<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1994
Commission File Number 1-9648
NATIONAL REALTY, L.P.
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 75-2163175
-------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- - - ------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(214) 692-4700
------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 .
---- ----
Units of Limited Partner Interest 2,139,607
- - - --------------------------------- --------------------------------
(Class) (Outstanding at October 28, 1994)
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of National Realty, L.P., all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of consolidated results of
operations, consolidated financial position and consolidated cash flows at the
dates and for the periods indicated, have been included.
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
----------- -----------
Assets (dollars in thousands)
------
<S> <C> <C>
Real estate held for investment
Land............................................ $ 47,203 $ 47,985
Buildings and improvements...................... 356,563 362,116
----------- -----------
403,766 410,101
Less - accumulated depreciation................. (188,495) (186,059)
----------- -----------
215,271 224,042
Real estate held for sale......................... 55,879 47,553
Less - Accumulated depreciation................. (25,256) (20,061)
----------- -----------
30,623 27,492
Notes and interest receivable, net of deferred
gains of $16,198 in 1993 and 1994............... 13,441 13,379
Less - allowance for estimated losses........... (1,910) (1,910)
----------- -----------
11,531 11,469
Cash and cash equivalents......................... 3,368 4,038
Accounts receivable............................... 2,006 2,005
Prepaid expenses.................................. 732 1,066
Escrow deposits and other assets.................. 11,929 7,815
Marketable equity securities of affiliate, at
market.......................................... 563 593
Deferred financing costs.......................... 16,535 17,525
----------- -----------
$ 292,558 $ 296,045
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 3
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
----------- ------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities
Notes and interest payable...................... $335,012 $335,200
Pension notes and related interest payable...... 10,451 9,618
Accrued property taxes.......................... 8,121 7,138
Accounts payable and other liabilities.......... 4,964 5,128
Tenant security deposits........................ 2,933 2,813
Amounts due to affiliates....................... 593 1,450
-------- --------
362,074 361,347
Commitments and contingencies
Redeemable General Partner Interest............... 21,600 21,600
Partners' Equity (Deficit)
General Partner................................. 2,422 2,480
Limited Partners................................ (68,057) (63,931)
Unrealized gain on marketable equity securities. 294 324
-------- --------
(65,341) (61,127)
Less - Redeemable General Partner Interest...... (25,775) (25,775)
-------- --------
(91,116) (86,902)
-------- --------
$292,558 $296,045
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 4
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1994 1993 1994 1993
--------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rentals....................... $ 26,631 $ 25,147 $ 78,579 $ 74,260
Interest...................... 686 834 1,872 2,870
--------- --------- --------- ---------
27,317 25,981 80,451 77,130
Expenses
Interest...................... 8,508 8,753 25,568 25,922
Depreciation & amortization... 2,561 2,566 7,631 7,597
Property taxes & insurance.... 3,045 2,948 8,962 8,667
Utilities..................... 2,915 2,776 8,951 8,253
Property-level payroll costs.. 1,785 1,691 4,817 4,646
Repairs and maintenance....... 6,251 6,235 16,609 16,226
Other operating expenses...... 1,148 1,172 3,329 3,354
Property management fees...... 1,138 1,073 3,402 3,164
General and administrative.... 1,238 1,293 4,082 3,973
--------- --------- --------- ---------
28,589 28,507 83,351 81,802
--------- --------- --------- ---------
<Loss> before extraordinary
gain.......................... (1,272) (2,526) (2,900) (4,672)
Extraordinary gain.............. - - - 9,046
--------- --------- --------- ---------
Net income <loss>............... $ (1,272) $ (2,526) $ 2,900 $ 4,374
========= ========= ========= =========
Earnings per unit
<Loss> before extraordinary
gain.......................... $ (.58) $ (1.13) $ (1.33) $ (2.02)
Extraordinary gain.............. - - - 3.91
--------- --------- --------- ---------
Net income <loss>............... $ (.58) $ (1.13) $ (1.33) $ 1.89
========= ========= ========= =========
Weighted average units of
limited partner interest
used in computing earnings
per unit...................... 2,139,607 2,189,646 2,139,607 2,269,889
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Net
Unrealized
Gain On Redeemable
Marketable General Partners'
General Limited Equity Partner Equity
Partner Partners Securities Interest (Deficit)
-------- --------- ---------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994......... $ 2,480 $ (63,931) $ 324 $ (25,775) $ (86,902)
Distributions ($0.60 per unit)... - (1,284) - - (1,284)
Unrealized loss on marketable
equity securities............... - - (30) - (30)
Net <loss>....................... (58) (2,842) - - (2,900)
-------- --------- ----- --------- ---------
Balance, September 30, 1994...... $ 2,422 $ (68,057) $ 294 $ (25,775) $ (91,116)
======== ========= ===== ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1994 1993
-------- --------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Rentals collected............................... $ 78,507 $ 74,098
Interest collected.............................. 1,734 1,755
Interest paid................................... (22,749) (23,094)
Payments for property operations................ (49,216) (42,668)
General and administrative expenses paid........ (4,515) (4,185)
Deferred financing costs........................ (745) (688)
Other........................................... - (250)
-------- --------
