6,321
Other income 162 112 470 303
Casualty gain 25 1,330 25 1,330
Total revenues 2,419 3,556 6,975 7,954
Expenses:
Operating 883 737 2,414 2,218
General and administrative 129 108 351 230
Depreciation 421 271 1,216 980
Interest 512 498 1,554 1,460
Property taxes 153 189 527 566
Total expenses 2,098 1,803 6,062 5,454
Income before extraordinary
item 321 1,753 913 2,500
Extraordinary loss on early
extinguishment of debt -- (160) -- (160)
Net income $ 321 $ 1,593 $ 913 $ 2,340
Net income allocated
to general partner (1%) $ 3 $ 16 $ 9 $ 23
Net income allocated
to limited partners (99%) 318 1,577 904 2,317
$ 321 $ 1,593 $ 913 $ 2,340
Per limited partnership unit:
Income before extraordinary
item $ 6.62 $ 36.11 $ 18.81 $ 51.51
Extraordinary loss -- (3.29) -- (3.29)
Net income $ 6.62 $ 32.82 $ 18.81 $ 48.22
Distributions per limited
partnership unit $ 1.98 $ 13.82 $106.75 $ 13.82
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, 1999 48,049 $ (258) $ (8,760) $ (9,018)
Net income for the nine months
ended September 30, 2000 -- 9 904 913
Distributions to partners -- (27) (5,129) (5,156)
Partners' deficit at
September 30, 2000 48,049 $ (276) $(12,985) $(13,261)
See Accompanying Notes to Consolidated Financial Statements
d)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
Net income $ 913 $ 2,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,216 980
Amortization of loan costs 63 72
Casualty gain (25) (1,330)
Loss on early extinguishment of debt -- 160
Change in accounts:
Receivables and deposits (304) (354)
Other assets (33) 72
Accounts payable (8) 38
Tenant security deposit liabilities 46 37
Accrued property taxes (20) (31)
Other liabilities (28) 145
Net cash provided by operating activities 1,820 2,129
Cash flows from investing activities:
Property improvements and replacements (1,236) (545)
Net withdrawals from restricted escrows 140 19
Net insurance proceeds received -- 1,763
Net cash (used in) provided by investing activities (1,096) 1,237
Cash flows from financing activities:
Payments on mortgage notes payable (125) (68)
Prepayment penalty -- (144)
Loan costs paid (69) --
Distributions to partners (5,156) (670)
Net cash used in financing activities (5,350) (882)
Net (decrease) increase in cash and cash equivalents (4,626) 2,484
Cash and cash equivalents at beginning of period 5,577 1,243
Cash and cash equivalents at end of period $ 951 $ 3,727
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,491 $ 1,388
At December 31, 1999, approximately $135,000 of property improvements and
replacements were included in accounts payable and other liabilities.
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" or "Registrant") 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 nine month periods ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
Principles of Consolidation
The Partnership's financial statements include the accounts of National
Pinetree, LP, of which the Partnership owns a 99% limited partnership interest,
and of Summerwalk NPI III, LP, of which the Partnership owns a 99.9% interest.
The Partnership has the ability to control the major operating and financial
policies of these partnerships. All interpartnership transactions have been
eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
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 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 the Managing General Partner and its affiliates
were incurred during the nine months ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $351 $331
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 200 117
Non-accountable reimbursement (included in general and
administrative expenses) 100 60
During the nine months ended September 30, 2000 and 1999, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $351,000 and $331,000 for the
nine months ended September 30, 2000 and 1999, respectively.
Affiliates of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $200,000 and
$117,000 for the nine months ended September 30, 2000 and 1999, respectively.
For services relating to the administration of the Partnership and operation of
the Partnership's properties, the Managing General Partner is entitled to
receive payment for non-accountable expenses up to a maximum of $100,000 per
year based upon the number of Partnership units sold, subject to certain
limitations. The payment of this amount is dependent upon the Partnership
distributing cash from operations. The Managing General Partner received
approximately $100,000 and $60,000 during the nine months ended September 30,
2000 and 1999, respectively, in connection with the distributions paid to the
partners.
