UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact Name of Registrant as Specified in Its Charter)
California 22-2385051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS 5
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2004
Assets
Cash and cash equivalents $ 66
Receivables and deposits 64
Other assets 398
Investment properties:
Land $ 1,169
Buildings and related personal property 18,135
19,304
Less accumulated depreciation (16,364) 2,940
$ 3,468
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 46
Tenant security deposit liabilities 78
Accrued property taxes 55
Due to affiliates 3,669
Other liabilities 200
Mortgage notes payable 10,073
Partners' Deficit
General partner $ (1,438)
Limited partners (82,513 units
issued and outstanding) (9,215) (10,653)
$ 3,468
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2004 2003
Revenues:
Rental income $ 744 $ 752
Other income 81 84
Total revenues 825 836
Expenses:
Operating 345 364
General and administrative 41 60
Depreciation 90 209
Interest 243 237
Property taxes 56 61
Total expenses 775 931
Income (loss) from continuing operations 50 (95)
Loss from discontinued operations -- (284)
Net income (loss) $ 50 $ (379)
Net income (loss) allocated to general partner (3%) $ 2 $ (11)
Net income (loss) allocated to limited partners (97%) 48 (368)
$ 50 $ (379)
Per limited partnership unit:
Income (loss) from continuing operations $ 0.58 $ (1.12)
Loss from discontinued operations -- (3.34)
Net income (loss) $ 0.58 $ (4.46)
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, 2003 82,513 $(1,440) $(9,263) $(10,703)
Net income for the three months
ended March 31, 2004 -- 2 48 50
Partners' deficit at
March 31, 2004 82,513 $(1,438) $(9,215) $(10,653)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2004 2003
Cash flows from operating activities:
Net income (loss) $ 50 $ (379)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 90 318
Amortization of loan costs 4 9
Change in accounts:
Receivables and deposits 7 (33)
Other assets (96) 31
Accounts payable (67) 21
Due to affiliates 50 123
Tenant security deposit liabilities (3) 2
Accrued property taxes 55 70
Other liabilities (20) 59
Net cash provided by operating activities 70 221
Cash flows from investing activities:
Property improvements and replacements (67) (205)
Net deposits to restricted escrows -- (21)
Net cash used in investing activities (67) (226)
Cash flows from financing activities:
Payments of mortgage notes payable (76) (115)
Advances from affiliates 49 286
Principal payments on advances from affiliates -- (4)
Net cash (used in) provided by financing activities (27) 167
Net (decrease) increase in cash and cash equivalents (24) 162
Cash and cash equivalents at beginning of period 90 236
Cash and cash equivalents at end of period $ 66 $ 398
Supplemental disclosure of cash flow information:
Cash paid for interest $ 189 $ 286
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 5
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2004. 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, 2003. The Managing General Partner is a
subsidiary 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 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 $42,000 and $47,000 for the three months ended March 31, 2004 and
2003, 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 $33,000 and $73,000 for the
three months ended March 31, 2004 and 2003, respectively, which is included in
interest, 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 $3,000 and $12,000 for the three months ended
March 31, 2004 and 2003, respectively. The construction management fees are
calculated based on a percentage of current additions to investment properties.
As of March 31, 2004, the Partnership owed approximately $244,000 of accrued
accountable administrative expenses to an affiliate of the Managing General
Partner, which is included in Due to affiliates on 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 three months ended March 31, 2004 and
2003.
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 2004, the Partnership anticipates its cost for
insurance coverage and fees associated with policy claims administration
provided by AIMCO and its affiliates will be approximately $28,000. The
Partnership was charged approximately $43,000 for 2003.
