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, 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 0-9567
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, 2001
Assets
Cash and cash equivalents $ 670
Receivables and deposits 441
Restricted escrows 234
Other assets 496
Investment properties:
Land $ 3,023
Buildings and related personal property 37,035
40,058
Less accumulated depreciation (28,620) 11,438
$ 13,279
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 130
Tenant security deposit liabilities 224
Accrued property taxes 596
Other liabilities 325
Mortgage notes payable 26,791
Partners' Deficit
General partner $ (290)
Limited partners (48,049 units
issued and outstanding) (14,497) (14,787)
$ 13,279
See Accompanying Notes to Consolidated Financial Statements
b)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 2,191 $ 2,232 $ 6,616 $ 6,480
Other income 204 162 618 470
Casualty gain -- 25 35 25
Total revenues 2,395 2,419 7,269 6,975
Expenses:
Operating 847 883 2,678 2,414
General and administrative 80 129 351 351
Depreciation 440 421 1,328 1,216
Interest 515 512 1,548 1,554
Property taxes 170 153 575 527
Total expenses 2,052 2,098 6,480 6,062
Net income $ 343 $ 321 $ 789 $ 913
Net income allocated to
general partner (1%) $ 4 $ 3 $ 8 $ 9
Net income allocated to
limited partners (99%) 339 318 781 904
$ 343 $ 321 $ 789 $ 913
Net income per limited
partnership unit $ 7.05 $ 6.62 $ 16.25 $ 18.81
Distributions per limited
partnership unit $ 9.68 $ 1.98 $ 45.68 $106.75
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 $ 24,024 $ 24,025
Partners' deficit at
December 31, 2000 48,049 $ (276) $(13,083) $(13,359)
Distributions to partners -- (22) (2,195) (2,217)
Net income for the nine months
ended September 30, 2001 -- 8 781 789
Partners' deficit at
September 30, 2001 48,049 $ (290) $(14,497) $(14,787)
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,
2001 2000
Cash flows from operating activities:
Net income $ 789 $ 913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,328 1,216
Amortization of loan costs 67 63
Casualty gain (35) (25)
Change in accounts:
Receivables and deposits 129 (304)
Other assets (65) (33)
Accounts payable 9 (8)
Tenant security deposit liabilities (1) 46
Accrued property taxes (28) (20)
Other liabilities (148) (28)
Net cash provided by operating activities 2,045 1,820
Cash flows from investing activities:
Property improvements and replacements (787) (1,236)
Net withdrawals from restricted escrows 38 140
Insurance proceeds received 127 --
Net cash used in investing activities (622) (1,096)
Cash flows from financing activities:
Payments on mortgage notes payable (134) (125)
Loan costs paid -- (69)
Distributions to partners (2,217) (5,156)
Net cash used in financing activities (2,351) (5,350)
Net decrease in cash and cash equivalents (928) (4,626)
Cash and cash equivalents at beginning of period 1,598 5,577
Cash and cash equivalents at end of period $ 670 $ 951
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,481 $ 1,491
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 months ended September 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
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal 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.
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% limited
partnership interest. The Partnership has the ability to control the major
operating and financial policies of these partnerships. All interpartnership
transactions have been eliminated.
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 consolidated 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 transactions with the Managing General Partner and its affiliates
were incurred during the nine months ended September 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $368 $351
Reimbursement for services of affiliates (included in
investment properties and operating and general and
administrative expenses) 272 200
Non-accountable reimbursement (included in general and
administrative expenses) 100 100
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $368,000 and
$351,000 for the nine months ended September 30, 2001 and 2000, respectively.
Affiliates of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $272,000 and
$200,000 for the nine months ended September 30, 2001 and 2000, respectively.
Included in these amounts are construction oversight fees paid to an affiliate
of the Managing General partner of approximately $96,000 and $18,000 for the
nine month periods ended September 30, 2001 and 2000, 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 Managing General Partner received approximately $100,000 during
each of the nine months ended September 30, 2001 and 2000, respectively, in
connection with the distributions paid to the partners.
NPI Equity has established a revolving credit facility (the "Partnership
Revolver") to be used to fund deferred maintenance and working capital needs of
the National Property Investors Partnership Series. The maximum draw available
to the Partnership under the Partnership Revolver is $300,000. Loans under the
Partnership Revolver will have a term of 365 days, be unsecured and bear
interest at the rate of 2% per annum in excess of the prime rate. The maturity
date of such borrowing will be accelerated in the event of: (i) the removal of
the NPI Equity (whether or not for cause); (ii) the sale or refinancing of a
property by the Partnership (whether or not a borrowing under the Partnership
Revolver was made with respect to such property); or (iii) the liquidation of
the Partnership. The Partnership has not borrowed under the Partnership Revolver
to date.
