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 September 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)
September 30, 2002
Assets
Cash and cash equivalents $ 381
Receivables and deposits 241
Restricted escrows 37
Other assets 389
Investment properties:
Land $ 2,145
Buildings and related personal property 31,118
33,263
Less accumulated depreciation (26,404) 6,859
$ 7,907
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 484
Tenant security deposit liabilities 79
Accrued property taxes 208
Due to Managing General Partner 2,588
Other liabilities 292
Mortgage notes payable 14,639
Partners' Deficit
General partner $ (1,430)
Limited partners (82,513 units
issued and outstanding) (8,953) (10,383)
$ 7,907
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenues:
Rental income $ 901 $ 1,056 $ 2,817 $ 3,239
Other income 123 101 358 301
Casualty gain 47 -- 47 --
Total revenues 1,071 1,157 3,222 3,540
Expenses:
Operating 596 735 2,102 1,856
General and administrative 69 73 222 240
Depreciation 303 273 887 977
Interest 328 317 969 921
Property taxes 66 73 200 198
Total expenses 1,362 1,471 4,380 4,192
Net loss $ (291) $ (314) $(1,158) $ (652)
Net loss allocated to general
partner (3%) $ (9) $ (9) $ (35) $ (20)
Net loss allocated to limited
partners (97%) (282) (305) (1,123) (632)
$ (291) $ (314) $(1,158) $ (652)
Net loss per limited partnership unit $ (3.42) $ (3.70) $(13.61) $ (7.66)
Distributions per limited partnership
unit $ -- $ -- $ -- $ 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 nine months
ended September 30, 2002 -- (35) (1,123) (1,158)
Partners' deficit at
September 30, 2002 82,513 $(1,430) $(8,953) $(10,383)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net loss $(1,158) $ (652)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 887 977
Amortization of loan costs 22 30
Casualty gain (47) --
Change in accounts:
Receivables and deposits (48) (5)
Other assets (8) (85)
Accounts payable 248 110
Tenant security deposit liabilities (16) (25)
Accrued property taxes 161 198
Other liabilities (72) 5
Due to Managing General Partner 130 (15)
Net cash provided by operating activities 99 538
Cash flows from investing activities:
Insurance proceeds received 57 --
Property improvements and replacements (1,235) (890)
Net withdrawals from restricted escrows 7 26
Net cash used in investing activities (1,171) (864)
Cash flows from financing activities:
Payments of mortgage notes payable (325) (271)
Proceeds from mortgage note payable -- 7,000
Repayment of mortgage note payable -- (3,825)
Loan costs paid -- (200)
Distributions to partners -- (3,327)
Advances from affiliate 1,554 423
Principal payments on advances from affiliates (57) (147)
Net cash provided by (used in) financing activities 1,172 (347)
Net increase (decrease) in cash and cash equivalents 100 (673)
Cash and cash equivalents at beginning of period 281 813
Cash and cash equivalents at end of period $ 381 $ 140
Supplemental disclosure of cash flow information:
Cash paid for interest $ 881 $ 868
Supplemental disclosures of non-cash activity:
Property improvements and replacements in accounts payable $ -- $ 29
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 nine months ended September 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 nine months ended September 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 $162,000 and $185,000 for the
nine months ended September 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 $294,000 and $358,000 for the
nine months ended September 30, 2002 and 2001, respectively, which is included
in interest, 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 $101,000 and $191,000 for the nine months ended September 30, 2002
and 2001, respectively. The construction management service fees are based on a
percentage of current year additions to investment properties. As of September
30, 2002 the Partnership owed approximately $114,000 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 nine months ended September 30, 2002.
The Managing General Partner earned and received approximately $20,000 during
the nine months ended September 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 nine months ended
September 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 September 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 nine
months ended September 30, 2001, the Managing General Partner advanced the
Partnership approximately $423,000 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 the Partnership and two of its investment properties.
During the nine months ended September 30, 2002, the Managing General Partner
advanced an additional amount of approximately $1,554,000 to the Partnership.
