FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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)
September 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 627
Receivables and deposits 472
Restricted escrows 322
Other assets 482
Investment properties:
Land $ 3,738
Buildings and related personal property 44,099
47,837
Less accumulated depreciation (29,066) 18,771
$ 20,674
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 91
Tenant security deposit liabilities 104
Accrued property taxes 273
Other liabilities 273
Mortgage notes payable 20,965
Partners' Deficit:
General partner $ (313)
Limited partners (60,517 units
issued and outstanding) (719) (1,032)
$ 20,674
</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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,813 $ 1,808 $ 5,276 $ 5,405
Other income 99 70 284 211
Total revenues 1,912 1,878 5,560 5,616
Expenses:
Operating 681 710 2,100 2,114
General and administrative 146 45 397 189
Depreciation 508 450 1,481 1,321
Interest 411 409 1,242 1,230
Property taxes 119 103 330 319
Total expenses 1,865 1,717 5,550 5,173
Net income $ 47 $ 161 $ 10 $ 443
Net income allocated to
general partner (1%) $ -- $ 2 $ -- $ 4
Net income allocated to
limited partners (99%) 47 159 10 439
$ 47 $ 161 $ 10 $ 443
Net income per limited
partnership unit $ 0.78 $ 2.63 $ 0.17 $ 7.25
Distributions per limited
partnership unit $ 4.33 $ -- $ 47.26 $ 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 -- (29) (2,860) (2,889)
Net income for the nine months
ended September 30, 2000 -- -- 10 10
Partners' deficit at
September 30, 2000 60,517 $ (313) $ (719) $(1,032)
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
d)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 10 $ 443
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,481 1,321
Amortization of loan costs 70 83
Change in accounts:
Receivables and deposits (135) 48
Other assets (30) (62)
Accounts payable (75) 45
Tenant security deposit liabilities (3) (12)
Accrued property taxes 206 (31)
Other liabilities (28) (8)
Net cash provided by operating activities 1,496 1,827
Cash flows from investing activities:
Property improvements and replacements (822) (523)
Net withdrawals from (deposits to) restricted escrows 125 (49)
Net cash used in investing activities (697) (572)
Cash flows from financing activities:
Payments on mortgage note payable (60) (30)
Loan costs paid (16) --
Distributions to partners (2,889) (300)
Net cash used in financing activities (2,965) (330)
Net (decrease) increase in cash and cash equivalents (2,166) 925
Cash and cash equivalents at beginning of period 2,793 1,074
Cash and cash equivalents at end of period $ 627 $ 1,999
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,145 $ 1,144
</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 nine month periods ended September 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 nine month periods ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $272 $285
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 193 139
Non-accountable reimbursement (included in general and
administrative expenses) 91 --
Partnership management fee (included in general and
administrative expenses) 40 --
During the nine months ended September 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
$272,000 and $285,000 for the nine months ended September 30, 2000 and 1999,
respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $193,000 and
$139,000 for the nine months ended September 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 $91,000 in reimbursements for the nine months ended September 30,
2000. The Managing General Partner was not entitled to receive a similar
reimbursement during the nine months ended September 30, 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 $40,000
during the nine months ended September 30, 2000 for such fees. The Managing
General Partner was not entitled to receive a similar reimbursement during the
nine months ended September 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.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 39,584.33 limited
partnership units in the Partnership representing 65.41% 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, which would include without
limitation, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General Partner. As a result of its ownership of 65.41%
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 (approximately 41.97%), 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 all other 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 nine months ended September 30, 2000, the Partnership declared and
paid distributions of approximately $2,889,000 (approximately $2,860,000 to the
limited partners or $47.26 per limited partnership unit) consisting of
approximately $2,004,000 (approximately $1,984,000 to the limited partners or
$32.78 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. Subsequent to September 30, 2000,
the Partnership declared and paid a distribution of approximately $290,000
(approximately $287,000 to the limited partners or $4.74 per limited partnership
unit) consisting of cash from operations. 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
nine months ended September 30, 1999.
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 nine months ended
September 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.
Note F - Segment Reporting (continued)
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 nine month periods ended September 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 September 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 1,813 $ -- $ 1,813
Other income 98 1 99
Interest expense 411 -- 411
Depreciation 508 -- 508
General and administrative expense -- 146 146
Segment profit (loss) 192 (145) 47
Nine Months Ended September 30, 2000 Residential Other Totals
Rental income $ 5,276 $ -- $ 5,276
Other income 266 18 284
Interest expense 1,242 -- 1,242
Depreciation 1,481 -- 1,481
General and administrative expense -- 397 397
Segment profit (loss) 389 (379) 10
Total assets 20,523 151 20,674
Capital expenditures for investment
properties 822 -- 822
Three Months Ended September 30, 1999 Residential Other Totals
Rental income $ 1,808 $ -- $ 1,808
Other income 69 1 70
Interest expense 409 -- 409
Depreciation 450 -- 450
General and administrative expense -- 45 45
Segment profit (loss) 205 (44) 161
Nine Months Ended September 30, 1999 Residential Other Totals
Rental income $ 5,405 $ -- $ 5,405
Other income 203 8 211
Interest expense 1,230 -- 1,230
Depreciation 1,321 -- 1,321
General and administrative expense -- 189 189
Segment profit (loss) 624 (181) 443
Total assets 22,408 196 22,604
Capital expenditures for investment
properties 523 -- 523
</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 is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. 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 nine month periods ended September 30, 2000 and 1999:
Average Occupancy
2000 1999
Fairway View II Apartments 93% 96%
Baton Rouge, Louisiana
The Pines Apartments 97% 96%
Roanoke, Virginia
Patchen Place Apartments 92% 93%
Lexington, Kentucky
Northwoods I and II Apartments 92% 95%
Pensacola, Florida
South Point Apartments 91% 93%
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 nine months
of 1999 because of a fire at a neighboring complex owned by an affiliated
Partnership, which inflated occupancy for the period and to students moving out
due to a local employer no longer offering an intern program. 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.
Results of Operations
The Registrant's net income for the nine months ended September 30, 2000 was
approximately $10,000 compared to net income of approximately $443,000 for the
nine months ended September 30, 1999. The Registrant's net income for the three
months ended September 30, 2000 was approximately $47,000 as compared to net
income of approximately $161,000 for the three months ended September 30, 1999.
The decrease in net income for the nine months ended September 30, 2000 as
compared to the comparable period in 1999 was due to a decrease in total
revenues and an increase in total expenses. The decrease in net income for the
three month period ended September 30, 2000 as compared to the comparable period
in 1999 was due to an increase in total expenses which was partially offset by
an increase in total revenues. Total revenues decreased for the nine months
ended September 30, 2000 due to a decrease in rental income which was partially
offset by an increase in other income. Total revenues increased for the three
month period ended September 30, 2000 due to an increase in rental income and
other income. Rental income decreased for the nine months ended September 30,
2000 primarily due to decreased occupancy at Fairway View II, Northwoods I and
II, Patchen Place, and South Point Apartments, as well as increased concessions
at Fairway View II, South Point, and Northwoods I and II Apartments and
increased bad debt expense at all of the Partnership's properties. These
decreases were partially offset by increased rental rates at all the
Partnership's properties. Rental income increased for the three months ended
September 30, 2000 primarily due to increased average rental rates at Patchen
Place and South Point Apartments as well as decreased concessions at Patchen
Place Apartments. The increase in other income for the three and nine month
periods ended September 30, 2000 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 and increased telephone commissions
primarily at Fairway View II Apartments and Northwoods Apartments.
Total expenses increased for the three and nine months ended September 30, 2000
as compared to the comparable periods in 1999 due to increases in depreciation
expense and general and administrative 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 nine months
ended September 30, 2000. For the nine months ended September 30, 1999, no
similar fees were paid because no distributions were paid during this period
from operations. General and administrative expenses also increased due to an
increase in the cost of services included in the management reimbursements to
the Managing General Partner as allowed under the Partnership Agreement.
Included in general and administrative expenses at both September 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.
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 September 30, 2000, the Partnership had cash and cash equivalents of
approximately $627,000 as compared to approximately $1,999,000 at September 30,
1999. Cash and cash equivalents decreased by approximately $2,166,000 from the
Partnership's year ended December 31, 1999 due to approximately $2,965,000 of
cash used in financing activities and approximately $697,000 of cash used in
investing activities, which more than offset approximately $1,496,000 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 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. Capital improvements
for each of the Registrant's properties are detailed below.
Fairway View II
During the nine months ended September 30, 2000, the Partnership completed
approximately $105,000 of budgeted and non-budgeted capital improvements at
Fairway View II, consisting primarily of carpet and vinyl replacements,
structural improvements, and clubhouse renovations. 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 $82,000 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 nine months ended September 30, 2000, the Partnership completed
approximately $116,000 of budgeted and non-budgeted capital improvements at The
Pines, consisting primarily of carpet replacement, parking area improvements,
cabinet upgrades, 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 upgrades, 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 nine months ended September 30, 2000, the Partnership completed
approximately $206,000 of capital improvements at Patchen Place, consisting
primarily of carpet and vinyl replacement, submetering improvements, appliances,
air conditioning unit replacement, and plumbing enhancements. 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 $227,000 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 nine months ended September 30, 2000, the Partnership completed
approximately $347,000 of budgeted and non-budgeted capital improvements at
Northwoods I & II, consisting primarily of air conditioning unit replacement,
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 $362,000 for capital improvements, consisting primarily of air
conditioning unit replacement, carpet and vinyl replacements, electrical
upgrades, major landscaping, parking lot improvements, appliances, sprinkler
systems, interior decoration, 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 nine months ended September 30, 2000, the Partnership completed
approximately $48,000 of budgeted and non-budgeted capital improvements at South
Point, consisting primarily of carpet and vinyl replacement, golf carts, cabinet
replacements, and appliances. 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 $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 nine months ended
September 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 $4,165,000 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 nine months ended September 30, 2000, the Partnership declared and
paid distributions of approximately $2,889,000 (approximately $2,860,000 to the
limited partners or $47.26 per limited partnership unit) consisting of
approximately $2,004,000 (approximately $1,984,000 to the limited partners or
$32.78 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. Subsequent to September 30, 2000,
the Partnership declared and paid a distribution of approximately $290,000
(approximately $287,000 to the limited partners or $4.74 per limited partnership
unit) consisting of cash from operations. 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
nine months ended September 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 quarterly 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 is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. 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 third 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:
