<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 JUNE 30, 1995
Commission File Number 1-9648
NATIONAL REALTY, L.P.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-2163175
-------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 2,139,368
- --------------------------------- ------------------------------
(Class) (Outstanding at July 28, 1995)
1
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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>
June 30, December 31,
1995 1994
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Assets
------
Real estate held for investment
Land............................................ $ 47,270 $ 46,842
Buildings and improvements...................... 354,600 352,219
-------------- --------------
401,870 399,061
Less - accumulated depreciation................. (190,524) (186,161)
-------------- --------------
211,346 212,900
Real estate held for sale......................... 52,643 52,511
Less - Accumulated depreciation................. (24,599) (23,876)
-------------- --------------
28,044 28,635
Notes and interest receivable, net of deferred
gains of $16,198 in 1994 and 1995............... 13,474 13,442
Less - allowance for estimated losses........... (1,910) (1,910)
-------------- --------------
11,564 11,532
Cash and cash equivalents......................... 3,732 3,748
Accounts receivable............................... 1,537 1,975
Prepaid expenses.................................. 537 695
Escrow deposits and other assets.................. 12,192 11,500
Marketable equity securities of affiliate, at
market.......................................... 642 636
Deferred financing costs.......................... 14,441 15,321
Amounts due from affiliates....................... 1,855 3,198
-------------- --------------
$ 285,890 $ 290,140
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
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NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities
Notes and interest payable...................... $ 327,351 $ 326,775
Pension notes and related interest payable...... 11,393 10,769
Accrued property taxes.......................... 6,279 6,967
Accounts payable and other liabilities.......... 4,388 5,901
Tenant security deposits........................ 2,932 2,751
-------------- --------------
352,343 353,163
Commitments and contingencies
Redeemable General Partner Interest............... 28,800 28,800
Partners' equity (deficit)
General Partner................................. 2,529 2,580
Limited Partners (2,139,368 units in 1995 and
2,139,418 units in 1994)...................... (65,180) (61,795)
Unrealized gain on marketable equity securities. 373 367
-------------- --------------
(62,278) (58,848)
Less - Redeemable General Partner Interest...... (32,975) (32,975)
-------------- --------------
(95,253) (91,823)
-------------- --------------
$ 285,890 $ 290,140
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
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NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------------- --------------------------------
1995 1994 1995 1994
-------------- -------------- --------------- -------------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C>
Revenues
Rents....................... $ 26,856 $ 26,204 $ 53,104 $ 51,948
Interest.................... 686 594 1,351 1,186
-------------- -------------- --------------- -------------
27,542 26,798 54,455 53,134
Expenses
Interest.................... 8,646 8,487 17,161 17,060
Depreciation & amortization. 2,526 2,551 5,086 5,070
Property taxes & insurance.. 3,005 3,000 5,988 5,917
Utilities................... 2,712 2,855 5,662 6,036
Property-level payroll costs 1,540 1,431 3,248 3,032
Repairs and maintenance..... 6,677 5,516 12,037 10,358
Other operating expenses.... 1,078 1,041 2,246 2,181
Property management fees.... 1,149 1,144 2,279 2,264
General and administrative.. 1,586 1,331 3,329 2,844
-------------- -------------- --------------- -------------
28,919 27,356 57,036 54,762
-------------- -------------- --------------- -------------
Net (loss).................... $ (1,377) $ (558) $ (2,581) $ (1,628)
============== ============== =============== =============
Earnings per unit
Net (loss).................. $ (.63) $ (.26) $ (1.18) $ (.75)
============== ============== =============== ==============
Weighted average units of
limited partner interest
used in computing earnings
per unit.................... 2,139,380 2,139,607 2,139,392 2,139,607
============== ============== =============== =============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
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NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
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, 1995......... $ 2,580 $ (61,795) $ 367 $ (32,975) $(91,823)
Distributions ($.40 per unit).... - (855) - - (855)
Unrealized gain on marketable
equity securities of affiliate. - - 6 - 6
Net (loss)....................... (51) (2,530) - - (2,581)
--------- ---------- ------ ---------- --------
Balance, June 30, 1995........... $ 2,529 $ (65,180) $ 373 $ (32,975) $(95,253)
========= ========== ====== ========== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
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NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------------
1995 1994
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Rents collected................................. $ 53,262 $ 52,557
Interest collected.............................. 1,240 586
Interest paid................................... (15,273) (15,138)
Payments for property operations................ (33,694) (30,701)
