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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Year Ended December 31, 1998
Commission File Number 1-9648
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National Realty, L.P.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-2163175
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite
300, Dallas, Texas 75231
(Address of Principal Executive (Zip Code)
Offices)
(214) 692-4700
Registrant's Telephone Number, Including Area Code
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Units of Limited Partner Interest registered
American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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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 5, 1999, the Registrant had 6,321,609 units of limited partner
interest outstanding. Of the total units outstanding, 2,338,165 were held by
other than those who may be deemed to be affiliates, for an aggregate value of
$52,609,000 based on the last trade as reported on the American Stock Exchange
on March 5, 1999. 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
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This Form 10-K/A amends the Registrant's annual report on Form 10-K for the
year ended December 31, 1998 in its entirety.
<PAGE>
INDEX TO
ANNUAL REPORT ON FORM 10-K
PART I
Page
Item 1.Business.................................................... 3
Item 2.Properties.................................................. 6
Item 3.Legal Proceedings.......................................... 17
Item 4.Submission of Matters to a Vote of Security Holders........ 19
PART II
Item 5.Market for Registrant's Units of Limited Partner Interest and
Related Security Holder Matters.......................... 19
Item 6.Selected Financial Data.................................... 21
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................... 21
Item7A.Quantitative and Qualitative Disclosures Regarding Market
Risk................................................ 28
Item 8.Financial Statements and Supplementary Data........... 30
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................ 62
PART III
Item 10.General Partner of the Registrant and Executive Officers of
the Registrant's General Partner.................... 62
Item 11.Executive Compensation............................... 65
Item 12.Security Ownership of Certain Beneficial Owners and
Management.......................................... 68
Item 13.Certain Relationships and Related Transactions....... 68
PART IV
Item 14.Exhibits, Consolidated Financial Statements, Schedules and
Reports on Form 8-K................................. 71
Signature Page............................................... 73
2
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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 primary business of which
is owning and operating through National Operating, L.P., also a Delaware
limited partnership (the "Operating Partnership" or "NOLP"), a portfolio of
real estate and financing real estate and real estate activities through
investments in mortgage loans as more fully described in ITEM 2. "PROPERTIES--
Real Estate" and "ITEM 2. PROPERTIES--Mortgage Loans." 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. Unless earlier dissolved, in accordance with the provisions of
National Realty's Agreement of Limited Partnership, (the "Partnership
Agreement"), the Partnership will terminate December 31, 2086.
The Operating Partnership was formed on February 27, 1987, to facilitate
compliance with recording and filing requirements by holding title to and
operating the real estate owned 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. In November
1992, the Partnership refinanced 52 of the apartments 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 Garden Capital, L.P. ("GCLP"), a
Delaware limited partnership. The Operating Partnership is the sole limited
partner in GCLP. GCLP is the sole limited partner in the single asset limited
partnerships which were formed for the purpose of acquiring, operating and
holding title to the apartments and wraparound mortgage note transferred by
the Operating Partnership.
The general partner, and owner of 1% of a beneficial interest in each of
National Realty and the Operating Partnership, is NRLP Management Corp. (the
"General Partner" or "NMC"), a Nevada corporation, and wholly-owned subsidiary
of American Realty Trust, Inc. ("ART"), a real estate investment company. The
general partner and owner of a .7% beneficial interest in GCLP and a 1%
beneficial interest in the GCLP single asset operating partnerships, is Garden
National Realty, Inc. ("GNRI"), also a Nevada corporation and wholly-owned
subsidiary of ART. Gene E. Phillips served as a director and executive officer
of ART until November 16, 1992. As of March 5, 1999, ART owned approximately
55.4% of National Realty's outstanding units of limited partner interest. See
ITEM 12. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
All decisions relating to the operation of the Partnership, including the
acquisition, disposition, improvement, financing or refinancing of the
Partnership's properties or other investments, are made by the General
Partner. Basic Capital Management, Inc. ("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, real
estate brokerage and 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 company owned by a trust for
the benefit of the children of Gene E. Phillips. Mr. Phillips served as a
director of BCM until December 1989 and as Chief Executive Officer of BCM
until September 1, 1992.
Since February 1, 1990, affiliates of the General Partner have provided
property management services for the Partnership's properties. Currently,
Carmel Realty Services, Ltd. ("Carmel, Ltd.") provides such property
management services. See "Management and Operations," below.
3
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Business Plan
The Partnership's primary business is owning and operating a portfolio of
real estate and financing real estate through mortgage loans. 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 in ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
In addition, the Partnership owns interests in mortgage loans that were either
funded by the Partnership or that arose from the sale of Partnership
properties which are secured by various commercial properties, land and
partnership interests in income producing properties, as set forth in ITEM 2.
"PROPERTIES--Mortgage Loans" and Schedule IV to the Consolidated Financial
Statements included in 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 and mortgage
notes receivable portfolios. The Partnership intends to continue its lending
activity to take advantage of favorable interest rate spreads or profit
participation opportunities. The Partnership's primary emphasis, however,
remains on capital appreciation rather than current income. The Partnership
has been making quarterly distributions since the fourth quarter of 1993. In
each quarter of 1998, the Partnership declared a quarterly distribution of
$.125 per unit. The Partnership declared total distributions of $.50 per unit
or a total of $3.2 million in 1998.
At the discretion of the General Partner, the Partnership may, from time to
time, acquire or sell properties and 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
General Partner, and, in general, the limited partners have no voting rights
with respect to such matters. 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.
Management and Operations
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.
The general partner of Carmel, Ltd. is BCM. The limited partners of Carmel,
Ltd. are (1) First Equity Properties, Inc. ("First Equity"), which is 50%
owned by a subsidiary of BCM, (2) Gene E. Phillips and (3) a trust for the
benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of nine of the Partnership's commercial
properties to Carmel Realty, Inc. ("Carmel Realty"), which is a company owned
by First Equity. 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.
BCM performs administrative functions such as accounting services, mortgage
servicing and portfolio review and analysis for the Partnership 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.
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
4
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resources than the Partnership. Management 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. Management
believes that general economic 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.
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 well as aggressive buyers attempting to penetrate or dominate a particular
market.
As described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--
Certain Business Relationships," the executive officers of the General Partner
are also executive officers of ART and 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 management.
Also, the illiquidity of real estate investments may impair management's
ability to respond promptly to changing circumstances. Management believes
that such risks are partially mitigated by the diversification by geographic
region and property type of the Partnership's real estate portfolio.
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, 1998, are set forth in Schedules III and IV,
respectively, to the Consolidated Financial Statements included in 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.
5
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ITEM 2. PROPERTIES
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 55
apartments and 11 commercial properties (five office buildings and six 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 all geographic regions of the United States, except the Pacific and Mountain
regions, as shown more specifically in the table under "Mortgage Loans" below.
At December 31, 1998, no single asset of the Partnership accounted for 10% or
more of its total assets. At December 31, 1998, 50% of the Partnership's assets
consisted of real estate and 34% consisted of mortgage notes and interest
receivable. The remaining 16% of the Partnership's assets at December 31, 1998,
consisted of cash, cash equivalents and other assets. The percentage of the
Partnership's assets invested in any one asset 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.
GEOGRAPHIC REGIONS
The Partnership has divided the United States into the following six
geographic regions.
[GEOGRAPHICAL REGIONS MAP APPEARS HERE]
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 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 10 apartments and 4 commercial properties in this region.
Southwest region comprised of the states of Arizona, Arkansas, Louisiana, New
Mexico, Oklahoma and Texas. The Partnership has 18 apartments and 2 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 apartments 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 apartments and 1 commercial property in
this region.
Pacific region comprised of the states of Alaska, California, Hawaii, Oregon
and Washington. The Partnership has 3 apartments and 3 commercial properties in
this region.
* Includes one commercial property in Alaska.
6
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Real Estate
At December 31, 1998, the Partnership owned 66 properties located in 21
states, consisting of 55 apartments with a total of 13,957 units and eleven
commercial properties (five office buildings with an aggregate of 367,271 sq.
ft. and six shopping centers with an aggregate of 712,338 sq. ft.).
