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 March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-13454
NATIONAL PROPERTY INVESTORS 7
(Exact name of small business issuer as specified in its charter)
California 13-3230613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office 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 7
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2005
Assets
Cash and cash equivalents $ 168
Receivables and deposits 96
Restricted escrows 114
Other assets 204
Investment property:
Land $ 1,094
Buildings and related personal property 10,290
11,384
Less accumulated depreciation (7,633) 3,751
$ 4,333
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 10
Tenant security deposit liabilities 23
Accrued property taxes 12
Other liabilities 108
Due to affiliates (Note B) 299
Mortgage note payable 4,977
Partners' Deficit:
General partner $ (313)
Limited partners (60,517 units
issued and outstanding) (783) (1,096)
$ 4,333
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues:
Rental income $ 299 $ 296
Other income 17 17
Total revenues 316 313
Expenses:
Operating 135 97
General and administrative 32 49
Depreciation 100 94
Interest 97 93
Property taxes 12 12
Total expenses 376 345
Loss from continuing operations (60) (32)
Income from discontinued operations (Note A) -- 14
Net loss $ (60) $ (18)
Net loss allocated to general partner (1%) $ (1) $ --
Net loss allocated to limited partners (99%) (59) (18)
$ (60) $ (18)
Per limited partnership unit:
Loss from continuing operations $ (0.97) $ (0.52)
Income from discontinued operations -- 0.22
$ (0.97) $ (0.30)
Distributions per limited partnership unit $ -- $ 42.93
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 60,517 $ 1 $30,259 $30,260
Partners' deficit
at December 31, 2004 60,517 $ (312) $ (724) $(1,036)
Net loss for the three months
ended March 31, 2005 -- (1) (59) (60)
Partners' deficit at
March 31, 2005 60,517 $ (313) $ (783) $(1,096)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net loss $ (60) $ (18)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 100 191
Amortization of loan costs 2 4
Change in accounts:
Receivables and deposits (14) 9
Other assets (17) (63)
Accounts payable (34) (208)
Tenant security deposit liabilities -- (1)
Accrued property taxes 12 30
Other liabilities (25) (147)
Due to affiliates (2) (72)
Net cash used in operating activities (38) (275)
Cash flows from investing activities:
Property improvements and replacements (72) (39)
Net withdrawals from restricted escrows 68 88
Net cash (used in) provided by investing activities (4) 49
Cash flows from financing activities:
Loan costs paid -- (15)
Payments on mortgage notes payable (38) (66)
Distributions to partners -- (2,624)
Net cash used in financing activities (38) (2,705)
Net decrease in cash and cash equivalents (80) (2,931)
Cash and cash equivalents at beginning of period 248 3,628
Cash and cash equivalents at end of period $ 168 $ 697
Supplemental disclosure of cash flow information:
Cash paid for interest $ 88 $ 141
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 7
(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. (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, 2005 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2005. 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, 2004. The Managing General Partner is an affiliate 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 statement of operations for the three months ended March 31,
2004 reflects the operations of Pines of Roanoke Apartments as income from
discontinued operations due to its sale in 2004.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the Managing General Partner and
its affiliates for the management and administration of all Partnership
activities. The Partnership Agreement provides for payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the Managing General Partner receive 5% of gross receipts from the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $16,000 and
$36,000 for the three months ended March 31, 2005 and 2004, respectively, which
is included in operating expenses and income from discontinued operations.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $26,000 for both the three
months ended March 31, 2005 and 2004, which is included in general and
administrative expenses and investment property. The portion of these
reimbursements included in investment property for the three months ended March
31, 2005 and 2004 are fees related to construction management services provided
by an affiliate of the Managing General Partner of approximately $8,000 and
$2,000 respectively. The construction management service fees are calculated
based on a percentage of additions to the investment property.
For services relating to the administration of the Partnership and operation of
the Partnership property, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $150,000 per year from
distributions from operations, based upon the number of Partnership units sold,
subject to certain limitations. No such fees were earned or paid during the
three months ended March 31, 2005 and 2004.
For managing the affairs of the Partnership, the Managing General Partner of the
Partnership is entitled to receive a partnership management fee. The fee is
equal to 4% of the Partnership's adjusted cash from operations, as defined in
the Partnership Agreement, in any year, provided that 50% of the fee shall not
be paid until the Partnership has distributed to the limited partners adjusted
cash from operations in such year which is equal to 5% of the limited partners'
adjusted invested capital, as defined, on a non-cumulative basis. In addition,
50% of the fee shall not be paid until the Partnership has distributed to the
limited partners adjusted cash from operations in such year which is equal to 8%
of the limited partners' adjusted invested capital on a non-cumulative basis.
The fee shall be paid when adjusted cash from operations is distributed to the
limited partners. The Managing General Partner was not entitled to receive this
fee during the three months ended March 31, 2005 or 2004.