General and administrative expenses paid........ (3,286) (3,386)
Deferred financing costs........................ (175) (576)
-------------- --------------
Net cash provided by operating activities..... 2,074 3,342
Cash Flows From Investing Activities
Acquisition of real estate...................... (463) -
Real estate improvements........................ (1,228) (852)
Collections on notes receivable................. 10 11
-------------- --------------
Net cash (used in) investing activities....... (1,681) (841)
Cash Flows From Financing Activities
Proceeds from notes payable..................... 7,957 4,950
Payments from affiliates, net................... 1,343 -
Payments on notes payable....................... (8,854) (6,370)
Distributions to unitholders.................... (855) (783)
-------------- --------------
Net cash (used in) financing activities....... (409) (2,203)
-------------- --------------
Net increase (decrease) in cash and cash
equivalents................................. (16) 298
Cash and cash equivalents at beginning of period.. 3,748 4,038
-------------- --------------
Cash and cash equivalents at end of period........ $ 3,732 $ 4,336
============== ==============
Reconciliation of net (loss) to net cash
provided by operating activities
Net (loss)........................................ $ (2,581) $ (1,628)
Adjustments to reconcile net (loss) to net
cash provided by operating activities
Depreciation and amortization................... 5,063 5,070
(Increase) decrease in other assets............. 778 (194)
(Increase) in interest receivable............... (19) (541)
Increase in interest payable.................... 681 557
Increase (decrease) in other liabilities........ (1,848) 78
-------------- --------------
Net cash provided by operating activities..... $ 2,074 $ 3,342
============== ==============
Schedule of noncash financing activities
Unrealized gain on marketable equity securities
of affiliate.................................. $ 6 $ -
Note payable from acquisition of real estate.... 1,200 -
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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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 six month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995. 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, 1994 (the "1994 Form
10-K").
Certain 1994 balances have been reclassified to conform to the 1995
presentation.
NOTE 2. EARNINGS PER UNIT
Net (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 (loss) per unit is
derived by dividing 98.01% of the net (loss) in each period by the respective
weighted average units of limited partner interest.
NOTE 3. REAL ESTATE
In March 1995, the Partnership purchased the Chalet II Apartments, a 72 unit
apartment complex in Topeka, Kansas, for $1.6 million. The Partnership paid
$439,000 in cash and obtained new first mortgage financing of $1.2 million.
The mortgage bears interest at a rate of prime plus 1%, 10% per annum at June
30, 1995, requires monthly payments of principal and interest, currently
$12,000, and matures in March 2002. The Partnership, in accordance with the
Partnership's Limited Partnership Agreement, paid a real estate brokerage
commission of $49,000 to Carmel Realty, Inc. , an affiliate of the
Partnership's Managing General Partner, based on the $1.6 million purchase
price of the property.
In May 1995, the Partnership refinanced the mortgage debt secured by the
Mallard Lake Apartments in Greensboro, North Carolina in the amount of $8.2
million. The Partnership received net cash of $1.4 million after
7
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. REAL ESTATE (Continued)
the payoff of $6.5 million in existing mortgage debt. The remainder of the
refinancing proceeds were used to fund escrows for replacements and repairs and
to pay various closing costs associated with the refinancing. The new mortgage
bears interest at the rate of 8.75% per annum, requires monthly payments of
principal and interest of $67,416 and matures June 1, 2005. The Partnership,
in accordance with the Partnership Agreement, paid a mortgage brokerage and
equity refinancing fee of $82,000 to Basic Capital Management, Inc., the sole
shareholder of the Partnership's Managing General Partner, based upon the new
$8.2 million mortgage.
NOTE 4. NOTES RECEIVABLE
In 1991, the Partnership and an insurance company entered into an Asset Sales
Agreement to sell participations in certain of the Partnership's mortgage notes
receivable in exchange for participations in other mortgage notes or assets and
cash. The Partnership entered into the Asset Sales Agreement in an effort to
develop a potential source for future financing and to generate cash from
otherwise illiquid assets. The assets transferred by the Partnership pursuant
to the Asset Sales Agreement included a $2.5 million senior participation in a
wraparound mortgage note receivable secured by a shopping center in Las Vegas,
Nevada, a $1.0 million senior participation in a wraparound mortgage note
receivable secured by a shopping center in La Crosse, Wisconsin, and a first
lien mortgage note with a carrying value of $1.2 million prior to transfer. In
return, the Partnership received a $447,000 senior participation in a note
secured by land in Granby, Colorado, a $1.5 million participation in a note
secured by a country club in the Ka'u District of Hawaii, a 10% limited partner
interest in the partnership owning the country club, valued at $1.5 million, a
$213,000 first lien mortgage note secured by land in Denver, Colorado and $1.0
million in cash. The Asset Sales Agreement included put and guaranty
provisions.
In March 1992, the insurance company was placed in receivership. In June 1992,
the Partnership provided notice to the insurance company, under the terms of
the put and guaranty provisions, of its desire to divest itself of all the
assets received. The Receiver refused to allow the enforcement of the terms of
the Asset Sales Agreement. In September 1992, the court approved the
Receivers' Petition for an Order of Liquidation for the insurance company.
In 1992, the Partnership determined that the fair value of the underlying
collateral securing one of the participations and a note receivable received
was not sufficient to satisfy the Partnership's interests and accordingly, the
Partnership recorded a $1.6 million provision for loss to provide for such
deficiency. In May 1993, the Partnership foreclosed on an assigned first lien
secured by land in Denver, Colorado. The Partnership incurred no loss as a
result of the foreclosure. In October 1993, this land was sold for its
carrying value.
8
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. NOTES RECEIVABLE (Continued)
The Partnership reached a settlement with the Receiver, which was approved by
the court on February 15, 1995. Under the terms of the settlement, on July 7,
1995, the insurance company returned to the Partnership the senior
participations in the wraparound mortgage notes secured by the shopping centers
in Las Vegas, Nevada and La Crosse, Wisconsin. In exchange, the Partnership
returned all of the assets that it received from the insurance company other
than the first lien mortgage note secured by the land in Denver, Colorado,
which had been foreclosed and sold by the Partnership, and paid $657,000 in
cash. The Partnership also purchased from the insurance company the first lien
note secured by the land in Granby, Colorado and a second lien note secured by
commercial condominiums also in Granby, Colorado for $550,000.
NOTE 5. WARRANTS
Pursuant to a litigation 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 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 7. "LEGAL PROCEEDINGS - Moorman
Settlement."
NOTE 6. 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 7. 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. On May 9, 1990, the Partnership agreed to
settle such action pursuant to the terms of a written agreement (the "Moorman
Settlement Agreement"). On June 29, 1990, after a hearing as to its fairness,
reasonableness and adequacy, the Moorman Settlement Agreement was granted final
court approval.
9
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. LEGAL PROCEEDINGS (Continued)
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 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 through May 1993, 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 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
until SAMLP has resigned as General Partner and a successor general partner is
elected and takes office, and the Warrants will remain exercisable for five
years from the February 14, 1992 date of issuance or until earlier redemption.
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,
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. LEGAL PROCEEDINGS (Continued)
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 Targets for the first and second anniversary dates were not met. Since the
Targets were not met for two successive years, the Moorman Settlement Agreement
requires that SAMLP resign as General Partner, effective upon 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 (the "Supervising 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
11
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. LEGAL PROCEEDINGS (Continued)
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, 1994 to be
$33.0 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 June 30, 1995)
plus all accrued but unpaid interest ($4.8 million at June 30, 1995) on the
note receivable from SAMLP for its capital contribution to the Partnership. In
the accompanying Consolidated Balance Sheets, 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 previously has informed the Partnership that
it calculated the amount of such Redeemable General Partner Interest to be less
than the amount calculated by the Managing General Partner. 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. Any dispute pertaining to the amount of Redeemable
General Partner Interest upon withdrawal of SAMLP, will be resolved by the
Supervising Judge.
On January 27, 1995, National Realty, SAMLP, the Oversight Committee and
William H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement.
The Implementation Agreement was subject to receipt of a notice from Mr.
Elliott that he consented to stand for election as the successor general
partner. On April 20, 1995, Mr. Elliott formally notified the parties that he
would stand for such election.
On June 29, 1995, the Implementation Agreement was submitted to the Supervising
Judge for tentative approval and approval of the notice to be sent to the
original class members. As of August 10, 1995, the tentative approval of the
Supervising Judge had not been obtained and therefore the notice to class
members had not been mailed. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the
unitholders of National Realty for a vote. In addition, the unitholders will
vote upon amendments to the National Realty partnership agreement which relate
to the proposed compensation of the successor general partner and other related
matters.
Upon approval by the unitholders, SAMLP shall withdraw as General Partner and
the successor general partner shall take office. If the required approvals are
obtained, National Realty anticipates that the successor general partner may be
elected and take office during the first quarter of 1996.
12
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NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. LEGAL PROCEEDINGS (Continued)
The Implementation Agreement provides that SAMLP, and its affiliates owning
units in National Realty, shall not vote to remove the successor general
partner, except for removal with cause, for a period of thirty months from the
date the successor general partner takes office. In addition, the Supervising
Judge shall make a determination of any amounts which National Realty may owe
to SAMLP upon SAMLP's withdrawal as General Partner and any amounts which SAMLP
or its affiliates may owe to National Realty. Any amounts which National
Realty may be determined to owe to SAMLP may be paid by National Realty over a
period of time to be determined by the parties on terms which shall not hinder
National Realty's ability to meet its other financial obligations.
Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall terminate. If the
successor general partner nominee is not elected, the existing Moorman
Settlement Agreement shall remain in full force and effect and all of the
provisions of the Implementation Agreement shall be voided.
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.
__________________________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Introduction (Continued)
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 $3.7 million at June 30, 1995 and
December 31, 1994.
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 June 30, 1995,
the aggregate loan-to-value ratio of the Partnership's real estate portfolio
was 48.0%, computed on the basis of the ratio of total property-related debt to
aggregate appraised values as of December 31, 1994, as compared with a
loan-to-value ratio of 47.9% at December 31, 1994.
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 Partnership
properties and other assets and proceeds from the issuance of debt secured by
Partnership properties or mortgage notes receivable. The Partnership expects
the cash flow from property operations together with externally generated funds
will be sufficient to meet the Partnership's various cash needs in 1995,
including but not limited to the payment of distributions, debt service
obligations coming due and property maintenance and improvements, as more fully
discussed in the paragraphs below.
In March 1995, the Partnership, with the approval of the Oversight Committee,
purchased the Chalet II Apartments, a 72 unit apartment complex in Topeka,
Kansas, for $1.6 million. The Partnership paid $439,000 in cash, obtaining new
mortgage financing of $1.2 million.
In May 1995, the Partnership refinanced the mortgage debt secured by the
Mallard Lake Apartments in Greensboro, North Carolina in the amount of $8.2
million. The Partnership received net cash of $1.4 million after the payoff of
$6.5 million in existing mortgage debt. The remainder of the refinancing
proceeds were used to fund escrows for replacements and repairs and to pay
various closing costs associated with the refinancing.
In November 1992, in conjunction with the transfer of the net assets of 52
apartment complexes and a wraparound note receivable to GCLP, such
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
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 six months of 1995, the
Partnership received distributions from GCLP totaling $1.3 million, compared to
distributions totaling $390,000 received during the first six months of 1994.
In the first six months of 1995, the Partnership paid quarterly distributions
aggregating $0.40 per unit, or a total of $855,000.
The Partnership's net cash flow from property operations (rents collected less
payments for property operating expenses) of $21.8 million for the six months
ended June 30, 1994 decreased to $19.6 million for the six months ended June
30, 1995. This decrease is primarily due to the sale of the Brandywine and
Raintree Apartments in October 1994, an increase in payments for property taxes
and an increase in payments for repairs and maintenance. These decreases are
partially offset by an increase in rental rates at the Partnership's apartment
complexes.
As discussed in NOTE 7. "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 liquidity. However, the General
Partner and the Oversight Committee have agreed in principle, as discussed
below, to possible arrangements which would alleviate the adverse effect of
such provisions.
The withdrawal of the General Partner requires 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. The Moorman Settlement Agreement provides that any
payment for such Redeemable General Partner Interest, fees and other
compensation during the pendency of the Moorman 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, 1994 to be $33.0 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 June 30,
1995) plus all accrued and unpaid interest ($4.8 million at June 30, 1995) on
the note receivable from the General Partner representing its capital
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
contribution to the Partnership. When Syntek Asset Management, L.P. ("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 Balance Sheets, 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.
On January 27, 1995, National Realty, SAMLP, the Oversight Committee and
William H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement.
The Implementation Agreement was subject to receipt of a notice from Mr.
Elliott that he consented to stand for election as the successor general
partner. On April 20, 1995, Mr. Elliott formally notified the parties that he
would stand for such election.
On June 29, 1995, the Implementation Agreement was submitted to the Supervising
Judge for tentative approval and approval of the notice to be sent to the
original class members. As of August 10, 1995, the tentative approval of the
Supervising Judge had not been obtained and therefore the notice to class
members had not been mailed. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the
unitholders of National Realty for a vote. In addition, the unitholders will
vote upon amendments to the National Realty partnership agreement which relate
to the proposed compensation of the successor general partner and other related
matters.
Upon approval by the unitholders, SAMLP shall withdraw as General Partner and
the successor general partner shall take office. If the required approvals are
obtained, National Realty anticipates that the successor general partner may be
elected and take office during the first quarter of 1996.
The Implementation Agreement provides that SAMLP, and its affiliates owning
units in National Realty, shall not vote to remove the successor general
partner, except for removal with cause, for a period of thirty months from the
date the successor general partner takes office. In addition, the Supervising
Judge shall make a determination of any amounts which National Realty may owe
to SAMLP upon SAMLP's withdrawal as General Partner and any amounts which SAMLP
or its affiliates may owe to National Realty. Any amounts which National
Realty may be determined to owe to SAMLP may be paid by National Realty over a
period of time to be determined by the parties on terms which shall not hinder
National Realty's ability to meet its other financial obligations.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall terminate. If the
successor general partner nominee is not elected, the existing Moorman
Settlement Agreement shall remain in full force and effect and all of the
provisions of the Implementation Agreement shall be voided.
Results of Operations
The Partnership reported a net loss of $1.4 million and $2.6 million for the
three and six months ended June 30, 1995 as compared to a net loss of $558,000
and $1.6 million for the three and six months ended June 30, 1994. The primary
factors effecting the Partnership's operating results are discussed in the
following paragraphs.
Net rental income for the Partnership (rents less property operating expenses)
decreased from $11.2 million and $22.2 million for the three and six months
ended June 30, 1994 to $10.6 million and $21.6 million for the three and six
months ended June 30, 1995. Decreases of $370,000 and $747,000 in the three
and six months ended June 30, 1995, are due to the sale of the Brandywine and
Raintree Apartments in October 1994. In addition, increases in repairs and
maintenance for the three and six months ended June 30, 1995 are partially
offset by increased rental rates at the Partnership's apartment complexes.
Interest income increased from $594,000 and $1.2 million for the three and six
months ended June 30, 1994 to $686,000 and $1.4 million for the three and six
months ended June 30, 1995. This increase is primarily attributable to an
increase in interest earned on the GCLP credit enhancement escrow account.
Interest expense increased slightly from $8.5 million and $17.1 million for the
three and six months ended June 30, 1994 to $8.7 million and $17.2 million for
the three and six months ended June 30, 1995. Decreases of $214,000 and
$427,000 for the three and six months ended June 30, 1995 attributable to the
sale of the Brandywine and Raintree Apartments in October 1994 were offset by
increases of $153,000 and $256,000 for the three and six months ended June 30,
1995 in interest on the variable interest rate portion of the GCLP mortgage due
to an increase in the London Interbank Offering Rate. Interest expense also
increased by $75,000 and $129,000 for the three and six months ended June 30,
1995 due to the refinancing of the Creekwood Apartments in September 1994 and
the acquisition of the Chalet II Apartments in March 1995.
General and administrative expenses increased from $1.3 million and $2.8
million for the three and six months ended June 30, 1994 to $1.6 million and
$3.3 million for the three months ended June 30, 1995. This increase is
primarily due to an increase in legal fees related to the Moorman litigation
and an increase in the Partnership's overhead reimbursements to Basic Capital
Management, Inc.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Tax Matters
National Realty is a publicly traded limited partnership and, for federal
income tax purposes, all income or loss generated by the Partnership is
included in the income tax returns of the individual partners. In December
1987, Congress passed legislation requiring certain publicly traded
partnerships to be taxed as corporations. National Realty qualifies for
"grandfather" treatment and will be treated as a partnership until at least
1997, unless the Partnership adds a substantial new line of business, which
would require approval of the Oversight Committee, and will continue to be so
treated thereafter if 90% or more of its gross income consists of qualifying
income from real estate activities. As presently operated, the Partnership
meets these requirements. Under Internal Revenue Service guidelines generally
applicable to publicly traded partnerships and thus to the Partnership, a
limited partner's use of his or her share of partnership losses is subject to
special limitations.
Inflation
The effects of inflation on the Partnership's operations are not quantifiable.
Revenues from property operations generally fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the
rate of inflation also affect the sales values of the Partnership's properties
and, correspondingly, the ultimate gains to be realized by the Partnership from
property sales. To the extent that inflation affects interest rates, the
Partnership's earnings from short-term investments and the cost of new
borrowings as well as the cost of its variable rate borrowings will be
affected.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Partnership, may be potentially liable for removal or
remediation costs, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons and property) where property-level managers have arranged for the
removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the
Partnership for personal injury associated with such materials.
The General Partner is not aware of any environmental liability relating to the
above matters that would have a material adverse effect on the Partnership's
business, assets or results of operations.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncement (Continued)
Of". The statement requires that long-lived assets be considered impaired
"...if the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset." If
impairment exists, an impairment loss shall be recognized, by a charge against
earnings, equal to "...the amount by which the carrying amount of the asset
exceeds the fair value of the asset." If impairment of a long-lived asset is
recognized, the carrying amount of the asset shall be reduced by the amount of
the impairment, shall be accounted for as the asset's "new cost" and such new
cost shall be depreciated over the asset's remaining useful life.
SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified as held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated. SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995.
The General Partner has not fully evaluated the effects of adopting SFAS No.
121, but expects that the Partnership's policy with regard to the
classification of revenue producing properties as assets held for sale prior to
entering into a firm contract of sale, will require reevaluation.
The General Partner estimates that if the Partnership had adopted SFAS No. 121
effective January 1, 1995, without a change in its policy of classifying
revenue producing assets as held for sale prior to entering into a firm
contract of sale, its depreciation in the three and six months ended June 30,
1995 would have been reduced by $339,000 and $694,000, respectively, its net
loss reduced by like amounts in each period and that a provision for loss for
either impairment of its properties held for investment or for a decline in
estimated fair value less cost to sell of its properties held for sale would
not have been required in either period.
_____________________________________
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See NOTE 7. "LEGAL PROCEEDINGS - Moorman Settlement," of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS in PART I for information relating to legal proceedings.
19
<PAGE> 20
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:
A Current Report on Form 8-K, dated April 26, 1995, filed with respect
to Item 5, which reports that National Realty, L.P. (The
"Registrant"), Syntek Asset Management, L.P. (the Registrant's General
Partner), the National Realty, L.P. Oversight Committee and William
H. Elliott entered into an agreement to nominate an entity controlled
by Mr. Elliott as successor general partner for the Registrant and to
consummate the 1990 settlement of a class action lawsuit.
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: August 11, 1995 By: /s/ Oscar W. Cashwell
-------------------------- -----------------------------------
Oscar W. Cashwell
President
Date: August 11, 1995 By: /s/ Thomas A. Holland
-------------------------- -----------------------------------
Thomas A. Holland
Senior Vice President and
Chief Accounting Officer
21
<PAGE> 22
NATIONAL REALTY, L.P.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended June 30, 1995
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
<S> <C> <C>
11.0 Computation of Earnings Per Unit 23
24
27.0 Financial Data Schedule
</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 Six Months
Ended June 30, Ended June 30,
---------------------------------- ---------------------------------
1995 1994 1995 1994
-------------- -------------- --------------- -------------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C>
Net (loss).................... $ (1,377) $ (558) $ (2,581) $ (1,628)
Less - General Partners'
1.99% Interest............ (27) (11) (51) (32)
-------------- -------------- --------------- -------------
Net (loss) allocable to
Limited Partner............. $ (1,350) $ (547) $ (2,530) $ (1,596)
============== ============== =============== =============
Earnings Per Unit
Net (loss).................. $ (.63) $ (.26) $ (1.18) $ (.75)
============== ============== =============== =============
Weighted average units of
limited partner interest
used in computing earnings
per unit.................... 2,139,380 2,139,607 2,139,392 2,139,607
============== ============== =============== =============
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,732
<SECURITIES> 642
<RECEIVABLES> 13,474
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 454,513
<DEPRECIATION> 215,123
<TOTAL-ASSETS> 285,890
<CURRENT-LIABILITIES> 0
<BONDS> 338,744
<COMMON> 0
0
0
<OTHER-SE> (95,253)
<TOTAL-LIABILITY-AND-EQUITY> 285,890
<SALES> 0
<TOTAL-REVENUES> 53,104
<CGS> 0
<TOTAL-COSTS> 31,460
<OTHER-EXPENSES> 5,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,161
<INCOME-PRETAX> (2,581)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,581)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
