March 29, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: National Property Investors III
Form 10-KSB
File No. 0-9567
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Managing General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-9567
NATIONAL PROPERTY INVESTORS III
(Name of small business issuer in its charter)
California 13-2974428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Partnership's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $10,384,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus and Supplements
<PAGE>
PART I
Item 1. Description of Business
National Property Investors III (the "Partnership" or the "Registrant") is a
California limited partnership formed as of February 1, 1979. The Partnership is
engaged in the business of operating and holding for investment, income
producing real estate properties. NPI Equity Investments, Inc. (the "Managing
General Partner" or "NPI Equity"), a Florida corporation, became the
Partnership's Managing General Partner on June 21, 1991. The Managing General
Partner is a wholly owned subsidiary of Apartment Investment and Management
Company ("AIMCO") (See "Transfers of Control".) The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2005, unless
terminated prior to such date.
In 1980, during its acquisition phase, the Partnership acquired six existing
apartment properties. The Partnership continues to own and operate three of
these properties. (See "Item 2. Description of Properties".)
Reference is made to the Prospectus of the Partnership dated October 24, 1979,
as supplemented by Supplements dated January 24, 1980, April 24, 1980, July 16,
1980, September 3, 1980, October 2, 1980, and October 16, 1980, which have been
filed pursuant to rules 424(b) and 424(c) under the Securities Act of 1933, as
amended, all of which are incorporated herein by reference. The Prospectus was
filed as part of the Partnership's Registration Statement filed with the
Securities and Exchange Commission pursuant to which 66,000 units of Limited
Partnership Interest (the "Units") were registered. The Partnership sold 48,049
units aggregating $24,024,500. The Managing General Partner contributed capital
in the amount of $1,000 for a 1% interest in the Partnership. Since its initial
offering, the Partnership has not received, nor are the limited partners
required to make, additional capital contributions.
The Registrant has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner. These services were provided by affiliates of the Managing
General Partner for the years ended December 31, 1999 and 1998.
The business in which the Partnership is engaged is highly competitive. There
are other residential properties within the market area of the Registrant's
properties. The number and quality of competitive properties, including those
which may be managed by an affiliate of the Managing General Partner, in such
market area could have a material effect on the rental market for the apartments
at the Partnership's properties and the rents that may be charged for such
apartments. While the Managing General Partner and its affiliates own and/or
control a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the availability of permanent mortgage financing, changes in zoning
laws, or changes in patterns or needs of users. In addition, there are risks
inherent in owning and operating residential properties because such properties
are susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfers 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 AIMCO, a publicly traded real estate investment trust, 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 has had or will have a
material effect on the affairs and operations of the Partnership.
Item 2. Description of Properties
The following table sets forth the Partnership's investment in properties:
<TABLE>
<CAPTION>
Date of
Properties Purchase Type of Ownership Use
<S> <C> <C> <C>
Pinetree Apartments 07/01/80 Fee ownership subject to Apartment
Charlotte, North Carolina a first deed of trust (1) 220 units
Lakeside Apartments 12/18/80 Fee ownership subject to Apartment
Lisle, Illinois a first deed of trust 568 units
Summerwalk Apartments (1) 12/24/80 Fee ownership subject to Apartment
Winter Park, Florida a first deed of trust (2) 306 units
</TABLE>
(1) Property is held by a Limited Partnership of which the Partnership owns a
99% interest.
(2) Property is held by a Limited Partnership of which the Partnership owns a
99.9% interest.
<PAGE>
Schedule of Properties
Set forth below for each of the Partnership's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation, and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Properties Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Pinetree Apartments $ 6,607 $ 4,741 5-27.5 yrs S/L $ 1,829
Lakeside Apartments 23,173 15,230 5-27.5 yrs S/L 6,989
Summerwalk Apartments 8,120 5,664 5-27.5 yrs S/L 2,310
$37,900 $25,635 $11,128
</TABLE>
See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note K - Change in Accounting Principle".
Schedule of Properties Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Properties 1999 Rate Amortized Date Maturity (2)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Pinetree Apartments $ 4,991 7.65%% 20 yrs 11/01/19 $ --
Lakeside Apartments 17,200 7.33% (1) 11/01/03 17,200
Summerwalk Apartments 4,902 7.13% 30 yrs 01/01/08 4,312
$27,093 $21,512
</TABLE>
(1) Monthly payments are interest only.
(2) See "Item 7. Financial Statements - Note D" for information with respect
to the Registrant's ability to prepay these loans and other specific
details about the loan.
