-----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, Mqy8kSBi0nKSO2/WRbKuQ3tgchRq81M0eZGUmK+clQfsBYiDOTQs8ywSAZrjhm3r ns5Ejv8LLM5assCorZk8pA== 0000711642-02-000227.txt : 20020814 0000711642-02-000227.hdr.sgml : 20020814 20020814141825 ACCESSION NUMBER: 0000711642-02-000227 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13454 FILM NUMBER: 02734546 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 10QSB 1 npi7.txt NPI7 United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-13454 NATIONAL PROPERTY INVESTORS 7 (Exact name of small business issuer as specified in its charter) California 13-3230613 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, Post Office Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL PROPERTY INVESTORS 7 BALANCE SHEET (Unaudited) (in thousands, except per unit data) June 30, 2002
Assets Cash and cash equivalents $ 414 Receivables and deposits 355 Restricted escrows 572 Other assets 702 Investment properties: Land $ 3,738 Buildings and related personal property 45,455 49,193 Less accumulated depreciation (32,614) 16,579 $ 18,622 Liabilities and Partners' Deficit Liabilities Accounts payable $ 129 Tenant security deposit liabilities 127 Accrued property taxes 165 Other liabilities 317 Mortgage notes payable 23,840 Partners' Deficit: General partner $ (362) Limited partners (60,517 units issued and outstanding) (5,594) (5,956) $ 18,622 See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7 STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 Revenues: Rental income $ 1,797 $ 1,822 $ 3,579 $ 3,650 Other income 138 95 266 180 Total revenues 1,935 1,917 3,845 3,830 Expenses: Operating 689 674 1,424 1,451 General and administrative 167 101 253 255 Depreciation 526 517 1,041 1,031 Interest 455 415 911 830 Property taxes 113 106 225 210 Total expenses 1,950 1,813 3,854 3,777 Net (loss) income $ (15) $ 104 $ (9) $ 53 Net (loss) income allocated to general partner (1%) $ -- $ 1 $ -- $ 1 Net (loss) income allocated to limited partners (99%) (15) 103 (9) 52 $ (15) $ 104 $ (9) $ 53 Net (loss) income per limited partnership unit $ (0.25) $ 1.70 $ (0.15) $ 0.86 Distributions per limited partnership unit $ 20.72 $ 6.74 $ 20.72 $ 18.54 See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7 STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 60,517 $ 1 $30,259 $30,260 Partners' deficit at December 31, 2001 60,517 $ (349) $(4,331) $(4,680) Distributions to partners -- (13) (1,254) (1,267) Net loss for the six months Ended June 30, 2002 -- -- (9) (9) Partners' deficit at June 30, 2002 60,517 $ (362) $(5,594) $(5,956) See Accompanying Notes to Financial Statements
NATIONAL PROPERTY INVESTORS 7 STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2002 2001 Cash flows from operating activities: Net (loss) income $ (9) $ 53 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 1,041 1,031 Amortization of loan costs 38 50 Change in accounts: Receivables and deposits 74 (113) Other assets (38) (10) Accounts payable (21) (70) Tenant security deposit liabilities 19 5 Accrued property taxes 165 105 Other liabilities 53 186 Net cash provided by operating activities 1,322 1,237 Cash flows from investing activities: Property improvements and replacements (312) (209) Net deposits to restricted escrows (33) (48) Net cash used in investing activities (345) (257) Cash flows from financing activities: Payments on mortgage notes payable (197) (47) Loan costs paid (11) (7) Distributions to partners (1,267) (1,133) Net cash used in financing activities (1,475) (1,187) Net decrease in cash and cash equivalents (498) (207) Cash and cash equivalents at beginning of period 912 871 Cash and cash equivalents at end of period $ 414 $ 664 Supplemental disclosure of cash flow information: Cash paid for interest $ 873 $ 780 Supplemental disclosure of non-cash activity: Property improvements and replacements in accounts payable $ 41 $ -- See Accompanying Notes to Financial Statements
e) NATIONAL PROPERTY INVESTORS 7 NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited financial statements of National Property Investors 7 (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of NPI Equity Investments, Inc. (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. 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, 2001. The Managing General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Note B - 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. During the six months ended June 30, 2002 and 2001, 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 $188,000 and $189,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in operating expenses. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $148,000 and $124,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in general and administrative and operating expenses and investment properties. Included in the total is approximately $19,000 in construction service reimbursements for the six months ended June 30, 2002. There were no such reimbursements for the six months ended June 30, 2001. The construction management service fees are calculated based on a percentage of additions to investment properties. 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 both the six month periods ended June 30, 2002 and 2001, which is included in general and administrative expenses. 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 not entitled to receive this fee during the six months ended June 30, 2002 or 2001. 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, are 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. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the six months ended June 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $78,000 and $70,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - 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. (the "Nuanes action") 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 Managing 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 series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. 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. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Managing General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Managing General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The Managing General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of five apartment complexes. The following table sets forth the average occupancy of the properties for each of the six month periods ended June 30, 2002 and 2001: Average Occupancy 2002 2001 Fairway View II Apartments 92% 91% Baton Rouge, Louisiana The Pines Apartments 94% 96% Roanoke, Virginia Patchen Place Apartments 83% 90% Lexington, Kentucky Northwoods I and II Apartments 96% 93% Pensacola, Florida South Point Apartments 92% 94% Durham, North Carolina The Managing General Partner attributes the decrease in occupancy at Patchen Place Apartments to an increase in new apartment communities recently built in the area. Management is implementing new marketing strategies to make Patchen Place more competitive within its market. The Managing General Partner attributes the increase in occupancy at Northwoods I and II Apartments to the completion of a road expansion project which increased new prospect traffic as well as the property's curb appeal. Results of Operations The Registrant's net loss for the six months ended June 30, 2002 was approximately $9,000 compared to net income of approximately $53,000 for the six months ended June 30, 2001. The Registrant's net loss for the three months ended June 30, 2002 was approximately $15,000 as compared to net income of approximately $104,000 for the three months ended June 30, 2001. The decrease in net income for the three and six months ended June 30, 2002 was due to an increase in total expenses which was partially offset by an increase in total revenues. Total expenses increased for the six months ended June 30, 2002 due to increases in depreciation, interest and property tax expenses which were partially offset by a decrease in operating expenses. Total expenses increased for the three months ended June 30, 2002 due to increases in interest, operating, and general and administrative expenses. Depreciation expense increased for the six months ended June 30, 2002 due to property improvements and replacements completed during the last twelve months. Interest expense increased for the three and six months ended June 30, 2002 due to the refinancings of Northwoods I and II Apartments in August 2001 and Fairway View II Apartments in November 2001 which increased the average debt balance at these two properties. Property tax expense increased for the six months ended June 30, 2002 due to the timing of the receipt of the tax bills at Fairway View II and South Point Apartments which affected the tax accruals recorded for the respective periods. Operating expenses decreased for the six months ended June 30, 2002 primarily due to decreased gas bills at The Pines and Patchen Place Apartments, decreased employee salaries at Patchen Place Apartments, and decreased maintenance expenses at Northwoods I and II and South Point Apartments. These decreases were partially offset by increased insurance expense at all of the Partnership's properties. Operating expenses increased for the three months ended June 30, 2002 primarily due to increased insurance expenses partially offset by reduced property expenses. Insurance expense increased due to an increase in insurance premiums at all of the Partnership's properties. Property expenses decreased due to reduced utility charges primarily at Patchen Place and The Pines Apartments and reduced payroll and related benefits primarily at Patchen Place Apartments. General and administrative expenses remained relatively constant for the six months ended June 30, 2002 and 2001, respectively. General and administrative expenses increased for the three months ended June 30, 2002 due to the timing of fees paid to the Managing General Partner in connection with distributions made from operations. Included in general and administrative expenses for the three and six months ended June 30, 2002 and 2001 are management reimbursement to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. Total revenues increased for the three and six month periods ended June 30, 2002 due to an increase in other income partially offset by a decrease in rental income. Other income increased for the three and six month periods ended June 30, 2002 primarily due to increased utility reimbursements at The Pines and Northwoods I and II Apartments and increased late charges and increased cable television revenue at all of the Partnership's properties. These increases were partially offset by reduced interest income as a result of lower interest rates on interest bearing accounts. Rental income decreased for the three and six month periods ended June 30, 2002 primarily due to decreases in occupancy at The Pines, Patchen Place and South Point Apartments and decreases in average rental rates at Patchen Place and South Point Apartments partially offset by a decrease in concessions at Fairway View II, Patchen Place and South Point Apartments and an increase in average rental rates at Fairway View II Apartments. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Registrant from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2002, the Partnership had cash and cash equivalents of approximately $414,000 as compared to approximately $664,000 at June 30, 2001. Cash and cash equivalents decreased by approximately $498,000 from the Partnership's year ended December 31, 2001 due to approximately $1,475,000 of cash used in financing activities and approximately $345,000 of cash used in investing activities, which more than offset approximately $1,322,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to partners and, to a lesser extent, payments of principal made on the mortgages encumbering Fairway View II, The Pines and Northwoods I and II Apartments and loan costs paid for South Point Apartments. Cash used in investing activities consisted of property improvements and replacements and net deposits to escrow accounts maintained by the mortgage lender. The Partnership invests its working capital reserves in interest bearing accounts. The Managing General Partner has extended to the Partnership a $500,000 line of credit. The Partnership has no outstanding amounts due under this line of credit. Based on present plans, the Managing General Partner does not anticipate the need to borrow against the line of credit in the near future. Other than cash and cash equivalents, the line of credit is the Partnership's only unused source of liquidity. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state and local legal and regulatory requirements. Capital improvements for each of the Registrant's properties are detailed below. Fairway View II During the six months ended June 30, 2002, the Partnership completed approximately $32,000 of capital improvements at Fairway View II, consisting primarily of floor covering replacements, air conditioning unit replacements, and building improvements. These improvements were funded from operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the current year and, as a result budgeted approximately $155,000 for capital improvements, consisting primarily of air conditioning unit replacements, appliances, floor covering replacements, and window treatments. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The Pines During the six months ended June 30, 2002, the Partnership completed approximately $53,000 of capital improvements at The Pines, consisting primarily of floor covering replacements, appliances, air conditioning unit replacements, and cabinet upgrades. These improvements were funded from operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the current year and, as a result budgeted approximately $79,000 for capital improvements, consisting primarily of floor covering replacements. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Patchen Place During the six months ended June 30, 2002, the Partnership completed approximately $84,000 of capital improvements at Patchen Place, consisting primarily of floor covering replacements, appliances, air conditioning unit replacements, and parking lot upgrades. These improvements were funded from operating cash flow and replacement reserves. The Partnership has evaluated the capital improvement needs of the property for the current year and, as a result budgeted approximately $141,000 for capital improvements, consisting primarily of floor covering replacements, appliances, air conditioning unit replacements, and plumbing upgrades. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Northwoods I and II During the six months ended June 30, 2002, the Partnership completed approximately $83,000 of capital improvements at Northwoods I & II, consisting primarily of floor covering replacements, appliances, and fitness equipment. These improvements were funded from operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the current year and, as a result budgeted approximately $138,000 for capital improvements, consisting primarily of air conditioning unit replacements, fitness equipment, floor covering replacements, swimming pool improvements, appliances, structural improvements, and plumbing upgrades. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. South Point During the six months ended June 30, 2002, the Partnership completed approximately $101,000 of capital improvements at South Point, consisting primarily of floor covering replacements, appliances, water submetering and air conditioning unit replacements. These improvements were funded from operating cash flow and replacement reserves. The Partnership has evaluated the capital improvement needs of the property for the current year and, as a result budgeted approximately $118,000 consisting primarily of air conditioning unit replacements, appliances, fitness equipment, water submetering and floor covering replacements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital improvements will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. 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 $23,840,000 has maturity dates ranging from November 1, 2003 to December 1, 2021. The mortgage indebtedness of approximately $16,240,000 that was refinanced during 2000 and 2001 requires monthly payments until the loans mature between January 2020 and December 2021 at which time the loans are scheduled to be fully amortized. The Partnership's other mortgage indebtedness of $7,600,000 requires interest only payments with 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. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2008. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. The Partnership distributed the following amounts during the six months ended June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited Ended Partnership Ended Partnership June 30, 2002 Unit June 30, 2001 Unit Operations $1,267 $20.72 $1,133 $18.54
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 Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures, to permit further distributions to its partners during the remainder of 2002 or subsequent periods. Other In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 42,879.67 limited partnership units in the Partnership representing 70.86% of the outstanding units at June 30, 2002. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire any and all of the units not owned by affiliates of AIMCO for a purchase price of $114.00 per unit expired. Pursuant to this offer, AIMCO acquired 1,242 units during the quarter ended June 30, 2002. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 70.86% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owed fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnerships and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. However, DeForest Ventures II L.P., from whom AIMCO, through its merger with Insignia, acquired 25,399 Units (41.97% of the units), had agreed for the benefit of non-tendering unit holders, that it would vote its units: (i) against any increase in compensation payable to the Managing General Partner or to affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by 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. Critical Accounting Policies and Estimates The financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. 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. (the "Nuanes action") 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 Managing 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 series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. 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. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Managing General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Managing General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The Managing General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 3.4(a), Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of the Partnership dated July 5, 1978, included in the Partnership's Registration Statement on Form S-11 (Reg. No. 2-599991). Exhibit 3.4(b), Amendments to Agreement of Limited Partnership, incorporated by reference to the Definitive Proxy Statement of the Partnership, dated July 2, 1981. Exhibit 3.4(c), Amendments to Agreement of Limited Partnership, incorporated by reference to the Definitive Proxy Statement of the Partnership, dated April 3, 1991. Exhibit 3.4(d), Amendments to the Agreement of Limited Partnership, incorporated by reference to the Statement Furnished in Connection with the Solicitation of Consents of the Partnership dated August 28, 1992. Exhibit 99, Certification of Chief Executive Officer and Chief Financial Officer. b) Reports on Form 8-K filed during the quarter ended June 30, 2002: None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL PROPERTY INVESTORS 7 By: NPI EQUITY INVESTMENTS, INC. Its Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: August 14, 2002 Exhibit 99 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of National Property Investors 7 (the "Partnership"), for the quarterly period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Patrick J. Foye Name: Patrick J. Foye Date: August 14, 2002 /s/ Paul J. McAuliffe Name: Paul J. McAuliffe Date: August 14, 2002 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----