AIMCO and its affiliates owned 35,331 limited partnership units (the "Units") in
the Partnership representing 73.53% of the outstanding Units at September 30,
2001. 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. As a result of its ownership of 73.53% 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 its affiliation with the Managing General Partner. However,
with respect to the 21,380 Units acquired on January 19, 1996, Insignia
Properties, LP ("IPLP"), an affiliate of the Managing General Partner, agreed to
vote such 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 vote cast by non
tendering unitholders. Except for the foregoing, no other limitations are
imposed on IPLP's, AIMCO's or any other affiliates' right to vote each Unit
acquired.
Note C - Distributions
During the nine months ended September 30, 2001, the Partnership distributed
approximately $2,217,000 (approximately $2,195,000 to the limited partners or
$45.68 per limited partnership unit) from operations. Subsequent to September
30, 2001, the Partnership made a distribution of approximately $502,000
(approximately $497,000 to the limited partners or $10.34 per limited
partnership unit) from operations.
During the nine months ended September 30, 2000, the Partnership distributed
approximately $5,156,000 (approximately $5,129,000 to the limited partners or
$106.75 per limited partnership unit). The distributions represented
approximately $2,482,000 to the limited partners ($51.66 per limited partnership
unit) of refinancing proceeds from the 1999 refinancing of Pinetree Apartments
and approximately $2,674,000 (approximately $2,647,000 to the limited partners
or $55.09 per limited partnership unit) from operations.
Note D - Casualty Gain
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs were covered by insurance.
Reconstruction was completed during the third quarter of 2000. During the nine
months ended September 30, 2001, final insurance proceeds of approximately
$127,000 were received which was offset by approximately $92,000 of
undepreciated fixed assets being written off. Additionally, during the nine
months ended September 30, 2000, the Partnership recognized a casualty gain of
approximately $25,000 related to this fire.
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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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, 2001 and 2000:
Average Occupancy
Property 2001 2000
Lakeside Apartments 93% 95%
Lisle, Illinois
Pinetree Apartments 92% 94%
Charlotte, North Carolina
Summerwalk Apartments 93% 91%
Winter Park, Florida
Results of Operations
The Partnership's net income for the nine months ended September 30, 2001 was
approximately $789,000 compared to net income of approximately $913,000 for the
nine months ended September 30, 2000. The decrease in net income is primarily
due to an increase in total expenses partially offset by an increase in total
revenues.
Total expenses increased due to increases in operating, depreciation and
property tax expenses. Operating expense increased due to an increase in
salaries and related employee benefits at Lakeside and Pinetree Apartments,
increased utilities expense, especially natural gas, at Lakeside Apartments and
increased insurance costs at all the properties offset by decreased maintenance
expenses at Lakeside Apartments. Depreciation expense increased due to property
improvements and replacements placed into service during the past twelve months
which are now being depreciated. Property tax expense increased due to an
increase in the assessed value by the local taxing authority at Lakeside
Apartments and Summerwalk Apartments.
Total revenues increased due to an increase in rental and other income and a
casualty gain recognized at Summerwalk Apartments. The increase in rental income
was due to an increase in average rental rates at all of the Partnership's
properties and increased occupancy at Summerwalk Apartments which more than
offset slight decreases in occupancy at Pinetree and Lakeside Apartments. Other
income increased due to an increase in utility reimbursements, interest income
and laundry income at Lakeside and Summerwalk Apartments.
The Partnership's net income for the three months ended September 30, 2001 was
approximately $343,000 compared to net income of approximately $321,000 for the
three months ended September 30, 2000. The increase in net income is primarily
due to a decrease in total expenses partially offset by a decrease in total
revenues. The decrease in total expenses is primarily attributable to decreases
in operating and general and administrative expenses partially offset by
increases in depreciation and property tax expenses. Operating expense decreased
due to a decrease in utilities expense and payroll bonuses at Lakeside
Apartments. General and administrative expenses decreased due to a decrease in
reimbursable expenses to the Managing General Partner. Depreciation expense
increased due to an increase in property improvements and replacements placed
into service during the past twelve months which are now being depreciated.
Property tax expense increased due to an increase in the assessed value by the
local taxing authority at Lakeside Apartments and Summerwalk Apartments.
In addition to the reimbursements to the Managing General Partner, Partnership
management fees associated with non-accountable reimbursements allowed with
distributions are included in general and administrative expenses. 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.
Total revenues decreased due to the recognition of a casualty gain for the three
months ended September 30, 2000 and a decrease in rental income partially offset
by an increase in other income. Rental income decreased due to decreased
occupancy at Lakeside Apartments and Pinetree Apartments partially offset by
increased average rental rates at all the properties and an increase in
occupancy at Summerwalk Apartments. Other income increased due to an increase in
tenant reimbursements at Lakeside Apartments and Summerwalk Apartments.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs were covered by insurance.
