FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-13454
NATIONAL PROPERTY INVESTORS 7
(Exact name of small business issuer as specified in its charter)
California 13-3230613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 7
BALANCE SHEET
(Unaudited)
(in thousands, except per unit data)
June 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 584
Receivables and deposits 417
Restricted escrows 369
Other assets 475
Investment properties:
Land $ 3,738
Buildings and related personal property 43,866
47,604
Less accumulated depreciation (28,558) 19,046
$ 20,891
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 126
Tenant security deposit liabilities 105
Accrued property taxes 154
Other liabilities 332
Mortgage notes payable 20,988
Partners' Deficit:
General partner $ (310)
Limited partners (60,517 units
issued and outstanding) (504) (814)
$ 20,891
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
b)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,712 $ 1,784 $ 3,463 $ 3,597
Other income 112 77 185 141
Total revenues 1,824 1,861 3,648 3,738
Expenses:
Operating 715 688 1,419 1,404
General and administrative 160 73 251 144
Depreciation 489 439 973 871
Interest 411 412 831 821
Property taxes 105 106 211 216
Total expenses 1,880 1,718 3,685 3,456
Net (loss) income $ (56) $ 143 $ (37) $ 282
Net (loss) income allocated to
general partner (1%) $ (1) $ 1 $ -- $ 3
Net (loss) income allocated to
limited partners (99%) (55) 142 (37) 279
$ (56) $ 143 $ (37) $ 282
Net (loss) income per limited
partnership unit $ (0.91) $ 2.35 $ (0.61) $ 4.61
Distributions per limited
partnership unit $ 22.97 $ -- $ 42.93 $ 4.91
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
c)
NATIONAL PROPERTY INVESTORS 7
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(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, 1999 60,517 $ (284) $ 2,131 $ 1,847
Distributions to partners -- (26) (2,598) (2,624)
Net loss for the six months
ended June 30, 2000 -- -- (37) (37)
Partners' deficit at
June 30, 2000 60,517 $ (310) $ (504) $ (814)
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
d)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ (37) $ 282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 973 871
Amortization of loan costs 49 55
Change in accounts:
Receivables and deposits (80) 3
Other assets (2) (30)
Accounts payable (40) --
Tenant security deposit liabilities (2) (12)
Accrued property taxes 87 (2)
Other liabilities 31 12
Net cash provided by operating activities 979 1,179
Cash flows from investing activities:
Property improvements and replacements (589) (291)
Net withdrawals from restricted escrows 78 22
Net cash used in investing activities (511) (269)
Cash flows from financing activities:
Payments on mortgage note payable (37) (20)
Loan costs paid (16) --
Distributions to partners (2,624) (300)
Net cash used in financing activities (2,677) (320)
Net (decrease) increase in cash and cash equivalents (2,209) 590
Cash and cash equivalents at beginning of period 2,793 1,074
Cash and cash equivalents at end of period $ 584 $ 1,664
Supplemental disclosure of cash flow information:
Cash paid for interest $ 755 $ 763
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
e)
NATIONAL PROPERTY INVESTORS 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 7
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. (the "Managing General Partner"
or "NPI Equity"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the year ended December 31, 1999.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for payments to
affiliates for 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 its
affiliates during the six month periods ended June 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $180 $191
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 84 94
Non-accountable reimbursement (included in general and
administrative expenses) 126 --
During the six months ended June 30, 2000 and 1999, 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 $180,000 and
$191,000 for the six months ended June 30, 2000 and 1999, respectively.
<PAGE>
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $84,000 and
$94,000 for the six months ended June 30, 2000 and 1999, respectively.
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 $126,000 in reimbursements for the six months ended June 30, 2000.
The Managing General Partner was not entitled to receive a similar reimbursement
during the six months ended June 30, 1999 because there were no distributions
from operations.
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 Chase Manhattan 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.
AIMCO and its affiliates currently own 38,554 limited partnership units in the
Partnership representing 63.71% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by affiliates of the Managing
General Partner, AIMCO, or its affiliates. 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. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. As a result of its ownership of 63.71% of the outstanding
units, AIMCO is in a position to influence all voting decisions with respect to
the Registrant. 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. However,
DeForest Ventures II L.P., from whom AIMCO, through its merger with Insignia,
acquired 25,399 Units, had agreed for the benefit of non-tendering unit holders,
that it would vote its Units: (i) against any increase in compensation payable
to the Managing General Partner or to affiliates; and (ii) on all other matters
submitted by it or its affiliates, in proportion to the votes cast by
non-tendering units holders. Except for the foregoing, no other limitations are
imposed on Insignia Properties, L.P.'s right to vote each Unit acquired.
Note D - Distributions
During the six months ended June 30, 2000, the Partnership declared and paid
distributions of approximately $2,624,000 (approximately $2,598,000 to the
limited partners or $42.93 per limited partnership unit) consisting of
approximately $1,739,000 (approximately $1,722,000 to the limited partners or
$28.45 per limited partnership unit) of cash from operations and approximately
$885,000 (approximately $876,000 to the limited partners or $14.48 per limited
partnership unit) of cash from the refinance proceeds of The Pines Apartments
and from refinancing proceeds in prior years. 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
six months ended June 30, 1999.
<PAGE>
Note E - Refinancing of Mortgage Note Payable
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 which matures on January 1, 2020 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. Additional loan
costs of approximately $16,000 were capitalized during the six months ended June
30, 2000.
Note F - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has one reportable segment:
residential properties. The Partnership's residential property segment consists
of five apartment complexes located in the Southeast. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on segment profit (loss) before depreciation. The accounting policies of
the reportable segment are the same as those of the Partnership as described in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
Factors management used to identify the enterprise's reportable segments: 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 three and six month periods ended June 30, 2000 and
1999, 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>
Three Months Ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 1,712 $ -- $ 1,712
Other income 103 9 112
Interest expense 411 -- 411
Depreciation 489 -- 489
General and administrative expense -- 160 160
Segment profit (loss) 95 (151) (56)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 3,463 $ -- $ 3,463
Other income 168 17 185
Interest expense 831 -- 831
Depreciation 973 -- 973
General and administrative expense -- 251 251
Segment profit (loss) 197 (234) (37)
Total assets 20,678 213 20,891
Capital expenditures for investment
properties 589 -- 589
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 1,784 $ -- $ 1,784
Other income 74 3 77
Interest expense 412 -- 412
Depreciation 439 -- 439
General and administrative expense -- 73 73
Segment profit (loss) 213 (70) 143
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 3,597 $ -- $ 3,597
Other income 134 7 141
Interest expense 821 -- 821
Depreciation 871 -- 871
General and administrative expense -- 144 144
Segment profit (loss) 419 (137) 282
Total assets 22,217 240 22,457
Capital expenditures for investment
properties 291 -- 291
</TABLE>
Note G - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the 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.
The Partnership's investment properties consist of five apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six month periods ended June 30, 2000 and 1999:
Average Occupancy
2000 1999
Fairway View II Apartments 93% 96%
Baton Rouge, Louisiana
The Pines Apartments 97% 95%
Roanoke, Virginia
Patchen Place Apartments 92% 93%
Lexington, Kentucky
Northwoods I and II Apartments 90% 95%
Pensacola, Florida
South Point Apartments 88% 95%
Durham, North Carolina
The Managing General Partner attributes the decrease in occupancy at Fairway
View II Apartments to tenants temporarily moving in during the first six months
of 1999 because of a fire at a neighboring complex owned by an affiliated
Partnership, which inflated occupancy for the period. The Managing General
Partner attributes the decrease in occupancy at Northwoods I and II Apartments
to a current road expansion project. Traffic issues and road barriers have
impacted new prospect traffic as well as the property's curb appeal. The
Managing General Partner attributes the decrease in occupancy at South Point
Apartments to increased competition in the Durham, North Carolina area.
Results of Operations
The Registrant's net loss for the six months ended June 30, 2000 was
approximately $37,000 compared to net income of approximately $282,000 for the
six months ended June 30, 1999. The Registrant's net loss for the three months
ended June 30, 2000 was approximately $56,000 as compared to net income of
approximately $143,000 for the three months ended June 30, 1999. The decrease in
net income for the three and six months ended June 30, 2000 as compared to the
comparable periods in 1999 was due to a decrease in total revenues and an
increase in total expenses. Total revenues decreased due to a decrease in rental
income which was partially offset by an increase in other income. Rental income
decreased primarily due to decreased occupancy at Fairway View II, Northwoods I
and II, Patchen Place, and South Point Apartments, as well as decreased average
rental rates at Fairway View II Apartments. In addition, concessions increased
at Fairway View II, Patchen Place, South Point, and Northwoods I and II
Apartments and bad debt expense increased at Fairway View II, Patchen Place, and
Northwoods I and II Apartments. The increase in other income was primarily due
to an increase in interest income as a result of higher average cash balances in
interest bearing accounts held by the Partnership during 2000.
Total expenses increased for the three and six months ended June 30, 2000 as
compared to the comparable periods in 1999 due to increases in depreciation
expense, general and administrative expenses, and operating expenses.
Depreciation expense increased due to property improvements and replacements
completed during the last twelve months which are now being depreciated. General
and administrative expenses increased primarily due to fees paid to the Managing
General Partner in connection with the distributions from operations made during
the six months ended June 30, 2000. For the six months ended June 30, 1999, no
similar fees were paid because the distribution paid during this period was
entirely from refinancing proceeds. Included in general and administrative
expenses at both June 30, 2000 and 1999, 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. Operating expenses increased primarily due to increased
advertising expenses at all the properties.
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 June 30, 2000, the Partnership had cash and cash equivalents of approximately
$584,000 as compared to approximately $1,664,000 at June 30, 1999. Cash and cash
equivalents decreased by approximately $2,209,000 from the Partnership's year
ended December 31, 1999 due to approximately $2,677,000 of cash used in
financing activities and approximately $511,000 of cash used in investing
activities, which more than offset approximately $979,000 of cash provided by
operating activities. Cash used in financing activities consisted of partner
distributions and, to a lesser extent, the payment of loan costs and payments of
principal made on the mortgage encumbering The Pines Apartments. Cash used in
investing activities consisted of property improvements and replacements which
was partially offset by withdrawals from escrow accounts maintained by the
mortgage lender.
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. Capital improvements
for each of the Registrant's properties are detailed below.
Fairway View II
During the six months ended June 30, 2000, the Partnership completed
approximately $72,000 of capital improvements at Fairway View II, consisting
primarily of carpet and vinyl replacements, structural and other building
improvements. These improvements were funded from Partnership reserves and
operating cash flow. The Partnership has evaluated the capital improvement needs
of the property for the current year and, as a result budgeted approximately
$79,000 for capital improvements, consisting primarily of air conditioning unit
replacement, appliances, carpet and vinyl replacements, and structural
improvements. 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 six months ended June 30, 2000, the Partnership completed
approximately $86,000 of capital improvements at The Pines, consisting primarily
of carpet replacement, parking area improvements, roof replacement, and swimming
pool upgrades. These improvements were funded from operating cash flow. The
Partnership has evaluated the capital improvement needs of the property for the
current year and, as a result budgeted approximately $98,000 for capital
improvements, consisting primarily of parking area improvements, swimming pool
repairs, air conditioning unit replacement, window treatments, appliances, and
carpet replacement. 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 six months ended June 30, 2000, the Partnership completed
approximately $136,000 of capital improvements at Patchen Place, consisting
primarily of carpet and vinyl replacement, electrical upgrades, appliances, and
submetering improvements. These improvements were funded from operating cash
flow. The Partnership has evaluated the capital improvement needs of the
property for the current year and, as a result budgeted approximately $224,000
for capital improvements, consisting primarily of air conditioning unit
replacement, appliances, carpet and vinyl replacement, structural improvements,
and plumbing upgrades. 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 and II
During the six months ended June 30, 2000, the Partnership completed
approximately $268,000 of capital improvements at Northwoods I & II, consisting
primarily of carpet and vinyl replacements, exterior painting, plumbing
upgrades, appliances and structural improvements. These improvements were funded
from Partnership reserves and operating cash flow. The Partnership has evaluated
the capital improvement needs of the property for the current year and, as a
result budgeted approximately $330,000 for capital improvements, consisting
primarily of air conditioning unit replacement, carpet and vinyl replacements,
electrical upgrades, major landscaping, parking lot improvements, appliances,
sprinkler systems, and plumbing upgrades. 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 six months ended June 30, 2000, the Partnership completed
approximately $27,000 of capital improvements at South Point, consisting
primarily of carpet and vinyl replacement, golf carts, and appliances. These
improvements were funded from operating cash flow. The Partnership has evaluated
the capital improvement needs of the property for the current year and, as a
result budgeted approximately $59,000 for capital improvements, consisting
primarily of appliances and carpet and vinyl replacement. 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 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 which matures on January 1, 2020 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. Additional loan
costs of approximately $16,000 were capitalized during the six months ended June
30, 2000.
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 $4,188,000 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.
During the six months ended June 30, 2000, the Partnership declared and paid
distributions of approximately $2,624,000 (approximately $2,598,000 to the
limited partners or $42.93 per limited partnership unit) consisting of
approximately $1,739,000 (approximately $1,722,000 to the limited partners or
$28.45 per limited partnership unit) of cash from operations and approximately
$885,000 (approximately $876,000 to the limited partners or $14.48 per limited
partnership unit) of cash from the refinance proceeds of The Pines Apartments
and from refinancing proceeds in prior years. 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
six months ended June 30, 1999. 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 during the remainder of 2000 or subsequent
periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. 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 owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, 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 prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K filed during the second quarter of 2000:
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 7
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