NPI Equity, on behalf of the Partnership and certain affiliated partnerships,
has established a revolving credit facility (the "Partnership Revolver") to be
used to fund deferred maintenance and working capital needs of the Partnership
and certain other affiliated partnerships in the National Property Investors
Partnership Series. The maximum draw available to the Partnership under the
Partnership Revolver is $500,000. Loans under the Partnership Revolver will have
a term of 365 days, be unsecured and bear interest at the prime rate plus 2% per
annum. The maturity date of any such borrowing accelerates in the event of: (i)
the removal of NPI Equity as the managing general partner (whether or not for
cause); (ii) the sale 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. The Managing General
Partner advanced the Partnership approximately $290,000 to pay outstanding
accounts payable at Fairway View II Apartments during 2004. Interest expense for
the three months ended March 31, 2005 was approximately $5,000. There was no
such interest expense for the three months ended March 31, 2004. At March 31,
2005, approximately $299,000 in principal and accrued interest was included in
due to affiliates.
The Partnership insures its property 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 property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $13,000 for
hazard insurance coverage and fees associated with policy claims administration.
Additional charges will be incurred by the Partnership during 2005 as other
insurance policies renew later in the year. The Partnership was charged by AIMCO
and its affiliates approximately $43,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
As previously disclosed AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in a lawsuit alleging
that they willfully violated the Fair Labor Standards Act ("FLSA") by failing to
pay maintenance workers overtime for all hours worked in excess of forty per
week. The complaint attempts to bring 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. and
NHP Management Company failed to compensate maintenance workers for time that
they were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action is scheduled for May 12, 2005. 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
consolidated financial condition or results of operations. 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.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that is not of a routine nature
arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its property, the Partnership
could potentially be liable for environmental liabilities or costs associated
with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Managing General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the Managing General Partner believes that these measures
will eliminate, or at least minimize, the effects that mold could have on
residents. To date, the Partnership has not incurred any material costs or
liabilities relating to claims of mold exposure or to abate mold conditions.
Because the law regarding mold is unsettled and subject to change the Managing
General Partner can make no assurance that liabilities resulting from the
presence of or exposure to mold will not have a material adverse effect on the
Partnership's financial condition or results of operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") is conducting a formal investigation relating to certain
matters. Although the staff of the SEC is not limited in the areas that it may
investigate, 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,
capitalization of payroll and certain other costs, and tax credit transactions.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation will be resolved.
AIMCO does not believe that the ultimate outcome will have a material adverse
effect on its consolidated financial condition or results of operations.
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.
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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for each of the
three month periods ended March 31, 2005 and 2004:
Average Occupancy
2005 2004
Fairway View II Apartments 86% 82%
Baton Rouge, Louisiana
The Managing General Partner attributes the increase in occupancy at Fairway
View II Apartments to favorable market conditions and less competition in the
local market area.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
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 property 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 that are outside the
control of the Partnership such as the local economic climate and weather can
adversely or positively affect the Partnership's financial results.
Results of Operations
The Partnership's net loss for the three months ended March 31, 2005 and 2004
was approximately $60,000, and $18,000, respectively. The increase in net loss
for the three months ended March 31, 2005 is due to an increase in total
expenses and decrease in income from discontinued operations. Total revenue for
2005 remained constant in comparison to 2004.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying statement of operations for the three months ended March 31,
2004 reflects the operations of Pines of Roanoke Apartments as income from
discontinued operations due to its sale in 2004.
Excluding the income from discontinued operations, the Partnership's loss from
continuing operations for the three months ended March 31 2005 and 2004 was
approximately $60,000 and $32,000 respectively. The increase in loss from
continuing operations for the three months ended March 31, 2005 is due to an
increase in total expenses. Total expenses increased due to an increase in
operating expense partially offset by a decrease in general and administrative
expense. Operating expenses increased due to an increase in property expense.
Property expenses increased due to increases in payroll and related benefits and
utilities at the investment property.
General and administrative expense decreased due to decreases in the management
reimbursements paid to the Managing General Partner, as allowed under the
Partnership Agreement, and in the cost of the annual audit. Also included in
general and administrative expenses are costs associated with the quarterly and
annual communications with investors and regulatory agencies.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $168,000 compared to approximately $697,000 at March 31, 2004. The
decrease in cash and cash equivalents of approximately $80,000 from the
Partnership's year ended December 31, 2004 is due to approximately $38,000,
$4,000 and $38,000 of cash used in operating, investing and financing
activities, respectively. Cash used in investing activities consisted of
property improvements and replacements partially offset by net withdrawals from
restricted escrows. Cash used in financing activities consisted of principal
payments on the mortgages encumbering the Partnership's investment property. The
Partnership invests its working capital 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 under the
Partnership Revolver is $500,000. Loans under the Partnership Revolver will have
a term of 365 days, be unsecured and bear interest at the prime rate plus 2% per
annum. The maturity date of any such borrowing accelerates in the event of: (i)
the removal of NPI Equity as the managing general partner (whether or not for
cause); (ii) the sale 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. The Managing General
Partner advanced the Partnership approximately $290,000 to pay outstanding
accounts payable at Fairway View II Apartments during 2004. Interest expense for
the three months ended March 31, 2005 was approximately $5,000. There was no
such interest expense for the three months ended March 31, 2004. At March 31,
2005, approximately $299,000 in principal and accrued interest was included in
due to affiliates.
