UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact Name of Small Business Issuer 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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS 5
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2004
Assets
Cash and cash equivalents $ 75
Receivables and deposits 133
Other assets 384
Investment properties:
Land $ 1,169
Buildings and related personal property 18,287
19,456
Less accumulated depreciation (16,456) 3,000
$ 3,592
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 104
Tenant security deposit liabilities 71
Accrued property taxes 111
Due to affiliates (Note B) 3,741
Other liabilities 225
Mortgage notes payable 9,995
Partners' Deficit
General partner $ (1,439)
Limited partners (82,513 units
issued and outstanding) (9,216) (10,655)
$ 3,592
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenues:
Rental income $ 737 $ 780 $ 1,481 $ 1,532
Other income 85 70 166 154
Total revenues 822 850 1,647 1,686
Expenses:
Operating 388 377 733 741
General and administrative 46 63 87 123
Depreciation 92 212 182 421
Interest 243 246 486 483
Property taxes 55 62 111 123
Total expenses 824 960 1,599 1,891
(Loss) income from continuing
operations (2) (110) 48 (205)
Loss from discontinued operations (Note C) -- (118) -- (402)
Gain on sale of discontinued operations
(Note C) -- 583 -- 583
Net (loss) income $ (2) $ 355 $ 48 $ (24)
Net income (loss) allocated to general
partner (3%) $ -- $ 11 $ 1 $ (1)
Net (loss) income allocated to limited
partners (97%) (2) 344 47 (23)
Net (loss) income $ (2) $ 355 $ 48 $ (24)
Per limited partnership unit:
(Loss) income from continuing operations $ (0.02) $ (1.29) $ 0.57 $ (2.41)
Loss from discontinued operations -- (1.39) -- (4.72)
Gain on sale of discontinued operations -- 6.85 -- 6.85
Net (loss) income $ (0.02) $ 4.17 $ 0.57 $ (0.28)
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 six months
ended June 30, 2004 -- 1 47 48
Partners' deficit at
June 30, 2004 82,513 $(1,439) $(9,216) $(10,655)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2004 2003
Cash flows from operating activities:
Net income (loss) $ 48 $ (24)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain on sale of discontinued operations -- (583)
Depreciation 182 568
Amortization of loan costs 8 14
Loss on early extinguishment of debt -- 7
Change in accounts:
Receivables and deposits (62) 92
Other assets (86) (62)
Accounts payable (9) (628)
Tenant security deposit liabilities (10) 9
Accrued property taxes 111 113
Other liabilities 5 76
Due to affiliates 122 361
Net cash provided by (used in) operating activities 309 (57)
Cash flows from investing activities:
Net proceeds from sale of discontinued operations -- 4,517
Property improvements and replacements (219) (452)
Net withdrawals from restricted escrows -- 32
Net cash (used in) provided by investing activities (219) 4,097
Cash flows from financing activities:
Principal payments on mortgage notes payable (154) (202)
Repayment of mortgage note payable -- (4,026)
Advances from affiliate 49 286
Principal payments on advances from affiliates -- (4)
Net cash used in financing activities (105) (3,946)
Net (decrease) increase in cash and cash equivalents (15) 94
Cash and cash equivalents at beginning of period 90 236
Cash and cash equivalents at end of period $ 75 $ 330
Supplemental disclosure of cash flow information:
Cash paid for interest $ 385 $ 531
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 six month periods ended June 30, 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.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying statements of operations for the three and six months ended
June 30, 2003 reflect the operations of Palisades Apartments as loss from
discontinued operations due to its sale in April 2003.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for payments to
affiliates for property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
During the six months ended June 30, 2004 and 2003, affiliates of the Managing
General Partner were 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 $81,000 and
$92,000 for the six months ended June 30, 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 $63,000 and $110,000 for the
six months ended June 30, 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 $14,000 for the six months ended
June 30, 2004 and 2003, respectively. The construction management fees are
calculated based on a percentage of current additions to investment properties.
