-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GK1dgGO3t2hHlXjDYGfLoDeQf1X7ABtlJU5odgyhyji+03Pg8idF9mTJE1EAUfCn 91Fe87NCO33QCRkVouV/Ug== 0000711642-01-000020.txt : 20010326 0000711642-01-000020.hdr.sgml : 20010326 ACCESSION NUMBER: 0000711642-01-000020 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL PROPERTY INVESTORS 7 CENTRAL INDEX KEY: 0000732439 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133230613 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-13454 FILM NUMBER: 1578023 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 0001.txt FORM 10-KSB Form 10-KSB--Annual or Transitional Report Under Section 13 or 15(d) Form 10-KSB (Mark One) [X]ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 2000 [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period _________to _________ Commission file number 0-13454 NATIONAL PROPERTY INVESTORS 7 (Name of small business issuer in its charter) California 13-3230613 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $7,523,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2000. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE PART I Item 1. Description of Business National Property Investors 7 (the "Partnership" or "Registrant") is a California limited partnership formed in October 1983. The Partnership is engaged in the business of operating and holding real estate properties for investment. NPI Equity Investments, Inc., a Florida corporation, became the Registrant's managing general partner (the "Managing General Partner" or "NPI Equity") on December 20, 1991. The Managing General Partner was a subsidiary of National Property Investors, Inc. ("NPI") until December 31, 1996, at which time Insignia Properties Trust ("IPT") acquired the stock of NPI Equity. On October 1, 1998, IPT merged into Apartment Investment and Management Company ("AIMCO") (see "Transfer of Control" below). The partnership agreement provides that the Partnership is to terminate on December 31, 2008, unless terminated prior to such date. From February 1984 through February 1985, the Partnership offered, pursuant to a Registration Statement filed with the Securities and Exchange Commission, 100,000 limited partnership units at $500 per unit for an aggregate of $50,000,000 and sold 60,517 units providing net proceeds of $30,259,000. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The net proceeds of this offering were used to purchase seven income producing residential real estate properties. The Partnership's original property portfolio was geographically diversified with properties acquired in six states. One property was sold and another was foreclosed on in 1994. The Registrant continues to own and operate the remaining five properties (see "Item 2. Description of Properties"). There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Registrant received notice that it is a potentially responsible party with respect to an environmental clean up site. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. The Partnership has no full time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. The limited partners have no right to participate in the management or conduct of such business and affairs. An affiliate of the Managing General Partner provides day-to-day management services to the Partnership's investment properties. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Registrant's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner, in such market area could have a material effect on the rental market for the apartments at the Registrant's properties and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Item 2. Description of Properties The following table sets forth the Partnership's investment in properties:
Date of Property Purchase Type of Ownership Use Fairway View II Apartments 11/84 Fee ownership subject to Apartment Baton Rouge, Louisiana first mortgage 204 units The Pines Apartments 04/85 Fee ownership subject to Apartment Roanoke, Virginia first mortgage 216 units Patchen Place Apartments 07/85 Fee ownership subject to Apartment Lexington, Kentucky first mortgage 202 units Northwoods I & II Apartments 07/85 Fee ownership subject to Apartment Pensacola, Florida first mortgage 320 units South Point Apartments 03/86 Fee ownership subject to Apartment Durham, North Carolina first mortgage 180 units
Schedule of Properties Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation, and Federal tax basis.
