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, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-14554
NATIONAL PROPERTY INVESTORS 8
(Exact name of small business issuer as specified in its charter)
California 13-3254885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 8
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 2,248
Receivables and deposits 244
Restricted escrows 60
Other assets 187
Investment properties:
Land $ 1,970
Buildings and related personal property 28,623
30,593
Less accumulated depreciation (16,896) 13,697
$16,436
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 65
Tenant security deposit liabilities 68
Accrued property taxes 427
Other liabilities 183
Mortgage notes payable 10,823
Partners' Capital (Deficit)
General partner $ (174)
Limited partners (44,882 units issued and
outstanding) 5,044 4,870
$16,436
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 8
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $1,116 $1,092 $2,246 $2,189
Other income 77 111 151 243
Total revenues 1,193 1,203 2,397 2,432
Expenses:
Operating 408 489 805 872
General and administrative 40 46 80 86
Interest 229 231 459 463
Depreciation 307 296 608 591
Property taxes 128 112 241 238
Total expenses 1,112 1,174 2,193 2,250
Net income $ 81 $ 29 $ 204 $ 182
Net income allocated to
general partner (1%) $ 1 $ -- $ 2 $ 2
Net income allocated to
limited partners (99%) 80 29 202 180
$ 81 $ 29 $ 204 $ 182
Net income per limited
partnership unit $ 1.78 $ .65 $ 4.50 $ 4.01
Distribution per limited
partnership unit $ -- $ -- $18.76 $ --
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 8
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 44,882 $ 1 $22,441 $22,442
Partners' (deficit) capital at
December 31, 1998 44,882 $ (168) $ 5,684 $ 5,516
Distribution to partners -- (8) (842) (850)
Net income for the six
months ended June 30, 1999 -- 2 202 204
Partners' (deficit) capital at
June 30, 1999 44,882 $ (174) $ 5,044 $ 4,870
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 8
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 204 $ 182
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 608 591
Amortization of loan costs 19 19
Change in accounts:
Receivables and deposits 37 41
Other assets (29) 16
Accounts payable 11 37
Tenant security deposit liabilities 2 (1)
Accrued property taxes (43) (43)
Other liabilities 16 (18)
Net cash provided by operating activities 825 824
Cash flows from investing activities:
Property improvements and replacements (164) (182)
Net withdrawals from (deposits to) restricted
escrows 726 (78)
Net cash provided by (used in) investing
activities 562 (260)
Cash flows from financing activities:
Payments on mortgage notes payable (35) (32)
Distribution to partners (850) --
Net cash used in financing activities (885) (32)
Net increase in cash and cash equivalents 502 532
Cash and cash equivalents at beginning of period 1,746 1,777
Cash and cash equivalents at end of period $2,248 $2,309
Supplemental disclosure of cash flow information:
Cash paid for interest $ 441 $ 444
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 8
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of National Property Investors 8
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the year ended December 31, 1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and Insignia
Properties Trust merged into Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the
surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100%
ownership interest in the Managing General Partner. The Managing General Partner
does not believe that this transaction will have a material effect on the
affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were made to
the Managing General Partner and affiliates during the six months ended June 30,
1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expense) $122 $120
Reimbursement for services of affiliates (included in
investment properties and operating and general and
administrative expenses) 50 53
During the six months ended June 30, 1999 and 1998 affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from both of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $122,000 and $120,000 for the
six months ended June 30, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $50,000 and
$53,000 for the six months ended June 30, 1999 and 1998, respectively, including
approximately $5,000 in construction service costs for the six months ended June
30, 1999. There were no construction service costs incurred during the six
months ended June 30, 1998.
The Managing General Partner has established a revolving credit facility (the
"Partnership Revolver") to be used to fund deferred maintenance and working
capital needs of the Partnership. The maximum draw available to the Partnership
under the Partnership Revolver is $500,000. Loans under the Partnership
Revolver 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
(whether or not a borrowing under the Partnership Revolver was made with respect
to such property); or (iii) the liquidation of the Partnership. The Partnership
has not borrowed under the Partnership Revolver, to date.
On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,588.73 (approximately
28.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $235 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 1,648.00
units. As a result, AIMCO and its affiliates currently own 18,724.00 units of
limited partnership interest in the Partnership representing approximately
41.72% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO.
NOTE D - DISTRIBUTIONS
During the six months ended June 30, 1999, the Registrant made a distribution of
approximately $850,000 (approximately $842,000 to the limited partners or $18.76
per limited partnership unit) from refinancing and property sale proceeds from
prior years.
NOTE E - SEGMENT REPORTING
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes
in Indianapolis, Indiana and Morrisville, North Carolina. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
The Partnership's reportable segment consists of 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 six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 2,246 $ -- $ 2,246
Other income 134 17 151
Interest expense 459 -- 459
Depreciation 608 -- 608
General and administrative expense -- 80 80
Segment profit (loss) 267 (63) 204
Total assets 15,754 682 16,436
Capital expenditures for investment
properties 164 -- 164
1998
Residential Other Totals
Rental income $ 2,189 $ -- $ 2,189
Other income 178 65 243
Interest expense 463 -- 463
Depreciation 591 -- 591
General and administrative expense -- 86 86
Segment profit (loss) 203 (21) 182
Total assets 15,733 2,261 17,994
Capital expenditures for investment
properties 182 -- 182
NOTE F - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the 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 two apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Williamsburg on the Lake Apartments
Indianapolis, Indiana 94% 95%
Huntington Athletic Club Apartments
Morrisville, North Carolina 92% 91%
Results of Operations
The Registrant's net income for the six months ended June 30, 1999, was
approximately $204,000 as compared to approximately $182,000 for the six months
ended June 30, 1998. The Registrant's net income for the three months ended June
30, 1999, was approximately $81,000 as compared to approximately $29,000 for the
three months ended June 30, 1998. The increase in net income for the three and
six month periods ended June 30, 1999 was due to a decrease in total expenses
which was partially offset by a decrease in total revenues. Total expenses
decreased due to a decrease in operating expenses which was partially offset by
an increase in depreciation expense. Operating expenses decreased primarily due
to decreases in salary expenses at Huntington Athletic Club, expenses associated
with fully furnished units leased to corporations at Huntington Athletic Club
and reduced maintenance costs due to the completion of a major landscaping
project in 1998 at Huntington Athletic Club Apartments. In addition, insurance
expense decreased at both of the Partnership's properties due to a change in
insurance carriers. Depreciation expense increased due to property additions
during the second half of 1998 and the first half of 1999 which are now being
depreciated.
Total revenues decreased due to a decrease in other income which more than
offset an increase in rental income. Other income decreased due to the receipt
during the six months ended June 30, 1998 of litigation proceeds in settlement
of an action against a vendor for installation of defective piping at the
Huntington Athletic Club Apartments. In addition, interest income decreased due
to lower average replacement reserve and cash balances in interest-bearing
accounts, income associated with renting fully furnished units to corporations
decreased at Huntington Athletic Club, and tenant charges decreased at both of
the Partnership's properties. Rental income increased due to increased average
rental rates at both the Partnership's properties and improved occupancy at
Huntington Athletic Club Apartments which was partially offset by reduced
occupancy at Williamsburg on the Lake Apartments.
General and administrative expenses remained stable over the comparable periods.
Included in general and administrative expenses at both June 30, 1999 and 1998,
are management reimbursements to the Managing General Partner allowed under the
Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Registrant from increases in expenses. 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, 1999, the Partnership held cash and cash equivalents of
approximately $2,248,000 compared to approximately $2,309,000 at June 30, 1998.
The increase of approximately $502,000 in cash and cash equivalents since the
Partnership's year ended December 31, 1998 is due to approximately $825,000 of
cash provided by operating activities and approximately $562,000 of cash
provided by investing activities, which were partially offset by approximately
$885,000 of cash used in financing activities. Cash provided by investing
activities consisted of withdrawals from escrow accounts maintained by the
mortgage lender which was partially offset by property improvements and
replacements. Cash used in financing activities consisted primarily of a
distribution to the partners, and to a lessor extent, of payments of principal
made on the mortgage encumbering Huntington Athletic Club Apartments. The
Registrant invests its working capital reserves in a money market account.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. At June 30, 1999 and 1998, the Partnership had 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 unrestricted 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 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
planned for each of the Registrant's properties are detailed below.
Williamsburg on the Lake Apartments
During the six months ended June 30, 1999, the Partnership expended
approximately $132,000 on capital improvements, consisting primarily of
carpeting and vinyl replacement, air conditioning units, electrical upgrades,
landscaping, appliances, and structural improvements. These improvements were
funded from Partnership reserves. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that the property requires approximately $365,000 of capital improvements over
the next few years. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $457,000 for 1999, which include certain
of the required improvements, and consist of, carpeting and vinyl replacement,
landscaping improvements, grounds lighting, air conditioning units, parking lot
repairs, and other structural improvements.
Huntington Athletic Club Apartments
During the six months ended June 30, 1999, the Partnership expended
approximately $32,000 on capital improvements, consisting primarily of carpet
and vinyl replacement and appliances. These improvements were funded from
operating cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $103,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $111,000 for 1999, which include certain of the
required improvements, and consist of carpet and vinyl replacement and other
structural improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. Huntington
Athletic Club Apartment's mortgage indebtedness of approximately $3,423,000 is
amortized over 300 months with a balloon payment of approximately $3,211,000 due
in February 2002. The mortgage encumbering the Williamsburg on the Lake
Apartments requires interest only payments with the principal balance of
$7,400,000 due in November 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, 1999, the Registrant made a distribution of
approximately $850,000 (approximately $842,000 to the limited partners or $18.76
per limited partnership unit) from refinancing and property sale proceeds from
prior years. No such distributions were made to the partners during the six
months ended June 30, 1998. 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 Registrant will generate sufficient funds
from operations after required capital improvements to permit further
distributions to its partners in 1999 or subsequent periods.
Tender Offer
On June 2, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,588.73 (approximately
28.05% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $235 per unit. The offer expired on
July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 1,648.00
units. As a result, AIMCO and its affiliates currently own 18,724.00 units of
limited partnership interest in the Partnership representing approximately
41.72% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
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:
No reports were filed during the three months ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 8
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors 8 Second Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000763701
<NAME> NATIONAL PROPERTY INVESTORS 8
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,248
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 30,593
<DEPRECIATION> 16,896
<TOTAL-ASSETS> 16,436
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,823
0
0
<COMMON> 0
<OTHER-SE> 4,870
<TOTAL-LIABILITY-AND-EQUITY> 16,436
<SALES> 0
<TOTAL-REVENUES> 2,397
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-BASIC> 4.50<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