All but nine of the Partnership's properties are encumbered by mortgage
debt. Generally, the ability to make debt service payments under a mortgage
loan will be dependent upon the performance of the property, which is subject
to the risks associated with real estate investments, many of which are beyond
the control of management or the General Partner. In the event of default
under one of these mortgages, the property securing such mortgage would be
subject to foreclosure. Most of the Partnership's borrowings are subject to
substantial "balloon" payments at maturity.
Eighteen of the apartments transferred to GCLP were refinanced in 1998,
under a five-year blanket mortgage loan, evidenced by a single mortgage with
an original principal balance of $150.0 million. A portion of the blanket
mortgage debt was assigned to each apartment complex and each is cross-
defaulted and cross-collateralized. In the event of a default, the lender 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.
Additional detailed information with respect to individual Partnership
properties and associated debt is set forth in Schedule III to the
Consolidated Financial Statements included in 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, 1998.
<TABLE>
<CAPTION>
Commercial
Region Apartments Properties
------ ---------- ----------
<S> <C> <C>
Southeast............................................ 17.0% 32.6%
Southwest............................................ 36.5 16.6
Midwest.............................................. 38.2 28.2
Mountain............................................. 5.2 4.2
Pacific.............................................. 3.1 18.4
----- -----
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 in ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" for a more detailed description
of the Partnership's real estate.
A summary of the activity in the Partnership's owned real estate portfolio
during 1998 is as follows:
<TABLE>
<S> <C>
Owned properties in real estate portfolio at January 1, 1998.......... 79
Properties sold....................................................... (13)
---
Owned properties in real estate portfolio at December 31, 1998........ 66
===
</TABLE>
7
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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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy %
Units/ -------------- --------------
Property Location Square Footage 1998 1997 1996 1998 1997 1996
- -------- --------------------- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Arlington Pasadena, TX $.64 $.63 $.62 98 95 91
Place....... 230 units/ 205,476 sq. ft.
Barcelona.... Tampa, FL 368 units/ 346,144 sq. ft. .52 .50 .49 91 94 93
Bavarian Middletown, OH .63 .63 .62 90 92 96
Woods....... 259 units/ 229,560 sq. ft.
Bent Tree.... Addison, TX 292 units/ 244,480 sq. ft. .73 .70 .66 93 96 97
Blackhawk.... Ft. Wayne, IN 209 units/ 190,520 sq. ft. .57 .54 .53 94 96 95
Bridgestone.. Friendswood, TX 76 units/ 65,519 sq. ft. .67 .64 .64 97 99 94
Candlelight Lenexa, KS 119 units/ 114,630 sq. ft. .61 .58 .55 96 94 97
Square......
Chalet I..... Topeka, KS 162 units/ 131,791 sq. ft. .65 .62 .61 97 96 96
Chalet II.... Topeka, KS 72 units/ 49,164 sq. ft. .70 .68 .67 91 93 89
Chateau...... Bellevue, NE 115 units/ 99,220 sq. ft. .71 .69 .63 94 95 99
Club Mar..... Sarasota, FL 248 units/ 230,180 sq. ft. .65 .61 .59 93 99 91
Confederate Jacksonville, FL 206 units/277,860 sq. ft. .58 .46 .45 93 91 94
Point.......
Country Round Rock, TX 152 units/ 119,808 sq. ft. .72 .71 .71 94 88 93
Place.......
Covered Gainesville, FL 176 units/ 171,416 sq. ft. .64 .64 .63 97 98 94
Bridge......
Fair Oaks.... Euless, TX 208 units/ 166,432 sq. ft. .65 .61 .58 93 96 96
Four Denver, CO 384 units/ 254,900 sq. ft. .86 .80 .78 96 98 94
Seasons.....
Fox Club..... Indianapolis, IN 336 units/ 317,600 sq. ft. .56 .54 .54 89 95 88
Foxwood...... Memphis, TN 220 units/ 212,000 sq. ft. .57 .54 .51 90 94 93
Hidden Grand Rapids, MI 176 units/ 260,970 sq. ft. .54 .52 .52 96 96 93
Valley......
Horizon Dallas, TX 166 units/ 141,081 sq. ft. .55 .53 .52 96 93 92
East........
Kimberly Tucson, AZ 279 units/ 249,678 sq. ft. .59 .57 .55 92 92 93
Woods.......
La Mirada.... Jacksonville, FL 320 units/ 341,400 sq. ft. .52 .51 .50 99 91 93
Lake Nora Indianapolis, IN 588 units/ 429,380 sq. ft. .68 .65 .63 94 95 91
Arms........
Lantern Richmond, VA 120 units/ 112,296 sq. ft. .54 .53 .51 97 93 95
Ridge.......
Mallard Greensboro, NC 336 units/ 295,560 sq. ft. .64 .63 .62 91 93 95
Lake........
Manchester Manchester, MO 280 units/ 331,820 sq. ft. .56 .53 .50 91 95 93
Commons.....
Mesa Ridge... Mesa, AZ 480 units/ 386,336 sq. ft. .68 .65 .65 95 98 88
Nora Pines... Indianapolis, IN 254 units/ 254,676 sq. ft. .60 .59 .57 95 92 94
Oak Hollow... Austin, TX 409 units/ 290,072 sq. ft. .90 .87 .87 97 94 91
Oak Tree..... Grandview, MO 189 units/ 160,591 sq. ft. .60 .57 .54 99 95 94
Olde Towne... Middletown, OH 199 units/ 179,395 sq. ft. .58 .57 .57 90 94 92
Pheasant Bellevue, NE 264 units/ 243,960 sq. ft. .62 .61 .56 89 93 94
Ridge.......
Pines........ Little Rock, AR 257 units/ 221,981 sq. ft. .42 .41 .41 92 90 93
Place One.... Tulsa, OK 407 units/ 302,263 sq. ft. .58 .57 .51 93 92 96
Quail Point.. Huntsville, AL 184 units/ 202,602 sq. ft. .44 .42 .42 89 91 96
Regency...... Lincoln, NE 106 units/ 111,700 sq. ft. .67 .63 .60 87 98 95
Regency San Antonio, TX 546 units/ 348,692 sq. ft. .64 .63 .63 82 92 93
Falls.......
Rockborough.. Denver, CO 345 units/ 249,723 sq. ft. .80 .73 .70 94 94 92
Santa Fe..... Kansas City, MO 225 units/ 180,416 sq. ft. .58 .56 .53 92 93 91
Shadowood.... Addison, TX 184 units/ 134,616 sq. ft. .76 .74 .69 94 96 97
Sherwood Urbandale, IA 180 units/ 143,745 sq. ft. .79 .77 .75 90 94 96
Glen........
Stonebridge.. Florissant, MO 100 units/ 140,576 sq. ft. .46 .45 .43 95 100 98
Summerwind... Reseda, CA 172 units/ 114,711 sq. ft. .93 .90 .90 97 96 92
Sun Hollow... El Paso, TX 216 units/ 156,000 sq. ft. .66 .65 .64 93 97 90
Tanglewood... Arlington Heights, IL 838 units/ 612,816 sq. ft. 1.07 1.03 .99 92 93 92
Timber Omaha, NE 180 units/ 162,252 sq. ft. .70 .66 .64 97 95 98
Creek.......
Villa Del Wichita, KS 162 units/ 128,004 sq. ft. .60 .58 .58 92 97 94
Mar.........
Villas....... Plano, TX 208 units/ 156,632 sq. ft. .80 .77 .73 94 98 95
Whispering Canoga Park, CA 102 units/ 61,671 sq. ft. 1.05 1.01 1.00 93 94 92
Pines.......
Whispering Topeka, KS 320 units/ 299,264 sq. ft. .51 .49 .49 95 95 89
Pines.......
Windridge.... Austin, TX 408 units/ 281,778 sq. ft. .89 .88 .88 94 95 93
Windtree I & Reseda, CA 159 units/ 109,062 sq. ft. .93 .90 .90 95 96 94
II..........
Woodlake..... Carrollton, TX 256 units/ 210,208 sq. ft. .77 .73 .68 97 98 99
Woodsong II.. Smyrna, GA 190 units/ 207,460 sq. ft. .56 .54 .54 99 96 85
Woodstock.... Dallas, TX 320 units/ 222,112 sq. ft. .63 .60 .56 95 92 95
</TABLE>
8
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<TABLE>
<CAPTION>
Rent Per Square Foot Occupancy %
-------------------- --------------
Property Location Square Footage 1998 1997 1996 1998 1997 1996
- -------- ----------------- -------------- ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office
Buildings
56 Oklahoma City, OK
Expressway.. 54,649 sq. ft. $ 9.53 $ 8.64 $ 8.21 91 94 88
Executive
Court....... Memphis, TN 41,840 sq. ft. 10.64 9.79 10.11 96 96 95
Marina
Playa....... Santa Clara, CA 124,322 sq. ft. 21.55 20.54 19.54 97 100 99
Melrose
Business
Park Oklahoma City, OK 124,200 sq. ft. 3.03 2.88 2.76 80 93 90
University
Square...... Anchorage, AK 22,260 sq. ft. 13.83 14.07 15.07 81 100 84
Shopping
Centers
Cross County
Mall........ Mattoon, IL 304,575 sq. ft. 4.99 4.88 4.90 90 89 90
Cullman...... Cullman, AL 92,466 sq. ft. 3.91 3.87 3.86 98 97 98
Harbor
Plaza....... Aurora, CO 45,863 sq. ft. 9.86 9.44 8.73 86 94 97
Katella
Plaza....... Orange, CA 52,169 sq. ft. 9.79 9.20 7.73 71 71 71
Regency
Point....... Jacksonville, FL 67,410 sq. ft. 12.36 12.07 11.39 91 83 84
Westwood..... Tallahassee, FL 149,855 sq. ft. 6.77 6.44 6.42 93 93 74
</TABLE>
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 simple 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 Partnership had a 75% general partner interest in Southern Palms
Associates ("Southern Palms"), which owned the Southern Palms Shopping Center
in Tempe, Arizona. In December 1997, the Partnership entered into an agreement
with the 25% general partner, which provided such partner with an option to
purchase the Partnership's interest in Southern Palms. The 25% general partner
exercised his option in May 1998 and acquired the Partnership's interest in
Southern Palms for $5.5 million in cash. Neither gain nor loss was recognized.
In April 1998, the Partnership sold the 156 unit Brookview Apartments in
Smyrna, Georgia, for $4.5 million, receiving $397,000 in net cash after the
payment of various closing costs, including a real estate brokerage commission
of $135,000 to Carmel Realty and the purchaser's assumption of the $4.0
million mortgage secured by the property. A gain of $3.1 million was
recognized.
Also in April 1998, the Partnership sold the 300 unit Creekwood Apartments
in College Park, Georgia, for $5.5 million, receiving net cash of $718,000
after the payment of various closing costs, including a real estate brokerage
commission of $166,000 to Carmel Realty, and the purchaser's assumption of the
$4.6 million mortgage secured by the property. A gain of $2.9 million was
recognized.
Further in April 1998, the Partnership sold 338 acres of undeveloped land in
Granby, Colorado, for $800,000, receiving net cash of $768,000 after the
payment of various closing costs, including a real estate brokerage commission
of $24,000 to Carmel Realty. A gain of $772,000 was recognized.
In May 1998, the Partnership sold the 406 unit Alexandria Apartments in
Decatur, Georgia, for $12.4 million. The Partnership received net cash of $3.8
million after paying off $8.2 million in mortgage debt, including a $289,000
prepayment penalty, and the payment of various closing costs, including a real
estate brokerage commission of $372,000 to Carmel Realty. A gain of $8.5
million was recognized.
Also in May 1998, the Partnership refinanced the mortgage debt secured by
the Quail Point Apartments in Huntsville, Alabama in the amount of $3.9
million. The Partnership received net cash of $1.5 million after paying off
$2.1 million in existing mortgage debt, the funding of required escrows and
the payment of various closing
9
<PAGE>
costs, including a mortgage brokerage and equity refinancing fee of $39,000 to
BCM. The new mortgage bears interest at 7.135% per annum, requires monthly
payments of principal and interest of $25,964 and matures in June 2008.
In June 1998, the Partnership sold the 184,878 sq. ft. Countryside Plaza
Shopping Center in Clearwater, Florida, for $4.1 million. The Partnership
received $1.7 million in net cash after paying off $2.0 million in mortgage
debt and the payment of various closing costs, including a real estate
brokerage commission of $123,000 to Carmel Realty. A gain of $1.1 million was
recognized.
In July 1998, the Partnership sold the 240 unit Lakewood Park Apartments in
St. Petersburg, Florida, for $5.5 million, receiving net cash of $5.1 million
after the payment of various closing costs, including a real estate brokerage
commission of $165,000 to Carmel Realty. A gain of $1.7 million was
recognized.
Also in July 1998, the Partnership sold the 300 unit Royal Oaks Apartments
in Stone Mountain, Georgia, for $6.8 million, receiving net cash of $6.3
million after the payment of various closing costs, including a real estate
brokerage commission of $203,000 to Carmel Realty. A gain of $3.9 million was
recognized.
Further in July 1998, GCLP commenced a three-phase refinancing of mortgage
debt secured by the 50 properties held by it. Phase I consisted of 18 of the
properties, in Arizona, Florida, Illinois, Indiana, Kansas, Missouri, Oklahoma
and Texas, which were refinanced in the total amount of $150.0 million. GCLP
received net cash of $33.6 million after paying off $102.9 million in mortgage
debt, the funding of required escrows and the payment of various closing
costs. This new mortgage bears interest at 6.88% per annum, requires monthly
payments of principal and interest of $1.0 million and matures in July 2003.
The new $150.0 million mortgage loan requires that the cash flow from the 18
properties be used to fund various escrow and reserve accounts and limits the
payment of distributions to the Partnership.
Phase II consisted of a bridge financing of 29 of the properties, in
Arizona, Arkansas, California, Colorado, Florida, Georgia, Kansas, Louisiana,
Michigan, Missouri, Nebraska, Ohio, Oklahoma, Tennessee, Texas and Virginia,
which were refinanced in the total amount of $86.2 million. GCLP received net
cash of $1.4 million after paying off $80.0 million in mortgage debt, the
funding of required escrows and the payment of various closing costs. This
bridge financing bore interest at a variable rate and required monthly
payments of interest only. GCLP paid a mortgage brokerage and equity
refinancing fee of $2.4 million to BCM based on the $236.2 million Phase I and
Phase II refinancings. Three GCLP properties were unencumbered.
In September 1998, GCLP completed Phase III of the refinancing by
refinancing the properties secured by the Phase II bridge loan. The mortgage
debt secured by 16 of the properties, in Arizona, California, Colorado,
Florida, Georgia, Kansas, Michigan, Missouri, Nebraska, Tennessee, Texas and
Virginia was refinanced in the total amount of $90.7 million. GCLP received
net cash of $1.7 million after paying off $83.4 million of Phase II principal
and interest and funding of required escrows and the payment of various
closing costs. The new mortgages bear interest at rates ranging from 6.535% to
6.77% per annum, require monthly payments of principal and interest totaling
$582,690 and mature in October 2008. No mortgage brokerage and equity
refinancing fee was paid to BCM in conjunction with the Phase III refinancing.
Thirteen Phase II properties were unencumbered after the payoff of the bridge
loan.
The Partnership used $13.2 million of the net cash received from the
refinancings to pay off debt secured by NOLP's interest in GCLP.
In August 1998, the Partnership obtained second lien financing secured by
the Pheasant Ridge Apartments in Bellevue, Nebraska, in the amount of
$825,000, receiving net cash of $786,000 after the payment of various closing
costs, including a mortgage brokerage and equity refinancing fee of $8,000 to
BCM. The second lien mortgage bears interest at 7.275% per annum, requires
monthly payments of principal and interest of $5,642 and matures in September
2009.
