UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(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 0-9567
NATIONAL PROPERTY INVESTORS III
(Exact name of small business issuer as specified in its charter)
California 13-2974428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
The issuer recently discovered that it had inadvertently omitted conformed
signatures on certain certifications included in its 10-QSB filing made November
14, 2002. Original signatures were complete and on file with the issuer at the
time the 10-QSB filing was made in November; however, due to a clerical error,
conformed signatures were not included in the electronic filing. This amendment
is being filed solely to correct this inadvertent clerical error.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2002
Assets
Cash and cash equivalents $ 515
Receivables and deposits 530
Restricted escrows 108
Other assets 985
Investment properties:
Land $ 3,023
Buildings and related personal property 37,716
40,739
Less accumulated depreciation (30,402) 10,337
$ 12,475
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 220
Tenant security deposit liabilities 236
Accrued property taxes 577
Other liabilities 670
Mortgage notes payable 33,520
Partners' Deficit
General partner $ (299)
Limited partners (48,049 units
issued and outstanding) (22,449) (22,748)
$ 12,475
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenues:
Rental income $ 2,110 $ 2,191 $ 6,389 $ 6,616
Other income 196 204 641 618
Casualty gain 41 -- 41 35
Total revenues 2,347 2,395 7,071 7,269
Expenses:
Operating 944 847 2,807 2,678
General and administrative 101 80 272 351
Depreciation 441 440 1,356 1,328
Interest 621 515 1,862 1,548
Property taxes 258 170 632 575
Total expenses 2,365 2,052 6,929 6,480
Net (loss) income $ (18) $ 343 $ 142 $ 789
Net income allocated
to general partner (1%) $ -- $ 4 $ 1 $ 8
Net (loss) income allocated
to limited partners (99%) (18) 339 141 781
$ (18) $ 343 $ 142 $ 789
Net (loss) income per limited
partnership unit $ (0.37) $ 7.05 $ 2.93 $ 16.25
Distributions per limited
partnership unit $ 6.70 $ 9.68 $ 28.76 $ 45.68
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 48,049 $ 1 $ 24,024 $ 24,025
Partners' deficit at
December 31, 2001 48,049 $ (294) $(21,208) $(21,502)
Net income for the nine months
ended September 30, 2002 -- 1 141 142
Distributions to partners -- (6) (1,382) (1,388)
Partners' deficit at
September 30, 2002 48,049 $ (299) $(22,449) $(22,748)
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net income $ 142 $ 789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,356 1,328
Bad debt 184 182
Amortization of loan costs 42 67
Casualty gain (41) (35)
Change in accounts:
Receivables and deposits 518 (53)
Other assets (61) (65)
Accounts payable 126 9
Tenant security deposit liabilities 16 (1)
Accrued property taxes (54) (28)
Due to affiliates (27) --
Other liabilities 306 (148)
Net cash provided by operating activities 2,507 2,045
Cash flows from investing activities:
Property improvements and replacements (581) (787)
Net withdrawals from restricted escrows 192 38
Insurance proceeds received 44 127
Net cash used in investing activities (345) (622)
Cash flows from financing activities:
Payments on mortgage notes payable (525) (134)
Payments on advances from affiliate (35) --
Distributions to partners (1,388) (2,217)
Net cash used in financing activities (1,948) (2,351)
Net increase (decrease) in cash and cash equivalents 214 (928)
Cash and cash equivalents at beginning of period 301 1,598
Cash and cash equivalents at end of period $ 515 $ 670
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,677 $ 1,481
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 13 $ --
At December 31, 2001, approximately $100,000 of property improvements and
replacements were included in accounts payable which are included in property
improvements and replacements during the nine months ended September 30, 2002.
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of National
Property Investors III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of NPI Equity Investments, Inc. ("NPI
Equity" or the "Managing General Partner") all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and 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
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001. The Managing General Partner is an affiliate of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Certain reclassifications have been made to the 2001 information to conform to
the 2002 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $356,000 and
$368,000 for the nine months ended September 30, 2002 and 2001, respectively,
which is included in operating expenses.
Affiliates of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $202,000 and
$272,000 for the nine months ended September 30, 2002 and 2001, respectively,
which are included in general and administrative expense 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 $27,000 and $96,000 for the nine months ended September 30, 2002
and 2001, respectively. The construction management service fees are calculated
based on a percentage of current year additions to investment properties.
