FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9567
NATIONAL PROPERTY INVESTORS III
(Exact name of small business issuer as specified in its charter)
California 13-2974428
(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 phone 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
a)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 2,210
Receivables and deposits 1,010
Restricted escrows 750
Other assets 523
Investment properties:
Land $ 3,023
Buildings and related personal property 32,784
35,807
Less accumulated depreciation (25,068) 10,739
$ 15,232
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 134
Tenant security deposit liabilities 155
Accrued property taxes 696
Other liabilities 313
Mortgage notes payable 24,295
Partners' Deficit
General partner's $ (273)
Limited partners' (48,049 units issued
and outstanding) (10,088) (10,361)
$ 15,232
See Accompanying Notes to Consolidated Financial Statements
b)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 2,135 $ 2,018 $ 4,207 $ 4,040
Other income 116 144 191 275
Total revenues 2,251 2,162 4,398 4,315
Expenses:
Operating 745 736 1,481 1,508
General and administrative 58 54 122 130
Depreciation 355 333 709 666
Interest 481 481 962 949
Property taxes 188 195 377 376
Total expenses 1,827 1,799 3,651 3,629
Net income $ 424 $ 363 $ 747 $ 686
Net income allocated
to general partner (1%) $ 4 $ 4 $ 7 $ 7
Net income allocated
to limited partners (99%) 420 359 740 679
$ 424 $ 363 $ 747 $ 686
Net income per limited
partnership unit $ 8.74 $ 7.47 $ 15.40 $ 14.13
See Accompanying Notes to Consolidated Financial Statements
c)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 48,049 $ 1 $ 24,025 $ 24,026
Partners' deficit at
December 31, 1998 48,049 $ (280) $ (10,828) $ (11,108)
Net income for the six months
ended June 30, 1999 -- 7 740 747
Partners' deficit at
June 30, 1999 48,049 $ (273) $ (10,088) $ (10,361)
See Accompanying Notes to Consolidated Financial Statements
d)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 747 $ 686
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 709 666
Amortization of loan costs 48 40
Change in accounts:
Receivables and deposits (439) 44
Other assets 179 19
Accounts payable 16 9
Tenant security deposit liabilities 21 4
Accrued property taxes 49 46
Other liabilities 1 14
Net cash provided by operating activities 1,331 1,528
Cash flows used in investing activities:
Property improvements and replacements (328) (296)
Net withdrawals from (deposits to) restricted
escrows 7 (133)
Net cash used in investing activities (321) (429)
Cash flows used in financing activities:
Payments on mortgage notes payable (43) (35)
Net increase in cash and cash equivalents 967 1,064
Cash and cash equivalents at beginning of period 1,243 1,508
Cash and cash equivalents at end of period $ 2,210 $ 2,572
Supplemental disclosure of cash flow information:
Cash paid for interest $ 914 $ 879
See Accompanying Notes to Consolidated Financial Statements
e)
NATIONAL PROPERTY INVESTORS III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of National
Property Investors III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of NPI Equity Investments, Inc. ("NPI
Equity" or the "Managing General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report of the Partnership on Form 10-KSB for the year ended December 31, 1998.
Principles of Consolidation
The Partnership's financial statements include the accounts of National
Pinetree, LP, "a Limited Partnership Inc." which the Partnership owns a 99%
Limited Partnership interest, and of Summerwalk NPI III, LP, "a Limited
Partnership Inc." which the Partnership owns a 99.9% interest. The Partnership
has the ability to control the major operating and financial policies of these
partnerships. All interpartnership transactions have been eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust ("AIMCO"), with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following transactions with affiliates of the Managing General Partner were
incurred during the six month periods ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $217 $216
Reimbursement for services of affiliates (included in
investment properties and operating and general and
administrative expenses) 76 102
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $217,000 and $216,000 for the
six months ended June 30, 1999 and 1998, respectively, including approximately
$3,000 and $18,000 of construction services reimbursements during the six months
ended June 30, 1999 1998 respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $76,000 and $102,000 for the
six months ended June 30, 1999 and 1998, respectively.
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 11,978.83 (24.93%% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $448 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,472.00
units. As a result, AIMCO and its affiliates currently own 25,118 units of
limited partnership interest in the Partnership representing 52.28% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
in Illinois, North Carolina, and Florida. The Partnership rents apartment units
to people for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 4,207 $ -- $ 4,207
Other income 189 2 191
Interest expense 931 -- 962
Depreciation 709 -- 709
General and administrative expense -- 122 122
Segment profit (loss) 867 (120) 747
Total assets 15,156 76 15,232
Capital expenditures for investment
properties 328 -- 328
1998
Residential Other Totals
Rental income $ 4,040 $ -- $ 4,040
Other income 239 36 275
Interest expense 949 -- 949
Depreciation 666 -- 666
General and administrative expense -- 130 130
Segment profit (loss) 780 (94) 686
Total assets 14,240 1,987 16,227
Capital expenditures for investment
properties 296 -- 296
NOTE E - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard during February 1999.
No ruling on such demurrers has been received. The Managing General Partner
does not anticipate that costs associated with this case, if any, will be
material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy for each of the properties
for both of the six months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Lakeside Apartments 95% 94%
Lisle, Illinois
Pinetree Apartments 95% 92%
Charlotte, North Carolina (1)
Summerwalk Apartments 97% 98%
Winter Park, Florida
(1) The Managing General partner attributes the increase in occupancy at
Pinetree Apartments to a strong local rental market and increased marketing
efforts.