10
<PAGE>
In September 1998, the Partnership refinanced the mortgage debt secured by
the Chalet II Apartments in Topeka, Kansas, in the amount of $1.6 million,
receiving net cash of $372,000 after paying off $1.1 million in mortgage debt,
the funding of required escrows and the payment of various closing costs,
including a mortgage brokerage and equity refinancing fee of $16,000 to BCM.
The new mortgage bears interest at 6.535% per annum, requires monthly payments
of principal and interest of $10,150 and matures in October 2008.
In October 1998, GCLP obtained mortgage financing secured by the
unencumbered Country Place Apartments in Round Rock, Texas, in the amount of
$4.4 million, receiving net cash of $4.1 million after the funding of required
escrows and the payment of various closing costs, including a mortgage
brokerage and equity refinancing fee of $44,000 to BCM. The mortgage bears
interest at 6.2% per annum, requires monthly payments of principal and
interest of $26,851 and matures in November 2008.
Also in October 1998, GCLP obtained mortgage financing secured by the
unencumbered La Mirada Apartments in Jacksonville, Florida, in the amount of
$7.7 million, receiving net cash of $6.7 million after the funding of required
escrows and the payment of various closing costs, including a mortgage
brokerage and equity refinancing fee of $77,000 to BCM. The mortgage bears
interest at 6.2% per annum, requires monthly payments of principal and
interest of $47,038 and matures in November 2008.
Further in October 1998, GCLP sold the 260 unit Skipper's Pond Apartments in
Tampa, Florida, for $6.5 million. GCLP received net cash of $6.1 million after
the payment of various closing costs, including a real estate brokerage
commission of $194,000 to Carmel Realty. A gain of $5.0 million was
recognized.
In November 1998, the Partnership refinanced the mortgage debt secured by
the Sherwood Glen Apartments in Urbandale, Iowa, in the amount of $4.7
million. The Partnership received net cash of $597,000 after paying off $3.9
million in mortgage debt, the funding of required escrows and the payment of
various closing costs, including a mortgage brokerage and equity refinancing
fee of $47,000 to BCM. The new mortgage bears interest at 6.46% per annum,
requires monthly payments of principal and interest of $29,584 and matures in
December 2008.
Also in November 1998, GCLP obtained mortgage financing secured by the
unencumbered Regency Falls Apartments in San Antonio, Texas, in the amount of
$5.6 million. GCLP received net cash of $5.3 million after the funding of
required escrows and the payment of various closing costs, including a
mortgage and equity refinancing fee of $56,000 to BCM. The mortgage bears
interest at a variable rate, currently 7.5% per annum, requires monthly
payments of principal and interest of $41,384 and matures in June 2000.
Further in November 1998, GCLP obtained mortgage financing secured by the
unencumbered Horizon East apartments in Dallas, Texas, in the amount of $2.6
million. GCLP received net cash of $2.5 million after the funding of required
escrows and the payment of various closing costs, including a mortgage
brokerage and equity refinancing fee of $26,000 to BCM. The mortgage bears
interest at a variable rate, currently 7.5%, requires monthly payments of
principal and interest of $19,214 and matures in June 2000.
In December 1998, GCLP sold the 152 unit Towne Oaks Apartments in Monroe,
Louisiana, for $5.0 million, receiving net cash of $4.8 million after the
payment of various closing costs, including a real estate brokerage commission
of $150,000 to Carmel Realty. A gain of $2.9 million was recognized.
Also in December 1998, GCLP sold the 212 unit Oakmont Apartments in Monroe,
Louisiana, for $5.7 million, receiving net cash of $5.6 million after the
payment of various closing costs, including a real estate brokerage commission
of $171,000 to Carmel Realty. A gain of $4.2 million was recognized.
Further in December 1998, GCLP sold the 343 unit River Glen Apartments in
Tulsa, Oklahoma, for $6.7 million, receiving net cash of $6.4 million after
the payment of various closing costs, including a real estate brokerage
commission of $201,000 to Carmel Realty. A gain of $3.8 million was
recognized.
11
<PAGE>
In December 1998, GCLP sold the 212 unit Wisperwood Apartments in Tampa,
Florida, for $3.7 million, receiving net cash of $3.5 million after the
payment of various closing costs, including a real estate brokerage commission
of $111,000 to Carmel Realty. A gain of $2.7 million was recognized.
Also in December 1998, the Partnership purchased an undivided interest in
one of the ground leases under the Westwood Shopping Center for $507,000 in
cash. The Partnership paid a $15,000 real estate brokerage commission to
Carmel Realty.
In January 1999, GCLP sold the 199 unit Olde Towne Apartments in Middleton,
Ohio, for $4.6 million, receiving net cash of $4.4 million after the payment
of various closing costs, including a real estate brokerage commission of
$136,000 to Carmel Realty. A gain will be recognized on the sale.
In February 1999, the Partnership obtained mortgage financing secured by the
unencumbered 56 Expressway Office Building in Oklahoma City, Oklahoma, in the
amount of $1.7 million. The Partnership received net cash of $1.7 million
after the payment of various closing costs, including a mortgage brokerage and
equity refinancing fee of $17,000 to BCM. The mortgage bears interest at a
variable rate, currently 8.5% per annum, requires monthly payments of
principal and interest of $15,000 and matures in February 2019.
Also in February 1999, the Partnership obtained mortgage financing secured
by the unencumbered Melrose Business Park in Oklahoma City, Oklahoma, in the
amount of $900,000. The Partnership received net cash of $870,000 after the
payment of various closing costs, including a mortgage brokerage and equity
refinancing fee of $9,000 to BCM. The mortgage bears interest at a variable
rate, currently 8.5% per annum, requires monthly payments of principal and
interest of $8,000 and matures in February 2019.
Further in February 1999, GCLP sold the 225 unit Santa Fe Apartments in
Kansas City, Missouri, for $4.6 million, receiving net cash of $4.3 million
after the payment of various closing costs, including a real estate brokerage
commission of $137,000 to Carmel Realty. A gain will be recognized on the
sale.
In February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in Mesa,
Arizona, for $19.5 million, receiving net cash of $793,000 after the payment
of various closing costs, including a real estate brokerage commission of
$585,000 to Carmel Realty and remitting $17.8 million to the lender to hold in
escrow pending a substitution of collateral. Such funds will be released when
substitute collateral is approved. If substitute collateral is not provided by
August 1999, $13.0 million of the escrow will be applied against the
mortgage's principal balance, approximately $885,000 will be retained by the
lender as a prepayment penalty and the remaining $3.9 million will be returned
to GCLP. A gain will be recognized on the sale. NMC will earn an incentive
sales fee on the sale in accordance with the partnership agreement.
Mortgage Loans
In addition to real estate, a substantial portion of the Partnership's
assets are invested in mortgage notes receivable, secured by income-producing
real estate, unimproved land and other income producing assets. The
Partnership expects that the percentage of its assets invested in mortgage
loans will increase as it increases its lending activity in 1999 to take
advantage of interest rate spreads or profit participation opportunities. The
Partnership intends to service and hold for investment the mortgage notes
currently in its portfolio. The Partnership's mortgage notes consist of first,
wraparound and junior mortgage loans secured by real estate, and other secured
and unsecured loans.
Types of Mortgage Activity. The Partnership may originate its own mortgage
loans. The Partnership is not, however, considering acquiring existing
mortgage notes. BCM, in its capacity as a mortgage servicer, services the
Partnership's mortgage notes. The Partnership's investment policy is described
in ITEM 1. "BUSINESS--Business Plan and Investment Policy".
12
<PAGE>
Types of Properties Subject to Mortgages. The properties securing the
Partnership's mortgage notes receivable portfolio at December 31, 1998,
consisted of an office building, shopping centers, unimproved land and
partnership interests.