On October 15, 1999, the Partnership refinanced the mortgage encumbering
Pinetree Apartments. The interest rate on the new mortgage is 7.65% compared to
the interest rate on the old mortgage of 9.87%. The refinancing replaced
indebtedness of approximately $2,154,000 with a new mortgage in the amount of
$5,000,000. Payments of approximately $41,000 are due on the first day of each
month until the loan matures on November 1, 2019. The prior note was scheduled
to mature in July 1, 2001. The lender also required that a repair escrow of
approximately $67,000 be established. Total capitalized loan costs were
approximately $76,000 during the year ended December 31, 1999. During the year
ended December 31, 1999, the Partnership recognized a loss on the early
extinguishment of debt of approximately $158,000 consisting of the write-off of
unamortized loan costs and a prepayment penalty.
Rental Rates and Occupancy
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average Annual
Rental Rates Occupancy
(per unit)
Properties 1999 1998 1999 1998
Pinetree Apartments $ 6,958 $ 6,687 94% 92%
Lakeside Apartments 9,893 9,541 93% 91%
Summerwalk Apartments 6,776 6,403 95% 98%
The Managing General Partner atttributes the decrease in occupancy at Summerwalk
to the July 1999 fire that destroyed one building consisting of eight units.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The Managing
General Partner believes that the properties are adequately insured. The
properties are apartment complexes which lease units for terms of one year or
less. No individual tenant leases 10% or more of the available rental space. All
of the properties are in good physical condition, subject to normal depreciation
and deterioration as is typical for assets of this type and age.
Schedule of Real Estate Taxes and Rates
Real estate taxes and rates in 1999 for the properties:
1999 1999
Billing Rate
(in thousands)
Pintree Apartments $ 60 1.36%
Lakeside Apartments 540 6.83%
Summerwalk Apartments 121 1.95%
Capital Improvements
Pinetree Apartments
The Partnership completed approximately $297,000 in capital expenditures at
Pinetree Apartments as of December 31, 1999, consisting primarily of floor
covering replacements, major landscaping, exterior painting and structural
improvements. These improvements were funded from operations and replacement
reserves. The Partnership is currently evaluating the capital improvement needs
of the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $66,000. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Lakeside Apartments
The Partnership completed approximately $1,892,000 in capital expenditures at
Lakeside Apartments as of December 31, 1999, consisting primarily of floor
covering replacements, heating improvements, major landscaping, exterior
painting, parking lot enhancements, appliances, and structural improvements.
These improvements were funded from operations, replacement reserves, and
insurance proceeds. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or $170,400. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Summerwalk Apartments
The Partnership completed approximately $433,000 in capital expenditures at
Summerwalk Apartments as of December 31, 1999, consisting primarily of floor
covering replacements, exterior painting, structural improvements, appliances,
and electrical upgrades. These improvements were funded from operations and
replacement reserves. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or $91,800. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Item 3. 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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Item 7. Financial Statements, Note B - Transfer of Control"). The plaintiffs
seek 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 filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement, settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
Managing General Partner and its affiliates terminated the proposed settlement.
Certain plaintiffs have filed a motion to disqualify some of the plaintiffs'
counsel in the action. The Managing General Partner does not anticipate that
costs associated with this case 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 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matters were submitted to a vote
of the Unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters
The Partnership, a publicly-held limited partnership, offered and sold 48,049
Limited Partnership Units aggregating $24,025,500. As of December 31, 1999, the
Partnership had 48,049 units outstanding held by 1,037 limited partners of
record. Affiliates of the Managing General Partner owned 33,132 units or 68.95%
at December 31, 1999. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999 (See "Item 6. Management's Discussion and
Analysis or Plan of Operation" for further details):
Distributions
Aggregate Per Unit
(in thousands)
01/01/98 - 12/31/98 $ 2,100 (1) $43.50
01/01/99 - 12/31/99 670 (2) 13.82
(1) Consists of $1,040,000 of cash from operations and $1,060,000 of cash from
proceeds of the Summerwalk refinancing.
(2) Distribution was made from cash from operations.
Future cash distributions will depend on the levels of cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings and/or property sales. The Partnership's distribution policy is
reviewed on a semi-annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds after required capital expenditures
to permit further distributions to its partners in 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the fiscal years ended December 31, 1999 and
1998. As a result of these and prior tender offers, AIMCO and its affiliates
currently own 33,132 limited partnership units in the Partnership representing
68.95% of the outstanding units. It is possible that AIMCO or its affiliates
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. Consequently, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. Under the
Partnership Agreement, unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters. 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 their affiliation
with the Managing General Partner.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB 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-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matter, does not take into account
the effects of any changes to the Registrant'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.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership's net income for the year ended December 31, 1999 was
approximately $2,760,000 compared to approximately $996,000 for the year ended
December 31, 1998.