Upon the sale of the Partnership's properties, NPI Equity will be entitled to an
Incentive Compensation Fee equal to a declining percentage of the difference
between the total amount distributed to limited partners and the appraised value
of their investment at February 1, 1992. The percentage amount to be realized by
NPI Equity, if any, will be dependent upon the year in which the property is
sold. Payment of the Incentive Compensation Fee is subordinated to the receipt
by the limited partners, of: (a) distributions from capital transaction proceeds
of an amount equal to their appraised investment in the Partnership at February
1, 1992, and (b) distributions from all sources (capital transactions as well as
cash flow) of an amount equal to six percent (6%) per annum cumulative,
non-compounded, on their appraised investment in the Partnership at February 1,
1992. As of March 31, 2004, an Incentive Compensation Fee of approximately
$290,000 has been accrued related to the sale of The Village in 1998 and is
included in Due to affiliates on the accompanying balance sheet. The Managing
General Partner was not entitled to receive an Incentive Compensation Fee from
the sale of Palisades Apartments in 2003.
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 three months ended March 31, 2004 and 2003, the Managing General
Partner advanced additional amounts of approximately $49,000 and $286,000,
respectively, to the Partnership. The Partnership repaid approximately $4,000
during the three months ended March 31, 2003. There were no such repayments
during the three months ended March 31, 2004. At March 31, 2004, the Partnership
has a balance of approximately $3,135,000 under this Partnership Revolver, which
includes accrued interest of approximately $65,000. During the three months
ended March 31, 2004 and 2003, interest on the advances, at the rate of prime
plus 2%, or 6.00% at March 31, 2004, was approximately $46,000 and $36,000,
respectively, and is included in interest expense.
Note C - Contingencies
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
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. On April 23, 2004, the Managing General
Partner and its affiliates filed a response brief in support of the settlement
and the judgment thereto. Plaintiffs have also filed a brief in support of the
settlement. Objector is scheduled to file a reply brief no later than May 13,
2004.
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. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Managing General Partner. 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 Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.
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
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
Pursuant to a formal order of investigation received by AIMCO on March 29, 2004,
the Central Regional Office of the United States Securities and Exchange
Commission is conducting an investigation relating to certain matters. AIMCO
believes the areas of investigation include AIMCO's miscalculated monthly net
rental income figures in third quarter 2003, forecasted guidance, accounts
payable, rent concessions, vendor rebates, and capitalization of expenses and
payroll. AIMCO is cooperating fully. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations taken as a whole. Similarly, the Managing
General Partner does not believe that the ultimate outcome will have a material
adverse effect on the Partnership's financial condition or results of operations
taken as a whole.
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 three
months ended March 31, 2004 and 2003:
Average Occupancy
Property 2004 2003
Willow Park on Lake Adelaide 89% 94%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 91% 89%
Winter Park, Florida
The Managing General Partner attributes the decrease in occupancy at Willow Park
on Lake Adelaide Apartments to increased competition in the local market area
and residents purchasing homes due to lower interest rates.
The Partnership's financial results are dependent upon a number of factors
including the ability to attract and maintain tenants at the investment
properties, interest rates on mortgage loans, costs incurred to operate the
investment properties, general economic conditions and weather. 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, 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. Further, a number of factors which are
outside the control of the Partnership such as the local economic climate and
weather can adversely or positively impact the Partnership's financial results.
Results of Operations
The Partnership's net income for the three months ended March 31, 2004 was
approximately $50,000 compared to a net loss of approximately $379,000 for the
three months ended March 31, 2003. The decrease in net loss was due to decreases
in loss from discontinued operations and total expenses.
On April 21, 2003, the Partnership sold Palisades Apartments to an unrelated
third party. The property's operations, a loss of approximately $284,000 for the
three months ended March 31, 2003, are included in loss from discontinued
operations on the accompanying statement of operations and include revenues of
approximately $131,000.
The Partnership's income from continuing operations for the three months ended
March 31, 2004 was approximately $50,000 compared to a loss from continuing
operations of approximately $95,000 for the three months ended March 31, 2003.
The decrease in loss from continuing operations is due to a decrease in total
expenses.
Total expenses decreased due to decreases in operating, general and
administrative and deprecation expenses. Operating expenses decreased due to
decreases in advertising and maintenance expenses. Advertising expense decreased
due to a decrease in referral fees at Oakwood Village Apartments. Maintenance
expense decreased due to a decrease in contract labor at Oakwood Village
Apartments partially offset by an increase in contract labor at Willow Park
Apartments. Depreciation expense decreased due to some assets becoming fully
depreciated at both of the Partnership's investment properties during 2003.