At December 31, 1998, the Partnership's mortgage notes had an aggregate face
amount of $133.7 million and an aggregate net carrying value of $114.5
million, net of deferred gains ($2.4 million), discounts ($109,000) 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, 1998), by property type and geographic
region, of the properties that serve as collateral for the mortgage notes in
the Partnership's mortgage notes receivable portfolio at December 31, 1998,
excluding the $91.3 million in mortgage notes secured by unimproved land and
other security as discussed below. 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>
Southeast................................... 39.5% -- % 39.5%
Southwest................................... 4.9 12.1 17.0
Northeast................................... -- 7.3 7.3
Midwest..................................... -- 36.2 36.2
---- ---- -----
44.4% 55.6% 100.0%
==== ==== =====
</TABLE>
A summary of the activity in the Partnership's mortgage notes receivable
portfolio during 1998 is as follows:
<TABLE>
<S> <C>
Loans in mortgage notes receivable portfolio at January 1, 1998...... 13
Loans funded......................................................... 16
Loans paid in full................................................... (5)
---
Loans in mortgage notes receivable portfolio at December 31, 1998.... 24
===
</TABLE>
First Mortgage Loans. These loans can provide for level periodic payments of
principal and interest, may involve interest only payments or for all interest
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.
The following discussion briefly describes first mortgage loans funded by
the Partnership in 1998, as well as events that affected previously funded
first mortgage loans.
During 1998, the Partnership funded a total of $8.0 million of a $23.8
million loan commitment to Centura Tower, Ltd. The loan is secured by 2.244
acres of land, and an office building under construction in Dallas, Texas. The
loan bears interest at 12.0% per annum, requires monthly payments based on net
revenues after development of the land and building and matures in January
2003. The borrower has not obtained a construction loan, therefore, the
Partnership may be required to fund construction costs in excess of its loan
commitment in order to preserve its collateral interest. Cost to construct the
office building is in excess of $60.0 million. Through February 1999, the
Partnership has funded an additional $2.5 million.
During 1998, the Partnership funded $2.1 million of a $2.2 million loan
commitment to Varner Road Partners, L.L.C. The loan is secured by 129.77 acres
of land in Riverside County, California and a pledge of the stock of the
borrower. The loan bears interest at 15.0% per annum and matures in November
1999. All principal and interest are due at maturity.
13
<PAGE>
During the first and second quarters of 1998, the Partnership funded a
$356,000 loan to Ellis Development Company, Inc. The loan is secured by 4.5
acres of land in Abilene, Texas. The loan bears interest at 14.0% per annum
and had an original maturity of April 1999. All principal and interest are due
at maturity. In August 1998, the loan was modified and extended, increasing
the loan commitment to $946,000, of which $942,000 has been funded and
extending the maturity date to August 1999. In exchange for the modification
and extension the borrower pledged additional collateral consisting of the
personal guarantees of the principal owners of the borrower and a collateral
assignment of a $220,000 note receivable. All other terms of the loan remained
unchanged.
In June 1998, the Partnership funded a $2.4 million loan to Cuchara
Partners, Ltd. and Ski Rio Partners, Ltd., affiliates of JNC Enterprises, Ltd.
("JNC"). The loan is secured by (1) a first lien on approximately 1,000 acres
of land in Huerfano County, Colorado, known as Cuchara Valley Mountain Ski
Resort; (2) assignment of a $2.0 million promissory note which is secured by
approximately 2,623 acres of land in Taos County, New Mexico, known as Ski Rio
Resort; and (3) a pledge of all related partnership interests. The loan bears
interest at 16.0% per annum and matures in June 1999. All principal and
interest are due at maturity. In July 1998, the Partnership funded an
additional $1.8 million, increasing the loan balance to $4.2 million. All
other terms of the loan remained unchanged. In the fourth quarter of 1998, the
Partnership received $109,000 on the sale of 11 parcels of the collateral
property in Taos, New Mexico. This loan is cross-collateralized with other JNC
loans discussed below.
In June 1998, GCLP collected $18.5 million in full payment of a mortgage
note receivable, receiving net cash of $3.9 million after paying off a $14.6
million underlying lien, including a prepayment penalty. GCLP recognized a
gain of $1.0 million on the early collection, as well as a previously deferred
gain of $11.2 million related to the 1988 sale of the property, the gain
having been deferred until the seller provided financing was paid off.
In the second quarter of 1998, the Partnership received a total of $3.8
million on the collection of two of its mortgage notes receivable. The
Partnership made a $3.5 million paydown on a mortgage partially secured by one
of the paid off notes.
In July 1998, the Partnership paid in full two mortgage loans in the total
amount of $3.5 million secured by six of the Partnership's mortgage notes
receivable.
In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by
6.4109 acres of land in Dallas, Texas. The loan bears interest at 15.0% per
annum and matures in August 2000. All principal and interest are due at
maturity.
In September 1998, the Partnership received payment in full of a $800,000
note receivable which had matured.
In March 1998, the Partnership ceased receiving the required payments on a
$3.0 million note receivable secured by an office building in Dallas, Texas.
In October 1998, the Partnership began foreclosure proceedings. In January
1999, the borrower filed for bankruptcy protection. The Partnership expects to
incur no loss on foreclosure as the fair value of the collateral property less
estimated costs of sale, exceeds the carrying value of the note. In March
1999, the Partnership received payment in full, including accrued but unpaid
interest.
In December 1998, the Partnership obtained financing in the amount of $6.1
million secured by seven notes receivable with an aggregate principal balance
of $19.1 million. The Partnership received net cash of $5.9 million after the
payment of various closing costs. The financing bears interest at 14.0% per
annum, requires monthly payments of interest only and matures in December
1999. The Partnership paid a mortgage brokerage and equity refinancing fee of
$61,000 to BCM.
14
<PAGE>
In December 1997, the Partnership funded a $3.4 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of undeveloped
land in Riverside County, California. The loan bears interest at 15.0% per
annum and matures in June 1999. All principal and interest are due at
maturity. In the second, third and fourth quarters of 1998, the Partnership
funded an additional $370,000 increasing the loan balance to $3.8 million. In
January and February 1999, the Partnership funded an additional $105,000,
increasing the loan balance to $3.9 million.
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, 1998, the Partnership's one wraparound mortgage note
receivable was in default. The Partnership has been vigorously pursuing its
rights regarding the loan. The Partnership expects to incur no loss in excess
of reserves previously provided if it is unable to collect the balance due.
Junior Mortgage Loans. Junior mortgage loans are loans secured by mortgages
that are subordinate to one or more prior liens either on the fee or a
leasehold interest in real estate. Recourse on such loans ordinarily includes
the real estate on which the loan is made, other collateral and personal
guarantees by the borrower.
In May 1998, the Partnership funded $713,000 of an original $836,000 loan
commitment to Warwick of Summit, Inc., of which $619,000 was used to repay an
affiliate's loan from the Partnership. The new loan is secured by a second
lien on a shopping center in Rhode Island, by 100% of the stock of the
borrower and by the personal guarantee of the principal shareholder of the
borrower. The loan bears interest at 14.0% per annum and matures in December
1999. All principal and interest are due at maturity. In June 1998, the
Partnership funded the remaining $123,000 of the initial loan commitment and
in July 1998, an additional $301,000 was funded, increasing the loan balance
to $1.1 million. In August 1998, the loan was modified, increasing the
commitment to $1.8 million, which has been fully funded. All other terms of
the loan remained unchanged.
In October 1998, the Partnership funded two $1.0 million loans to JNC. One
loan is secured by a second lien on 3.5 acres of land in Dallas, Texas, the
guaranty of the borrower and the personal guarantees of its partners. The loan
bears interest at 14.0% per annum and matures in October 1999. The other loan
was secured by a second lien on 2.92 acres of land in Dallas, Texas, the
guaranty of the borrower and the personal guarantees of its partners. The loan
bore interest at 14.0% per annum and matured in October 1999. All principal
and interest were due at maturity. This loan was paid in full in March 1999.
The loans are cross-collateralized with the Cuchara/Ski Rio and other JNC
loans funded by the Partnership.
