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, 2001
[ ] 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 0-13454
NATIONAL PROPERTY INVESTORS 7
(Exact name of small business issuer as specified in its charter)
California 13-3230613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office 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 7
BALANCE SHEET
(Unaudited)
(in thousands, except per unit data)
June 30, 2001
Assets
Cash and cash equivalents $ 664
Receivables and deposits 310
Restricted escrows 425
Other assets 411
Investment properties:
Land $ 3,738
Buildings and related personal property 44,467
48,205
Less accumulated depreciation (30,605) 17,600
$ 19,410
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 72
Tenant security deposit liabilities 105
Accrued property taxes 157
Other liabilities 473
Mortgage notes payable 20,896
Partners' Deficit:
General partner $ (325)
Limited partners (60,517 units
issued and outstanding) (1,968) (2,293)
$ 19,410
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Rental income $ 1,822 $ 1,712 $ 3,650 $ 3,463
Other income 95 112 180 185
Total revenues 1,917 1,824 3,830 3,648
Expenses:
Operating 674 715 1,451 1,419
General and administrative 101 160 255 251
Depreciation 517 489 1,031 973
Interest 415 411 830 831
Property taxes 106 105 210 211
Total expenses 1,813 1,880 3,777 3,685
Net income (loss) $ 104 $ (56) $ 53 $ (37)
Net income (loss) allocated to
general partner (1%) $ 1 $ (1) $ 1 $ --
Net income (loss) allocated to
limited partners (99%) 103 (55) 52 (37)
$ 104 $ (56) $ 53 $ (37)
Net income (loss) per limited
partnership unit $ 1.70 $ (0.91) $ 0.86 $ (0.61)
Distributions per limited
partnership unit $ 6.74 $ 22.97 $ 18.54 $ 42.93
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 7
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 60,517 $ 1 $30,259 $30,260
Partners' deficit at
December 31, 2000 60,517 $ (315) $ (898) $(1,213)
Distributions to partners -- (11) (1,122) (1,133)
Net income for the six months
ended June 30, 2001 -- 1 52 53
Partners' deficit at
June 30, 2001 60,517 $ (325) $(1,968) $(2,293)
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income (loss) $ 53 $ (37)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,031 973
Amortization of loan costs 50 49
Change in accounts:
Receivables and deposits (113) (80)
Other assets (10) (2)
Accounts payable (70) (40)
Tenant security deposit liabilities 5 (2)
Accrued property taxes 105 87
Other liabilities 186 31
Net cash provided by operating activities 1,237 979
Cash flows from investing activities:
Property improvements and replacements (209) (589)
Net (deposits to) withdrawals from restricted escrows (48) 78
Net cash used in investing activities (257) (511)
Cash flows from financing activities:
Payments on mortgage note payable (47) (37)
Loan costs paid (7) (16)
Distributions to partners (1,133) (2,624)
Net cash used in financing activities (1,187) (2,677)
Net decrease in cash and cash equivalents (207) (2,209)
Cash and cash equivalents at beginning of period 871 2,793
Cash and cash equivalents at end of period $ 664 $ 584
Supplemental disclosure of cash flow information:
Cash paid for interest $ 780 $ 755
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 7
(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. (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, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2001. 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, 2000. The Managing General Partner is an affiliate of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosure about Segments of an Enterprise and Related Information" established
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also established standards for related disclosures about
products and services, geographic areas, and major customers. As defined in SFAS
No. 131, the Partnership has only one reportable segment. The Managing General
Partner believes that segment-based disclosures will not result in a more
meaningful presentation than the financial statements as currently presented.
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.
The following payments were made to the Managing General Partner and its
affiliates during the six month periods ended June 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $189 $180
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 124 84
Non-accountable reimbursement (included in general and
administrative expenses) 91 91
Partnership management fee (included in general and
administrative expenses) -- 35
During the six months ended June 30, 2001 and 2000, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $189,000 and
$180,000 for the six months ended June 30, 2001 and 2000, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $124,000 and
$84,000 for the six months ended June 30, 2001 and 2000, respectively.