General and administrative expenses decreased for the three months ended March
31, 2004 due to a decrease in management reimbursements to the Managing General
Partner as 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.
Capital Resources and Liquidity
At March 31, 2004, the Partnership had cash and cash equivalents of
approximately $66,000 compared to approximately $398,000 at March 31, 2003. For
the three months ended March 31, 2004, cash and cash equivalents decreased by
approximately $24,000. The decrease in cash and cash equivalents is due to
approximately $67,000 of cash used in investing activities and approximately
$27,000 of cash used in financing activities partially offset by approximately
$70,000 of cash provided by operating activities. Cash used in investing
activities consisted of property improvements and replacements. Cash used in
financing activities consisted of principal payments made on the mortgages
encumbering the Partnership's properties partially offset by advances from an
affiliate of the Managing General Partner. 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 three months ended March 31, 2004 and 2003, the Managing General
Partner advanced additional amounts of approximately $49,000 and $286,000,
respectively, to the Partnership. The Partnership repaid approximately $4,000
during the three months ended March 31, 2003. There were no such repayments
during the three months ended March 31, 2004. At March 31, 2004, the Partnership
has a balance outstanding of approximately $3,135,000 under this Partnership
Revolver, which includes accrued interest of approximately $65,000. During the
three months ended March 31, 2004 and 2003, interest on the advances, at the
rate of prime plus 2%, or 6.00% at March 31, 2004, was approximately $46,000 and
$36,000, 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 Partnership's 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 Apartments
During the three months ended March 31, 2004, the Partnership completed
approximately $36,000 of capital improvements at Willow Park on Lake Adelaide
Apartments consisting of exterior painting, plumbing fixtures, and appliance and
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 $61,000 in
capital improvements during the remainder of 2004. 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 three months ended March 31, 2004, the Partnership completed
approximately $31,000 of capital improvements at Oakwood Village at Lake Nan
Apartments consisting of structural and swimming pool improvements, parking lot
resurfacing, and appliance and 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 $62,000 in capital improvements during the remainder of
2004. 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.
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 $10,073,000 has maturity dates ranging from January 2020 to March
2021 at which times 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 three months ended March
31, 2004 and 2003. 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 any distributions to its
partners during the remainder of 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 53,848 limited partnership units
(the "Units") in the Partnership representing 65.26% of the outstanding Units at
March 31, 2004. 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 65.26% 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. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety. On January 28, 2004, Objector filed his
opening brief in his pending appeal. On April 23, 2004, the Managing General
Partner and its affiliates filed a response brief in support of the settlement
and the judgment thereto. Plaintiffs have also filed a brief in support of the
settlement. Objector is scheduled to file a reply brief no later than May 13,
2004.
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. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Managing General Partner. 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 Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.4(a) Agreement of Limited Partnership, incorporated by
reference to Exhibit A to the Prospectus of the
Partnership, dated January 4, 1982, included in
the Partnership's Registration Statement on Form
S-11 (Reg. No. 2-74143).
3.4(b) Amendments to Agreement of Limited Partnership,
incorporated by reference to the Definitive Proxy
Statement of the Partnership, dated April 3, 1991.
3.4(c) Amendments to the Partnership Agreement,
incorporated by reference to the Statement
Furnished in Connection with the Solicitation of
the Registrant, dated August 28, 1992.
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 March 31, 2004.
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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President
and Chief Accounting Officer
Date: May 13, 2004
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, 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: May 13, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of NPI Equity
Investments, Inc., equivalent of the
chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Thomas M. Herzog, 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: May 13, 2004
/s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief
Accounting 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 March 31, 2004
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Martha L. Long, as the equivalent of the chief executive officer of
the Partnership, and Thomas M. Herzog, 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/Martha L. Long
Name: Martha L. Long
Date: May 13, 2004
/s/Thomas M. Herzog
Name: Thomas M. Herzog
Date: May 13, 2004
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.