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 June 30, 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 0-9567
NATIONAL PROPERTY INVESTORS III
(Exact name of registrant as specified in its charter)
California 13-2974428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 344
Receivables and deposits 610
Restricted escrows 36
Other assets 925
Investment properties:
Land $ 3,023
Buildings and related personal property 38,295
41,318
Less accumulated depreciation (31,779) 9,539
$ 11,454
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 91
Tenant security deposit liabilities 271
Accrued property taxes 762
Other liabilities 623
Mortgage notes payable 32,918
Partners' Deficit
General partner $ (303)
Limited partners (48,049 units
issued and outstanding) (22,908) (23,211)
$ 11,454
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues:
Rental income $ 2,039 $ 2,162 $ 3,937 $ 4,279
Other income 196 219 427 445
Total revenues 2,235 2,381 4,364 4,724
Expenses:
Operating 925 971 1,843 1,863
General and administrative 60 93 153 171
Depreciation 468 462 928 915
Interest 606 620 1,217 1,241
Property taxes 244 188 457 374
Total expenses 2,303 2,334 4,598 4,564
Net (loss) income $ (68) $ 47 $ (234) $ 160
Net (loss) income allocated
to general partner (1%) $ (1) $ -- $ (2) $ 2
Net (loss) income allocated
to limited partners (99%) (67) 47 (232) 158
$ (68) $ 47 $ (234) $ 160
Net (loss) income per limited
partnership unit $ (1.39) $ 0.98 $ (4.83) $ 3.29
Distributions per limited
partnership unit $ -- $ 22.06 $ 3.41 $ 22.06
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, 2002 48,049 $ (299) $(22,512) $(22,811)
Net loss for the six months
ended June 30, 2003 -- (2) (232) (234)
Distributions to partners -- (2) (164) (166)
Partners' deficit at
June 30, 2003 48,049 $ (303) $(22,908) $(23,211)
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net (loss) income $ (234) $ 160
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 928 915
Bad debt 129 125
Amortization of loan costs 30 26
Change in accounts:
Receivables and deposits (277) 529
Other assets (76) (70)
Accounts payable (45) (30)
Tenant security deposit liabilities 43 10
Accrued property taxes 124 (3)
Due to affiliates -- (27)
Other liabilities 94 240
Net cash provided by operating activities 716 1,875
Cash flows from investing activities:
Property improvements and replacements (401) (357)
Net withdrawals from restricted escrows 69 212
Net cash used in investing activities (332) (145)
Cash flows from financing activities:
Payments on mortgage notes payable (394) (331)
Advances received from affiliate 82 --
Repayment of advances from affiliate (82) (35)
Distributions to partners (166) (1,063)
Net cash used in financing activities (560) (1,429)
Net (decrease) increase in cash and cash equivalents (176) 301
Cash and cash equivalents at beginning of period 520 301
Cash and cash equivalents at end of period $ 344 $ 602
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,160 $ 1,073
At December 31, 2002 and 2001, approximately $75,000 and $100,000, respectively,
of property improvements and replacements were included in accounts payable
which are included in property improvements and replacements during the six
months ended June 30, 2003 and 2002, respectively.
See Accompanying Notes to Consolidated Financial Statements
NATIONAL PROPERTY INVESTORS III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of National
Property Investors III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of NPI Equity Investments, Inc. ("NPI
Equity" or the "Managing General Partner") all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 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
consolidated 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 an affiliate of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
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 $213,000 and
$239,000 for the six months ended June 30, 2003 and 2002, respectively, which is
included in operating expenses.
Affiliates of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $113,000 and
$124,000 for the six months ended June 30, 2003 and 2002, 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
$12,000 and $7,000 for the six months ended June 30, 2003 and 2002,
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 $14,000 and
$22,000 during the six months ended June 30, 2003 and 2002, respectively, in
connection with the operating distributions paid to the partners. This fee is
included in general and administrative expenses.
NPI Equity, on behalf of the Partnership and certain affiliated partnerships,
has established a revolving credit facility (the "Partnership Revolver") to be
used to fund deferred maintenance and working capital needs of the Partnership
and certain other affiliated partnerships in 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 prime rate plus 2% per
annum. The maturity date of any such borrowing accelerates in the event of: (i)
the removal of NPI Equity as the managing general partner (whether or not for
cause); (ii) the sale of refinancing of the property by the Partnership (whether
or not a borrowing under the Partnership Revolver was made with respect to such
property); or (iii) the liquidation of the Partnership. During the six months
ended June 30, 2003, the Partnership borrowed and repaid approximately $82,000
under the Partnership Revolver. During the six months ended June 30, 2002, the
Partnership repaid approximately $35,000 which was outstanding at December 31,
2001. Interest expense during each of the six months ended June 30, 2003 and
2002, amounted to less than $1,000.
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 the six months ended June 30, 2003 and 2002,
the Partnership was charged by AIMCO and its affiliates approximately $104,000
and $126,000, respectively, for insurance coverage and fees associated with
policy claims administration.
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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that 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 that 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 sought 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 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 opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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.
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 six month periods ended June 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Lakeside Apartments 90% 90%
Lisle, Illinois
Pinetree Apartments 85% 84%
Charlotte, North Carolina
Summerwalk Apartments 93% 93%
Winter Park, Florida
Results of Operations
The Partnership's net loss for the six months ended June 30, 2003 was
approximately $234,000 compared to net income of approximately $160,000 for the
six months ended June 30, 2002. The Partnership's net loss for the three months
ended June 30, 2003 was approximately $68,000 compared to net income of
approximately $47,000 for the three months ended June 30, 2002. The increase in
net loss for the three and six months ended June 30, 2003 is primarily
attributable to a decrease in total revenues. The decrease in total revenues is
due to a decrease in both rental income and other income. Rental income
decreased due to decreases in the average rental rates at Lakeside and Pinetree
Apartments and an increase in concessions offered at all three of the
Partnership's investment properties in an effort to maintain occupancy levels.