For services relating to the administration of the Partnership and operation of
the Partnership's properties, the Managing General Partner is entitled to
receive payment for non-accountable expenses up to a maximum of $100,000 per
year based upon the number of Partnership units sold, subject to certain
limitations. The Managing General Partner received approximately $51,000 and
$100,000 during the nine months ended September 30, 2002 and 2001, respectively,
in connection with the distributions paid to the partners.
NPI Equity has established a revolving credit facility (the "Partnership
Revolver") to be used to fund deferred maintenance and working capital needs of
the National Property Investors Partnership Series. The maximum draw available
to the Partnership under the Partnership Revolver is $300,000. Loans under the
Partnership Revolver will have a term of 365 days, be unsecured and bear
interest at the rate of 2% per annum in excess of the prime rate. The maturity
date of such borrowing will be accelerated in the event of: (i) the removal of
the NPI Equity (whether or not for cause); (ii) the sale or refinancing of a
property by the Partnership (whether or not a borrowing under the Partnership
Revolver was made with respect to such property); or (iii) the liquidation of
the Partnership. During the nine months ended September 30, 2002, the
Partnership repaid approximately $35,000, representing the outstanding balance
which had been previously borrowed under the Partnership Revolver. Interest
expense during the nine months ended September 30, 2002, amounted to less than
$1,000. No amounts were borrowed at any time during the nine months ended
September 30, 2002.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the nine months ended
September 30, 2002 and 2001, the Partnership was charged by AIMCO and its
affiliates approximately $90,000 and $115,000, respectively, for insurance
coverage and fees associated with policy claims administration.
Note C - Casualty Gain
During the nine months ended September 30, 2002 a net casualty gain of
approximately $41,000 was recorded at Lakeside Apartments. The casualty gain
related to a fire, occurring in February 2002, which destroyed one unit and
caused flooding damage to another. The gain was the result of the receipt of
insurance proceeds of approximately $44,000 offset by approximately $3,000 of
undepreciated property improvements and replacements being written off.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs were covered by insurance.
Reconstruction was completed during the third quarter of 2000. During the nine
months ended September 30, 2001, final insurance proceeds of approximately
$127,000 were received and the Partnership recognized an additional casualty
gain of approximately $35,000 related to this fire.
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 ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement. 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 for each of the properties
for both of the nine month periods ended September 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Lakeside Apartments (1) 90% 93%
Lisle, Illinois
Pinetree Apartments (1) 86% 92%
Charlotte, North Carolina
Summerwalk Apartments 93% 93%
Winter Park, Florida
(1) The Managing General Partner attributes the decrease in occupancy at
Lakeside Apartments and Pinetree Apartments to the slow economy in their
respective areas.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2002 was
approximately $142,000 compared to net income of approximately $789,000 for the
nine months ended September 30, 2001. The Partnership had a net loss for the
three months ended September 30, 2002 of approximately $18,000 compared to net
income of approximately $343,000 for the three months ended September 30, 2001.
The decrease in net income for the three and nine months ended September 30,
2002 is primarily due to an increase in total expenses and a decrease in total
revenues. The increase in total expenses is due to an increase in operating,
interest and property tax expenses. Operating expenses increased due to an
increase in maintenance expense at all three properties and an increase in
advertising referral fee expenses and insurance expense at both Lakeside
Apartments and Summerwalk Apartments partially offset by a decrease in property
expenses at Lakeside Apartments and Pinetree Apartments. The increase in
maintenance expense is a combination of increases in interior painting, snow
removal and floor repairs at Lakeside Apartments and an increase in contract
repairs and cleaning at Pinetree Apartments and Summerwalk Apartments. The
decrease in property expense at Lakeside Apartments is a result of a decrease in
usage and the cost of natural gas. The decrease in property expense at Pinetree
Apartments is the result of a decrease in salaries and commission expense.
Interest expense increased due to the refinancing of the mortgage encumbering
Lakeside Apartments which resulted in a higher average debt balance in 2002.
Property tax expense increased as a result of an understatement of the expense
recognized at Lakeside Apartments for the nine months ended September 30, 2001,
which was based on estimates of the 2001 tax liability.