The increase in net income is primarily due to an increase in total revenues
partially offset by the extraordinary loss on the early extinguishment of the
debt encumbering Pinetree Apartments recognized during the year ended December
31, 1999 (see discussion below) and, to a lesser extent, a slight increase in
total expenses. The increase in total revenues is primarily due to the
recognition of a casualty gain in 1999 (see discussion below) and an increase in
rental income. The increase in rental income is primarily due to the increase in
average rental rates at all three of the Partnership's investment properties and
an increase in average occupancy at Pinetree Apartments and Lakeside Apartments.
The slight increase in total expenses is primarily due to an increase in
interest expense largely offset by a decrease in operating expense. The increase
in interest expense is primarily due to the refinancing of the debt encumbering
Pinetree Apartments, for which the new mortgage is approximately $2,800,000
higher than the previous one. The decrease in operating expense is primarily due
to a decrease in maintenance and insurance expenses. The decrease in maintenance
expense is primarily due to a decrease in interior building improvements at
Pinetree Apartments and decreases in pool repairs and floor covering repairs at
Lakeside Apartments. The decrease in insurance expense is due to a change in the
insurance carrier for all of the Partnership's investment properties in late
1998.
In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The repair costs are covered by
insurance. In 1998, estimated insurance proceeds were recognized only to the
extent of the write-off of destroyed assets of approximately $225,000. During
the twelve months ended December 31, 1999, net insurance proceeds of
approximately $1,456,000 were received to cover replacement costs and the
construction is complete. During the year ended December 31, 1999, the
Partnership recognized a casualty gain of approximately $1,230,000.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs are covered by insurance.
Demolition has been completed and reconstruction should be completed by the end
of the first quarter 2000. Net insurance proceeds of approximately $209,000 have
been received. During the year ended December 31, 1999, the Partnership
recognized a casualty gain of approximately $232,000.
<PAGE>
Included in general and administrative expenses for the nine months ended
September 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.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $280,000 ($5.77 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
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 December 31, 1999, the Partnership had cash and cash equivalents of
approximately $5,577,000 compared to approximately $1,243,000 at December 31,
1998. For the year ended December 31, 1999, cash and cash equivalents increased
by approximately $4,334,000. The increase in cash and cash equivalents is due to
approximately $3,252,000 of cash provided by operating activities and
approximately $1,867,000 of cash provided by financing activities, which was
partially offset by approximately $785,000 of cash used in investing activities.
Cash used in investing activities consisted of property improvements and
replacements which was partially offset by net insurance proceeds and net
withdrawals from escrow accounts maintained by the mortgage lender. Cash
provided by financing activities consisted primarily of proceeds from the
refinancing of the Pinetree Apartments mortgage partially offset by principal
payments on the mortgages encumbering the Partnership's properties,
distributions to partners, a prepayment penalty and loan costs. The Partnership
invests its working capital reserves in money market accounts.
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 Registrant and to comply with Federal,
state, and local legal and regulatory requirements. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $328,200.
Additional improvements may be considered and will depend on the physical
condition of the properties as well as replacement reserves and anticipated cash
flow generated by the properties.
On October 15, 1999, the Partnership refinanced the mortgage encumbering
Pinetree Apartments. The interest rate on the new mortgage is 7.65% compared to
the interest rate on the old mortgage of 9.87%. The refinancing replaced
indebtedness of $2,154,000 with a new mortgage in the amount of $5,000,000.
Payments of approximately $41,000 are due on the first day of each month until
the loan matures on November 1, 2019. The prior note was scheduled to mature in
July 1, 2001. The lender also required a repair escrow of approximately $67,000
be established. Total capitalized loan costs were approximately $76,000 during
the year ended December 31, 1999. During the year ended December 31, 1999, the
Partnership recognized a loss on the early extinguishment of debt of
approximately $158,000 consisting of the write-off of unamortized loan costs and
a prepayment penalty.
The Partnership's current assets are though to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $27,093,000 is being amortized over varying
periods with balloon payments due over periods ranging from November 2003 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.
The Managing General Partner has made available 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.
During the year ended December 31, 1999, the Partnership distributed
approximately $670,000 (approximately $664,000 to the limited partners or $13.82
per limited partnership unit) from operations. During the year ended December
31, 1998, the Partnership distributed approximately $1,060,000 ($22.06 per
limited partnership unit) from the proceeds relating to the refinancing of the
mortgage encumbering Summerwalk Apartments and approximately $1,040,000 ($21.44
per limited partnership unit) of cash flow from operations.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the fiscal years ended December 31, 1999 and
1998. As a result of these and prior tender offers, AIMCO and its affiliates
currently own 33,132 limited partnership units in the Partnership representing
68.95% of the outstanding units. It is possible that AIMCO or its affiliates
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. Consequently, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. Under the
Partnership Agreement, unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters. 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 their affiliation
with the Managing General Partner.
Year 2000 Compliance
General Description
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 Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership has not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
NATIONAL PROPERTY INVESTORS III
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and 1998
Consolidated Statements of Changes in Partners' Deficit - Years ended December
31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
National Property Investors III
We have audited the accompanying consolidated balance sheet of National Property
Investors III as of December 31, 1999, and the related consolidated statements
of operations, changes in partners' deficit and cash flows for each of the two
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Property
Investors III at December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note K to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 5,577
Receivables and deposits 398
Restricted escrows 720
Other assets 644
Investment properties (Notes D and E):
Land $ 3,023
Buildings and related personal property 34,877
37,900
Less accumulated depreciation (25,635) 12,265
$ 19,604
Liabilities and Partners' Deficit
Liabilities
Accounts payable 273
Tenant security deposits payable 177
Accrued property taxes 644
Other liabilities 435
Mortgage notes payable (Note D) 27,093
Partners' Deficit
General partner $ (258)
Limited partners (48,049 units issued and
outstanding) (8,760) (9,018)
$ 19,604
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Revenues:
<S> <C> <C>
Rental income $ 8,468 $ 7,953
Other income 454 494
Casualty gain 1,462 --
Total revenues 10,384 8,447
Expenses:
Operating 2,982 3,048
General and administrative 329 334
Depreciation 1,431 1,396
Interest 1,969 1,912
Property taxes 755 761
Total expenses 7,466 7,451
Income before extraordinary item 2,918 996
Extraordinary loss on early extinguishment of debt (158) --
Net income $ 2,760 $ 996
Net income allocated to general partner (1%) $ 28 $ 10
Net income allocated to limited partners (99%) 2,732 986
$ 2,760 $ 996
Per limited partnership unit:
Income before extraordinary item $ 60.12 $ 20.52
Extraordinary loss on early extinguishment of debt (3.26) --
Net income $ 56.86 $ 20.52
Distributions per limited partnership unit $ 13.82 $ 43.50
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS III
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 48,049 $ 1 $ 24,025 $ 24,025
Partners' deficit at
December 31, 1997 48,049 $ (280) $ (9,724) $(10,004)
Distributions to partners -- (10) (2,090) (2,100)
Net income for the year ended
December 31, 1998 -- 10 986 996
Partners' deficit at
December 31, 1998 48,049 (280) (10,828) (11,108)
Distribution to partners -- (6) (664) (670)
Net income for the year ended
December 31, 1999 -- 28 2,732 2,760
Partners' deficit at
December 31, 1999 48,049 $ (258) $ (8,760) $ (9,018)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS III
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,760 $ 996
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,431 1,396
Amortization of loan costs 96 87
Casualty gain (1,462) --
Extraordinary loss on early extinguishment of debt 158 --
Change in accounts:
Receivables and deposits 16 53
Other assets 70 24
Accounts payable 45 84
Tenant security deposit payable 43 (24)
Accrued property taxes (3) 41
Other liabilities 98 17
Net cash provided by operating activities 3,252 2,674
Cash flows from investing activities:
Net withdrawals from restricted escrows 37 3
Property improvements and replacements (2,487) (766)
Net insurance proceeds received 1,665 --
Net cash used in investing activities (785) (763)
Cash flows from financing activities:
Mortgage principal payments (91) (76)
Repayment of mortgage note payable (2,154) --
Proceeds from mortgage note payable 5,000 --
Distributions to partners (670) (2,100)
Loan costs paid (76) --
Prepayment penalty (142) --
Net cash provided by (used in) financing
activities 1,867 (2,176)
Net increase (decrease) in cash and cash equivalents 4,334 (265)
Cash and cash equivalents at beginning of year 1,243 1,508
Cash and cash equivalents at end of year $ 5,577 $ 1,243
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,859 $ 1,795
Supplemental disclosure of non-cash information:
Insurance proceeds receivable recognized related to
Lakeside casualty event $ -- $ 225
Property improvements and replacements included in
accounts payable and other liabilities $ 135 $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS III
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization
National Property Investors III (the "Partnership"), a limited partnership, was
organized under the Uniform Limited Partnership Laws of California as of
February 1, 1979, for the purpose of operating income-producing residential real
estate. The general partner is NPI Equity Investments, Inc. ("NPI Equity" or the
"Managing General Partner"). The Managing General Partner is a wholly owned
subsidiary of Apartment Investment and Management Company ("AIMCO") (see
"Transfers of Control"). A total of 48,049 units of the limited partnership were
issued for $500 each, for an aggregate capital contribution of $24,024,500. In
addition, the general partner contributed a total of $1,000 to the Partnership.
The Partnership will terminate on December 31, 2005, or sooner, in accordance
with the terms of the Partnership Agreement. The Partnership commenced
operations in the beginning of 1980 and completed its acquisition of apartment
properties by the end of 1980. The Partnership operates two apartment properties
located in the Southeast and one apartment property located in the Midwest.
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.
Cash and Cash Equivalents
Consists of cash on hand and in banks and money market accounts. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Security Deposits
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on rental payments.
Investment Properties
Investment properties consist of three apartment complexes and are stated at
cost. Acquisition fees are capitalized as a cost of real estate. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No adjustments for
impairment of value were recorded in the years ended December 31, 1999 and 1998.
<PAGE>
Depreciation
Depreciation is provided by the straight-line method over the estimated lives of
the apartment property and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 15 years for additions prior to March 16, 1984, 18 years for additions
after March 15, 1984 and before May 9, 1985, and 19 years for additions after
May 8, 1985, and before January 1, 1987, and (2) for personal property over 5
years for additions prior to January 1, 1987. As a result of the Tax Reform Act
of 1986, for additions after December 31, 1986, the modified accelerated cost
recovery method is used for depreciation of (1) real property over 27 1/2 years
and (2) personal property additions over 5 years.
Effective, January 1, 1999, the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (Note K).
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on leases. The Managing General
Partner's policy is to offer rental concessions during particularly slow months
or in response to heavy competition from other similar complexes in the area.
Concessions are charged to rental income as incurred.
Advertising Costs
Advertising costs of approximately $136,000 in 1999 and approximately $138,000
in 1998 were charged to expense as incurred and are included in operating
expenses.
Loan Costs
Loan costs of approximately $696,000 are included in other assets in the
accompanying consolidated balance sheet and are being amortized on a
straight-line basis over the life of the loans. At December 31, 1999,
accumulated amortization is approximately $226,000. Amortization of loan costs
is included in interest expense.
Fair Value of Financial Statements
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. The fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance.
Restricted Escrows
Replacement Reserve Escrow: The Partnership maintains replacement reserve
escrows at each of its properties to fund replacement, refurbishment or
repair of improvements to the property pursuant to the mortgage note
documents. As of December 31, 1999, the balance in these accounts is
approximately $720,000.
Allocation of Income, Loss and Distributions
Net income, loss and distributions of cash of the Partnership are allocated
between the general and limited partners in accordance with the provisions of
the Partnership Agreement.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Segment Reporting
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. See "Note I"
for required disclosure.
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 AIMCO, a publicly traded real estate investment trust, 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 has had or 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 properties management services based on a percentage of revenue
and for reimbursement of certain expenses incurred by affiliates on behalf of
the Partnership.
<PAGE>
The following payments were made to affiliates of the Managing General Partner
during each of the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating $ 445 $ 427
expenses)
Reimbursement for services of affiliates
(included in investment properties, operating expenses
and general and administrative expenses) 189 192
Partnership management fee (included in general and
administrative expenses) 60 100
During the years ended December 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 as compensation for providing property management
services. The Partnership paid to such affiliates approximately $445,000 and
$427,000 for the years ended December 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $189,000 and $192,000 for the
years ended December 31, 1999 and 1998, respectively.
For services relating to the administration of the Partnership and operation of
the Partnership property, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $100,000 per year based
upon the number of Partnership units sold, subject to certain limitations. Under
this provision, the Managing General Partner was paid approximately $60,000 and
$100,000 in 1999 and 1998, respectively.
Upon the sale of the Partnership 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.
NPI Equity has established a revolving credit facility (the "Partnership
Revolver") to be used to fund deferred maintenance and working capital needs of
the National Property Investors Partnership Series. The maximum draw available
to the Partnership under the Partnership Revolver is $300,000. Loans under the
Partnership Revolver will have a term of 365 days, be unsecured and bear
interest at the rate of 2% per annum in excess of the prime rate announced from
time to time by Chemical Bank, N.A. The maturity date of such borrowing will be
accelerated in the event of: (i) the removal of the NPI Equity (whether or not
For Cause); (ii) the sale or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. The Partnership
has not borrowed under the Partnership Revolver, to date.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the fiscal years ended December 31, 1999 and
1998. As a result of these and prior tender offers, AIMCO and its affiliates
currently own 33,132 limited partnership units in the Partnership representing
68.95% of the outstanding units. It is possible that AIMCO or its affiliates
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. Consequently, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. Under the
Partnership Agreement, unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters. 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 their affiliation
with the Managing General Partner.
Note D - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
1999 Interest Rate Date Maturity
(in thousands) (in thousands)
Properties
<S> <C> <C> <C> <C> <C> <C> <C>
Lakeside $17,200 $ 105 (1) 7.33% 11/01/03 $17,200
Pinetree 4,991 41 7.65% 11/01/19 --
Summerwalk 4,902 34 7.13% 01/01/08 4,312
$27,093 $ 180 $21,512
</TABLE>
(1) Amount is interest only.
The mortgage notes payable are nonrecourse and are secured by pledge of the
Partnership's rental properties and by pledge of revenues from the respective
rental properties. The mortgage notes payable include prepayment penalties if
repaid prior to maturity. Further, the properties may not be sold subject to
existing indebtedness.
On October 15, 1999, the Partnership refinanced the mortgage encumbering
Pinetree Apartments. The interest rate on the new mortgage is 7.65% compared to
the interest rate on the old mortgage of 9.87%. The refinancing replaced
indebtedness of approximately $2,154,000 with a new mortgage in the amount of
$5,000,000. Payments of approximately $41,000 are due on the first day of each
month until the loan matures on November 1, 2019. The prior note was scheduled
to mature in July 1, 2001. The lender also required a repair escrow of
approximately $67,000 be established. Total capitalized loan costs were
approximately $76,000 during the year ended December 31, 1999. During the year
ended December 31, 1999, the Partnership recognized a loss on the early
extinguishment of debt of approximately $158,000 consisting of the write-off of
unamortized loan costs and a prepayment penalty.
<PAGE>
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 168
2001 181
2002 194
2003 17,410
2004 226
Thereafter 8,914
$27,093
Note E - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
(in thousands)
Buildings Net Costs
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Properties Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Lakeside $17,200 $ 2,087 $15,363 $ 5,723
Pinetree 4,991 493 3,873 2,241
Summerwalk 4,902 427 6,347 1,346
$27,093 $ 3,007 $25,583 $ 9,310
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Properties Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lakeside $ 2,093 $21,080 $23,173 $15,230 1973/1975 12/80 5-27.5 yrs
Pinetree 499 6,108 6,607 4,741 1974 07/80 5-27.5 yrs
Summerwalk 431 7,689 8,120 5,664 1974 12/80 5-27.5 yrs
$3,023 $34,877 $37,900 $25,635
</TABLE>
<PAGE>
Reconciliation of "Real Estate and Accumulated Depreciation":
December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $35,479 $35,484
Disposal of property (201) (771)
Property improvements 2,622 766
Balance at end of year $37,900 $35,479
Accumulated Depreciation
Balance at beginning of year $24,359 $23,509
Disposal of property (155) (546)
Additions charged to expense 1,431 1,396
Balance at end of year $25,635 $24,359
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $37,840,000 and $36,345,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $26,712,000 and $25,281,000,
respectively.
Note F - Income Taxes
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. No provision for income taxes is made in the consolidated
financial statements of the Partnership.
The Partnership files its tax returns on an accrual basis and has computed
depreciation for tax purposes using accelerated methods, which are not in
accordance with generally accepted accounting principles. A reconciliation of
net income from the consolidated financial statements to the net taxable income
to partners is as follows (in thousands, except unit data):
December 31,
1999 1998
Net income as reported $2,760 $ 996
Casualty gain (1,187) --
Depreciation differences -- (275)
Other (25) 331
Federal taxable income $1,548 $1,052
Federal taxable income per limited
partnership unit $31.90 $21.68
<PAGE>
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
1999
Net liabilities as reported $(9,018)
Land and buildings (60)
Accumulated depreciation (1,077)
Syndication and distribution costs 2,727
Prepaid rent 143
Other (59)
Net liabilities - Federal tax basis $(7,344)
Note G - Distributions
During the year ended December 31, 1999, the Partnership distributed
approximately $670,000 (approximately $664,000 to the limited partners or $13.82
per limited partnership unit) from operations. During the year ended December
31, 1998, the Partnership distributed approximately $1,060,000 ($22.06 per
limited partnership unit) from the proceeds relating to the refinancing of the
mortgage encumbering Summerwalk Apartments and approximately $1,040,000 ($21.44
per limited partnership unit) of cash flow from operations.
Note H - Casualty Events
In July 1998, a fire occurred at Lakeside Apartments that destroyed one building
at the complex, consisting of 22 units. The repair costs are covered by
insurance. In 1998, estimated insurance proceeds were recognized only to the
extent of the write-off of destroyed assets of approximately $225,000. During
the twelve months ended December 31, 1999, net insurance proceeds of
approximately $1,456,000 were received to cover replacement costs and the
construction is complete. During the year ended December 31, 1999, the
Partnership recognized a casualty gain of approximately $1,230,000.
In July 1999, a fire occurred at Summerwalk Apartments that destroyed one
building consisting of eight units. The repair costs are covered by insurance.
Demolition has been completed and reconstruction should be completed by the end
of the first quarter 2000. Net insurance proceeds of approximately $209,000 have
been received. During the year ended December 31, 1999, the Partnership
recognized a casualty gain of approximately $232,000.
Note I - Segment Information
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 properties segment consists of three apartment
complexes located in the North Carolina, Illinois, and Florida. The Partnership
rents apartment units to tenants for terms that are typically less than twelve
months.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
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 years 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 $ 8,468 $ -- $ 8,468
Other income 435 19 454
Casualty gain 1,462 -- 1,462
Interest expense 1,969 -- 1,969
Depreciation 1,431 -- 1,431
General and administrative expense -- 329 329
Extraordinary loss on early
extinguishment of debt (158) -- (158)
Segment profit (loss) 3,070 (310) 2,760
Total assets 16,937 2,667 19,604
Capital expenditures for investment
properties 2,622 -- 2,622
1998 Residential Other Totals
Rental income $ 7,953 $ -- $ 7,953
Other income 418 76 494
Interest expense 1,912 -- 1,912
Depreciation 1,396 -- 1,396
General and administrative expense -- 334 334
Segment profit (loss) 1,254 (258) 996
Total assets 14,330 111 14,441
Capital expenditures for investment
properties 766 -- 766
Note J - 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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek 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 filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case 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.
Note K - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $280,000 ($5.77 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
National Property Investors III (the "Partnership") has no officers or
directors. NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General
Partner"), manages substantially all of the Partnership's affairs and has
general responsibility in all matters affecting its business. The names, ages,
and positions held by the executive officers and director of NPI Equity are as
follows:
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO and its joint filers failed to timely file a Form 4 with respect to its
acquisition of Units.
Item 10. Executive Compensation
Neither the director nor officers received any remuneration from the Managing
General Partner during the year ended December 31, 1999.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, as of December 31, 1999, no person or entity was known to
own of record or beneficially more than five percent of the Units of the
Partnership.
Number of Units Percentage
Insignia Properties, LP 21,566 44.88%
(an affiliate of AIMCO)
AIMCO Properties, LP 11,566 24.07%
(an affiliate of AIMCO)
Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, South Carolina 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No director or officer of the Managing General Partner owns any Units.
Item 12. Certain Relationships and Related Transactions
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 properties management services based on a percentage of revenue
and for reimbursement of certain expenses incurred by affiliates on behalf of
the Partnership.
The following payments were made to affiliates of the Managing General Partner
during each of the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating $ 445 $ 427
expenses)
Reimbursement for services of affiliates
(included in investment properties, operating expenses
and general and administrative expenses) 189 192
Partnership management fee (included in general and
administrative expenses) 60 100
During the years ended December 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 as compensation for providing property management
services. The Partnership paid to such affiliates approximately $445,000 and
$427,000 for the years ended December 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $189,000 and $192,000 for the
years ended December 31, 1999 and 1998, respectively.
For services relating to the administration of the Partnership and operation of
the Partnership property, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $100,000 per year based
upon the number of Partnership units sold, subject to certain limitations. Under
this provision, the Managing General Partner was paid approximately $60,000 and
$100,000 in 1999 and 1998, respectively.
Upon the sale of the Partnership 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.
NPI Equity has established a revolving credit facility (the "Partnership
Revolver") to be used to fund deferred maintenance and working capital needs of
the National Property Investors Partnership Series. The maximum draw available
to the Partnership under the Partnership Revolver is $300,000. Loans under the
Partnership Revolver will have a term of 365 days, be unsecured and bear
interest at the rate of 2% per annum in excess of the prime rate announced from
time to time by Chemical Bank, N.A. The maturity date of such borrowing will be
accelerated in the event of: (i) the removal of the NPI Equity (whether or not
For Cause); (ii) the sale or refinancing of a property by the Partnership
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. The Partnership
has not borrowed under the Partnership Revolver, to date.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the fiscal years ended December 31, 1999 and
1998. As a result of these and prior tender offers, AIMCO and its affiliates
currently own 33,132 limited partnership units in the Partnership representing
68.95% of the outstanding units. It is possible that AIMCO or its affiliates
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. Consequently, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. Under the
Partnership Agreement, unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters. 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 their affiliation
with the Managing General Partner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed during the fourth quarter of 1999:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
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/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
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.
