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 0-11095
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)
March 31, 2005
Assets
Cash and cash equivalents $ 87
Receivables and deposits 303
Other assets 355
Investment properties:
Land $ 1,169
Buildings and related personal property 19,629
20,798
Less accumulated depreciation (16,658) 4,140
$ 4,885
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 174
Tenant security deposit liabilities 56
Accrued property taxes 56
Other liabilities 196
Due to affiliates (Note B) 5,426
Mortgage notes payable 9,735
Partners' Deficit
General partner $ (1,442)
Limited partners (82,508 units
issued and outstanding) (9,316) (10,758)
$ 4,885
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues:
Rental income $ 812 $ 744
Other income 81 81
Total revenues 893 825
Expenses:
Operating 442 345
General and administrative 44 41
Depreciation 98 90
Interest 269 243
Property taxes 63 56
Total expenses 916 775
Net (loss) income $ (23) $ 50
Net (loss) income allocated to general partner (3%) $ (1) $ 2
Net (loss) income allocated to limited partners (97%) (22) 48
$ (23) $ 50
Per limited partnership unit:
Net (loss) income $ (0.27) $ 0.58
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, 2004 82,508 $(1,441) $(9,294) $(10,735)
Net loss for the three months
ended March 31, 2005 -- (1) (22) (23)
Partners' deficit at
March 31, 2005 82,508 $(1,442) $(9,316) $(10,758)
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net (loss) income $ (23) $ 50
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 98 90
Amortization of loan costs 4 4
Change in accounts:
Receivables and deposits (4) 7
Other assets (37) (96)
Accounts payable 67 (67)
Due to affiliates 111 50
Tenant security deposit liabilities (4) (3)
Accrued property taxes 56 55
Other liabilities (53) (20)
Net cash provided by operating activities 215 70
Cash flows used in investing activities:
Property improvements and replacements (1,074) (67)
Cash flows from financing activities:
Payments of mortgage notes payable (100) (76)
Advances from affiliates 950 49
Net cash provided by (used in) financing activities 850 (27)
Net decrease in cash and cash equivalents (9) (24)
Cash and cash equivalents at beginning of period 96 90
Cash and cash equivalents at end of period $ 87 $ 66
Supplemental disclosure of cash flow information:
Cash paid for interest $ 221 $ 189
Supplemental disclosure of non-cash flow information:
Property improvements and replacements in accounts
payable $ 20 $ --
At December 31, 2004, approximately $127,000 of property improvements and
replacements were included in accounts payable and are included in property
improvements and replacements at March 31, 2005.
See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 5
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 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 a
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and 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
property management services based on a percentage of revenue and for
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
Affiliates of the Managing General Partner receive 5% of gross receipts from all
of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$42,000 for the three months ended March 31, 2005 and 2004, which is included in
operating expenses.
Affiliates of the Managing General Partner charged the Partnership reimbursement
of accountable administrative expenses amounting to approximately $160,000 and
$33,000 for the three months ended March 31, 2005 and 2004, respectively, which
is included in interest, general and administrative expenses and investment
properties. The portion of these reimbursements included in investment
properties 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 $122,000 and $3,000, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment properties. As of March 31, 2005, the
Partnership owed approximately $380,000 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's properties, the Managing General Partner is entitled to
receive payment for non-accountable expenses up to a maximum of $100,000 per
year, based upon the number of Partnership units sold, subject to certain
limitations. No such reimbursements were earned during the three months ended
March 31, 2005 or 2004.
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 three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $30,000 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 $46,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
Upon the sale of the Partnership's properties, NPI Equity will be entitled to an
Incentive Compensation Fee equal to a declining percentage of the difference
between the total amount distributed to limited partners and the appraised value
of their investment at February 1, 1992. The percentage amount to be realized by
NPI Equity, if any, will be dependent upon the year in which the property is
sold. Payment of the Incentive Compensation Fee is subordinated to the receipt
by the limited partners, of: (a) distributions from capital transaction proceeds
of an amount equal to their appraised investment in the Partnership at February
1, 1992, and (b) distributions from all sources (capital transactions as well as
cash flow) of an amount equal to six percent (6%) per annum cumulative,
non-compounded, on their appraised investment in the Partnership at February 1,
1992. As of March 31, 2005, an Incentive Compensation Fee of approximately
$290,000 has been accrued related to the sale of The Village in 1998 and is
included in due to affiliates on the accompanying balance sheet. The Managing
General Partner was not entitled to receive an Incentive Compensation Fee from
the sale of Palisades Apartments in 2003.