Carrying Accumulated Federal Properties Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Fairway View II $10,729 $ 6,080 5-27.5 yrs S/L $ 1,914 The Pines 8,354 5,424 5-27.5 yrs S/L 1,571 Patchen Place 9,109 6,311 5-27.5 yrs S/L 2,008 Northwoods I & II 10,277 6,113 5-27.5 yrs S/L 2,140 South Point 9,527 5,646 5-27.5 yrs S/L 2,390 Total $47,996 $29,574 $10,023
See "Item 7. Financial Statements, Note A" for a description of the Partnership's depreciation policy. Schedule of Properties Indebtedness The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2000 Rate Amortized Date Maturity (2) (in thousands) (in thousands) Fairway View II $ 4,200 7.33% (1) 11/01/03 $ 4,200 The Pines 4,143 7.97% 20 yrs 01/01/20 -- Patchen Place 3,000 7.33% (1) 11/01/03 3,000 Northwoods I & II 5,000 7.33% (1) 11/01/03 5,000 South Point 4,600 7.33% (1) 11/01/03 4,600 Total $20,943 $16,800
(1) Loan requires payments of interest only. (2) See "Item 7. Financial Statements - Note C" for information with respect to the Registrant's ability to prepay these loans and other specific details about the loans. On December 13, 1999, the Partnership refinanced the mortgage encumbering The Pines Apartments. The refinancing replaced indebtedness of approximately $3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new loan which matures on January 1, 2020 requires monthly principal and interest payments and is scheduled to be fully amortized at maturity. 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 year ended December 31, 2000. Rental Rates and Occupancy Average annual rental rates and occupancy for 2000 and 1999 for each property:
Average Annual Average Rental Rate Occupancy (per unit) Property 2000 1999 2000 1999 Fairway View II $6,489 $6,730 93% 95% The Pines 7,165 6,936 97% 97% Patchen Place 6,918 6,811 93% 93% Northwoods I & II 6,357 6,279 93% 94% South Point 8,520 8,318 92% 92%
As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates Real estate taxes and rates in 2000 for each property were: 2000 2000 Billing Rate (in thousands) Fairway View II $ 52 11.68% The Pines 72 1.13% Patchen Place 49 0.97% Northwoods I & II 173 2.19% South Point 97 1.62% Capital Improvements Fairway View II During the year ended December 31, 2000, the Partnership completed approximately $126,000 of capital improvements at Fairway View II, consisting primarily of air conditioning replacement, carpet and vinyl replacement, clubhouse renovations, and structural improvements. These improvements were funded from operating cash flow and Partnership reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $56,100. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Pines During the year ended December 31, 2000, the Partnership completed approximately $142,000 of capital improvements at The Pines, consisting primarily of carpet replacement, swimming pool upgrades, parking area improvements, and cabinetry upgrades. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $59,400. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Patchen Place During the year ended December 31, 2000, the Partnership completed approximately $244,000 of capital improvements at Patchen Place, consisting primarily of carpet and vinyl replacement, plumbing enhancements, appliances, air conditioning replacement, adding water meters to units in order to bill tenants for water usage, and structural improvements. These improvements were funded from operating cash flow and Partnership reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $55,550. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Northwoods I & II During the year ended December 31, 2000, the Partnership completed approximately $411,000 of capital improvements at Northwoods I & II, consisting primarily of carpet and vinyl replacements, plumbing upgrades, exterior painting, air conditioning unit replacement, appliances and structural improvements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $88,000. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. South Point During the year ended December 31, 2000, the Partnership completed approximately $58,000 of capital improvements at South Point, consisting primarily of carpet and vinyl replacement, golf carts, appliances, and cabinet replacements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $49,500. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, 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, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the 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 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 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 and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001 and defendants are scheduled to respond to the complaint by March 2, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. The Managing General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2000, no matter was submitted to the vote of the unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Partnership's Equity and Related Partner Matters The Partnership, a publicly-held limited partnership, offered up to 100,000 limited partnership units and sold 60,517 limited partnership units aggregating $30,259,000. At December 31, 2000, the Partnership had 1,180 holders of record owning an aggregate of 60,517 units. Affiliates of the Managing General Partner owned 40,082.67 units or 66.23% at December 31, 2000. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the years ended December 31, 1999 and 2000 and subsequent to December 31, 2000: Distributions Per Limited Aggregate Partnership Unit (in thousands) 01/01/99 - 12/31/99 $ 300 (1) $ 4.91 01/01/00 - 12/31/00 3,179 (2) 52.00 Subsequent to 12/31/00 721 (3) 11.80 (1) Distribution was made from previously undistributed surplus funds from refinancing proceeds in prior years (see "Item 6" for further details). (2) Consists of $2,294,000 of cash from operations and $885,000 of cash from the refinance proceeds of The Pines Apartments (see "Item 6" for further details). (3) Distribution was made from cash from operations (see "Item 6" for further details). Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings, and/or property sales. The Registrant's distribution policy is reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit additional distributions to its partners in the year 2001 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 40,082.67 limited partnership units in the Partnership representing 66.23% 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 66.23% 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 unit holders. Except for the foregoing, no other limitations are imposed on AIMCO's or its affiliates' right to vote each Unit acquired. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Registrant's net income for the year ended December 31, 2000 was approximately $119,000 compared to net income of approximately $514,000 for the year ended December 31, 1999 (see "Note D" of the financial statements for a reconciliation of these amounts to the Registrant's federal taxable income). The decrease in net income for the year ended December 31, 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 and by the extraordinary loss on the early extinguishment of the debt encumbering The Pines Apartments recognized during 1999 (see discussion below). Total revenues increased for the year ended December 31, 2000 due to an increase in other income which was partially offset by a decrease in rental income. The increase in other income for the year ended December 31, 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 I and II Apartments. Rental income decreased primarily due to decreased occupancy and average annual rental rates at Fairway View II and decreased occupancy at Northwoods I and II 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 average annual rental rates at Patchen Place, South Point, Northwoods I and II, and The Pines Apartments. Total expenses increased due to increases in operating, depreciation, interest and general and administrative expenses. Operating expenses increased primarily due to increased gas bills at Patchen Place and The Pines Apartments and increased administrative salaries at Fairway View II, South Point, and The Pines Apartments. Depreciation expense increased due to property improvements and replacements completed during the last twelve months. Interest expense increased due to the refinancing of The Pines Apartments in December 1999 which replaced the existing debt with a loan having a greater principal amount. 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 year ended December 31, 2000. For the year ended December 31, 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 December 31, 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 December 31, 2000, the Partnership had cash and cash equivalents of approximately $871,000 as compared to approximately $2,793,000 at December 31, 1999. Cash and cash equivalents decreased by approximately $1,922,000 from the Partnership's year ended December 31, 1999 due to approximately $3,277,000 of cash used in financing activities and approximately $911,000 of cash used in investing activities, which more than offset approximately $2,266,000 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. The Partnership is currently evaluating the capital improvement needs of the properties for the upcoming year. The minimum amount to be budgeted will be $275 per unit or $308,550. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The additional capital improvements will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. On December 13, 1999, the Partnership refinanced the mortgage encumbering The Pines Apartments. The refinancing replaced indebtedness of approximately $3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new loan, which matures on January 1, 2020, requires monthly principal and interest payments and is scheduled to be fully amortized at maturity. 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 year ended December 31, 2000. For financial statement purposes, the Partnership recognized a loss on the early extinguishment of debt of approximately $106,000 consisting of a prepayment penalty and the write-off of unamortized loan costs. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $4,143,000 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 year ended December 31, 2000, the Partnership declared and paid distributions of approximately $3,179,000 (approximately $3,147,000 to the limited partners or $52.00 per limited partnership unit) consisting of approximately $2,294,000 (approximately $2,271,000 to the limited partners or $37.53 per limited partnership unit) of cash from operations and approximately $885,000 (approximately $876,000 to the limited partners or $14.47 per limited partnership unit) of cash from the refinance proceeds of The Pines Apartments and from refinancing proceeds in prior years. Subsequent to December 31, 2000, the Partnership declared distributions of approximately $721,000 (approximately $714,000 to the limited partners or $11.80 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 year ended December 31, 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 in the year 2001 or subsequent periods. Tender Offer In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 40,082.67 limited partnership units in the Partnership representing 66.23% 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 66.23% 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 AIMCO's or its affiliates' right to vote each Unit acquired. ITEM 7. FINANCIAL STATEMENTS NATIONAL PROPERTY INVESTORS 7 LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Balance Sheet - December 31, 2000 Statements of Operations - Years ended December 31, 2000 and 1999 Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2000 and 1999 Statements of Cash Flows - Years ended December 31, 2000 and 1999 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners National Property Investors 7 We have audited the accompanying balance sheet of National Property Investors 7 as of December 31, 2000, and the related statements of operations, changes in partners' (deficit) capital, and cash flows for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Property Investors 7 at December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina March 2, 2001 NATIONAL PROPERTY INVESTORS 7 BALANCE SHEET (in thousands, except per unit data) December 31, 2000