Net cash provided by operating activities..... 3,016 4,968
Cash Flows From Investing Activities
Real estate improvements........................ (1,991) (2,305)
Collections on notes receivable................. 648 10
-------- --------
Net cash <used in> investing activities....... (1,343) (2,295)
Cash Flows From Financing Activities
Proceeds from notes payable..................... 8,376 3,000
Payments to affiliates, net..................... (857) (1,921)
Payments on notes payable....................... (8,578) (4,555)
Distributions to unitholders.................... (1,284) -
Repurchase of units of limited partner
interest...................................... - (39)
Achievement escrows............................. - 1,000
-------- --------
Net cash <used in> financing activities....... (2,343) (2,515)
-------- --------
Net increase <decrease> in cash and cash
equivalents................................. (670) 158
Cash and cash equivalents at beginning of period.. 4,038 3,387
-------- --------
Cash and cash equivalents at end of period........ $ 3,368 $ 3,545
======== ========
Reconciliation of net income <loss> to net cash
provided by operating activities
Net income <loss>................................. $ (2,900) $ 4,374
Adjustments to reconcile net income <loss> to
net cash provided by operating activities
Depreciation and amortization................... 7,631 7,597
Extraordinary gain.............................. - (9,046)
<Increase> decrease in other assets............. (3,475) 2,216
<Increase> in interest receivable............... (25) (478)
Increase in interest payable.................... 843 3
Increase in other liabilities................... 942 302
-------- --------
Net cash provided by operating activities..... $ 3,016 $ 4,968
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------
1994 1993
------- -------
(dollars in thousands)
<S> <C> <C>
Schedule of noncash financing activities
Settlement of debt obligation of $9,946 in
exchange for note payable..................... $ - $ 900
Unrealized loss on marketable equity securities.. 30 -
Carrying value of real estate recorded upon
purchase of the general partner interest...... - 6,241
Assumption of mortgage note payable recorded
upon purchase of the general partner interest. - 6,115
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
<PAGE> 8
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements of National Realty, L.P. and
consolidated entities (the "Partnership") have been prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the nine month period ended September 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. For further information, refer to the Consolidated
Financial Statements and Notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1993 (the "1993 Form
10-K").
Certain 1993 balances have been reclassified to conform to the 1994
presentation.
NOTE 2. EARNINGS PER UNIT
Net income (loss) per unit of limited partner interest (per "unit") is computed
based upon the weighted average number of units outstanding during each period.
The limited partners of National Realty, L.P. ("National Realty") have a 99%
interest and the general partner, Syntek Asset Management, L.P. (the "General
Partner" or "SAMLP"), has an aggregate 1% interest in the net income, net loss
and distributions of National Realty. National Realty is allocated 99% of the
net income or net loss of National Operating, L.P. ("NOLP" or the "Operating
Partnership"), and the General Partner is allocated an aggregate 1% of the net
income or net loss of the Operating Partnership. The 1% General Partner
interest in each of National Realty and the Operating Partnership is equal to a
1.99% interest on a combined basis. Accordingly, net income (loss) per unit is
derived by dividing 98.01% of the net income (loss) in each period by the
respective weighted average units of limited partner interest.
NOTE 3. REAL ESTATE
In March 1994, the Partnership obtained new first mortgage financing secured by
the Cross County Shopping Center in Mattoon, Illinois. The Partnership can
borrow up to $7.5 million under the loan, to repay existing debt and for the
renovation of the shopping center as well as tenant improvements. $4.7 million
was advanced at closing, of which $4.3 million of the proceeds were used to
payoff existing debt, including prepayment penalties of $104,000. The
remainder of the proceeds were used to pay various closing costs associated
with the transaction. The new first mortgage bears interest at 1.5% above
prime rate, requires monthly payments of principal and interest based upon the
outstanding balance of the note, and matures in March 1997 with an option to
extend the maturity date to March 2002. Additional advances
8
<PAGE> 9
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. REAL ESTATE (Continued)
under the loan are to be made primarily to finance tenant improvements related
to the expansion by a major tenant. As of September 30, 1994, $633,000 of
additional advances under the loan had been made. The Partnership, in
accordance with the Partnership Agreement, paid Basic Capital Management, Inc.
("BCM") a 1% loan arrangement fee of $75,000 based upon the new first mortgage
financing of $7.5 million.
The Partnership has a 75% interest in Southern Palms Associates, which owns
Southern Palms Shopping Center. In August 1992, Southern Palms Associates
filed a voluntary petition in bankruptcy, seeking, among other things, to
restructure the $9.3 million nonrecourse mortgage secured by the shopping
center. On October 26, 1993, the bankruptcy court approved the plan of
reorganization and disclosure statement subject to certain conditions,
involving the 25% general partner of Southern Palms Associates, to be rectified
by the Partnership prior to the confirmation hearing, anticipated to be held in
the fourth quarter of 1994. In connection with the bankruptcy, an agreement
was reached with the lender to modify the $9.3 million first mortgage. The
modification, which was effective December 31, 1993, reduced the interest rate
from 11.7% per annum to a variable rate, currently 8.9% per annum, and extended
the maturity date of the mortgage to March 1998.
