UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT UNDER 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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 602
Receivables and deposits 578
Restricted escrows 88
Other assets 1,010
Investment properties:
Land $ 3,023
Buildings and related personal property 37,502
40,525
Less accumulated depreciation (29,981) 10,544
$ 12,822
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 51
Tenant security deposit liabilities 230
Accrued property taxes 628
Other liabilities 604
Mortgage notes payable 33,714
Partners' Deficit
General partner $ (295)
Limited partners (48,049 units
issued and outstanding) (22,110) (22,405)
$ 12,822
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenues:
Rental income $ 2,162 $ 2,247 $ 4,279 $ 4,425
Other income 219 183 445 414
Casualty gain -- -- -- 35
Total revenues 2,381 2,430 4,724 4,874
Expenses:
Operating 971 919 1,863 1,831
General and administrative 93 108 171 271
Depreciation 462 446 915 888
Interest 620 516 1,241 1,033
Property taxes 188 201 374 405
Total expenses 2,334 2,190 4,564 4,428
Net income $ 47 $ 240 $ 160 $ 446
Net income allocated
to general partner (1%) $ -- $ 2 $ 2 $ 4
Net income allocated
to limited partners (99%) 47 238 158 442
$ 47 $ 240 $ 160 $ 446
Net income per limited
partnership unit $ 0.98 $ 4.96 $ 3.29 $ 9.20
Distributions per limited
partnership unit $ 22.06 $ 20.04 $ 22.06 $ 36.00
See Accompanying Notes to Consolidated Financial Statements
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, 2001 48,049 $ (294) $(21,208) $(21,502)
Net income for the six months
ended June 30, 2002 -- 2 158 160
Distributions to partners -- (3) (1,060) (1,063)
Partners' deficit at
June 30, 2002 48,049 $ (295) $(22,110) $(22,405)
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 160 $ 446
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 915 888
Bad debt 125 75
Amortization of loan costs 26 45
Casualty gain -- (35)
Change in accounts:
Receivables and deposits 529 (93)
Other assets (70) (57)
Accounts payable (30) 5
Tenant security deposit liabilities 10 --
Accrued property taxes (3) 73
Due to affiliates (27) --
Other liabilities 240 (35)
Net cash provided by operating activities 1,875 1,312
Cash flows from investing activities:
Property improvements and replacements (357) (444)
Net withdrawals from restricted escrows 212 28
Net insurance proceeds received -- 127
Net cash used in investing activities (145) (289)
Cash flows from financing activities:
Payments on mortgage notes payable (331) (88)
Payments on advances from affiliate (35) --
Distributions to partners (1,063) (1,747)
Net cash used in financing activities (1,429) (1,835)
Net increase (decrease) in cash and cash equivalents 301 (812)
Cash and cash equivalents at beginning of period 301 1,598
Cash and cash equivalents at end of period $ 602 $ 786
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,073 $ 988
At December 31, 2001, approximately $100,000 of property improvements and
replacements were included in accounts payable which are included in property
improvements and replacements during the six months ended June 30, 2002.
See Accompanying Notes to Consolidated Financial Statements
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 six months ended June 30, 2002,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2002. 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, 2001. The Managing General Partner is an affiliate of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Certain reclassifications have been made to the 2001 information to conform to
the 2002 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
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 $239,000 and
$245,000 for the six months ended June 30, 2002 and 2001, respectively, which is
included in operating expenses.
Affiliates of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $124,000 and
$135,000 for the six months ended June 30, 2002 and 2001, respectively. Included
in these amounts are fees related to construction management services provided
by an affiliate of the Managing General Partner of approximately $7,000 and
$18,000 for the six months ended June 30, 2002 and 2001, respectively. The
construction management service fees are calculated based on a percentage of
current year additions to investment properties.
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 $22,000 and
$100,000 during the six months ended June 30, 2002 and 2001, 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. During the six months ended June 30, 2002, the Partnership
repaid approximately $35,000, representing the outstanding balance which had
been previously borrowed under the Partnership Revolver. Interest expense during
the six months ended June 30, 2002, amounted to less than $1,000. No amounts
were borrowed at any time during the six months ended June 30, 2002.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the six months ended June
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $90,000 and $115,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Note C - 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 six
months ended June 30, 2001, final insurance proceeds of approximately $127,000
were received and the Partnership recognized an additional casualty gain of
approximately $35,000 related to this fire.