Also in October 1998, the Partnership funded a $2.1 million loan to Frisco
Panther Partners, Ltd. , an affiliate of JNC. The loan is secured by a second
lien on 408.23 acres of land in Frisco, Texas, the guaranty of the borrower
and the personal guarantees of its partners. The loan bears interest at 14.0%
per annum and matures in October 1999. All principal and interest are due at
maturity. This loan is cross-collateralized with the Cuchara/Ski Rio and other
JNC loans funded by the Partnership. In January 1999, the Partnership received
an $820,000 paydown on the loan, as discussed below.
In December 1998, the Partnership funded $3.3 million of a $5.0 million loan
commitment to JNC. The loan is secured by a second lien on 1,791 acres of land
in Denton County, Texas and a second lien of 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. This loan is
cross-collateralized with the Cuchara/Ski Rio and other JNC loans funded by
the Partnership. In January 1999, the Partnership received a $1.3 million
paydown on the loan, as discussed below. In January and February 1999, the
Partnership funded an additional $2.0 million.
Other. Beginning in 1997 and through October 1998, the Partnership funded
$1.5 million of a $1.6 million loan commitment to Bordeaux Investments Two,
L.L.C. ("Bordeaux"). The loan is secured by (1) a 100%
15
<PAGE>
limited partnership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux partners. The loan bears interest
at 14.0% per annum. Until November 1998, the loan required monthly payments of
interest only at 12.0% per annum, with the deferred interest payable at
maturity in January 1999. In November 1998, the loan was modified to allow
payments based on monthly cash flow of the collateral property and the
maturity date was extended to December 1999. The property has had no cash
flow. The remaining $50,000 was funded in January 1999.
In June 1998, the Partnership funded a $365,000 loan to RB Land & Cattle,
L.L.C. The loan is secured by a pledge of a note secured by 7,200 acres of
undeveloped land near Crowell, Texas and the personal guarantee of the
borrower. The loan bore interest at 10.0% per annum and matured in December
1998. All principal and interest were due at maturity. The borrower did not
make the required payments and the loan was placed in non-accrual. The
Partnership has begun foreclosure proceedings. The Partnership expects to
incur no loss on foreclosure as the fair value of the collateral property less
estimated costs of sale, exceeds the carrying value of the note.
In August 1998, the Partnership funded a $3.7 million loan to JNC. The loan
was secured by a contract to purchase 387 acres of land in Collin County,
Texas, the guaranty of the borrower and the personal guarantees of its
partners. The loan bore interest at 12.0% per annum and matured the earlier of
termination of the contract or February 1999. All principal and interest were
due at maturity. This loan was cross-collateralized with the Cuchara/Ski Rio
loan and other JNC loans. In January 1999, ART purchased the contract from JNC
and acquired the land. In connection with the purchase, GCLP funded an
additional $6.0 million of a $95.0 million loan commitment to ART. A portion
of the funds were used to payoff the $3.7 million loan, including accrued but
unpaid interest, paydown by $1.3 million the JNC line of credit and paydown by
$820,000 the JNC Frisco Panther Partners Ltd. loan, discussed below. See
"Related Party".
Also in August 1998, the Partnership funded a $635,000 loan to La Quinta
Partners, LLC. The loan is secured by interest bearing accounts prior to being
used as escrow deposits toward the purchase of a total of 956 acres of land in
La Quinta, California. The loan bore interest at 10.0% per annum and matured
in November 1998. All principal and interest were due at maturity. In November
and December 1998, the Partnership received $250,000 in principal paydowns and
in the second quarter of 1999, the remaining $385,000 was expected to be
collected.
In October 1998, the Partnership funded a $350,000 loan to Four "J"
International Corp., 5J-CTMS, Ltd. and an individual. The loan was secured by
1.1 million Class A limited partnership units in Grapevine American Ltd.,
which are convertible into shares of Series G Cumulative Convertible Preferred
Stock of ART. The loan bore interest at 15.0% per annum and matured in
February 1999. All principal and interest were due at maturity. In January
1999, the note was collected in full.
In July 1997, the Partnership funded a $700,000 loan to an individual. In
February 1998, the Partnership funded an additional $40,000 and the loan was
modified, increasing the principal balance to $740,000. The loan is secured by
a security interest in an oil, gas and mineral lease in Anderson County, Texas
and by a second lien mortgage on a ranch in Henderson County, Texas. The loan
bears interest at 12.0% per annum, requires monthly payments of interest only
and originally matured in December 1998. In October 1998, the loan was
modified, extending the maturity date to September 1999.
Related Party. In November and December 1998, GCLP funded $50.0 million of
$95.0 million loan commitment to ART. The loan is secured by second liens on
six ART properties in Minnesota, Mississippi and Texas, the stock of ART
Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,349,535 National
Realty units of limited partner interest and by the stock of NMC. The loan
bears interest at 12.0% per annum, requires monthly payments of interest only
and matures in November 2003. In January 1999, the Partnership funded an
additional $6.0 million.
In December 1998, in connection with the Moorman lawsuit settlement, NMC, a
wholly-owned subsidiary of ART and the new general partner of the Partnership,
assumed responsibility for repayment to the Partnership
16
<PAGE>
of the $12.2 million paid by the Partnership to the Moorman Class Members and
legal counsel. The loan bears interest at the 90 day LIBOR (London InterBank
Offered Rate) plus 2.0% per annum, currently 7.0% per annum, adjusted every 90
days and requires annual payments of accrued interest plus principal payments
of $500,000 in each of the first three years, $750,000 in each of the next
three years, $1.0 million in each of the next three years, with payment in
full of the remaining balance in the tenth year. The note is guaranteed by
ART. The note matures upon the earlier of the liquidation or dissolution of
the Partnership, NMC ceasing to be the General Partner or 10 years from March
31, 1999, the date of the first cash distribution to the Moorman Class
Members. See ITEM 3. "LEGAL PROCEEDINGS--Moorman Settlement."
In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at December 31, 1998, owned approximately 15.8% of the
outstanding shares of ART's common stock. The loan bears interest at 12.0% per
annum and matures in February 2000. All principal and interest are due at
maturity. The loan is guaranteed by BCM.
Investment in Marketable Equity Securities of ART
At December 31, 1998, the Partnership owned 195,732 shares of ART's common
stock, approximately 1.8% of ART's outstanding shares. The executive officers
of the General Partner are also executive officers of ART. See ITEM 12.
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." As of March
5, 1999, the market value of the ART common stock owned by the Partnership was
$3.3 million. As of March 5, 1999, ART and BCM owned 3,502,469 and 470,775
units, respectively, of National Realty's units of limited partner interest,
approximately 55.4% and 7.5% of the units then outstanding.
ITEM 3. LEGAL PROCEEDINGS
Moorman Settlement
The Partnership entered into a settlement agreement, dated as of May 9,
1990, relating to the action entitled Moorman, et al. v. Southmark
Corporation, et al. Such action was filed on September 2, 1987, in the
Superior Court of the State of California, County of San Mateo. The
Partnership agreed to settle such action pursuant to the terms of a written
agreement (the "Moorman Settlement Agreement").
The Moorman Settlement Agreement provided for a plan (the "Moorman
Settlement Plan") consisting of, among other things, the following: (1) the
appointment and operation of a committee (the "Oversight Committee") to
oversee the implementation of the Moorman Settlement Plan, and (2) the
establishment of specified annually increasing targets (each a "Target") for
each of the five years through May 1995, relating to the price of the units of
limited partner interest.
If the Targets were not met for any two successive years of the Moorman
Settlement Plan or for the final year of the Moorman Settlement Plan, Syntek
Asset Management, L.P. ("SAMLP") was required to withdraw as general partner
effective at the time a successor general partner was elected. 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 required
that SAMLP resign as general partner, effective upon the election and
qualification of its successor. On July 8, 1992, SAMLP notified the Oversight
Committee of the failure to meet the Target for two successive years.
Upon, among other things, the withdrawal of SAMLP as general partner and the
due election and taking office of a successor, the Moorman Settlement Plan
would terminate. Withdrawal of SAMLP as general partner pursuant to the
Moorman Settlement Agreement required unitholders to elect a successor general
partner by majority vote.