Other income decreased due to a decrease in lease cancellation fees at Lakeside
Apartments. For the six months ended June 30, 2003 total expenses also increased
which contributed to the increase in net loss for the period.
Total expenses increased for the six months ended June 30, 2003 due to an
increase in property tax expense partially offset by a decrease in operating and
general and administrative expenses. Depreciation and interest expenses remained
relatively constant between the periods. For the three months ended June 30,
2003 total expenses decreased as the increase in property tax expense was offset
by decreases in operating and general and administrative expenses. Property tax
expense increased due to an increase in the assessed value and tax rate by the
local taxing authorities at Lakeside Apartments. Operating expenses decreased
due to a decrease in property management fees paid to an affiliate of the
Managing General Partner at all three of the Partnership's investment properties
due to a decrease in rental revenues on which the fees are based. General and
administrative expense decreased due to decreases in non-accountable
reimbursements paid with distributions from operations and accountable
reimbursements to the Managing General Partner allowed under the Partnership
Agreement. Also included in general and administrative expenses are costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At June 30, 2003, the Partnership had cash and cash equivalents of approximately
$344,000 as compared to approximately $602,000 at June 30, 2002. Cash and cash
equivalents decreased approximately $176,000 from December 31, 2002 due to
approximately $560,000 and $332,000 of cash used in financing and investing
activities, respectively, offset by approximately $716,000 of cash provided by
operating activities. Cash used in financing activities consists of
distributions to the partners, principal payments made on the mortgages
encumbering the Partnership's properties and the repayment of advances to
affiliates of the Managing General Partner partially offset by advances received
from affiliates of the Managing General Partner. Cash used in investing
activities consists of property improvements and replacements partially offset
by net withdrawals from restricted escrows maintained by the mortgage lenders.
NPI Equity, on behalf of the Partnership and certain affiliated partnerships,
has established a revolving credit facility (the "Partnership Revolver") to be
used to fund deferred maintenance and working capital needs of the Partnership
and certain other affiliated partnerships in 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 prime rate plus 2% per
annum. The maturity date of any such borrowing accelerates in the event of: (i)
the removal of NPI Equity as the managing general partner (whether or not for
cause); (ii) the sale of refinancing of the property by the Partnership (whether
or not a borrowing under the Partnership Revolver was made with respect to such
property); or (iii) the liquidation of the Partnership. During the six months
ended June 30, 2003, the Partnership borrowed and repaid approximately $82,000
under the Partnership Revolver. During the six months ended June 30, 2002, the
Partnership repaid approximately $35,000 which was outstanding at December 31,
2001. Interest expense during each of the six months ended June 30, 2003 and
2002, amounted to less than $1,000.
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
During the six months ended June 30, 2003, the Partnership completed
approximately $112,000 of capital improvements at Lakeside Apartments consisting
primarily of floor covering 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
$99,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of floor covering replacements,
water heater replacements, cabinets and countertops and parking lot upgrades.
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.
Pinetree Apartments
During the six months ended June 30, 2003, the Partnership completed
approximately $69,000 of capital improvements at Pinetree Apartments consisting
primarily of structural improvements and floor covering and appliance
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 $125,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of structural improvements, pool improvements, appliances
and floor covering 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.
Summerwalk Apartments
During the six months ended June 30, 2003, the Partnership completed
approximately $145,000 of capital improvements at Summerwalk Apartments
consisting primarily of swimming pool improvements, air conditioning upgrades,
floor covering and roof replacements and structural improvements. These
improvements were funded from operating cash flow and replacement reserves. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $50,000, in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering, roof and gutter replacements and
heating and air conditioning upgrades. 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.
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. The Partnership's
mortgage indebtedness of approximately $32,918,000 is being amortized over
varying periods with a balloon payment due in January 2008 of approximately
$4,312,000 for Summerwalk Apartments. The mortgages encumbering Lakeside
Apartments and Pinetree Apartments mature in January 2022 and November 2019,
respectively, at which time the mortgages are scheduled to be fully amortized.
The Managing General Partner will attempt to refinance the indebtedness at
Summerwalk 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.
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 six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Refinancing (1) $ -- $ -- $ 812 $16.90
Operations 166 3.41 251 5.16
$ 166 $ 3.41 $1,063 $22.06
(1) From the refinancing of Lakeside Apartments in December 2001.
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 2003 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
June 30, 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 Units in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Pursuant to the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters that include, but are not limited to, 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 and its
affiliates are in a position to influence all voting decisions with respect to
the Partnership. However, with respect to the 21,380 Units acquired on January
19, 1996, Insignia Properties, LP ("IPLP"), an affiliate of the Managing General
Partner and of AIMCO, agreed to vote such Units: (i) against any increase in
compensation payable to the Managing General Partner or to its affiliates; and
(ii) on all other matters submitted by it or its affiliates, in proportion to
the vote cast by third party unitholders. Except for the foregoing, no other
limitations are imposed on IPLP's, AIMCO's or any other affiliates' right to
vote each Unit held. 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 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. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of 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, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, 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 concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that 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 that 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 sought 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 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 opposed 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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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 October 24, 1979 contained in
the Partnership's Registration Statement on Form
S-11 (Reg. No. 2-63733).
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.
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.
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.
31.1 Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 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 June 30, 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 III
By: NPI EQUITY INVESTMENTS, INC.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 13, 2003
Exhibit 31.1
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 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
Exhibit 31.2
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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 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 32.1
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 III (the "Partnership"), for the quarterly period ended June 30, 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: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.