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 September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11095
NATIONAL PROPERTY INVESTORS 5
(Exact name of small business issuer as specified in its charter)
California 22-2385051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 5
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 927
Receivables and deposits 514
Restricted escrows 171
Other assets 244
Investment properties:
Land $ 2,145
Buildings and related personal property 27,809
29,954
Less accumulated depreciation (22,588) 7,366
$ 9,222
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 126
Tenant security deposits liabilities 125
Accrued property taxes 201
Due to Managing General Partner 290
Other liabilities 180
Mortgage note payable 11,358
Partners' Deficit
General partner $ (1,249)
Limited partners (82,513 units
issued and outstanding) (1,809) (3,058)
$ 9,222
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,184 $ 1,126 $ 3,467 $ 3,360
Other income 73 98 203 264
Total revenues 1,257 1,224 3,670 3,624
Expenses:
Operating 609 619 1,690 1,828
Interest 265 271 799 812
Depreciation 330 294 950 882
General and administrative 45 71 153 187
Property taxes 82 61 185 185
Incentive compensation fee -- -- -- 290
Loss on disposal of property -- -- -- 64
Total expenses 1,331 1,316 3,777 4,248
Equity in net (loss) income of
tenant-in-common property -- (10) -- 4,897
(Loss) income before extraordinary
item (74) (102) (107) 4,273
Extraordinary loss on early
extinguishment of tenant-in-
common debt -- -- -- (202)
Net (loss) income $ (74) $ (102) $ (107) $ 4,071
Net (loss) income allocated
to general partner (3%) $ (2) $ (3) $ (3) $ 122
Net (loss) income allocated
to limited partners (97%) (72) (99) (104) 3,949
$ (74) $ (102) $ (107) $ 4,071
Net (loss) income per limited
partnership unit:
(Loss) income before extraordinary
item $ (.87) $ (1.20) $ (1.26) $ 50.24
Extraordinary loss -- -- -- (2.38)
$ (.87) $ (1.20) $ (1.26) $ 47.86
Distribution per limited
partnership unit $ -- $ 52.71 $ -- $ 52.71
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 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 loss for the nine months
ended September 30, 1999 -- (3) (104) (107)
Partners' deficit
at September 30, 1999 82,513 $(1,249) $(1,809) $(3,058)
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 5
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net (loss) income $ (107) $ 4,071
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 950 882
Amortization of loan costs 49 49
Loss on disposal of property -- 64
Equity in net income of tenant-in-common property -- (4,897)
Extraordinary loss on early extinguishment of
tenant-in-common property -- 202
Change in accounts:
Receivables and deposits (115) (174)
Other assets (98) (19)
Accounts payable (3) 2
Tenant security deposit liabilities 11 12
Accrued property taxes 142 187
Due to Managing General Partner -- 290
Other liabilities (50) --
Net cash provided by operating activities 779 669
Cash flows from investing activities:
Property improvements and replacements (608) (492)
Net (deposits to) receipts from restricted escrows (51) 172
Distribution from tenant-in-common -- 4,445
Net cash (used in) provided by investing activities (659) 4,125
Cash flows used in financing activities:
Payments of mortgage notes payable (165) (142)
Distributions paid -- (4,439)
Net cash used in financial activities (165) (4,581)
Net (decrease) increase in cash and cash equivalents (45) 213
Cash and cash equivalents at beginning of period 972 1,350
Cash and cash equivalents at end of period $ 927 $ 1,563
Supplemental disclosure of cash flow information:
Cash paid for interest $ 785 $ 763
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 and nine month periods ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
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 affiliates of the Managing General Partner
were incurred during the nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $188 $181
Reimbursement for services of affiliates (included in
operating, and general and administrative expenses,
and investment properties) 113 174
Incentive management fee -- 290
Non-accountable reimbursement (included in general and
administrative expenses) -- 4
Partnership management fee (included in general and
administrative expenses) -- 2
During the nine months ended September 30, 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 $188,000 and $181,000 for the
nine months ended September 30, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $113,000 and $174,000 for the
nine months ended September 30, 1999 and 1998, respectively. Included in these
amounts are approximately $10,000 and $47,000 in reimbursements for construction
oversight costs for 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.
For services relating to the administration of the Partnership and operation of
the partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $100,000 per year, based
upon the number of Partnership units sold, subject to certain limitations. The
Managing General Partner earned and received approximately $4,000 during the
first nine months of 1998. No such reimbursements were earned during the nine
months ended September 30, 1999. In addition, the Managing General Partner
earned a Partnership Management Fee based on 2% adjusted cash distributed
from operations. The Managing General Partner earned and received approximately
$2,000 during the first nine months of 1998. No such fees were earned in 1999.
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner, commenced a tender offer to purchase up to 20,897.98 (approximately
25.33% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $62 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 1,322.00
units. As a result, AIMCO and its affiliates currently own 38,815 units of
limited partnership interest in the Partnership representing approximately
47.04% of the total 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 (see "Note G - Legal Proceedings").
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%.
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 Village tenant-in-common joint venture with NPI 6 was terminated in 1998
after the distribution of the proceeds from the sale.
Condensed statement of operations of the Village for the three and nine month
periods ending September 30, 1998 is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
Revenues:
Rental income $ -- $ 2,181
Other income 21 139
Gain on sale of property -- 19,946
Total revenues 21 22,266
Expenses:
Operating and other expenses 63 1,255
Depreciation -- 395
Mortgage interest -- 485
Total expenses 63 2,135
(Loss) income before extraordinary loss (42) 20,131
Extraordinary loss on early
extinguishment of debt -- (840)
Net (loss) income $ (42) $19,291
NOTE E - DISTRIBUTIONS
In July 1998, the Partnership distributed approximately $4,439,000 to the
partners. Approximately $4,349,000 was paid to the limited partners ($52.71 per
limited partnership unit). The distribution represents the Partnership's share
of the proceeds from the sale of the Village of approximately $4,349,000 and
approximately $90,000 from operations. No distributions were paid during the
nine month period ended September 30, 1999.
NOTE F - 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
two of which are located in Florida and one in 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 are the same as those of the Partnership as
described in 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 nine months ended September 30, 1999 and 1998, is
shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segment.
1999 Residential Other Totals
Rental income $ 3,467 $ -- $ 3,467
Other income 188 15 203
Interest expense 799 -- 799
Depreciation 950 -- 950
General and administrative expense -- 153 153
Segment profit (loss) 31 (138) (107)
Total assets 8,718 504 9,222
Capital expenditures for investment
properties 608 -- 608
1998 Residential Other Totals
Rental income $ 3,360 $ -- $ 3,360
Other income 206 58 264
Interest expense 812 -- 812
Depreciation 882 -- 882
General and administrative expense -- 187 187
Incentive compensation fee -- 290 290
Equity in income of tenant-in-common -- 4,897 4,897
Extraordinary loss on early extinguishment
of tenant-in-common debt -- 202 202
Segment (loss) profit (205) 4,276 4,071
Total assets 8,840 1,742 10,582
Capital expenditures for investment
properties 492 -- 492
NOTE G - 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 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 complaint seeks monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June
25, 1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner 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 ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the Managing General Partner will make tender offers for
all outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. 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
nine months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Willow Park on Lake Adelaide 96% 96%
Altamonte Springs, Florida
Oakwood Village at Lake Nan Apartments 95% 96%
Winter Park, Florida
Palisades Apartments 90% 88%
Montgomery, Alabama
Results of Operations
The Partnership realized a net loss of approximately $107,000 for the nine month
period ended September 30, 1999 compared to net income of approximately
$4,071,000 for the comparable period in 1998. The Partnership realized a net
loss of approximately $74,000 for the three months ended September 30, 1999,
compared to a net loss of approximately $102,000 for the comparable period in
1998. The increase in net loss for the nine months ended September 30, 1999, is
due to the Partnership's 1998 share of the net income of the tenant-in-common
property resulting from the gain recognized on the sale of the Village, (see
"Part I - Financial Information, Item 1. Financial Statements, Note D - Tenant-
In-Common Property") offset by the Partnership's share of the extraordinary loss
on the early extinguishment of tenant-in-common debt. Partially offsetting the
decrease in the equity in the net income of the tenant-in-common property was
the accrual of an incentive compensation fee related to the sale of the Village.
The fee is subordinated to the limited partners receiving a certain level of
distributions (see "Part I - Financial Information, Item 1. Financial
Statements, Note C - Transactions with Affiliated Parties"). At the
Partnership's remaining properties, net loss decreased for both the three and
nine month periods ended September 30, 1999. The decrease in net loss is
attributable to a slight increase in total revenue for the three and nine months
ended September 30, 1999, and a decrease in total expenses for the nine months
ended September 30, 1999. The increase in total revenues is due to an increase
in rental income partially offset by a decrease in other income. Rental income
increased due to increased rental rates at all of the Partnership's properties.
The decrease in other income is primarily due to a decrease in application and
late fees at the Palisades Apartments and a decrease in interest income as a
result of lower average cash balances held in interest-bearing accounts. The
decrease in total expenses is primarily due to a decrease in operating expense
and loss on disposal of property partially offset by an increase in
depreciation. The decrease in operating expenses resulted from decreases in
maintenance, property, and insurance expenses. The decrease in maintenance
expense is the result of the insurance proceeds received in 1999 for damages at
Palisades resulting from storm damage which were incurred in 1998. The decrease
in property expenses is due to staffing changes at Oakwood Village causing a
decrease in payroll costs. The decrease in insurance expense is the result of
decreased policy premiums in 1999 due to a change in insurance carrier late in
1998. The decrease in loss on disposal of property is the result of a roof
write-off at Palisades in 1998. The increase in depreciation expense is due to
fixed asset additions over the past two years. For the three months ended
September 30, 1999, the increase in total revenues was offset by an increase in
total expenses. The increase in total expenses is primarily due to an increase
in property tax expense. The increase in property tax expense is due to the
timing of receipt of the property tax bills for 1999 and 1998 which affected the
accruals as of September 30, 1999 and 1998.
Included in general and administrative expenses at both September 30, 1999 and
1998, are management reimbursements to the Managing 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 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 September 30, 1999, the Partnership had cash and cash equivalents of
approximately $927,000 as compared to approximately $1,563,000 at September 30,
1998. For the nine months ended September 30, 1999, cash and cash equivalents
decreased by approximately $45,000 from the Partnership's year ended December
31, 1998. The decrease in cash and cash equivalents is due to approximately
$659,000 of cash used in investing activities and approximately $165,000 of cash
used in financing activities partially offset by approximately $779,000 of cash
provided by operating activities. Cash used in investing activities consisted of
property improvements and replacements and net deposits to restricted escrows.
Cash used in financing activities consisted of principal payments made on the
mortgages 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 nine months ended September 30, 1999, the Partnership completed
approximately $180,000 of capital improvements at Willow Park, consisting
primarily of structural and other improvements, floor covering replacements,
landscaping and appliance replacements. The structural improvements are
approximately 75% complete and the other improvements are substantially complete
as of September 30, 1999. 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 $315,000 of capital improvements over
the next few years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $361,000 for 1999 at this property which
include certain of the required improvements and consist of interior and
exterior building improvements.
Oakwood Village at Lake Nan Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $273,000 of capital improvements at Oakwood Village consisting
primarily of signage, floor covering replacements, and HVAC 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 next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $452,000 for 1999 at this property which include certain of the
required improvements and consists of HVAC replacements, flooring upgrades,
landscaping, pool improvements, roofing, and structural replacements.
Palisades Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $155,000 of capital improvements at Palisades Apartments,
consisting of floor covering replacement, roof replacement, and HVAC
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 $331,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $430,000 for 1999 at this property which include
certain of the required improvements and consist of flooring, electrical
exterior upgrades, parking lots resurfacing, landscaping, pool improvements,
roofing and structural improvements.
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 $11,358,000 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
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.
In July 1998, the Partnership distributed approximately $4,439,000 to the
partners. Approximately $4,349,000 was paid to the limited partners ($52.71 per
limited partnership unit). The distribution represents the Partnership's share
of the proceeds from the sale of the Village of approximately $4,349,000 and
approximately $90,000 from operations. No distributions were made during the
nine months ended September 30, 1999. The Partnership's distribution policy is
reviewed on an annual 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 further
distributions to its partners during the remainder of 1999 or subsequent
periods.
Tender Offer
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 20,897.98 (approximately
25.33% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $62 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 1,322.00
units. As a result, AIMCO and its affiliates currently own 38,815 units of
limited partnership interest in the Partnership representing approximately
47.04% of the total outstanding units. It is possible that AIMCO or its
affiliate will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Item 1. Financial Statements, Note G -
Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed 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.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia 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
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The Managing General Partner 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 ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the Managing General Partner will make tender offers for
all outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 5
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:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors 5 1999 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 927
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 29,954
<DEPRECIATION> 22,588
<TOTAL-ASSETS> 9,222
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,358
0
0
<COMMON> 0
<OTHER-SE> (3,058)
<TOTAL-LIABILITY-AND-EQUITY> 9,222
<SALES> 0
<TOTAL-REVENUES> 3,670
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 799
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107)
<EPS-BASIC> (1.26)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