NPI Equity, on behalf of the Partnership and certain affiliated partnerships,
has established a revolving credit facility (the "Partnership Revolver") to be
used to fund deferred maintenance and working capital needs of the Partnership
and certain other affiliated partnerships in the National Property Investors
Partnership Series. The maximum draw available to the Partnership Revolver will
have a term of 365 days, be unsecured and bear interest at the prime rate plus
2% per annum. The maturity date of any such borrowing accelerates in the event
of (i) the removal of NPI Equity as the managing general partner (whether or not
for cause); (ii) the sale or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. During the
latter part of 2001, the Managing General Partner agreed to advance funds in
excess of the Partnership Revolver. These additional funds were needed to fund
operating expenses of two of the investment properties and the Partnership.
During the three months ended March 31, 2005 and 2004, the Managing General
Partner advanced additional amounts of approximately $950,000 and $49,000,
respectively, to the Partnership. At March 31, 2005, the Partnership has a
balance of approximately $4,756,000 under this Partnership Revolver, which
includes accrued interest of approximately $298,000. During the three months
ended March 31, 2005 and 2004, interest on the advances, at the rate of prime
plus 2%, or 7.75% at March 31, 2005, was approximately $75,000 and $46,000,
respectively, and is included in interest expense.
Note C - Casualties
In August and September 2004, Willow Park Apartments experienced damage from
Hurricanes Charley, Frances and Jeanne. At March 31, 2005, the Partnership
estimates damage costs of approximately $112,000. The Managing General Partner
does not anticipate that any insurance proceeds will be received to cover
estimated repairs. The Partnership does not expect a casualty loss to result
from these events as the damaged assets were fully depreciated.
In August and September 2004, Oakwood Village Apartments experienced damage from
Hurricanes Frances and Jeanne. At March 31, 2005, the Partnership estimates
damage costs of approximately $738,000, which the Partnership estimates to be
partially covered by insurance proceeds. The Partnership does not expect a
casualty loss to result from these events as the damaged assets were fully
depreciated. In addition, during the three months ended March 31, 2005, the
Partnership incurred clean up costs of approximately $41,000, which were not
covered by insurance proceeds, and these costs are reflected in operating
expenses on the accompanying statements of operations.
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 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.
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 took place on May 12, 2005 and the
parties await a ruling from the Court. 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. 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 properties that are 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 properties, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its properties.
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 properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2005 and 2004:
Average Occupancy
Property 2005 2004
Willow Park on Lake Adelaide 96% 89%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 84% 91%
Winter Park, Florida
The Managing General Partner attributes the increase in occupancy at Willow Park
on Lake Adelaide Apartments to relocations into the area by local employers. The
Managing General Partner attributes the decrease in occupancy at Oakwood Village
Apartments to the damage sustained from Hurricanes Charley and Frances, which
have left units unoccupied.
The Partnership's financial results depend 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 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 was
approximately $23,000 compared to net income of approximately $50,000 for the
three months ended March 31, 2004. The decrease in net income is due to an
increase in total expenses partially offset by an increase in total revenues.
Total expenses increased due to increases in operating and interest expense.
Operating expense increased due increases in property and maintenance expense.
Property expense increased due to an increase in the cost of employee apartments
at Willow Park Apartments and an increase in salaries and related benefits at
both investment properties partially offset by a decrease in contract courtesy
patrol at Willow Park Apartments. Maintenance expense increased due to insurance
damage expense from the hurricanes at Oakwood Village Apartments. Interest
expense increased due to an increase in the outstanding balance of loans due to
affiliates.
In August and September 2004, Willow Park Apartments experienced damage from
Hurricanes Charley, Frances and Jeanne. At March 31, 2005, the Partnership
estimates damage costs of approximately $112,000. The Managing General Partner
does not anticipate that any insurance proceeds will be received to cover
estimated repairs. The Partnership does not expect a casualty loss to result
from these events as the damaged assets were fully depreciated.
In August and September 2004, Oakwood Village Apartments experienced damage from
Hurricanes Frances and Jeanne. At March 31, 2005, the Partnership estimates
damage costs of approximately $738,000, which the Partnership estimates to be
partially covered by insurance proceeds. The Partnership does not expect a
casualty loss to result from these events as the damaged assets were fully
depreciated. In addition, during the three months ended March 31, 2005, the
Partnership incurred clean up costs of approximately $41,000, which were not
covered by insurance proceeds, and these costs are reflected in operating
expenses on the accompanying statements of operations.