In July 1994, the Partnership completed the extension of the $2.3 million
second mortgage secured by Marina Playa Office Building. The loan's maturity
date was extended from July 1994 to January 1996, with all other terms of the
loan remaining unchanged.
In September 1994, the Partnership sold Creekwood Apartments in College Park,
Georgia for $6.0 million and has accounted for the sale as a financing
transaction. On the date of sale, the buyer obtained new first mortgage
financing from an independent lending institution in the amount of $3.0
million. The Partnership received $1.3 million in excess proceeds from the new
first mortgage financing, after the payoff of the existing first mortgage in
the amount of $1.1 million and the funding of required repair escrows and
closing costs associated with the transaction. Accordingly, the Partnership
has recorded the extinguishment of the then existing mortgage debt as well as
the new first mortgage. The new first mortgage bears interest at a variable
rate, currently 7.8% per annum, requires monthly payments of principal and
interest, currently $24,000 and matures in September 1997. The Partnership, in
accordance with the Partnership Agreement, paid BCM a 1% loan arrangement fee
of $30,000 based upon the new first mortgage financing of $3.0 million.
NOTE 4. WARRANTS
Pursuant to the Moorman Settlement Agreement, on February 14, 1992, the
Partnership issued 2,692,773 warrants to purchase an aggregate of 673,193 of
its units of limited partner interest subject to adjustment. Each warrant
entitles the holder thereof to purchase one quarter of one
9
<PAGE> 10
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. WARRANTS (Continued)
unit at the exercise price ($12.00 per warrant), equal to $48.00 per unit,
subject to adjustment. The warrants may be exercised for five years from the
February 14, 1992 date of issuance or until earlier redemption. See NOTE 6.
"LEGAL PROCEEDINGS - Moorman Settlement."
NOTE 5. INCOME TAXES
No federal or state income taxes have been provided for in the accompanying
Consolidated Statements of Operations as the partners include their share of
Partnership income or loss in their respective tax returns. For income or loss
allocation purposes, limited partners are allocated their proportionate share
of income or loss commencing with the calendar month subsequent to their entry
into the Partnership.
NOTE 6. LEGAL PROCEEDINGS
Moorman Settlement. The Partnership is party to a settlement agreement, dated
as of May 9, 1990, between plaintiffs Joseph B. Moorman, et al. and defendants
Robert A. McNeil, National Realty, the Operating Partnership, SAMLP, Gene E.
Phillips and William S. Friedman, and Shearson Lehman Hutton Inc.,
successor-in-interest to defendant E.F. Hutton & Company Inc., relating to the
action entitled Moorman, et al. v. Southmark Corporation, et al. Such action
was filed on September 2, 1987, in the Superior Court of the State of
California, County of San Mateo. The plaintiffs' motion for class
certification was granted, for purposes of settlement only, on May 16, 1990.
The "Class Members" are those persons who, as of September 17, 1987, were
limited partners of one or more of McNeil Real Estate Fund VI, Ltd., McNeil
Real Estate Fund VII, Ltd. and McNeil Real Estate Fund VIII, Ltd. (each a
California limited partnership that was merged into the Operating Partnership
by means of an exchange transaction), exclusive of (i) the defendants in the
action and certain affiliates of such defendants and (ii) those persons who
elected to be excluded from the plaintiff class. On May 9, 1990, the
Partnership agreed to settle such action pursuant to the terms of a written
agreement (the "Moorman Settlement Agreement"). On September 29, 1990, after a
hearing as to its fairness, reasonableness and adequacy, the Moorman Settlement
Agreement was granted final court approval.
By agreeing to settle the Moorman action, the Partnership, SAMLP, and Messrs.
Phillips and Friedman did not and do not admit any liability whatsoever.
The terms of the Moorman Settlement Agreement are complex and the following
summary is qualified in its entirety by reference to the text hereof, which was
previously included as an exhibit to a Partnership filing with the Securities
and Exchange Commission. The Moorman Settlement Agreement provides for a plan
(the "Moorman Settlement Plan") consisting of, among other things, the
following: (i) the appointment
10
<PAGE> 11
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. LEGAL PROCEEDINGS (Continued)
and operation of a committee (the "Oversight Committee") to oversee the
implementation of the Moorman Settlement Plan, (ii) the appointment and
operation of an audit committee having a majority of members unaffiliated with
Messrs. Phillips and Friedman or SAMLP, (iii) the establishment of specified
annually increasing targets described below (each a "Target") for each of the
next five years, relating to the price of the units of limited partner interest
as decreased for certain distributions to unitholders, (iv) an agreement by
SAMLP not to seek reimbursement of greater than $500,000 per year for Messrs.
Phillips' and Friedman's salaries for serving as general partners of SAMLP,
(Mr. Friedman resigned as general partner of SAMLP effective March 4, 1994) and
a deferral of such payments until such time as a Target may be met, and, if
SAMLP resigns as General Partner, a waiver of any compensation so deferred, (v)
a deferral until such time as a Target may be met of certain future annual
General Partner compensation payable, pursuant to the Partnership's governing
documents, to SAMLP or its affiliates, and, if SAMLP resigns as General
Partner, a waiver of any compensation so deferred, (vi) the required
distribution to unitholders of all the Partnership's operating cash flow in
excess of certain renovation costs, unless the Oversight Committee approves
alternative uses for such operating cash flow, (vii) the issuance of Warrants
to purchase an aggregate of up to 687,500 units (the "Warrants") to Class
Members, (viii) the contribution by certain co-defendants of cash and notes
payable to the Partnership aggregating $5.5 million (including $2.5 million to
be contributed by SAMLP and its general partners over a four-year period), (ix)
the amendment of the Partnership Agreement to reduce the vote required to
remove the General Partner from a two-thirds vote to a majority vote of the
units, (x) the Partnership's redemption of its unit purchase rights and an
agreement not to adopt a similar rights plan without Oversight Committee
approval and (xi) the Partnership's payment of certain settlement costs,
including plaintiffs' attorneys' fees in the amount of $3.4 million. The
Moorman Settlement Plan will remain in effect for a maximum period of five
years from the May 9, 1990 announcement of the Moorman Settlement Agreement to
the financial press, and the Warrants will remain exercisable for five years
from the February 14, 1992 date of issuance or until earlier redemption.
In May 1991, 1992 and 1993, SAMLP, on behalf of itself and its general
partners, made the first three of its four annual payments of $631,000
(including accrued interest), to the Partnership, as required by the Moorman
Settlement Agreement. The final payment of $631,000 was made in May 1994.
If the Partnership falls short of a Target for any one year of the Moorman
Settlement Plan by 10% or more, then the Oversight Committee may request that
the Partnership dispose of a portion of its assets and distribute the resulting
net proceeds to unitholders. Specifically, (i) if the shortfall equals 10% or
more but less than 35% of a Target, then the Oversight Committee may request
that the Partnership sell assets
11
<PAGE> 12
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. LEGAL PROCEEDINGS (Continued)
having at least 10% of the Partnership's then aggregate Equity Value, as
defined in the Moorman Settlement Agreement, in real estate and other assets,
and (ii) if the shortfall equals 35% or more of a Target, then the Oversight
Committee may request that the Partnership sell assets having at least 20% of
the Partnership's then aggregate Equity Value in real estate and other assets.
If Targets are not met for any two successive years of the Moorman Settlement
Plan or for the final year of the Moorman Settlement Plan, SAMLP will be
required to withdraw as General Partner effective at the time a successor
general partner is elected. Upon, among other things, the withdrawal of SAMLP
as General Partner and the due election and taking office of a successor, the
Moorman Settlement Plan would terminate.
The first two annual Targets, relating to unit market price were as follows:
<TABLE>
<CAPTION>
Anniversary Date Target
---------------- ------
<S> <C>
May 9, 1991............................. $44.00
May 9, 1992............................. 57.00
</TABLE>
Whether a given Target was achieved was determined by reference to the average
closing price per unit of National Realty's units of limited partner interest
on the American Stock Exchange ("AMEX") for the period beginning 30 days before
the corresponding Anniversary Date and ending 30 days thereafter. There shall
be added to this average closing price all distributions made after May 9,
1990, compounded at 9% per annum. Thus, achievement of the Targets may be
accomplished both through increases in the price of units and by distributions
to unitholders. The May 1991 Target of $44.00 per unit was not achieved and the
Oversight Committee formally requested that the Partnership sell real property
and other assets with an equity value of at least 20% of the aggregate equity
value of the real property and other assets owned by the Partnership as of
December 31, 1990. The General Partner selected a group of assets which it
offered for sale and such assets were classified as real estate held for sale.
Five of the assets selected were apartment complexes which were transferred to
Garden Capital, L.P. ("GCLP") and refinanced in 1992, and are no longer being
offered for sale. Accordingly, these assets were classified as held for
investment in the Partnership's Consolidated Balance Sheets at December 31,
1992 and 1993.
The Target for the second anniversary date of May 9, 1992 was $57.00 per unit.
The average market price per unit for the averaging period was $20.93 and
therefore, the second Target was not met. Since the Target has not been met
for two successive years, the Moorman Settlement Agreement requires that SAMLP
resign as General Partner, effective upon
12
<PAGE> 13
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. LEGAL PROCEEDINGS (Continued)
the election and qualification of its successor. On July 8, 1992, SAMLP
notified the Oversight Committee of the failure to meet the Target for two
successive years.
Upon, among other things, the withdrawal of SAMLP as General Partner and the
due election and taking office of a successor, the Moorman Settlement Plan
would terminate. Withdrawal of SAMLP as General Partner pursuant to the Moorman
Settlement Agreement requires unitholders to elect a successor general partner
by majority vote. Upon the withdrawal or removal of the General Partner
without the selection of a successor, the Partnership would be dissolved.
The Moorman Settlement Agreement provides that between the date of the
certification causing the General Partner's resignation and the date a
successor general partner takes office, the resigning General Partner shall
limit its activities, as General Partner, to the conduct of the business of the
Partnership in the ordinary course, shall not, without consent of the Oversight
Committee, purchase or sell any real estate or other assets of the Partnership
not in progress on said date, shall cooperate in the election of a successor
general partner and shall cooperate with its successor to facilitate a change
in the office of General Partner of the Partnership. The resigning General
Partner will continue to receive fees, expenses and distributions, if any,
while the solicitation is prepared.
Any dispute between the General Partner and the Oversight Committee concerning
the operation of the Moorman Settlement Agreement is to be resolved by the
Judge appointed pursuant to the Moorman Settlement Agreement to supervise its
implementation.
The withdrawal of the General Partner would require the Partnership to acquire
the General Partner's interest in the Partnership (the "Redeemable General
Partner Interest") at its then fair value, and to pay certain fees and other
compensation, as provided in the Partnership Agreement and the Moorman
Settlement Agreement. Under the Moorman Settlement Agreement, payment for such
Redeemable General Partner Interest, fees and other compensation may, at the
Oversight Committee's option, be paid over a three year period pursuant to a
secured promissory note bearing interest at the prime rate and containing
commercially reasonable terms and collateral. Under the Moorman Settlement
Plan, the purchase price for Redeemable General Partner Interest would be
calculated, as of the time SAMLP withdraws as General Partner under the
Partnership's governing documents. The Managing General Partner has calculated
the Redeemable General Partner Interest at December 31, 1993 to be $25.8
million, and believes there has been no material change in such value since
such date. The Partnership would be entitled to offset against any such
payment the then outstanding principal balance ($4.2 million at September 30,
1994) plus all accrued but unpaid interest ($4.1 million at September 30, 1994)
on the note
13
<PAGE> 14
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. LEGAL PROCEEDINGS (Continued)
receivable from SAMLP for its capital contribution to the Partnership. In the
accompanying Consolidated Financial Statements, the Redeemable General Partner
Interest is shown as a reduction of Partners' Equity. The note receivable from
the General Partner has been offset against the Redeemable General Partner
Interest. The Oversight Committee has informed the Partnership that it
calculated the amount of such Redeemable General Partner Interest at December
31, 1993, before the note receivable and unpaid interest offset described
above, to be approximately $20.0 million. When SAMLP withdraws as General
Partner of the Partnership, the value of the Redeemable General Partner
Interest would depend on the fair value of the Partnership's assets at the time
of calculation and there can be no assurance that the Redeemable General
Partner Interest, fees and other compensation payable on any such withdrawal
will not be substantially higher or lower than any current estimate or
calculation.
In October 1993, SAMLP and the Oversight Committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor General Partner and to resolve all related matters under the Moorman
Settlement Agreement. The following summary is qualified in its entirety by
reference to the text of the Term Sheet filed as an exhibit to the
Partnership's Current Report on Form 8-K dated October 6, 1993. The Term Sheet
provided that the nominee for successor General Partner would be a newly formed
corporation which would be a wholly-owned subsidiary of SAMLP. The Term Sheet
also set forth an agreement in principle to effect a restructuring of National
Realty and the spinoff by National Realty to its unitholders of shares of a
newly formed subsidiary which would qualify as a Real Estate Investment Trust
("REIT") for federal tax purposes and would be the beneficial owner of 75% of
NOLP's partnership interest in GCLP. The Term Sheet also contained proposed
amendments to the National Realty partnership agreement. Pursuant to the Term
Sheet, the Partnership would be relieved of any obligation to acquire the
Redeemable General Partner Interest or to pay any other fees or compensation to
SAMLP upon SAMLP's withdrawal as General Partner.
In July 1994, SAMLP determined that the proposed spinoff of the REIT was no
longer in the best interests of the limited partners of National Realty.
Accordingly, the Term Sheet provisions are not being implemented and the
parties are evaluating other alternatives to consummate the Moorman Settlement
Agreement.
Other. The Partnership is involved in various lawsuits arising in the ordinary
course of business. Management of the Partnership is of the opinion that the
outcome of these lawsuits would have no material impact on the Partnership's
financial condition.
14
<PAGE> 15
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. SUBSEQUENT EVENTS
In October 1994, the Partnership sold the Brandywine and Raintree Apartments,
both located in Meridian Township, Michigan, to a single buyer for a total of
$14.8 million. The Partnership received net cash of $5.4 million after the
payoff of $9.4 million in existing mortgage debt. The Partnership anticipates
recognizing gains totaling $8.8 million on the sales. These properties are
classified as real estate held for sale in the Partnership's accompanying
Consolidated Balance Sheets. The Partnership paid real estate sales
commissions totaling $444,000 to Carmel Realty based upon the $14.8 million
total sales price of the properties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Introduction
National Realty, L.P. ("National Realty") is a Delaware limited partnership
formed on January 29, 1987, the business of which consists primarily of owning
and operating through National Operating, L.P., also a Delaware limited
partnership (the "Operating Partnership"), a portfolio of real estate. Most of
the Operating Partnership's properties were acquired in transactions
consummated on September 18, 1987, pursuant to which National Realty acquired
all of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships. National Realty and the Operating Partnership operate as
an economic unit and, unless the context otherwise requires, all references
herein to the "Partnership" shall constitute references to National Realty and
the Operating Partnership as a unit.
In November 1992, the Operating Partnership, in conjunction with a refinancing
of 52 of its apartment properties and a wraparound note receivable, transferred
such assets to Garden Capital, L.P. ("GCLP"), a Delaware limited partnership in
which the Operating Partnership holds a 99.3% limited partner interest.
National Realty's units of limited partner interest are traded on the American
Stock Exchange (the "AMEX") using the symbol "NLP". National Realty no longer
meets certain of the criteria of the AMEX for continued listing and will likely
continue to fail to meet such criteria. Although National Realty does not
anticipate that the AMEX will seek to delist its units of limited partner
interest, there can be no assurance that the AMEX will not seek to do so.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $3.2 million at September 30, 1994
compared to $4.0 million at December 31, 1993. The principal reasons for this
decrease in cash are discussed in the paragraphs below.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Managing General Partner of the Partnership's General Partner has
discretion in determining methods of obtaining funds for the Partnership's
operations. The Partnership's governing documents place no limitation on the
amount of leverage that the Partnership may incur either in the aggregate or
with respect to any particular property or other investment. At September 30,
1994, the aggregate loan-to-value ratio of the Partnership's real estate
portfolio was 52.1%, computed on the basis of the ratio of total
property-related debt to aggregate appraised values as of December 31, 1993, as
compared with a loan-to-value ratio of 52.1% at December 31, 1993.
Historically, the Partnership's principal sources of cash flow have been and
will continue to be from property operations and externally generated funds.
Externally generated funds include borrowings, proceeds from the sale of assets
and proceeds from the issuance of debt secured by Partnership properties or
mortgage notes receivable. The Partnership continues to experience liquidity
problems and expects that cash flow from operations together with externally
generated funds will be sufficient to meet the Partnership's various cash needs
only if the Partnership is able to renew and extend mortgages as they mature,
obtain mortgage financing on its unencumbered properties, or alternatively,
increase the rate of property and other asset sales, in amounts sufficient to
provide adequate cash.
The Partnership's properties, except for five, are encumbered by mortgages. In
1994, mortgages totaling $21.6 million were scheduled to become due. In March
1994, $4.2 million of this amount was successfully refinanced. The new $7.5
million loan, of which only $5.3 million has been advanced to date, matures in
March 1997. In July 1994, the Partnership reached an agreement with the lender
to extend the maturity date of a $2.3 million second mortgage from July 1994 to
January 1996. In addition, the Partnership has reached an agreement with the
lender to modify a $9.3 million mortgage which matured in 1993 and to extend
its maturity date to March 1998. In September 1994, the Partnership paid off
the $1.1 million first mortgage secured by the Creekwood Apartments, which
matured in November 1993 with the proceeds of a new first mortgage in the
amount of $3.0 million, which matures in September 1997. It is the
Partnership's intention to either pay the remaining mortgages that mature in
1994 when due, or seek to extend the due dates one or more years while
attempting to obtain alternate financing. The Partnership also intends to seek
to refinance certain mortgages not due in 1994 and use the proceeds for working
capital purposes. Due to the limited long-term financing available to the
Partnership, there can be no assurance that the Partnership will be successful
in extending such "balloon" payments or that it will not ultimately lose
certain of its properties to foreclosure. However, the General Partner
believes it will continue to be successful in obtaining at least the minimum
amount of extensions or other proceeds to enable the Partnership to maintain
ownership of all properties in which it has equity.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In October 1994, the Partnership sold the Brandywine and Raintree Apartments,
both located in Meridian Township, Michigan, for a total of $14.8 million. The
Partnership received net cash of $5.4 million after the payoff of $9.4 million
in existing debt. These properties are classified as real estate held for sale
in the accompanying Consolidated Balance Sheets.
The Partnership currently has one additional apartment complex under contract
for sale. The Partnership anticipates closing this sale during the first
quarter of 1995. This property is classified as real estate held for sale in
the Partnership's accompanying Consolidated Balance Sheet at September 30,
1994. The Partnership, however, can give no assurance that it will
successfully complete this property sale.
In November 1992, in conjunction with the transfer of the net assets of 52
apartment complexes and a wraparound note receivable to GCLP, such assets were
refinanced under a $223 million blanket mortgage loan. The blanket mortgage
loan requires that cash flow from the GCLP properties be used to fund various
escrow and reserve accounts and limits the payment of distributions to the
Partnership. During the first nine months of 1994, the Partnership received
distributions from GCLP totaling $1.7 million, compared to distributions
totaling $1.2 million received during the first nine months of 1993.
In the first nine months of 1994, the Partnership paid quarterly distributions
aggregating $0.60 per unit, or a total of $1.3 million.
The Partnership's net cash flow from property operations (rentals collected
less payments for property operating expenses) decreased from $31.4 million for
the nine months ended September 30, 1993 to $29.3 million for the nine months
ended September 30, 1994. This decrease is primarily due to a $2.9 million
increase in payments for tax and capital improvement escrows related to the
GCLP properties. This decrease is partially offset by an increase in rental
rates at the Partnership's apartment complexes.
As discussed in NOTE 6. "LEGAL PROCEEDINGS," the Moorman litigation settlement
agreement (the "Moorman Settlement Agreement") sets forth certain aggressive,
annually increasing targets relating to the price of the Partnership's units of
limited partner interest which were not met, resulting in, among other things,
withdrawal of the General Partner and the resulting required repurchase of the
General Partner's interest. The effects of some or all of these provisions
could adversely affect the Partnership's already strained liquidity.
The withdrawal of the General Partner requires the Partnership to acquire the
General Partner's interest at its then fair value, and to pay certain fees and
other compensation, as provided in the Partnership Agreement and the Moorman
Settlement Agreement. The Moorman Settlement Agreement provides that any
payment for such Redeemable General Partner Interest, fees and other
compensation during the pendency of the Moorman
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Settlement Agreement may, at the option of the Oversight Committee (also
established under the Moorman Settlement Agreement), be made over three years
pursuant to a secured promissory note bearing interest at a financial
institution's prime rate. The Managing General Partner has calculated the fair
value of the Redeemable General Partner Interest at December 31, 1993 to be
$25.8 million, and believes that there has been no material change in such
value since that date. The Partnership would be entitled to offset against
such payment the then outstanding principal balance of the note receivable
($4.2 million at September 30, 1994) plus all accrued and unpaid interest ($4.1
million at September 30, 1994) on the note receivable from the General Partner
representing its capital contribution to the Partnership. The Oversight
Committee has informed the Partnership that it calculates the amount of such
Redeemable General Partner Interest, fees and other compensation at December
31, 1993, before the note receivable and unpaid interest offset discussed
above, to be approximately $20.0 million. When SAMLP withdraws as General
Partner of the Partnership, the fair value of the Redeemable General Partner
Interest would depend on the value of the Partnership's assets at the time of
calculation and there can be no assurance that the Redeemable General Partner
Interest, fees and other compensation payable on any such withdrawal will not
be substantially higher or lower than any current estimate or calculation.
In the accompanying Consolidated Financial Statements, the Redeemable General
Partner Interest is shown as a reduction in Partners' Equity and the note
receivable from the General Partner has been offset against the Redeemable
General Partner Interest.
In connection with the Moorman Settlement Agreement, the Partnership received
contributions from certain co-defendants of cash and notes including a
promissory note for $2.0 million from Gene E. Phillips and William S. Friedman,
at the time, general partners of SAMLP, and guaranteed by SAMLP. The final
payment of $631,000 was received in May 1994.
In October 1993, SAMLP and the Oversight Committee reached an agreement in
principle, evidenced by a detailed Term Sheet, to nominate a candidate for
successor general partner and to resolve all related matters under the Moorman
Settlement Agreement. The Term Sheet provided that the nominee for successor
General Partner would be a newly formed corporation which would be a
wholly-owned subsidiary of SAMLP. The Term Sheet also set forth an agreement
in principle to effect a restructuring of National Realty and the spinoff by
National Realty to its unitholders of shares of a newly formed subsidiary which
would qualify as a Real Estate Investment Trust ("REIT") for federal tax
purposes and would be the beneficial owner of 75% of NOLP's partnership
interest in GCLP. The Term Sheet also contained proposed amendments to the
Partnership Agreement. Pursuant to the Term Sheet, the Partnership would be
relieved of any obligation to acquire the Redeemable General Partner Interest
or to pay any other fees or compensation to SAMLP upon SAMLP's withdrawal as
General Partner.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In July 1994, SAMLP determined that the proposed spinoff of the REIT was no
longer in the best interests of the limited partners of National Realty.
Accordingly, the Term Sheet provisions are not being implemented and the
parties are evaluating other alternatives to consummate the Moorman Settlement
Agreement.
Results of Operations
The Partnership reported net losses of $1.3 million and $2.9 million for the
three and nine months ended September 30, 1994 as compared to a net loss of
$2.5 million and net income of $4.4 million for the three and nine months ended
September 30, 1993. The Partnership's nine month net income in 1993 is
attributable to a $9.0 million extraordinary gain recognized in the first
quarter of 1993. The primary factors effecting the Partnership's operating
results are discussed in the following paragraphs.
Net rental income for the Partnership (rental income less property operating
expenses) increased from $9.3 million and $30.0 million for the three and nine
months ended September 30, 1993 to $10.3 million and $32.5 million for the
three and nine months ended September 30, 1994. Of these increases, $63,000 for
the three months and $451,000 for the nine months is due to the acquisition in
June 1993 of the controlling partnership interest in Club Mar Realty Group,
Ltd., which owns the Club Mar Apartments, and obtaining the Whispering Pines
Apartments in Canoga Park, California through insubstance foreclosure in
December 1993. The remainder of the increase is attributable to a 5% increase
in average rental rates at the Partnership's apartment complexes.
Interest income decreased from $834,000 and $2.9 million for the three and nine
months ended September 30, 1993 to $686,000 and $1.9 million for the three and
nine months ended September 30, 1994. These decreases are primarily
attributable to interest income recorded for the three and nine months ended
September 30, 1993 on a loan on which the collateral was foreclosed in December
1993 and to a decrease in cash received in 1994 on a mortgage note receivable
on which interest is recognized on a cash receipts basis.
Interest expense decreased from $8.8 million and $25.9 million for the three
and nine months ended September 30, 1993 to $8.5 million and $25.6 million for
the three and nine months ended September 30, 1994. Interest expense decreased
$74,000 for the three months and $188,000 for the nine months due to the
December 1993 Southern Palms debt modification. In addition, a decrease in
interest expense of $209,000 for the three months and $296,000 for the nine
months is due to achievement escrows of $1.8 million applied against the
principal balances of three of the Partnership's mortgage loans in 1993 and the
payment of $228,000 in related prepayment penalties in September 1993. These
decreases are partially offset by an increase in interest expense related to
the acquisition of the controlling partnership interest in Club Mar Apartments
in June 1993.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
General and administrative expenses for the three months ended September 30,
1994 approximated those in 1993 and increased slightly for the nine months to
$4.1 million from $4.0 million. Of the nine month increase, $187,000 is
attributable to an increase in the Partnership's overhead reimbursements to
Basic Capital Management, Inc. This increase is partially offset by an $84,000
decrease in audit and other professional fees.
___________________________________________
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See NOTE 6. "LEGAL PROCEEDINGS," of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in PART I for information relating to legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - ------- ---------------------------------
<S> <C>
11.0 Computation of Earnings Per Unit
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
None.
20
<PAGE> 21
NATIONAL REALTY, L.P.
Signature Page
Pursuant to the requirements of Section 13 or 15(d) 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 REALTY, L.P.
By its General Partner:
SYNTEK ASSET MANAGEMENT, L.P.
By its Managing General Partner:
SYNTEK ASSET MANAGEMENT, INC.
Date: November 14, 1994 By: /s/ Oscar W. Cashwell
Oscar W. Cashwell
President
Date: November 14, 1994 By: /s/ Hamilton P. Schrauff
Hamilton P. Schrauff
Executive Vice President and
Chief Financial Officer
21
<PAGE> 22
NATIONAL REALTY, L.P.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 30, 1994
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - - ------- ----------- ------
<S> <C> <C>
11.0 Computation of Earnings Per Unit 23
27.0 Financial Data Schedule 24
</TABLE>
22
<PAGE> 1
EXHIBIT 11.0
NATIONAL REALTY, L.P.
A DELAWARE LIMITED PARTNERSHIP
Computation of Earnings Per Unit
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- -----------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C>
<Loss> before extraordinary
gain....................... $ (1,272) $ (2,536) $ (2,900) $ (4,672)
Less - General Partner's
1.99% Interest............. (25) (50) (58) (93)
---------- ---------- ---------- ----------
<Loss> before extraordinary
gain allocable to Limited
Partners................... $ (1,247) $ (2,476) $ (2,842) $ (4,579)
========== ========== ========== ==========
Extraordinary gain............ $ - $ - $ - $ 9,046
Less - General Partner's... 180 - - 180
---------- ---------- ---------- ----------
Extraordinary gain allocable
to Limited Partners........ $ - $ - $ - $ 8,866
========== ========== ========== ==========
Net income <loss>............. $ (1,272) $ (2,526) $ (2,900) $ 4,374
Less - General Partner's
1.99% Interest............ (25) (50) (58) 87
---------- ---------- ---------- ----------
Net income <loss> allocable
to Limited Partners......... $ (1,247) $ (2,476) $ (2,842) $ 4,287
========== ========== ========== ==========
Earnings Per Unit
<Loss> before extraordinary
gain...................... $ (.58) $ (1.13) $ (1.33) $ (2.02)
Extraordinary gain.......... - - - 3.91
---------- ---------- ---------- ----------
Net income <loss>........... $ (.58) $ (1.13) $ (1.33) $ 1.89
========== ========== ========== ==========
Weighted average units of
limited partner interest
used in computing earnings
per unit.................... 2,139,607 2,189,646 2,139,607 2,269,889
========== ========== ========== ==========
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,368
<SECURITIES> 563
<RECEIVABLES> 13,441
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 459,645
<DEPRECIATION> 213,751
<TOTAL-ASSETS> 292,558
<CURRENT-LIABILITIES> 0
<BONDS> 345,463
<COMMON> 0
0
0
<OTHER-SE> (91,116)
<TOTAL-LIABILITY-AND-EQUITY> 292,558
<SALES> 0
<TOTAL-REVENUES> 78,579
<CGS> 0
<TOTAL-COSTS> 46,070
<OTHER-EXPENSES> 7,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,568
<INCOME-PRETAX> (2,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,900)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