Reconstruction was completed during the third quarter of 2000. During the nine
months ended September 30, 2001, final insurance proceeds of approximately
$127,000 were received which was offset by approximately $92,000 of
undepreciated fixed assets being written off. Additionally, during the nine
months ended September 30, 2000, the Partnership recognized a casualty gain of
approximately $25,000 related to this fire.
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, 2001, the Partnership had cash and cash equivalents of
approximately $670,000 compared to approximately $951,000 at September 30, 2000.
Cash and cash equivalents decreased approximately $928,000 since December 31,
2000 due to approximately $2,351,000 and $622,000 of cash used in financing and
investing activities, respectively, partially offset by approximately $2,045,000
of cash provided by operating activities. Cash used in financing activities
consisted of distributions to the partners and, to a lesser extent, principal
payments made on the mortgages encumbering Pinetree and Summerwalk Apartments.
Cash used in investing activities consisted of property improvements and
replacements partially offset by net withdrawals from restricted escrows
maintained by the mortgage lenders and insurance proceeds received. The
Partnership invests its working capital reserves in interest bearing accounts.
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
The Partnership budgeted approximately $370,000 for capital improvements at
Lakeside Apartments for 2001 consisting primarily of floor covering and
appliance replacements, furniture and fixtures upgrades, and common area
painting. During the nine months ended September 30, 2001, the Partnership
completed approximately $355,000 of capital improvements at Lakeside Apartments
consisting primarily of floor covering replacement, furniture and fixture
upgrades, air conditioning and water heater replacements, appliances and parking
area improvements. These improvements were funded from operating cash flows and
replacement reserves. 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
The Partnership budgeted approximately $141,000 for capital improvements at
Pinetree Apartments for 2001 consisting primarily of structural improvements,
floor covering replacements, wallcoverings and swimming pool improvements.
During the nine months ended September 30, 2001, the Partnership completed
approximately $154,000 of budgeted and unbudgeted capital improvements at
Pinetree Apartments consisting primarily of floor covering and appliance
replacements, common area painting, and major landscaping. These improvements
were funded from operating cash flows. 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
The Partnership budgeted approximately $486,000 for capital improvements at
Summerwalk Apartments for 2001 consisting primarily of building and structural
improvements, and floor covering, appliance and HVAC replacements. During the
nine months ended September 30, 2001, the Partnership completed approximately
$278,000 of capital improvements at Summerwalk Apartments consisting primarily
of building and structural improvements and floor covering replacements. These
improvements were funded from replacement reserves, operating cash flows and
insurance proceeds. 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.
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.
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 encumbering Lakeside and Summerwalk Apartments totals approximately
$17,200,000 and $4,800,000, respectively. Balloon payments of $17,200,000 and
$4,312,000 will be due in November 2003 and January 2008, respectively. The
remaining mortgage indebtedness encumbering Pinetree Apartments of approximately
$4,791,000 is being amortized over 20 years and matures in November 2019 at
which time the mortgage will be fully amortized. The Managing General Partner
will attempt to refinance the indebtedness encumbering Lakeside and Summerwalk
Apartments and/or sell the properties prior to their maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.
During the nine months ended September 30, 2001, the Partnership distributed
approximately $2,217,000 (approximately $2,195,000 to the limited partners or
$45.68 per limited partnership unit) from operations. Subsequent to September
30, 2001, the Partnership made a distribution of approximately $502,000
(approximately $497,000 to the limited partners or $10.34 per limited
partnership unit) from operations. During the nine months ended September 30,
2000, the Partnership distributed approximately $5,156,000 (approximately
$5,129,000 to the limited partners or $106.75 per limited partnership unit). The
distributions represented approximately $2,482,000 to the limited partners
($51.66 per limited partnership unit) of refinancing proceeds from the 1999
refinancing of Pinetree Apartments and approximately $2,674,000 (approximately
$2,647,000 to the limited partners or $55.09 per limited partnership unit) from
operations. The Partnership's distribution policy is reviewed on a monthly
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 that
the Partnership will generate sufficient funds from operations after required
capital improvements to permit further distributions to its partners during the
remainder of 2001 or subsequent periods.
AIMCO and its affiliates owned 35,331 limited partnership units (the "Units") in
the Partnership representing 73.53% of the outstanding Units at September 30,
2001. 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. As a result of its ownership of 73.53% 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 its affiliation with the Managing General Partner. However,
with respect to the 21,380 Units acquired on January 19, 1996, Insignia
Properties, LP ("IPLP"), an affiliate of the Managing General Partner, agreed to
vote such 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 vote cast by non
tendering unitholders. Except for the foregoing, no other limitations are
imposed on IPLP's, AIMCO's or any other 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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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:
None filed during the quarter ended September 30, 2001.
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.
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: