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 September 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 0-11095
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)
September 30, 2003
Assets
Cash and cash equivalents $ 114
Receivables and deposits 38
Restricted escrows 27
Other assets 381
Investment properties:
Land $ 1,169
Buildings and related personal property 17,958
19,127
Less accumulated depreciation (16,151) 2,976
$ 3,536
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 52
Tenant security deposit liabilities 87
Accrued property taxes 166
Due to Managing General Partner 3,494
Other liabilities 224
Mortgage notes payable 10,224
Partners' Deficit
General partner $ (1,440)
Limited partners (82,513 units
issued and outstanding) (9,271) (10,711)
$ 3,536
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 799 $ 783 $ 2,331 $ 2,351
Other income 88 75 242 232
Casualty gain -- 33 -- 33
Total revenues 887 891 2,573 2,616
Expenses:
Operating 383 332 1,124 1,079
General and administrative 63 69 186 222
Depreciation 160 201 581 619
Interest 243 200 726 609
Property taxes 43 57 166 169
Total expenses 892 859 2,783 2,698
Net (loss) income from continuing
operations (5) 32 (210) (82)
Loss from discontinued operations -- (323) (402) (1,076)
Gain from sale of discontinued operations 37 -- 620 --
Net income (loss) $ 32 $ (291) $ 8 $(1,158)
Net income (loss) allocated to general
partner (3%) $ 1 $ (9) $ -- $ (35)
Net income (loss) allocated to limited
partners (97%) 31 (282) 8 (1,123)
$ 32 $ (291) $ 8 $(1,158)
Per limited partnership unit:
Net (loss) income from continuing
operations $ (0.06) $ 0.38 $ (2.47) $ (0.96)
Loss from discontinued operation -- (3.80) (4.72) (12.65)
Gain from sale of discontinued operations 0.44 -- 7.29 --
Net income (loss) $ 0.38 $ (3.42) $ 0.10 $(13.61)
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 income for the nine months
ended September 30, 2003 -- -- 8 8
Partners' deficit at
September 30, 2003 82,513 $(1,440) $(9,271) $(10,711)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net income (loss) $ 8 $(1,158)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Gain from sale of discontinued operations (620) --
Depreciation 728 887
Amortization of loan costs 17 22
Casualty gain -- (47)
Loss on early extinguishment of debt 7 --
Change in accounts:
Receivables and deposits 97 (48)
Other assets (65) (8)
Accounts payable (652) 248
Tenant security deposit liabilities 10 (16)
Accrued property taxes 156 161
Other liabilities 39 (72)
Due from affiliates 28 --
Due to Managing General Partner 187 130
Net cash (used in) provided by operating activities (60) 99
Cash flows from investing activities:
Insurance proceeds received -- 57
Net proceeds from sale of discontinued operations 4,517 --
Property improvements and replacements (591) (1,235)
Net withdrawals from restricted escrows 32 7
Net cash provided by (used in) investing activities 3,958 (1,171)
Cash flows from financing activities:
Principal payments on mortgage notes payable (276) (325)
Repayment of mortgage note payable (4,026) --
Advances from affiliate 286 1,554
Principal payments on advances from affiliates (4) (57)
Net cash (used in) provided by financing activities (4,020) 1,172
Net (decrease) increase in cash and cash equivalents (122) 100
Cash and cash equivalents at beginning of period 236 281
Cash and cash equivalents at end of period $ 114 $ 381
Supplemental disclosure of cash flow information:
Cash paid for interest $ 782 $ 881
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 5
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 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 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.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from all of the Partnership's properties as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $134,000 and $162,000 for the nine months ended September 30, 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 $183,000 and $294,000 for the
nine months ended September 30, 2003 and 2002, respectively, which is included
in general and administrative expenses, investment properties and loss from
discontinued operations. Included in these amounts are fees related to
construction management services provided by an affiliate of the Managing
General Partner of approximately $23,000 and $101,000 for the nine months ended
September 30, 2003 and 2002, respectively. The construction management fees are
calculated based on a percentage of current year additions to investment
properties. As of September 30, 2003, the Partnership owed approximately
$209,000 of accrued accountable administrative expenses to an affiliate of the
Managing General Partner. Such amount is included in Due to Managing General
Partner or the accompanying balance sheet.
For services relating to the administration of the Partnership and operation of
the Partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $100,000 per year, based
upon the number of Partnership units sold, subject to certain limitations. No
such reimbursements were earned during the nine months ended September 30, 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 the nine months ended September 30, 2003 and
2002, the Partnership was charged by AIMCO and its affiliates approximately
$43,000 and $102,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Upon the sale of the Partnership's properties, NPI Equity will be entitled to an
Incentive Compensation Fee equal to a declining percentage of the difference
between the total amount distributed to limited partners and the appraised value
of their investment at February 1, 1992. The percentage amount to be realized by
NPI Equity, if any, will be dependent upon the year in which the property is
sold. Payment of the Incentive Compensation Fee is subordinated to the receipt
by the limited partners, of: (a) distributions from capital transaction proceeds
of an amount equal to their appraised investment in the Partnership at February
1, 1992, and (b) distributions from all sources (capital transactions as well as
cash flow) of an amount equal to six percent (6%) per annum cumulative,
non-compounded, on their appraised investment in the Partnership at February 1,
1992. As of September 30, 2003, an Incentive Compensation Fee of approximately
$290,000 is accrued related to the sale of The Village in 1998 and is included
in Due to Managing General Partner on the accompanying balance sheet. The
Managing General Partner was not entitled to receive an Incentive Compensation
Fee from the sale of Palisades Apartments.
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 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 or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. During the
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 and the Partnership.
During the nine months ended September 30, 2003 and 2002, the Managing General
Partner advanced additional amounts of approximately $286,000 and $1,554,000,
respectively, to the Partnership. The Partnership repaid approximately $4,000
and $57,000 during the same periods. At September 30, 2003, the Partnership has
a balance of approximately $2,995,000 under this Partnership Revolver, which
includes accrued interest of approximately $158,000. During the nine months
ended September 30, 2003 and 2002, interest on the advances, at the rate of
prime plus 2%, or 6.00% at September 30, 2003, was approximately $127,000 and
$57,000, respectively, and is included in interest expense.
Note C - Disposition of Investment Property
On April 21, 2003, the Partnership sold Palisades Apartments to an unrelated
third party for approximately $4,688,000. The net proceeds realized by the
Partnership were approximately $4,517,000 after payment of closing costs. The
remaining proceeds were used to repay the mortgage encumbering the investment
property and to repay certain debt obligations of the Partnership. No amount
remained to be distributed to the partners. As a result of the sale, the
Partnership realized a gain of approximately $37,000 and $620,000 for the three
and nine months ended September 30, 2003, and this amount is shown as gain from
sale of discontinued operations in the accompanying statements of operations.
The additional gain on sale of approximately $37,000 recorded during the three
months ended September 30, 2003 was due to the write off of an accrual for
additional sale related expenses that was not needed. The property's operations,
a loss of approximately $402,000 and $1,076,000 for the nine months ended
September 30, 2003 and 2002, respectively, are shown as loss from discontinued
operations. This included revenues of approximately $153,000 and $592,000 for
the nine months ended September 30, 2003 and 2002, respectively. In addition,
the Partnership recorded a loss on early extinguishment of debt of approximately
$7,000 for the nine months ended September 30, 2003 due to a write off of
unamortized loan costs which is also included in the loss from discontinued
operations in the accompanying statements of operations.
Note D - Casualty Gains
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $33,000 was recorded at Willow Park Apartments. The casualty
gain related to fire damage to the apartment complex on September 9, 2001. The
gain was a result of the receipt of insurance proceeds of approximately $43,000
offset by approximately $10,000 of undepreciated assets being written off.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $14,000 was recorded at Palisades Apartments. The casualty
related to fire damage to one apartment unit that occurred on March 1, 2002. The
gain was the result of insurance proceeds of approximately $14,000. The asset
damaged by the fire was fully depreciated. This amount is included in loss from
discontinued operations in the accompanying statements of operations.
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
at least one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Managing General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are 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 two apartment complexes. The
following table sets forth the average occupancy of the properties for the nine
months ended September 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Willow Park on Lake Adelaide 95% 93%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 92% 92%
Winter Park, Florida
Results of Operations
The Partnership's net income for the nine months ended September 30, 2003 was
approximately $8,000 compared to a net loss of approximately $1,158,000 for the
nine months ended September 30, 2002. The Partnership's net income for the three
months ended September 30, 2003 was approximately $32,000 compared to a net loss
of approximately $291,000 for the three months ended September 30, 2002. The
decrease in net loss for the three and nine months ended September 30, 2003 is
due to the recognition in 2003 of a gain from sale of discontinued operations
and a decrease in loss from discontinued operations.
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 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.
On April 21, 2003, the Partnership sold Palisades Apartments to an unrelated
third party for a gross sale price of approximately $4,688,000. The net proceeds
realized by the Partnership were approximately $4,517,000 after payment of
closing costs. The remaining proceeds were used to repay the mortgage
encumbering the investment property and to repay certain debt obligations of the
Partnership. No amount remained to be distributed to the partners. As a result
of the sale, the Partnership realized a gain of approximately $37,000 and
$620,000 for the three and nine months ended September 30, 2003, and this amount
is shown as gain from sale of discontinued operations in the accompanying
statements of operations. The additional gain on sale of approximately $37,000
recorded during the three months ended September 30, 2003 was due to the write
off of an accrual for additional sale related expenses that was not needed. The
property's operations, a loss of approximately $402,000 and $1,076,000 for the
nine months ended September 30, 2003 and 2002, respectively, are shown as loss
from discontinued operations. This included revenues of approximately $153,000
and $592,000 for the nine months ended September 30, 2003 and 2002,
respectively.
Excluding the impact of loss from discontinued operations and the gain from sale
of discontinued operations, the Partnership's loss from continuing operations
for the nine months ended September 30, 2003 was approximately $210,000 compared
to a loss from continuing operations of approximately $82,000 for the nine
months ended September 30, 2002. The Partnership's loss from continuing
operations for the three months ended September 30, 2003 was approximately
$5,000 compared to income from continuing operations of approximately $32,000
for the nine months ended September 30, 2002. The decrease in income from
continuing operations for the three months ended September 30, 2003 is due to an
increase in total expenses. The increase in loss from continuing operations for
the nine months ended September 30, 2003 is due to an increase in total expenses
and a decrease in total revenues. Total revenues for the nine months ended
September 30, 2003 decreased due to a decrease in rental income and the
recognition of a casualty gain in 2002. Rental income decreased due to a
decrease in the average rental rates at Willow Park Apartments and an increase
in concessions and special promotions at Oakwood Village Apartments partially
offset by an increase in occupancy at Willow Park Apartments.
Total expenses for the three and nine months ended September 30, 2003 increased
due to increases in operating and interest expenses, partially offset by
decreases in general and administrative and depreciation expenses. Operating
expenses increased due to increases in advertising and property expenses
partially offset by decreases in insurance and maintenance expenses. Advertising
expense increased due to increases in periodical advertising at both of the
Partnership's investment properties and referral fees at Oakwood Village
Apartments. Property expense increased due to increases in leasing renewal
incentives and employee salaries and employee related benefits at both of the
Partnership's investment properties. Insurance expense decreased due to a
decrease in hazard insurance premiums at Oakwood Village Apartments. Maintenance
expense decreased as a result of increases in the capitalization of certain
direct and indirect project costs, primarily payroll related costs. Interest
expense increased due to higher balances payable to the Managing General
Partner. Depreciation expense decreased due to some assets becoming fully
depreciated at Oakwood Village Apartments during the third quarter of 2003.
General and administrative expense decreased due to a decrease in management
reimbursements to the Managing General Partner as allowed under the Partnership
Agreement. Also included in general and administrative expense for the nine
months ended September 30, 2003 and 2002 are costs associated with the quarterly
and annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $33,000 was recorded at Willow Park Apartments. The casualty
gain related to fire damage to the apartment complex on September 9, 2001. The
gain was the result of insurance proceeds of approximately $43,000 offset by
approximately $10,000 of undepreciated assets being written off.
During the three and nine months ended September 30, 2002, a net casualty gain
of approximately $14,000 was recorded at Palisades Apartments. The casualty
related to fire damage to one apartment unit that occurred on March 1, 2002. The
gain was the result of insurance proceeds of approximately $14,000. The asset
damaged by the fire was fully depreciated. This amount is included in loss from
discontinued operations in the accompanying statements of operations.
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, the
Managing General Partner may use rental concessions and rental rate reductions
to offset softening market conditions, accordingly, there is no guarantee that
the Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $114,000 compared to approximately $381,000 at September 30, 2002.
For the nine months ended September 30, 2003, cash and cash equivalents
decreased by approximately $122,000. The decrease in cash and cash equivalents
is due to approximately $60,000 of cash used in operating activities and
approximately $4,020,000 of cash used in financing activities, partially offset
by approximately $3,958,000 of cash provided by investing activities. Cash used
in financing activities consisted of repayment of the mortgage encumbering
Palisades Apartments, principal payments made on the mortgages encumbering the
Partnership's properties and principal payments on advances from the Managing
General Partner partially offset by advances received from the Managing General
Partner. Cash provided by investing activities consisted of net proceeds
received from the sale of Palisades Apartments and the refund of escrow accounts
maintained by the lender on behalf of Palisades Apartments, partially offset by
property improvements and replacements. The Partnership invests its working
capital reserves in interest bearing accounts.
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 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 or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. During the
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 and the Partnership.
During the nine months ended September 30, 2003 and 2002, the Managing General
Partner advanced additional amounts of approximately $286,000 and $1,554,000,
respectively, to the Partnership. The Partnership repaid approximately $4,000
and $57,000 during the same periods. At September 30, 2003, the Partnership has
a balance of approximately $2,995,000 under this Partnership Revolver, which
includes accrued interest of approximately $158,000. During the nine months
ended September 30, 2003 and 2002, interest on the advances, at the rate of
prime plus 2%, or 6.00% at September 30, 2003, was approximately $127,000 and
$57,000, respectively, and 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 nine months ended September 30, 2003, the Partnership completed
approximately $188,000 of capital improvements at Willow Park on Lake Adelaide
Apartments consisting primarily of structural upgrades, parking lot resurfacing,
roof replacements, plumbing fixtures, air conditioning upgrades, appliance and
floor covering replacements and interior painting. 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 $63,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of contract
plumbing and 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.
Oakwood Village at Lake Nan Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $146,000 of capital improvements at Oakwood Village at Lake Nan
Apartments consisting primarily of air conditioning upgrades, major landscaping,
exterior painting, fire safety upgrades, appliance and 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 $19,000 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.
Palisades Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $170,000 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 nine months ended September 30, 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.
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 mortgage
indebtedness encumbering the Partnership's investment properties of
approximately $10,224,000 has maturity dates ranging from January 2020 to March
2021 at which time the loans are scheduled to be fully amortized.
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 nine months ended
September 30, 2003 and 2002, respectively. 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
(the "Units") in the Partnership representing 63.83% of the outstanding Units at
September 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 AIMCO Properties, L.P., 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 63.83% of
the outstanding Units, AIMCO and its affiliates are in a position to influence
all 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. 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.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States, which require the Partnership to make
estimates and assumptions. The Partnership believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include, but are not limited
to, 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 impairment of 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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
at least one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Managing General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
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.
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 September 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 5
By: NPI EQUITY INVESTMENTS, INC.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and
Chief Financial Officer
Date: November 12, 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 5;
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: November 12, 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 5;
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: November 12, 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 5 (the "Partnership"), for the quarterly period ended September 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: November 12, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 12, 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.