The Moorman Settlement Agreement provided that the withdrawal of SAMLP as
general partner would require the Partnership to acquire its interest in the
Partnership (the "Redeemable General Partner Interest") at
17
<PAGE>
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 could have, at the Oversight
Committee's option, been paid over a three year period pursuant to a secured
promissory note bearing interest at a financial institution's prime rate and
containing commercially reasonable terms and collateral. Under the Moorman
Settlement Plan, the purchase price for Redeemable General Partner Interest
would have been calculated as of the time SAMLP withdrew as general partner
under the Partnership's governing documents. The Redeemable General Partner
Interest was calculated at December 31, 1997, to be $49.6 million. The
Partnership would have been entitled to offset against any such payment the
then outstanding principal balance ($4.2 million at December 31, 1997) plus
all accrued but unpaid interest ($7.2 million at December 31, 1997) on the
note receivable from SAMLP for its capital contribution to the Partnership. In
the accompanying December 31, 1997, Consolidated Balance Sheet, the Redeemable
General Partner Interest is shown as a reduction of Partners' Equity, and the
note receivable from the General Partner was offset against the Redeemable
General Partner Interest. The Oversight Committee had previously informed the
Partnership that it had calculated such Redeemable General Partner Interest to
be a lesser amount.
On July 15, 1998, National Realty, SAMLP and the Oversight Committee
executed an Agreement for Cash Distribution and Election of Successor General
Partner (the "Cash Distribution Agreement") which provides for the nomination
of NMC, which is an entity affiliated with SAMLP, to be the successor general
partner of the Partnership, for the distribution of $11.4 million to the
Moorman Class Members and for the resolution of all related matters under the
Moorman Settlement Agreement. The Cash Distribution Agreement was submitted to
the Court on July 23, 1998. On August 4, 1998, the Court entered an order
granting preliminary approval of the Cash Distribution Agreement. On September
9, 1998, a notice was mailed to the Moorman Class Members describing the Cash
Distribution Agreement. On October 16, 1998, a hearing was held to consider
any objections to the Cash Distribution Agreement. On October 23, 1998, the
Court entered an order granting final approval of the Cash Distribution
Agreement. The Court also entered orders requiring the Partnership to pay
$404,000 in attorney's fees to Joseph B. Moorman's legal counsel, $30,000 to
Joseph B. Moorman and $404,000 in attorney's fees to Robert A. McNeil's legal
counsel.
Pursuant to the order, $11.4 million was deposited by the Partnership into
an escrow account and then transferred to the control of an independent
settlement administrator. The distribution of the cash shall be made to the
Moorman Class Members pro rata based upon the number of units originally
issued to each Moorman Class Member upon the formation of the Partnership in
1987. On March 10, 1999, the Court entered an order providing for the initial
distribution of the cash not later than March 31, 1999. The distribution of
cash is under the control of the independent settlement administrator.
The proposal to elect NMC as the successor general partner was submitted to
the unitholders of National Realty for a vote at a special meeting of
unitholders held on December 18, 1998. All units of the Partnership owned by
affiliates of SAMLP (approximately 61.8% of the outstanding units of National
Realty as of the November 27, 1998 record date) were voted pro rata with the
vote of the other limited partners. NMC was elected by a majority vote of the
unitholders. The Moorman Settlement Plan remained in effect until December 18,
1998, when SAMLP resigned as general partner and NMC was elected successor
general partner and took office.
Under the Cash Distribution Agreement, SAMLP waived its right under the
Moorman Settlement Agreement to receive any payment from the Partnership for
its Redeemable General Partner Interest and fees it was entitled to receive
upon the election of a successor general partner. As of December 31, 1997, the
Redeemable General Partner Interest was calculated to be $49.6 million. In
addition, pursuant to the Cash Distribution Agreement, the Partnership
Agreement was amended to provide that, upon voluntary resignation of the
general partner, the resigning general partner shall not be entitled to the
repurchase of its general partner interest under Paragraph 17.9 of the
Partnership Agreement.
Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's
note for its capital contribution to the Partnership. In addition, NMC assumed
liability for a note which requires the repayment to
18
<PAGE>
the Partnership of the $11.4 million paid by the Partnership under the Cash
Distribution Agreement plus the $808,000 in court ordered attorney's fees and
the $30,000 paid to Joseph B. Moorman. This note requires repayment over a
ten-year period, bears interest at a variable rate, currently 7.0% per annum,
and is guaranteed by ART, which is the parent of NMC and which owns
approximately 55.4% of the outstanding units of the Partnership.
Other. The Partnership is involved in various lawsuits arising in the
ordinary course of business. Management of the Partnership is of the opinion
that the outcome of these lawsuits would have no material impact on the
Partnership's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Partnership held a special meeting of unitholders on December 18, 1998,
at which meeting the Partnership's unitholders were asked to consider and vote
upon (1) the election of NMC as successor general partner of the Partnership,
(2) an amendment to the partnership agreement of National Realty to facilitate
SAMLP's withdrawal as the general partner of National Realty, and (3) an
amendment to the Partnership Agreement of the Operating Partnership to
facilitate SAMLP's withdrawal as the general partner of the Operating
Partnership. At such meeting the Partnership's unitholders elected NMC as the
successor general partner with 4,742,925 votes for the proposal, 145,900 votes
against the proposal and 54,720 votes abstaining; approved an amendment to the
Partnership Agreement of National Realty to facilitate SAMLP's withdrawal as
the general partner of National Realty with 4,864,225 votes for the proposal,
21,250 votes against the proposal and 58,070 votes abstaining and approved an
amendment to the Partnership Agreement of the Operating Partnership to
facilitate SAMLP's withdrawal as general partner of the Operating Partnership
with 4,863,319 votes for the proposal, 22,057 votes against the proposal and
58,169 votes abstaining.
----------------
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."
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, 1999................................................ $22 9/16 $21 7/8
(through March 5, 1999)
March 31, 1998................................................ 24 1/8 19 3/8
June 30, 1998................................................. 20 1/16 18 1/2
September 30, 1998............................................ 22 19
December 31, 1998............................................. 23 19 3/4
March 31, 1997................................................ 19 1/8 12 7/8
June 30, 1997................................................. 19 1/2 16 3/8
September 30, 1997............................................ 24 19
December 31, 1997............................................. 24 3/4 24 3/8
</TABLE>
As of March 5, 1999, the closing price of National Realty's units of limited
partner interest on the AMEX was $22.50 per unit.
19
<PAGE>
As of March 5, 1999, National Realty's units of limited partner interest
were held by 5,101 holders of record.
The Partnership has paid quarterly distributions since the fourth quarter of
1993. During 1998, the Partnership declared quarterly distributions of $.125
per unit, a total of $.50 per unit or $3.2 million.
The distributions paid by the Partnership in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Date Declared Record Date Payable Date Amount
- ------------------ ------------------ ------------------ ------
<S> <C> <C> <C>
March 2, 1998 March 13, 1998 March 31, 1998 $ .125
May 27, 1998 June 4, 1998 June 19, 1998 .125
September 15, 1998 September 25, 1998 September 30, 1998 .125
December 2, 1998 December 15, 1998 January 4, 1999 .125
February 26, 1997 March 14, 1997 March 31, 1997 .10
June 5, 1997 June 13, 1997 June 30, 1997 .10
September 3, 1997 September 15, 1997 September 30, 1997 .10
December 1, 1997 December 15, 1997 January 5, 1998 1.50*
December 1, 1997 December 15, 1997 January 5, 1998 .10
</TABLE>
- --------
* Special distribution.
In March 1999, the Board of Directors of the General Partner affirmed
National Realty's unit repurchase program which was established in 1987. The
Board also established a new authorization for the repurchase of up to 500,000
additional units in open-market transactions. Through December 31, 1998, the
Partnership had purchased a total of 402,960 units under the prior
authorization at a total cost of $5.1 million. The Partnership has not
purchased any units under such purchase program since January 1993.