Total revenues increased due to an increase in rental income. Rental income
increased due to an increase in occupancy at Willow Park Apartments, an increase
in the average rental rates at both investment properties and a decrease in bad
debt expense at both investment properties partially offset by a decrease in
occupancy at Oakwood Village Apartments.
Included in general and administrative expenses for the three months ended March
31, 2005 and 2004 are management reimbursements to the Managing General Partner
as allowed under the Partnership Agreement. Also included in general and
administrative expenses are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
Capital Resources and Liquidity
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $87,000 compared to approximately $66,000 at March 31, 2004. For
the three months ended March 31, 2005, cash and cash equivalents decreased by
approximately $9,000. The decrease in cash and cash equivalents is due to
approximately $1,074,000 of cash used in investing activities partially offset
by approximately $215,000 of cash provided by operating activities and
approximately $850,000 of cash provided by financing activities. Cash used in
investing activities consisted of property improvements and replacements. Cash
provided by financing activities consisted of advances from an affiliate of the
Managing General Partner partially offset by principal payments made on the
mortgages encumbering the Partnership's properties. The Partnership invests its
working capital reserves in interest bearing accounts.
NPI Equity, on behalf of the Partnership and certain affiliated partnerships,
has established a revolving credit facility (the "Partnership Revolver") to be
used to fund deferred maintenance and working capital needs of the Partnership
and certain other affiliated partnerships in the National Property Investors
Partnership Series. The maximum draw available to the Partnership Revolver will
have a term of 365 days, be unsecured and bear interest at the prime rate plus
2% per annum. The maturity date of any such borrowing accelerates in the event
of (i) the removal of NPI Equity as the managing general partner (whether or not
for cause); (ii) the sale or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. During the
latter part of 2001, the Managing General Partner agreed to advance funds in
excess of the Partnership Revolver. These additional funds were needed to fund
operating expenses of two of the investment properties and the Partnership.
During the three months ended March 31, 2005 and 2004, the Managing General
Partner advanced additional amounts of approximately $950,000 and $49,000,
respectively, to the Partnership. At March 31, 2005, the Partnership has a
balance outstanding of approximately $4,756,000 under this Partnership Revolver,
which includes accrued interest of approximately $298,000. During the three
months ended March 31, 2005 and 2004, interest on the advances, at the rate of
prime plus 2%, or 7.75% at March 31, 2005, was approximately $75,000 and
$46,000, respectively, and is included in interest expense.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. The Managing General
Partner monitors developments in the area of legal and regulatory compliance.
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 each of
the Partnership's properties are detailed below.
Willow Park on Lake Adelaide Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $181,000 of capital improvements at Willow Park on Lake Adelaide
Apartments consisting of structural improvements, roof replacement and appliance
and floor covering replacements. These improvements were funded from operating
cash flow and advances from an affiliate of the Managing General Partner. 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 anticipated cash flow generated by the property.
Oakwood Village at Lake Nan Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $786,000 of capital improvements at Oakwood Village at Lake Nan
Apartments consisting of construction related to hurricane damage, parking lot
upgrades, and appliance and floor covering replacements. These improvements were
funded from operating cash flow and advances from an affiliate of the Managing
General Partner. 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 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 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 generally sufficient for any
near-term needs (exclusive of capital improvements) of the Partnership. The
mortgage indebtedness encumbering the Partnership's investment properties of
approximately $9,735,000 has maturity dates ranging from January 2020 to March
2021 at which times the loans are scheduled to be fully amortized.
There were no distributions during the three months ended March 31, 2005 and
2004. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's cash
available for distribution is reviewed on a monthly basis. In light of the
significant amount due to the Managing General Partner at March 31, 2005, it is
not anticipated that the Partnership will make any distributions in the
foreseeable future.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 53,900 limited partnership units
(the "Units") in the Partnership representing 65.33% 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, 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 65.33% 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.
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.
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 took place on May 12, 2005 and the
parties await a ruling from the Court. 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. 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 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: May 16, 2005
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.
(d) Amendment to the Partnership Agreement, incorporated by
reference to Current Report on Form 8-K dated October 25,
2004.
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.
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 of the equivalent of the Chief Executive
Officer and Chief Financial Officer 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: May 16, 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 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: May 16, 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 5 (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 16, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 16, 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.