UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact Name of Registrant 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)
March 31, 2003
Assets
Cash and cash equivalents $ 398
Receivables and deposits 191
Restricted escrows 80
Other assets 300
Investment properties:
Land $ 1,169
Buildings and related personal property 17,690
18,859
Less accumulated depreciation (15,778) 3,081
Assets held for sale 3,753
$ 7,803
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 667
Tenant security deposit liabilities 76
Accrued property taxes 61
Due to Managing General Partner 3,420
Other liabilities 244
Mortgage notes payable 10,370
Liabilities related to assets held for sale 4,063
Partners' Deficit
General partner $ (1,451)
Limited partners (82,513 units
issued and outstanding) (9,647) (11,098)
$ 7,803
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
(Restated)
Revenues:
Rental income $ 752 $ 783
Other income 84 81
Total revenues 836 864
Expenses:
Operating 364 349
General and administrative 60 87
Depreciation 209 207
Interest 237 203
Property taxes 61 56
Total expenses 931 902
Loss from continuing operations (95) (38)
Loss from discontinued operations (284) (282)
Net loss $ (379) $ (320)
Net loss allocated to general partner (3%) $ (11) $ (10)
Net loss allocated to limited partners (97%) (368) (310)
$ (379) $ (320)
Per limited partnership unit:
Loss from continuing operations $ (1.12) $ (.45)
Loss from discontinued operations (3.34) (3.31)
Net loss $ (4.46) $ (3.76)
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, 2002 82,513 $(1,440) $(9,279) $(10,719)
Net loss for the three months
ended March 31, 2003 -- (11) (368) (379)
Partners' deficit at
March 31, 2003 82,513 $(1,451) $(9,647) $(11,098)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net loss $ (379) $ (320)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 318 284
Amortization of loan costs 9 9
Change in accounts:
Receivables and deposits (33) (23)
Other assets 31 (49)
Accounts payable 21 68
Due from affiliates 28 --
Due to Managing General Partner 95 12
Tenant security deposit liabilities 2 (7)
Accrued property taxes 70 29
Other liabilities 59 (85)
Net cash provided by (used in) operating activities 221 (82)
Cash flows from investing activities:
Property improvements and replacements (205) (251)
Net (deposits to) withdrawals from restricted escrows (21) 7
Net cash used in investing activities (226) (244)
Cash flows from financing activities:
Payments of mortgage notes payable (115) (107)
Advances from affiliates 286 432
Principal payments on advances from affiliates (4) (38)
Net cash provided by financing activities 167 287
Net increase (decrease) in cash and cash equivalents 162 (39)
Cash and cash equivalents at beginning of period 236 281
Cash and cash equivalents at end of period $ 398 $ 242
Supplemental disclosure of cash flow information:
Cash paid for interest $ 286 $ 296
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 month period ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2003. 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, 2002. The Managing General Partner is a
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as
discontinued operations on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Palisades Apartments as loss from
discontinued operations. Palisades Apartments was sold on April 21, 2003.
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 three months ended March 31, 2003 and 2002, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $47,000 and $51,000 for the
three months ended March 31, 2003 and 2002, respectively, which is included in
operating expenses and loss from discontinued operations.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $73,000 for each of the three
months ended March 31, 2003 and 2002, respectively, which is included in 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 $12,000 for the three months ended
March 31, 2003. No such fees were charged during the three months ended March
31, 2002. The construction management fees are calculated based on a percentage
of current year additions to investment properties. As of March 31, 2003 the
Partnership owed approximately $226,000 of accrued accountable administrative
expenses to an affiliate of the Managing General Partner, of which approximately
$209,000 is included in due to Managing General Partner and approximately
$17,000 is included in liabilities related to assets held for sale.
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 three months ended March 31, 2003 and
2002.
The Partnership insures 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 2003 and 2002, the Partnership's cost for
insurance coverage and fees associated with policy claims administration will be
approximately $43,000 and $102,000, respectively.
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 March 31, 2003, an incentive management fee of approximately
$290,000 is 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 latter
part of 2001, the Managing General Partner agreed to advance funds in excess of
the Partnership Revolver. These additional funds were needed to fund operating
expenses of two of the investment properties. During the three months ended
March 31, 2003 and 2002, the Managing General Partner advanced an additional
amount of approximately $286,000 and $432,000, respectively, to the Partnership.
The Partnership repaid approximately $4,000 and $38,000 during the same periods.
At March 31, 2003, the Partnership has a balance of approximately $2,904,000
under this Partnership Revolver, which includes accrued interest of
approximately $67,000. During the three months ended March 31, 2003 and 2002,
interest on the advances, at a the rate of prime plus 2%, or 6.25% at March 31,
2003, of approximately $36,000 and $12,000, respectively, is included in
interest expense.
Note C - 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 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
Managing General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. Before completing briefing on the appeal, the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The Managing General Partner does not anticipate that any costs to the
Partnership, 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.
Note D - Subsequent Event
On April 21, 2003, the Partnership sold Palisades Apartments to an unrelated
third party for approximately $4,688,000. A portion of the net proceeds from the
sale were used to repay the mortgage encumbering the investment property and the
Partnership expects that the remaining net proceeds will be utilized to repay
certain debt obligations of the Partnership and that no amounts will be
distributed to the partners. Palisades Apartments had revenues of approximately
$131,000 and $257,000 and net loss of approximately $284,000 and $282,000,
respectively, for the three months ended March 31, 2003 and 2002. The
Partnership anticipates that a gain of approximately $616,000 will be recognized
from the sale of Palisades Apartments and as a result of the sale of Palisades
Apartments to an unrelated third party, the accompanying consolidated statements
of operations have been restated as of January 1, 2002 to reflect the
operations of Palisades Apartments as loss from discontinued operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
three months ended March 31, 2003 and 2002:
Average Occupancy
Property 2003 2002
Willow Park on Lake Adelaide 94% 92%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 89% 91%
Winter Park, Florida
Palisades Apartments (1) 31% 76%
Montgomery, Alabama
(1) Property was sold on April 21, 2003 (see Note D).
Results of Operations
The Partnership's net loss for the three months ended March 31, 2003 was
approximately $379,000 as compared to a net loss of approximately $320,000 for
the three months ended March 31, 2002. On April 21, 2003, the Partnership sold
Palisades Apartments to an unrelated third party, for approximately $4,688,000.
A portion of the net proceeds from the sale were used to repay the mortgage
encumbering the investment property and the Partnership expects that the
remaining net proceeds will be utilized to repay certain debt obligations of the
Partnership and that no amount will be distributed to partners. As a result of
this transaction, the operations of Palisades Apartments have been included as
discontinued operations in the accompanying consolidated statements of
operations. The property's operations, net loss of approximately $284,000 and
$282,000 for the three months ended March 31, 2003 and 2002, respectively,
including revenues of approximately $131,000 and $257,000, respectively, are
included in loss from discontinued operations.
Excluding the impact of loss from discontinued operations, the Partnership's
loss from continuing operations for the three months ended March 31, 2003 was
approximately $95,000 as compared to a loss from continuing operations of
approximately $38,000 for the three months ended March 31, 2002. The increase in
loss from continuing operations is due to a decrease in total revenues and an
increase in total expenses. The decrease in total revenues is due to a decrease
in rental income. Rental income decreased due to a decrease in occupancy at
Oakwood Village Apartments and a decrease in average rental rates at both
Oakwood Village Apartments and Willow Park Apartments partially offset by a
decrease in concessions and special promotions at Willow Park Apartments.
Total expenses increased due to an increase in operating and interest expenses,
partially offset by a decrease in general and administrative expenses. Operating
expenses increased due to an increase in advertising and property expenses
partially offset by a decrease in insurance expense. Advertising expense
increased due to an increase in referral fees and periodical advertising at
Oakwood Village Apartments. Property expense increased due to an increase in
leasing payroll, employee salaries and turnover reduction incentives at Oakwood
Village Apartments partially offset by a decrease in employee salaries at
Willowick Park Apartments. Insurance expense decreased due to a decrease in
hazard insurance premiums at Oakwood Village Apartments. Interest expense
increased due to an increase in interest charged on advances from the Managing
General Partner during the three months ended March 31, 2003. General and
administrative expenses decreased for the three months ended March 31, 2003 due
to a decrease in management reimbursements allowed to the Managing General
Partner under the Partnership Agreement. In addition, costs associated with the
quarterly 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 each 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 March 31, 2003, the Partnership had cash and cash equivalents of
approximately $398,000 as compared to approximately $242,000 at March 31, 2002.
For the three months ended March 31, 2003, cash and cash equivalents increased
by approximately $162,000 from December 31, 2002. The increase in cash and cash
equivalents is due to approximately $221,000 of cash provided by operating
activities and approximately $167,000 of cash provided by financing activities,
partially offset by approximately $226,000 of cash used in investing activities.