For services relating to the administration of the Partnership and operation of
Partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $150,000 per year from
distributions from operations, based upon the number of Partnership units sold,
subject to certain limitations. The Managing General Partner received
approximately $91,000 in reimbursements for both of the six month periods ended
June 30, 2001 and 2000.
For managing the affairs of the Partnership, the Managing General Partner of the
Partnership is entitled to receive a partnership management fee. The fee is
equal to 4% of the Partnership's adjusted cash from operations, as defined in
the Partnership Agreement, in any year, provided that 50% of the fee shall not
be paid until the Partnership has distributed to the limited partners adjusted
cash from operations in such year which is equal to 5% of the limited partners'
adjusted invested capital, as defined, on a non-cumulative basis. In addition,
50% of the fee shall not be paid until the Partnership has distributed to the
limited partners adjusted cash from operations in such year which is equal to 8%
of the limited partners' adjusted invested capital on a non-cumulative basis.
The fee shall be paid when adjusted cash from operations is distributed to the
limited partners. The Managing General Partner was paid approximately $35,000
during the six months ended June 30, 2000 for such fees. The Managing General
Partner was not entitled to receive a similar reimbursement during the six
months ended June 30, 2001.
The Managing General Partner has extended to the Partnership a line of credit of
up to $500,000. Loans under the line of credit will have a term of 365 days, are
unsecured and bear interest at the rate of 2% per annum in excess of the prime
rate announced from time to time by Chase Manhattan Bank, N.A. The maturity date
of such borrowing will be accelerated in the event of: (i) the removal of the
Managing General Partner (whether or not For Cause); (ii) the sale or
refinancing of a property by the Partnership; or (iii) the liquidation of the
Partnership. At the present time, the Partnership has no outstanding amounts due
under this line of credit.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 40,211.67 limited
partnership units in the Partnership representing 66.45% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
affiliates of the Managing General Partner, 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 66.45%
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 L.P., from whom AIMCO, through
its merger with Insignia, acquired 25,399 Units (41.97% of the units), had
agreed for the benefit of non-tendering unit holders, that it would vote its
Units: (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 votes cast by all other unit holders. Except
for the foregoing, no other limitations are imposed on AIMCO's or its
affiliates' right to vote each unit acquired.
Note C - Distributions
During the six months ended June 30, 2001, the Partnership declared and paid
distributions from operations of approximately $1,133,000 (approximately
$1,122,000 to the limited partners or $18.54 per limited partnership unit).
During the six months ended June 30, 2000, the Partnership declared and paid
distributions of approximately $2,624,000 (approximately $2,598,000 to the
limited partners or $42.93 per limited partnership unit) consisting of
approximately $1,739,000 (approximately $1,722,000 to the limited partners or
$28.45 per limited partnership unit) of cash from operations and approximately
$885,000 (approximately $876,000 to the limited partners or $14.48 per limited
partnership unit) of cash from the refinance proceeds of The Pines Apartments
and from refinancing proceeds in prior years.
Note D - Refinancing of Mortgage Note Payable
On December 13, 1999, the Partnership refinanced the mortgage encumbering The
Pines Apartments. The refinancing replaced indebtedness of approximately
$3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on
the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new
loan which matures on January 1, 2020 requires monthly principal and interest
payments and is scheduled to be fully amortized at maturity. Total capitalized
loan costs were approximately $88,000 during the year ended December 31, 1999.
Additional loan costs of approximately $16,000 and $7,000 were capitalized
during the six months ended June 30, 2000 and 2001, respectively.
Note E - 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, among other things, 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; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. 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 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 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 and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does not anticipate that any costs, whether legal or settlement 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 Registrant from time to time. The
discussion of the Registrant'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 Registrant'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 five apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six month periods ended June 30, 2001 and 2000:
Average Occupancy
2001 2000
Fairway View II Apartments 91% 93%
Baton Rouge, Louisiana
The Pines Apartments 96% 97%
Roanoke, Virginia
Patchen Place Apartments 90% 92%
Lexington, Kentucky
Northwoods I and II Apartments 93% 90%
Pensacola, Florida
South Point Apartments 94% 88%
Durham, North Carolina
The Managing General Partner attributes the increase in occupancy at Northwoods
I and II Apartments to the completion of a road expansion project. Traffic
issues and road barriers were eliminated, thereby increasing new prospect
traffic as well as the property's curb appeal. The Managing General Partner
attributes the increase in occupancy at South Point Apartments to increased
marketing efforts and decreased home purchases.