The Managing General Partner has extended to the Partnership a $300,000 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.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 33,913 limited partnership
units in the Partnership representing 70.58% of the outstanding units. A number
of these units were acquired pursuant to tender offers made by AIMCO or its
affiliates. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Managing General Partner. As a
result of its ownership of 70.58% of the outstanding units, AIMCO is in a
position to influence all voting decisions with respect to the Registrant. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner. However, DeForest Ventures
II LP, from whom Insignia Properties LP ("IPLP"), an affiliate of the Managing
General Partner, acquired its Units, had agreed for the benefit of non-tendering
unit holders, that it would vote its Units acquired on January 19, 1996, (i)
against any increase in compensation payable to the Managing General Partner or
to affiliates; and (ii) on all other matters submitted by it or its affiliates,
in proportion to the vote cast by non tendering unit holders. Except for the
foregoing, no other limitations are imposed on IPLP's right to vote each Unit
acquired.
Note D - Distributions
During the nine months ended September 30, 2000, the Partnership distributed
approximately $5,156,000 (approximately $5,129,000 to limited partners or
$106.75 per limited partnership unit). The distributions represent approximately
$2,482,000 to the limited partners ($51.66 per limited partnership unit) of
proceeds from the 1999 refinancing of Pinetree Apartments and approximately
$2,674,000 (approximately $2,647,000 to limited partners or $55.09 per limited
partnership unit) of cash flow from operations. During the nine months ended
September 30, 1999 the Partnership distributed approximately $670,000
(approximately $664,000 to limited partners or $13.82 per limited partnership
unit) from operations.
Note E - Casualty Events
In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The repair costs were covered by
insurance. In 1998, estimated insurance proceeds were recognized only to the
extent of the write-off of destroyed assets of approximately $225,000. During
the nine months ended September 30, 1999, net insurance proceeds of
approximately $1,554,000 were received to cover replacement costs that are now
complete. During the nine months ended September 30, 1999, the Partnership
recognized a casualty gain of approximately $1,330,000.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. Demolition and reconstruction were completed
by the end of the third quarter 2000. During the three months ended September
30, 1999, net insurance proceeds of approximately $209,000 had been received.
During the three months ended September 30, 2000, the Partnership recognized an
additional casualty gain of approximately $25,000.
Note F - Extraordinary Loss on Early Extinguishment of Debt
In 1999, the Partnership refinanced the mortgage encumbering Pinetree
Apartments. The refinancing replaced indebtedness of $2,152,000 with a new
mortgage in the amount of $5,000,000. The new mortgage carries a stated interest
rate of 7.33%. Interest on the old mortgage was 9.87%. Payments of approximately
$41,000 are due on the first day of each month until the loan matures on
November 1, 2019. The prior note was scheduled to mature in July 1, 2001. The
lender also required a repair escrow of approximately $67,000 to be established.
As of September 30, 1999, the Partnership recognized a loss on the early
extinguishment of debt of approximately $160,000 consisting of the write-off of
unamortized loan costs and a prepayment penalty.
Note G - Segment Information
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment
complexes, one located in each of Illinois, North Carolina, and Florida. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the three and nine month periods ended September 30,
2000 and 1999, is shown in the tables below (in thousands). The "Other" column
includes Partnership administration related items and income and expense not
allocated to the reportable segment.
Three Months Ended September 30, 2000 Residential Other Totals
Rental income $ 2,232 $ -- $ 2,232
Other income 161 1 162
Casualty gain 25 -- 25
Interest expense 512 -- 512
Depreciation 421 -- 421
General and administrative expense -- 129 129
Segment profit (loss) 449 (128) 321
Nine Months Ended September 30, 2000 Residential Other Totals
Rental income $ 6,480 $ -- $ 6,480
Other income 440 30 470
Casualty gain 25 -- 25
Interest expense 1,554 -- 1,554
Depreciation 1,216 -- 1,216
General and administrative expense -- 351 351
Segment profit (loss) 1,234 (321) 913
Total assets 15,030 61 15,091
Capital expenditures for investment
properties 1,101 -- 1,101
Three Months Ended September 30, 1999 Residential Other Totals
Rental income $ 2,114 $ -- $ 2,114
Other income 111 1 112
Casualty gain 1,330 -- 1,330
Interest expense 498 -- 498
Depreciation 271 -- 271
General and administrative expense -- 108 108
Extraordinary loss on early
extinguishment of debt (160) -- (160)
Segment profit (loss) 1,700 (107) 1,593
Nine Months Ended September 30, 1999 Residential Other Totals
Rental income $ 6,321 $ -- $ 6,321
Other income 300 3 303
Casualty gain 1,330 -- 1,330
Interest expense 1,460 -- 1,460
Depreciation 980 -- 980
General and administrative expense -- 230 230
Extraordinary loss on early
extinguishment of debt (160) -- (160)
Segment profit (loss) 2,567 (227) 2,340
Total assets 16,073 159 16,232
Capital expenditures for investment
properties 545 -- 545
Note H - 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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. The Managing General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy for each of the properties
for both of the nine month periods ended September 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Lakeside Apartments 95% 92%
Lisle, Illinois (1)
Pinetree Apartments 94% 95%
Charlotte, North Carolina
Summerwalk Apartments 91% 96%
Winter Park, Florida (2)
(1) The Managing General Partner attributes the increase in occupancy at
Lakeside Apartments to the low occupancy during 1999 caused by the fire
that occurred in July of 1998 that destroyed one building consisting of
twenty-two units, as well as tenant move outs in surrounding buildings due
to the construction which was then in progress.
