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 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact name of small business issuer as specified in its charter)
California 22-2385051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. 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 5
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 207
Receivables and deposits 235
Restricted escrows 15
Other assets 380
Investment properties:
Land $ 2,145
Buildings and related personal property 30,784
32,929
Less accumulated depreciation (26,150) 6,779
$ 7,616
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 637
Tenant security deposit liabilities 81
Accrued property taxes 142
Due to Managing General Partner 1,715
Other liabilities 384
Mortgage notes payable 14,749
Partners' Deficit
General partner $ (1,421)
Limited partners (82,513 units
issued and outstanding) (8,671) (10,092)
$ 7,616
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $ 925 $ 1,098 $ 1,916 $ 2,183
Other income 105 96 235 200
--- --- ---- -- --- --- --- ---
Total revenues 1,030 1,194 2,151 2,383
- ----- - ----- - ----- - -----
Expenses:
Operating 819 588 1,506 1,121
General and administrative 66 73 153 167
Depreciation 300 340 584 704
Interest 326 314 641 604
Property taxes 66 62 134 125
---- -- ---- -- --- --- --- ---
Total expenses 1,577 1,377 3,018 2,721
- ----- - ----- - ----- - -----
Net loss $ (547) $ (183) $ (867) $ (338)
===== ===== ===== =====
Net loss allocated to general
partner (3%) $ (16) $ (5) $ (26) $ (10)
Net loss allocated to limited
partners (97%) (531) (178) (841) (328)
-- ---- ------ ------ ------
$ (547) $ (183) $ (867) $ (338)
===== ===== ===== =====
Net loss per limited partnership unit $ (6.43) $ (2.16) $(10.19) $ (3.98)
====== ====== ====== ======
Distributions per limited partnership
unit $ -- $ 2.06 $ -- $ 39.48
=== ===== === ======
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 82,513 $ 1 $41,257 $ 41,258
====== == ====== =======
Partners' deficit at
December 31, 2001 82,513 $(1,395) $(7,830) $ (9,225)
Net loss for the six months
ended June 30, 2002 -- (26) (841) (867)
---- -- ------ -- ---- -------
Partners' deficit at
June 30, 2002 82,513 $(1,421) $(8,671) $(10,092)
====== ====== ====== =======
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net loss $ (867) $ (338)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 584 704
Amortization of loan costs 17 20
Change in accounts:
Receivables and deposits (42) 50
Other assets 6 (63)
Accounts payable 84 (85)
Tenant security deposit liabilities (14) (19)
Accrued property taxes 95 125
Other liabilities 20 (21)
Due to Managing General Partner 97 1
---- -- ----- -
Net cash (used in) provided by operating activities (20) 374
--- --- --- ---
Cash flows from investing activities:
Property improvements and replacements (525) (470)
Net withdrawals from restricted escrows 29 47
---- -- ---- --
Net cash used in investing activities (496) (423)
-- ---- -- ----
Cash flows from financing activities:
Payments of mortgage notes payable (215) (169)
Proceeds from mortgage note payable -- 7,000
Repayment of mortgage note payable -- (3,825)
Loan costs paid -- (194)
Distributions to partners -- (3,327)
Advances from affiliate 714 275
Principal payments on advances from affiliates (57) --
--- --- ---- --
Net cash provided by (used in) investing activities 442 (240)
--- --- -- ----
Net decrease in cash and cash equivalents (74) (289)
Cash and cash equivalents at beginning of period 281 813
--- --- --- ---
Cash and cash equivalents at end of period $ 207 $ 524
==== ====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 590 $ 569
==== ====
Supplemental disclosures of non-cash activity:
Property improvements and replacements in accounts payable $ 317 $ 92
==== ===
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 5
(the "Partnership" 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 month periods 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 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.
Reclassifications
Certain reclassifications have been made to the 2001 balances to conform to the
2002 presentations.