Results of Operations
The Registrant's net income for the six months ended June 30, 2001 was
approximately $53,000 compared to a net loss of approximately $37,000 for the
six months ended June 30, 2000. The Registrant's net income for the three months
ended June 30, 2001 was approximately $104,000 as compared to a net loss of
approximately $56,000 for the three months ended June 30, 2000. The increase in
net income for the six months ended June 30, 2001 was due to an increase in
total revenues which was partially offset by an increase in total expenses. The
increase in net income for the three months ended June 30, 2001 was due to an
increase in total revenues and a decrease in total expenses. Total revenues
increased for the three and six months ended June 30, 2001 due to an increase in
rental income which was partially offset by a decrease in other income. Rental
income increased primarily due to increased average rental rates at all of the
Partnership's investment properties and increased occupancy at Northwoods I and
II and South Point Apartments, which more than offset decreased occupancy at
Fairway View II, The Pines, and Patchen Place Apartments. In addition,
concessions decreased at Patchen Place, South Point, and Northwoods I and II
Apartments which more than offset increased concessions at Fairway View II
Apartments. The decrease in other income was primarily due to a decrease in
interest income as a result of lower average cash balances in interest bearing
accounts held by the Partnership during 2001.
Total expenses increased for the six months ended June 30, 2001 due to increases
in depreciation and operating expenses. Total expenses decreased for the three
months ended June 30, 2001 due to decreases in operating and general and
administrative expenses which were partially offset by an increase in
depreciation expense. Depreciation expense increased for the three and six
months ended June 30, 2001 due to property improvements and replacements
completed during the last twelve months. Operating expenses increased for the
six months ended June 30, 2001 primarily due to increased gas bills at Patchen
Place and The Pines Apartments and increased property management fees at all of
the Partnership's properties. Operating expenses decreased for the three months
ended June 30, 2001 primarily due to decreased maintenance expenses at Fairway
View II, Patchen Place, South Point, and Northwoods I and II Apartments. General
and administrative expenses decreased for the three months ended June 30, 2001
primarily due to decreased fees paid to the Managing General Partner in
connection with the distributions from operations made during the three months
ended June 30, 2001 and reduced legal and professional fees required to manage
the Partnership. These decreases were partially offset by an increase in the
costs of services included in the management reimbursements to the Managing
General Partner as allowed under the Partnership Agreement. Also included in
general and administrative expenses at both June 30, 2001 and 2000 are costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
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 Registrant 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.
Liquidity and Capital Resources
At June 30, 2001, the Partnership had cash and cash equivalents of approximately
$664,000 as compared to approximately $584,000 at June 30, 2000. Cash and cash
equivalents decreased by approximately $207,000 from the Partnership's year
ended December 31, 2000 due to approximately $1,187,000 of cash used in
financing activities and approximately $257,000 of cash used in investing
activities, which more than offset approximately $1,237,000 of cash provided by
operating activities. Cash used in financing activities consisted of
distributions to partners and, to a lesser extent, the payment of loan costs and
payments of principal made on the mortgage encumbering The Pines Apartments.
Cash used in investing activities consisted of property improvements and
replacements and deposits to escrow accounts maintained by the mortgage lender.
The Partnership invests its working capital reserves in interest bearing
accounts.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. 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 against the line of credit 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 Registrant and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
for each of the Registrant's properties are detailed below.