For the nine months ended September 30, 2002, the increase in total expenses was
partially offset by a decrease in general and administrative expenses. This
decrease is due to a decrease in non-accountable reimbursements allowed with
operating distributions. Fees totaling $100,000 were paid in relation to
operating distributions in 2001 versus approximately $51,000 in 2002. General
and administrative expense increased for the three months ended September 30,
2002 due to an increase in reimbursements to the Managing General Partner as
discussed below. Included in general and administrative expenses for the three
and nine months ended September 30, 2002 and 2001 are reimbursements to the
Managing General Partner allowed under the Partnership Agreement associated with
the management of the Partnership. Also, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are included.
Total revenues decreased due to a decrease in rental income caused by the
decreases in occupancy at Pinetree and Lakeside Apartments as discussed above
offset by the casualty gain at Lakeside Apartments. For the nine months ended
September 30, 2002, the decrease in rental income was also offset by an increase
in other income due primarily to an increase in tenant reimbursements at
Lakeside and Summerwalk Apartments.
During the nine months ended September 30, 2002 a net casualty gain of
approximately $41,000 was recorded at Lakeside Apartments. The casualty gain
related to a fire, occurring in February 2002, which destroyed one unit and
caused flooding damage to another. The gain was the result of the receipt of
insurance proceeds of approximately $44,000 offset by approximately $3,000 of
undepreciated property improvements and replacements being written off.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs were covered by insurance.
Reconstruction was completed during the third quarter of 2000. During the nine
months ended September 30, 2001, final insurance proceeds of approximately
$127,000 were received and the Partnership recognized an additional casualty
gain of approximately $35,000 related to this fire.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At September 30, 2002, the Partnership had cash and cash equivalents of
approximately $515,000 as compared to approximately $670,000 at September 30,
2001. Cash and cash equivalents increased approximately $214,000 since December
31, 2001 due to approximately $2,507,000 of cash provided by operating
activities offset by approximately $1,948,000 and $345,000 of cash used in
financing and investing activities, respectively. Cash used in financing
activities consists of distributions to the partners, principal payments made on
the mortgages encumbering the Partnership's properties and payments on advances
from affiliates. Cash used in investing activities consists of property
improvements and replacements partially offset by net withdrawals from
restricted escrows maintained by the mortgage lenders and the receipt of
insurance proceeds. The Partnership invests its working capital reserves in
interest bearing accounts.
The Managing General Partner has extended to the Partnership a $300,000 line of
credit. At the present time, the Partnership has no outstanding amounts due
under this line of credit. Based on present plans, the Managing General Partner
does not anticipate the need to borrow in the near future. Other than cash and
cash equivalents, the line of credit is the Partnership's only unused source of
liquidity.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. 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
planned for each of the Partnership's properties are detailed below.
Lakeside Apartments
The Partnership budgeted approximately $207,000 for capital improvements at
Lakeside Apartments for 2002 consisting primarily of floor covering, fencing and
parking lot upgrades. During the nine months ended September 30, 2002, the
Partnership completed approximately $222,000 of budgeted and unbudgeted capital
improvements at Lakeside Apartments consisting primarily of floor covering
replacements, parking area upgrades, water heaters, cabinets and office
equipment. These improvements were funded from operating cash flows, replacement
reserves and insurance proceeds. Additional improvements may be considered and
will depend on the physical condition of the property and anticipated cash flow
generated by the property.
Pinetree Apartments
The Partnership budgeted approximately $208,000 for capital improvements at
Pinetree Apartments for 2002 consisting primarily of exterior painting, floor
covering and air conditioning replacements and water submetering. During the
nine months ended September 30, 2002, the Partnership completed approximately
$163,000 of capital improvements at Pinetree Apartments consisting primarily of
floor covering and appliance replacements, water submetering, structural and air
conditioning improvements and office equipment. These improvements were funded
from operating cash flows. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Summerwalk Apartments
The Partnership budgeted approximately $137,000 for capital improvements at
Summerwalk Apartments for 2002 consisting primarily of floor covering, air
conditioning and roof replacements. During the nine months ended September 30,
2002, the Partnership completed approximately $109,000 of capital improvements
at Summerwalk Apartments consisting primarily of floor covering, air
conditioning and cabinet replacements, plumbing fixtures and electrical
upgrades. These improvements were funded from replacement reserves and operating
cash flows. Additional improvements may be considered and will depend on the
physical condition of the property and anticipated cash flow generated by the
property.
