U. S. Securities and Exchange Commission
Washington, DC 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 September 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 01-14453
National Real Estate Limited Partnership Income Properties
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1503893
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1155 Quail Court, Pewaukee, Wisconsin 53702-3703
(Address of principal executive offices)
(262) 695-1400
(Issuer's telephone number, including area code)
- - - - - - - - - - - - - - - - - - N/A - - - - - - - - - - - - - - - - - -
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Balance Sheet (unaudited) - September 30, 2000,
and December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations (unaudited) - Three and Nine months
ended September 30, 2000, and 1999 . . . . . . . . . . . . . . . 3
Statement of Changes in Partners' Capital (unaudited) -
Nine months ended September 30, 2000, and 1999 . . . . . . . . . . 4
Statement of Cash Flows (unaudited) -
Nine months ended September 30, 2000, and 1999 . . . . . . . . . . 5
Notes to Financial Statements (unaudited) . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 7-8
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . .8-10
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . .10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .10
1
PART I. FINANCIAL INFORMATION
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
(A Wisconsin Limited Partnership)
BALANCE SHEET
(Unaudited)
September 30, December 31,
2000 1999
_____________ ____________
ASSETS
Cash and cash equivalents $272,258 $806,382
Other assets 95,763 16,034
Investment properties, at cost
Land 568,848 568,848
Buildings and improvements 4,324,905 4,324,905
--------- ---------
4,893,753 4,893,753
Less accumulated depreciation 2,101,826 1,993,965
--------- ---------
2,791,927 2,899,788
--------- ---------
$3,159,948 $3,722,204
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses and other liabilities $52,192 $59,444
Tenant security deposits 4,423 4,003
Rent received in advance 36,480 38,299
Accrued interest to
individual General Partner 65,871 39,118
Note payable to
individual General Partner (Note 5) 271,020 271,020
------- -------
429,986 411,884
Partners' Capital (Deficit):
General Partners (158,235) (140,824)
Limited Partners 2,909,868 3,472,815
(authorized, 10,000 Interests; --------- ---------
outstanding, 9,034.01 Interests)
Less 29.86 Interests held in Treasury (21,671) (21,671)
--------- ---------
2,729,962 3,310,320
$3,159,948 $3,722,204
========= =========
See notes to financial statements.
2
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
(A Wisconsin Limited Partnership)
Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30,2000 September 30, 2000
1999 2000 1999 2000
--------------- ---------------
INCOME
Operating income $198,668 $262,361 $603,854 $745,752
------- ------- ------- -------
Total income 198,668 262,361 603,854 745,752
OPERATING EXPENSES
Operating expenses 100,333 113,397 262,746 339,650
Administrative expense 65,362 59,905 170,434 166,872
Depreciation 35,954 52,659 107,861 158,492
Interest expense 9,503 14,566 26,753 61,923
------ ------- ------- -------
Total expenses 211,152 240,527 567,794 726,937
Income (Loss) from Operations (12,484) 21,834 36,060 18,815
Other Income (Expenses):
Interest income 6,713 11,230 24,085 32,407
------- ------- ------- -------
Net Income (Loss) ($5,771) $33,064 $60,145 $51,222
======= ======= ======= =======
Net Income (Loss) attributable to
General Partners (3%) ($173) $992 $1,804 $1,537
Net Income (Loss) attributable to
Limited Partners (97%) ($5,598) $32,072 $58,341 $49,685
Per Limited Partnership
Interest outstanding, 9,004.15 ($0.62) $3.56 $6.48 $5.52
===== ==== ==== ====
See notes to financial statements.
3
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
(A Wisconsin Limited Partnership)
Statement of Changes in Partners' Capital (Deficit)
(Unaudited)
Nine Months Ended September 30
Interests
Limited General Held in
Partners Partners Treasury Total
-------- -------- --------- -----
September 30, 2000
------------------
Partner's Capital(Deficit),
Beginning of period $3,472,815 ($140,824) ($21,671) $3,310,320
Distributions (621,288) (19,215) (640,503)
Net Income 58,341 1,804 60,145
--------- ------- ------- ----------
Partners' Capital(Deficit),
end of period $2,909,868 ($158,235) ($21,671) $2,729,962
========== ======== ======= ==========
September 30, 1999
------------------
Partners' Capital(Deficit),
beginning of period $4,087,304 ($121,819 ($21,671) $3,943,814
Distributions (288,133) (8,911) (297,044)
Net Income 49,685 1,537 51,222
---------- -------- ------- -----------
Partners' Capital(Deficit),
end of period $3,848,856 ($129,193) ($21,671) $3,697,992
========== ======== ======= ==========
See notes to financial statements.