As of June 30, 2004, the Partnership owed approximately $268,000 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 six months ended June 30, 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 the six months ended June 30, 2004 and 2003,
the Partnership was charge by AIMCO and its affiliates approximately $28,000 and
$43,000 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 June 30, 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 six months ended June 30, 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 six
months ended June 30, 2003. There were no such repayments during the six months
ended June 30, 2004. At June 30, 2004, the Partnership has a balance of
approximately $3,183,000 under this Partnership Revolver, which includes accrued
interest of approximately $113,000. During the six months ended June 30, 2004
and 2003, interest on the advances, at the rate of prime plus 2%, or 6.00% at
June 30, 2004, was approximately $94,000 and $82,000, respectively, and is
included in interest expense.
Note C - Disposition of Investment Property
On April 21, 2003, the Partnership sold Palisades Apartments to a 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 $583,000 for the three and six months ended June 30, 2003,
and this amount is shown as gain on sale of discontinued operations in the
accompanying statements of operations. In addition, the Partnership recorded a
loss on early extinguishment of debt of approximately $7,000 for the three and
six months ended June 30, 2003 due to a write off of unamortized loan costs
which is included in loss from discontinued operations. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144 the accompanying
statements of operations for the three and six months ended June 30, 2003
reflect the operations of Palisades Apartments as discontinued operations.
Included in loss from discontinued operations for the six months ended June 30,
2003 is approximately $153,000 of revenue generated by the property.
Note D - 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 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. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
No hearing has been scheduled in the matter.
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. 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. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its 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.
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.
As previously disclosed, 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 six
months ended June 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Willow Park on Lake Adelaide Apartments 89% 95%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 89% 91%
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
For the three months ended June 30, 2004, the Partnership had a net loss of
approximately $2,000 compared to net income of approximately $355,000 for the
corresponding period in 2003. For the six months ended June 30, 2004, the
Partnership had net income of approximately $48,000 compared to a net loss of
approximately $24,000 for the corresponding period in 2003. The decrease in net
income for the three month period is due to the gain on the sale of Palisades
Apartments recognized in 2003 partially offset by decreases in loss from
discontinued operations and total expenses. The decrease in net loss for the six
month period is due to decreases in loss from discontinued operations and total
expenses partially offset by the gain on sale of discontinued operations in
2003.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying statements of operations for the three and six months ended
June 30, 2003 reflect the operations of Palisades Apartments as loss from
discontinued operations due to its sale in April 2003.
On April 21, 2003, the Partnership sold Palisades Apartments to a 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 $583,000 for the three and six months ended June 30, 2003,
and this amount is shown as gain on sale of discontinued operations in the
accompanying statements of operations. In addition, the Partnership recorded a
loss on early extinguishment of debt of approximately $7,000 for the three and
six months ended June 30, 2003 due to a write off of unamortized loan costs
which is included in loss from discontinued operations.
Excluding the gain on sale and loss from discontinued operations, the
Partnership has loss from continuing operations of approximately $2,000 and
$110,000 for the three months ended June 30, 2004 and 2003, respectively. For
the six months ended June 30, 2004, the Partnership had income from continuing
operations of approximately $48,000 compared to loss from continuing operations
of approximately $205,000 for the corresponding period in 2003. The decrease in
loss from continuing operations for both periods is due to a decrease in total
expenses partially offset by a decrease in total revenues.
Total expenses decreased due to decreases in general and administrative and
depreciation expenses. Depreciation expense decreased due to the buildings at
both investment properties becoming fully depreciated in 2003.
General and administrative expenses decreased for the three and six months ended
June 30, 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 for both periods are costs associated with
the quarterly and annual communications with investors and regulatory agencies
and the annual audit required by the Partnership Agreement.
Total revenues decreased for both periods due to a decrease in rental income
partially offset by an increase in other income. Rental income decreased due to
a decrease in occupancy at both investment properties and an increase in bad
debt expense at Willow Park Apartments. Other income increased due to an
increase in utility reimbursements at both investment properties.