Note D - Casualty Event
In February 2002, a fire occurred at Lakeside Apartments which destroyed one
unit and caused flooding damage to another. The restoration will be complete
during 2002. The Managing General Partner does not anticipate that this casualty
will result in a loss to the Partnership.
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 Managing 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 was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The parties are currently in the midst of briefing that appeal.
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 six month periods ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Lakeside Apartments (1) 90% 94%
Lisle, Illinois
Pinetree Apartments (1) 84% 92%
Charlotte, North Carolina
Summerwalk Apartments 93% 93%
Winter Park, Florida
(1) The Managing General Partner attributes the decrease in occupancy at
Lakeside Apartments and Pinetree Apartments to the slow economy in their
respective areas.
Results of Operations
The Partnership's net income for the six months ended June 30, 2002 was
approximately $160,000 compared to net income of approximately $446,000 for the
six months ended June 30, 2001. The Partnership's net income for the three
months ended June 30, 2002 was approximately $47,000 compared to net income of
approximately $240,000 for the three months ended June 30, 2001. The decrease in
net income for the three and six months ended June 30, 2002 is primarily due to
an increase in total expenses and a decrease in total revenues. The increase in
total expenses is due to an increase in operating, depreciation, and interest
expenses. Operating expenses increased due to an increase in insurance costs and
maintenance expenses at all the properties offset by decreased natural gas costs
at Lakeside Apartments. Depreciation expense increased as a result of property
improvements and replacements placed into service during the past twelve months
which are now being depreciated. Interest expense increased due to the
refinancing of the mortgage encumbering Lakeside Apartments which resulted in a
higher average debt balance in 2002.
For the six months ended June 30, 2002, the increase in total expenses was
partially offset by a decrease in general and administrative expenses. This
decrease is due to a decrease in non-accountable reimbursements allowed with
operating distributions. Fees totaling $100,000 were paid in relation to
operating distributions in 2001 versus approximately $22,000 in 2002. Included
in general and administrative expenses for the three and six months ended June
30, 2002 and 2001 are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with the management of the
Partnership. Also, costs associated with the quarterly and annual communications
with investors and regulatory agencies and the annual audit required by the
Partnership Agreement are included.
Total revenues decreased due to a decrease in rental income offset by an
increase in other income. The decrease in rental income was due to decreases in
occupancy at Pinetree and Lakeside Apartments as discussed above. Other income
increased due to an increase in tenant reimbursements.
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 six
months ended June 30, 2001, final insurance proceeds of approximately $127,000
were received and the Partnership recognized an additional casualty gain of
approximately $35,000 related to this fire.
In February 2002, a fire occurred at Lakeside Apartments which destroyed one
unit and caused flooding damage to another. The restoration will be complete
during 2002. The Managing General Partner does not anticipate that this casualty
will result in a loss to the Partnership.
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 June 30, 2002, the Partnership had cash and cash equivalents of approximately
$602,000 as compared to approximately $786,000 at June 30, 2001. Cash and cash
equivalents increased approximately $301,000 since December 31, 2001 due to
approximately $1,875,000 of cash provided by operating activities offset by
approximately $1,429,000 and $145,000 of cash used in financing and investing
activities, respectively. Cash used in financing activities consists of
distributions to the partners, principal payments made on the mortgages
encumbering the Partnership's properties and payments on advances from
affiliates. 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 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 $182,000 for capital improvements at
Lakeside Apartments for 2002 consisting primarily of floor covering, fencing and
parking lot upgrades. During the six months ended June 30, 2002, the Partnership
completed approximately $72,000 of capital improvements at Lakeside Apartments
consisting primarily of floor covering replacements, cabinets and office
equipment. 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 $155,000 for capital improvements at
Pinetree Apartments for 2002 consisting primarily of floor covering and air
conditioning replacements, water submetering and swimming pool improvements.