Results of Operations
The Partnership's net income for the three and six month periods ended June 30,
1999 and 1998, was approximately $424,000 and $747,000 respectively. During the
three and six month periods ending June 30, 1998, the Partnership had net income
of approximately $363,000 and $686,000 respectively.
Net Income for the three and six months ending June 30, 1999, increased
primarily due to increases in total revenues which were partially offset by
increases in total expenses. The increase in total revenues for the three and
six month periods is due to increased rental income as a result of increased
rental rates at all of the Partnership's properties in addition to the increase
in average occupancy at two of the Partnership's properties. These increase
were partially offset by decreases in other income primarily due to a decrease
in fees collections at Lakeside. The decrease in other income is also due to a
decrease in interest income as a result of lower average cash balances in
interest bearing accounts. Total expenses increased for the three and six month
periods due to increased depreciation expense as a result of new capital assets
placed in service at Lakeside during the past year. The decrease in operating
expenses for the six month period due to reduced salary expenses at Summerwalk
and Lakeside in addition to reduced utility expenses at Lakeside. Operating
expenses increased for the three month period ending June 30, 1999, primarily as
a result of the property bonuses and legal expenses paid during the second
quarter.
Included in general and administrative expenses for the six months ended June
30, 1999 and 1998, are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with its management of the
Partnership. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
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, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At June 30, 1999, the Partnership had cash and cash equivalents of approximately
$2,210,000 as compared to approximately $2,572,000 at June 30, 1998. For the
six months ended June 30, 1999, cash and cash equivalents increased
approximately $967,000 from the Partnership's year ended December 31, 1998. The
increase in cash and cash equivalents is due to approximately $1,331,000 of cash
provided by operating activities, which was partially offset by approximately
$321,000 of cash used in investing activities and approximately $43,000 of cash
used in financing activities. Cash used in investing activities consists of
property improvements and replacements partially offset by net withdrawals from
restricted escrows maintained by the mortgage lenders. Cash used in financing
activities consists of payments of principal made on the mortgages encumbering
Pinetree and Summerwalk Apartments. The Partnership invests its working capital
reserves in a money market account.
The Managing General Partner has extended to the Partnership a $300,000 line of
credit. At the present time, the Partnership has no outstanding amounts due
under this line of credit. Based on present plans, the Managing General Partner
does not anticipate the need to borrow in the near future. Other than cash and
cash equivalents, the line of credit is the Partnership's only unused source of
liquidity.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Lakeside Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $150,000 of capital improvements at Lakeside Apartments consisting
primarily of structural improvements, carpet replacement and water heaters.
These improvements were funded from operating cash flows. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately $362,000
of capital improvements over the next few years. Capital improvements planned
for 1999 which include certain of the required improvements and consist of, but
are not limited to, carpet and vinyl replacements, electrical upgrades, heating
systems, landscaping, painting and appliances, and structural improvements.
These improvements are expected to cost approximately $473,000.
Pinetree Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $41,000 of capital improvements at Pinetree Apartments consisting
of carpet replacement, appliances and landscaping. These improvements were
funded from replacement reserves. Based on a report received from an
independent third party consultant analyzing necessary exterior improvements and
estimates made by the Managing General Partner on interior improvements, it is
estimated that the property requires approximately $274,000 of capital
improvements over the next few years. Capital improvements planned for 1999
which include certain of the required improvements and consist of, but are not
limited to, carpet replacements, appliances, roof repairs, painting,
landscaping, and other building repairs and improvements. These improvements
are expected to cost approximately $305,000.
Summerwalk Apartments
During the six months ended June 30, 1999, the Partnership completed
approximately $137,000 of capital improvements at Summerwalk Apartments
consisting of carpet replacement, electrical upgrades, building improvements,
and appliances. These improvements were funded from operating cash flows and
replacement reserves. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $505,000 of capital improvements over the next
few years. Capital improvements planned for 1999 which include certain of the
required improvements and consist of, but are not limited to, carpet
replacements, appliances, landscaping, structural improvements, electrical
upgrades and painting. These improvements are expected to cost approximately
$636,000.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $24,295,000 is being amortized over varying
periods with balloon payments due over periods ranging from July 2001 to January
2008. The Managing General Partner will attempt to refinance such remaining
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.
No distributions were made during the six months ended June 30, 1999 or 1998.
The Partnership's distribution policy is reviewed on a quarterly basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations
after required capital improvements to permit distributions to its partners in
1999 or subsequent periods.
Casualty Event
In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The fire is covered by insurance.
Total insurance proceeds are estimated to cover the cost of replacement of the
assets. Currently, replacement costs and rent loss are estimated to be
approximately $1,554,000. No insurance proceeds have been received to date.
The construction to rebuild the damaged building is almost completed and is
estimated to be fully completed by the end of the third quarter of 1999.
Tender Offer
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 11,978.83 (24.93%% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $448 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,472.00
units. As a result, AIMCO and its affiliates currently own 25,118 units of
limited partnership interest in the Partnership representing 52.28% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
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. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner has
filed demurrers to the amended complaint which were heard during February 1999.
No ruling on such demurrers has been received. The Managing General Partner
does not anticipate that costs associated with this case, if any, will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None were filed during the quarter ended June 30, 1999.
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 III
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors III 1999 Second Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000310485
<NAME> NATIONAL PROPERTY INVESTORS III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,210
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,807
<DEPRECIATION> 25,068
<TOTAL-ASSETS> 15,232
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 24,295
0
0
<COMMON> 0
<OTHER-SE> 10,361
<TOTAL-LIABILITY-AND-EQUITY> 15,232
<SALES> 0
<TOTAL-REVENUES> 4,398
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,651
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 962
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 747
<EPS-BASIC> 15.40<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
