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 March 31, 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)
March 31, 1999
Assets
Cash and cash equivalents $ 1,743
Receivables and deposits 997
Restricted escrows 724
Other assets 530
Investment properties:
Land $ 3,023
Buildings and related personal property 32,552
35,575
Less accumulated depreciation (24,713) 10,862
$ 14,856
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 74
Tenant security deposit liabilities 145
Accrued property taxes 779
Other liabilities 326
Mortgage notes payable 24,317
Partners' Deficit
General partner's $ (277)
Limited partners' (48,049 units issued
and outstanding) (10,508) (10,785)
$ 14,856
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
March 31,
1999 1998
Revenues:
Rental income $ 2,072 $ 2,022
Other income 75 131
Total revenues 2,147 2,153
Expenses:
Operating 736 772
General and administrative 64 76
Depreciation 354 333
Interest 481 468
Property taxes 189 181
Total expenses 1,824 1,830
Net income $ 323 $ 323
Net income allocated to general partner (1%) $ 3 $ 3
Net income allocated to limited partners (99%) 320 320
$ 323 $ 323
Net income per limited partnership unit $ 6.66 $ 6.66
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 three months
ended March 31, 1999 -- 3 320 323
Partners' deficit at
March 31, 1999 48,049 $ (277) $ (10,508) $ (10,785)
See Accompanying Notes to Consolidated Financial Statements
d)
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income $ 323 $ 323
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 354 333
Amortization of loan costs 24 17
Change in accounts:
Receivables and deposits (426) (38)
Other assets 196 21
Account payable (44) 34
Tenant security deposit liabilities 11 2
Accrued property taxes 132 127
Other liabilities 14 --
Net cash provided by operating activities 584 819
Cash flows from investing activities:
Property improvements and replacements (96) (91)
Net withdrawals from (deposits to)
restricted escrows 33 (83)
Net cash used in investing activities (63) (174)
Cash flows used in financing activities:
Payments on mortgage notes payable (21) (16)
Net increase in cash and cash equivalents 500 629
Cash and cash equivalents at beginning of period 1,243 1,508
Cash and cash equivalents at end of period $ 1,743 $ 2,137
Supplemental disclosure of cash flow information:
Cash paid for interest $ 457 $ 421
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 month period ended March 31,
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, of which the Partnership owns a 99% interest, and of Summerwalk
NPI III, LP, of 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 a 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 three month periods ended March 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $106 $108
Reimbursement for services of affiliates, including
approximately $17,000 of construction services
reimbursements during the three months ended
March 31, 1998, (included in investment properties
and operating and general and administrative expenses) 42 59
During the three months ended March 31, 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 $106,000 and $108,000 for the
three months ended March 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $42,000 and $59,000 for the
three months ended March 31, 1999 and 1998, respectively.
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 three states in the United States. 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 three months ended March 31, 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 $ 2,072 $ -- $ 2,072
Other income 74 1 75
Interest expense 481 -- 481
Depreciation 354 -- 354
General and administrative expense -- 64 64
Segment profit (loss) 386 (63) 323
Total assets 14,723 133 14,856
Capital expenditures for investment
properties 96 -- 96
1998
Residential Other Totals
Rental income $ 2,022 $ -- $ 2,022
Other income 115 16 131
Interest expense 468 -- 468
Depreciation 333 -- 333
General and administrative expense -- 76 76
Segment profit (loss) 383 (60) 323
Total assets 14,428 1,545 15,973
Capital expenditures for investment
properties 91 -- 91
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 disclosure
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 the three months ended March 31, 1999 and 1998:
Average Occupancy
Property 1999 1998
Lakeside Apartments 92% 95%
Lisle, Illinois (1)
Pinetree Apartments 96% 89%
Charlotte, North Carolina (2)
Summerwalk Apartments 98% 98%
Winter Park, Florida
(1) The Managing General Partner attributes the decrease in occupancy at
Lakeside to a July 1998 fire at the property, which destroyed one building
consisting of 22 units. The construction to rebuild the damaged buildings
has begun and is estimated to be completed by the end of the second quarter
of 1999.
(2) The Managing General partner attributes the increase in occupancy at
Pinetree Apartments to a strong rental market for the Charlotte area as
well as increased marketing efforts.
Results of Operations
The Partnership's net income for the three month periods ended March 31, 1999
and 1998 was approximately $323,000. Total revenues and total expenses both
decreased by $6,000 for the comparable periods.