Additional capital expenditures will be incurred only if cash is available from
operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering Summerwalk Apartments totals approximately $4,735,000.
A balloon payment of $4,312,000 will be due in January 2008. The remaining
mortgage indebtedness encumbering Pinetree and Lakeside Apartments of
approximately $28,785,000, is being amortized over 20 years and will mature in
November 2019 and January 2022, respectively, at which time the mortgages will
be fully amortized. The Managing General Partner will attempt to refinance the
indebtedness encumbering Summerwalk Apartments and/or sell the property prior to
its maturity date. If the property cannot be refinanced or sold for a sufficient
amount, the Partnership will risk losing such property through foreclosure.
On December 14, 2001, the Partnership refinanced the mortgage encumbering
Lakeside Apartments. The refinancing replaced indebtedness of $17,200,000 with a
new mortgage in the amount of $24,500,000. The new mortgage carries a stated
interest rate of 7.09% compared to a stated rate of 7.33% on the old mortgage.
Payments of principal and interest are due each month until the loan matures at
which time the loan is scheduled to be fully amortized. Loan costs capitalized
were approximately $648,000 including $245,000 paid to the Managing General
Partner. The Partnership recognized a loss on the early extinguishment of debt
of approximately $123,000 consisting of the write-off of unamortized loan costs
during the fourth quarter of 2001.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2005. Accordingly, prior to such date the Partnership
will need to either sell its investment properties or extend the term of the
Partnership.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Per Limited Nine Months Per Limited
Ended Partnership Ended Partnership
September 30, 2002 Unit September 30, 2001 Unit
Refinancing (1) $ 812 $16.90 $ -- $ --
Operations 576 11.86 2,217 45.68
$1,388 $28.76 $2,217 $45.68
(1) From the refinancing of Lakeside Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings and/or property sales. The Partnership's cash available for
distribution is reviewed on a monthly basis. There can be no assurance that the
Partnership will generate sufficient funds after required capital expenditures
to permit further distributions to its partners in 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 35,657 limited partnership units
(the "Units") in the Partnership representing 74.21% 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
74.21% of the outstanding Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant. However, with respect to the 21,380
Units acquired on January 19, 1996, Insignia Properties, LP ("IPLP"), an
affiliate of the Managing General Partner, agreed to vote such Units: (i)
against any increase in compensation payable to the Managing General Partner or
to affiliates; and (ii) on all other matters submitted by it or its affiliates,
in proportion to the vote cast by non tendering unitholders. Except for the
foregoing, no other limitations are imposed on IPLP's, AIMCO's or any other
affiliates' right to vote each Unit acquired. Although the Managing General
Partner owes fiduciary duties to the limited partners of the Partnership, the
Managing General Partner also 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.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement. 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:
Exhibit 3.4(a), Agreement of Limited Partnership, incorporated
by reference to Exhibit A to the Prospectus of the Partnership
dated October 24, 1979 contained in the Partnership's
Registration Statement on Form S-11 (Reg. No. 2-63733).
Exhibit 3.4(b), Amendments to Agreement of Limited Partnership
dated as of November 25, 1980 incorporated by reference to
Exhibits 3 and 4 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1981.
Exhibit 3.4(c), Amendments to the Agreement of Limited
Partnership incorporated by reference to the Definitive Proxy
Statement of the Partnership dated April 3, 1981.
Exhibit 3.4(d), Amendments to the Agreement of Limited
Partnership, incorporated by reference to the Statement
Furnished in Connection with the Solicitation of Consents of
the Partnership dated August 28, 1992.
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer.
b) Reports on Form 8-K:
None filed during the quarter ended 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 III
By: NPI EQUITY INVESTMENTS, INC.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: January 9, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of National Property
Investors III;
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
/s/Patrick J. Foye
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 III;
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
/s/Paul J. McAuliffe
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 3 (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.
/s/ Patrick J. Foye
Name: Patrick J. Foye
Date: November 13, 2002
/s/ Paul J. McAuliffe
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.