4
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES
(A Wisconsin Limited Partnership)
Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30
2000 1999
---- ----
Operating Activities:
Net income for the period $60,145 $51,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 107,861 158,491
Changes in operating assets and liabilities:
Other assets (79,729) 17,538
Rents received in advance (1,819) (10,753)
Accrued expenses and other liabilities 19,501 62,197
Tenant security deposits 420 416
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 106,379 279,111
Investing Activity:
Additions to investment property 0 (26,449)
Financing Activities:
Distributions to partners (640,503) (297,044)
------- -------
INCREASE (DECREASE) IN CASH (534,124) (44,382)
Cash and cash equivalents at beginning of period 806,382 838,841
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $272,258 $794,459
======== ========
See notes to financial statements.
5
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
(A Wisconsin Limited Partnership)
Notes to Financial Statements
(Unaudited)
September 30, 2000
1. In the opinion of the General Partners, the accompanying unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) which are necessary for a fair presentation. These
statements, which do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements, should be read in conjunction with the National Real
Estate Limited Partnership Income Properties annual report for the year
ended December 31, 1999 (refer to the footnotes of those statements for
additional details of the Partnership's financial condition). The
operating results for the period ended September 30, 2000 may not be
indicative of the operating results for the entire year.
2. National Real Estate Limited Partnership Income Properties (the
"Partnership") was organized under the Wisconsin Uniform Limited
Partnership Act pursuant to a Certificate of Limited Partnership dated
December 18, 1984, for the purpose of investing in residential,
commercial, and industrial real properties. John Vishnevsky and National
Development and Investment, Inc., contributed the sum of $6,000 to the
Partnership as General Partners. The Limited Partnership Agreement
authorized the issuance of 10,000 Limited Partnership Interests (the
"Interests") at $1,000 per Interest with the offering period commencing
January 31, 1985. Upon conclusion of the offering in December 1986, the
Partnership had raised $9,024,556 in capital representing 9,034.01
Interests.
3. National Realty Management, Inc. (NRMI): The Partnership incurred property
management fees of $36,265 under an agreement with NRMI for the nine month
period ended September 30, 2000. The Partnership also incurred $26,144 in
the first nine months of 2000 for the reimbursement of accounting and
administrative expenses incurred by NRMI on behalf of the Partnership.
The Partnership subleases a portion of common area office space from NRMI
under terms of a lease, which expires on August 31, 2002. During the first
nine months of 2000, the Partnership incurred lease fees that totaled
$8,498, which represents the Partnership's prorated portion, based upon
space occupied, of NRMI's monthly rental obligation.
4. National Development and Investment, Inc. (NDII): The Partnership incurred
NDII fees totaling $125,449 for administrative expenses incurred on behalf
of the Partnership for the first nine months of 2000.
5. As outlined in the prospectus, the General Partners agreed to make loans
to the Partnership up to an aggregate of 3% of the gross proceeds of the
offering to the extent necessary to provide distributions to the limited
partners at annualized rates equal to 8% in 1985, 8.25% in 1986, and 8.5%
in 1987. The loan will be repaid solely from sales proceeds, with
compounding interest equal to the cost of funds or 12%, whichever is
lower. As of September 30, 2000, interest totaling $65,871 has accrued.
6
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES
(A Wisconsin Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 2000
The Partnership currently owns and operates three investment properties;
Tucson Lock-It Lockers, a 49,865 net rentable square foot mini warehouse
complex in Tucson, Arizona; Phoenix Lock-It Lockers, a 62,016 net rentable
square foot mini warehouse complex in Phoenix, Arizona; and a portion of
Cave Creek Lock-It Lockers containing 8,200 of 46,000 net rentable square
feet in Phoenix, Arizona.
National Real Estate Limited Partnership Income Properties-II ("NRELPIP-II")
owns the remaining portion of Cave Creek Lock-It Lockers. NRELPIP-II is a
Wisconsin limited partnership, affiliated with the General Partners.
Occupancy based upon net rentable square feet for the first nine months of
2000 averaged 91.0% for Tucson Lock-It Lockers; 90.68% for Phoenix Lock-It
Lockers; and 90.55% for Cave Creek Lock-It Lockers. This compares to an
average of 94.62% for Tucson Lock-It Lockers; 91.80% for Phoenix Lock-It
Lockers; and 91.76% for Cave Creek Lock-It Lockers during the same period of
1999.
Nine Months Ended September 30, 2000 and 1999
---------------------------------------------
Net Income increased $8,923 from $51,222 for the period ended September 30,
1999, to $60,145 for the period ended September 30, 2000. This increase was
due to a decrease in total expenses of $159,143, netted with a decrease in
total income of $141,898 and a decrease in interest income of $8,322.
Total income decreased $141,898 due to the sale of Northridge Commons, and
the increased vacancies at Tucson Lock-It Lockers.
The decrease in expenses of $159,143 was primarily due to a $76,904 decrease
in operating expenses, a $50,630 decrease in depreciation expense and a
$35,170 decrease in interest expense.
Operating expenses decreased $76,904, largely due to the sale of Northridge
Commons in December of 1999. The property sale resulted in decreased grounds
expenses, and decreased marketing. Operating expenses for the first nine
months of 2000 were also decreased by the exterior painting at Cave Creek
Lock-It Lockers in 1999, and HVAC repairs at Phoenix and Tucson Lock-It
Lockers in 1999.
The $50,630 decrease in depreciation expense was due to the sale of
Northridge Commons.
The $35,170 decrease in interest expense was due to the significant paying
down of interest on the note payable to the individual General Partner with
proceeds from the sale of Northridge Commons.
Interest income decreased $8,322 due to an increased distribution payout,
which decreased the interest bearing account.
Net cash used during the first none months of 2000 totaled $534,124, as
compared to net cash used during the first nine months of 1999 of $44,382.
This difference was due to, in part, an increase of $343,459 in cash
distributions, and a $172,732 decrease in cash generated from operations.
Cash distributions for the periods ended September 30, 2000, and
September 30, 1999 were $640,503 and $297,044 respectively. These
distributions were allocated, as required-97% to the Limited Partners, and
3% to the General Partners.
Cash generated by operating activities decreased $172,732 for the period
ended September 30, 2000, as compared to the same period in 1999. This
decrease was primarily due to, in part, prepaid salaries escrow of $79,408
in 2000, a $50,630 decrease in depreciation expense, and a decrease in the
real estate tax liability of $28,345. All of these changes, with the
exception of the prepaid salaries, were largely due to the sale of Northridge
Commons.
Three Months Ended September 30, 2000, and 1999
-----------------------------------------------
Net income decreased $38,835 from $33,064 net income for the period ended
September 30, 1999, to ($5,771) net loss for the period ended September 30,
2000. This decrease was due to a decrease in total income of $63,693, netted
with a decrease in total expenses of $29,375, and a decrease in interest
income of $4,517.
The decrease in total income of $63,693 was due to the sale of Northridge
Commons, and increased vacancies at Tucson Lock-It Lockers.
The decrease in total expenses of $29,375 was due to, in part, a $13,064
decrease in operating expenses, and a $16,705 decrease in depreciation
expense.
The $13,064 decrease in operating expenses was due to, in part, the sale of
Northridge Commons, 1999 exterior painting at Cave Creek Lock-It Lockers and
1999 HVAC repairs at Phoenix and Tucson Lock-It Lockers.
7
The $16,705 decrease in depreciation expense was due to the sale of
Northridge Commons.
The $5,063 decrease in interest expense was due to the significant paying
down of interest on the note payable to the individual General Partner with
the proceeds from the sale of Northridge Commons.
The decrease in interest income of $4,517 was due to a significant reduction
in the money market account, due to paying out a larger distribution in 2000.
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
On May 25, 1999, the general partners, the property management company
(NRMI), and other entities and individuals were named as defendants in a
lawsuit (the "Vishnevsky Defendants"). The Partnership was not included in
the original lawsuit but was later added to the action as a nominal
defendant. The plaintiffs sought to have this action certified as a class
action lawsuit. In the complaint, the plaintiffs alleged wrongdoing against
Vishnevsky Defendants in connection with two basic areas. First, allegations
involving various vote solicitations alleged by the plaintiffs to be an
effort to perpetuate the Partnerships and avoid liquidation. Second,
allegations involving the taking and use of Partnership funds and property,
including excessive fees and unauthorized expenses. On March 14, 2000, the
parties to the litigation with the exception of the defendant Wolf & Company
entered into a Stipulation of Settlement.
Based upon the Stipulation, on April 27, 2000, the Circuit Court of Waukesha
County held a hearing which certified the case as a class action and approved
terms of a settlement. The more significant terms of the Stipulation of
Settlement are as follows:
An independent marketing agent (the "Partnerships' Representative")
was appointed to market and sell the Partnership investment property.
However, no offer to purchase the property will be accepted without
first obtaining approval from a majority interest of the limited
partners. Final distributions of the net proceeds received from a
sale of the Partnership's investment property will be made in
accordance with the terms of the Partnership's limited partnership
agreement and prospectus, and upon providing 20-day notice to the
plaintiff's attorney. Net proceeds will first be applied to pay
plaintiffs' counsels legal fees, expenses and costs, with interest
thereon.
Interim distributions to limited partners will continue to be made
in accordance with the limited partnership agreement. However, upon
final approval of the Settlement, distributions were increased to
the extent that sufficient reserves were established to support
normal partnership operations and the wind-up of Partnership affairs
upon the sale of the investment property. Any such additional
distributions were made within 30 days of the final approval of the
Settlement.
8
NRMI and the general partners shall continue to provide management
and consulting services to the Partnership on the same terms and
conditions currently provided under existing contracts until the
investment property is sold and assets liquidated and the Partnership
entity dissolved. NRMI will also be the listing broker for the sale
of the Partnership properties.
The plaintiffs' claims made against NRMI, the general partners, and
other related parties for excessive charging of expenses to the
partnerships, including the Partnership, will be settled through
binding arbitration. Any such expenses disallowed through
arbitration shall be reimbursed to the partnerships.
At the April 27, 2000 hearing, the lawsuit was certified as a non-opt out
class action, in which all limited partners of the Partnership are required
to be included in the settlement of this litigation. Furthermore, the Court
ruled that plaintiffs' counsel's attorney fees would be equal to one-third of
the difference between the secondary market value of the Partnership
interests and the total funds available for distribution to the limited
partners after payment of all Partnership obligations. The Court allowed
the Vishnevsky Defendants sixty days thereafter to present their evidence
regarding secondary market value.
On June 20, 2000, the Court entered a judgment based upon its April 27th
decision. Thereafter, on July 21, 2000, the Court held a hearing on the
plaintiffs Motion for Enforcement of the Court Approved Settlement and in
9
Support of Sanctions. The outcome of the hearing was that the Court granted
sanctions totaling $437,000.00 against the Vishnevsky Defendants and their
counsel for delaying the appointment of the Partnerships' Representative and
the arbitrators. The Court took under advisement the remaining open issue
regarding the secondary market value for computing the plaintiffs' counsel's
attorney fees until the arbitration proceedings are completed and the
Partnerships' properties are sold. A Motion for Reconsideration of the
sanctions was filed with the Court and was denied on September 25, 2000.
The defendants filed a motion with the Court to stay payment of the
sanctions pending appeal. That motion was also denied.
On August 2, 2000, the Vishnevsky Defendants filed an appeal from that
portion of the judgment determining the method for computing the plaintiffs
counsels'attorney fees. On October 10, 2000 the Vishnevsky Defendants filed
a second appeal from the order granting the sanctions. A motion to
consolidate the two appeals is pending. The appellate court has temporarily
stayed payment of the sanctions pending receipt of briefs on the issue.
Based on the events to date, it is not possible to determine the final
outcome of the litigation, or the amount of any potential monetary impact to
the Partnership. Therefore, no provision for any such financial impact
arising from the lawsuit has been made in these financial statements.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Real Estate Limited
Partnership Income Properties
----------------------------------------
(Registrant)
Date /S/November 6, 2000 /S/ John Vishnevsky
------------------------------- ----------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date /S/November 6, 2000 /S/ John Vishnevsky
------------------------------ -----------------------------------
John Vishnevsky
Chief Financial and Accounting Officer
Date /S/November 6, 2000 /S/ Stephen P. Kotecki
----------------------------- -----------------------------------
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Real Estate Limited Partnership
Income Properties
----------------------------------------
(Registrant)
Date November 6, 2000
---------------------------- ----------------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date November 6 , 2000
----------------------------- ----------------------------------------
John Vishnevsky
Chief Financial and Accounting Officer
Date November 6, 2000
----------------------------- ----------------------------------------
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
12