(2) The Managing General Partner attributes the decrease in occupancy at
Summerwalk Apartments to the July 1999 fire that destroyed one building
consisting of eight units as well as tenant move-outs in surrounding
buildings due to the construction which was completed during the third
quarter of 2000.
Results of Operations
The Partnership's net income for the three and nine months ended September 30,
2000 was approximately $321,000 and $913,000 compared to net income of
approximately $1,593,000 and $2,340,000 for the three and nine months ended
September 30, 1999. The decrease in net income for the three and nine month
periods ended September 30, 2000 is due to a decrease in total revenues and an
increase in total expenses partially offset by the extraordinary loss on the
early extinguishment of the debt encumbering Pinetree Apartments (see below)
recognized during the three months ended September 30, 1999. The decrease in
total revenues for both the three and nine months ended September 30, 2000 is
primarily due to a decrease in casualty gain (see below) which was partially
offset by increases in rental and other income. The decrease in casualty gain is
due to insurance proceeds received during the three months ended September 30,
1999 related to the July 1998 fire at Lakeside Apartments. The increase in
rental income is primarily attributable to increased average rental rates at
Lakeside Apartments and Pinetree Apartments as well as an increase in occupancy
at Lakeside Apartments which more than offset the decrease in occupancy at
Summerwalk Apartments. The increase in other income is primarily due to an
increase in interest income, as a result of larger average interest bearing cash
account balances and an increase in lease cancellation fees at all the
properties and miscellaneous income at Lakeside Apartments.
The increase in total expenses for the three and nine month periods ended
September 30, 2000 is due to an increase in operating, general and
administrative, depreciation, and interest expenses. The increase in operating
expense is primarily due to increases in salary and utility expense at all of
the Partnership's investment properties except Pinetree Apartments. General and
administrative expense increased due to an increase in the cost of services
included in the management reimbursements to the Managing General Partner as
allowed under the Partnership Agreement. The increased depreciation expense is
the result of the addition of capital assets during the past twelve months. The
increase in interest expense is due to the 1999 refinancing of Pinetree
Apartments with a larger portion of the monthly debt service payment being
allocated to interest.
In addition to the above, general and administrative expenses for the nine
months ended September 30, 2000 and 1999, also include Partnership management
fees associated with non-accountable reimbursements allowed with distributions
from operations. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
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.
Capital Resources and Liquidity
At September 30, 2000, the Partnership had cash and cash equivalents of
approximately $951,000 as compared to approximately $3,727,000 at September 30,
1999. For the nine months ended September 30, 2000, cash and cash equivalents
decreased approximately $4,626,000 from the Partnership's year ended December
31, 1999. The decrease in cash and cash equivalents is due to approximately
$5,350,000 of cash used in financing activities and approximately $1,096,000 of
cash used in investing activities, partially offset by approximately $1,820,000
of cash provided by operating activities. Cash used in financing activities
consists of distributions to the partners, and, to a lesser extent, loan costs
paid and payments of principal made on the mortgages encumbering Pinetree and
Summerwalk Apartments. Cash used in investing activities consists of property
improvements and replacements partially offset by net withdrawals from
restricted escrows maintained by the mortgage lenders. The Partnership invests
its working capital reserves in a money market account.