Total revenue decreased due to a decrease in other income which more than offset
the increase in rental income. Rental revenue increased due to an increase in
occupancy at Pinetree Apartments and an increase in average rental rates at
Summerwalk Apartments. This was offset by a decrease in other income, primarily
attributable to a decrease in interest income resulting from a decrease in cash
balances in interest-bearing accounts and fees collected from the tenants at
Lakeside Apartments. The decrease in cash balances is the result of a cash
distribution paid to the partners during December 1998. Total expenses
decreased slightly due to decreases in operating and general and administrative
expense which more than offset increases depreciation, interest and property tax
expense. Operating expense decreased as a result of decreases in maintenance and
insurance expenses. Maintenance expenses decreased due to decreased maintenance
requirements at Summerwalk and Pinetree Apartments, partially offset by
increased maintenance expenses at Lakeside Apartments. The decrease at
Summerwalk is due to the completion of an exterior painting project in 1998 and
reduced interior and exterior building improvements. The decrease at Pinetree
is due to reduced interior painting and interior building improvements.
Partially offsetting these decreases is an increase in maintenance expenses at
Lakeside resulting from increased interior building improvements and interior
painting. Insurance expenses decreased as a result of lower premiums due to a
change in policy carrier. Depreciation expense increased due to additional
depreciable assets being placed in service at Lakeside Apartments during the
second half of 1998. Interest expense increased as a result of an adjustment to
loan cost amortization made in the first quarter of 1998.
Included in general and administrative expenses for the three months ended March
31, 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 March 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,743,000 as compared to approximately $2,137,000 at March 31,
1998. For the three months ended March 31, 1999 cash and cash equivalents
increased approximately $500,000 from the Partnership's year ended December 31,
1998. The increase in cash and cash equivalents is due to approximately
$584,000 of cash provided by operating activities, which was partially offset by
approximately $63,000 of cash used in investing activities and approximately
$21,000 of cash used in financing activities. Cash used in investing activities
consists of property improvements and replacements 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 three months ended March 31, 1999, the Partnership completed
approximately $49,000 of capital improvements at Lakeside Apartments consisting
primarily of building improvements, carpet replacement and water heaters. 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 near term. Capital
improvements planned for 1999 consist of, but are not limited to, carpet and
vinyl replacements, electrical upgrades, heating systems, landscaping, painting
and appliances. These improvements are expected to cost approximately $473,000.
Pinetree Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $17,000 of capital improvements at Pinetree Apartments consisting
of carpet replacement, appliances and landscaping. 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 near term. Capital improvements planned for
1999 consist of, but are not limited to, roof repairs, painting, landscaping,
and other building repairs and improvements. These improvements are expected to
cost approximately $305,000.
Summerwalk Apartments
During the three months ended March 31, 1999 the Partnership completed
approximately $30,000 of capital improvements at Summerwalk Apartments
consisting of carpet replacement, electrical upgrades and appliances. 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 near term. Capital improvements
planned for 1999 consist of, but are not limited to, 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 $24,317,000 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.
Future cash distributions will depend on the levels of cash generated from
operations, the timing of debt maturities, property sales, property refinancings
and the availability of cash reserves. No distributions were made during the
three months ended March 31, 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. The
consolidated balance sheet reflects an insurance receivable of approximately
$259,000 in "Other Assets". Total insurance proceeds are estimated to cover the
cost of replacement of the assets. Currently, replacement costs are estimated
to be approximately $1,368,000. No insurance proceeds have been received to
date. The construction to rebuild the damaged building has begun and is
estimated to be complete by the end of the second quarter of 1999.
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, 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
March 31, 1999, had completed approximately 75% 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 July
31, 1999.
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.
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 the testing process is
expected to be completed by July 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
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 May 1999.
The Managing Agent has updated data transmission standards with two of the three
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 June 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 $2.8 million ($0.6 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 March 31, 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/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
Date:
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This schedule contains summary financial information extracted from National
Property Investors III First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,743
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,575
<DEPRECIATION> 24,713
<TOTAL-ASSETS> 14,856
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 24,317
0
0
<COMMON> 0
<OTHER-SE> (10,785)
<TOTAL-LIABILITY-AND-EQUITY> 14,856
<SALES> 0
<TOTAL-REVENUES> 2,147
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 481
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-PRIMARY> 6.66<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
