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 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact name of small business issuer as specified in its charter)
California 22-2385051
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 5
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1999
Assets
Cash and cash equivalents $ 901
Receivables and deposits 437
Restricted escrows 165
Other assets 179
Investment properties:
Land $ 2,145
Buildings and related personal property 27,377
29,522
Less accumulated depreciation (21,943) 7,579
$ 9,261
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 49
Tenant security deposits liabilities 118
Accrued property taxes 60
Other liabilities 505
Mortgage notes payable 11,462
Partners' Deficit:
General partner's $ (1,245)
Limited partners' (82,513 units issued and
outstanding) (1,688) (2,933)
$ 9,261
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 1,127 $ 1,115
Other income 66 88
Total revenues 1,193 1,203
Expenses:
Operating 503 568
General and administrative 58 58
Interest 266 271
Depreciation 305 294
Property taxes 43 62
Loss on disposal of property -- 64
Total expenses 1,175 1,317
Equity in net income of tenant-in-common
property -- 19
Net income (loss) $ 18 $ (95)
Net income (loss) allocated to general partner (3%) $ 1 $ (3)
Net income (loss) allocated to limited partners (97%) 17 (92)
$ (18) $ (95)
Net income (loss) per limited partnership unit $ .21 $ (1.11)
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 5
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 82,513 $ 1 $ 41,257 $ 41,258
Partners' deficit at
December 31, 1998 82,513 $ (1,246) $ (1,705) $ (2,951)
Net income for the three months
ended March 31, 1999 -- 1 17 18
Partners' deficit at
March 31, 1999 82,513 $ (1,245) $ (1,688) $ (2,933)
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 18 $ (95)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 305 294
Amortization of loan costs 15 16
Loss on disposal of property -- 64
Equity in net income of tenant-in-common
property -- (19)
Change in accounts:
Receivables and deposits (38) (79)
Other assets 1 30
Accounts payable (80) (59)
Tenant security deposit payable 4 2
Accrued property taxes 1 62
Other liabilities (15) (5)
Net cash provided by operating activities 211 211
Cash flows from investing activities:
Property improvements and replacements (176) (215)
Net (withdrawals from) deposits to
restricted escrows (45) 23
Net cash used in investing activities (221) (192)
Cash flows used in financing activities:
Payments of mortgage notes payable (61) (46)
Net decrease in cash and cash equivalents (71) (27)
Cash and cash equivalents at beginning of period 972 1,350
Cash and cash equivalents at end of period $ 901 $ 1,323
Supplemental disclosure of cash flow information:
Cash paid for interest $ 287 $ 256
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 5
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of National Property Investors 5
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 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 financial statements
and footnotes thereto included in the Partnership's annual report on Form 10-KSB
for the year ended December 31, 1998.
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 ("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 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 the
Managing General Partner and affiliates were incurred in the three month periods
ended March 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 62 $ 60
Reimbursement for services of affiliates
(included in operating, general and
Administrative expenses, and investment
Properties) (1) 40 83
(1) Included in "Reimbursements for services of affiliates" for the three
months ended March 31, 1998 is approximately $35,000 in reimbursements for
construction oversight costs.
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 Registrant's properties for providing property management services. The
Partnership paid to such affiliates approximately $62,000 and $60,000 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 $40,000 and $83,000 for the
three months ended March 31, 1999 and 1998, respectively.
In addition, approximately $290,000 of incentive management fees resulting from
the sale of The Village were accrued in 1998. These fees are payable to the
Managing General Partner but are subordinate to the limited partners receiving a
preferred return, specified in the partnership agreement.
NOTE D - TENANT-IN-COMMON PROPERTY
The Partnership owned The Village as a tenant-in-common with National Property
Investors 6 ("NPI 6"), an affiliated public limited partnership. NPI 6 acquired
a 75.972% undivided interest with the Partnership owning the remaining 24.028%.
Effective December 31, 1997, the property was accounted for under the equity
method of accounting.
On June 30, 1998, The Village, located in Voorhees Township, New Jersey, was
sold to an unaffiliated party for an adjusted sales price of approximately
$30,102,000. After repayment of the mortgage note payable and closing expenses,
the net proceeds from the sale were approximately $18,211,000. The sale
resulted in a gain of approximately $19,946,000 for the tenant-in-common joint
venture and an extraordinary loss on early extinguishment of debt of
approximately $840,000, representing prepayment penalties and the write off of
the remaining unamortized loan costs. The Partnership's equity in the net
income of this tenant-in-common property was $4,899,000 for 1998. The
Partnership's equity in the extraordinary loss on early extinguishment of debt
was $204,000 for 1998.
The Village tenant-in-common joint venture with NPI 6 was terminated in 1998
after the distribution of the proceeds from the sale.
Condensed statements of operations of the Village for the three month period
ending March 31, 1998 is as follows:
1998
(in thousands)
Revenue:
Rental income 1,082
Other income 52
Total revenues 1,134
Expenses:
Operating and other expenses 613
Depreciation 198
Mortgage interest 245
Total expenses 1,056
Net income $ 78
NOTE E - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED 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 property segment consists
of three apartment complexes in Florida and Alabama. The Partnership rents
apartment units to tenants 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 is 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 are
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. The "Other" column includes partnership administration
related items and income and expense not allocated to the reportable segment.
1999 Residential Other Totals
(in thousands)
Rental income $ 1,127 $ -- $ 1,127
Other income 60 6 66
Interest expense 266 -- 266
Depreciation 305 -- 305
General and administrative expense -- 58 58
Segment profit (loss) 70 (52) 18
Total assets 8,684 577 9,261
Capital expenditures for investment
Properties 176 -- 176
1998 Residential Other Totals
(in thousands)
Rental income $ 1,115 $ -- $ 1,115
Other income 73 15 88
Interest expense 271 -- 271
Depreciation 294 -- 294
General and administrative expense -- 58 58
Equity in income of tenant-in-common -- 19 19
Segment loss (71) (24) (95)
Total assets 9,214 1,273 10,487
Capital expenditures for investment
properties 215 -- 215
NOTE F - 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 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on 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 OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein. The Partnership's investment
properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
three months ended March 31, 1999 and 1998:
Average
Occupancy
Property 1999 1998
Willow Park on Lake Adelaide
Altamonte Springs, Florida 94% 96%
Oakwood Village at Lake Nan Apartments
Winter Park, Florida 95% 97%
Palisades Apartments
Montgomery, Alabama 87% 87%
Results of Operations
The Partnership realized net income of approximately $18,000 for the three
months ended March 31, 1999, compared to a net loss of approximately $95,000 for
the comparable period in 1998. The increase in net income is due to a decrease
in total expenses partially offset by a decrease in total revenues and equity in
net income of tenant-in-common property. The decrease in total expenses is
primarily due to the decreases in operating expenses, property tax expense, and
loss on disposal of property. The decrease in operating expense resulted from
decreases in maintenance and insurance expenses. The decrease in maintenance is
the result of proceeds received from insurance for damages at Palisades
resulting from storm damage incurred in 1998. The decrease in insurance expense
is the result of decrease policy premiums in 1999. Property taxes decreased due
to the timing of the receipt of property tax bills for 1999 and 1998 which
affected the accruals as of March 31, 1999 and 1998. The decrease in loss on
disposal of property is the result of a roof write-off at Palisades in 1998.
These decreases were slightly offset by a decrease in depreciation expense. The
decrease in total revenues is due to a decrease in other income, which more than
offset an increase in rental income. The decrease in other income is due to a
decrease in application and late fees charged at Palisades and a decrease in
cash held in interest-bearing accounts. Rental income increased due to increased
rental rates. The Partnership's equity in net income of Tenant-In-Common
property decreased due to the sale of The Village in June, 1998. Included in
general and administrative expenses at both March 31, 1999 and 1998 are
management reimbursements to the General Partner allowed under the Partnership
Agreement. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership agreement is also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. 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 $901,000 as compared to approximately $1,323,000 at March 31,
1998. For the three months ended March 31, 1999 cash and cash equivalents
decreased by approximately $71,000 from the Partnership's year ended December
31, 1998. The decrease in cash and cash equivalents is due to approximately
$221,000 of cash used in investing activities and approximately $61,000 of cash
used in financing activities, partially offset by approximately $211,000 of cash
provided by operating activities. Cash used in investing activities consisted of
property improvements and replacements and withdrawals from restricted escrows.
Cash used in financing activities consisted of principal payments made on the
mortgage encumbering the Partnership's properties. The Partnership invests its
working capital reserves in money market accounts.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. At the present time, the Partnership has no outstanding amounts due
under this line of credit, and 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 various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. Capital
improvements for each of the Partnership's properties are detailed below.
Willow Park on Lake Adelaide
During the three months ended March 31, 1999, the Partnership completed
approximately $20,000 of capital improvements at Willow Park, consisting
primarily of appliances, and floor covering replacements. These improvements
were funded through operating cash flow. 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 $315,000 of capital
improvements over the near term. Capital improvement projects planned for 1999
consists of, but not limited to, interior and exterior building improvements and
are expected to cost approximately $361,000.
Oakwood Village at Lake Nan Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $141,000 of capital improvements at Oakwood Village consisting
primarily of signage, building improvements, and floor covering replacements.
These improvements were funded through replacement reserves and operating cash
flow. 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 $396,000 of capital improvements over the near term.
Capital improvement projects planned for 1999 consist of, but not limited to,
HVAC repairs, flooring upgrades, landscaping, pool repairs, roofing, and
structural repairs and are expected to cost approximately $452,000.
Palisades Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $15,000 of capital improvements at Palisades Apartments,
consisting primarily of floor coverings. This improvement was funded through
replacement reserves and operating cash flow. 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 $331,000 of capital
improvements over the near term. Capital improvement projects planned for 1999,
but not limited to, flooring, electrical exterior, parking lots, landscaping,
pool, roofing and structural repairs and are expected to cost approximately
$430,000.
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 $11,462,000 is being amortized over varying
periods with balloon payments due over periods ranging from February 2001 to
July 2003. 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 may risk losing such properties through foreclosure.
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.
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 managing 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 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K: None 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 5
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
/s/Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance
and Administration
Date: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors 5 1999 First Quarter 10-QSB and is qualified in its entirety
by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000355637
<NAME> NATIONAL PROPERTY INVESTORS 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 901
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 29,522
<DEPRECIATION> 21,943
<TOTAL-ASSETS> 9,261
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,462
0
0
<COMMON> 0
<OTHER-SE> (2,933)
<TOTAL-LIABILITY-AND-EQUITY> 9,261
<SALES> 0
<TOTAL-REVENUES> 1,193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18
<EPS-PRIMARY> .21<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrnat has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