Cash used in investing activities consisted of property improvements and
replacements and net deposits to restricted escrows maintained by the mortgage
lenders. Cash provided by financing activities consisted of advances made by the
Managing General Partner partially offset by principal payments made on the
mortgages encumbering the Partnership's properties and principal payments on
advances from the Managing General Partner. The Partnership invests its working
capital reserves in interest bearing accounts.
The Managing General Partner has established a revolving credit facility (the
"Partnership Revolver") to be used to fund deferred maintenance and working
capital needs of the National Property Investors Partnership Series. The maximum
draw available to the Partnership under the Partnership Revolver is $300,000.
Loans under the Partnership Revolver will have a term of 365 days, be unsecured
and bear interest at the rate of 2% per annum in excess of the prime rate
announced from time to time by Chase Manhattan Bank, N.A. The maturity date of
such borrowing will be accelerated in the event of: (i) the removal of the
Managing General Partner (whether or not For Cause, as defined in the
Partnership Agreement); (ii) the sale or refinancing of a property by the
Partnership, or; (iii) the liquidation of the Partnership. During the latter
part of 2001, the Managing General Partner agreed to advance funds in excess of
the Partnership Revolver. These additional funds were needed to fund operating
expenses of two of the investment properties. During the three months ended
March 31, 2003 and 2002, the Managing General Partner advanced an additional
amount of approximately $286,000 and $432,000, respectively, to the Partnership.
The Partnership repaid approximately $4,000 and $38,000 during the same periods.
At March 31, 2003, the Partnership has a balance of approximately $2,904,000
under this Partnership Revolver which includes accrued interest of approximately
$67,000. During the three months ended March 31, 2003 and 2002, interest, at the
rate of prime plus 2%, or 6.25% at March 31, 2003, of approximately $36,000 and
$12,000, respectively, is 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 three months ended March 31, 2003, the Partnership completed
approximately $22,000 of capital improvements at Willow Park on Lake Adelaide
Apartments consisting primarily of floor covering replacements and roof
replacements. These improvements were funded from operating cash flow. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $34,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering and appliance replacements. Additional
capital improvements may be considered and will depend on the physical condition
of the property as well as the anticipated cash flow generated by the property
and replacement reserves.
Oakwood Village at Lake Nan Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $45,000 of capital improvements at Oakwood Village at Lake Nan
Apartments consisting primarily of floor covering replacements, office
computers, and structural improvements. These improvements were funded from
operating cash flow. The Partnership evaluates the capital improvement needs of
the property during the year and currently expects to complete an additional
$125,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of floor covering and appliance
replacements. Additional capital improvements may be considered and will depend
on the physical condition of the property as well as the anticipated cash flow
generated by the property and replacement reserves.
Palisades Apartments
During the three months ended March 31, 2003, the Partnership completed
approximately $51,000 of capital improvements at Palisades Apartments,
consisting of structural improvements and floor covering replacements. In
addition, approximately $31,000 of construction period interest, $48,000 of
construction period operating expenses and $8,000 of construction period real
estate taxes related to redevelopment of the property were capitalized during
the three months ended March 31, 2003. These improvements were funded through
operating cash flow and replacement reserves. On April 21, 2003, Palisades
Apartments was sold to an unrelated third party (see Note D).
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 assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. Excluding Palisades
Apartments, the mortgage indebtedness of approximately $10,370,000 has maturity
dates ranging from January 2020 to March 2021. 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.
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 did not distribute any funds during the three months ended March
31, 2003 and 2002. 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 and payments on outstanding
advances owed to the Managing General Partner to permit distributions to its
partners during the remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 52,671 limited partnership units in
the Partnership representing 63.83% of the outstanding units at March 31, 2003.
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 limited partnership interests 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. 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 its sole stockholder. As a result of its ownership
of 63.83% of the outstanding units, AIMCO is in a position to influence all such
voting decisions with respect to the Partnership. When voting on matters, AIMCO
would in all likelihood vote the units it acquired in a manner favorable to the
interest of the Managing General Partner because of its affiliation with the
Managing General Partner. However, with respect to 37,149 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 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 and
the Partnership fully reserves all balances outstanding over thirty days. 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 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
Managing General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. Before completing briefing on the appeal, the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The Managing General Partner does not anticipate that any costs to the
Partnership, 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 Solicitation of the Registrant, dated August 28,
1992.
99 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2003.
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.
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: May 15, 2003
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: May 15, 2003
/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 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: May 15, 2003
/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 5 (the "Partnership"), for the quarterly period ended March 31, 2003
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: May 15, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 15, 2003
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.