Assets Cash and cash equivalents $ 871 Receivables and deposits 197 Restricted escrows 377 Other assets 444 Investment properties (Notes C and F): Land $ 3,738 Buildings and related personal property 44,258 47,996 Less accumulated depreciation (29,574) 18,422 $ 20,311 Liabilities and Partners' Deficit Liabilities Accounts payable $ 142 Tenant security deposit liabilities 100 Accrued property taxes 52 Other liabilities 287 Mortgage notes payable (Note C) 20,943 Partners' Deficit General partner $ (315) Limited partners (60,517 units issued and outstanding) (898) (1,213) $ 20,311
See Accompanying Notes to Financial Statements NATIONAL PROPERTY INVESTORS 7 STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2000 1999 Revenues: Rental income $ 7,151 $ 7,180 Other income 372 306 Total revenues 7,523 7,486 Expenses: Operating 2,774 2,732 General and administrative 541 295 Depreciation 1,989 1,789 Interest 1,666 1,626 Property taxes 434 424 Total expenses 7,404 6,866 Income before extraordinary item 119 620 Extraordinary loss on early extinguishment of debt (Note C) -- (106) Net income (Note D) $ 119 $ 514 Net income allocated to general partner (1%) $ 1 $ 5 Net income allocated to limited partners (99%) 118 509 $ 119 $ 514 Per limited partnership unit: Income before extraordinary item $ 1.95 $10.14 Extraordinary loss on early extinguishment of debt -- (1.73) Net income $ 1.95 $ 8.41 Distributions per limited partnership unit $52.00 $ 4.91
See Accompanying Notes to Financial Statements NATIONAL PROPERTY INVESTORS 7 STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except per unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 60,517 $ 1 $30,259 $30,260 Partners' (deficit) capital at December 31, 1998 60,517 $ (286) $ 1,919 $ 1,633 Distribution to partners -- (3) (297) (300) Net income for the year ended December 31, 1999 -- 5 509 514 Partners' (deficit) capital at December 31, 1999 60,517 (284) 2,131 1,847 Distributions to partners -- (32) (3,147) (3,179) Net income for the year ended December 31, 2000 -- 1 118 119 Partners' deficit at December 31, 2000 60,517 $ (315) $ (898) $(1,213)
See Accompanying Notes to Financial Statements NATIONAL PROPERTY INVESTORS 7 STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2000 1999 Cash flows from operating activities: Net income $ 119 $ 514 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,989 1,789 Amortization of loan costs 98 110 Extraordinary loss on early extinguishment of debt -- 106 Change in accounts: Receivables and deposits 140 135 Other assets (20) (43) Accounts payable (24) 109 Tenant security deposit liabilities (7) (22) Accrued property taxes (15) (113) Other liabilities (14) 49 Net cash provided by operating activities 2,266 2,634 Cash flows from investing activities: Property improvements and replacements (981) (1,186) Net withdrawals from (deposits to) restricted escrows 70 (37) Net cash used in investing activities (911) (1,223) Cash flows from financing activities: Payments on mortgage note payable (82) (40) Payoff of mortgage note payable -- (3,406) Proceeds from mortgage note payable -- 4,225 Prepayment penalty -- (83) Loan costs paid (16) (88) Distributions to partners (3,179) (300) Net cash (used in) provided by financing activities (3,277) 308 Net (decrease) increase in cash and cash equivalents (1,922) 1,719 Cash and cash equivalents at beginning of year 2,793 1,074 Cash and cash equivalents at end of year $ 871 $ 2,793 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,537 $ 1,541
See Accompanying Notes to Financial Statements NATIONAL PROPERTY INVESTORS 7 NOTES TO FINANCIAL STATEMENTS December 31, 2000 Note A - Organization and Significant Accounting Policies Organization: National Property Investors 7 (the "Partnership" or "Registrant") is a California limited partnership organized in October 1983 to acquire and operate residential apartment complexes. The Partnership's managing general partner is NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General Partner"). NPI Equity was a wholly owned subsidiary of Insignia Properties Trust ("IPT"). On February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO") (see "Note B - Transfer of Control"). The directors and officers of the Managing General Partner also serve as executive officers of AIMCO. The Partnership Agreement provides that the Partnership will terminate on December 31, 2008, unless terminated prior to such date. As of December 31, 2000, the Partnership operates five residential apartment complexes located throughout the southeastern United States. Allocation of Profits, Gains, and Losses: Profits, gains, and losses of the Partnership are allocated between the general and limited partners in accordance with the provisions of the Partnership Agreement. Profits, not including gains from property dispositions, are allocated as if they were distributions of net cash from operations. Any gain from property dispositions attributable to the excess, if any, of the indebtedness relating to a property immediately prior to the disposition of such property over the Partnership's adjusted basis in the property shall be allocated to each partner having a negative capital account balance, to the extent of such negative balance. The balance of any gain shall be treated on a cumulative basis as if it constituted an equivalent amount of distributable net proceeds and shall be allocated to the general partner to the extent that the general partner would have received distributable net proceeds in connection therewith; the balance shall be allocated to the limited partners. However, the interest of the general partner will be equal to at least 1% of each gain at all times during the existence of the Partnership. All losses, including losses attributable to property dispositions, are allocated 99% to the limited partners and 1% to the general partner. Accordingly, net income as shown in the statements of operations and changes in partner's (deficit) capital for 2000 and 1999 were allocated 99% to the limited partners and 1% to the general partner. Net income per limited partnership unit for each such year was computed as 99% of net income divided by 60,517 units outstanding. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, in banks and money market accounts. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $720,000 at December 31, 2000 that are maintained by the affiliated management company on behalf of affiliated entities in cash concentration accounts. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. In addition, the Managing General Partner's policy is to offer rental concessions during periods of declining occupancy or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Restricted Escrows: Replacement Reserve: A replacement reserve account is maintained for Fairway View II Apartments, Patchen Place Apartments, Southpoint Apartments, and Northwoods I & II Apartments. Each property has a required monthly payment into its account to cover the costs of capital improvements and replacements. The balance of these accounts at December 31, 2000, is approximately $359,000 which includes interest. Loan Costs: Loan costs of approximately $744,000, less accumulated amortization of approximately $390,000, are included in other assets and are being amortized on a straight-line basis over the lives of the related loans. Investment Properties: Investment properties consist of five apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were recorded in the years ended December 31, 2000 or 1999. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used (1) for real property over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments to maturity, approximates its carrying balance. Segment Reporting: SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The Managing General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the financial statements as currently presented. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising costs of approximately $102,000 and $91,000 for the years ended December 31, 2000 and 1999, respectively, were charged to operating expense as incurred. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a publicly traded real estate investment trust with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note C - Mortgage Notes Payable The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2000 Interest Rate Date Maturity (in thousands) (in thousands) Fairway View II $ 4,200 $ 26 7.33% 11/01/03 $ 4,200 The Pines 4,143 35 7.97% 01/01/20 -- Patchen Place 3,000 18 7.33% 11/01/03 3,000 Northwoods I & II 5,000 31 7.33% 11/01/03 5,000 South Point 4,600 28 7.33% 11/01/03 4,600 Total $20,943 $ 138 $16,800
The mortgage notes payable are non-recourse and are secured by pledge of the respective apartment properties and by pledge of revenues from the respective apartment properties. The notes require prepayment penalties if repaid prior to maturity and prohibit resale of the properties subject to existing indebtedness. The mortgages encumbering Fairway View II Apartments, Patchen Place Apartments, Northwoods I & II Apartments, and South Point Apartments require interest-only payments. On December 13, 1999, the Partnership refinanced the mortgage encumbering The Pines Apartments. The refinancing replaced indebtedness of approximately $3,406,000 with a new mortgage in the amount of $4,225,000. The interest rate on the new mortgage is 7.97% as compared to 8.56% on the previous debt. The new loan which matures on January 1, 2020 requires monthly principal and interest payments and is scheduled to be fully amortized at maturity. 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 year ended December 31, 2000. For financial statement purposes, the Partnership recognized a loss on the early extinguishment of debt of approximately $106,000 consisting of a prepayment penalty and the write-off of unamortized loan costs. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2000 are as follows (in thousands): 2001 $ 97 2002 104 2003 16,913 2004 122 2005 132 Thereafter 3,575 Total $20,943 Note D - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable (loss) income (in thousands, except unit data): 2000 1999 Net income as reported $ 119 $ 514 Add (deduct): Depreciation differences (92) 42 Other (89) 32 Federal taxable (loss) income $ (62) $ 588 Federal taxable (loss) income per limited partnership unit $(1.02) $9.62 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets (in thousands): 2000 Net liabilities as reported $(1,213) Land and buildings (1,510) Accumulated depreciation (6,892) Syndication and distribution costs 3,555 Prepaid rent 21 Other 138 Net liabilities - Federal tax basis $(5,901) Note E - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and its affiliates during the years ended December 31, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $366 $380 Reimbursement for services of affiliates (included in investment properties and general and administrative expenses) 256 180 Non-accountable reimbursement (included in general and administrative expenses) 91 -- Partnership management fee (included in general and administrative expenses) 93 -- During the years ended December 31, 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 $366,000 and $380,000 for the years ended December 31, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $256,000 and $180,000 for the years ended December 31, 2000 and 1999, respectively. In addition, in connection with the refinancing of the mortgage loan encumbering The Pines Apartments the Partnership paid approximately $42,000 in loan costs to an affiliate during the year ended December 31, 1999. No such loan costs were paid in 2000. These loan costs are included in other assets and are amortized as interest expense over the term of the loan. For services relating to the administration of the Partnership and operation of Partnership properties, the Managing General Partner is entitled to receive payment for non-accountable expenses up to a maximum of $150,000 per year from distributions from operations, based upon the number of Partnership units sold, subject to certain limitations. The Managing General Partner received approximately $91,000 in reimbursements for the year ended December 31, 2000. The Managing General Partner was not entitled to receive a similar reimbursement during the year ended December 31, 1999 because there were no distributions from operations. For managing the affairs of the Partnership, the Managing General Partner of the Partnership is entitled to receive a partnership management fee. The fee is equal to 4% of the Partnership's adjusted cash from operations, as defined in the Partnership Agreement, in any year, provided that 50% of the fee shall not be paid until the Partnership has distributed to the limited partners adjusted cash from operations in such year which is equal to 5% of the limited partners' adjusted invested capital, as defined, on a non-cumulative basis. In addition, 50% of the fee shall not be paid until the Partnership has distributed to the limited partners adjusted cash from operations in such year which is equal to 8% of the limited partners' adjusted invested capital on a non-cumulative basis. The fee shall be paid when adjusted cash from operations is distributed to the limited partners. The Managing General Partner was paid approximately $93,000 during the year ended December 31, 2000 for such fees. The Managing General Partner was not entitled to receive a similar reimbursement during the year ended December 31, 1999 because there were no distributions from operations. Upon the sale of the Partnership's properties, NPI Equity will be entitled to an incentive compensation fee equal to a declining percentage of the difference between the total amount distributed to limited partners and the appraised value of their investment at February 1, 1992. The percentage amount to be realized by NPI Equity, if any, will be dependent upon the year in which the property is sold. Payment of the incentive compensation fee is subordinated to the receipt by the limited partners, of: (a) distributions from capital transaction proceeds of an amount equal to their appraised investment in the Partnership at February 1, 1992; and (b) distributions from all sources (capital transactions as well as cash flow) of an amount equal to six percent (6%) per annum cumulative, non-compounded, on their present appraised investment in the Partnership at February 1, 1992. The Managing General Partner has extended to the Partnership a line of credit of up to $500,000. Loans under the line of credit will have a term of 365 days, be unsecured and bear interest at the rate of 2% per annum in excess of the prime rate announced from time to time by 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 40,082.67 limited partnership units in the Partnership representing 66.23% 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 66.23% 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 unit holders. Except for the foregoing, no other limitations are imposed on AIMCO's or its affiliates' right to vote each Unit acquired. Note F - Real Estate and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Fairway View II $ 4,200 $ 1,086 $ 8,788 $ 855 The Pines 4,143 579 6,521 1,254 Patchen Place 3,000 706 6,409 1,994 Northwoods I & II 5,000 478 7,919 1,880 South Point 4,600 859 7,686 982 Totals $20,943 $ 3,708 $37,323 $ 6,965
Gross Amount at Which Carried At December 31, 2000 (in thousands) Buildings And Related Personal Accumulated Year of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years (in thousands) Fairway View II $ 1,094 $ 9,635 $10,729 $ 6,080 1981 11/84 5-27.5 The Pines 584 7,770 8,354 5,424 1978 04/85 5-27.5 Patchen Place 714 8,395 9,109 6,311 1971 07/85 5-27.5 Northwoods I & II 483 9,794 10,277 6,113 1981 07/85 5-27.5 South Point 863 8,664 9,527 5,646 1980 03/86 5-27.5 Total $ 3,738 $44,258 $47,996 $29,574
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2000 1999 (in thousands) Investment Properties Balance at beginning of year $47,015 $45,829 Property improvements 981 1,186 Balance at end of year $47,996 $47,015 Accumulated Depreciation Balance at beginning of year $27,585 $25,796 Additions charged to expense 1,989 1,789 Balance at end of year $29,574 $27,585 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2000 and 1999, is approximately $46,490,000 and $45,512,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2000 and 1999, is approximately $36,467,000 and $34,385,000, respectively. Note G - Distributions During the year ended December 31, 2000, the Partnership declared and paid distributions of approximately $3,179,000 (approximately $3,147,000 to the limited partners or $52.00 per limited partnership unit) consisting of approximately $2,294,000 (approximately $2,271,000 to the limited partners or $37.53 per limited partnership unit) of cash from operations and approximately $885,000 (approximately $876,000 to the limited partners or $14.47 per limited partnership unit) of cash from the refinance proceeds of The Pines Apartments and from refinancing proceeds in prior years. Subsequent to December 31, 2000, the Partnership declared distributions of approximately $721,000 (approximately $714,000 to the limited partners or $11.80 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 year ended December 31, 1999. Note H - 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, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the 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 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 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 and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001 and defendants are scheduled to respond to the complaint by March 2, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. 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 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act National Property Investors 7 (the "Partnership" or the "Registrant") has no officers or directors. The managing general partner of the Partnership is NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General Partner"). The present executive officers and directors of the Managing General Partner are listed below: Name Age Position Patrick J. Foye 43 Executive Vice President and Director Martha L. Long 41 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the Managing General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the Managing General Partner since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act: Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Managing General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the Managing General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Managing General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Managing General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under generally accepted auditing standards. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Managing General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Managing General Partner has approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2000 for filing with the Securities and Exchange Commission. The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for the current fiscal year. Fees for the last fiscal year were annual audit services of approximately $51,000 and non-audit services (principally tax-related) of approximately $26,000. Item 10. Executive Compensation Neither the director nor officers received any remuneration from the Managing General Partner during the year ended December 31, 2000. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Partnership to be the beneficial owners of more than 5% of the Limited Partnership Units of the Partnership, as of December 31, 2000. Amount and Nature Name of Beneficial Owner of Beneficial Owner % of Class Insignia Properties, LP 25,399.00 41.97% (an affiliate of AIMCO) AIMCO Properties LP 14,683.67 24.26% (an affiliate of AIMCO) Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business address is 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado 80222. No director or officer of the Managing General Partner owns any units. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the years ended December 31, 2000 and 1999: 2000 1999 (in thousands) Property management fees $366 $380 Reimbursement for services of affiliates 256 180 Non-accountable reimbursement 91 -- Partnership management fee 93 -- During the years ended December 31, 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 $366,000 and $380,000 for the years ended December 31, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $256,000 and $180,000 for the years ended December 31, 2000 and 1999, respectively. In addition, in connection with the refinancing of the mortgage loan encumbering The Pines Apartments the Partnership paid approximately $42,000 in loan costs to an affiliate during the year ended December 31, 1999. No such loan costs were paid in 2000. These loan costs are included in other assets and are amortized as interest expense over the term of the loan. For services relating to the administration of the Partnership and operation of Partnership properties, the Managing General Partner is entitled to receive payment for non-accountable expenses up to a maximum of $150,000 per year from distributions from operations, based upon the number of Partnership units sold, subject to certain limitations. The Managing General Partner received approximately $91,000 in reimbursements for the year ended December 31, 2000. The Managing General Partner was not entitled to receive a similar reimbursement during the year ended December 31, 1999 because there were no distributions from operations. For managing the affairs of the Partnership, the Managing General Partner of the Partnership is entitled to receive a partnership management fee. The fee is equal to 4% of the Partnership's adjusted cash from operations, as defined in the Partnership Agreement, in any year, provided that 50% of the fee shall not be paid until the Partnership has distributed to the limited partners adjusted cash from operations in such year which is equal to 5% of the limited partners' adjusted invested capital, as defined, on a non-cumulative basis. In addition, 50% of the fee shall not be paid until the Partnership has distributed to the limited partners adjusted cash from operations in such year which is equal to 8% of the limited partners' adjusted invested capital on a non-cumulative basis. The fee shall be paid when adjusted cash from operations is distributed to the limited partners. The Managing General Partner was paid approximately $93,000 during the year ended December 31, 2000 for such fees. The Managing General Partner was not entitled to receive a similar reimbursement during the year ended December 31, 1999 because there were no distributions from operations. Upon the sale of the Partnership's properties, NPI Equity will be entitled to an incentive compensation fee equal to a declining percentage of the difference between the total amount distributed to limited partners and the appraised value of their investment at February 1, 1992. The percentage amount to be realized by NPI Equity, if any, will be dependent upon the year in which the property is sold. Payment of the incentive compensation fee is subordinated to the receipt by the limited partners, of: (a) distributions from capital transaction proceeds of an amount equal to their appraised investment in the Partnership at February 1, 1992; and (b) distributions from all sources (capital transactions as well as cash flow) of an amount equal to six percent (6%) per annum cumulative, non-compounded, on their present appraised investment in the Partnership at February 1, 1992. The Managing General Partner has extended to the Partnership a line of credit of up to $500,000. Loans under the line of credit will have a term of 365 days, be unsecured and bear interest at the rate of 2% per annum in excess of the prime rate announced from time to time by 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 40,082.67 limited partnership units in the Partnership representing 66.23% 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 66.23% 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 unit holders. Except for the foregoing, no other limitations are imposed on AIMCO's or its affiliates' right to vote each Unit acquired. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K filed during the fourth quarter of calendar year 2000: None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL PROPERTY INVESTORS 7 By: NPI EQUITY INVESTMENTS, INC. Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Patrick J. Foye Executive Vice President Date: Patrick J. Foye and Director /s/Martha L. Long Senior Vice President Date: Martha L. Long and Controller EXHIBIT INDEX Exhibit Number Description of Exhibit 2.5 Master Indemnity Agreement dated as of August 17, 1995. (1) 2.6 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT. (2) 3.4 (a) Agreement of Limited Partnership. (3) (b) Amendments to the Agreement of Limited Partnership. (4) (c) Amendments to the Agreement of Limited Partnership. (5) (d) Amendments to the Agreements of Limited Partnership. (6) 10.1 Purchase Agreement dated as of November 20, 1990, by and between the Managing General Partner and the Prior Managing General Partner, IRI Properties Capital Corp. and RPMC, incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated November 20, 1990. (7) 10.2 Amendments to Purchase Agreement dated as of November 20, 1990, by and between the Managing General Partner and the Prior Managing General Partner, IRI Properties Capital Corp. and RPMC, incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated June 21, 1991. (8) 10.3 Property Management Agreement dated June 21, 1991, by and between the Registrant and NPI Management incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (7) 10.4 Multifamily Note and Addendum, dated January 4, 1994, made by the Registrant for the benefit of Hanover Capital Mortgage Corporation, as it pertains to The Pines Apartments. (8) 10.5 Multifamily Deed of Trust, Assignment of Rents and Security Agreement and Rider, dated January 4, 1994, between the Registrant and Hanover Capital Mortgage Corporation, as it pertains to The Pines Apartments. (8) 10.6 Multifamily Note secured by a Mortgage or Deed of Trust dated November 1, 1996, between National Property Investors 7 and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc., relating to Northwoods Apartments. (9) 10.7 Multifamily Note secured by a Mortgage or Deed of Trust dated November 1, 1996, between National Property Investors 7 and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc., relating to South Point Apartments. (9) 10.8 Multifamily Note secured by a Mortgage or Deed of Trust dated November 1, 1996, between National Property Investors 7 and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc., relating to Patchen Place Apartments. (9) 10.9 Multifamily Note secured by a Mortgage or Deed of Trust dated November 1, 1996, between National Property Investors 7 and Lehman Brothers Holdings, Inc., d/b/a Lehman Capital, a Division of Lehman Brothers Holdings Inc., relating to Fairway View II Apartments. (9) 10.10 Multifamily Note dated December 9, 1999, by and between National Property Investors 7, a California limited partnership and GMAC Commercial Mortgage Corporation, a California corporation. (10) 16 Letter dated November 10, 1998, from the Registrant's former independent accountant regarding its concurrence with the statements made by the Registrant, incorporated by reference to Exhibit 16 filed with Registrant's Current Report on Form 8-K dated November 10, 1998. (1) Incorporated by reference to Exhibit 2.5 to Form 8-K filed by Insignia with the Securities and Exchange Commission on September 1, 1995. (2) Incorporated by reference to Exhibit 2.1 filed with the Registrant's Current Report on Form 8-K dated October 1, 1998. (3) Incorporated by reference to Exhibit A to the Prospectus of the Registrant dated July 5, 1978, contained in the Registrant's Registration Statement on Form S-11 (Reg. No. 2-599991). (4) Incorporated by reference to the Definitive Proxy Statement of the Partnership dated July 2, 1981. (5) Incorporated by reference to Definitive Proxy statement of the Partnership dated April 3, 1991. (6) Incorporated by reference, to the Statement Furnished in Connection With the Solicitation of Consents of the Registrant dated August 28, 1992. (7) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. Identical agreements have been entered into for each of the Registrant's properties. The only difference in the agreements is that the applicable property name has been inserted into the agreement. (8) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1993. (9) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1996. (10) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the period ended December 31, 1999. -----END PRIVACY-ENHANCED MESSAGE-----