2.3 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.
2.4 Limited Liability Company Agreement of Riverside Drive L.L.C. dated as of
August 17, 1995, incorporated by reference to Exhibit 2.4 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, 1998, by and between
AIMCO and IPT shown as Exhibit 2.1 in 8-K dated as of October 1, 1988.
3.2 Second Amended and Restated Bylaws of IPT, dated October 2, 1998 filed in
Current Report on Form 8-K dated October 1, 1998.
3.4 (a) Agreement of Limited Partnership incorporated by reference to Exhibit A
to the Prospectus of the Partnership dated October 24, 1979 contained in
the Partnership's Registration Statement on Form S-11 (Reg. No. 2-63733).
3.4 (b) Amendments to Agreement of Limited Partnership dated as of November 25,
1980 incorporated by reference to Exhibits 3 and 4 to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1981.
3.4 (c) Amendments to the Agreement of Limited Partnership incorporated by
reference to the Definitive Proxy Statement of the Partnership dated April
3, 1981.
3.4 (d) Amendments to the Agreement of Limited Partnership incorporated by
reference to the Statement Furnished in Connection With The Solicitation of
Consents of the Partnership dated August 28, 1992.
10.1 Form of Property Management Agreement dated June 21, 1991, by and between
the Partnership and NPI Management with respect to each of the
Partnership's properties, incorporated by reference to Exhibit 10.6 to the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1991.
10.2 Mortgage Note dated June 30, 1994, made by National Pinetree Limited
Partnership for the benefit of Main America Capital, L.C. in the original
principal balance of $2,300,000, incorporated by reference to Exhibit 10.1
to the Partnership's Quarterly Report on Form 10-Q for the period ended
September 30, 1994.
10.3 Deed of Trust and Security Agreement among National Pinetree Limited
Partnership, as borrower, and Main America Capital, L.C., as beneficiary,
dated June 30, 1994, incorporated by reference to Exhibit 10.2 to the
Partnership's Quarterly Report on Form 10-Q for the period ended September
30, 1994.
10.4 Multifamily Note dated September 30, 1996, by and between the Partnership
and Lehman Brothers Holding, Inc. for Lakeside Apartments incorporated by
reference to Exhibit 10.14 to the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1996.
10.5 Multifamily Note dated November 1, 1996, by and between the Partnership and
Lehman Brothers Holding, Inc. for Lakeside Apartments incorporated by
reference to Exhibit 10.15 to the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1996.
10.6 Multifamily Note dated December 23, 1997, by and between Summerwalk NPI
III, L.P. and Collateral Mortgage, Ltd. For Summerwalk Apartments
incorporated by reference to Exhibit 10.16 to the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 1997.
10.7 Addendum to Multifamily Note dated December 23, 1997, by and between
Summerwalk NPI III, L.P. and Collateral Mortgage, Ltd. For Summerwalk
Apartments incorporated by reference to Exhibit 10.17 to the Partnership's
Annual Report on Form 10-KSB for the year ended December 31, 1997.
16 Letter dated November 11, 1998, from the Registrant's former independent
accountant regarding its concurrence with the statements made by the
Registrant in this Current Report.
18 Independent Accountants' Preferability Letter for Change in Accounting
Principle.
27 Financial Data Schedule.
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
NPI Equity Investments, Inc.
Managing General Partner of National Property Investors III
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note K of Notes to the Consolidated Financial Statements of National Property
Investors III included in its Form 10-KSB for the year ended December 31, 1999
describes a change in the method of accounting to capitalize exterior painting
and major landscaping, which would have been expensed under the old policy. You
have advised us that you believe that the change is to a preferable method in
your circumstances because it provides a better matching of expenses with the
related benefit of the expenditures and is consistent with policies currently
being used by your industry and conforms to the policies of the Managing General
Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors III 1999 Fourth Quarter 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000310485
<NAME> National Property Investors III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,577
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 37,900
<DEPRECIATION> 25,635
<TOTAL-ASSETS> 19,604
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 27,093
0
0
<COMMON> 0
<OTHER-SE> (9,018)
<TOTAL-LIABILITY-AND-EQUITY> 19,604
<SALES> 0
<TOTAL-REVENUES> 10,384
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,969
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (158)
<CHANGES> 0
<NET-INCOME> 2,760
<EPS-BASIC> 56.86 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