The Partnership repaid approximately $57,000 and $147,000 during the nine months
ended September 30, 2002 and 2001, respectively. At September 30, 2002, the
Partnership has a balance of approximately $2,184,000 under this Partnership
Revolver which includes accrued interest of approximately $69,000. During the
nine months ended September 30, 2002 and 2001, interest of approximately $57,000
and $9,000 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 of 2000
and approximately $200,000 were incurred during the nine months ended September
30, 2001. These costs are included in other assets and are being amortized over
the life of the loan.
Note D - Casualty Gain
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $33,000 was recorded at Willow Park Apartments. The casualty
gain related to fire damage to the apartment complex on September 9, 2001. The
gain was a result of the receipt of insurance proceeds of approximately $43,000
offset by approximately $10,000 of undepreciated fixed assets being written off.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $14,000 was recorded at Palisades Apartments. The casualty
related to fire damage to one apartment unit that occurred on March 1, 2002. The
gain was the result of insurance proceeds of approximately $14,000. The asset
damaged by the fire was fully depreciated.
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 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. On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 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. 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 Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Willow Park on Lake Adelaide 93% 94%
Altamonte Springs, Florida
Oakwood Village on Lake Nan Apartments 92% 94%
Winter Park, Florida
Palisades Apartments 62% 80%
Montgomery, Alabama
The Partnership attributes the decrease in occupancy at Palisades Apartments
primarily to general economic conditions, local market condition and the
location of the property. In addition, the presence of mold in certain of the
units and general deferred maintenance issues have resulted in a significant
number of apartment units not being available for rent. The Managing General
Partner considered whether to pursue an extensive rehabilitation of the property
to correct the mold and deferred maintenance issues or to sell the property in
its current condition. The Managing General Partner has decided to sell the
property in its current condition and is currently marketing the property for
sale. Although there is no assurance that the Partnership will be able to obtain
its expected sale price, the Managing General Partner does not believe that the
Partnership will incur a loss upon the completion of the sale of this property.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
2002, was approximately $291,000 and $1,158,000 as compared to a net loss of
approximately $314,000 and $652,000 for the three and nine months ended
September 30, 2001. The increase in net loss for the nine months ended September
30, 2002 is due to a decrease in total revenues and an increase in total
expenses. The decrease in net loss for the three months ended September 30, 2002
is due to a decrease in total expenses partially offset by a decrease in total
revenues. The decrease in total revenues for the three and nine months ended
September 30, 2002, is due to a decrease in rental income, partially offset by
an increase in other income and casualty gain. Rental income decreased due to a
decrease in occupancy and an increase in bad debt at Palisades Apartments and a
decrease in average rental rates at Palisades 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 at Willow Park Apartments and Oakwood Village Apartments, lease
cancellation fees at Oakwood Village Apartments and cleaning and damage fees at
Palisades Apartments and 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.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $33,000 was recorded at Willow Park Apartments. The casualty
gain related to fire damage to the apartment complex on September 9, 2001. The
gain was a result of the receipt of insurance proceeds of approximately $43,000
offset by approximately $10,000 of undepreciated fixed assets being written off.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $14,000 was recorded at Palisades Apartments. The casualty
related to fire damage to one apartment unit that occurred on March 1, 2002. The
gain was the result of insurance proceeds of approximately $14,000. The asset
damaged by the fire was fully depreciated at the time of the accident.
The increase in total expenses for the nine months ended September 30, 2002, is
due to an increase in operating and interest expenses, partially offset by a
decrease in depreciation expense. Operating expenses increased due to an
increase in maintenance expense, partially offset by a decrease in property
expense. Maintenance expense increased due to maintenance materials, contract
yard maintenance and repair work, contract painting and painting supplies and
contract interior building improvements at Palisades Apartments, partially
offset by a decrease in contract cleaning and maintenance supplies at Willow
Park Apartments. Property expense decreased due to a decrease in employee
salaries at Willow Park Apartments and Palisades Apartments and utility bills at
Willow Park Apartments, partially offset by an increase in water bills and
contract courtesy patrol at Palisades Apartments. 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,
partially offset by an increase in assets placed in service during 2002.