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 property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
During the six months ended June 30, 2002 and 2001, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Partnership paid to such affiliates approximately $105,000 and $124,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
operating expenses.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $184,000 and $137,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
operating and general and administrative expenses, and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Managing General Partner of approximately
$57,000 and $24,000 for the six months ended June 30, 2002 and 2001,
respectively. The construction management service fees are based on a percentage
of current year additions to investment properties. As of June 30, 2002 the
Partnership owed approximately $105,000 of accrued accountable administrative
expenses to an affiliate of the Managing General Partner.
For services relating to the administration of the Partnership and operation of
the Partnership 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. No
such reimbursements were earned during the six months ended June 30, 2002. The
Managing General Partner earned and received approximately $20,000 during the
six months ended June 30, 2001, which is included in general and administrative
expense.
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 $108,000 and $125,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Upon the sale of the Partnership's properties, NPI Equity will be entitled to an
Incentive Compensation Fee equal to a declining percentage of the difference
between the total amount distributed to limited partners and the appraised value
of their investment at February 1, 1992. The percentage amount to be realized by
NPI Equity, if any, will be dependent upon the year in which the property is
sold. Payment of the Incentive compensation Fee is subordinated to the receipt
by the limited partners, of: (a) distributions from capital transaction proceeds
of an amount equal to their appraised investment in the Partnership at February
1, 1992, and (b) distributions from all sources (capital transactions as well as
cash flow) of an amount equal to six percent (6%) per annum cumulative,
non-compounded, on their appraised investment in the Partnership at February 1,
1992. As of June 30, 2002, an incentive management fee of approximately $290,000
has been accrued related to the sale of The Village in 1998.
The Managing General Partner 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
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, as defined in the
Partnership Agreement); (ii) the sale or refinancing of a property by the
Partnership, or; (iii) the liquidation of the Partnership. During the six months
ended June 30, 2001, the Managing General Partner advanced the Partnership
approximately $275,000 under this Partnership Revolver. During the latter part
of 2001, the Managing General Partner agreed to advance funds in excess of the
revolving credit facility. These additional funds were needed to fund operating
expenses of two of the investment properties. During the six months ended June
30, 2002, the Managing General Partner advanced an additional amount of
approximately $714,000 to the Partnership. The Partnership repaid approximately
$57,000 during the same period. At June 30, 2002, the Partnership has a balance
of approximately $1,320,000 under this Partnership Revolver which includes
accrued interest of approximately $45,000. During the six months ended June 30,
2002 and 2001, interest of approximately $32,000 and $3,000 was included in
interest expense.
Note C - Refinancing of Mortgage Note Payable
On February 14, 2001, the Partnership refinanced the mortgage encumbering
Oakwood Village. The refinancing replaced indebtedness of $3,825,000 with a new
mortgage in the amount of $7,000,000. The mortgage was refinanced at a rate of
7.18% compared to the prior rate of 8.56% and matures on March 1, 2021 at which
time it is scheduled to be fully amortized. Payments of approximately $55,000
are due on the first day of each month until the loan matures. Capitalized loan
costs of approximately $24,000 were incurred during the fourth quarter 2000 and
approximately $194,000 were incurred during the six months ended June 30, 2001.
These costs are included in other assets and are being amortized over the life
of the loan.
Note D - 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 order 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 operations. 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 of the properties for the
six months ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
-------- ---- ----
Willow Park on Lake Adelaide 91% 93%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 91% 93%
Winter Park, Florida
Palisades Apartments 69% 80%
Montgomery, Alabama
The Partnership attributes the decrease in occupancy at Palisades
Apartments to the evictions of unqualified tenants. The Partnership is
making capital improvements at Palisades Apartments to improve its curb
appeal in an attempt to increase occupancy.
Results of Operations
The Partnership's net loss for the three and six months ended June 30, 2002, was
approximately $547,000 and $867,000 as compared to a net loss of approximately
$183,000 and $338,000 for the three and six months ended June 30, 2001. The
increase in net loss for the three and six months ended June 30, 2002 is due to
a decrease in total revenues and an increase in total expenses. The decrease in
total revenues for the three and six months ended June 30, 2002, is due
primarily to a decrease in rental income which was partially offset by an
increase in other income. Rental income decreased due to a decrease in occupancy
at Palisades Apartments and an increase in concessions and special promotions at
Oakwood Village Apartments and Willow Park Apartments partially offset by a
decrease in concessions and special promotions at Palisades Apartments. Other
income increased due to an increase in utilities reimbursements and laundry
income at all of the Partnership's investment properties and lease cancellation
fees at Oakwood Village Apartments partially offset by a decrease in interest
income resulting from a decrease in average cash balances maintained in interest
bearing accounts at the Partnership and its investment properties.
The increase in total expenses for the three and six months ended June 30, 2002,
is due to an increase in operating and interest expenses partially offset by a
decrease in depreciation expense. Operating expense increased due to an increase
in maintenance expense and insurance expense. Maintenance expense increased due
to an increase in floor covering repairs and contract trash removal at Willow
Park Apartments and Palisades Apartments and the purchase of maintenance
materials, painting supplies and contract interior painting at Palisades
Apartments. Insurance expense increased due to an increase in insurance premiums
at all of the Partnership's investment properties. Interest expense increased
due to the refinancing of the mortgage encumbering Oakwood Village Apartments
during the first quarter of 2001, which increased the debt balance, as well as
interest on advances from the Managing General Partner. Depreciation expense
decreased due to some assets becoming fully depreciated at the Palisades
Apartments.
General and administrative expense remained relatively constant for the three
and six months ended June 30, 2002 and 2001, respectively. Included in general
and administrative expenses for the three and six months ended June 30, 2002 and
2001, are management reimbursements to the Managing General Partner allowed
under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of this
plan, the Managing General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$207,000 as compared to approximately $524,000 at June 30, 2001. For the six
months ended June 30, 2002, cash and cash equivalents decreased by approximately
$74,000 from the Partnership's year ended December 31, 2001. The decrease in
cash and cash equivalents is due to approximately $496,000 of cash used in
investing activities and approximately $20,000 of cash used in operating
activities largely offset by $442,000 of cash provided by financing activities.
Cash used in investing activities consisted of property improvements and
replacements partially offset by net withdrawals from restricted escrows
maintained by the mortgage lenders. Cash provided by financing activities
consisted of advances made by the Managing General Partner partially offset by
principal payments made on the mortgages encumbering the Partnership's
properties and principal payments on advances from the Managing General Partner.
The Partnership invests its working capital reserves in interest bearing
accounts.
The Managing General Partner 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
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, as defined in the
Partnership Agreement); (ii) the sale or refinancing of a property by the
Partnership, or; (iii) the liquidation of the Partnership. During the six months
ended June 30, 2001, the Managing General Partner advanced the Partnership
approximately $275,000 under this Partnership Revolver. During the latter part
of 2001, the Managing General Partner agreed to advance funds in excess of the
revolving credit facility. These additional funds were needed to fund operating
expenses of two of the investment properties. During the six months ended June
30, 2002, the Managing General Partner advanced an additional amount of
approximately $714,000 to the Partnership. The Partnership repaid approximately
$57,000 during the same period. At June 30, 2002, the Partnership has a balance
of approximately $1,320,000 under this Partnership Revolver which includes
accrued interest of approximately $45,000. During the six months ended June 30,
2002 and 2001, interest of approximately $32,000 and $3,000 was included in
interest expense.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
for each of the Partnership's properties are detailed below.
Willow Park on Lake Adelaide
During the six months ended June 30, 2002, the Partnership completed
approximately $51,000 of capital improvements at Willow Park, consisting
primarily of cabinets, electrical upgrades, office computers and appliance and
floor covering replacements. These improvements were funded through operating
cash flow. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $64,000 for the year 2002 at this property which
consist primarily of air conditioning unit replacements, major landscaping,
structural improvements and appliance and floor covering replacements.
Oakwood Village at Lake Nan Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $70,000 of capital improvements at Oakwood Village consisting
primarily of structural improvements, water heater replacements, office
computers, plumbing improvements and appliance and floor covering replacements.
These improvements were funded through operating cash flow. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $91,000
for the year 2002 at this property which consist primarily of air conditioning
unit replacements, plumbing improvements, structural improvements and appliance
and floor covering replacements.
Palisades Apartments
During the three months ended June 30, 2002, the Partnership completed
approximately $721,000 of budgeted and unbudgeted capital improvements at
Palisades Apartments, consisting of plumbing improvements, air conditioning
replacements, interior painting of common areas, office computers, pool
improvements, roof replacements, structural improvements and appliance and floor
covering replacements. These improvements were funded through operating cash
flow, replacement reserves and advances from an affiliate of the Managing
General Partner. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $697,000 for the year 2002 at this property which
consist primarily of gutter replacement, exterior painting, parking lot
improvements, water heater replacements, air conditioning improvements, roof
replacements, structural improvements and appliance and floor covering
replacements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $14,749,000 is being amortized over varying
periods with a balloon payment due at maturity of approximately $3,996,000 in
July 2003 for the Palisades Apartments. 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 Partnership will risk losing such properties through foreclosure.
On February 14, 2001, the Partnership refinanced the mortgage encumbering
Oakwood Village. The refinancing replaced indebtedness of $3,825,000 with a new
mortgage in the amount of $7,000,000. The mortgage was refinanced at a rate of
7.18% compared to the prior rate of 8.56% and matures on March 1, 2021 at which
time it is scheduled to be fully amortized. Payments of approximately $55,000
are due on the first day of each month until the loan matures. Capitalized loan
costs of approximately $24,000 were incurred during the fourth quarter 2000 and
approximately $194,000 were incurred during the six months ended June 30, 2001.
These costs are included in other assets and are being amortized over the life
of the loan.
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
Operations $ -- $ -- $ 296 $ 3.48
Refinancing (1) -- -- 3,031 36.00
---- ----- ----- -----
$ -- $ -- $3,327 $39.48
==== ===== ===== =====
(1) From the refinancing of Oakwood Village Apartments in 2001 and the remaining
proceeds of Willow Park Apartments in 1999.
The Partnership's cash available for distribution 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,
however, that the Partnership will generate sufficient funds from operations
after required capital improvements to permit distributions to its partners
during the remainder of 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 52,671 limited partnership units
(the "Units") in the Partnership representing 63.83% 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. In this
regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire
any and all of the units not owned by affiliates of AIMCO for a purchase price
of $16.00 per unit expired. Pursuant to this offer, AIMCO acquired 1,393 units
during the quarter ended June 30, 2002. 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 63.83% of the outstanding Units, AIMCO is in a
position to influence all voting decisions with respect to the Registrant.
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. However, with respect to 37,101 Units,
AIMCO is required 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 votes cast by
non-tendering unit holders. Except for the foregoing, no other limitations are
imposed on AIMCO's ability to influence voting decisions with respect to the
Partnership.
Critical Accounting Policies and Estimates
The 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 order 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:
3.4(a) Agreement of Limited Partnership, incorporated by
reference to Exhibit A to the Prospectus of the Partnership,
dated January 4, 1982, included in the Partnership's
Registration Statement on Form S-11 (Reg. No. 2-74143).
3.4(b) Amendments to Agreement of Limited Partnership,
incorporated by reference to the Definitive Proxy Statement
of the Partnership, dated April 3, 1991.
3.4(c) Amendments to the Partnership Agreement, incorporated by
reference to the Statement Furnished in Connection with the
Soliciatation of the Registrant, dated August 28, 1992.
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 5
By: NPI EQUITY INVESTMENTS, INC.
Its 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 5 (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.