During the six months ended June 30, 2002, the Partnership completed
approximately $114,000 of capital improvements at Pinetree Apartments consisting
primarily of floor covering and appliance replacements, structural improvements
and office equipment. 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 $118,000 for capital improvements at
Summerwalk Apartments for 2002 consisting primarily of floor covering, air
conditioning and roof replacements. During the six months ended June 30, 2002,
the Partnership completed approximately $71,000 of capital improvements at
Summerwalk Apartments consisting primarily of floor covering and air
conditioning replacements, plumbing fixtures and electrical upgrades. These
improvements were funded from replacement reserves and 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.
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 Summerwalk Apartments totals approximately $4,752,000.
A balloon payment of $4,312,000 will be due in January 2008. The remaining
mortgage indebtedness encumbering Pinetree and Lakeside Apartments of
approximately $28,962,000, respectively, is being amortized over 20 years and
will mature in November 2019 and January 2022, respectively, at which time the
mortgages will be fully amortized. The Managing General Partner will attempt to
refinance the indebtedness encumbering Summerwalk Apartments and/or sell the
property prior to its maturity date. If the property cannot be refinanced or
sold for a sufficient amount, the Partnership will risk losing such property
through foreclosure.
On December 14, 2001, the Partnership refinanced the mortgage encumbering
Lakeside Apartments. The refinancing replaced indebtedness of $17,200,000 with a
new mortgage in the amount of $24,500,000. The new mortgage carries a stated
interest rate of 7.09% compared to a stated rate of 7.33% on the old mortgage.
Payments of principal and interest are due each month until the loan matures at
which time the loan is scheduled to be fully amortized. Loan costs capitalized
were approximately $648,000 including $245,000 paid to the Managing General
Partner. The Partnership recognized a loss on the early extinguishment of debt
of approximately $123,000 consisting of the write-off of unamortized loan costs
during the fourth quarter of 2001.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2005. Accordingly, prior to such date the Partnership
will need to either sell its investment properties or extend the term of the
Partnership. If the Partnership is unable to extend its term, the ultimate sale
price of the investment properties may be adversely affected.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Refinancing (1) $ 812 $16.90 $ -- $ --
Operations 251 5.16 1,747 36.00
$1,063 $22.06 $1,747 $36.00
(1) From the refinancing of Lakeside Apartments.
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 cash available for
distribution is reviewed on a monthly basis. There can be no assurance that the
Partnership will generate sufficient funds after required capital expenditures
to permit further distributions to its partners in 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 35,387 limited partnership units
(the "Units") in the Partnership representing 73.65% of the outstanding Units at
June 30, 2002. 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 acquire additional units of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. 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
voting on certain amendments to the Partnership Agreement and voting to remove
the Managing General Partner. As a result of its ownership of 73.65% of the
outstanding Units, AIMCO is in a position to influence all voting decisions with
respect to the Registrant. 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. Although the Managing General Partner owes fiduciary
duties to the limited partners of the Partnership, the Managing General Partner
also owed fiduciary duties to AIMCO as its sole Stockholder. As a result, the
duties of the Managing General Partner, as managing general partner, to the
Partnerships and its limited partners may come into conflict with the duties of
the Managing General Partner to AIMCO, as it sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 Managing 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 was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The parties are currently in the midst of briefing that appeal.
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:
Exhibit 3.4(a), Agreement of Limited Partnership,
incorporated by reference to Exhibit A to the Prospectus of
the Partnership dated October 24, 1979 contained in the
Partnership's Registration Statement on Form S-11 (Reg. No.
2-63733).
Exhibit 3.4(b), Amendments to Agreement of Limited Partnership
dated as of November 25, 1980 incorporated by reference to
Exhibits 3 and 4 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1981.
Exhibit 3.4(c), Amendments to the Agreement of Limited
Partnership incorporated by reference to the Definitive Proxy
Statement of the Partnership dated April 3, 1981.
Exhibit 3.4(d), Amendments to the Agreement of Limited
Partnership, incorporated by reference to the Statement
Furnished in Connection with the Solicitation of Consents of
the Partnership dated August 28, 1992.
Exhibit 99, Certification of Chief Executive Officer and
Chief Financial Officer.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2002.
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/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of National Property
Investors 3 (the "Partnership"), for the quarterly period ended June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of
the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial
Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.