The decrease in total expenses for the three months ended September 30, 2002 is
due to a decrease in operating expenses, partially offset by an increase in
depreciation expense. Operating expenses decreased due to a decrease in property
expense and insurance expense. Property expense decreased due to a decrease in
employee salaries at all of the Partnership's investment properties. Insurance
expense decreased due to additional hazard insurance premiums being paid at
Oakwood Village Apartments and Willow Park Apartments during the three months
ended September 30, 2001. Depreciation expense increased for the three months
ended September 30, 2002, due to significant number of assets placed in service
during 2002.
General and administrative expense remained relatively constant for the three
and nine months ended September 30, 2002 and 2001, respectively. Included in
general and administrative expenses for the three and nine months ended
September 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 September 30, 2002, the Partnership had cash and cash equivalents of
approximately $381,000 as compared to approximately $140,000 at September 30,
2001. For the nine months ended September 30, 2002, cash and cash equivalents
increased by approximately $100,000 from the Partnership's fiscal year ended
December 31, 2001. The increase in cash and cash equivalents is due to
approximately $99,000 of cash provided by operating activities and approximately
$1,172,000 of cash provided by financing activities, partially offset by
approximately $1,171,000 of cash used in investing 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 and insurance proceeds received from the casualties at Willow
Park Apartments and Palisades Apartments. 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 nine
months ended September 30, 2001, the Managing General Partner advanced the
Partnership approximately $423,000 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 nine
months ended September 30, 2002, the Managing General Partner advanced an
additional amount of approximately $1,554,000 to the Partnership. The
Partnership repaid approximately $57,000 and $147,000 during the nine months
ended September 30, 2002 and 2001, respectively. At September 30, 2002, the
Partnership has a balance of approximately $2,184,000 under this Partnership
Revolver which includes accrued interest of approximately $69,000. During the
nine months ended September 30, 2002 and 2001, interest of approximately $57,000
and $9,000 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. The Managing General
Partner monitors developments in the area of legal and regulatory compliance and
is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements for
each of the Partnership's properties are detailed below.
Willow Park on Lake Adelaide
During the nine months ended September 30, 2002, the Partnership completed
approximately $128,000 of budgeted and unbudgeted capital improvements at Willow
Park, consisting primarily of building improvements, roof replacements, plumbing
improvements, fencing, 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 $88,000 for the year 2002 at this
property which consist primarily of air conditioning unit replacements, major
landscaping, electrical upgrades, structural improvements and appliance and
floor covering replacements. Additional improvements may be considered and will
depend on the physical condition of the property as well as anticipated cash
flow generated by the property.
Oakwood Village on Lake Nan Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $117,000 of budgeted and unbudgeted capital improvements at
Oakwood Village consisting primarily of structural improvements, air
conditioning replacements, 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 $98,000 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. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Palisades Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $990,000 of budgeted and unbudgeted capital improvements at
Palisades Apartments, consisting of plumbing improvements, air conditioning
replacements, interior decorating, plumbing improvements, electrical upgrades,
office computers, 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 $753,000 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. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
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 $14,639,000 is being amortized over varying
periods from July 2003 to March 2021 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 of 2000
and approximately $200,000 were incurred during the nine months ended September
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.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands except per unit data):
Nine Months Nine Months
Ended Per Limited Ended Per Limited
September 30, Partnership September 30, Partnership
2002 Unit 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
September 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
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 owes fiduciary duties to AIMCO as its sole stockholder. As
a result, the duties of the Managing General Partner, as managing general
partner, to the Partnership 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.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Managing
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
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. On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 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. 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 September 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: November 13, 2002
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of National Property
Investors 5;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Patrick J. Foye
Executive Vice President of NPI Equity
Investments, Inc., equivalent of the chief
executive officer of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of National Property
Investors 5;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of NPI Equity Investments, Inc.,
equivalent of the chief financial officer of
the Partnership
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 September 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.
__________________
Name: Patrick J. Foye
Date: November 13, 2002
__________________
Name: Paul J. McAuliffe
Date: November 13, 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.