The Managing General Partner has extended to the Partnership a $300,000 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 other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Lakeside Apartments
During the nine months ended September 30, 2000, the Partnership completed
approximately $348,000 of budgeted and non-budgeted capital improvements at
Lakeside Apartments consisting primarily of floor covering replacement,
structural improvements, furniture and fixture upgrades, water heater
replacements, and appliance replacements. These improvements were funded from
operating cash flows and replacement reserves. Approximately $354,000 has been
budgeted for capital improvements at Lakeside Apartments for the year 2000
consisting primarily of floor covering replacements, appliance replacement,
furniture and fixtures upgrades, and structural improvements. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Pinetree Apartments
During the nine months ended September 30, 2000, the Partnership completed
approximately $118,000 of capital improvements at Pinetree Apartments consisting
primarily of structural improvements, floor covering replacements, roof
replacements, and appliance replacements. These improvements were funded from
operating cash flows and replacement reserves. Approximately $125,000 has been
budgeted for capital improvements at Pinetree Apartments for the year 2000
consisting primarily of structural improvements, floor covering replacements,
roof replacements, and wallcoverings. Additional improvements may be considered
and will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
Summerwalk Apartments
During the nine months ended September 30, 2000, the Partnership completed
approximately $635,000 of budgeted and unbudgeted capital improvements at
Summerwalk Apartments consisting primarily of plumbing improvements, exterior
painting, building and structural improvements, parking lot upgrades, electrical
upgrades, lighting fixtures, and floor covering replacements. These improvements
were funded from insurance proceeds, replacement reserves, and operating cash
flows. Approximately $419,000 has been budgeted for capital improvements at
Summerwalk Apartments for the year 2000 consisting primarily of major
landscaping, electrical upgrades, structural improvements, floor covering
replacement, appliance replacements, and HVAC replacements. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
Casualty Events
In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The repair costs were covered by
insurance. In 1998, estimated insurance proceeds were recognized only to the
extent of the write-off of destroyed assets of approximately $225,000. During
the nine months ended September 30, 1999, net insurance proceeds of
approximately $1,554,000 were received to cover replacement costs that are now
complete. During the nine months ended September 30, 1999, the Partnership
recognized a casualty gain of approximately $1,330,000.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. Demolition and reconstruction were completed
by the end of the third quarter 2000. During the three months ended September
30, 1999, net insurance proceeds of approximately $209,000 had been received.
During the three months ended September 30, 2000, the Partnership recognized an
additional casualty gain of approximately $25,000.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $26,968,000 encumbering the Partnership's
properties are being amortized over varying periods with balloon payments due
over periods ranging from November 2003 to November 2019. The Managing General
Partner will attempt to refinance such remaining indebtedness and/or sell the
properties prior to such maturity dates. If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership will risk losing such
properties through foreclosure.
In 1999, the Partnership refinanced the mortgage encumbering Pinetree
Apartments. The refinancing replaced indebtedness of $2,152,000 with a new
mortgage in the amount of $5,000,000. The new mortgage carries a stated interest
rate of 7.33%. Interest on the old mortgage was 9.87%. Payments of approximately
$41,000 are due on the first day of each month until the loan matures on
November 1, 2019. The prior note was scheduled to mature in July 1, 2001. The
lender also required a repair escrow of approximately $67,000 to be established.
As of September 30, 1999, the Partnership recognized a loss on the early
extinguishment of debt of approximately $160,000 consisting of the write-off of
unamortized loan costs and a prepayment penalty.
During the nine months ended September 30, 2000, the Partnership distributed
approximately $5,156,000 (approximately $5,129,000 to limited partners or
$106.75 per limited partnership unit). The distributions represent approximately
$2,482,000 to the limited partners ($51.66 per limited partnership unit) of
proceeds from the 1999 refinancing of Pinetree Apartments and approximately
$2,674,000 (approximately $2,647,000 to limited partners or $55.09 per limited
partnership unit) of cash flow from operations. During the nine months ended
September 30, 1999 the Partnership distributed approximately $670,000
(approximately $664,000 to limited partners or $13.82 per limited partnership
unit) from operations. The Partnership's distribution policy is reviewed on a
semi-annual basis. Future cash distributions will depend on the levels of net
cash generated from operations, the availability of cash reserves, and the
timing of debt maturities, refinancings and/or property sales. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after required capital improvements to permit further distributions
to its partners during the remainder of 2000 or subsequent periods.
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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. The Managing General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2000.
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/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: