<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995
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.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- -------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(214) 692-4700
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------------------ ----------------------------
<S> <C>
Units of Limited Partner Interest American Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
Redeemable Unit Purchase Warrants
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 at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of March 15, 1996, the Registrant had 6,417,916 units of limited partner
interest outstanding. Of the total units outstanding, 2,791,219 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$29,307,800 based on the last trade as reported on the American Stock Exchange
on March 15, 1996. The basis of this calculation does not constitute a
determination by the Registrant that all of such persons or entities are
affiliates of the Registrant as defined in Rule 405 of the Securities Act of
1933, as amended.
Documents Incorporated by Reference:
NONE
1
<PAGE> 2
INDEX TO
ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
------
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 22
PART II
-------
Item 5. Market for Registrant's Units of Limited Partner
Interest and Related Security Holder Matters . . . . . . . . . . . . . . . 22
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 26
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . 72
PART III
--------
Item 10. General Partner of the Registrant and Executive
Officers of the Registrant's General Partner 72
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . 80
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 83
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
National Realty, L.P. ("National Realty" or the "Registrant") is a Delaware
limited partnership formed on January 29, 1987, the business of which is
primarily owning and operating through National Operating, L.P., also a
Delaware limited partnership (the "Operating Partnership" or "NOLP"), a
portfolio of real estate more fully described in ITEM 2. "PROPERTIES." Most
of National Realty's properties were acquired in exchange 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.
The Operating Partnership was formed on February 27, 1987, to facilitate
compliance with recording and filing requirements by holding title to and
operating certain of the real estate and personal property then owned or
thereafter acquired by National Realty. 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.
National Realty is the sole limited partner of the Operating Partnership and
owns a 99% beneficial interest in the Operating Partnership.
Unless earlier dissolved, in accordance with the provisions of National
Realty's First Amended and Restated Agreement of Limited Partnership, dated as
of January 29, 1987, as amended by the Certificate of Amendment of Limited
Partnership Agreement dated as of May 14, 1990 (together, the "Partnership
Agreement"), the Partnership will terminate December 31, 2086.
The general partner, and owner of 1% of the beneficial interest in each of
National Realty and the Operating Partnership, is Syntek Asset Management, L.P.
(the "General Partner" or "SAMLP"), a Delaware limited partnership. Gene E.
Phillips is a general partner of SAMLP. Syntek Asset Management, Inc.
("SAMI"), a company of which Mr. Phillips serves as a director, Chairman of the
Board and Chief Executive Officer, is the Managing General Partner of SAMLP.
Basic Capital Management, Inc. ("BCM") is the sole shareholder of SAMI. The
limited partners of SAMLP are Mr. Phillips, William S. Friedman, a general
partner of SAMLP until March 4, 1994, Southmark Corporation ("Southmark") and
American Realty Trust, Inc. ("ART"), a real estate investment company. Messrs.
Phillips and Friedman served as directors and executive officers of ART until
November 16, 1992, and December 31, 1992, respectively. As of March 15, 1996,
the Partnership owned 97,866 shares of ART common stock, approximately 1% of
the ART shares then outstanding. ART owns a 76.8% limited partner interest in
SAMLP, the Partnership's General Partner. As of March 15, 1996, ART owned
approximately 52% of National Realty's outstanding units of limited partner
interest. In February 1992, Southmark became the owner of a 19.2% limited
partner interest in SAMLP by assignment from ART. See ITEM 12. "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
3
<PAGE> 4
ITEM 1. BUSINESS (Continued)
General (Continued)
In November 1992, the Partnership refinanced 52 of the apartment complexes in
its real estate portfolio and the underlying debt of a wraparound mortgage note
receivable with a financial institution. To facilitate such refinancing, the
Operating Partnership transferred these assets to a Delaware limited
partnership, Garden Capital, L.P. ("GCLP"). The Operating Partnership is the
sole limited partner in GCLP with a 99.3% limited partnership interest. Garden
Capital Management Incorporated ("GCMI"), a Nevada corporation, is the .7%
managing general partner of GCLP.
GCLP is the sole limited partner and 99% owner of 52 single asset limited
partnerships which were formed for the purpose of acquiring, operating and
holding title to the 52 apartment complexes transferred by the Operating
Partnership. The transfer of the 52 apartment complexes and wraparound
mortgage note receivable from the Operating Partnership to GCLP was effective
November 25, 1992. See ITEM 2. "PROPERTIES".
Each of the single asset limited partnerships has no significant assets other
than an apartment complex encumbered by mortgage debt. Garden Capital
Incorporated ("GCI"), a Nevada corporation, is the 1% managing general partner
in each of the single asset limited partnerships. GCMI, as the managing
general partner of GCLP, makes all decisions relating to the operation of GCLP,
and GCI, as the managing general partner of the single asset limited
partnerships, makes all decisions relating to the operation of the apartment
complexes.
GCMI originally received its .7% general partner interest in GCLP in exchange
for the contribution of 100% of its economic interest in an apartment complex
in Flagstaff, Arizona. In March 1993, GCMI contributed a mortgage note
receivable as a substitute capital contribution for its .7% general partner
interest in GCLP. National Realty subsequently acquired the mortgage note
receivable for a $900,000 note payable, as more fully described in ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." GCI received its 1% general
partner interest in each of the single asset partnerships in exchange for
agreeing to manage the apartment complexes owned by each of the partnerships.
Except as described below and under ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement," all decisions relating to the Partnership, including all decisions
with respect to the acquisition, disposition, improvement, financing or
refinancing of the Partnership's properties or other investments, are made by
the Managing General Partner. All decisions, however, relating to the
acquisition, disposition, improvement, financing or refinancing of GCLP's
assets are made jointly by GCLP's managing general partner and the
Partnership's Managing General Partner. BCM performs certain administrative
functions for the Partnership, such as accounting services, mortgage servicing
and portfolio review and analysis, on a cost reimbursement basis. BCM also
performs loan placement services, leasing services and real estate brokerage
and acquisition services, has performed property management services with
respect to certain of the Partnership's properties, and may perform other
services for the Partnership for fees and commissions. BCM is a
4
<PAGE> 5
ITEM 1. BUSINESS (Continued)
General (Continued)
company owned by a trust for the benefit of the children of Mr. Phillips. Mr.
Phillips served as a director of BCM until December 22, 1989 and served as
Chief Executive Officer of BCM until September 1, 1992.
GCMI performs administrative services for GCLP, similar to those performed by
BCM for the Partnership, also on a cost reimbursement basis. The common stock
of GCI and GCMI is owned by John A. Doyle (20%), Richard A. Green (40%) and
Henry W. Simon (40%).
Since February 1, 1990, affiliates of the Managing General Partner have
provided property management services for the Partnership's properties.
Currently, Carmel Realty Services, Ltd. ("Carmel, Ltd.") provides such property
management services for the Partnership's properties. See "Management and
Operations," below. Effective November 25, 1992, Carmel Ltd. ceased providing
property management services to the apartment complexes transferred to GCLP.
Business Plan
The Partnership's primary business and only industry segment is owning and
operating a portfolio of real estate. Information regarding the Partnership's
real estate portfolio is set forth in ITEM 2. "PROPERTIES - Real Estate" and
Schedule III to the Consolidated Financial Statements, included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." In addition, the Partnership
owns interests in mortgage loans arising from the sale of Partnership
properties which are secured by various apartment complexes and commercial
properties, as set forth in ITEM 2. "PROPERTIES - Mortgage Loans" and Schedule
IV to the Consolidated Financial Statements included at ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA."
The objectives of the Partnership are to increase asset values and, to a lesser
extent, to generate cash available for distribution to unitholders through
aggressive management of the Partnership's real estate portfolio. The
Partnership's primary emphasis, however, is on capital appreciation rather than
current income. As discussed in ITEM 5. "MARKET FOR REGISTRANT'S UNITS OF
LIMITED PARTNER INTEREST AND RELATED SECURITY HOLDER MATTERS," National Realty
suspended cash distributions as of December 29, 1989. Pursuant to a plan (the
"Settlement Plan") established under the terms of the May 1990 settlement of
the Moorman class action litigation (the "Settlement Agreement"), the
Partnership agreed to distribute to unitholders, during the pendency of the
Settlement Plan, all of the Partnership's operating cash flow in excess of
anticipated renovation costs, unless the Partnership's Oversight Committee
approved alternative uses for such operating cash flow. No excess operating
cash flow was available for distributions in 1991 or 1992. On October 7, 1993,
the Partnership announced a resumption of regular quarterly distributions.
During the first three quarters of 1995, the Partnership continued the payment
of regular quarterly distributions of $.07 per unit as adjusted for the three
for one forward unit split effected January 2, 1996. In the fourth quarter of
1995, in addition to the regular quarterly distribution
5
<PAGE> 6
ITEM 1. BUSINESS (Continued)
Business Plan (Continued)
of $.07 per unit, the Partnership declared an extra distribution of $1.00 per
unit which was paid January 2, 1996 to unitholders of record on December 15,
1995. The Partnership declared total distributions of $8.1 million in 1995.
In March 1996, the Partnership announced an increase in its regular quarterly
distribution from $.07 per unit to $.10 per unit. The Partnership also
announced a special distribution of $.15 per unit. Both distributions are
payable March 31, 1996 to unitholders of record March 15, 1996.
At the discretion of the Managing General Partner, the Partnership may, from
time to time, sell properties or other assets, renovate or make improvements to
properties, make additional investments or obtain additional or initial
financing for its properties.
The establishment, implementation and modification of the business objectives
and policies of the Partnership are the responsibility of the Managing General
Partner, and, in general, the limited partners have no voting rights with
respect to such matters. With respect to the GCLP properties, such business
objectives and policies are the responsibility of GCMI. The Partnership's
primary business purpose is the ownership of improved, income-producing real
estate, but the Partnership may also conduct any business that may lawfully be
conducted under the Delaware Revised Uniform Limited Partnership Act. As long
as the Settlement Plan is in effect, Oversight Committee approval is required
for the Partnership to enter into any new line of business. See "Management
and Operations" below.
Management and Operations
Since February 1, 1990, affiliates of the Managing General Partner have
provided property management services to the Partnership. Currently, Carmel,
Ltd. provides such property management services. Carmel, Ltd. subcontracts
with other entities for the property-level management services to the
Partnership. The general partner of Carmel, Ltd. is BCM. The limited partners
of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI") of which Mr. Phillips is the
sole shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management and leasing of twelve of the Partnership's commercial properties to
Carmel Realty, Inc. ("Carmel Realty"), which is a company owned by SWI.
Carmel Realty is entitled to receive property and construction management fees
and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd. Effective November 25, 1992, Carmel,
Ltd. ceased providing property management services for the apartment complexes
transferred to GCLP.
BCM performs administrative functions such as accounting services, mortgage
servicing and portfolio review and analysis for the Partnership on a cost
reimbursement basis. GCMI performs similar administrative functions for GCLP,
also on a cost reimbursement basis. Affiliates of BCM also perform loan
placement services, leasing services and real estate brokerage, and other
services, for the Partnership for fees and commissions.
6
<PAGE> 7
ITEM 1. BUSINESS (Continued)
Pending Withdrawal of General Partner
As described in ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement," the
Settlement Plan provided that, if certain aggressive, annually increasing
Targets relating to the price of National Realty's units of limited partner
interest and distributions to unitholders were not met for two successive years
of the Settlement Plan or the fifth and final year of the Settlement Plan, the
General Partner would be required to resign and the Partnership would be
required to repurchase the General Partner's interest in the Partnership (the
"Redeemable General Partner Interest") for its fair value, and to pay certain
fees and other compensation, as provided in the Partnership Agreement and the
Settlement Agreement.
If Targets are not met for any two successive years of the Settlement Plan or
for the final year of the Settlement Plan, SAMLP must withdraw as General
Partner effective at the time a successor general partner is selected. The
Settlement Plan terminates upon the withdrawal of SAMLP as General Partner and
the due election and taking office of a successor. Withdrawal of SAMLP as
General Partner pursuant to the Settlement Agreement would be subject to the
provisions of the Partnership Agreement, including the right of unitholders to
elect a successor general partner by majority vote. Upon the withdrawal or
removal of the General Partner without the election of a successor, the
Partnership would be dissolved.
The Targets for the first and second anniversary dates were not met. Since the
Targets were not met for two successive years, SAMLP expects to 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. See ITEM 3. "LEGAL
PROCEEDINGS - Moorman Settlement," for further information regarding the
pending resignation of SAMLP as General Partner.
Competition
The real estate business is highly competitive and the Partnership competes
with numerous entities engaged in real estate activities (including certain
entities described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - Certain Business Relationships,") some of which may have greater financial
resources than the Partnership. The Partnership believes that success against
such competition is dependent upon the geographic location of the property, the
performance of the property managers in areas such as marketing, collection and
the ability to control operating expenses, the amount of new construction in
the area, and the maintenance and appearance of the property. Additional
competitive factors with respect to commercial properties are the ease of
access to the property, the adequacy of related facilities, such as parking,
and sensitivity to market conditions in setting rent levels. With respect to
apartments, competition is also based upon the design and mix of the units and
the ability to provide a community atmosphere for the tenants. The Partnership
believes that general economic
7
<PAGE> 8
ITEM 1. BUSINESS (Continued)
Competition (Continued)
circumstances and trends and the rate at which properties are renovated or new
properties are developed in the vicinity of each of the Partnership's
properties are also competitive factors.
As discussed in "Business Plan" above, the Partnership does not anticipate
making material property acquisitions at the present time. However, to the
extent that the Partnership seeks to sell any of its properties, the sales
prices for such properties may be affected by competition from other real
estate entities and financial institutions also attempting to sell their
properties located in areas in which the Partnership's properties are located.
As described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Certain Business Relationships," the executive officers of SAMI, the Managing
General Partner of SAMLP, are also executive officers of certain other
entities, each of which has business objectives similar to the Partnership's.
These executive officers owe fiduciary duties to such other entities and the
Partnership under applicable law.
In addition, the Partnership also competes with other entities which are
affiliates of BCM or for which BCM acts as advisor, and which may have
investment objectives similar to the Partnership's and that may compete with
the Partnership in purchasing, selling, leasing and financing real estate and
real estate related investments. In resolving any potential conflicts of
interest which may arise, BCM has informed the Partnership that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances in accordance with applicable law.
Special Considerations Relating to Investments in Real Estate
The Partnership is subject to all of the risks incident to the ownership of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, changes in
general or local economic conditions, changes in interest rates and the
availability of permanent mortgage financing which may render the sale or
refinancing of a property difficult or unattractive and which may make debt
service burdensome, changes in real estate and zoning laws, increases in real
estate taxes, federal or local economic or rent controls, floods, earthquakes,
hurricanes and other acts of God and other factors beyond the control of the
Partnership. Also, the illiquidity of real estate investments may impair the
ability of the Partnership to respond promptly to changing circumstances. The
Partnership believes that such risks are partially mitigated by the
diversification by geographic region and property type of the Partnership's
real estate portfolio.
8
<PAGE> 9
ITEM 2. PROPERTIES
The Partnership's principal offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. The Partnership believes that its
offices are suitable and adequate for its present operations.
Details of the Partnership's real estate and mortgage notes receivable
portfolios at December 31, 1995, are set forth in Schedules III and IV,
respectively, to the Consolidated Financial Statements included at ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The discussions set forth below
under the headings "Real Estate" and "Mortgage Loans" provide certain summary
information concerning the Partnership's real estate and mortgage notes
receivable portfolios.
The Partnership's real estate consists of properties purchased and properties
obtained through foreclosure of mortgage notes. The discussion set forth below
under the heading "Real Estate" provides certain summary information concerning
the Partnership's real estate. The Partnership holds investments in 67
apartment complexes, seven office buildings and nine shopping centers in all
geographic regions of the United States, except for the Northeast region, as
shown more specifically in the table under "Real Estate" below. The
Partnership holds mortgage notes receivable secured by real estate in the
Pacific, Midwest and Mountain regions of the United States, as shown more
specifically in the table under "Mortgage Loans" below.
At December 31, 1995, no single asset of the Partnership accounted for 10% or
more of its total assets. At December 31, 1995, 80% of the Partnership's
assets consisted of real estate and 4% consisted of mortgage notes and interest
receivable. The remaining 16% of the Partnership's assets at December 31, 1995
consisted of cash, cash equivalents and other assets. The percentage of the
Partnership's assets invested in any one category is subject to change and no
assurance can be given that the composition of the Partnership's assets in the
future will approximate the percentages listed above.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
9
<PAGE> 10
ITEM 2. PROPERTIES (Continued)
Geographic Regions
The Partnership has divided the United States into the following six geographic
regions.
Northeast region comprised of the states of Connecticut, Delaware,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont, and the District of Columbia. The Partnership
has no apartment complexes or commercial properties in this region.
Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. This
Partnership has 18 apartment complexes and 6 commercial properties in this
region.
Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. The Partnership has 22 apartment complexes
and 5 commercial properties in this region.
Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. The Partnership has 22
apartment complexes and 1 commercial property in this region.
Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Partnership has 2 apartment complexes and 1
commercial property in this region.
Pacific region comprised of the states of Alaska, California, Hawaii,
Oregon and Washington. The Partnership has 3 apartment complexes and 3
commercial properties in this region.
Real Estate
At December 31, 1995, the Partnership owned 83 properties located in 22 states.
These properties consisted of 67 apartment complexes comprising 16,848 units
with a total Revaluation Equity (as defined in ITEM 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Current Value
Reporting") of $264.6 million, seven office buildings with an aggregate of
495,594 square feet with a total Revaluation Equity of $13.8 million and nine
shopping centers with an aggregate of 1.1 million square feet with a total
Revaluation Equity of $31.5 million.
All but six of the Partnership's properties are currently encumbered by
mortgage debt. Generally, the ability to make debt service payments under a
mortgage loan will be dependent upon the performance of the
10
<PAGE> 11
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
property, which is subject to the risks associated with real estate
investments, many of which are beyond the control of the Partnership. In the
event of default under one of these mortgages, with the exception of GCLP
mortgage debt discussed below, the property securing such mortgage would be
subject to foreclosure. Most of the Partnership's borrowings are subject to
substantial "balloon" payments at maturity.
The apartment complexes and the wraparound note receivable transferred to GCLP
were refinanced under a ten-year blanket mortgage loan, evidenced by a single
mortgage with an original principal balance of $223 million. A portion of the
blanket mortgage debt was assigned to each apartment complex and the wraparound
note receivable, and each is cross- defaulted and cross-collateralized. In the
event of a default, the servicer is entitled to accelerate all or any portion
of the principal amount of the loan and to exercise its remedies against any or
all of the mortgaged properties and the wraparound note receivable. However,
with respect to mortgaged properties located in certain states that impose a
mortgage recording tax, the recovery on the related mortgage would be limited
to 125% of the allocated loan amount.
Additional detailed information with respect to individual Partnership
properties and associated debt is set forth in Schedule III to the Consolidated
Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."
The following table sets forth the percentages, by property type and geographic
region, of the Partnership's real estate at December 31, 1995.
<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
--------- ---------- ----------
<S> <C> <C>
Southeast 27.0% 31.9%
Southwest 34.4 34.3
Midwest 31.7 18.8
Mountain 4.3 2.8
Pacific 2.6 12.2
------ ------
100.0% 100.0%
</TABLE>
The foregoing table is based solely on the number of apartment units and amount
of commercial square footage owned by the Partnership and does not reflect the
value of the Partnership's investment in each geographic region. See Schedule
III to the Consolidated Financial Statements included at ITEM 8. "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" for a more detailed description of the
Partnership's real estate.
11
<PAGE> 12
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
A summary of the activity in the Partnership's real estate portfolio during
1995 is as follows:
<TABLE>
<S> <C>
Properties in real estate portfolio at January 1, 1995 84
Property acquired through purchase 1
Properties sold (2)
---
Properties in real estate portfolio at December 31, 1995 83
</TABLE>
Set forth below are the Partnership's properties and the monthly rental rate
for apartments and the average annual rental rate for commercial properties and
occupancy thereof at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy
Units/ ------------------------- ----------------------
Property Location Square Footage 1995 1994 1993 1995 1994 1993
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
- ----------
Alexandria . . . Decatur, GA 406 units/
562,700 sq. ft. $ .43 $ .41 $ .40 96% 92% 96%
Arlington Place . Pasadena, TX 230 units/
205,476 sq. ft. .60 .60 .59 95% 88% 88%
Barcelona . . . . Tampa, FL 368 units/
346,144 sq. ft. .47 .49 .49 96% 85% 89%
Bavarian . . . . Middletown, OH 259 units/
229,560 sq. ft. .60 .59 .58 92% 95% 94%
Bent Tree . . . . Addison, TX 292 units/
244,480 sq. ft. .60 .56 .56 100% 99% 90%
Blackhawk . . . . Ft. Wayne, IN 209 units/
190,520 sq. ft. .53 .53 .52 94% 96% 97%
Bridgestone . . . Friendswood, TX 76 units/
65,519 sq. ft. .62 .62 .59 97% 93% 90%
Brookview Gardens Smyrna, GA 156 units/
155,600 sq. ft. .54 .51 .47 94% 96% 96%
Candlelight Square Lenexa, KS 119 units/
114,630 sq. ft. .53 .51 .48 96% 92% 95%
Chalet I . . . . Topeka, KS 162 units/
131,791 sq. ft. .61 .61 .57 94% 87% 99%
Chalet II . . . . Topeka, KS 72 units/
49,164 sq. ft. .67 * * 97% * *
Chateau. . . . . Bellevue, NE 115 units/
99,220 sq. ft. .60 .59 .57 97% 94% 92%
Club Mar . . . . Sarasota, FL 248 units/
230,180 sq. ft. .57 .59 .57 95% 92% 92%
Confederate Point Jacksonville, FL 206 units/
277,860 sq. ft. .44 .42 .41 98% 92% 91%
Country Place . . Round Rock, TX 152 units/
119,808 sq. ft. .68 .63 .58 95% 97% 96%
Covered Bridge . Gainesville, FL 176 units/
171,416 sq. ft. .60 .57 .56 100% 99% 95%
Creekwood . . . . College Park, GA 300 units/
285,840 sq. ft. .50 .49 .47 94% 87% 92%
Fair Oaks . . . . Euless, TX 208 units/
166,432 sq. ft. .55 .52 .52 98% 96% 90%
Four Seasons . . Denver, CO 384 units/
254,900 sq. ft. .77 .74 .66 93% 96% 97%
Fox Club . . . . Indianapolis, IN 336 units/
317,600 sq. ft. .54 .54 .53 91% 95% 93%
Foxwood. . . . . Memphis, TN 220 units/
212,000 sq. ft. .49 .46 .44 95% 97% 95%
Granada . . . . . Bellevue, NE 264 units/
243,960 sq. ft. .51 .51 .49 97% 85% 83%
Hidden Valley . . Grand Rapids, MI 176 units/
260,970 sq. ft. .51 .49 .45 97% 96% 94%
Horizon East . . Dallas, TX 166 units/
141,081 sq. ft. .50 .48 .47 94% 93% 95%
</TABLE>
12
<PAGE> 13
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy
Units/ ------------------------ -------------------------
Property Location Square Footage 1995 1994 1993 1995 1994 1993
- ----------------- ------------- --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments - Continued
- ----------
Kimberly Woods . . . Tucson, AZ 279 units/
249,678 sq. ft. $ .54 $ .52 $ .49 94% 95% 92%
King Village . . . . Huntsville, AL 184 units/
202,602 sq. ft. .41 .41 .43 86% 90% 78%
La Mirada . . . . . . Jacksonville, FL 320 units/
341,400 sq. ft. .47 .46 .44 98% 93% 91%
Lake Nora Arms . . . Indianapolis, IN 588 units/
429,380 sq. ft. .61 .60 .60 95% 94% 93%
Lakewood Park . . . . St. Petersburg, FL 240 units/
279,720 sq. ft. .40 .40 .38 91% 90% 91%
Lantern Ridge . . . . Richmond, VA 120 units/
112,296 sq. ft. .50 .49 .49 93% 98% 96%
Mallard Lake . . . . Greensboro, NC 336 units/
295,560 sq. ft. .59 .57 .53 97% 98% 97%
Manchester Commons . Manchester, MO 280 units/
331,820 sq. ft. .49 .46 .45 95% 94% 87%
Mesa Court . . . . . Mesa, AZ 224 units/
180,291 sq. ft. .61 .57 .51 94% 94% 88%
Mesa Ridge . . . . . Mesa, AZ 256 units/
206,045 sq. ft. .61 .57 .51 92% 95% 92%
Nora Pines . . . . . Indianapolis, IN 254 units/
254,676 sq. ft. .55 .55 .54 97% 95% 96%
Oak Hollow . . . . . Austin, TX 409 units/
290,072 sq. ft. .81 .75 .69 97% 99% 98%
Oak Tree . . . . . . Grandview, MO 189 units/
160,591 sq. ft. .52 .52 .50 96% 95% 93%
Oakmont. . . . . . . Monroe, LA 212 units/
185,500 sq. ft. .48 .48 .48 92% 93% 89%
Olde Towne . . . . . Middletown, OH 199 units/
179,395 sq. ft. .57 .57 .57 91% 94% 91%
Outrigger . . . . . . Tulsa, OK 343 units/
327,190 sq. ft. .36 .36 .35 92% 88% 85%
Pines . . . . . . . . Little Rock, AR 257 units/
221,981 sq. ft. .39 .37 .37 90% 88% 91%
Place One . . . . . . Tulsa, OK 407 units/
302,263 sq. ft. .49 .47 .45 96% 92% 90%
Regency. . . . . . . Lincoln, NE 106 units/
111,700 sq. ft. .56 .56 .53 88% 97% 96%
Regency Falls . . . . San Antonio, TX 546 units/
348,692 sq. ft. .63 .60 .53 93% 90% 94%
Rockborough . . . . . Denver, CO 345 units/
249,723 sq. ft. .70 .67 .63 92% 96% 93%
Royal Oaks . . . . . Stone Mountain, GA 300 units/
385,000 sq. ft. .43 .41 .40 95% 90% 91%
Santa Fe . . . . . . Kansas City, MO 225 units/
180,416 sq. ft. .52 .51 .54 92% 90% 88%
Shadowood . . . . . . Addison, TX 184 units/
134,616 sq. ft. .66 .64 .64 97% 98% 97%
Sherwood Glen . . . . Urbandale, IA 180 units/
143,745 sq. ft. .74 .72 .70 93% 93% 94%
Skipper's Pond . . . Tampa, FL 260 units/
233,760 sq. ft. .46 .46 .44 93% 91% 91%
Stonebridge . . . . . Florissant, MO 100 units/
140,576 sq. ft. .42 .42 .40 92% 92% 93%
Summerwind . . . . . Reseda, CA 172 units/
114,711 sq. ft. .97 .97 .97 91% 92% 85%
Sun Hollow . . . . . El Paso, TX 216 units/
156,000 sq. ft. .63 .63 .62 96% 92% 90%
Tanglewood . . . . . Arlington Heights, IL 838 units/
612,816 sq. ft. .96 .96 .96 95% 96% 88%
Timber Creek . . . . Omaha, NE 180 units/
162,252 sq. ft. .60 .59 .57 94% 91% 94%
Towne Oaks . . . . . Monroe, LA 152 units/
153,488 sq. ft. .49 .49 .46 95% 94% 95%
Villa Del Mar . . . . Wichita, KS 162 units/
128,004 sq. ft. .58 .57 .57 90% 89% 88%
</TABLE>
13
<PAGE> 14
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy
Units/ ------------------------ -------------------------
Property Location Square Footage 1995 1994 1993 1995 1994 1993
- ----------------- ------------- --------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments - Continued
- ----------
Village Square . . . Stone Mountain, GA 310 units/
403,900 sq. ft. $ .41 $ .41 $ .40 84% 88% 90%
Villas . . . . . . . Plano, TX 208 units/
156,632 sq. ft. .70 .67 .64 95% 97% 96%
Whispering Pines . . Canoga Park, CA 102 units/
61,671 sq. ft. .98 .98 1.04 93% 93% 82%
Whispering Pines . . Topeka, KS 320 units/
299,264 sq. ft. .49 .49 .46 90% 92% 94%
Windridge . . . . . . Austin, TX 408 units/
281,778 sq. ft. .85 .80 .74 95% 96% 95%
Windtree I & II. . . Reseda, CA 159 units/
109,062 sq. ft. .90 .90 .92 91% 24% 84%
Wisperwood . . . . . Tampa, FL 212 units/
199,920 sq. ft. .46 .45 .44 91% 92% 93%
Woodlake . . . . . . Carrollton, TX 256 units/
210,208 sq. ft. .66 .63 .60 98% 99% 90%
Woodsong II . . . . . Smyrna, GA 190 units/
207,460 sq. ft. .51 .46 .44 99% 97% 92%
Woodstock . . . . . . Dallas, TX 320 units/
222,112 sq. ft. .54 .51 .51 96% 94% 91%
Office Buildings
- ----------------
56 Expressway . . . . Oklahoma City, OK 54,649 sq. ft. 7.94 7.77 7.97 93% 85% 78%
Executive Court . . . Memphis, TN 41,840 sq. ft. 9.87 9.91 9.78 92% 92% 92%
Fondren. . . . . . . Houston, TX 47,808 sq. ft. 6.25 7.11 6.50 100% 0% 0%
Marina Playa . . . . Santa Clara, CA 124,322 sq. ft. 18.11 17.00 16.39 97% 95% 91%
Melrose Business
Park . . . . . . . Oklahoma City, OK 124,200 sq. ft. 2.65 2.59 2.56 97% 81% 69%
Toll Hill . . . . . . Dallas, TX 81,115 sq. ft. 10.99 11.04 10.66 88% 91% 80%
University Square . . Anchorage, AK 22,260 sq. ft. 13.16 13.81 13.90 90% 82% 85%
Shopping Centers
- ----------------
Countryside Plaza . . Clearwater, FL 184,878 sq. ft. 3.37 3.36 3.53 24% 83% 87%
Crestview . . . . . . Crestview, FL 80,679 sq. ft. 2.96 3.01 3.17 90% 90% 82%
Cross County Mall . . Mattoon, IL 304,575 sq. ft. 4.86 4.39 4.23 95% 87% 93%
Cullman. . . . . . . Cullman, AL 92,466 sq. ft. 3.83 3.82 3.74 100% 96% 98%
Harbor Plaza . . . . Aurora, CO 45,863 sq. ft. 8.42 7.82 7.23 78% 87% 91%
Katella Plaza . . . . Orange, CA 52,169 sq. ft. 9.97 11.34 11.27 71% 71% 71%
Regency Point . . . . Jacksonville, FL 67,410 sq. ft. 11.26 10.63 10.53 81% 95% 93%
Southern Palms . . . Tempe, AZ 250,068 sq. ft. 7.73 7.45 7.57 93% 84% 78%
Westwood . . . . . . Tallahassee, FL 149,855 sq. ft. 5.31 5.00 5.01 59% 81% 60%
- ------------
</TABLE>
* Property was purchased in 1995.
Occupancy presented here and throughout this ITEM 2. is without reference to
whether leases in effect are at, below or above market rates.
The Partnership owns a fee interest in each property except for the Katella and
Westwood shopping centers located in Orange, California and Tallahassee,
Florida, respectively, in each of which the Partnership owns a long-term
leasehold interest. Such leasehold interests permit some potential for capital
appreciation and marketability.
The following table sets forth information at December 31, 1995, regarding the
Partnership's properties, grouped by region and type of property, including
number of properties, aggregate amount of leasable
14
<PAGE> 15
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
square footage in the case of commercial properties, number of units and square
footage in the case of apartments, approximate weighted average occupancy, and
Revaluation Equity (dollars in thousands):
<TABLE>
<CAPTION>
Region/ Units/ Revaluation
Property Type Number Square Footage Occupancy Equity
- ------------------- ------ -------------- ---------- ------------
<S> <C> <C> <C> <C>
Southeast
Apartments . . . . . . . . 18 4,552 Units/ 93% $ 68,318
4.8 Million Sq.Ft.
Office Building . . . . . . 1 41,840 Sq.Ft. 92% 1,944
Shopping Centers . . . . . 5 475,288 Sq.Ft. 80% 14,908
Southwest
Apartments . . . . . . . . 22 5,801 Units/ 94% 95,705
4.5 Million Sq.Ft.
Office Buildings . . . . . 4 307,172 Sq.Ft. 70% 5,303
Shopping Center . . . . . . 1 250,068 Sq.Ft. 74% 6,388
Mountain
Apartments . . . . . . . . 2 729 Units/ 94% 10,374
504,623 Sq.Ft.
Shopping Center . . . . . . 1 45,863 Sq.Ft. 90% 3,002
Pacific
Apartments . . . . . . . . 3 433 Units/ 87% 5,687
285,955 Sq.Ft.
Office Buildings . . . . . 2 146,582 Sq.Ft. 93% 6,539
Shopping Center . . . . . . 1 52,169 Sq.Ft. 86% 1,406
Midwest
Apartments . . . . . . . . 22 5,333 Units/ 94% 84,551
5.2 Million Sq.Ft.
Shopping Center . . . . . . 1 304,575 Sq.Ft. 92% 5,827
-----------
309,952
===========
</TABLE>
Revaluation Equity does not include any adjustments for the Redeemable General
Partner Interest as discussed in ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement."
The following discussion briefly describes the events that affected the
Partnership's properties during 1995 and the first quarter of 1996.
The Partnership has a 75% general partner 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. In December 1993, an agreement was reached
with the lender to modify the $9.3 million first mortgage, reducing the
interest rate and extending the maturity date. Southern Palms Associates
remains in bankruptcy in order to resolve certain partnership issues involving
the 25% general partner.
15
<PAGE> 16
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
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% per annum (10% at
December 31, 1995), requires monthly payments of principal and interest,
currently $12,000, and matures in March 2002. The Partnership, in accordance
with the Partnership Agreement, paid a real estate brokerage commission of
$98,000 to Carmel Realty based on the $1.6 million purchase price of the
property.
In December 1995, the Partnership sold the Harbour Pointe Apartments in Miami,
Florida, for $5.2 million. The Partnership received $2.1 million in cash after
the payoff of $3.0 million in existing mortgage debt and the payment of various
closing costs associated with the sale. The Partnership, in accordance with
the Partnership Agreement, paid a real estate sales commission of $155,000 to
Carmel Realty based upon the $5.2 million sales price of the property. The
Partnership recognized a gain of $2.8 million on the sale.
Also in December 1995, the Partnership sold the Vineyards Apartments in
Broadview Heights, Ohio, for $10.7 million. The Partnership received net cash
of $2.4 million after the payoff of $8.2 million in existing mortgage debt and
the payment of various closing costs associated with the sale. The
Partnership, in accordance with the Partnership Agreement, paid a real estate
sales commission of $322,000 to Carmel Realty based upon the $10.7 million
sales price of the property. The Partnership recognized a gain of $4.9 million
on the sale.
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. 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 BCM, based upon the new $8.2 million mortgage.
In September 1995, the Partnership refinanced the mortgage debt secured by the
Four Seasons Apartments in Denver, Colorado, in the amount of $9.9 million.
The Partnership received net cash of $4.4 million after the payoff of $5.2
million in existing mortgage debt, including a $147,000 prepayment penalty.
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 8.25% per annum,
requires monthly payments of principal and interest of $78,000 and matures in
October 2005. The Partnership, in accordance with the Partnership Agreement,
paid a
16
<PAGE> 17
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
mortgage brokerage and equity refinancing fee of $99,000 to BCM based upon the
new $9.9 million mortgage.
Also in September 1995, the Partnership refinanced the mortgage debt secured by
the Nora Pines Apartments in Indianapolis, Indiana, in the amount of $6.2
million. The Partnership received net cash of $952,000 after the payoff of
$4.9 million in existing mortgage debt, including a $48,000 prepayment penalty.
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 8.25% per annum,
requires monthly payments of principal and interest of $48,000 and matures in
October 2005. The Partnership, in accordance with the Partnership Agreement,
paid a mortgage brokerage and equity refinancing fee of $62,000 to BCM based
upon the new $6.2 million mortgage.
In October 1995, the Partnership refinanced the mortgage debt secured by the
Covered Bridge Apartments in Gainesville, Florida, in the amount of $4.7
million. The Partnership received net cash of $907,000 after the payoff of
$3.6 million in existing mortgage debt, including a $35,000 prepayment penalty.
The remainder of the refinancing proceeds were used to pay various closing
costs associated with the refinancing. The new mortgage bears interest at the
rate of 8% per annum, requires monthly payments of principal and interest of
$36,000 and matures in November 2005. The Partnership, in accordance with the
Partnership Agreement, paid a mortgage brokerage and equity refinancing fee of
$47,000 to BCM based upon the new $4.7 million mortgage.
In December 1995, the Partnership refinanced the mortgage debt secured by the
Marina Playa Office Building in Santa Clara, California, in the amount of $8.3
million. The Partnership received net cash of $2.9 million after the payoff of
$4.5 million in existing mortgage debt, including a $22,000 prepayment penalty.
The remainder of the refinancing proceeds were used to fund a $625,000 escrow
for tenant improvements and to pay various closing costs associated with the
refinancing. The new mortgage bears interest at the rate of 8.25% per annum,
requires monthly payments of principal and interest of $65,000 and matures in
January 2006. The Partnership, in accordance with the Partnership Agreement,
paid a mortgage brokerage and equity refinancing fee of $83,000 to BCM based
upon the new $8.3 million mortgage.
Also in December 1995, the Partnership refinanced the mortgage debt secured by
the Timbercreek Apartments in Omaha, Nebraska, in the amount of $5.0 million.
The Partnership received net cash of $1.8 million after the payoff of $3.1
million in existing mortgage debt, including a $63,000 prepayment penalty. The
remainder of the refinancing proceeds were used to pay various closing costs
associated with the refinancing. The new mortgage bears interest at the rate
of 7.75% per annum, requires monthly payments of principal and interest of
$38,000 and matures in January 2006. The Partnership, in accordance with the
Partnership Agreement, paid a mortgage brokerage and equity refinancing fee of
$50,000 to BCM based upon the new $5.0 million mortgage.
17
<PAGE> 18
ITEM 2. PROPERTIES (Continued)
Mortgage Loans
In addition to real estate, a portion of the Partnership's assets consists of
mortgage notes receivable, principally those originating from the sale of
Partnership properties and secured by income-producing properties. The
Partnership's mortgage notes consist of first and wraparound mortgage loans.
First Mortgage Loans. These loans generally provide for level periodic
payments of principal and interest sufficient to substantially repay the loan
prior to maturity, but may involve interest-only payments or moderate
amortization of principal and a "balloon" principal payment at maturity. With
respect to first mortgage loans, it is the Partnership's general policy to
require that the borrower provide a mortgagee's title policy or an acceptable
legal opinion of title as to the validity and the priority of the mortgage lien
over all other obligations, except liens arising from unpaid property taxes and
other exceptions normally allowed by first mortgage lenders in the relevant
area.
Wraparound Mortgage Loans. A wraparound mortgage loan, sometimes called an
all-inclusive loan, is a mortgage loan having an original principal amount
equal to the outstanding balance under the prior existing mortgage loan(s) plus
the amount actually advanced under the wraparound mortgage loan. Wraparound
mortgage loans may provide for full, partial or no amortization of principal.
At December 31, 1995, the Partnership's mortgage notes had an aggregate face
amount of $28.1 million and an aggregate net carrying value of $10.2 million,
net of deferred gains ($15.8 million), discounts ($187,000) and allowance for
estimated losses ($1.9 million).
The following table sets forth the percentage (based on the outstanding
mortgage note balance at December 31, 1995), by property type and geographic
region, of the properties that serve as collateral for the five mortgage notes
receivable in the Partnership's mortgage notes receivable portfolio at December
31, 1995. See Schedule IV to the Consolidated Financial Statements included at
ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" for further details of
the Partnership's mortgage notes receivable portfolio.
<TABLE>
<CAPTION>
Commercial
Region Apartments Properties Total
- ------ ---------- ---------- -----
<S> <C> <C> <C>
Mountain . . . . . . . . . . . . - % 18.3% 18.3%
Pacific . . . . . . . . . . . . . 62.6 - 62.6
Midwest . . . . . . . . . . . . . - 19.1 19.1
---- ----- ----
62.6% 37.4% 100.0%
</TABLE>
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
18
<PAGE> 19
ITEM 2. PROPERTIES (Continued)
Mortgage Loans
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.
A settlement between the Partnership and the Receiver was approved by the court
on February 15, 1995. Under the terms of the settlement, 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 had 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 $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 a total of $550,000. The Partnership
incurred no loss on the settlement.
In October 1995, the Partnership accepted a $3.7 million discounted payoff of
three wraparound mortgage loans secured by the Hurstbourne Business Park in
Louisville, Kentucky. The Partnership received $1.5 million in cash after the
payoff of $2.2 million in first mortgage debt. No loss was recorded as the
discounted note payoff was equal to the Partnership's net carrying value of the
loans.
Investment in Marketable Equity Securities of ART
At December 31, 1995, the Partnership owned 97,866 shares of common stock of
ART, a real estate investment company, representing approximately 1% of ART's
outstanding shares. Mr. Phillips, a general partner of SAMLP, the General
Partner of the Partnership, served as Chairman of the Board and as a director
of ART until November 16, 1992. The executive officers of the Managing General
Partner are also executive officers of ART. See ITEM 12. "SECURITY OWNERSHIP OF
CERTAIN
19
<PAGE> 20
ITEM 2. PROPERTIES (Continued)
Mortgage Loans
BENEFICIAL OWNERS AND MANAGEMENT." At December 31, 1995, the market value of
the ART common stock owned by the Partnership was $722,000. ART owns a 76.8%
limited partner interest in SAMLP. In addition, as of March 15, 1996 ART owned
3,340,522 of National Realty's units of limited partner interest,
approximately 52% of the units then outstanding.
ITEM 3. 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, 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.
The Moorman Settlement Agreement is complex and the following summary is
qualified in its entirety by reference to the text thereof, which was
previously included as an exhibit to the Partnership's Form 10-Q for the
quarter ended March 31, 1990, as filed 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 1995, 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
20
<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS (Continued)
Moorman Settlement (Continued)
aggregate of up to 2,019,579 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.
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. On
February 20, 1996, the parties to the Implementation Agreement executed an
Amended and Restated Implementation Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Supervising Judge for tentative approval and approval of the notice to be sent
to the original class members. Upon final approval by the Supervising Judge,
the proposal to elect the successor general partner will be submitted to the
unitholders of the Partnership for a vote. In addition, the unitholders will
vote upon amendments to the 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, it is anticipated that the successor general partner will be elected
and take office during the second or third quarter of 1996.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in the Partnership shall not vote to remove the
successor general partner, except for removal with cause, for a period of 36
months from the date the successor general partner takes office.
21
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS (Continued)
Moorman Settlement (Continued)
Upon the election and taking office of the successor general partner, the
Moorman Settlement Plan and the Oversight Committee shall be terminated. If
the successor general partner is not elected, the existing Moorman Settlement
shall remain in full force and effect and all of the provisions of the Amended
and Restated Implementation Agreement shall be voided.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
_________________________________
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST AND
RELATED SECURITY HOLDER MATTERS
National Realty's units of limited partner interest are traded on the American
Stock Exchange ("AMEX") using the symbol "NLP." Although National Realty does
not anticipate that the AMEX will seek to delist its units, there can be no
assurance that the AMEX will not seek to do so.
The following table sets forth high and low sale prices of National Realty's
units of limited partner interest as reported by the AMEX:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------------ ---------- ---------
<S> <C> <C>
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $11 1/2 $10 1/8
(through March 15, 1996)
March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7/16* 10 3/16
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3/8 * 10 *
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 10 1/8 * 10 *
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 12 11/16* 10 1/16*
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7/16* 8 5/16*
June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1/4 * 8 7/16*
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 10 1/16* 9 *
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1/4 * 9 1/2 *
- ------------------------
</TABLE>
* Restated for the three for one forward unit split effected January 2, 1996.
As of March 15, 1996, the closing price of National Realty's units of limited
partner interest on the AMEX was $10.50 per unit.
22
<PAGE> 23
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS (Continued)
As of March 15, 1996, National Realty's units of limited partner interest were
held by 7,380 holders of record.
Pursuant to the Moorman Settlement Agreement, on February 14, 1992, the
Partnership issued 2,692,773 warrants (the "Warrants") to purchase an aggregate
of 2,019,579 of National Realty's units of limited partner interest subject to
adjustment. Each Warrant initially entitled the holder thereof to purchase
three quarters of one unit at the exercise price ($11.00 per Warrant). The
initial exercise price was equal to $14.67 per unit and increased to $16.00 per
unit on February 14, 1993, subject to adjustment. The Warrants may be
exercised for five years from their February 14, 1992 date of issuance, or
until earlier redemption.
Prior to 1989, the Partnership's policy was to distribute operating cash flow
in excess of necessary reserves for property improvements and repairs.
However, due to liquidity problems, on December 29, 1989 the Partnership
announced a suspension of cash distributions. Pursuant to the terms of the
Moorman Settlement Agreement, the Partnership has agreed to distribute to
unitholders all of the Partnership's operating cash flow in excess of certain
renovation costs, unless the Oversight Committee approves alternative uses for
such operating cash flow. On October 7, 1993, the Partnership announced a
resumption of regular quarterly distributions. During the first three quarters
of 1995, the Partnership paid regular quarterly distributions of $.07 per unit.
In the fourth quarter of 1995, in addition to the regular quarterly
distribution of $.07 per unit, the Partnership declared an extra distribution
of $1.00 per unit both payable January 2, 1996 to unitholders of record
December 15, 1995. The Partnership declared total distributions of $8.1
million in 1995.
The distributions paid by the Partnership in 1995 and 1994 were are follows:
<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount*
- ---------------- ----------------- ----------------- -------
<S> <C> <C> <C>
March 3, 1995 March 15, 1995 March 31, 1995 $.07
May 23, 1995 June 15, 1995 June 30, 1995 .07
August 25, 1995 September 15, 1995 September 30, 1995 .07
November 30, 1995 December 15, 1995 January 2, 1996 .07
November 30, 1995 December 15, 1995 January 2, 1996 1.00
March 4, 1994 March 18, 1994 March 30, 1994 $.07
June 1, 1994 June 15, 1994 June 30, 1994 .07
August 25, 1994 September 15, 1994 September 30, 1994 .07
December 1, 1994 December 15, 1994 December 30, 1994 .07
December 1, 1994 December 15, 1994 December 30, 1994 .16
</TABLE>
__________________
* Restated for the three for one forward unit split effected January
2, 1996.
23
<PAGE> 24
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST
AND RELATED SECURITY HOLDER MATTERS (Continued)
In November 1987, the Board of Directors of the Managing General Partner
approved the Partnership's purchase of up to 10% of National Realty's units of
limited partner interest and on December 15, 1992, the Board of Directors of
the Managing General Partner approved the repurchase of up to 300,000
additional units in open-market transactions. Through December 31, 1995, the
Partnership had purchased a total of 402,960 units at an total cost of $5.1
million. The Partnership has not repurchased any additional units under such
repurchase program since January 1993.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
24
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- -------------- -------------- ------------- --------------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenue . . . . . . . . . $ 110,892 $ 107,546 $ 103,044 $ 102,070 $ 97,314
Expenses
Interest . . . . . . . . . 34,956 34,145 34,699 35,982 38,686
Property operations
expenses . . . . . . . . 63,320 60,793 60,374 59,193 58,645
General and
administrative
expenses . . . . . . . . 6,252 5,809 5,598 5,377 5,931
Depreciation and
amortization . . . . . . 10,268 10,034 10,168 10,503 11,299
Provision for losses . . . - - - 1,972 5,026
----------- -------------- -------------- ------------- --------------
Total expenses . . . . . 114,796 110,781 110,839 113,027 119,587
----------- -------------- -------------- ------------- --------------
(Loss) from operations . . . (3,904) (3,235) (7,795) (10,957) (22,273)
Gain on sale of real
estate . . . . . . . . . 7,701 8,252 - 375 371
(Loss) on foreclosure. . . . - - - - (13,439)
Litigation
settlements. . . . . . . . - - - 1,030 (721)
----------- -------------- -------------- ------------- --------------
Income (loss) before
extraordinary gain . . . . 3,797 5,017 (7,795) (9,552) (36,062)
Extraordinary gain . . . . . - - 9,046 6,385 17,867
----------- -------------- -------------- ------------- --------------
Net income (loss) . . . . . . $ 3,797 $ 5,017 $ 1,251 $ (3,167) $ (18,195)
=========== ============== ============== ============== ===============
PER UNIT DATA
Income (loss) before
extraordinary gain . . . . $ .58 $ .77 $ (1.13) $ (1.33) $ (5.47)
Extraordinary gain . . . . . - - 1.31 .89 2.71
------------ --------------- --------------- -------------- ---------------
Net income (loss) . . . . . . $ .58 $ .77 $ .18 $ (.44) $ (2.76)
============ =============== =============== ============== ==============
Distributions per
unit . . . . . . . . . $ 1.28 $ .44 $ .07 $ - $ -
Weighted average units
of limited partner
interest used in
computing earnings
per unit . . . . . . . . . 6,418,104 6,418,572 6,747,990 7,045,434 6,457,815
</TABLE>
25
<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ --------------- --------------- -------------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate . . . . . . . . . $ 229,482 $ 241,535 $ 251,534 $ 251,059 $ 272,183
Notes and interest
receivable . . . . . . . . 10,246 11,532 11,469 12,694 13,958
Total assets . . . . . . . . 292,930 290,140 296,045 303,059 309,371
Notes and interest
payable . . . . . . . . . 326,500 326,775 335,200 333,642 331,438
Redeemable General
Partner interest . . . . . 31,997 28,800 21,600 14,700 15,000
Partners' (deficit) . . . . . (99,267) (91,823) (86,902) (81,150) (78,098)
</TABLE>
Units and per unit data have been restated for the three for one forward unit
split, effected January 2, 1996.
ITEM 7. 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 complexes 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. See
NOTE 7. "NOTES PAYABLE."
Liquidity and Capital Resources
The Managing 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 December 31, 1995, the aggregate loan-to-value ratio of the
Partnership's real estate portfolio, computed on the basis of the ratio of
total property-related debt to aggregate appraised values, was 47.3% compared
to 47.9% at December 31, 1994.
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Cash and cash equivalents aggregated $20.7 million at December 31, 1995 as
compared with $3.7 million at December 31, 1994.
The Partnership's principal sources of cash have been and will continue to be
from property operations and externally generated funds. Externally generated
funds include borrowings, proceeds from the sale of the Partnership's
properties and other assets, proceeds from the issuance of debt secured by the
Partnership's properties or mortgage notes receivable and in the future may
include proceeds from the exercise of the Warrants which were issued to the
class members included in the Moorman litigation settlement. The Partnership
expects that cash flow from property operations together with externally
generated funds will be sufficient to meet the Partnership's various cash needs
in 1996, 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.
Currently, all but six of the Partnership's properties are encumbered by
mortgage debt. In 1996, mortgage debt totaling $9.7 million comes due,
including a $2.3 million mortgage which matures in March 1996 and for which the
Partnership has a commitment from the lender to refinance the mortgage. The
Partnership intends to seek to refinance certain mortgages that mature in the
next two years or where there is an interest rate advantage to the Partnership,
and use excess refinancing proceeds for working capital purposes.
During 1995, the Partnership received $39.6 million from mortgage refinancings
secured by one commercial property and five apartment complexes, of which $27.8
million was used to payoff existing mortgage debt secured by the properties.
In addition, the Partnership made scheduled principal paydowns on mortgage debt
totaling $6.4 million.
In 1995, the Partnership sold two apartment complexes, the Harbour Pointe
Apartments in Miami, Florida and the Vineyard Apartments in Broadview Heights,
Ohio, for a total of $15.9 million. The Partnership received net cash of $4.5
million after the payoff or assumption by the purchaser of $11.2 million in
existing mortgage debt and the payment of various closing costs associated with
the sales.
In February 1995, the Partnership reached a settlement with the receiver for
an insurance company. As part of the settlement, the Partnership paid the
insurance company a total of $1.2 million in cash in exchange for the transfer
of certain assets between the Partnership and the insurance company. See "NOTE
4. NOTES RECEIVABLE."
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, obtaining new mortgage financing of $1.2 million.
27
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In October 1995, the Partnership accepted a $3.7 million discounted payoff of
three wraparound mortgage notes receivable secured by the Hurstbourne Business
Park in Louisville, Kentucky. The Partnership received $1.5 million in cash
after the payoff of $2.2 million in first mortgage debt.
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 1995, the Partnership received distributions from GCLP
totaling $2.9 million compared to $3.0 million in 1994. A total of $3.4
million of escrow deposits, excluding the tax and insurance reserve, are
required to be funded by GCLP during 1996 in monthly installments. Such
escrowed amounts are included in escrow deposits and other assets in the
accompanying Consolidated Balance Sheets. GCLP is required to make monthly
deposits, from the cash flow of its properties, for (i) a credit enhancement
reserve and (ii) a tax and insurance reserve. As a result of the restrictions
placed on GCLP's use of its cash flow, excess cash of approximately $3.4
million is expected to be remittable to the Partnership during 1996.
The Partnership has made regular quarterly distributions since the fourth
quarter of 1993. During the first three quarters of 1995, the Partnership
continued the payment of regular quarterly distributions of $.07 per unit. In
the fourth quarter of 1995, in addition to the regular quarterly distribution
of $.07 per unit, the Partnership declared an extra distribution of $1.00 per
unit. The Partnership declared total distributions of $8.1 million in 1995.
In March 1996, the Partnership announced an increase in its regular quarterly
distribution from $.07 per unit to $.10 per unit. The Partnership also
announced a special distribution of $.15 per unit. Both distributions are
payable March 31, 1996 to unitholders of record on March 15, 1996.
The Partnership's rents collected increased from $105.4 million for 1994 to
$107.9 million for 1995 due to the Partnership's successful effort of
increasing and maintaining higher rental rates during 1995 as compared to 1994.
Rental rates at the Partnership's apartment complexes, which account for over
80% of the Partnership's properties, increased an average of 3.2% as compared
to 1994 rental rates. However, payments for property operating expenses
increased from $63.4 million in 1994 to $64.8 million in 1995. This increase
is primarily due to an increase in payments for repairs and maintenance.
As more fully discussed in NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman
Settlement," the Moorman litigation settlement agreement (the "Moorman
Settlement Agreement") set forth certain aggressive, annually increasing
targets relating to the price of the Partnership's units of limited partner
interest which were not achieved, resulting in, among
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
other things, the required withdrawal of the Partnership's General Partner upon
election of a successor and the resulting required purchase of the Redeemable
General Partner Interest, as defined below.
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, 1995 to be $36.2 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 December
31, 1995) plus all accrued and unpaid interest ($5.2 million at December 31,
1995) on the note receivable from the General Partner representing its capital
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 Financial Statements, the Redeemable General
Partner Interest is shown as a reduction of 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 and the Oversight Committee
executed an Implementation Agreement which provides for the nomination of a
successor general partner and for the resolution of all related matters under
the Moorman Settlement. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Amended and Restated Implementation Agreement has been submitted to the
Supervising Judge for tentative approval and approval of the notice to be sent
to the original class members. 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 resign 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 second or third quarter of 1996.
The Amended and Restated 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 36
months from the date the successor general partner takes office.
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 is not elected, the existing Moorman Settlement
Agreement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement shall be voided.
In November 1987, the Board of Directors of the Managing General Partner
approved the Partnership's repurchase of up to 10% of National Realty's units
of limited partner interest and on December 15, 1992, the Board of Directors of
the Managing General Partner approved the repurchase of up to 300,000
additional units in open-market transactions. Through December 31, 1995, the
Partnership had purchased a total of 402,960 units at a total cost of $5.1
million. The Partnership has not purchased any additional units under such
repurchase program since January 1993.
Results of Operations
1995 COMPARED TO 1994. The Partnership reported net income of $3.8 million for
1995 as compared to net income of $5.0 million for 1994. Contributing to the
Partnership's 1995 net income was a gain on sale of real estate of $7.7 million
compared to a gain on real estate of $8.3 million in 1994. See NOTE 3. "REAL
ESTATE AND DEPRECIATION."
Rents increased from $105.0 million in 1994 to $108.0 million in 1995. This
increase is primarily attributable to a 3.2% increase in average rental rates
combined with a 1.8% increase in average occupancy rates at the
30
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Partnership's apartment complexes. In addition, an increase of $280,000 is
attributable to the acquisition of the Chalet II Apartments in March 1995.
These increases are partially offset by a decrease of $2.3 million due to the
sale of the Brandywine and Raintree Apartments in October 1994. Rents are
expected to decrease slightly in 1996 due to the sale of the Harbour Pointe and
Vineyards Apartments in December 1995.
Interest income increased from $2.4 million in 1994 to $2.9 million in 1995.
Of this increase, $265,000 is due to interest earned on the Partnership's
credit enhancement escrow deposit, which increased $3.3 million from December
31, 1994 to December 31, 1995. An additional $211,000 is attributable to
interest earned on a $5.1 million note receivable, in which a senior
participation previously sold by the Partnership was returned in July 1995.
See NOTE 4. "NOTES RECEIVABLE." Interest income is expected to continue to
increase in 1996 due to interest earned on the Partnership's credit enhancement
escrow account, which requires deposits totaling $3.5 million in 1996.
Interest expense increased from $34.1 million in 1994 to $35.0 million in 1995.
Of this increase, $331,000 is due to an increase in interest expense on the
blanket mortgage secured by the GCLP properties as a result of the increase in
the LIBOR interest rate. An additional increase of $1.0 million is due to
mortgage debt which was refinanced in 1994 and 1995 and $89,000 is due to the
acquisition of the Chalet II Apartments in March 1995. These increases are
offset by a decrease of $713,000 due to the sale of Brandywine and Raintree
Apartments in October 1994. Interest expense is expected to increase in 1996
due to a full year's interest on mortgages which were refinanced in 1995 and
anticipated to be refinanced in 1996, offset in part by a decrease in interest
expense due to the sale of the Harbour Pointe and Vineyards Apartments in
December 1995.
Repairs and maintenance expense increased from $21.9 million in 1994 to $23.9
million in 1995. This increase is attributable to the Partnership's effort to
obtain higher rental rates, which increased an average of 3.2% in 1995, and to
sustain occupancy levels in 1995. In addition, 1995 repairs and maintenance
expenses include fire and storm damage repairs made in 1995.
Property taxes and insurance, utilities, property-level payroll costs, other
property operation expenses and property management fees for 1995 approximated
those of 1994.
General and administrative expenses increased from $5.8 million in 1994 to $6.3
million in 1995. This increase is primarily attributable to an increase in
legal and consulting fees related to the Moorman litigation of $429,000 and an
increase in the Partnership's overhead reimbursements to Basic Capital
Management, Inc. ("BCM").
31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
In 1995, the Partnership recognized gains on the sale of real estate totaling
$7.7 million on the sale of the Harbour Pointe and Vineyards Apartments,
compared to gains on sale of real estate in 1994 totaling $8.3 million on the
sale of the Brandywine and Raintree Apartments. See NOTE 3. "REAL ESTATE AND
DEPRECIATION."
1994 COMPARED TO 1993. The Partnership reported net income of $5.0 million for
1994 as compared to net income of $1.3 million for 1993. Contributing to the
Partnership's 1994 net income was an increase in operating income of $4.6
million, as more fully discussed below, and a gain on sale of real estate of
$8.3 million. See NOTE 3. "REAL ESTATE AND DEPRECIATION." The Partnership's
1993 net income included an extraordinary gain of $9.0 million related to the
acquisition at a discount of a mortgage obligation. See NOTE 8. "ACCRUING
MORTGAGE."
Rental income increased from $99.3 million in 1993 to $105.0 million in 1994.
Of this increase, $1.4 million 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. This is
offset by a decrease of $515,000 due to the sale of Brandywine and Raintree
Apartments in October 1994. The remaining net increase of $4.8 million is
primarily attributable to a 4.4% increase in average rental rates at the
Partnership's apartment complexes.
Property operating expenses increased from $60.4 million in 1993 to $60.8
million in 1994. Of this increase, $764,000 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 through insubstance foreclosure in December 1993. This increase is
offset by a decrease of $465,000 due to the sale of Brandywine and Raintree
Apartments in October 1994.
Interest income decreased from $3.1 million in 1993 to $2.4 million in 1994.
This decrease is primarily attributable to the nonaccrual of interest income on
the loan secured by the Whispering Pines Apartments in Canoga Park, California,
which was foreclosed in December 1993 and to a decrease in cash receipts in
1994 on a mortgage note receivable on which interest is recognized on a cash
receipts basis.
Interest expense decreased from $34.7 million in 1993 to $34.1 million in 1994.
Of this decrease, $265,000 is due to the December 1993 Southern Palms debt
modification in which the interest rate was reduced from 11.7% per annum to
8.9% per annum and $350,000 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 which
were included in interest expense in 1993. An additional decrease of $144,000
is due
32
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
to the sale of the Brandywine and Raintree Apartments in October 1994. These
decreases are offset in part by an increase in interest expense of $252,000
related to the acquisition of the controlling partnership interest in Club Mar
Apartments in June 1993.
General and administrative expenses increased from $5.6 million in 1993 to $5.8
million in 1994. The increase is attributable to an increase in the
Partnership's overhead reimbursements to BCM.
In 1994, the Partnership recognized gains totaling $8.3 million on the sale of
the Brandywine and Raintree Apartments. No gain on sale of real estate was
recognized in 1993. See NOTE 3. "REAL ESTATE AND DEPRECIATION."
In 1993, the Partnership recognized an extraordinary gain of $9.0 million from
the acquisition at a discount of a mortgage obligation. No such gains were
recognized in 1994. See NOTE 8. "ACCRUING MORTGAGE."
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 Managing 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.
Impact of Inflation
The effects of inflation on the Partnership's operations are not quantifiable.
Revenues from property operations 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. Inflation also has an effect on the Partnership's earnings from
short- term investments, and on its interest income and interest expense to the
extent that such income and expense depend on floating interest rates.
Current Value Reporting
The Partnership believes that the historical cost basis financial statements
prepared in accordance with generally accepted accounting
33
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Current Value Reporting (Continued)
principles are not representative of the economic value of the Partnership's
real estate assets because most of the properties have appreciated in value
over their historical cost basis. Nevertheless, generally accepted accounting
principles require periodic depreciation charges.
In conjunction with the exchange transaction, by which the Partnership was
formed, the Partnership retained independent appraisers to estimate the Current
Appraised Value of the Partnership's properties as of March 31, 1987, based in
part upon certain financial, lease and other information provided by the
general partners of the exchange transaction partnerships. The Current
Appraised Value of the Partnership's properties at March 31, 1987 was $758.0
million, and Revaluation Equity was $410.0 million at such date. Revaluation
Equity is defined as the difference between the appraised value of the
Partnership's real estate, adjusted to reflect the Partnership's estimate of
disposition costs, and the face amount of the mortgage notes payable and
accrued interest, if any, encumbering such real estate. The Current Appraised
Value of the Partnership's properties at December 31, 1994, was $644.3 million,
and Revaluation Equity was $301.3 million at such date.
In 1995, the Partnership retained an independent appraiser to determine the
Current Appraised Value of the Partnership's properties as of December 31,
1995, in a manner consistent with the methodology used to determine Current
Appraised Value as of December 31, 1994 and March 31, 1987. The Current
Appraised Value of the Partnership's properties at December 31, 1995 was $654.1
million and Revaluation Equity was $310.0 million at such date.
Taxes
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.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
34
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncements (Continued)
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed 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 Managing General Partner estimates that if the Partnership had adopted SFAS
No. 121 effective January 1, 1995 its depreciation and net income in the year
ended December 31, 1995 would have been unchanged and that a provision for loss
for impairment of its properties would not have been required.
35
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Balance Sheets -
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Operations -
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statements of in Partners' Equity (Deficit) -
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Schedule III - Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Schedule IV - Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Consolidated
Financial Statements or the notes thereto.
36
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
National Realty, L.P.
We have audited the accompanying consolidated balance sheets of National
Realty, L.P., a limited partnership, as of December 31, 1995 and 1994, and the
related consolidated statements of operations, partners' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1995.
We have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
Managing General Partner. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Realty, L.P. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As described in Note 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement,"
the Moorman Settlement requires the Partnership to purchase the Redeemable
General Partner Interest upon the election of a successor general partner.
Although the parties have reached an agreement on the amount to be paid and
the terms of payment, the agreement has not received the approval of the
37
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - Continued
Supervising Judge or the unitholders. The outcome of this matter cannot
presently be determined and the consolidated financial statements do not
include any adjustments that might result from the outcome of this matter.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
March 21, 1996
38
<PAGE> 39
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------- -------------
(dollars in thousands)
<S> <C> <C>
Assets
------
Real estate held for investment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,342 $ 46,842
Buildings and improvements . . . . . . . . . . . . . . . . . . . . 391,097 352,219
------------- -------------
442,439 399,061
Less - Accumulated depreciation . . . . . . . . . . . . . . . . . . (212,957) (186,161)
------------- -------------
229,482 212,900
Real estate held for sale . . . . . . . . . . . . . . . . . . . . . . - 52,511
Less - Accumulated depreciation . . . . . . . . . . . . . . . . . . - (23,876)
------------- -------------
- 28,635
Notes and interest receivable, net of
deferred gains ($15,787 in 1995 and
$16,198 in 1994) . . . . . . . . . . . . . . . . . . . . . . . . . 12,156 13,442
Less - allowance for estimated losses . . . . . . . . . . . . . . . (1,910) (1,910)
------------- -------------
10,246 11,532
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 20,699 3,748
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . 1,220 1,975
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,253 695
Escrow deposits and other assets . . . . . . . . . . . . . . . . . . 14,930 11,500
Marketable equity securities of affiliate
(at market) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 636
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . 14,378 15,321
Amounts from affiliates . . . . . . . . . . . . . . . . . . . . . . . - 3,198
------------- -------------
$ 292,930 $ 290,140
============= =============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
39
<PAGE> 40
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------- -------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities
Notes and interest payable . . . . . . . . . . . . . . . . . . . . $ 326,500 $ 326,775
Pension notes and related interest
payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . 12,034 10,769
Accrued property taxes . . . . . . . . . . . . . . . . . . . . . . 6,792 6,967
Accounts payable and other liabilities . . . . . . . . . . . . . . 11,690 5,901
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . 2,908 2,751
Amounts to affiliates . . . . . . . . . . . . . . . . . . . . . . . 276 -
------------- -------------
360,200 353,163
Commitments and contingencies
Redeemable General Partner Interest . . . . . . . . . . . . . . . . . 31,997 28,800
Partners' equity (deficit)
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . 2,656 2,580
Limited Partners (6,417,981 units in
1995 and 6,418,254 units in 1994) . . . . . . . . . . . . . . . (66,204) (61,795)
Unrealized gain on marketable equity
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 367
------------- -------------
(63,095) (58,848)
Redeemable General Partner Interest . . . . . . . . . . . . . . . . . (36,172) (32,975)
------------- -------------
(99,267) (91,823)
------------- -------------
$ 292,930 $ 290,140
============= =============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
40
<PAGE> 41
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ---------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Income
Rents . . . . . . . . . . . . . . . . . . . $ 108,017 $ 105,014 $ 99,292
Interest (including $112 in 1993
from affiliates) . . . . . . . . . . . . . 2,875 2,430 3,064
Other . . . . . . . . . . . . . . . . . . . . - 102 688
----------- ---------- -----------
110,892 107,546 103,044
Expenses
Interest . . . . . . . . . . . . . . . . . . 34,956 34,145 34,699
Depreciation & amortization . . . . . . . . . 10,268 10,034 10,168
Property taxes & insurance . . . . . . . . . 12,196 11,976 12,991
Utilities . . . . . . . . . . . . . . . . . . 11,498 11,750 11,073
Repairs and maintenance . . . . . . . . . . . 23,875 21,896 21,467
Property-level payroll costs . . . . . . . . 6,545 6,252 6,059
Other property operation expenses . . . . . . 4,563 4,401 4,517
Property management fees (including
$674 in 1995, $619 in 1994, and
$527 in 1993 to affiliates) . . . . . . . 4,643 4,518 4,267
General and administrative (including
$3,907 in 1995, $3,596 in 1994 and
$3,376 in 1993 to affiliates) . . . . . . 6,252 5,809 5,598
----------- ---------- -----------
114,796 110,781 110,839
----------- ---------- -----------
(Loss) from operations . . . . . . . . . . . . (3,904) (3,235) (7,795)
Gain on sale of real estate . . . . . . . . . . 7,701 8,252 -
----------- ---------- -----------
Income (loss) before extraordinary gain . . . . 3,797 5,017 (7,795)
Extraordinary gain . . . . . . . . . . . . . . - - 9,046
----------- ---------- -----------
Net income $ 3,797 $ 5,017 $ 1,251
=========== ========== ===========
Earnings per unit
Income (loss) before extraordinary gain . . . . $ .58 $ .77 $ (1.13)
Extraordinary gain . . . . . . . . . . . . . . - - 1.31
----------- ---------- -----------
Net income . . . . . . . . . . . . . . . . . . $ .58 $ .77 $ .18
=========== ========== ===========
Weighted average units of limited
partner interest used in computing
earnings per unit . . . . . . . . . . . . . . 6,418,104 6,418,572 6,747,990
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
41
<PAGE> 42
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<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 at January 1, 1993 . . . . . . . . $ 2,455 $ (64,730) $ - $ (18,875) $ (81,150)
Adjustment to Redeemable
General Partner Interest . . . . . . . . - - - (6,900) (6,900)
Repurchase of units of limited
partner interest . . . . . . . . . . . . - (39) - - (39)
Unrealized gain on marketable
equity securities of
affiliate . . . . . . . . . . . . . . . - - 324 - 324
Distributions ($.07 per unit) . . . . . . . - (388) - - (388)
Net income . . . . . . . . . . . . . . . . 25 1,226 - - 1,251
--------- --------- ------ --------- ---------
Balance at December 31, 1993 . . . . . . . 2,480 (63,931) 324 (25,775) (86,902)
Adjustment to Redeemable
General Partner Interest . . . . . . . . - - - (7,200) (7,200)
Unrealized gain on marketable
equity securities of
affiliate . . . . . . . . . . . . . . . - - 43 - 43
Distributions ($.44 per unit) . . . . . . . - (2,781) - - (2,781)
Net income . . . . . . . . . . . . . . . . 100 4,917 - - 5,017
--------- --------- ------ --------- ---------
Balance at December 31, 1994 . . . . . . . 2,580 (61,795) 367 (32,975) (91,823)
Adjustment to Redeemable
General Partner Interest . . . . . . . . - - - (3,197) (3,197)
Unrealized gain on marketable
equity securities of
affiliate . . . . . . . . . . . . . . . - - 86 - 86
Distributions ($1.28 per unit) . . . . . . - (8,130) - - (8,130)
Net income . . . . . . . . . . . . . . . . 76 3,721 - - 3,797
--------- --------- ------ --------- ---------
Balance at December 31, 1995 . . . . . . . $ 2,656 $ (66,204) $ 453 $ (36,172) $ (99,267)
========= ========= ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
42
<PAGE> 43
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected . . . . . . . . . . . . . . . $ 107,935 $ 105,415 $ 99,022
Interest collected . . . . . . . . . . . . . 2,754 2,354 2,268
Interest paid . . . . . . . . . . . . . . . . (30,737) (30,673) (30,786)
Payments for property operations
(including $674 in 1995, $619 in
1994 and $527 in 1993 to affiliates) . . . (64,803) (63,407) (58,235)
General and administrative expenses
paid (including $3,907 in 1995,
$3,596 in 1994 and $3,376 in 1993
to affiliates) . . . . . . . . . . . . . . (6,556) (5,894) (5,707)
Other . . . . . . . . . . . . . . . . . . . - 14 (450)
----------- ---------- -----------
Net cash provided by operating
activities . . . . . . . . . . . . . . 8,593 7,809 6,112
Cash Flows From Investing Activities
Sales of real estate . . . . . . . . . . . . 6,947 4,544 199
Real estate improvements . . . . . . . . . . (4,105) (5,411) (2,836)
Acquisition of real estate . . . . . . . . . (1,663) - -
Acquisition and settlement of notes
receivable . . . . . . . . . . . . . . . . (1,207) - -
Collections on notes receivable . . . . . . . 3,700 639 646
----------- ---------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . 3,672 (228) (1,991)
Cash Flows From Financing Activities
Borrowings from financial institutions . . . 40,808 9,986 3,000
Payments from (to) affiliates, net . . . . . 3,558 (4,648) -
Payments of mortgage notes payable . . . . . (37,242) (9,701) (5,928)
Deferred financing costs (including
$423 in 1995 to affiliate) . . . . . . . . (627) (727) (1,123)
Refinancing proceeds released
from escrow . . . . . . . . . . . . . . . - - 1,000
Repurchase of units of limited
partner interest . . . . . . . . . . . . . - - (39)
Borrowings (payments) on margin
account . . . . . . . . . . . . . . . . . - - 8
Distributions to unitholders . . . . . . . . (1,811) (2,781) (388)
----------- ---------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . 4,686 (7,871) (3,470)
----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . 16,951 (290) 651
Cash and cash equivalents at beginning of
year . . . . . . . . . . . . . . . . . . . 3,748 4,038 3,387
----------- ---------- -----------
Cash and cash equivalents at end of year . . . $ 20,699 $ 3,748 $ 4,038
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
43
<PAGE> 44
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1995 1994 1993
-------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income to net
cash provided by (used in) operating
activities
Net income . . . . . . . . . . . . . . . . . . . . $ 3,797 $ 5,017 $ 1,251
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization . . . . . . . . 10,254 9,972 10,168
Gain on sale of real estate . . . . . . . . . (7,701) (8,252) -
Amortization of deferred financing
costs . . . . . . . . . . . . . . . . . . 2,425 2,315 2,497
Extraordinary gain . . . . . . . . . . . . . - - (9,046)
Increase in interest payable . . . . . . . . 1,763 1,146 1,135
Increase in other liabilities . . . . . . . 876 749 565
(Increase) decrease in other assets . . . . . (2,897) (3,124) 84
(Increase) decrease in interest
receivable . . . . . . . . . . . . . . . . 76 (14) (542)
-------- ---------- -----------
Net cash provided by operating
activities . . . . . . . . . . . . . . . $ 8,593 $ 7,809 $ 6,112
======== ========== ===========
Schedule of noncash investing activities
Carrying value of real estate acquired
through foreclosure . . . . . . . . . . . . . . $ - $ - $ 1,736
Notes payable assumed by buyer upon
sale of properties . . . . . . . . . . . . . . . 8,165 - -
Settlement of Accruing Mortgage of $9,946
in exchange for note payable . . . . . . . . . . - - 900
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
Unrealized gain on marketable equity
securities of affiliate . . . . . . . . . . . . 86 43 324
Notes payable reductions from use of
achievement escrows . . . . . . . . . . . . . . - - 1,771
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
44
<PAGE> 45
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of National Realty, L.P. and
consolidated subsidiaries and partnerships (the "Partnership") have been
prepared in conformity with generally accepted accounting principles, the most
significant of which are described in NOTE 2. "SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES." These, along with the remainder of the Notes to
Consolidated Financial Statements, are an integral part of the Consolidated
Financial Statements. The data presented in the Notes to Consolidated
Financial Statements are as of December 31 of each year or for the year then
ended, unless otherwise indicated. Dollar amounts in tables are in thousands,
except per unit amounts.
Certain balances for 1994 and 1993 have been reclassified to conform to the
1995 presentation. Units and per unit data have been restated for the three
for one forward unit split effected January 2, 1996.
NOTE 1. ORGANIZATION
General. National Realty, L.P. ("National Realty") is a Delaware limited
partnership which commenced operations on September 18, 1987 when it acquired
through National Operating, L.P. (the "Operating Partnership" or "NOLP") all of
the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships.
National Realty is the sole limited partner of the Operating Partnership and
owns 99% of the beneficial interest in the Operating Partnership. The general
partner of, and owner of 1% of the beneficial interest in each of, National
Realty and the Operating Partnership is Syntek Asset Management, L.P. (the
"General Partner" or "SAMLP"). Gene E. Phillips is a general partner of SAMLP
with a .95% general partner interest. Syntek Asset Management, Inc. ("SAMI") is
the managing general partner of SAMLP, with a .10% general partner interest in
SAMLP. SAMI, of which Mr. Phillips serves as a director, Chairman of the
Board and Chief Executive Officer, is a company owned by Basic Capital
Management, Inc. ("BCM"). American Realty Trust, Inc. ("ART"), a publicly held
real estate investment company of which Mr. Phillips served as Chairman of the
Board and director until November 16, 1992, owns a 76.8% limited partner
interest in SAMLP. Southmark Corporation ("Southmark") owns a 19.2% limited
partner interest in SAMLP. Mr. Phillips and William S. Friedman own the
remaining 2.95% limited partner interest in SAMLP. Mr. Friedman was a general
partner of SAMLP until March 4, 1994.
SAMI, as Managing General Partner of SAMLP, manages the affairs of the
Partnership. The executive officers of SAMI also serve as executive officers of
BCM. BCM is a company owned by a trust for the benefit of the children of Mr.
Phillips. Messrs. Phillips and Friedman served as directors of BCM until
December 22, 1989 and as officers of BCM until September 1, 1992 and May 1,
1993, respectively.
In November 1992, the Partnership refinanced 52 of its apartment complexes and
a wraparound mortgage note receivable with a financial institution. To
facilitate the refinancing, the Operating Partnership
45
<PAGE> 46
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. ORGANIZATION (Continued)
transferred those assets to Garden Capital, L.P. ("GCLP"), a Delaware limited
partnership. The Operating Partnership is the sole limited partner with a
99.3% limited partner interest in GCLP. The Operating Partnership received its
limited partner interest in exchange for the transfer of the net assets of the
52 apartment complexes and the wraparound mortgage note receivable to GCLP.
Garden Capital Management Incorporated ("GCMI"), a Nevada corporation, is the
.7% managing general partner of GCLP. See NOTE 8. "ACCRUING MORTGAGE."
GCLP transferred the acquired net apartment assets, in exchange for a 99%
limited partner interest in each of 52 single asset limited partnerships which
were formed for the purpose of operating, refinancing and holding title to the
apartment complexes. The transfer of the 52 apartment complexes and the
wraparound mortgage note receivable were effective November 25, 1992.
Each of the single asset limited partnerships has no significant assets other
than an apartment complex encumbered by mortgage debt. Garden Capital
Incorporated ("GCI"), a Nevada corporation, is the 1% managing general partner
in each of the single asset limited partnerships.
Except as described under NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman
Settlement," all decisions relating to the Partnership, including all decisions
with respect to the acquisition, disposition, improvement, financing or
refinancing of the Partnership's properties or other investments, are made by
the Managing General Partner. However, all decisions with respect to the
acquisition, disposition, improvement, financing or refinancing of the GCLP
properties are made by GCMI or GCI as managing general partner of GCLP or the
single asset partnerships, respectively.
BCM, SAMI's corporate parent, performs certain administrative functions for the
Partnership, such as accounting services, mortgage servicing and portfolio
review and analysis, on a cost reimbursement basis. Since February 1, 1990 BCM
or affiliates of BCM have provided property management services for the
Partnership. Currently, Carmel Realty Services, Ltd. ("Carmel, Ltd."), an
affiliate of BCM, performs such property management services for the
Partnership. BCM or affiliates of BCM also perform loan placement services,
leasing services and real estate brokerage and acquisition services and other
services for the Partnership for fees and commissions. See NOTE 11. "GENERAL
PARTNER FEES AND COMPENSATION." GCMI performs administrative functions,
similar to those performed for the Partnership by BCM, for GCLP on a cost
reimbursement basis. The common stock of GCI and GCMI is owned by John A.
Doyle (20%), Richard A. Green (40%) and Henry W. Simon (40%).
Participation in net income, net loss and distributions. The limited partners
of National Realty have a 99% interest and the General Partner has 1% interest
in the net income or net loss and distributions of National Realty. National
Realty has a 99% and the General Partner has
46
<PAGE> 47
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. ORGANIZATION (Continued)
a 1% interest in 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. The Operating
Partnership has a 99.3% limited partner interest and GCMI has a .7% general
partner interest in the net income or net loss and distributions of GCLP. GCLP
has a 99% interest and GCI has a 1% interest in the net income or net loss and
distributions of the 52 single asset partnerships that hold title to the
apartment complexes. GCMI's .7% general partner interest in GCLP and GCI's 1%
general partner interest in the single asset partnerships is equal to a 1.68%
interest on a combined basis. For tax purposes limited partners are allocated
their proportionate share of net income or net loss commencing with the
calendar month subsequent to their entry into the Partnership. During the
pendency of the Moorman Settlement Plan (as defined in NOTE 14. "COMMITMENTS
AND CONTINGENCIES - Moorman Settlement"), the General Partner's base
compensation, equal to 10% of the distributions to unitholders from the
Partnership's cash from operations, is waived.
General Partner's capital contribution. In return for its 1% interest in
National Realty, the General Partner was required to make aggregate capital
contributions to the Partnership in an amount equal to 1.01% of the total
initial capital contributions to the Partnership. The General Partner
contributed $500,000 in cash with the remaining contribution evidenced by a
promissory note bearing interest at the rate of 10% per annum compounded
semi-annually payable on the earlier of September 18, 2007, liquidation of the
Partnership or termination of the General Partner's interest in the
Partnership. The principal balance of such promissory note was $4.2 million at
December 31, 1995 and 1994.
In the accompanying Consolidated Balance Sheets, the note receivable from the
General Partner is offset against the Redeemable General Partner Interest as
described in NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement." The
General Partner received its 1% interest in the Operating Partnership in
exchange for its agreement to serve as general partner of the Operating
Partnership. If National Realty issues additional units of limited partner
interest, the General Partner is entitled to maintain its aggregate 1% interest
in each of National Realty and the Operating Partnership without payment of
additional consideration.
GCMI contributed 100% of its economic interest in an apartment complex in
Flagstaff, Arizona, to GCLP as its initial general partner capital
contribution. In March 1993, GCMI contributed the Accruing Mortgage (as
defined in NOTE 8. "ACCRUING MORTGAGE") as a substitute capital contri- bution
for its .7% general partner interest in GCLP. National Realty subsequently
purchased the Accruing Mortgage for a $900,000 note payable. GCI received its
1% general partner interest in the single asset partnerships in exchange for
agreeing to manage the property owned by each such partnership.
47
<PAGE> 48
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation. The Consolidated Financial Statements include the
accounts of National Realty, the Operating Partnership, GCLP and consolidated
entities. All significant intercompany balances and transactions have been
eliminated. Minority interests (which are not significant) are included in
other liabilities.
Accounting estimates. In the preparation of the Partnership's Consolidated
Financial Statements in conformity with generally accepted accounting
principles it was necessary for the Managing General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues and expenses for the
year then ended. Actual results could differ from these estimates.
Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.
Real estate and depreciation. Land, buildings and improvements are stated at
the lower of cost or estimated net realizable value. Properties held for sale
are depreciated in accordance with the Partnership's established depreciation
policies. The subsequent classification of property previously held for sale
to held for investment does not result in a restatement of previously reported
revenues, expenses or net income .
Depreciation is provided on buildings and improvements using the straight-line
method over estimated useful lives of 40 years for buildings and 7 to 25 years
for improvements. Expenditures for renewals and betterments are capitalized
and repairs and maintenance are charged against operations as incurred.
Allowance for estimated losses. A valuation allowance is provided for
estimated losses on notes receivable to the extent that the Partnership's
investment in the notes exceeds the Partnership's estimate of net realizable
value of the collateral securing each such note, or fair value of the
collateral if foreclosure is probable. In estimating net realizable value,
consideration is given to the current estimated collateral value adjusted for
costs to complete or improve, hold and dispose. The provision for losses on
notes receivable is based on estimates, and actual losses may vary from current
estimates. Such estimates are reviewed periodically and any additional
provision determined to be necessary is charged against earnings in the period
in which it becomes reasonably estimable.
48
<PAGE> 49
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest recognition on notes receivable. It is the Partnership's policy to
cease recognizing interest income on notes receivable that have been delinquent
for 60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the net realizable value of underlying collateral
exceeds the carrying value of the receivable.
Deferred financing costs. Deferred financing costs are capitalized and
amortized on the interest-rate method over the term of the related loans.
Present value discounts. The Partnership provides for present value discounts
on notes receivable or payable that have interest rates that differ
substantially from prevailing market rates and amortizes such discounts by the
interest method over the lives of the related notes. The factors considered in
determining a market rate for receivables include the borrower's credit
standing, nature of the collateral and payment terms of the note.
Marketable equity securities of affiliate. Marketable equity securities are
considered to be available-for-sale and are carried at fair value, defined as
period end closing market value. Net unrealized holding gains are reported as
a separate component of partners' equity until realized.
Fair value of financial instruments. The Partnership used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable, the estimated
fair value of the Partnership's interest in the collateral property was used.
For marketable equity securities, fair value was the year end closing market
price of each security. The estimated fair values presented do not purport to
represent amounts to be ultimately realized by the Partnership. The amounts
ultimately realized may vary significantly from the estimated fair values
presented. For notes payable, the fair value was estimated using current rates
for mortgages with similar terms and maturities, which, at December 31, 1995
and 1994, approximated carrying value.
Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Earnings per unit. Income per unit of limited partner interest is computed
based upon the weighted average number of units outstanding during each year.
Accordingly, net income per unit is derived by dividing 98.01% of the
Partnership's net income by 6,418,104, 6,418,572 and 6,747,990 units for 1995,
1994 and 1993, respectively.
49
<PAGE> 50
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION
In 1991, the General Partner of the Partnership selected a group of assets
which it offered for sale in accordance with the terms of the Moorman
Settlement Agreement classifying those properties as held for
sale. The Partnership, among others, has entered into an agreement which
provides for the nomination of a successor general partner and for the
resolution of all matters under the Moorman Settlement Agreement. In
contemplation of the election of such successor general partner and
termination of the Moorman Settlement Plan, the Partnership has classified all
of the Partnership's properties as held for investment at December 31, 1995.
See NOTE 14. "COMMITMENTS AND CONTINGENCIES - Moorman Settlement."
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 mortgage financing of $1.2 million. The
mortgage bears interest at a rate of prime plus 1% per annum (10% at December
31, 1995), requires monthly payments of principal and interest, currently
$12,000, and matures in March 2002.
In December 1995, the Partnership sold the Harbour Pointe Apartments in Miami,
Florida for $5.2 million. The Partnership received $2.1 million in cash after
the payoff of $3.0 million in existing mortgage debt and the payment of various
closing costs associated with the sale. The Partnership recognized a gain of
$2.8 million on the sale.
Also in December 1995, the Partnership sold the Vineyards Apartments in
Broadview Heights, Ohio for $10.7 million. The Partnership received net cash
of $2.4 million after the payoff of $8.2 million in existing mortgage debt and
the payment of various closing costs associated with the sale. The Partnership
recognized a gain of $4.9 million on the sale.
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 $4.5 million after the
payoff of $9.4 million in existing mortgage debt, the payment of $82,000 in
prepayment penalties and various closing costs associated with the sales.
The Partnership recognized gains totaling $8.3 million on the sales.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
50
<PAGE> 51
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. NOTES RECEIVABLE
Notes and interest receivable consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Notes receivable
Performing . . . . . . . . . . . . . $ 28,216 $ 28,050 $ 25,689 $ 25,926
Nonperforming . . . . . . . . . . . . - - 2,528 3,447
----------- ---------- ---------- ------------
$ 28,216 28,050 $ 28,217 29,373
=========== ==========
Interest receivable . . . . . . . . . . 80 115
Unamortized (discounts) . . . . . . . . (187) 152
Deferred gains . . . . . . . . . . . . (15,787) (16,198)
---------- ------------
$ 12,156 $ 13,442
========== ============
</TABLE>
The Partnership does not recognize interest income on nonperforming notes
receivable. For 1995, 1994 and 1993, unrecognized interest income on
nonperforming notes totaled $745,000, $372,000 and $924,000, respectively.
The notes receivable mature from 1996 through 2000 with interest rates ranging
from 8.0% to 11.5% with a weighted average interest rate of 9.5%. Discounts
were based on interest rates at the time of origination. Notes receivable are
nonrecourse and are generally collateralized by real estate. The majority of
the notes receivable require monthly payments of interest only with "balloon"
principal payments at the end of their respective terms.
Deferred gains result from property sales where the buyer has either made an
inadequate down payment or has not met the continuing investment test of SFAS
No. 66.
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
51
<PAGE> 52
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. NOTES RECEIVABLE (Continued)
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. A settlement between the Partnership and the
Receiver was approved by the court on February 15, 1995. Under the terms of
the settlement, 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 $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 a total of $550,000. The
Partnership incurred no loss on the settlement.
In October 1995, the Partnership accepted a $3.7 million discounted payoff of
three wraparound mortgage loans secured by the Hurstbourne Business Park in
Louisville, Kentucky. The Partnership received $1.5 million in cash after the
payoff of $2.2 million in first mortgage debt. No loss was recorded as the
discounted note payoff was equal to the Partnership's net carrying value of the
loans.
NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES
Activity in the allowance for estimated losses was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ --------------
<S> <C> <C> <C>
Balance January 1, . . . . . . . . . . . . . . . . $ 1,910 $ 1,910 $ 1,989
Amounts charged off . . . . . . . . . . . . . . . . - - (79)
-------------- ------------ --------------
Balance December 31, . . . . . . . . . . . . . . . $ 1,910 $ 1,910 $ 1,910
============== ============ ==============
</TABLE>
NOTE 6. INVESTMENTS IN MARKETABLE EQUITY SECURITIES OF AFFILIATE
The Partnership owns 97,866 shares of the common stock of ART, a publicly held
real estate investment company, which the Partnership acquired in open market
purchases in 1990 at an adjusted cost of $269,000. The Partnership considers
the ART common stock to be available-for-sale and the shares are therefore
carried at fair value (period end market value). The market value of the ART
common stock was $722,000 at December 31, 1995 and $636,000 at December 31,
1994.
52
<PAGE> 53
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7. NOTES PAYABLE
Notes payable at December 31, 1995 and 1994 are collateralized by land,
buildings and improvements and are generally nonrecourse to the partnership.
The GCLP mortgage debt, as discussed below, is cross-collateralized and cross-
defaulted among the apartment complexes and wraparound note receivable that
serve as collateral for such debt. The notes payable outstanding at December
31, 1995 bear interest at stated rates ranging from 5.0% to 11.5% with a
weighted average rate of 8.9% and such notes have maturities or call dates
ranging from one to 27 years.
In 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 Four Seasons Apartments in Denver, Colorado in the amount of $9.9 million,
the Nora Pines Apartments in Indianapolis, Indiana in the amount of $6.2
million, the Covered Bridge Apartments in Gainesville, Florida in the amount of
$4.7 million, the Marina Playa Office Building in Santa Clara, California in
the amount of $8.3 million and the Timbercreek Apartments in Omaha, Nebraska in
the amount of $5.0 million. The Partnership received net cash of $10.7 million
after the payoff of $27.8 million in existing mortgage debt including $315,000
in prepayment penalties. The remainder of the refinancing proceeds were used
to fund escrows for replacements and repairs and to pay various closing costs
associated with the refinancings. The new mortgages bear interest at the rates
ranging from 7.75% to 8.75% per annum, require monthly payments of principal
and interest and mature from June 2005 to January 2006.
In March 1994, the Partnership refinanced the mortgage debt secured by the
Cross County Mall, a shopping center in Mattoon, Illinois. The Partnership
borrowed $7.5 million under the loan to repay the then existing mortgage debt
and to pay for the renovation of the shopping center as well as tenant
improvements.
In September 1994, the Partnership sold the Creekwood Apartments in College
Park, Georgia for $6.0 million. The Partnership has accounted for the sale as
a financing transaction, due to the Partnership having provided financing of
the purchaser's down payment. On the date of sale, the purchaser 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 financing, after the payoff of the existing mortgage in the amount of
$1.1 million and the funding of required repair escrows and closing costs
associated with the financing.
In November 1992, the Partnership transferred the net assets of 52 apartment
complexes and a wraparound note receivable to GCLP, which then refinanced such
assets with a financial institution through the issuance of a $223 million
blanket mortgage. GCLP used the refinancing proceeds to pay off the mortgage
debt of the 52 properties and the wraparound note receivable.
53
<PAGE> 54
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7. NOTES PAYABLE (Continued)
In conjunction with the refinancing, four escrow accounts were established and
GCLP made an initial deposit totaling $3.8 million from the refinancing
proceeds. The recurring replacement escrow required monthly deposits of
$232,000 to be used for capital repairs, replacements and improvements. The
capital replacement escrow required monthly deposits which totaled $1.7 million
in 1994. No capital replacement escrow deposits were required in 1995. The
credit enhancement escrow requires monthly deposits totaling $3.5 million in
1996 ($3.3 million in 1995 and $3.0 million in each of 1993 and 1994) and $2.0
million in each of 1997, 1998 and 1999 up to an aggregate maximum amount of
$18.5 million. These funds will be used to fund any operating shortfalls. A
tax and insurance escrow was also established which requires monthly payments
based on projections of real estate taxes and insurance.
Also in conjunction with the GCLP refinancing, a letter of credit was provided
by a financial institution for a term of not less than five years and in the
amount of $12.5 million. The letter of credit may be drawn upon by GCLP to
pay any operating shortfalls, provided such funds are not on deposit in the
credit enhancement escrow, described above, which is to be used, first, to
fund operating shortfalls. The letter of credit will be reduced by the amount
of (i) each draw on the letter of credit, (ii) each credit enhancement escrow
deposit and (iii) any additional deposits made to the credit enhancement escrow
account in excess of the requirement. No amounts have been drawn under the
letter of credit.
Scheduled notes payable principal payments (including pension notes) are due as
follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . $ 9,748
1997 . . . . . . . . . . . . . . . . . . . . . 27,722
1998 . . . . . . . . . . . . . . . . . . . . . 14,278
1999 . . . . . . . . . . . . . . . . . . . . . 28,967
2000 . . . . . . . . . . . . . . . . . . . . . 6,353
Thereafter . . . . . . . . . . . . . . . . . . 249,799
--------
$336,867
========
</TABLE>
NOTE 8. ACCRUING MORTGAGE
In connection with its formation in January 1987, the Partnership restructured
$12.7 million of obligations into an "Accruing Mortgage". The Accruing
Mortgage had a maturity date of September 18, 1994 and was secured by
Partnership properties. In November 1992, an affiliate of GCMI, the managing
general partner of GCLP acquired the Accruing Mortgage. In connection with the
GCLP refinancing, $8.5 million was paid against the principal balance and one
of the Partnership's collateral apartment complexes was released and the
recourse provisions of the Accruing Mortgage were canceled. In March 1993, the
holder of the Accruing Mortgage merged into GCMI and GCMI contributed such
54
<PAGE> 55
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. ACCRUING MORTGAGE (Continued)
mortgage at an agreed value of $900,000 as a substitute capital contribution
for its .7% general partner interest in GCLP. In March 1993, the Partnership
acquired the Accruing Mortgage from GCLP in exchange for a $900,000 noninterest
bearing unsecured demand note in full satisfaction of principal and accrued but
unpaid interest. In 1993, the Partnership recognized an extraordinary gain of
$9.0 million from the discounted acquisition of the Accruing Mortgage.
NOTE 9. PENSION NOTES
Also in connection with its formation, the Partnership issued $4.7 million of
8% subordinated Pension Notes to certain investors in exchange for their
interest in the net assets of certain of the "rolled-up" partnerships. The
Pension Notes are issued under an Indenture between the Partnership and Bank
of America Texas as successor Trustee. The Pension Notes are unsecured,
subordinated obligations of the Partnership and bear interest at the rate of 8%
compounded annually. Principal and interest are to be paid upon maturity on
September 18, 1997 or earlier redemption. At December 31, 1995, such
redemption amount was $12.0 million, including accrued but unpaid interest.
The Pension Notes are redeemable at the option of the Partnership at any time,
in whole or in part, at 100% of the principal amount plus accrued and unpaid
interest to the date of redemption. The Pension Notes are also subject to
mandatory redemption if the Partnership's current value net worth (as defined
in such Indenture) on the last day of each of any two consecutive fiscal
quarters is less than 175% of the aggregate redemption price of Pension Notes
then outstanding.
The 8% stated interest rate on the Pension Notes is different than the assumed
market rate at the time of issuance. Such discount is being amortized over the
term of the Pension Notes using the interest method. Interest expense of
$1,289,000, $1,151,000 and $1,028,000 was recognized on the Pension Notes for
the years 1995, 1994 and 1993, respectively.
NOTE 10. WARRANTS
Pursuant to the Moorman Settlement Agreement, on February 14, 1992 the
Partnership issued warrants to purchase an aggregate of 2,019,579 of its
units of limited partner interest subject to adjustment. Each warrant
initially entitled the holder thereof to purchase three quarters of one unit at
the exercise price ($11.00 per warrant). The initial exercise price was equal
to $14.67 per unit and increased to $16.00 per unit on February 14, 1993,
subject to adjustment. The warrants are exercisable for five years from the
February 14, 1992 date of issuance or until earlier redemption. See NOTE 14.
"COMMITMENTS AND CONTINGENCIES - Moorman Settlement."
55
<PAGE> 56
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11. GENERAL PARTNER FEES AND COMPENSATION
General. Gene E. Phillips is a general partner of SAMLP, the Partnership's
General Partner. Mr. Phillips serves as a director, Chairman of the Board and
Chief Executive Officer of SAMI, the Partnership's Managing General Partner.
Mr. Phillips and the executive officers of SAMI also serve as officers or
directors of various other real estate entities. These entities may have the
same objectives and may be engaged in activities similar to those of the
Partnership.
Property Management Fees. As compensation for providing property management
services to the Partnership's properties, as provided in the Partnership
Agreement, the General Partner or an affiliate of the General Partner is to
receive a reasonable property management fee. Currently, Carmel Realty
Services, Ltd. ("Carmel, Ltd."), an affiliate of the General Partner, provides
such property management services for a fee of 5% of the monthly gross rents
collected on the properties under its management. Carmel, Ltd. subcontracts
with other entities for the property-level management services to the
Partnership at various rates. The general partner of Carmel, Ltd. is BCM. The
limited partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI"), of which
Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a trust for
the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of twelve of the Partnership's
commercial properties to Carmel Realty, Inc. ("Carmel Realty") which is a
company owned by SWI. Carmel Realty is entitled to receive property and
construction management fees and leasing commissions in accordance with the
terms of its property-level management agreement with Carmel, Ltd. Carmel,
Ltd. does not perform property management services for GCLP.
Leasing Commissions. As compensation for providing leasing and rent-up
services for a Partnership property, as provided in the Partnership Agreement,
the General Partner or an affiliate of the General Partner shall be paid a
reasonable leasing commission.
Reimbursement of Administrative Expenses. To the extent that officers or
employees of the general partners or any of their affiliates participate in the
operation or administration of the Partnership or GCLP, the general partners
and their affiliates are to be reimbursed under the partnership agreements for
salaries, travel, rent, depreciation, utilities and general overhead items
incurred and properly allocable to such services. Such amounts are included in
General and Administrative expense in the accompanying Consolidated Statements
of Operations.
General Partner Compensation. As base compensation for providing
administrative and management services under the Partnership Agreement, the
General Partner is entitled to receive from the Partnership, an annual
partnership management fee equal to 10% of distributions made in each calendar
year of Cash from Operations, as defined in the Partnership Agreement, for the
calendar year, payable within 90 days after the end of
56
<PAGE> 57
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11. GENERAL PARTNER FEES AND COMPENSATION (Continued)
that calendar year. As additional incentive compensation, the General Partner
is entitled to receive in each calendar year an amount equal to 1% of the
Average Unit Market Price, as defined in the Partnership Agreement, for that
calendar year. Provided, however, that no incentive compensation is payable
unless distributions of cash from operations exceed 6% of the Exchange Value of
the original assets, also as defined in the Partnership Agreement. The General
Partner has waived its base compensation during the pendency of the Moorman
Settlement Agreement.
Real Estate Brokerage Commissions. The General Partner or an affiliate of the
General Partner may, pursuant to the Partnership Agreement, charge a reasonable
real estate brokerage commission, payable at the time the Partnership acquires
title to, or beneficial ownership in, an acquired property. Upon the sale of
any Property by the Partnership, the General Partner or an affiliate of the
General Partner may, pursuant to the Partnership Agreement, charge a reasonable
real estate brokerage commission, payable at the time the Partnership transfers
title to the property. In each case, such commissions are payable only if the
General Partner or such affiliate actually performed brokerage services.
Incentive Disposition Fee. Under the Partnership Agreement, the General
Partner or an affiliate of the General Partner is paid a fee equal to 10% of
the amount, if any, by which the Gross Sales Price, as defined in the
Partnership Agreement, of any property sold by the Partnership exceeds 110% of
the Adjusted Cost, also as defined in the Partnership Agreement, of such
property.
Acquisition Fees. As compensation under the Partnership Agreement for services
rendered in structuring and negotiating the acquisition by the Partnership of
any property, other than an Initial Property, as defined in the Partnership
Agreement, the General Partner or an affiliate of the General Partner is paid a
fee in an amount equal to 1% of the Original Cost, also as defined in the
Partnership Agreement, of such property.
Fees For Additional Services. Under the Partnership Agreement the General
Partner or an affiliate of the General Partner may provide services other than
those set out above for the Partnership in return for reasonable compensation.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
57
<PAGE> 58
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11. GENERAL PARTNER FEES AND COMPENSATION (Continued)
Fees and cost reimbursement to SAMLP, the General Partner of the Partnership
and its affiliates:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Property and construction
management fees* . . . . . . . . . . . . . . . . $ 700 $ 725 $ 527
Loan placement fees . . . . . . . . . . . . . . . . 423 30 30
Real estate commissions . . . . . . . . . . . . . . 576 444 -
Leasing commissions . . . . . . . . . . . . . . . . 73 102 159
Reimbursement of administrative
expenses . . . . . . . . . . . . . . . . . . . . 3,232 2,868 2,539
-------- -------- --------
$ 5,004 $ 4,169 $ 3,255
======== ======== ========
</TABLE>
- ---------------------
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
Cost reimbursements to GCMI, the general partner of GCLP:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Reimbursement of administrative
expenses . . . . . . . . . . . . . . . . . . . . $ 675 $ 728 $ 837
======== ======== ========
</TABLE>
NOTE 12. RENTS UNDER OPERATING LEASES
The Partnership's operations include the leasing of commercial properties
(office buildings and shopping centers). The leases thereon expire at various
dates through 2013. The following is a schedule of minimum future rents on
non-cancelable operating leases as of December 31, 1995:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . $ 9,320
1997 . . . . . . . . . . . . . . . . . . . . . 7,080
1998 . . . . . . . . . . . . . . . . . . . . . 5,248
1999 . . . . . . . . . . . . . . . . . . . . . 4,019
2000 . . . . . . . . . . . . . . . . . . . . . 2,872
Thereafter . . . . . . . . . . . . . . . . . . 9,151
----------
$ 37,690
==========
</TABLE>
NOTE 13. INCOME TAXES
The Partnership's partners include their share of partnership income or loss in
their respective tax returns and, accordingly, no income taxes have been
provided in the accompanying Consolidated Statements of Operations.
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 for federal tax
purposes until at least 1997, unless the Partnership adds a substantial new
line of business, which would require
58
<PAGE> 59
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13. INCOME TAXES (Continued)
approval of the Oversight Committee (see NOTE 14. "COMMITMENTS AND
CONTINGENCIES - Moorman Settlement") 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 this
qualification.
Under the legislation, Partnership losses are suspended for limited partners
and carried forward to offset future income or gain from the Partnership's
operations or gain upon a limited partner's disposition of all units held. Any
remaining income will be taxed as portfolio income.
NOTE 14. COMMITMENTS AND CONTINGENCIES
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, Messrs. Phillips and
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.
The Moorman Settlement Agreement is complex and the following summary is
qualified in its entirety by reference to the text thereof, which was
previously included as an exhibit to the Partnership's Form 10-Q for the
quarter ended March 31, 1990, as filed 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 1995, 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 Partner-
59
<PAGE> 60
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
Moorman Settlement (Continued)
ship'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 2,019,579 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 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.
SAMLP, on behalf of itself and its general partners, has made the payments of
$2.5 million (including accrued interest), to the Partnership, as required by
the Moorman Settlement Agreement.
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 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 will
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.
60
<PAGE> 61
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
Moorman Settlement (Continued)
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.
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, 1995 to be $36.2
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 December 31,
1995) plus all accrued but unpaid interest ($5.2 million at December 31, 1995)
on the note receivable from SAMLP described in NOTE 1. "ORGANIZATION." 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 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.
On January 27, 1995, National Realty, SAMLP and the Oversight Committee
executed an Implementation Agreement which provides for the nomination of
61
<PAGE> 62
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
Moorman Settlement (Continued)
a successor general partner and for the resolution of all related matters under
the Moorman Settlement. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Supervising Judge for tentative approval and approval of the notice to be sent
to the original class members. 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 resign 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 second or third quarter of 1996.
The Amended and Restated 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 36
months from the date the successor general partner takes office.
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 does not stand for election or is not
elected, the existing Moorman Settlement Agreement shall remain in full force
and effect and all of the provisions of the Amended and Restated Implementation
Agreement shall be voided.
Other Litigation
The Partnership is also involved in various other lawsuits arising in the
ordinary course of business. In the opinion of the Managing General
62
<PAGE> 63
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
Other Litigation (Continued)
Partner, the outcome of these lawsuits will not have a material effect on the
Partnership's financial condition, results of operations or liquidity.
NOTE 15. QUARTERLY DATA
The following is a tabulation of the Partnership's quarterly results of
operations for the years 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
1995
- ----
Revenues . . . . . . . . . . . . . . $ 26,913 $ 27,542 $ 28,118 $ 28,319
Expenses . . . . . . . . . . . . . . 28,117 28,919 29,157 28,603
------------ ----------- ------------- ----------
(Loss) from operations . . . . . . . (1,204) (1,377) (1,039) (284)
Gain on sale of real estate . . . . . - - - 7,701
------------ ----------- ------------- ----------
Net income (loss) . . . . . . . . . . $ (1,204) $ (1,377) $ (1,039) $ 7,417
============ =========== ============= ==========
Earnings per unit
Net income (loss) . . . . . . . . . . $ (.18) $ (.21) $ (.16) $ 1.13
=========== ========== ============ ==========
</TABLE>
In fourth quarter 1995, the Partnership sold two of its apartment complexes for
an aggregate gain of $7.7 million. See "NOTE 3. REAL ESTATE AND DEPRECIATION."
63
<PAGE> 64
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. QUARTERLY DATA (Continued)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1994
- ----
Revenues . . . . . . . . . . . . . . . $ 26,336 $ 26,798 $ 27,317 $ 27,095
Expenses . . . . . . . . . . . . . . . 27,406 27,356 28,589 27,430
-------------- ------------ ------------- -------------
(Loss) from operations . . . . . . . . (1,070) (558) (1,272) (335)
Gain on sale of real estate . . . . . . - - - 8,252
-------------- ------------ ------------- -------------
Net income (loss) . . . . . . . . . . . $ (1,070) $ (558) $ (1,272) $ 7,917
============== ============ ============= =============
Earnings per unit
Net income (loss) . . . . . . . . . . . $ (.16) $ (.09) $ (.19) $ 1.21
============== ============ ============= =============
</TABLE>
In the third quarter of 1994, the Partnership sold two of its apartment
complexes for an aggregate gain of $8.3 million. See "NOTE 3. REAL ESTATE AND
DEPRECIATION."
64
<PAGE> 65
SCHEDULE III
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (1)
----------------------------------------------
COST CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO
--------------------------------- ACQUISITION
BUILDING ------------------ BUILDING
ENCUM- AND IMPROVE- IMPROVE- AND IMPROVE-
DESCRIPTION BRANCES LAND MENTS MENTS OTHER LAND MENTS TOTAL
- -------------------------- -------- ------- ------------ -------- ------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENTS
Alexandria................ $ 6,582 $ 612 $ 6,778 $ 1,092 $ -- $ 612 $ 7,870 $ 8,482
Decatur, GA
Arlington Place........... 2,759 330 3,275 620 -- 330 3,895 4,225
Pasadena, TX
Barcelona................. 4,107 1,400 5,600 111 -- 1,400 5,711 7,111
Tampa, FL
Bavarian.................. 6,860 547 5,528 143 -- 547 5,671 6,218
Middletown, OH
Bent Tree................. 4,849 1,047 7,036 576 -- 1,047 7,612 8,659
Addison, TX
Blackhawk................. 3,520 253 4,081 228 -- 253 4,309 4,562
Ft. Wayne, IN
Bridgestone............... 1,376 169 1,780 99 -- 169 1,879 2,048
Friendswood, TX
Brookview Gardens......... 2,921 385 2,085 232 -- 385 2,317 2,702
Smyrna, GA
Candlelight Square........ 1,954 148 1,928 146 -- 145 2,077 2,222
Lenexa, KS
Chalet I.................. 2,984 260 2,994 65 -- 260 3,059 3,319
Topeka, KS..............
Chalet II................. 1,185 440 1,322 -- -- 440 1,322 1,762
Topeka, KS
Chateau................... 1,941 130 1,723 49 -- 130 1,772 1,902
Bellevue, NE
Club Mar.................. 5,990 1,248 4,993 70 -- 1,248 5,063 6,311
Sarasota, FL
Confederate Point......... 4,168 246 3,736 562 -- 246 4,298 4,544
Jacksonville, FL
Country Place............. 2,018 246 3,268 7 -- 246 3,275 3,521
Round Rock, TX
Covered Bridge............ 4,716 219 3,425 106 -- 219 3,531 3,750
Gainesville, FL
Creekwood................. 2,931 489 1,955 786 -- 489 2,741 3,230
College Park, GA
Fair Oaks................. 3,035 470 2,661 160 -- 470 2,821 3,291
Euless, TX
Four Seasons.............. 9,880 1,264 8,447 699 -- 1,264 9,146 10,410
Denver, CO
Fox Club.................. 6,624 902 7,294 480 -- 902 7,774 8,676
Indianapolis, IN
Foxwood................... 3,477 218 3,188 308 -- 218 3,496 3,714
Memphis, TN
Granada................... 4,628 231 4,682 694 -- 231 5,376 5,607
Bellevue, NE
Hidden Valley............. 4,249 274 3,636 259 -- 261 3,908 4,169
Grand Rapids, MI
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OF OPERATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------- ------------ ------------ -------- --------------
<S> <<C> <C> <C> <C>
APARTMENTS
Alexandria................ $ 4,952 1973 09/77 7 -- 40 years
Decatur, GA
Arlington Place........... 2,652 1973 11/76 7 -- 40 years
Pasadena, TX
Barcelona................. 802 1971 09/90 7 -- 40 years
Tampa, FL
Bavarian.................. 2,555 1972 01/84 7 -- 40 years
Middletown, OH
Bent Tree................. 3,944 1980 06/80 7 -- 40 years
Addison, TX
Blackhawk................. 2,724 1972 12/78 7 -- 40 years
Ft. Wayne, IN
Bridgestone............... 983 1979 06/82 7 -- 40 years
Friendswood, TX
Brookview Gardens......... 1,595 1964 12/77 7 -- 40 years
Smyrna, GA
Candlelight Square........ 1,274 1971 11/77 7 -- 40 years
Lenexa, KS
Chalet I.................. 1,564 1964/ 04/82 7 -- 40 years
Topeka, KS.............. 74/78
Chalet II................. 25 1986 03/95 7 -- 40 years
Topeka, KS
Chateau................... 948 1968 02/81 7 -- 40 years
Bellevue, NE
Club Mar.................. 315 1973 07/93 7 -- 40 years
Sarasota, FL
Confederate Point......... 2,660 1969 05/79 7 -- 40 years
Jacksonville, FL
Country Place............. 1,646 1980 07/82 7 -- 40 years
Round Rock, TX
Covered Bridge............ 2,755 1972 10/79 7 -- 40 years
Gainesville, FL
Creekwood................. 606 1973 04/90 7 -- 40 years
College Park, GA
Fair Oaks................. 499 1978 07/89 7 -- 40 years
Euless, TX
Four Seasons.............. 3,577 1970 07/84 7 -- 40 years
Denver, CO
Fox Club.................. 3,619 1972 11/83 7 -- 40 years
Indianapolis, IN
Foxwood................... 2,249 1974 08/79 7 -- 40 years
Memphis, TN
Granada................... 2,988 1974 10/78 7 -- 40 years
Bellevue, NE
Hidden Valley............. 2,069 1973 07/81 7 -- 40 years
Grand Rapids, MI
</TABLE>
65
<PAGE> 66
SCHEDULE III
(CONTINUED)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (1)
----------------------------------------------
COST CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO
--------------------------------- ACQUISITION
BUILDING ------------------ BUILDING
ENCUM- AND IMPROVE- IMPROVE- AND IMPROVE-
DESCRIPTION BRANCES LAND MENTS MENTS OTHER LAND MENTS TOTAL
- -------------------------- -------- ------- ------------ -------- ------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Horizon East.............. $ 1,498 $ 592 $ 2,628 $ 469 $ - $ 592 $ 3,097 $ 3,689
Dallas, TX
Kimberly Woods............ 3,238 571 3,802 912 -- 571 4,714 5,285
Tucson, AZ
King Village.............. 2,178 184 2,716 179 -- 184 2,895 3,079
Huntsville, AL
La Mirada................. 5,552 392 5,454 1,119 -- 392 6,573 6,965
Jacksonville, FL
Lake Nora Arms............ 10,043 737 10,774 648 -- 737 11,422 12,159
Indianapolis, IN
Lakewood Park............. 3,074 800 3,200 19 -- 800 3,219 4,019
St. Petersburg, FL
Lantern Ridge............. 1,503 130 1,721 21 -- 177 1,695 1,872
Richmond, VA
Mallard Lake.............. 8,153 534 7,099 629 -- 534 7,728 8,262
Greensboro, NC
Manchester Commons........ 4,984 635 4,654 750 -- 635 5,404 6,039
Manchester, MO
Mesa Court................ 1,770 492 1,968 104 -- 492 2,072 2,564
Mesa, AZ
Mesa Ridge................ 2,365 955 3,820 190 -- 955 4,010 4,965
Mesa, AZ
Nora Pines................ 6,138 221 3,872 314 -- 221 4,186 4,407
Indianapolis, IN
Oak Hollow................ 7,576 745 6,118 611 -- 745 6,729 7,474
Austin, TX
Oakmont................... 2,910 251 1,423 62 (100) 251 1,385 1,636
Monroe, LA
Oak Tree.................. 2,223 304 3,543 246 -- 304 3,789 4,093
Grandview, MO
Olde Towne................ 3,655 209 3,272 248 -- 209 3,520 3,729
Middletown, OH
Outrigger................. 3,175 683 4,871 407 -- 683 5,278 5,961
Tulsa, OK
Pines..................... 2,670 278 3,490 243 -- 278 3,733 4,011
Little Rock, AR
Place One................. 5,145 784 5,186 796 -- 784 5,982 6,766
Tulsa, OK
Regency................... 2,501 304 1,865 82 -- 304 1,947 2,251
Lincoln, NE
Regency Falls............. 2,655 888 7,261 1,423 (100)(3) 888 8,584 9,472
San Antonio, TX
Rockborough............... 5,900 702 4,495 740 -- 702 5,235 5,937
Denver, CO
Royal Oaks................ 2,758 738 5,348 947 -- 738 6,295 7,033
Stone Mountain, GA
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OF OPERATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------- ------------ ------------ -------- --------------
<S> <<C> <C> <C> <C>
Horizon East.............. $ 2,022 1972 05/78 7 -- 40 years
Dallas, TX
Kimberly Woods............ 3,165 1973 12/77 7 -- 40 years
Tucson, AZ
King Village.............. 2,016 1960 08/75 7 -- 40 years
Huntsville, AL
La Mirada................. 4,005 1971 01/79 7 -- 40 years
Jacksonville, FL
Lake Nora Arms............ 7,181 1973 06/78 7 -- 40 years
Indianapolis, IN
Lakewood Park............. 407 1976 12/90 7 -- 40 years
St. Petersburg, FL
Lantern Ridge............. 1,381 1974 03/79 7 -- 40 years
Richmond, VA
Mallard Lake.............. 4,535 1974 05/79 7 -- 40 years
Greensboro, NC
Manchester Commons........ 3,476 1972 06/78 7 -- 40 years
Manchester, MO
Mesa Court................ 306 1972 05/90 7 -- 40 years
Mesa, AZ
Mesa Ridge................ 600 1972 05/90 7 -- 40 years
Mesa, AZ
Nora Pines................ 2,648 1970 05/78 7 -- 40 years
Indianapolis, IN
Oak Hollow................ 4,248 1974 05/78 7 -- 40 years
Austin, TX
Oakmont................... 239 1974 06/89 7 -- 40 years
Monroe, LA
Oak Tree.................. 1,631 1968 03/82 7 -- 40 years
Grandview, MO
Olde Towne................ 1,944 1968 03/81 7 -- 40 years
Middletown, OH
Outrigger................. 3,459 1974 11/77 7 -- 40 years
Tulsa, OK
Pines..................... 2,249 1977 11/77 7 -- 40 years
Little Rock, AR
Place One................. 4,185 1970 04/77 7 -- 40 years
Tulsa, OK
Regency................... 971 1973 05/82 7 -- 40 years
Lincoln, NE
Regency Falls............. 5,557 1974 11/78 7 -- 40 years
San Antonio, TX
Rockborough............... 3,211 1973 01/78 7 -- 40 years
Denver, CO
Royal Oaks................ 4,019 1973 12/77 7 -- 40 years
Stone Mountain, GA
</TABLE>
66
<PAGE> 67
SCHEDULE III
(CONTINUED)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (1)
----------------------------------------------
COST CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO
--------------------------------- ACQUISITION
BUILDING ------------------ BUILDING
ENCUM- AND IMPROVE- IMPROVE- AND IMPROVE-
DESCRIPTION BRANCES LAND MENTS MENTS OTHER LAND MENTS TOTAL
- -------------------------- -------- ------- ------------ -------- ------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Santa Fe.................. $ 2,855 $ 529 $ 5,351 $ 178 $ -- $ 529 $ 5,529 $ 6,058
Kansas City, MO
Shadowood................. 3,743 477 3,208 134 -- 477 3,342 3,819
Addison, TX
Sherwood Glen............. 3,943 352 2,550 482 -- 352 3,032 3,384
Urbandale, IA
Skipper's Pond............ 2,700 360 3,123 114 -- 339 3,258 3,597
Tampa, FL
Stonebridge............... 1,760 193 2,076 188 -- 193 2,264 2,457
Florissant, MO
Summerwind................ 5,219 493 2,990 138 -- 493 3,128 3,621
Reseda, CA
Sun Hollow................ 3,944 385 4,159 38 -- 385 4,197 4,582
El Paso, TX
Tanglewood................ 17,453 5,682 18,340 3,295 -- 5,682 21,635 27,317
Arlington Heights, IL
Timber Creek.............. 5,000 154 2,327 582 -- 154 2,909 3,063
Omaha, NE
Towne Oaks................ 2,726 188 3,576 141 -- 188 3,717 3,905
Monroe, LA
Villa Del Mar............. 2,578 387 3,134 96 -- 387 3,230 3,617
Wichita, KS
Village Square............ 2,068 769 5,566 1,060 -- 769 6,626 7,395
Stone Mountain, GA
Villas.................... 3,384 516 3,948 497 -- 516 4,445 4,961
Plano, TX
Whispering Pines.......... 2,338 311 1,255 163 -- 311 1,418 1,729
Canoga Park, CA
Whispering Pines.......... 5,020 228 4,330 526 -- 228 4,856 5,084
Topeka, KS
Windridge................. 7,457 711 5,812 1,508 -- 711 7,320 8,031
Austin, TX
Windtree I & II........... 5,233 460 2,739 181 -- 460 2,920 3,380
Reseda, CA
Wisperwood................ 2,198 237 1,964 393 -- 258 2,336 2,594
Tampa, FL
Woodlake.................. 4,458 585 5,848 828 -- 585 6,676 7,261
Carrollton, TX
Woodsong II............... 1,431 322 3,705 134 -- 322 3,839 4,161
Smyrna, GA
Woodstock................. 3,167 888 5,193 368 -- 888 5,561 6,449
Dallas, TX
OFFICE BUILDINGS
56 Expressway........... -- 406 3,976 557 (2,386)(3) 406 2,147 2,553
Oklahoma City, OK
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OF OPERATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------- ------------ ------------ -------- --------------
<S> <<C> <C> <C> <C>
Santa Fe.................. $ 2,618 1964/ 04/83 7 -- 40 years
Kansas City, MO 67
Shadowood................. 1,949 1976 02/79 7 -- 40 years
Addison, TX
Sherwood Glen............. 2,095 1970 12/77 7 -- 40 years
Urbandale, IA
Skipper's Pond............ 2,225 1971 07/76 7 -- 40 years
Tampa, FL
Stonebridge............... 1,403 1975 10/77 7 -- 40 years
Florissant, MO
Summerwind................ 2,265 1976 02/77 7 -- 40 years
Reseda, CA
Sun Hollow................ 2,341 1977 09/79 7 -- 40 years
El Paso, TX
Tanglewood................ 13,297 1974 03/78 7 -- 40 years
Arlington Heights, IL
Timber Creek.............. 1,894 1974 10/78 7 -- 40 years
Omaha, NE
Towne Oaks................ 1,843 1974 07/82 7 -- 40 years
Monroe, LA
Villa Del Mar............. 1,670 1971 10/81 7 -- 40 years
Wichita, KS
Village Square............ 4,181 1973 12/77 7 -- 40 years
Stone Mountain, GA
Villas.................... 2,444 1977 04/79 7 -- 40 years
Plano, TX
Whispering Pines.......... 74 1977 12/93 7 -- 40 years
Canoga Park, CA
Whispering Pines.......... 3,109 1972 02/78 7 -- 40 years
Topeka, KS
Windridge................. 4,801 1974 09/78 7 -- 40 years
Austin, TX
Windtree I & II........... 2,016 1976 11/76 7 -- 40 years
Reseda, CA
Wisperwood................ 1,622 1975 07/76 7 -- 40 years
Tampa, FL
Woodlake.................. 3,612 1979 08/78 7 -- 40 years
Carrollton, TX
Woodsong II............... 3,040 1975 08/80 7 -- 40 years
Smyrna, GA
Woodstock................. 3,126 1977 12/78 7 -- 40 years
Dallas, TX
OFFICE BUILDINGS
56 Expressway........... 1,897 1981 03/82 7 -- 40 years
Oklahoma City, OK
</TABLE>
67
<PAGE> 68
SCHEDULE III
(CONTINUED)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (1)
----------------------------------------------
COST CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO
--------------------------------- ACQUISITION
BUILDING ------------------ BUILDING
ENCUM- AND IMPROVE- IMPROVE- AND IMPROVE-
DESCRIPTION BRANCES LAND MENTS MENTS OTHER LAND MENTS TOTAL
- -------------------------- -------- ------- ------------ -------- ------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Executive Court........... $ -- $ 271 $ 2,099 $ 646 $ -- $ 271 $ 2,745 $ 3,016
Memphis, TN
Fondren................... -- 366 5,100 154 (3,421)(3) 366 1,833 2,199
Houston, TX
Marina Playa.............. 8,300 1,237 4,339 4,968 -- 1,237 9,307 10,544
Santa Clara, CA
Melrose Business Park..... -- 367 2,674 117 (1,000)(3) 367 1,791 2,158
Oklahoma City, OK
Toll Hill................. 2,459 1,230 3,722 1,521 (1,098)(3) 1,230 4,145 5,375
Dallas, TX
University Square......... -- 562 3,276 181 (1,875)(3) 562 1,582 2,144
Anchorage, AK
SHOPPING CENTERS
Countryside Plaza......... 2,043 843 3,179 715 -- 843 3,894 4,737
Clearwater, FL
Crestview................. 787 239 1,512 93 -- 239 1,605 1,844
Crestview, FL
Cross County Mall......... 7,473 608 6,468 5,617 -- 608 12,085 12,693
Mattoon, IL
Cullman................... 829 400 1,830 132 -- 400 1,962 2,362
Cullman, AL
Harbor Plaza.............. -- 817 2,587 301 -- 821 2,884 3,705
Aurora, CO
Katella Plaza............. 1,705 -- 2,844 504 -- -- 3,348 3,348
Orange, CA
Regency Point............. 2,614 647 5,156 2,113 -- 1,792 6,124 7,916
Jacksonville, FL
Southern Palms............ 9,031 4,226 17,757 1,344 -- 4,285 19,042 23,327
Tempe, AZ
Westwood.................. 890 -- 5,424 526 -- -- 5,950 5,950
-------- ------- -------- ------- ------- ------- -------- --------
Tallahassee, FL......... $309,224 $50,103 $353,132 $49,184 $(9,980) $51,342 $391,097 $442,439
======== ======= ======== ======= ======= ======= ======== ========
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OF OPERATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------- ------------ ------------ -------- --------------
<S> <<C> <C> <C> <C>
Executive Court........... $ 1,347 1980 09/82 7 -- 40 years
Memphis, TN
Fondren................... 1,509 1982 07/83 7 -- 40 years
Houston, TX
Marina Playa.............. 5,031 1972 12/76 7 -- 40 years
Santa Clara, CA
Melrose Business Park..... 1,216 1980 03/82 7 -- 40 years
Oklahoma City, OK
Toll Hill................. 2,400 1979 06/79 7 -- 40 years
Dallas, TX
University Square......... 1,343 1981 12/81 7 -- 40 years
Anchorage, AK
SHOPPING CENTERS
Countryside Plaza......... 1,625 1978 05/85 7 -- 40 years
Clearwater, FL
Crestview................. 926 1979 05/78 7 -- 40 years
Crestview, FL
Cross County Mall......... 5,842 1971 08/79 7 -- 40 years
Mattoon, IL
Cullman................... 1,077 1979 02/79 7 -- 40 years
Cullman, AL
Harbor Plaza.............. 1,538 1979 09/81 7 -- 40 years
Aurora, CO
Katella Plaza............. 1,948 1971 12/80 7 -- 40 years
Orange, CA
Regency Point............. 2,063 1982 06/84 7 -- 40 years
Jacksonville, FL
Southern Palms............ 8,754 1981 03/83 7 -- 40 years
Tempe, AZ
Westwood.................. 2,365 1980 10/83 7 -- 40 years
--------
Tallahassee, FL......... $212,957
========
</TABLE>
- ---------------
(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Does not include discounts and mortgages payable totaling $15,609 on real
estate which has been sold but for which the Partnership remains liable on
the underlying mortgage note.
(3) Write-down of property to estimated net realizable value.
68
<PAGE> 69
SCHEDULE III
(CONTINUED)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of Real Estate
Balance at January 1....................................... $451,572 $457,654 $447,011
Acquisitions and improvements............................ 5,705 5,411 10,813
Sales.................................................... (14,838) (11,493) (170)
-------- -------- --------
Balance at December 31..................................... $442,439 $451,572 $457,654
======== ======== ========
Reconciliation of Accumulated Depreciation
Balance at January 1....................................... $210,037 $206,120 $195,952
Depreciation............................................. 10,268 10,034 10,168
Sales.................................................... (7,348) (6,117) --
-------- -------- --------
Balance at December 31..................................... $212,957 $210,037 $206,120
======== ======== ========
</TABLE>
69
<PAGE> 70
SCHEDULE IV
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
CARRYING AMOUNT OF LOANS SUBJECT
FINAL PERIODIC FACE OF MORTGAGE NET TO DELINQUENT
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF OF UNAMORTIZED PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LIENS MORTGAGE DISCOUNT INTEREST
- ----------------------------- -------- -------- ------ ------- --------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
Indian Meadows............... 10.00% 12/95 Quarterly $ -- $ 680 $ -- $ --
Secured by land in payments
Grand County, CO of
interest
only.
Annual
principal
payments
of
$50,000.
Silver Creek................. 14.00% 12/94 Quarterly -- 773 -- --
Secured by land in payments
Grand County, CO of
principal
and
interest
of
$31,000.
WRAPAROUND MORTGAGE LOANS
Nellis....................... 8.50% 01/97 Monthly 1,440 5,100 5,100 --
Secured by shopping center in to interest
Las Vegas, NV 9.50% only.
Warner Creek................. 8.00% 08/96 Monthly 11,683 17,503 17,450 --
Secured by apartments in to interest
Woodland Hills, CA 11.00% only.
Prepayment
with
30
days
notice,
penalty
of
3.00%.
Bridgeview................... 8.00% 02/00 Monthly 2,486 5,500 5,313 --
Secured by shopping center in to interest
La Crosse, WI 9.50% only.
May
prepay
up to
25% of
the
wrap
equity
upon
60
days
written
notice
without
penalty.
------- ------- ------- --------
$15,609 $29,556 27,863 $ --
======= ======= ========
Interest receivable.......... 80
Deferred gains............... (15,787)
Allowance for estimated
losses..................... (1,910)
-------
$10,246
=======
</TABLE>
70
<PAGE> 71
SCHEDULE IV
(CONTINUED)
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1, ........................................ $29,525 $29,476 $34,712
Additions
Amortization of discount.................................... 45 73 304
Acquisition and settlement of notes receivable.............. 2,268 -- --
Principal advances.......................................... -- -- --
Compounded interest......................................... -- -- 464
Other....................................................... -- -- 4
Deductions
Foreclosures................................................ -- -- (5,993)
Collection of principal..................................... (3,975) (24) (15)
------- ------- -------
Balance at December 31,....................................... $27,863 $29,525 $29,476
======= ======= =======
</TABLE>
71
<PAGE> 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
_________________________________
PART III
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER
As partnerships, neither National Realty, L.P. ("National Realty" or the
"Registrant") nor National Operating, L.P. (the "Operating Partnership" or
"NOLP") (collectively the "Partnership") has officers or directors. The
General Partner of the Partnership is Syntek Asset Management, L.P. ("SAMLP"),
whose general partners are Gene E. Phillips and Syntek Asset Management, Inc.
("SAMI"). SAMI serves as Managing General Partner. Mr. Phillips is associated
with a number of entities which have business objectives that are similar in
certain respects to those of the Partnership. The Managing General Partner
manages the day-to-day affairs of the Partnership which includes all decisions
with respect to the acquisition, disposition, improvement, financing or
refinancing of the Partnership's properties, subject to the limitations of the
Moorman Settlement Agreement. See ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement." In addition, SAMI's corporate parent, Basic Capital Management,
Inc. ("BCM"), performs certain administrative functions and other services for
the Partnership for cost reimbursements and fees as described in ITEM 1.
"BUSINESS - Management and Operations." The individual general partner of
SAMLP and the executive officers of SAMI are listed below, together with their
ages, terms of service, their principal occupations, business experience, and
directorships with other companies during the last five years or more.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
72
<PAGE> 73
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)
GENE E. PHILLIPS: Age 58, General Partner (since 1987) of SAMLP; and Chairman
of the Board, Director and Chief Executive Officer (since March 1989) of SAMI,
the Managing General Partner of SAMLP and a company owned by BCM.
Director and Secretary (since 1982) and the sole shareholder of
Syntek West, Inc. ("SWI"); Chairman of the Board (since 1978) of
Hungry Bull, Inc.; Limited Partner (since January 1991) of Carmel
Realty Services, Ltd. ("Carmel, Ltd."); Chief Executive Officer
(February 1989 to September 1992) and Chairman of the Board and
Director (February 1989 to December 1989) of BCM; Director and
President (November 1989 to September 1992) of Carmel Realty
Services, Inc. ("CRSI"); Chairman of the Board (1984 to November
1992), Director (1981 to November 1992), Chief Executive Officer
(1982 to July 1991) and President (February 1989 to July 1991) of
American Realty Trust, Inc. ("ART"); Trustee or Director (January
1989 to December 1992) of Transcontinental Realty Investors, Inc.
("TCI"), Vinland Property Trust ("VPT"), National Income Realty
Trust ("NIRT"), Continental Mortgage and Equity Trust ("CMET") and
Income Opportunity Realty Investors, Inc., formerly Income
Opportunity Realty Trust (collectively "IORI").
RANDALL M. PAULSON: Age 49, President and Director (since August 1995) and
Executive Vice President (January 1995 to August 1995) of SAMI.
President (since August 1995) and Executive Vice President (January
1995 to August 1995) of CMET, IORI and TCI and (October 1994 to
August 1995) of BCM; Executive Vice President (since January 1995)
of ART; Vice President (1993 to 1994) of GSSW, LP, a joint venture
of Great Southern Life and Southwestern Life; Vice President (1990
to 1993) of Property Company of America Realty, Inc.; President
(1990) of Paulson Realty Group; President (1983 to 1989) of
Johnstown Management Company; and Vice President (1979 to 1982) of
Lexton-Ancira.
BRUCE A. ENDENDYK: Age 47, Executive Vice President (since January 1995) of
SAMI.
President (since January 1995) of Carmel Realty; Executive Vice
President (since January 1995) of BCM, ART, CMET, IORI and TCI;
Management Consultant (November 1990 to December 1994); Executive
Vice President (January 1989 to November 1990) of Southmark
Corporation ("Southmark"); President and Chief Executive Officer
(March 1988 to January 1989) of Southmark Equities Corporation; and
Vice President/Resident Manager (December 1975 to March 1988) of
Coldwell Banker Commercial/Real Estate Services in Houston, Texas.
73
<PAGE> 74
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)
THOMAS A. HOLLAND: Age 53, Executive Vice President and Chief Financial
Officer (since August 1995) and Senior Vice President and Chief Accounting
Officer (July 1990 to August 1995) of SAMI.
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President (July 1990 to August 1995) of BCM,
ART, CMET, IORI and TCI; Senior Vice President and Chief Accounting
Officer (July 1990 to February 1994) of NIRT and VPT; Vice President
and Controller (December 1986 to June 1990) of Southmark; Vice
President-Finance (January 1986 to December 1986) of Diamond
Shamrock Chemical Company; Assistant Controller (May 1976 to January
1986) of Maxus Energy Corporation (formerly Diamond Shamrock
Corporation); Trustee (August 1989 to June 1990) of Arlington Realty
Investors; and Certified Public Accountant (since 1970).
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Under the securities laws of the United States, the directors and executive
officers of the Partnership's Managing General Partner, and any persons holding
more than 10% of the Partnership's units of limited partner interest are
required to report their ownership of the Partnership's units and any changes
in that ownership to the Securities and Exchange Commission (the "Commission").
Specific due dates for these reports have been established and the Partnership
is required to report any failure to file by these dates during 1995. All of
these filing requirements were satisfied by the directors and executive
officers of the Partnership's Managing General Partner and 10% holders. In
making these statements, the Partnership has relied on the written
representations of the directors and executive officers of the Partnership's
Managing General Partner and its ten percent holders and copies of the reports
that they have filed with the Commission.
Administrative Agent. BCM, of which Mr. Phillips served as Chief Executive
Officer until September 1, 1992, and of which Mr. Paulson serves as President,
performs certain administrative functions such as accounting services, mortgage
servicing and real estate portfolio review and analysis for the Partnership on
a cost reimbursement basis.
Affiliates of BCM perform property management, loan placement services, leasing
services and real estate brokerage and acquisition services, and may perform
other services, for the Partnership for fees and commissions. BCM's principal
business activity is the providing of advisory services for real estate
companies. See ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The directors and principal officers of BCM are set forth below.
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
74
<PAGE> 75
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)
RANDALL M. PAULSON: President
MARK W. BRANIGAN: Executive Vice President
OSCAR W. CASHWELL: Executive Vice President
BRUCE A. ENDENDYK: Executive Vice President
THOMAS A. HOLLAND: Executive Vice President and Chief Financial Officer
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR.: Executive Vice President, Finance
ROBERT A. WALDMAN: Senior Vice President, Secretary and General Counsel
DREW D. POTERA: Vice President, Treasurer and Securities Manager
Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is Gene E.
Phillips' son.
Oversight Committee. As more fully described under ITEM 3. "LEGAL PROCEEDINGS
- - Moorman Settlement," the Partnership is a party to the Moorman Settlement
Agreement that, among other things, established an Oversight Committee which
will exist only until termination of the Moorman Settlement Plan. The current
members of the Oversight Committee are Kenneth R. Kelly, Ronald T. Baker and
Joseph S. Radovsky. Mr. Kelly is the current Chairman and Secretary of the
Oversight Committee.
Unanimous consent of the Oversight Committee is required, during the term of
the Moorman Settlement Plan, for the Partnership to adopt a new unit purchase
rights plan, or for SAMLP, on behalf of the Partnership, to enter into or
modify any transaction (other than certain transactions expressly permitted by
the Partnership Agreement) with an affiliate (as defined below) of the
Partnership, SAMLP, or Mr. Phillips or William S. Friedman, a general partner
of SAMLP until March 4, 1994. Majority consent of the Oversight Committee is
required, during the term of the Moorman Settlement Plan, for SAMLP, on behalf
of the Partnership, to purchase securities of other issuers other than certain
money market instruments and mortgages in the ordinary course of the
Partnership's business, or to enter any new line of business. For purposes of
the Moorman Settlement Agreement, an "Affiliate" of the Partnership, SAMLP, or
Messrs. Phillips and Friedman (each, a "Specified Party") is any person or
entity that (i) directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with the Specified
Party, (ii) owns or controls 10% or more of the outstanding voting securities
of the Specified Party, or (iii) is an officer or director of, general partner
in, or serves in a similar
75
<PAGE> 76
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)
capacity to the Specified Party or of which the Specified Party is an officer,
director, or general partner or with respect to which the Specified Party
serves in a similar capacity.
On July 8, 1992, SAMLP notified the Oversight Committee of the failure to meet
the Targets (as defined in ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement")
for two successive years. 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 property 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. See ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Pursuant to the Moorman Settlement Agreement, the Partnership pays each member
of the Oversight Committee $50,000 per year. The Partnership's obligation to
pay such compensation ceased May 9, 1995. However, the Supervising Judge
entered an order on May 19, 1995, providing that the obligation to pay such
compensation shall continue until the Moorman Settlement Plan has been
terminated and the Oversight Committee has been dissolved. The Partnership
also pays the salary of an Oversight Committee employee, and reimburses certain
of the Oversight Committee's expenses including legal fees.
The principal occupations and relevant affiliations of the Oversight Committee
members, as furnished to the Partnership by such members, are as follows:
KENNETH R. KELLY: Age 49, member (since July 1990), Chairman (since January
1995) and Secretary (since July 1990) of the Oversight Committee.
President (since 1986) of Proximity Research Corporation, a real
estate firm based in Auburn, California. Mr. Kelly has been
involved in the real estate investment business throughout the
United States for the past twenty years. Mr. Kelly is a member of
the State Bar of California.
RONALD T. BAKER: Age 48, member (since July 1990) and Chairman (July 1990 to
January 1995) of the Oversight Committee.
President of INVENEX (formerly known as Partnership Securities
Exchange, Inc.) ("INVENEX") , a manufacturing company. INVENEX was
one of the initial plaintiffs in the Moorman action discussed in
ITEM 3. "LEGAL PROCEEDINGS - Moorman Settlement."
76
<PAGE> 77
ITEM 10. GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF THE
REGISTRANT'S GENERAL PARTNER (Continued)
JOSEPH S. RADOVSKY: Age 52, member (since July 1992) of the Oversight
Committee.
Partner with Greene, Radovsky, Maloney and Share, a law firm in San
Francisco, California.
Fairness Committee. National Realty's Fairness Committee periodically reviewed
certain transactions between the Partnership and its affiliates. The
Partnership Agreement requires Fairness Committee approval of the interest rate
to be paid on loans from the General Partner or its affiliates, the terms of
any property sales to or purchases from the General Partner or its affiliates,
the purchase of securities from the General Partner or its affiliates and, upon
any withdrawal of the General Partner, the purchase price of the General
Partner's interest in the Partnership and in the fees and other compensation to
be paid under the Partnership Agreement.
The Partnership Agreement provides that the Fairness Committee shall consist of
two or more natural persons, none of whom shall be affiliates (as defined in
the Partnership Agreement) of the General Partner except as directors of the
Managing General Partner.
The Fairness Committee consisted of two members until February 1995, when
Raymond V. J. Schrag resigned. The remaining member of the Fairness Committee,
Willie K. Davis, resigned in August 1995.
Audit Committee. National Realty's Audit Committee, which reviews certain
matters relating to the Partnership's auditors and annual and quarterly
financial statements, was established effective August 3, 1990, pursuant to the
Moorman Settlement Agreement. The chairman and only member of the Audit
Committee is Harry J. Reidler, an attorney in private practice in Englewood,
New Jersey.
Mr. Reidler has performed legal services for the Partnership.
ITEM 11. EXECUTIVE COMPENSATION
Neither National Realty nor the Operating Partnership has any employees,
payroll or benefit plans and pays no salary or other cash compensation directly
to any person other than (i) $50,000 per year to each member of the Oversight
Committee plus $48,000 per year to an analyst engaged by the Oversight
Committee, (ii) $4,000 per year to each member of the Fairness and Audit
Committees and (iii) fees and expense reimbursements in accordance with the
Partnership Agreement to the General Partner or its affiliates for services
provided to the Partnership. See ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."
SAMI has no employees, payroll or benefit plans and pays no compensation to its
officers or directors.
The Moorman Settlement Agreement provides that effective May 1, 1990 the
Partnership's future reimbursement of any salaries which may be paid to Messrs.
Phillips and Friedman shall be limited to an aggregate of
77
<PAGE> 78
ITEM 11. EXECUTIVE COMPENSATION (Continued)
$500,000 per year, for any such reimbursement of salaries to be deferred until
such time as a Target, as defined in the Moorman Settlement Agreement, may be
met and, if SAMLP resigns as General Partner during the pendency of the Moorman
Settlement Plan, for the waiver of any reimbursement of salary so deferred.
Accordingly, no reimbursement for the salaries of Messrs. Phillips and Friedman
was charged to or paid by the Partnership in the period January 1, 1991 through
December 31, 1995. Mr. Friedman resigned as a general partner of SAMLP on
March 4, 1994.
Mr. Phillips may indirectly benefit from other payments made by the Partnership
to certain related parties.
Mr. Reidler received $4,000 in 1995 for serving on the Partnership's Audit
Committee. Messrs. Kelly, Baker and Radovsky each received $50,000 in 1995 for
serving on the Oversight Committee. See ITEM 10. "GENERAL PARTNER OF THE
REGISTRANT AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER."
[THIS SPACE INTENTIONALLY LEFT BLANK.]
78
<PAGE> 79
ITEM 11. EXECUTIVE COMPENSATION (Continued)
Performance Graph
The following performance graph compares the cumulative total unitholder return
on the Partnership's units of limited partner interest with the Dow Jones
Market Index ("DJ Market Index") and the Dow Jones Real Estate Index ("DJ Real
Estate Index"). The comparison assumes that $100 was invested on December 31,
1990 in the Partnership's units of limited partner interest and in each of the
indices and further assumes the reinvestment of all distributions. Past
performance is not necessarily an indicator of future performance.
[GRAPH]
<TABLE>
<CAPTION>
================================================================================================
1990 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THE PARTNERSHIP 100 141 237 299 381 473
- ------------------------------------------------------------------------------------------------
DJ EQUITY MARKET INDEX 100 132 145 158 159 221
- ------------------------------------------------------------------------------------------------
DJ REAL ESTATE INDEX 100 112 101 118 112 139
================================================================================================
</TABLE>
79
<PAGE> 80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of National Realty's units of limited partner interest,
both beneficially and of record, both individually and in the aggregate, for
those persons known by National Realty to be beneficial owners of more than 5%
of its units of limited partner interest, as of the close of business on March
15, 1996.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- --------------------------- ------------------------- ---------
<S> <C>
American Realty Trust, Inc. 3,340,522 52%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
- ----------------------------
</TABLE>
(1) Percentage is based upon 6,417,916 units of limited partner interest
outstanding at March 15, 1996.
Security Ownership of Management. The following table sets forth the ownership
of National Realty's units of limited partner interest, both beneficially and
of record, both individually and in the aggregate, by SAMLP, the general
partners of SAMLP, and the executive officers and directors of SAMI, as of the
close of business on March 15, 1996.
<TABLE>
<CAPTION>
Percent of
Name of Beneficial Owner Number of Units Units (1)
- ----------------------------- --------------------- ----------
<S> <C> <C>
SAMLP, the general 3,626,697(2) 57%
partners of SAMLP, and
the executive officers
and directors of SAMI
as a group (4 individuals)
- -----------------------------
</TABLE>
(1) Percentage is based upon 6,417,916 units of limited partner interest
outstanding as of March 15, 1996.
(2) Includes 3,340,522 units owned by ART and 286,175 units owned by BCM,
of which the general partners of SAMLP and the directors and
executive officers of SAMI, ART and BCM may be deemed to be the
beneficial owners by virtue of their positions as general partners
of SAMLP and executive officers of SAMI, ART and BCM. SAMLP's
general partners and the directors and executive officers of SAMI,
ART and BCM disclaim beneficial ownership of such units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Business Relationships
National Realty is the sole limited partner of the Operating Partnership and
owns 99% of the beneficial interest in the Operating Partnership. SAMLP is the
general partner of, and owner of a 1% beneficial interest
80
<PAGE> 81
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Certain Business Relationships (Continued)
in, each of National Realty and the Operating Partnership. Southmark Asset
Management, Inc., a wholly-owned subsidiary of Southmark, was the managing
general partner of SAMLP until January 17, 1989, when it transferred its 96%
limited partnership interest to ART, a real estate investment company of which
Messrs. Phillips and Friedman served as officers and directors until November
16, 1992 and December 31, 1992, respectively. As a result, Messrs. Phillips
and Friedman became the sole general partners of SAMLP, and each owned 2% of
the beneficial interest in SAMLP. On February 25, 1992, ART transferred a
19.2% limited partner interest in SAMLP to Southmark pursuant to a litigation
settlement.
On July 18, 1989, Messrs. Phillips and Friedman each assigned .05% of their
general partner interest in SAMLP to SAMI, a company of which Mr. Phillips
serves as a director, Chairman of the Board and Chief Executive Officer and of
which BCM is the sole shareholder. On March 4, 1994, Mr. Friedman resigned as
a general partner of SAMLP. As a result, Mr. Phillips and SAMI are the
general partners of SAMLP, with 1.95% and .10%, respectively, of the beneficial
interest in SAMLP. Mr. Friedman's 1.95% interest in SAMLP is now a limited
partner interest. SAMI was appointed Managing General Partner of SAMLP on June
18, 1990. Bruce A. Endendyk, Executive Vice President of SAMI, was Executive
Vice President from January 1989 to November 1990 of Southmark and President
and Chief Executive Officer of Southmark Equities Corporation from March 1988
to January 1989. Thomas A. Holland, Executive Vice President and Chief
Financial Officer of SAMI, was Vice President and Controller of Southmark from
December 1986 to June 1990.
Since February 1, 1990, affiliates of the General Partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.
provides property management services for a fee of 5% or less of the monthly
gross rents collected on the properties under its management. Carmel, Ltd.
subcontracts with other entities for the property-level management services to
the Partnership at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (i) SWI, of which Mr. Phillips is the
sole shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of Mr.
Phillips' children. BCM is a company which is owned by a trust for the benefit
of the children of Mr. Phillips. BCM performs certain administrative and other
functions for the Partnership. See ITEM 1. "BUSINESS - Management and
Operations" and ITEM 11. "EXECUTIVE COMPENSATION."
Messrs. Paulson, Endendyk and Holland serve as executive officers of BCM. Mr.
Phillips served as a director until December 1989 and Chief Executive Officer
until September 1, 1992, of BCM. Messrs. Paulson, Endendyk and Holland serve
as executive officers of CMET, IORI, TCI and ART. BCM serves as advisor to
CMET, IORI, TCI and ART.
Mr. Kelly, who serves as President of Proximity Research Corporation and who
also serves as Chairman and Secretary of the Oversight Committee, has provided
professional services to the Partnership.
81
<PAGE> 82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Related Party Transactions
The Partnership has engaged in business transactions with certain related
parties and may continue to do so, subject to unanimous approval of the
Oversight Committee during the term of the Moorman Settlement Plan as discussed
under ITEM 10. "GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE OFFICERS OF
THE REGISTRANT'S GENERAL PARTNER - Oversight Committee." The Partnership
believes that all of the related party transactions were at least as
advantageous to the Partnership as could have been obtained from unrelated
third parties.
The Partnership has paid and pays cost reimbursements, property management fees
or other cash compensation to the General Partner and its affiliates and other
related parties as described in ITEM 11. "EXECUTIVE COMPENSATION" and ITEM 1.
"BUSINESS - Management and Operations." BCM, an affiliate of the General
Partner, performs certain administrative functions for the Partnership on a
cost reimbursement basis. The Fairness Committee has approved the formula for
computing the Partnership's proportionate share of certain of BCM's
reimbursable costs. GCMI performs administrative functions, similar to those
performed for the Partnership by BCM, for GCLP on a cost reimbursement basis.
Since February 1, 1990, affiliates of the General Partner have provided
property management services to the Partnership. Currently, Carmel, Ltd.,
provides such property management services. Carmel, Ltd. subcontracts with
other entities for the property-level management services to the Partnership.
Carmel, Ltd. subcontracts the property-level management and leasing of twelve
of the Partnership's commercial properties to Carmel Realty, which is a company
owned by SWI. Carmel Realty is entitled to receive property and construction
management fees and leasing commissions in accordance with the terms of its
property-level management agreement with Carmel, Ltd. Carmel, Ltd. does not
perform property management services to the properties of GCLP. Carmel, Ltd.
and Carmel Realty also perform similar services for ART, CMET, IORI and TCI.
See NOTE 11. "GENERAL PARTNER FEES AND COMPENSATION" included in Notes to
Consolidated Financial Statements at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA," for a summary of fees paid and costs reimbursed by the
Partnership.
The Partnership's Fairness Committee periodically reviewed certain transactions
between the Partnership and its affiliates. See ITEM 1. "BUSINESS - Management
and Operations." The Fairness Committee approved the terms of the Partnership's
contracts and terms for services and reimbursements with affiliates. Messrs.
Schrag and Davis, the members of the Fairness Committee, resigned from the
committee in February and August 1995, respectively.
The Partnership's Oversight Committee must approve certain types of
transactions between the Partnership and SAMLP or its affiliates, as defined in
the Moorman Settlement Agreement. See ITEM 3. "LEGAL PROCEEDINGS - Moorman
Settlement."
82
<PAGE> 83
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Indebtedness of Management
In return for its 1% interest in National Realty, the General Partner was
required to make aggregate capital contributions to National Realty in an
amount equal to 1.01% of the total initial capital contributions to the
Partnership. The General Partner contributed $500,000 cash with the remaining
portion evidenced by a promissory note in the principal amount of $4.2 million,
bearing interest at the rate of 10% per annum compounded semi-annually and
payable on the earlier of September 18, 2007, liquidation of the Partnership or
a termination of the General Partner's interest in the Partnership. As of
December 31, 1995, no payments had been received on such note. At December 31,
1995, accrued and unpaid interest on the note totaled $5.2 million.
_____________________________
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets -
December 31, 1995 and 1994
Consolidated Statements of Operations -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Partners' Equity (Deficit) -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
All other schedules are omitted because they are not applicable or because the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
83
<PAGE> 84
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
3. Exhibits
The following documents are filed as Exhibits to this Report:
Exhibit
Number Description
- ------- ---------------------------------------------------------------------
3.0 National Realty, L.P. Amended and Restated Certificate of Limited
Partnership, dated March 4, 1987 (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement No. 33-16215
on Form S- 4).
3.1 National Realty, L.P. First Amended and Restated Agreement of
Limited Partnership, dated as of January 29, 1987 (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement
No. 33-16215 on Form S-4).
3.2 Certificate of Amendment of Limited Partnership Agreement of
National Realty, L.P. dated as of May 14, 1990 (incorporated by
reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990).
4.0 Indenture, dated as of September 18, 1987, by and between National
Realty, L.P. and Mellon Bank, N.A. (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement No. 33-16215
on Form S-4).
4.1 Amendment No. 1, dated as of December 28, 1987, to Trust Indenture
between National Realty, L.P. and Mellon Bank, N.A. (incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1988).
4.2 Form of Warrant Agreement between National Realty, L.P. and American
Stock Transfer and Trust Company, as Warrant Agent (incorporated by
reference to Exhibit 4.5 to the Registrant's Registration Statement
No. 33- 38352 on Form S-11)
10.0 Loan Agreement dated as of November 24, 1992 by and among First
Commonwealth Realty Credit Corporation as Lender, and Garden
Kimberly Woods L.P. et. al., as Borrower. (incorporated by reference
to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992).
11.0 Computation of Earnings Per Unit, filed herewith.
21.0 Subsidiaries of the Registrant, filed herewith.
27.0 Financial Data Schedule, filed herewith.
84
<PAGE> 85
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
Exhibit
Number Description
- ------- ---------------------------------------------------------------------
99.0 Agreement of Limited Partnership of National Operating, L.P.
(incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement No. 33-16215 on Form S-4).
99.1 Limited Partnership Agreement of Garden Capital, L.P. between Garden
Capital Management Incorporated and National Operating, L.P.
(incorporated by reference to Exhibit 28.2 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992).
99.2 Settlement Agreement, dated as of May 9, 1990, relating to the
action entitled Moorman et. al v. Southmark Corporation et al.
(incorporated by reference to Exhibit 5.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1990).
99.3 Amended and Restated Implementation Agreement, dated February 20,
1996, among National Realty, L.P., Syntek Asset Management, L.P.,
National Realty, L.P. Oversight Committee and William H. Elliott
(incorporated by reference to Exhibit 99.2 to the Registrant's
Current Report on Form 8-K, dated February 27, 1996).
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated February 27, 1996, was filed
with respect to Item 5, "Other Events", which reports the execution
of the Amended and Restated Implementation Agreement.
85
<PAGE> 86
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 General Partners:
SYNTEK ASSET MANAGEMENT, INC.
By: /s/ Randall M. Paulson
---------------------------------
Randall M. Paulson
President
/s/ Gene E. Phillips
---------------------------------
Gene E. Phillips
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Syntek Asset
Management, L.P., as General Partner of the Registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
SYNTEK ASSET MANAGEMENT, INC. Managing General Partner
By: /s/ Randall M. Paulson March 26, 1996
---------------------------------
Randall M. Paulson
President
/s/ Gene E. Phillips General Partner of March 26, 1996
- ------------------------------------ Syntek Asset Management, L.P.
Gene E. Phillips and Director of Syntek Asset
Management, Inc.
</TABLE>
86
<PAGE> 87
NATIONAL REALTY, L.P.
EXHIBITS TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------------- ------
<S> <C> <C>
11.0 Computation of Earnings Per Unit. 88
21.0 Subsidiaries of the Registrant. 89
27.0 Financial Data Schedule 90
</TABLE>
87
<PAGE> 1
Exhibit 11.0
NATIONAL REALTY, L.P.
COMPUTATION OF EARNINGS PER UNIT
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1995 1994 1993
----------- ----------- -----------
(dollars in thousands, except per unit)
<S> <C> <C> <C>
Income (loss) before extraordinary
gain............................... $ 3,797 $ 5,017 $ (7,795)
Less - General Partners' 1.99%
interest........................... 76 100 (155)
----------- ----------- -----------
Income (loss) allocable to Limited
Partners before extraordinary gain. $ 3,721 $ 4,917 $ (7,640)
=========== =========== ===========
Extraordinary gain.................. $ - $ - $ 9,046
Less - General Partners' 1.99%
interest........................... - - 180
----------- ----------- -----------
Extraordinary gain allocable to
Limited Partners................... $ - $ - $ 8,866
=========== =========== ===========
Net income (loss)................... $ 3,797 $ 5,017 $ 1,251
Less - General Partners' 1.99%
interest........................... 76 100 25
----------- ----------- -----------
Net income (loss) allocable to
Limited Partners................... $ 3,721 $ 4,917 $ 1,226
=========== =========== ===========
Earnings per unit
Income (loss) before extraordinary
gain............................... $ .58 $ .77 $ (1.13)
Extraordinary gain.................. - - 1.31
---------- ---------- ----------
Net income (loss)................... $ .58 $ .77 $ .18
========== ========== ==========
Weighted average units of limited
partner interest used in computing
earnings per unit.................. 6,418,104 6,418,572 6,747,990
========== ========== ==========
</TABLE>
88
<PAGE> 1
EXHIBIT 21.0
SUBSIDIARIES OF THE REGISTRANT
1. National Operating, L.P., a Delaware limited partnership.
2. Covered Bridge NLP, Inc.; Four Seasons NLP, Inc.; Mallard Subsidiary
Corporation; Marina Playa NLP, Inc.; Nora Pines NLP, Inc.; SM Subsidiary
Corp., Timbercreek NLP, Inc., all of which are Nevada corporations,
wholly-owned by National Operating, L.P.
3. Regency National Associates, Inc., a Texas corporation, wholly-owned by
National Operating, L.P.
4. National Subsidiary Corp., a Florida corporation, wholly-owned by National
Realty, L.P.
5. Bavarian Woods National Associates, an Ohio general partnership; Brookview
National Associates, a Georgia general partnership; Chalet II Associates, a
Kansas general partnership; NLP Covered Bridge National Associates, a Texas
limited partnership; Four Seasons National Associates, a Texas limited
partnership; Granada National Associates, a Nebraska general partnership;
King Village National Associates, an Alabama general partnership; Mallard
Diversified, L.P., a Illinois limited partnership; NLP Marina Playa
National Associates, L.P., a Texas limited partnership; Nora Pines National
Associates, an Indiana general partnership; Regency National Associates, a
Nebraska general partnership; Sherwood Glen National Associates, an Iowa
general partnership; NLP Timber Creek National Associates, a Nebraska
general partnership; The Vineyards National Associates, an Ohio general
partnership; Country Associates, L.P., a Texas general partnership;
Southern Palms Associates, an Arizona general partnership; Shoreview Towers
Associates II, a Florida limited partnership; Cross County National
Associates, L.P., an Illinois limited partnership; Pines Whisper Limited
Partnership, a California limited partnership.
6. Garden Capital, L.P., a Delaware limited partnership. National Operating,
L.P. is the sole limited partner.
89
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 20,699
<SECURITIES> 722
<RECEIVABLES> 12,156
<ALLOWANCES> 1,910
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 442,439
<DEPRECIATION> 212,957
<TOTAL-ASSETS> 292,930
<CURRENT-LIABILITIES> 0
<BONDS> 338,534
<COMMON> 0
0
0
<OTHER-SE> (99,267)
<TOTAL-LIABILITY-AND-EQUITY> 292,930
<SALES> 0
<TOTAL-REVENUES> 108,017
<CGS> 0
<TOTAL-COSTS> 63,320
<OTHER-EXPENSES> 10,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,956
<INCOME-PRETAX> 3,797
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,797
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