Capital Resources and Liquidity
At June 30, 2004, the Partnership had cash and cash equivalents of approximately
$75,000 compared to approximately $330,000 at June 30, 2003. Cash and cash
equivalents decreased approximately $15,000 from December 31, 2003 due to
approximately $219,000 and $105,000 of cash used in investing and financing
activities, respectively, partially offset by approximately $309,000 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 investment
properties, partially offset by advances received 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 six months ended June 30, 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 six
months ended June 30, 2003. There were no such repayments during the six months
ended June 30, 2004. At June 30, 2004, the Partnership has a balance of
approximately $3,183,000 under this Partnership Revolver, which includes accrued
interest of approximately $113,000. During the six months ended June 30, 2004
and 2003, interest on the advances, at the rate of prime plus 2%, or 6.00% at
June 30, 2004, was approximately $94,000 and $82,000, 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 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. For
example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional
compliance measures with regard to governance, disclosure, audit and other
areas. In light of these changes, the Partnership expects that it will incur
higher expenses related to compliance, including increased legal and audit fees.
Capital improvements planned for each of the Partnership's properties are
detailed below.
Willow Park on Lake Adelaide Apartments
During the six months ended June 30, 2004, the Partnership completed
approximately $140,000 of capital improvements at Willow Park on Lake Adelaide
Apartments consisting of exterior painting, plumbing fixtures, structural
improvements and roof 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 $73,000 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 six months ended June 30, 2004, the Partnership completed
approximately $79,000 of capital improvements at Oakwood Village at Lake Nan
Apartments consisting of structural and swimming pool improvements, parking lot
resurfacing, air conditioning units, 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 $14,000 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 $9,995,000 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 six months ended June
30, 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 53,890 limited partnership units
(the "Units") in the Partnership representing 65.31% of the outstanding Units at
June 30, 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 65.31% 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. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
No hearing has been scheduled in the matter.
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. 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. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
See Exhibit Index Attached.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 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/Stephen B. Waters
Stephen B. Waters
Vice President
Date: August 16, 2004
EXHIBIT INDEX
Exhibit
2.1 NPI, Inc. Stock Purchase Agreement dated as of August 17,
1995, incorporated by reference to Exhibit 2 to the
Partnership's Current Report on Form 8-K dated August 17,
1995.
2.2 Partnership Units Purchase Agreement dated as of August 17,
1995, incorporated by reference to Exhibit 2.1 to Form 8-K
filed by Insignia Financial Group, Inc. ("Insignia") with the
Securities and Exchange Commission on September 1, 1995.
2.3 Management Purchase Agreement dated as of August 17, 1995,
incorporated by reference to Exhibit 2.2 to Form 8-K filed by
Insignia Financial Group, Inc. with the Securities and
Exchange Commission on September 1, 1995.
2.5 Master Indemnity Agreement dated as of August 17, 1995,
incorporated by reference to Exhibit 2.5 to Form 8-K filed by
Insignia Financial Group, Inc. with the Securities and
Exchange Commission on September 1, 1995.
2.6 Agreement and Plan of Merger, dated as of October 1,
1999, by and between AIMCO and IPT incorporated by
reference to Exhibit 2.1 in the Registrant's Current
Report on Form 8-K dated as of October 16, 1999.
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).
(b) Amendments to Agreement of Limited Partnership incorporated by
reference to the Definitive Proxy Statement of the Partnership
dated April 3, 1991.
(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.
10.17 Multifamily Note between the Registrant and GMAC Commercial
Mortgage Corporation, dated December 15, 1999, as it pertains
to Willow Park on Lake Adelaide Apartments. Incorporated by
reference to the Partnership's Annual Report on Form 10-KSB
for the period ended December 31, 1999.
10.18 Multifamily Note between the Registrant and GMAC
Commercial Mortgage Corporation, dated February 13, 2001,
as it pertains to Oakwood Village Apartments.
Incorporated by reference to the Partnership's Annual
Report on Form 10-KSB for the period ended December 31,
2000.
10.19 Purchase and Sale Contract between National Property
Investors 5, as Seller and Palisades Apartments, L.L.C.,
as Purchaser, effective March 20, 2003.
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.
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: August 16, 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, Stephen B. Waters, 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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: August 16, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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 June 30, 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 Stephen B. Waters, 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: August 16, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 16, 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.