Fairway View II
During the six months ended June 30, 2001, the Partnership completed
approximately $35,000 of capital improvements at Fairway View II, consisting
primarily of carpet and vinyl replacements, plumbing fixtures, air conditioning
unit replacement, major landscaping, and structural improvements. These
improvements were funded from Partnership reserves and operating cash flow. The
Partnership has evaluated the capital improvement needs of the property for the
current year and, as a result budgeted approximately $56,000 for capital
improvements, consisting primarily of air conditioning unit replacement,
appliances, carpet replacements, and swimming pool upgrades. 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 Pines
During the six months ended June 30, 2001, the Partnership completed
approximately $43,000 of capital improvements at The Pines, consisting primarily
of carpet and vinyl replacements, water heater replacements, and cabinet
upgrades. These improvements were funded from Partnership reserves and operating
cash flow. The Partnership has evaluated the capital improvement needs of the
property for the current year and, as a result budgeted approximately $191,000
for capital improvements, consisting primarily of cabinet upgrades, air
conditioning unit replacement, interior decoration, appliances, and carpet and
vinyl replacement. 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.
Patchen Place
During the six months ended June 30, 2001, the Partnership completed
approximately $38,000 of capital improvements at Patchen Place, consisting
primarily of carpet replacements, office computers, air conditioning unit
replacement, and structural improvements. These improvements were funded from
operating cash flow. The Partnership has evaluated the capital improvement needs
of the property for the current year and, as a result budgeted approximately
$153,000 for capital improvements, consisting primarily of carpet and vinyl
replacements, appliances and water conservation 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.
Northwoods I and II
During the six months ended June 30, 2001, the Partnership completed
approximately $74,000 of capital improvements at Northwoods I & II, consisting
primarily of carpet and vinyl replacements, air conditioning unit replacement,
interior decoration, appliances and structural improvements. These improvements
were funded from Partnership reserves and operating cash flow. The Partnership
has evaluated the capital improvement needs of the property for the current year
and, as a result budgeted approximately $183,000 for capital improvements,
consisting primarily of air conditioning unit replacement, countertop
replacements, carpet replacements, swimming pool improvements, parking lot
improvements, exterior painting, appliances, structural improvements, and
recreational facility upgrades. 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.
South Point
During the six months ended June 30, 2001, the Partnership completed
approximately $19,000 of capital improvements at South Point, consisting
primarily of carpet replacements and air conditioning unit replacements. These
improvements were funded from Partnership reserves and operating cash flow. The
Partnership has evaluated the capital improvement needs of the property for the
current year and, as a result budgeted approximately $50,000 consisting
primarily of cabinet upgrades and carpet 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 improvements 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.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $4,096,000 encumbering The Pines is fully
amortized over 20 years. The mortgage indebtedness of $16,800,000 encumbering
the remaining properties requires interest only payments with balloon payments
due November 1, 2003. The Managing General Partner will attempt to refinance
such indebtedness and/or sell the properties prior to such maturity dates. If
the properties cannot be refinanced or sold for a sufficient amount, the
Registrant may risk losing such properties through foreclosure.
During the six months ended June 30, 2001, the Partnership declared and paid
distributions from operations of approximately $1,133,000 (approximately
$1,122,000 to the limited partners or $18.54 per limited partnership unit).
During the six months ended June 30, 2000, the Partnership declared and paid
distributions of approximately $2,624,000 (approximately $2,598,000 to the
limited partners or $42.93 per limited partnership unit) consisting of
approximately $1,739,000 (approximately $1,722,000 to the limited partners or
$28.45 per limited partnership unit) of cash from operations and approximately
$885,000 (approximately $876,000 to the limited partners or $14.48 per limited
partnership unit) of cash from the refinance proceeds of The Pines Apartments
and from refinancing proceeds in prior years. 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. The Partnership's distribution policy is reviewed on a quarterly basis.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital expenditures, to permit
any additional distributions to its partners during the remainder of 2001 or
subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 40,211.67 limited
partnership units in the Partnership representing 66.45% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
affiliates of the Managing General Partner, 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 66.45%
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 L.P., from whom AIMCO, through
its merger with Insignia, acquired 25,399 Units (41.97% of the units), had
agreed for the benefit of non-tendering unit holders, that it would vote its
Units: (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 votes cast by all other unit holders. Except
for the foregoing, no other limitations are imposed on AIMCO's or its affiliates
right to vote each unit acquired.
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, among other things, 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; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. 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 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 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 and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does not anticipate that any costs, whether legal or settlement 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:
None.
b) Reports on Form 8-K filed during the quarter ended June 30, 2001:
None.
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 7
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: