FORM 10-QSB---QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________to _________
Commission file number 0-14554
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)
September 30, 1999
Assets
Cash and cash equivalents $ 1,347
Receivables and deposits 376
Restricted escrows 93
Other assets 193
Investment properties:
Land $ 1,970
Buildings and related personal property 28,723
30,693
Less accumulated depreciation (17,207) 13,486
$ 15,495
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 29
Tenant security deposit liabilities 70
Accrued property taxes 559
Other liabilities 182
Mortgage notes payable 10,805
Partners' (Deficit) Capital
General partner $ (185)
Limited partners (44,882 units
issued and outstanding) 4,035 3,850
$ 15,495
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 8
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,080 $ 1,154 $ 3,326 $ 3,343
Other income 83 121 234 364
Total revenues 1,163 1,275 3,560 3,707
Expenses:
Operating 434 519 1,239 1,391
General and administrative 62 106 142 192
Interest 229 231 688 694
Depreciation 311 303 919 894
Property taxes 123 122 364 360
Total expenses 1,159 1,281 3,352 3,531
Net income (loss) $ 4 $ (6) $ 208 $ 176
Net income (loss) allocated
to general partner (1%) $ -- $ -- $ 2 $ 2
Net income (loss) allocated
to limited partners (99%) 4 (6) 206 174
$ 4 $ (6) $ 208 $ 176
Net income (loss) per limited
partnership unit $ .09 $ (.13) $ 4.59 $ 3.88
Distribution per limited
partnership unit $ 22.57 $ 22.06 $ 41.33 $ 22.06
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 8
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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 -- (19) (1,855) (1,874)
Net income for the nine months
ended September 30, 1999 -- 2 206 208
Partners' (deficit) capital
at September 30, 1999 44,882 $ (185) $ 4,035 $ 3,850
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 8
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income $ 208 $ 176
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 919 894
Amortization of loan costs 28 28
Change in accounts:
Receivables and deposits (95) (52)
Other assets (44) 17
Accounts payable (25) 18
Tenant security deposit liabilities 4 (2)
Accrued property taxes 89 79
Other liabilities 15 (16)
Net cash provided by operating activities 1,099 1,142
Cash flows from investing activities:
Property improvements and replacements (264) (279)
Net withdrawals from (deposits to) restricted escrows 693 (126)
Net cash provided by(used in) investing
activities 429 (405)
Cash flows from financing activities:
Payments on mortgage notes payable (53) (49)
Distributions to partners (1,874) (1,000)
Net cash used in financing activities (1,927) (1,049)
Net decrease in cash and cash equivalents (399) (312)
Cash and cash equivalents at beginning of period 1,746 1,777
Cash and cash equivalents at end of period $ 1,347 $ 1,465
Supplemental disclosure of cash flow information:
Cash paid for interest $ 661 $ 666
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 nine month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the 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 nine months ended
September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $181 $181
Reimbursement for services of affiliates (included in
investment properties and operating and general and
administrative expenses) $ 81 $ 82
Non-accountable partnership reimbursement (included in
general and administrative expense) $ 26 $ 67
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from both
of the Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $181,000 for both the nine
months ended September 30, 1999 and 1998.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $81,000 and
$82,000 for the nine months ended September 30, 1999 and 1998, respectively.
Included in these expenses is approximately $9,000 and $5,000 in construction
service costs for the nine months ended September 30, 1999 and 1998,
respectively.
For services relating to the administration of the Partnership and operation of
its properties, the Managing General Partner is entitled to receive payment for
non-accountable expenses up to a maximum of $150,000 per year out of
distributions from operations based upon the number of Partnership units sold,
subject to certain limitations. The Managing General Partner received
approximately $26,000 and $67,000 for the nine months ended September 30, 1999
and 1998, respectively, for non-accountable expense reimbursements.
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 19,966.00 units of
limited partnership interest in the Partnership representing approximately
44.49% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Note F - Legal Proceedings").
NOTE D - DISTRIBUTIONS
During the nine months ended September 30, 1999, the Registrant made
distributions of approximately $266,000 (approximately $263,000 to the limited
partners or $5.86 per limited partnership unit) from operations and
approximately $1,608,000 (approximately $1,592,000 to the limited partners or
$35.47 per limited partnership unit) from refinancing and property sale proceeds
from prior years. During the nine months ended September 30, 1998, the
Registrant made distributions of approximately $1,000,000 (approximately
$990,000 to the limited partners or $22.06 per limited partnership unit) from
operations.
NOTE E - SEGMENT REPORTING
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes
one in Indianapolis, Indiana and the other in 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 nine months ended September 30, 1999 and 1998, is
shown in the tables below (in thousands). The "Other" column includes
partnership administration related items and income and expense not allocated to
the reportable segment.
1999 Residential Other Totals
Rental income $ 3,326 $ -- $ 3,326
Other income 212 22 234
Interest expense 688 -- 688
Depreciation 919 -- 919
General and administrative expense -- 142 142
Segment profit (loss) 328 (120) 208
Total assets 15,387 108 15,495
Capital expenditures for investment
properties 264 -- 264
1998 Residential Other Totals
Rental income $ 3,343 $ -- $ 3,343
Other income 265 99 364
Interest expense 694 -- 694
Depreciation 894 -- 894
General and administrative expense -- 192 192
Segment profit (loss) 269 (93) 176
Total assets 15,877 1,198 17,075
Capital expenditures for investment
properties 279 -- 279
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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The complaint seeks monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June
25, 1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed
and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the general partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the 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
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the nine
months ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Williamsburg on the Lake Apartments 93% 96%
Indianapolis, Indiana
Huntington Athletic Club Apartments 92% 93%
Morrisville, North Carolina
The Managing General Partner attributes the decrease in occupancy at
Williamsburg on the Lake Apartments to a decline in market conditions in the
immediate area. Additionally, the guard house at the main entry to the community
experienced a fire which has impacted the drive-by curb appeal of the property.
The guard house is currently being repaired.
Results of Operations
The Registrant's net income for the nine months ended September 30, 1999, was
approximately $208,000 as compared to approximately $176,000 for the nine months
ended September 30, 1998. The Registrant's net income for the three months
ended September 30, 1999, was approximately $4,000 as compared to a net loss of
approximately $6,000 for three months ended September 30, 1998. The increase in
net income for the three and nine month periods ended September 30, 1999 was due
to a decrease in total expenses which was more than offset a decrease in total
revenues.
Total revenues decreased for the nine months ended September 30, 1999 primarily
due to decreased other income and to a lesser extent to decreased rental income.
Total revenues decreased for the three months ended September 30, 1999 due to
decreased rental income and other income. Rental income decreased due to
decreased occupancy and increased concessions at both of the Partnership's
properties which were partially offset by increased average annual rental rates
at both of the Partnership's properties. Other income decreased due to the
receipt during 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 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.
Total expenses decreased due to a decrease in operating expenses and general and
administrative expenses which were partially offset by an increase in
depreciation expense. Operating expenses decreased primarily due to decreased
salary expenses at Huntington Athletic Club, decreased expenses associated with
fully furnished units leased to corporations at Huntington Athletic Club and
reduced maintenance costs due to the completion of major landscaping projects in
1998 at Huntington Athletic Club Apartments and Williamsburg on the Lake
Apartments. In addition, insurance expense decreased at both of the
Partnership's properties due to lower rates received from a new insurance
carrier late in 1998. General and administrative expenses decreased over the
comparable periods due to decreased nonaccountable partnership reimbursement
paid to the Managing General Partner from distributions from operations as
provided in the Partnership Agreement. Included in general and administrative
expenses at both September 30, 1999 and 1998 are management reimbursements to
the Managing General Partner allowed under the Partnership Agreement. In
addition, costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included. Depreciation expense increased due to
property additions during the past twelve months which are now being
depreciated.
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 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 September 30, 1999, the Partnership held cash and cash equivalents of
approximately $1,347,000 compared to approximately $1,465,000 at September 30,
1998. The decrease of approximately $399,000 in cash and cash equivalents since
the Partnership's year ended December 31, 1998 is due to approximately
$1,927,000 of cash used in financing activities, which was partially offset by
approximately $1,099,000 of cash provided by operating activities and
approximately $429,000 of cash provided by investing activities. Cash used in
financing activities consisted of distributions to the partners, and to a lessor
extent, payments of principal made on the mortgage encumbering Huntington
Athletic Club Apartments. Cash provided by investing activities consisted of net
withdrawals from escrow accounts maintained by the mortgage lender which was
partially offset by property improvements and replacements.
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
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 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.
Williamsburg on the Lake Apartments
During the nine months ended September 30, 1999, the Partnership expended
approximately $219,000 on capital improvements consisting primarily of carpet
and vinyl replacement, air conditioning unit replacements, electrical upgrades,
landscaping, appliances, and structural improvements. The landscaping and air
conditioning unit replacements were approximately 75% complete as of September
30, 1999. 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 unit replacements, parking lot resurfacing, and other structural
improvements.
Huntington Athletic Club Apartments
During the nine months ended September 30, 1999, the Partnership expended
approximately $45,000 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 $3,405,000 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 nine months ended September 30, 1999, the Registrant made
distributions of approximately $266,000 (approximately $263,000 to the limited
partners or $5.86 per limited partnership unit) from operations and
approximately $1,608,000 (approximately $1,592,000 to the limited partners or
$35.47 per limited partnership unit) from refinancing and property sale proceeds
from prior years. During the nine months ended September 30, 1998, the
Registrant made distributions of approximately $1,000,000 (approximately
$990,000 to the limited partners or $22.06 per limited partnership unit) from
operations. 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 during the remainder of 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 19,966.00 units of
limited partnership interest in the Partnership representing approximately
44.49% of the total outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO (see "Item 1. Financial Statements, Note F -
Legal Proceedings").
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed
and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject
to final court approval, on behalf of the Partnership and all limited partners
who own units as of November 3, 1999. The Court has preliminarily approved the
Settlement and scheduled a final approval hearing for December 10, 1999. In
exchange for a release of all claims, the Stipulation provides that, among other
things, an affiliate of the general partner will make tender offers for all
outstanding limited partnership interests in 49 partnerships, including the
Registrant, subject to the terms and conditions set forth in the Stipulation,
and has agreed to establish a reserve to pay an additional amount in settlement
to qualifying class members (the "Settlement Fund"). At the final approval
hearing, Plaintiffs' counsel will make an application for attorneys' fees and
reimbursement of expenses, to be paid in part by the partnerships and in part
from the Settlement Fund. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 8
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors 8 1999 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,347
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 30,693
<DEPRECIATION> 17,207
<TOTAL-ASSETS> 15,495
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,805
0
0
<COMMON> 0
<OTHER-SE> 3,850
<TOTAL-LIABILITY-AND-EQUITY> 15,495
<SALES> 0
<TOTAL-REVENUES> 3,560
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 688
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-BASIC> 4.59<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