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 property 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. Capital improvements planned for the
Partnership's property are detailed below.
Fairway View II
During the three months ended March 31, 2005, the Partnership completed
approximately $72,000 of capital improvements at Fairway View II, consisting
primarily of air conditioning unit replacements, exterior painting, roof
replacements, building improvements, and floor covering replacements. These
improvements were funded from operating cash flow and replacement reserves. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as replacement reserves and anticipated cash flow generated by the
property.
Capital expenditures will be incurred only if cash is available from operations
or from Partnership reserves. To the extent that 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 investment property of approximately $4,977,000
matures December 1, 2021 at which time the loan is scheduled to be fully
amortized.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2008. Accordingly, prior to such date the Partnership
will need to either sell its investment property or extend the term of the
Partnership.
The Partnership distributed the following amounts during the three months ended
March 31, 2005 and 2004 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2005 Unit March 31, 2004 Unit
Sale proceeds (1) $ -- $ -- $2,624 $ 42.93
(1) Proceeds from the sales of South Point and Northwoods I and II Apartments
in December 2003.
Future cash distributions will depend on the levels of net cash generated from
operations and the timing of the debt maturity, property sale and/or
refinancing. The Partnership's cash available for distribution is reviewed on a
monthly basis. There can be no assurance, however, that the Partnership will
generate sufficient funds from operations, after required capital improvement
expenditures, to permit any distributions to its partners during 2005 or
subsequent periods.
Other
In addition to its indirect ownership of the Managing General Partner interest
in the Partnership, AIMCO and its affiliates owned 42,461.67 limited partnership
units (the "Units") in the Partnership representing 70.16% of the outstanding
Units at March 31, 2005. 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, unit holders 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 70.16% of
the outstanding Units, AIMCO and its affiliates are in a position to influence
all such voting decisions with respect to the Partnership. However, DeForest
Ventures II L.P., from whom AIMCO IPLP, L.P., an affiliate of the Managing
General Partner and of AIMCO, acquired 25,399 Units (41.97% of the units),
agreed for the benefit of non-tendering unit holders, that it would vote its
Units: (i) against any increase in compensation payable to the Managing General
Partner or to its affiliates; and (ii) on all other matters submitted by it or
its affiliates, in proportion to the votes cast by third party unit holders.
Except for the foregoing, no other limitations are imposed on IPLP's, AIMCO's or
any other affiliates right to vote each unit held. Although the Managing General
Partner owes fiduciary duties to the limited partners of the Partnership, the
Managing General Partner also owes fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the Managing General Partner, as
Managing General Partner, to the Partnership and its limited partners may come
into conflict with the duties of the Managing General Partner to AIMCO as 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 property is recorded at cost, less accumulated depreciation, unless
considered impaired. If events or circumstances indicate that the carrying
amount of the 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 property. 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint.On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
As previously disclosed AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in a lawsuit alleging
that they willfully violated the Fair Labor Standards Act ("FLSA") by failing to
pay maintenance workers overtime for all hours worked in excess of forty per
week. The complaint attempts to bring 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. and
NHP Management Company failed to compensate maintenance workers for time that
they were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action is scheduled for May 12, 2005. 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
consolidated financial condition or results of operations. 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.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index.
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 7
By: NPI EQUITY INVESTMENTS, INC.
Its 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: May 12, 2005
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.5 Master Indemnity Agreement dated as of August 17, 1995. (1)
3.4 (a) Agreement of Limited Partnership. (2)
(b) Amendments to the Agreement of Limited Partnership. (3)
(c) Amendments to the Agreement of Limited Partnership. (4)
(d) Amendments to the Agreements of Limited Partnership. (5)
(1) Incorporated by reference to Exhibit 2.5 to Form 8-K filed
by Insignia with the Securities and Exchange Commission on
September 1, 1995.
(2) Incorporated by reference to Exhibit A to the Prospectus of
the Registrant dated July 5, 1978, contained in the
Registrant's Registration Statement on Form S-11 (Reg. No.
2-599991).
(3) Incorporated by reference to the Definitive Proxy Statement of
the Partnership dated July 2, 1981.
(4) Incorporated by reference to Definitive Proxy statement of the
Partnership dated April 3, 1991.
(5) Incorporated by reference, to the Statement Furnished in
Connection With the Solicitation of Consents of the Registrant
dated August 28, 1992.
10.12 Multifamily Note dated November 30, 2001, by and between
National Property Investors 7, a California Limited
Partnership and GMAC Commercial Mortgage Corporation, a
California corporation relating to Fairway View II
Apartments (incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended December
31, 2002).
10.25 Purchase and Sale Contract between Registrant and Jackson
Square Properties, LLC, dated February 21, 2004 (incorporated
by reference to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended March 31, 2004).
10.26 Amendment to Purchase and Sale Contract between Registrant and
Jackson Square Properties, LLC dated March 23, 2004
(incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2004).
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 7;
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: May 12, 2005
/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 7;
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: May 12, 2005
/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 7 (the "Partnership"), for the quarterly period ended March 31, 2005
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: May 12, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 12, 2005
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.