March 27, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: National Property Investors 7
Form 10-KSB
File No. 0-13454
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 _________to _________
Commission file number 0-13454
NATIONAL PROPERTY INVESTORS 7
(Name of small business issuer in its charter)
California 13-3230613
(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
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(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 of 1934 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 Registrant'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. $7,486,000
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
NONE
<PAGE>
PART I
Item 1. Description of Business
National Property Investors 7 (the "Partnership" or "Registrant") was organized
in October 1983 as a California limited partnership under the Uniform Limited
Partnership Laws of California. NPI Equity Investments, Inc., a Florida
corporation, became the Partnership's managing general partner (the "Managing
General Partner" or "NPI Equity") on December 20, 1991. The Managing General
Partner was a wholly owned subsidiary of Insignia Properties Trust ("IPT").
Effective February 26, 1999, IPT was merged into Apartment Investment and
Management Company ("AIMCO"). Therefore, the Managing General Partner is a
wholly owned subsidiary of AIMCO (see "Transfer of Control" below). The
partnership agreement provides that the Partnership is to terminate on December
31, 2008, unless terminated prior to such date.
From February 1984 through February 1985, the Partnership offered, pursuant to a
Registration Statement filed with the Securities and Exchange Commission,
100,000 limited partnership units at $500 per unit for an aggregate of
$50,000,000 and sold 60,517 units providing net proceeds of $30,259,000. Since
its initial offering, the Registrant has not received, nor are limited partners
required to make, additional capital contributions. The net proceeds of this
offering were used to purchase seven income producing residential real estate
properties. The Partnership's original property portfolio was geographically
diversified with properties acquired in six states. One property was sold and
another was foreclosed on in 1994. The Registrant continues to own and operate
the remaining five properties (see "Item 2. Description of Properties").
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 Registrant 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.
The Partnership has no full time employees. The Managing General Partner is
vested with full authority as to the general management and supervision of the
business and affairs of the Partnership. The limited partners have no right to
participate in the management or conduct of such business and affairs. An
affiliate of the Managing General Partner provided day-to-day management
services to the Partnership's investment properties for the years ended December
31, 1999 and 1998.
The real estate 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 Registrant'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.
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.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT 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.
Item 2. Description of Properties:
The following table sets forth the Partnership's investment in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Fairway View II Apartments 11/84 Fee ownership subject to Apartment
Baton Rouge, Louisiana first mortgage 204 units
The Pines Apartments 04/85 Fee ownership subject to Apartment
Roanoke, Virginia first mortgage 216 units
Patchen Place Apartments 07/85 Fee ownership subject to Apartment
Lexington, Kentucky first mortgage 202 units
Northwood I & II Apartments 07/85 Fee ownership subject to Apartment
Pensacola, Florida first mortgage 320 units
South Point Apartments 03/86 Fee ownership subject to Apartment
Durham, North Carolina first mortgage 180 units
</TABLE>
<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>
Carrying Accumulated Federal
Properties Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Fairway View II $10,604 $ 5,698 5-27.5 yrs S/L $ 2,155
The Pines 8,212 5,074 5-27.5 yrs S/L 1,763
Patchen Place 8,865 5,875 5-27.5 yrs S/L 2,172
Northwoods I & II 9,866 5,667 5-27.5 yrs S/L 2,331
South Point 9,468 5,271 5-27.5 yrs S/L 2,706
Total $47,015 $27,585 $11,127
</TABLE>
See "Item 7. Financial Statements, Note A" for a description of the
Partnership's depreciation policy and "Item 7. Financial Statements, Note J -
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 Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (2)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Fairway View II $ 4,200 7.33% (1) 11/01/03 $ 4,200
The Pines 4,225 7.97% 20 yrs 01/01/20 --
Patchen Place 3,000 7.33% (1) 11/01/03 3,000
Northwoods I & II 5,000 7.33% (1) 11/01/03 5,000
South Point 4,600 7.33% (1) 11/01/03 4,600
Total $21,025 $16,800
</TABLE>
(1) Loan requires payments of interest only.
(2) See "Item 7. Financial Statements - Note C" for information with respect
to the Registrant's ability to prepay these loans and other specific
details about the loans.
On December 13, 1999, the Partnership refinanced the mortgage encumbering The
Pines Apartments. The refinancing replaced indebtedness of approximately
$3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on
the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new
loan requires monthly principal and interest payments and is being amortized
over 20 years. Total capitalized loan costs were approximately $88,000 during
the year ended December 31, 1999. For financial statement purposes, the
Partnership recognized a loss on the early extinguishment of debt of
approximately $106,000 consisting of a prepayment penalty and the write-off of
unamortized loan costs.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
Fairway View II $6,730 $6,843 95% 97%
The Pines 6,936 6,830 97% 95%
Patchen Place 6,811 6,821 93% 88%
Northwoods I & II 6,279 6,098 94% 95%
South Point 8,318 8,171 92% 90%
The Managing General Partner attributes the increase in occupancy at Patchen
Place Apartments to an adjustment of the property's average rental rate to
better reflect market conditions and increased marketing efforts.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the area. The Managing General Partner
believes that all of the properties are adequately insured. Each property is an
apartment complex which leases units for lease terms of one year or less. No
residential 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.
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
(in thousands)
Fairway View II $ 53 9.89%
The Pines 69 1.13%
Patchen Place 50 0.98%
Northwoods I & II 141 2.18%
South Point 96 1.61%
Capital Improvements:
Fairway View II
During the year ended December 31, 1999, the Partnership completed approximately
$171,000 of capital improvements at Fairway View II, consisting primarily of
major landscaping, carpet and vinyl replacements, and structural improvements.
These improvements were funded from Partnership 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 $61,200. 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.
The Pines
During the year ended December 31, 1999, the Partnership completed approximately
$295,000 of capital improvements at The Pines, consisting primarily of carpet
and vinyl replacement, major landscaping, parking lot improvements, and
appliances. These improvements were funded from operating cash flow and
Partnership 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 $64,800. 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.
Patchen Place
During the year ended December 31, 1999, the Partnership completed approximately
$270,000 of capital improvements at Patchen Place, consisting primarily of
carpet and vinyl replacement, improvements to the recreation facilities,
electrical upgrades, light fixtures, and parking lot improvements. These
improvements were funded from operating cash flow. 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 $60,600.
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.
Northwoods I & II
During the year ended December 31, 1999, the Partnership completed approximately
$274,000 of capital improvements at Northwoods I & II, consisting primarily of
carpet and vinyl replacement, exterior painting, and structural improvements.
These improvements were funded from Partnership reserves and operating cash
flow. 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 $96,000. 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.
South Point
During the year ended December 31, 1999, the Partnership completed approximately
$176,000 of capital improvements at South Point Apartments, consisting primarily
of carpet and vinyl replacement, exterior painting, gutter replacements, and
structural improvements. These improvements were funded from Partnership
reserves and operating cash flow. 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 $54,000. 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.
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 matter was submitted to the vote
of the unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership's Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered up to 100,000
limited partnership units and sold 60,517 limited partnership units aggregating
$30,259,000. The Partnership currently has 1,285 holders of record owning an
aggregate of 60,517 units. Affiliates of the Managing General Partner owned
38,152 units or 63.043% 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, as well as for the subsequent period
from January 1, 2000 to March 14, 2000:
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/98 - 12/31/98 $ 3,257 (1) $53.29
01/01/99 - 12/31/99 $ 300 (2) $ 4.91
01/01/00 - 03/14/00 $ 1,220 (3) $19.96
(1) Distribution was made from cash from operations (see "Item 6" for further
details).
(2) Distribution was made from previously undistributed surplus funds from
refinancing proceeds in prior years (see "Item 6" for further details).
(3) Consists of $335,000 of cash from operations and $885,000 of cash from the
refinance proceeds of The Pines Apartments (see "Item 6" for further
details).
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. The Registrant's distribution policy is
reviewed on a semi-annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit additional distributions to its partners in the
year 2000 or subsequent periods. See "Item 2. Description of Properties -
Capital Improvements" for information relating to anticipated capital
expenditures at the properties.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 38,152 limited partnership units in the Partnership representing 63.043% 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 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 matters, 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 financial statements and other
items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1999 was
approximately $514,000 compared to approximately $142,000 for the year ended
December 31, 1998 (see "Note D" of the financial statements for a reconciliation
of these amounts to the Registrant's federal taxable income). The increase in
net income was due to an increase in total revenues and a decrease in total
expenses which was partially offset by the extraordinary loss on the early
extinguishment of the debt encumbering The Pines Apartments (see discussion
below). Total revenues increased due to an increase in rental income which was
partially offset by a decrease in other income. Rental income increased
primarily due to increased occupancy at Patchen Place, Southpoint and The Pines
Apartments, and increased average rental rates at Southpoint, Northwoods I & II
and The Pines Apartments. In addition, concessions decreased at Patchen Place
and Northwoods I & II Apartments and bad debt expense decreased at Southpoint
and Northwoods I & II Apartments. The decrease in other income was primarily due
to a decrease in interest income as a result of lower interest bearing average
cash balances held by the Partnership during 1999.
Total expenses decreased due to a reduction in operating expenses and general
and administrative expenses which were partially offset by increases in property
tax expense and depreciation expense. Operating expenses decreased primarily due
to decreased maintenance expenses resulting from a balcony replacement project
which was completed in 1998, and a decrease in corporate unit expense at Patchen
Place Apartments, and a decrease in maintenance salaries and contract yard and
ground work at Fairway View II. In addition, insurance expense decreased at all
of the Partnership's properties due to a change in insurance carriers in late
1998. General and administrative expenses decreased primarily due to fees paid
to the Managing General Partner in connection with the distributions from
operations made during 1998. For the year ended December 31, 1999, no similar
fees were paid because the distribution paid during this period was from
refinancing proceeds. In addition, reimbursements to the Managing General
Partner for services decreased. Included in general and administrative expenses
at both December 31, 1999 and 1998 are management reimbursements to the Managing
General Partner allowed under the Partnership Agreement. 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.
The increase in property tax expense is primarily due to a rate increase at
Northwoods I & II Apartments. Depreciation expense increased due to property
improvements and replacements completed during the last twelve months which are
now being depreciated.
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 $179,000 ($2.92 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 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 Registrant 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.
Liquidity and Capital Resources
At December 31, 1999, the Partnership had cash and cash equivalents of
approximately $2,793,000 as compared to approximately $1,074,000 at December 31,
1998. Cash and cash equivalents increased by approximately $1,719,000 from the
Partnership's year ended December 31, 1998 due to approximately $2,634,000 of
cash provided by operating activities and approximately $308,000 of cash
provided by financing activities, which more than offset approximately
$1,223,000 of cash used in investing activities. Cash provided by financing
activities consisted primarily of proceeds from the refinancing of the mortgage
encumbering The Pines Apartments, which was partially offset by the payoff of
the previous debt encumbering The Pines Apartments, payments of principal made
on the mortgage encumbering The Pines Apartments, partner distributions, and the
payment of loan costs and a prepayment penalty relating to the refinance of The
Pines Apartments. Cash used in investing activities consisted of property
improvements and replacements and to a lesser extent, net deposits to escrow
accounts maintained by the mortgage lender. 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. 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 against the line of credit 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 Registrant and to comply with
Federal, state, and local legal and regulatory requirements. The Partnership is
currently evaluating the capital improvement needs of the properties for the
upcoming year. The minimum amount to be budgeted will be $300 per unit or
$336,600. 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. The additional capital
improvements 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.
On December 13, 1999, the Partnership refinanced the mortgage encumbering The
Pines Apartments. The refinancing replaced indebtedness of approximately
$3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on
the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new
loan requires monthly principal and interest payments and is being amortized
over 20 years. Total capitalized loan costs were approximately $88,000 during
the year ended December 31, 1999. For financial statement purposes, the
Partnership recognized a loss on the early extinguishment of debt of
approximately $106,000 consisting of a prepayment penalty and the write-off of
unamortized loan costs.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $4,225,000 encumbering The Pines is amortized over
20 years. The mortgage indebtedness of $16,800,000 encumbering the remaining
properties is interest only with required balloon payments due November 1, 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 Registrant may risk losing such
properties through foreclosure.
Cash distributions from refinancing proceeds in prior years of approximately
$300,000 (approximately $297,000 to the limited partners or $4.91 per limited
partnership unit) were paid during the year ended December 31, 1999.
Distributions of approximately $3,257,000 (approximately $3,225,000 to the
limited partners or $53.29 per limited partnership unit) were made from
operations during the year ended December 31, 1998. Subsequent to December 31,
1999, the Partnership declared and paid a distribution of approximately
$1,220,000 (approximately $1,208,000 to the limited partners or $19.96 per
limited partnership unit). This distribution consisted of approximately $335,000
(approximately $332,000 to the limited partners or $5.49 per limited partnership
unit) of cash from operations and approximately $885,000 (approximately $876,000
to the limited partners or $14.47 per limited partnership unit) of cash from the
refinancing proceeds of The Pines Apartments and from refinancing proceeds in
prior years. 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. The Registrant's
distribution policy is reviewed on a semi-annual basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after required capital expenditures to permit any additional
distributions to its Partners in the year 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 38,152 limited partnership units in the Partnership representing 63.043% 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 affected 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 affected 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.
ITEM 7. FINANCIAL STATEMENTS
NATIONAL PROPERTY INVESTORS 7
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Balance Sheet - December 31, 1999
Statements of Operations - Years ended December 31, 1999 and 1998
Statements of Changes in Partners' (Deficit) Capital - Years ended
December 31, 1999 and 1998
Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
National Property Investors 7
We have audited the accompanying balance sheet of National Property Investors 7
as of December 31, 1999, and the related statements of operations, changes in
partners' (deficit) capital 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 financial position of National Property Investors 7
at December 31, 1999, and the 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 J to the 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 7
BALANCE SHEET
(in thousands, except per unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 2,793
Receivables and deposits 337
Restricted escrows 447
Other assets 506
Investment properties (Notes C and F):
Land $ 3,738
Buildings and related personal property 43,277
47,015
Less accumulated depreciation (27,585) 19,430
$ 23,513
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 166
Tenant security deposit liabilities 107
Accrued property taxes 67
Other liabilities 301
Mortgage notes payable (Note C) 21,025
Partners' (Deficit) Capital
General partner $ (284)
Limited partners (60,517 units issued and
outstanding) 2,131 1,847
$ 23,513
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Revenues:
<S> <C> <C>
Rental income $ 7,180 $ 6,937
Other income 306 382
Total revenues 7,486 7,319
Expenses:
Operating 2,732 2,952
General and administrative 295 486
Depreciation 1,789 1,717
Interest 1,626 1,636
Property taxes 424 386
Total expenses 6,866 7,177
Income before extraordinary item 620 142
Extraordinary loss on early extinguishment of debt (Note C) (106) --
Net income (Note D) $ 514 $ 142
Net income allocated to general partner (1%) $ 5 $ 1
Net income allocated to limited partners (99%) 509 141
$ 514 $ 142
Per limited partnership unit:
Income before extraordinary item $ 10.14 $ 2.33
Extraordinary loss on early extinguishment of debt (1.73) --
Net income $ 8.41 $ 2.33
Distributions per limited partnership unit $ 4.91 $ 53.29
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except per unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 60,517 $ 1 $30,259 $30,260
Partners' (deficit) capital at
December 31, 1997 60,517 $ (255) $ 5,003 $ 4,748
Distribution to partners -- (32) (3,225) (3,257)
Net income for the year ended
December 31, 1998 -- 1 141 142
Partners' (deficit) capital at
December 31, 1998 60,517 (286) 1,919 1,633
Distribution to partners -- (3) (297) (300)
Net income for the year ended
December 31, 1999 -- 5 509 514
Partners' (deficit) capital at
December 31, 1999 60,517 $ (284) $ 2,131 $ 1,847
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 514 $ 142
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,789 1,717
Amortization of loan costs 110 113
Extraordinary loss on early extinguishment of debt 106 --
Change in accounts:
Receivables and deposits 135 (50)
Other assets (43) 31
Accounts payable 109 (31)
Tenant security deposit liabilities (22) 1
Accrued property taxes (113) 124
Other liabilities 49 (17)
Net cash provided by operating activities 2,634 2,030
Cash flows from investing activities:
Property improvements and replacements (1,186) (403)
Net (deposits to) withdrawals from restricted escrows (37) 242
Net cash used in investing activities (1,223) (161)
Cash flows from financing activities:
Payments on mortgage note payable (40) (38)
Payoff of mortgage note payable (3,406) --
Proceeds from mortgage note payable 4,225 --
Prepayment penalty (83) --
Loan costs paid (88) --
Distributions to partners (300) (3,257)
Net cash provided by (used in) financing
activities 308 (3,295)
Net increase (decrease) in cash and cash equivalents 1,719 (1,426)
Cash and cash equivalents at beginning of year 1,074 2,500
Cash and cash equivalents at end of year $ 2,793 $ 1,074
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,541 $ 1,528
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
NATIONAL PROPERTY INVESTORS 7
Notes to Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization: National Property Investors 7 (the "Partnership" or "Registrant")
is a California limited partnership organized in October 1983 to acquire and
operate residential apartment complexes. The Partnership's managing general
partner is NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General
Partner"). NPI Equity was a wholly owned subsidiary of Insignia Properties Trust
("IPT"). On February 26, 1999, IPT was merged into Apartment Investment and
Management Company ("AIMCO"). Therefore, the Managing General Partner is a
wholly owned subsidiary of AIMCO (see "Note B - Transfer of Control"). The
directors and officers of the Managing General Partner also serve as executive
officers of AIMCO. The Partnership Agreement provides that the Partnership will
terminate on December 31, 2008, unless terminated prior to such date. As of
December 31, 1999, the Partnership operates five residential apartment complexes
located throughout the southeastern United States.
Allocation of Profits, Gains, and Losses: Profits, gains, and losses of the
Partnership are allocated between the general and limited partners in accordance
with the provisions of the Partnership Agreement.
Profits, not including gains from property dispositions, are allocated as if
they were distributions of net cash from operations.
Any gain from property dispositions attributable to the excess, if any, of the
indebtedness relating to a property immediately prior to the disposition of such
property over the Partnership's adjusted basis in the property shall be
allocated to each partner having a negative capital account balance, to the
extent of such negative balance. The balance of any gain shall be treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and shall be allocated to the general partner to the extent that the
general partner would have received distributable net proceeds in connection
therewith; the balance shall be allocated to the limited partners. However, the
interest of the general partner will be equal to at least 1% of each gain at all
times during the existence of the Partnership.
All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partner.
Accordingly, net income as shown in the statements of operations and changes in
partner's (deficit) capital for 1999 and 1998 were allocated 99% to the limited
partners and 1% to the general partner. Net income per limited partnership unit
for each such year was computed as 99% of net income divided by 60,517 units
outstanding.
Cash and Cash Equivalents: Cash and cash equivalents include 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.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In addition,
the Managing General Partner's policy is to offer rental concessions during
periods of declining occupancy or in response to heavy competition from other
similar complexes in the area. Concessions are charged against rental income as
incurred.
Tenant 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 its rental
payments.
Restricted Escrows:
Replacement Reserve: A replacement reserve account is maintained for
Fairway View II Apartments, Patchen Place Apartments, Southpoint
Apartments, and Northwoods I & II Apartments. Each property has a required
monthly payment into its account to cover the costs of capital
improvements and replacements. The balance of these accounts at December
31, 1999, is approximately $398,000 which includes interest.
Capital Account: A capital reserve account was established in 1999 with
the refinancing proceeds for The Pines Apartments. These funds were
established to cover necessary repairs and replacements of existing
improvements. The balance at December 31, 1999 is approximately $33,000.
Loan Costs: Loan costs of approximately $728,000, less accumulated amortization
of approximately $292,000, are included in other assets and are being amortized
on a straight-line basis over the lives of the related loans.
Investment Properties: Investment properties consist of five 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 or 1998.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties 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 (see "Note J").
Fair Value of Financial Instruments: 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.
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 H" for disclosure).
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.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $91,000 and $83,000 for the years ended
December 31, 1999 and 1998, respectively, were charged to operating expense as
incurred.
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 IPT 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 - 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
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fairway View II $ 4,200 $ 26 7.33% 11/01/03 $ 4,200
The Pines 4,225 35 7.97% 01/01/20 --
Patchen Place 3,000 18 7.33% 11/01/03 3,000
Northwoods I & II 5,000 31 7.33% 11/01/03 5,000
South Point 4,600 28 7.33% 11/01/03 4,600
Total $21,025 $ 138 $16,800
</TABLE>
The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. The notes require prepayment penalties if repaid prior to
maturity and prohibit resale of the properties subject to existing indebtedness.
The mortgages encumbering Fairway View II Apartments, Patchen Place Apartments,
Northwoods I & II Apartments, and South Point Apartments require interest-only
payments.
On December 13, 1999, the Partnership refinanced the mortgage encumbering The
Pines Apartments. The refinancing replaced indebtedness of approximately
$3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on
the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new
loan requires monthly principal and interest payments and is being amortized
over 20 years. Total capitalized loan costs were approximately $88,000 during
the year ended December 31, 1999. For financial statement purposes, the
Partnership recognized a loss on the early extinguishment of debt of
approximately $106,000 consisting of a prepayment penalty and the write-off of
unamortized loan costs.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 82
2001 97
2002 104
2003 16,913
2004 122
Thereafter 3,707
Total $21,025
Note D - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except unit data):
1999 1998
Net income as reported $ 514 $ 142
Add (deduct):
Depreciation differences 42 56
Other 32 93
Federal taxable income $ 588 $ 291
Federal taxable income per limited
partnership unit $ 9.62 $ 4.76
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets (in thousands):
1999
Net assets as reported $ 1,847
Land and buildings (1,503)
Accumulated depreciation (6,800)
Syndication and distribution costs 3,555
Prepaid rent 127
Other 114
Net liabilities - Federal tax basis $(2,660)
Note E - 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 payments were made to the Managing General Partner and affiliates
during the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $380 $369
Reimbursement for services of affiliates
(included in investment properties and operating
and general administrative expenses) 180 188
Non-accountable reimbursement (included in general
and administrative expenses) -- 91
Partnership management fee (included in general
and administrative expenses) -- 137
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 Registrant paid to such affiliates approximately $380,000 and
$369,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $180,000 and
$188,000 for the years ended December 31, 1999 and 1998, respectively.
In addition, in connection with the refinancing of the mortgage loan encumbering
The Pines Apartments the Partnership paid approximately $42,000 in loan costs to
an affiliate during the year ended December 31, 1999. No such loan costs were
paid in 1998. These loan costs are included in other assets and are amortized as
interest expense over the terms of the loan.
For services relating to the administration of the Partnership and operation of
Partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $150,000 per year from
distributions from operations, based upon the number of Partnership units sold,
subject to certain limitations. The Managing General Partner received
approximately $91,000 in reimbursements for the year ended December 31, 1998.
The Managing General Partner was not entitled to receive a similar reimbursement
during the year ended December 31, 1999 because there were no distributions from
operations.
For managing the affairs of the Partnership, the Managing General Partner of the
Partnership is entitled to receive a partnership management fee. The fee is
equal to 4% of the Partnership's adjusted cash from operations, as defined in
the Partnership Agreement, in any year, provided that 50% of the fee shall not
be paid until the Partnership has distributed to the limited partners adjusted
cash from operations in such year which is equal to 5% of the limited partners'
adjusted invested capital, as defined, on a non-cumulative basis. In addition,
50% of the fee shall not be paid until the Partnership has distributed to the
limited partners adjusted cash from operations in such year which is equal to 8%
of the limited partners' adjusted invested capital on a non-cumulative basis.
The fee shall be paid when adjusted cash from operations is distributed to the
limited partners. The Managing General Partner was paid approximately $137,000
during the year ended December 31, 1998 for such fees. The Managing General
Partner was not entitled to receive a similar reimbursement during the year
ended December 31, 1999 because there were no distributions from operations.
Upon sale of the Partnership's 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 present appraised investment in the Partnership at
February 1, 1992.
The Managing General Partner has extended to the Partnership a line of credit of
up to $500,000. Loans under the line of credit 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
Managing General Partner (whether or not For Cause); (ii) the sale or
refinancing of a property by the Partnership; or (iii) the liquidation of the
Partnership. At the present time, the Partnership has no outstanding amounts due
under this line of credit.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 38,152 limited partnership units in the Partnership representing 63.043% 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>
Note F - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
(in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Fairway View II $ 4,200 $ 1,086 $ 8,788 $ 730
The Pines 4,225 579 6,521 1,112
Patchen Place 3,000 706 6,409 1,750
Northwoods I & II 5,000 478 7,919 1,469
South Point 4,600 859 7,686 923
Totals $21,025 $ 3,708 $37,323 $ 5,984
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Year of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fairway View II $ 1,094 $ 9,510 $10,604 $ 5,698 1981 11/84 5-27.5
The Pines 584 7,628 8,212 5,074 1978 04/85 5-27.5
Patchen Place 714 8,151 8,865 5,875 1971 07/85 5-27.5
Northwoods I & II 483 9,383 9,866 5,667 1981 07/85 5-27.5
South Point 863 8,605 9,468 5,271 1980 03/86 5-27.5
Total $ 3,738 $43,277 $47,015 $27,585
</TABLE>
<PAGE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $45,829 $45,426
Property improvements 1,186 403
Balance at end of year $47,015 $45,829
Accumulated Depreciation
Balance at beginning of year $25,796 $24,079
Additions charged to expense 1,789 1,717
Balance at end of year $27,585 $25,796
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $45,512,000 and $44,319,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $34,385,000 and $32,638,000,
respectively.
Note G - Distributions
A distribution of approximately $300,000 (approximately $297,000 to the limited
partners or $4.91 per limited partnership unit) from refinancing proceeds in
prior years was paid during the year ended December 31, 1999. Total cash
distributed from operations was approximately $3,257,000 (approximately
$3,225,000 to the limited partners or $53.29 per limited partnership unit) for
the year ended December 31, 1998. Subsequent to December 31, 1999, the
Partnership declared and paid a distribution of approximately $1,220,000
(approximately $1,208,000 to the limited partners or $19.96 per limited
partnership unit) consisting of approximately $335,000 (approximately $332,000
to the limited partners or $5.49 per limited partnership unit) of cash from
operations and approximately $885,000 (approximately $876,000 to the limited
partners or $14.47 per limited partnership unit) of cash from the refinance
proceeds of The Pines Apartments.
Note H - Segment Reporting
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of five apartment complexes
located in the Southeast. The Partnership rents apartment units to tenants for
terms that are typically twelve months or less.
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.
The Partnership's reportable segment is 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 ended December 31, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
<TABLE>
<CAPTION>
1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 7,180 $ -- $ 7,180
Other income 293 13 306
Interest expense 1,626 -- 1,626
Depreciation 1,789 -- 1,789
General and administrative expense -- 295 295
Extraordinary loss on early extinguishment
of debt (106) -- (106)
Segment profit (loss) 796 (282) 514
Total assets 21,954 1,559 23,513
Capital expenditures for investment properties 1,186 -- 1,186
</TABLE>
<TABLE>
<CAPTION>
1998 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 6,937 $ -- $ 6,937
Other income 297 85 382
Interest expense 1,636 -- 1,636
Depreciation 1,717 -- 1,717
General and administrative expense -- 486 486
Segment profit (loss) 543 (401) 142
Total assets 22,093 404 22,497
Capital expenditures for investment properties 403 -- 403
</TABLE>
Note I - 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 J - 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 $179,000 ($2.92 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.
<PAGE>
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 7 (the "Partnership" or the "Registrant") has no
officers or directors. The managing general partner of the Partnership is NPI
Equity Investments, Inc. ("NPI Equity" or the "Managing General Partner"). The
present executive officers and directors of the Managing General Partner are
listed below:
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 Managing
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 Properties, L.P. and its joint filers failed to timely file a Form 3 with
respect to its acquisition of Units and 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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Partnership to be
the beneficial owners of more than 5% of the Limited Partnership Units of the
Partnership, as of December 31, 1999.
Amount and Nature
Name of Beneficial Owner of Beneficial Owner % of Class
Insignia Properties, LP 25,399 41.970%
(an affiliate of AIMCO)
AIMCO Properties LP 12,753 21.073%
(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 services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following payments were made to the Managing General Partner and affiliates
during the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $380 $369
Reimbursement for services of affiliates 180 188
Non-accountable reimbursement -- 91
Partnership management fee -- 137
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 Registrant paid to such affiliates approximately $380,000 and
$369,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $180,000 and
$188,000 for the years ended December 31, 1999 and 1998, respectively.
In addition, in connection with the refinancing of the mortgage loan encumbering
The Pines Apartments the Partnership paid approximately $42,000 in loan costs to
an affiliate during the year ended December 31, 1999. No such loan costs were
paid in 1998. These loan costs are included in other assets and are amortized as
interest expense over the terms of the loan.
For services relating to the administration of the Partnership and operation of
Partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $150,000 per year from
distributions from operations, based upon the number of Partnership units sold,
subject to certain limitations. The Managing General Partner received
approximately $91,000 in reimbursements for the year ended December 31, 1998.
The Managing General Partner was not entitled to receive a similar reimbursement
during the year ended December 31, 1999 because there were no distributions from
operations.
For managing the affairs of the Partnership, the Managing General Partner of the
Partnership is entitled to receive a partnership management fee. The fee is
equal to 4% of the Partnership's adjusted cash from operations, as defined in
the Partnership Agreement, in any year, provided that 50% of the fee shall not
be paid until the Partnership has distributed to the limited partners adjusted
cash from operations in such year which is equal to 5% of the limited partners'
adjusted invested capital, as defined, on a non-cumulative basis. In addition,
50% of the fee shall not be paid until the Partnership has distributed to the
limited partners adjusted cash from operations in such year which is equal to 8%
of the limited partners' adjusted invested capital on a non-cumulative basis.
The fee shall be paid when adjusted cash from operations is distributed to the
limited partners. The Managing General Partner was paid approximately $137,000
during the year ended December 31, 1998 for such fees. The Managing General
Partner was not entitled to receive a similar reimbursement during the year
ended December 31, 1999 because there were no distributions from operations.
Upon sale of the Partnership's 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 present appraised investment in the Partnership at
February 1, 1992.
The Managing General Partner has extended to the Partnership a line of credit of
up to $500,000. Loans under the line of credit 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
Managing General Partner (whether or not For Cause); (ii) the sale or
refinancing of a property by the Partnership; or (iii) the liquidation of the
Partnership. At the present time, the Partnership has no outstanding amounts due
under this line of credit.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 38,152 limited partnership units in the Partnership representing 63.043% 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 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 in the fourth quarter of calendar year 1999:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL PROPERTY INVESTORS 7
By: NPI EQUITY INVESTMENTS, INC.
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:
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date 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 Number Description of Exhibit
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 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 (incorporated by reference to Exhibit 2.1 filed with the
Registrant's 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 Registrant dated July 5, 1978, contained in the
Registrant's Registration Statement on Form S-11 (Reg. No. 2-599991).
(b) Amendments to the Agreement of Limited Partnership, incorporated by
reference to the Definitive Proxy Statement of the Partnership dated July
2, 1981.
(c) Amendments to the Agreement of Limited Partnership, incorporated by
reference to Definitive Proxy statement of the Partnership dated April 3,
1991.
(d) Amendments to the Agreements of Limited Partnership incorporated by
reference, to the Statement Furnished in Connection With the Solicitation
of Consents of the Registrant dated August 28, 1992.
10.1 (a) Purchase Agreement dated as of November 20, 1990, by and between the
Managing General Partner and the Prior Managing General Partner, IRI
Properties Capital Corp. and RPMC, incorporated by reference to Exhibit
10(a) to the Registrant's Current Report on Form 8-K dated November 20,
1990. (10)
(b) Amendments to Purchase Agreement dated as of November 20, 1990, by and
between the Managing General Partner and the Prior Managing General
Partner, IRI Properties Capital Corp. and RPMC, incorporated by reference
to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated June
21, 1991. (11)
(c) Property Management Agreement dated June 21, 1991, by and between the
Registrant and NPI Management incorporated by reference to Exhibit 10.4 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991. (10)
10.8 Multifamily Note and Addendum, dated January 4, 1994, made by the
Registrant for the benefit of Hanover Capital Mortgage Corporation, as it
pertains to The Pines Apartments. (11)
<PAGE>
10.9 Multifamily Deed of Trust, Assignment of Rents and Security Agreement and
Rider, dated January 4, 1994, between the Registrant and Hanover Capital
Mortgage Corporation, as it pertains to The Pines Apartments. (11)
10.11Multifamily Note secured by a Mortgage or Deed of Trust dated November 1,
1996, between National Property Investors 7 and Lehman Brothers Holdings,
Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc.,
relating to Northwoods Apartments. (12)
10.12Multifamily Note secured by a Mortgage or Deed of Trust dated November 1,
1996, between National Property Investors 7 and Lehman Brothers Holdings,
Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc.,
relating to South Point Apartments. (12)
10.13Multifamily Note secured by a Mortgage or Deed of Trust dated November 1,
1996, between National Property Investors 7 and Lehman Brothers Holdings,
Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc.,
relating to Patchen Place Apartments. (12)
10.14Multifamily Note secured by a Mortgage or Deed of Trust dated November 1,
1996, between National Property Investors 7 and Lehman Brothers Holdings,
Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc.,
relating to Fairway View II Apartments. (12)
10.15Multifamily Note dated December 9, 1999, by and between National Property
Investors 7, a California limited partnership and GMAC Commercial Mortgage
Corporation, a California corporation. (13)
16 Letter dated November 10, 1998, from the Registrant's former independent
accountant regarding its concurrence with the statements made by the
Registrant, incorporated by reference to Exhibit 16 filed with Registrant's
Current Report on Form 8-K dated November 10, 1998.
18 Independent Accountants' Preferability Letter for Change in Accounting
Principle.
27 Financial Data Schedule.
(1) Incorporated by reference to Exhibit 2 to the Registrant's Current Report
on Form 8-K dated August 17, 1995.
(2) Incorporated by reference to Exhibit 2.1 to Form 8-K filed by Insignia
Financial Group, Inc. with the Securities and Exchange Commission on
September 1, 1995.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated by reference to Exhibit A to the Prospectus of the Registrant
dated February 10, 1984 contained in the Registrant's Registration
Statement on Form S-11 (Reg. No. 2-87725).
(7) Incorporated by reference to the Definitive Proxy Statement of the
Registrant dated April 3, 1991.
(8) Incorporated by reference to the Statement Furnished in Connection with the
Solicitation of Consents of the Registrant dated August 28, 1992.
(9) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated November 15, 1984.
(10) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991. Identical agreements have been
entered into for each of the Registrant's properties. The only difference
in the agreements is that the applicable property name has been inserted
into the agreement.
(11) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1993.
(12) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1996.
(13) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the period ended December 31, 1999.
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
NPI Equity Investments, Inc.
Managing General Partner of National Property Investors 7
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note J of Notes to the Financial Statements of National Property Investors 7
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
<PAGE>
Exhibit 10.15
FHLMC Loan No. 002682303
MULTIFAMILY NOTE
(MULTISTATE)
US $4,225,000.00 As of December 9, 1999
FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if
more than one) promises to pay to the order of GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation, the principal sum of Four Million Two
Hundred Twenty-Five Thousand and 00/100 Dollars (US $4,225,000.00), with
interest on the unpaid principal balance at the annual rate of seven and nine
hundred seventy thousandths percent (7.970%).
1. Defined Terms. As used in this Note, (i) the term "Lender" means the holder
of this Note, and (ii) the term "Indebtedness" means the principal of, interest
on, or any other amounts due at any time under, this Note, the Security
Instrument or any other Loan Document, including prepayment premiums, late
charges, default interest, and advances to protect the security of the Security
Instrument under Section 12 of the Security Instrument. "Event of Default" and
other capitalized terms used but not defined in this Note shall have the
meanings given to such terms in the Security Instrument.
2. Address for Payment. All payments due under this Note shall be payable at 650
Dresher Road, P.O. Box 1015, Horsham, Pennsylvania 19044-8015, Attn: Servicing -
Account Manager, or such other place as may be designated by written notice to
Borrower from or on behalf of Lender.
3. Payment of Principal and Interest. Principal and interest shall be paid as
follows:
(a) Unless disbursement of principal is made by Lender to Borrower on the first
day of the month, interest for the period beginning on the date of disbursement
and ending on and including the last day of the month in which such disbursement
is made shall be payable simultaneously with the execution of this Note.
Interest under this Note shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
(b) Consecutive monthly installments of principal and interest, each in the
amount of Thirty Five Thousand Two Hundred Sixty and 75/100 Dollars (US
$35,260.75), shall be payable on the first day of each month beginning on
February 1, 2000, until the entire unpaid principal balance evidenced by this
Note is fully paid. Any accrued interest remaining past due for 30 days or more
shall be added to and become part of the unpaid principal balance and shall bear
interest at the rate or rates specified in this Note, and any reference below to
"accrued interest" shall refer to accrued interest which has not become part of
the unpaid principal balance. Any remaining principal and interest shall be due
and payable on January 1, 2020 or on any earlier date on which the unpaid
principal balance of this Note becomes due and payable, by acceleration or
otherwise (the "Maturity Date"). The unpaid principal balance shall continue to
bear interest after the Maturity Date at the Default Rate set forth in this Note
until and including the date on which it is paid in full.
(c) Any regularly scheduled monthly installment of principal and interest that
is received by Lender before the date it is due shall be deemed to have been
received on the due date solely for the purpose of calculating interest due.
4. Application of Payments. If at any time Lender receives, from Borrower or
otherwise, any amount applicable to the Indebtedness which is less than all
amounts due and payable at such time, Lender may apply that payment to amounts
then due and payable in any manner and in any order determined by Lender, in
Lender's discretion. Borrower agrees that neither Lender's acceptance of a
payment from Borrower in an amount that is less than all amounts then due and
payable nor Lender's application of such payment shall constitute or be deemed
to constitute either a waiver of the unpaid amounts or an accord and
satisfaction.
5. Security. The Indebtedness is secured, among other things, by a multifamily
mortgage, deed to secure debt or deed of trust dated as of the date of this Note
(the "Security Instrument"), and reference is made to the Security Instrument
for other rights of Lender as to collateral for the Indebtedness.
6. Acceleration. If an Event of Default has occurred and is continuing, the
entire unpaid principal balance, any accrued interest, the prepayment premium
payable under Paragraph 10, if any, and all other amounts payable under this
Note and any other Loan Document shall at once become due and payable, at the
option of Lender, without any prior notice to Borrower. Lender may exercise this
option to accelerate regardless of any prior forbearance.
7. Late Charge. If any monthly amount payable under this Note or under the
Security Instrument or any other Loan Document is not received by Lender within
ten (10) days after the amount is due, Borrower shall pay to Lender, immediately
and without demand by Lender, a late charge equal to five percent (5%) of such
amount. Borrower acknowledges that its failure to make timely payments will
cause Lender to incur additional expenses in servicing and processing the loan
evidenced by this Note (the "Loan"), and that it is extremely difficult and
impractical to determine those additional expenses. Borrower agrees that the
late charge payable pursuant to this Paragraph represents a fair and reasonable
estimate, taking into account all circumstances existing on the date of this
Note, of the additional expenses Lender will incur by reason of such late
payment. The late charge is payable in addition to, and not in lieu of, any
interest payable at the Default Rate pursuant to Paragraph 8.
8. Default Rate. So long as (a) any monthly installment under this Note remains
past due for 30 days or more, or (b) any other Event of Default has occurred and
is continuing, interest under this Note shall accrue on the unpaid principal
balance from the earlier of the due date of the first unpaid monthly installment
or the occurrence of such other Event of Default, as applicable, at a rate (the
"Default Rate") equal to the lesser of 4 percentage points above the rate stated
in the first paragraph of this Note or the maximum interest rate which may be
collected from Borrower under applicable law. If the unpaid principal balance
and all accrued interest are not paid in full on the Maturity Date, the unpaid
principal balance and all accrued interest shall bear interest from the Maturity
Date at the Default Rate. Borrower also acknowledges that its failure to make
timely payments will cause Lender to incur additional expenses in servicing and
processing the Loan, that, during the time that any monthly installment under
this Note is delinquent for more than 30 days, Lender will incur additional
costs and expenses arising from its loss of the use of the money due and from
the adverse impact on Lender's ability to meet its other obligations and to take
advantage of other investment opportunities, and that it is extremely difficult
and impractical to determine those additional costs and expenses. Borrower also
acknowledges that, during the time that any monthly installment under this Note
is delinquent for more than 30 days or any other Event of Default has occurred
and is continuing, Lender's risk of nonpayment of this Note will be materially
increased and Lender is entitled to be compensated for such increased risk.
Borrower agrees that the increase in the rate of interest payable under this
Note to the Default Rate represents a fair and reasonable estimate, taking into
account all circumstances existing on the date of this Note, of the additional
costs and expenses Lender will incur by reason of the Borrower's delinquent
payment and the additional compensation Lender is entitled to receive for the
increased risks of nonpayment associated with a delinquent loan.
9. Limits on Personal Liability.
(a) Except as otherwise provided in this Paragraph 9, Borrower shall have no
personal liability under this Note, the Security Instrument or any other Loan
Document for the repayment of the Indebtedness or for the performance of any
other obligations of Borrower under the Loan Documents, and Lender's only
recourse for the satisfaction of the Indebtedness and the performance of such
obligations shall be Lender's exercise of its rights and remedies with respect
to the Mortgaged Property and any other collateral held by Lender as security
for the Indebtedness. This limitation on Borrower's liability shall not limit or
impair Lender's enforcement of its rights against any guarantor of the
Indebtedness or any guarantor of any obligations of Borrower.
(b) Borrower shall be personally liable to Lender for the repayment of a portion
of the Indebtedness equal to zero percent (0%) of the original principal balance
of this Note, plus any other amounts for which Borrower has personal liability
under this Paragraph 9.
(c) In addition to Borrower's personal liability under Paragraph 9(b), Borrower
shall be personally liable to Lender for the repayment of a further portion of
the Indebtedness equal to any loss or damage suffered by Lender as a result of
(1) failure of Borrower to pay to Lender upon demand after an Event of Default
all Rents to which Lender is entitled under Section 3(a) of the Security
Instrument and the amount of all security deposits collected by Borrower from
tenants then in residence; (2) failure of Borrower to apply all insurance
proceeds and condemnation proceeds as required by the Security Instrument; or
(3) failure of Borrower to comply with Section 14(d) or (e) of the Security
Instrument relating to the delivery of books and records, statements, schedules
and reports.
(d) For purposes of determining Borrower's personal liability under Paragraph
9(b) and Paragraph 9(c), all payments made by Borrower or any guarantor of this
Note with respect to the Indebtedness and all amounts received by Lender from
the enforcement of its rights under the Security Instrument shall be applied
first to the portion of the Indebtedness for which Borrower has no personal
liability.
(e) Borrower shall become personally liable to Lender for the repayment of all
of the Indebtedness upon the occurrence of any of the following Events of
Default: (1) Borrower's acquisition of any property or operation of any business
not permitted by Section 33 of the Security Instrument; (2) a Transfer
(including, but not limited to, a lien or encumbrance) that is an Event of
Default under Section 21 of the Security Instrument, other than a Transfer
consisting solely of the involuntary removal or involuntary withdrawal of a
general partner in a limited partnership or a manager in a limited liability
company; or (3) fraud or written material misrepresentation by Borrower or any
officer, director, partner, member or employee of Borrower in connection with
the application for or creation of the Indebtedness or any request for any
action or consent by Lender.
(f) In addition to any personal liability for the Indebtedness, Borrower shall
be personally liable to Lender for (1) the performance of all of Borrower's
obligations under Section 18 of the Security Instrument (relating to
environmental matters); (2) the costs of any audit under Section 14(d) of the
Security Instrument; and (3) any costs and expenses incurred by Lender in
connection with the collection of any amount for which Borrower is personally
liable under this Paragraph 9, including fees and out of pocket expenses of
attorneys and expert witnesses and the costs of conducting any independent audit
of Borrower's books and records to determine the amount for which Borrower has
personal liability.
(g) To the extent that Borrower has personal liability under this Paragraph 9,
Lender may exercise its rights against Borrower personally without regard to
whether Lender has exercised any rights against the Mortgaged Property or any
other security, or pursued any rights against any guarantor, or pursued any
other rights available to Lender under this Note, the Security Instrument, any
other Loan Document or applicable law. For purposes of this Paragraph 9, the
term "Mortgaged Property" shall not include any funds that (1) have been applied
by Borrower as required or permitted by the Security Instrument prior to the
occurrence of an Event of Default or (2) Borrower was unable to apply as
required or permitted by the Security Instrument because of a bankruptcy,
receivership, or similar judicial proceeding.
10. Voluntary and Involuntary Prepayments.
(a) A prepayment premium shall be payable in connection with any prepayment made
under this Note as provided below:
(1) Borrower may voluntarily prepay all of the unpaid principal balance of this
Note on the last Business Day of a calendar month if Borrower has given
Lender at least 30 days prior notice of its intention to make such
prepayment. Such prepayment shall be made by paying (A) the amount of
principal being prepaid, (B) all accrued interest, (C) all other sums due
Lender at the time of such prepayment, and (D) the prepayment premium
calculated pursuant to Schedule A. For all purposes including the accrual
of interest, any prepayment received by Lender on any day other than the
last calendar day of the month shall be deemed to have been received on the
last calendar day of such month. For purposes of this Note, a "Business
Day" means any day other than a Saturday, Sunday or any other day on which
Lender is not open for business. Borrower shall not have the option to
voluntarily prepay less than all of the unpaid principal balance.
(2) Upon Lender's exercise of any right of acceleration under this Note,
Borrower shall pay to Lender, in addition to the entire unpaid principal
balance of this Note outstanding at the time of the acceleration, (A) all
accrued interest and all other sums due Lender, and (B) the prepayment
premium calculated pursuant to Schedule A.
(3) Any application by Lender of any collateral or other security to the
repayment of any portion of the unpaid principal balance of this Note prior
to the Maturity Date and in the absence of acceleration shall be deemed to
be a partial prepayment by Borrower, requiring the payment to Lender by
Borrower of a prepayment premium. The amount of any such partial prepayment
shall be computed so as to provide to Lender a prepayment premium computed
pursuant to Schedule A without Borrower having to pay out-of-pocket any
additional amounts.
(b) Notwithstanding the provisions of Paragraph 10(a), no prepayment premium
shall be payable with respect to (A) any prepayment made no more than 180
days before the Maturity Date, or (B) any prepayment occurring as a result
of the application of any insurance proceeds or condemnation award under
the Security Instrument.
(c) Schedule A is hereby incorporated by reference into this Note.
(d) Any permitted or required prepayment of less than the unpaid principal
balance of this Note shall not extend or postpone the due date of any
subsequent monthly installments or change the amount of such installments,
unless Lender agrees otherwise in writing.
(e) Borrower recognizes that any prepayment of the unpaid principal balance of
this Note, whether voluntary or involuntary or resulting from a default by
Borrower, will result in Lender's incurring loss, including reinvestment
loss, additional expense and frustration or impairment of Lender's ability
to meet its commitments to third parties. Borrower agrees to pay to Lender
upon demand damages for the detriment caused by any prepayment, and agrees
that it is extremely difficult and impractical to ascertain the extent of
such damages. Borrower therefore acknowledges and agrees that the formula
for calculating prepayment premiums set forth on Schedule A represents a
reasonable estimate of the damages Lender will incur because of a
prepayment.
(f) Borrower further acknowledges that the prepayment premium provisions of
this Note are a material part of the consideration for the Loan, and
acknowledges that the terms of this Note are in other respects more
favorable to Borrower as a result of the Borrower's voluntary agreement to
the prepayment premium provisions.
11. Costs and Expenses. Borrower shall pay all expenses and costs, including
fees and out-of-pocket expenses of attorneys and expert witnesses and costs
of investigation, incurred by Lender as a result of any default under this
Note or in connection with efforts to collect any amount due under this
Note, or to enforce the provisions of any of the other Loan Documents,
including those incurred in post-judgment collection efforts and in any
bankruptcy proceeding (including any action for relief from the automatic
stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure
proceeding.
12. Forbearance. Any forbearance by Lender in exercising any right or remedy
under this Note, the Security Instrument, or any other Loan Document or
otherwise afforded by applicable law, shall not be a waiver of or preclude
the exercise of that or any other right or remedy. The acceptance by Lender
of any payment after the due date of such payment, or in an amount which is
less than the required payment, shall not be a waiver of Lender's right to
require prompt payment when due of all other payments or to exercise any
right or remedy with respect to any failure to make prompt payment.
Enforcement by Lender of any security for Borrower's obligations under this
Note shall not constitute an election by Lender of remedies so as to
preclude the exercise of any other right or remedy available to Lender.
13. Waivers. Presentment, demand, notice of dishonor, protest, notice of
acceleration, notice of intent to demand or accelerate payment or maturity,
presentment for payment, notice of nonpayment, grace, and diligence in
collecting the Indebtedness are waived by Borrower and all endorsers and
guarantors of this Note and all other third party obligors.
14. Loan Charges. If any applicable law limiting the amount of interest or
other charges permitted to be collected from Borrower in connection with
the Loan is interpreted so that any interest or other charge provided for
in any Loan Document, whether considered separately or together with other
charges provided for in any other Loan Document, violates that law, and
Borrower is entitled to the benefit of that law, that interest or charge is
hereby reduced to the extent necessary to eliminate that violation. The
amounts, if any, previously paid to Lender in excess of the permitted
amounts shall be applied by Lender to reduce the unpaid principal balance
of this Note. For the purpose of determining whether any applicable law
limiting the amount of interest or other charges permitted to be collected
from Borrower has been violated, all Indebtedness that constitutes
interest, as well as all other charges made in connection with the
Indebtedness that constitute interest, shall be deemed to be allocated and
spread ratably over the stated term of the Note. Unless otherwise required
by applicable law, such allocation and spreading shall be effected in such
a manner that the rate of interest so computed is uniform throughout the
stated term of the Note.
15. Commercial Purpose. Borrower represents that the Indebtedness is being
incurred by Borrower solely for the purpose of carrying on a business or
commercial enterprise, and not for personal, family or household purposes.
16. Counting of Days. Except where otherwise specifically provided, any
reference in this Note to a period of "days" means calendar days, not
Business Days.
17. Governing Law. This Note shall be governed by the law of the jurisdiction
in which the Land is located.
18. Captions. The captions of the paragraphs of this Note are for convenience
only and shall be disregarded in construing this Note.
19. Notices. All notices, demands and other communications required or
permitted to be given by Lender to Borrower pursuant to this Note shall be
given in accordance with Section 31 of the Security Instrument.
20. Consent to Jurisdiction and Venue. Borrower agrees that any controversy
arising under or in relation to this Note shall be litigated exclusively in
the jurisdiction in which the Land is located (the "Property
Jurisdiction"). The state and federal courts and authorities with
jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction
over all controversies which shall arise under or in relation to this Note.
Borrower irrevocably consents to service, jurisdiction, and venue of such
courts for any such litigation and waives any other venue to which it might
be entitled by virtue of domicile, habitual residence or otherwise.
21. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A
TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE
RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF
RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY,
KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
ATTACHED SCHEDULES. The following Schedules are attached to this Note:
X Schedule A Prepayment Premium (required)
X Schedule B Modifications to Multifamily Note
IN WITNESS WHEREOF, Borrower has signed and delivered this Note or has
caused this Note to be signed and delivered by its duly authorized
representative.
NATIONAL PROPERTY INVESTORS 7, a California limited
partnership, doing business in Virginia as National Property
Investors 7 L.P.
By: NPI Equity Investments, Inc., a Florida corporation,
its general partner
By:_________________________________
Patti K. Fielding Vice
President
13-3230613
Borrower's Social Security/Employer ID Number
<PAGE>
PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION, WITHOUT RECOURSE,
THIS 9TH DAY OF DECEMBER, 1999.
GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation
By:_________________________________
Donald W. Marshall
Vice President
<PAGE>
SCHEDULE A
PREPAYMENT PREMIUM
Any prepayment premium payable under Paragraph 10 of this Note shall be
computed as follows:
(a) If the prepayment is made between the date of this Note and the date that is
180 months after the first day of the first calendar month following the date of
this Note (the "Yield Maintenance Period"), the prepayment premium shall be the
greater of:
(i) 1.0% of the unpaid principal balance of this Note; or
(ii) the product obtained by multiplying:
(A) the amount of principal being prepaid,
by
(B) the excess (if any) of the Monthly Note Rate over the Assumed Reinvestment
Rate,
by
(C) the Present Value Factor.
For purposes of subparagraph (ii), the following definitions shall apply:
Monthly Note Rate: one-twelfth (1/12) of the annual interest rate of the
Note, expressed as a decimal calculated to five digits.
Prepayment Date: in the case of a voluntary prepayment, the date on which
the prepayment is made; in any other case, the date on which Lender
accelerates the unpaid principal balance of the Note.
Assumed Reinvestment Rate: one-twelfth (1/12) of the yield rate as of the
date 5 Business Days before the Prepayment Date, on the 9.250% U.S.
Treasury Security due February 1, 2016, as reported in The Wall Street
Journal, expressed as a decimal calculated to five digits. In the event
that no yield is published on the applicable date for the Treasury Security
used to determine the Assumed Reinvestment Rate, Lender, in its discretion,
shall select the non-callable Treasury Security maturing in the same year
as the Treasury Security specified above with the lowest yield published in
The Wall Street Journal as of the applicable date. If the publication of
such yield rates in The Wall Street Journal is discontinued for any reason,
Lender shall select a security with a comparable rate and term to the
Treasury Security used to determine the Assumed Reinvestment Rate. The
selection of an alternate security pursuant to this Paragraph shall be made
in Lender's discretion.
<PAGE>
Present Value Factor: the factor that discounts to present value the costs
resulting to Lender from the difference in interest rates during the months
remaining in the Yield Maintenance Period, using the Assumed Reinvestment
Rate as the discount rate, with monthly compounding, expressed numerically
as follows:
[OBJECT OMITTED]
n = number of months remaining in Yield Maintenance Period
ARR = Assumed Reinvestment Rate
(b) If the prepayment is made after the expiration of the Yield Maintenance
Period but more than 180 days before the Maturity Date, the prepayment premium
shall be 1.0% of the unpaid principal balance of this Note.
<PAGE>
SCHEDULE B
MODIFICATIONS TO MULTIFAMILY NOTE
1. The first sentence of 8 of the Note ("Default Rate") is hereby deleted and
replaced with the following:
"So long as (a) any monthly installment under this Note remains past
due for more than thirty (30) days or (b) any other event of Default
has occurred and is continuing, interest under this Note shall
accrue on the unpaid principal balance from the earlier of the due
date of the first unpaid monthly installment or the occurrence of
such other Event of Default, as applicable, at a rate (the "Default
Rate") equal to the lesser of (1) the maximum interest rate which
may be collected from Borrower under applicable law or (2) the
greater of (i) three percent (3%) above the Interest Rate or (ii)
four percent (4.0%) above the then-prevailing Prime Rate. As used
herein, the term "Prime Rate" shall mean the rate of interest
announced by The Wall Street Journal from time to time as the "Prime
Rate"."
2. Paragraph 9(c) of the Note is amended to add the following subparagraph
(4):
"(4) failure by Borrower to pay the amount of the water and sewer
charges, taxes, fire, hazard or other insurance premiums, ground
rents in accordance with the terms of the Security Instrument."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NATIONAL
PROPERTY INVESTORS 7 1999 Fourth Quarter 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000732439
<NAME> NATIONAL PROPERTY INVESTORS 7
<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> 2,793
<SECURITIES> 0
<RECEIVABLES> 337
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 47,015
<DEPRECIATION> (27,585)
<TOTAL-ASSETS> 23,513
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 21,025
0
0
<COMMON> 0
<OTHER-SE> 1,847
<TOTAL-LIABILITY-AND-EQUITY> 23,513
<SALES> 0
<TOTAL-REVENUES> 7,486
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,626
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (106)
<CHANGES> 0
<NET-INCOME> 514
<EPS-BASIC> 8.41 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