In May 1996, the Partnership announced an offer to buy back its units of
limited partner interest from unitholders owning 99 or fewer units. The
Partnership paid a premium of $.50 per unit over the average closing price of
its units as reported on the AMEX from May 10, 1996 through June 28, 1996, the
expiration date of the offer. On July 12, 1996, the Partnership purchased
77,725 units at a total cost of $841,000. The Partnership extended this
purchase offer through August 5, 1996. On August 16, 1996, the Partnership
purchased an additional 9,677 units at a cost of $113,000.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenues................ $ 113,834 $ 117,365 $ 112,681 $ 110,892 $ 107,546
Expenses
Interest............... 39,685 34,189 33,759 34,956 34,145
Property operations.... 62,736 64,620 63,136 63,320 60,793
General and
administrative........ 6,820 7,856 5,975 6,252 5,809
Depreciation........... 9,691 10,338 10,247 10,268 10,034
---------- ---------- ---------- ---------- ----------
Total expenses........ 118,932 117,003 113,117 114,796 110,781
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............ (5,098) 362 (436) (3,904) (3,235)
Gain on sale of real
estate................ 52,589 8,356 61 7,701 8,252
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 47,491 $ 8,718 $ (375) $ 3,797 $ 5,017
========== ========== ========== ========== ==========
PER UNIT DATA
Net income (loss)...... $ 7.36 $ 1.35 $ (.06) $ .58 $ .77
========== ========== ========== ========== ==========
Distributions per unit.. $ .50 $ 1.90 $ 1.10 $ 1.28 $ .44
Weighted average units
of limited partner
interest used in
computing earnings per
unit................... 6,321,425 6,327,418 6,387,270 6,418,104 6,418,572
<CAPTION>
December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate, net........ $ 167,409 $ 211,424 $ 224,764 $ 229,482 $ 241,535
Notes and interest
receivable, net........ 114,525 24,943 13,279 10,246 11,532
Total assets............ 337,782 279,580 281,333 292,930 290,140
Notes and interest
payable................ 358,100 339,102 325,921 326,500 326,775
Redeemable General
Partner interest....... -- 45,442 37,855 31,997 28,800
Partners' (deficit)..... (32,115) (122,275) (112,946) (99,267) (91,823)
</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 primary business which is owning and operating
through National Operating, L.P., also a Delaware limited partnership (the
"Operating Partnership"), a portfolio of real estate and financing real estate
and real estate activities through investments in mortgage loans. 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.
21
<PAGE>
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 AND INTEREST PAYABLE."
Liquidity and Capital Resources
The 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, 1998, 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 estimated current values, was 63.5%
compared to 43.4% at December 31, 1997.
Cash and cash equivalents aggregated $9.0 million at December 31, 1998 as
compared with $17.2 million at December 31, 1997.
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 and proceeds from borrowings secured
by the Partnership's properties or mortgage notes receivable. 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 1999, 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 nine of the Partnership's properties are encumbered by
mortgage debt. In 1999, mortgage debt totaling $20.7 million comes due. The
Partnership intends to seek to refinance certain mortgages that either 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.
The Partnership's cash flow from property operations (rents collected less
payments for property operating expenses) decreased to $42.9 million in 1998
from $50.5 million in 1997. A decrease of $4.2 million was due to properties
sold in 1998 and in 1997. The remaining decrease is due to the payment in 1998
of expenses accrued at December 31, 1997, and decreases in occupancy,
partially offset by an increase of $2.6 million primarily due to the
Partnership's continued success in increasing rental rates during 1998. Rental
rates at the Partnership's apartments, which account for over 80% of the
Partnership's properties, increased an average of 4% in 1998 over 1997,
although occupancy rates decreased an average of 1%. At the Partnership's
commercial properties, rental rates increased an average of 4% over 1997,
although occupancy rates decreased an average of 3.5%. Management believes
that this trend in rental rates will continue, particularly in the
Partnership's apartments, if the economy remains stable or improves and
expects that occupancy rates will improve in 1999.
Interest collected on mortgage notes receivable of $4.1 million in 1998
approximated 1997. Interest is expected to increase as a source of cash to the
Partnership as it originates additional mortgage loans and as loans mature in
1999 that require interest be paid only at maturity.
Interest paid on the Partnership's notes payable decreased to $27.9 million
in 1998 from $30.3 million in 1997. Of this decrease, $2.3 million was due to
loans paid off in 1998 and an additional $2.3 million was due to properties
sold in 1997 and 1998. These decreases were offset in part by an increase of
$1.4 million due to properties refinanced and unencumbered properties financed
in 1998.
General and administrative expenses paid decreased to $7.8 million in 1998
from $9.5 million in 1997. The decrease was due to a decrease in legal fees
related to the Southern Palms litigation of $754,000, a decrease of $256,000
in legal and other fees related to the Moorman litigation, a decrease of
$580,000 in overhead
22
<PAGE>
reimbursements to Basic Capital Management, ("BCM") and a decrease of $200,000
due to a decrease in insurance deductibles.
The Partnership was involved in significant investing activities during
1998. The Partnership originated 16 mortgage or other loans totaling $97.8
million, funded $870,000 on an existing loan and collected $24.2 million on
its mortgage notes receivable, primarily from the payoff of five notes. In
connection with two of the payoffs, the Partnership paid off underlying notes
payable in the amount of $18.1 million, including a prepayment penalty. Also
in 1998, the Partnership made improvements to its properties totaling $2.8
million and sold 10 apartments, two commercial properties and one parcel of
unimproved land, for $81.0 million, receiving net cash of $49.7 million after
the payoff of mortgage debt and the payment of various closing costs.
In 1998, the Partnership received net cash of $25.3 million from mortgage
financing secured by four unencumbered apartments, by seven notes receivable
and by a second lien mortgage on an apartment. In addition, the Partnership
refinanced the mortgages secured by three apartments, receiving net cash of
$2.5 million after paying off $7.1 million in mortgage debt and the payment of
various closing costs. Also in 1998, the Partnership made scheduled principal
payments on mortgages totaling $3.3 million.
In November 1992, in conjunction with the transfer of the net assets of 52
apartments and a wraparound note receivable to GCLP, such assets were
refinanced under a $223.0 million blanket mortgage loan. The blanket mortgage
loan required that cash flow from the GCLP properties be used to fund various
escrow and reserve accounts and limited the payment of distributions to the
Partnership.
In January 1997, GCLP replaced the credit enhancement escrow with an $18.5
million letter of credit. The letter of credit provided by a financial
institution in the amount of $18.5 million was for a term of not less than two
years. The letter of credit could be drawn upon to pay operating shortfalls of
GCLP's properties. The available amount under the letter of credit would be
reduced by the amount of each draw on the letter of credit. The Partnership
received net cash of $11.3 million from the released credit enhancement
escrow, after the payment of various costs.
In July 1998, GCLP commenced a three-phase refinancing of the blanket
mortgage loan secured by the 50 properties then held by it. Phase I consisted
of 18 of the properties, in Arizona, Florida, Illinois, Indiana, Kansas,
Missouri, Oklahoma and Texas, which were refinanced in the amount of $150.0
million. GCLP received net cash of $33.6 million after paying off $102.9
million in mortgage debt, the funding of required escrows and the payment of
various closing costs associated with the Phase I refinancing. The Partnership
received $32.1 million of the net cash from the GCLP Phase I refinancing. The
new $150.0 million mortgage loan requires that cash flow from the 18
properties be used to fund various escrow and reserve accounts and limits the
payment of distributions to the Partnership. Phase II consisted of short-term
bridge financing of 29 of the properties, in Arizona, Arkansas, California,
Colorado, Florida, Georgia, Kansas, Louisiana, Michigan, Missouri, Nebraska,
Ohio, Oklahoma, Tennessee, Texas and Virginia, which were refinanced in the
amount of $86.2 million. GCLP received net cash of $1.4 million after paying
off $80.0 million in mortgage debt, the funding of required escrows and the
payment of various closing costs associated with the Phase II refinancing. The
Partnership used $13.2 million of the net cash received from the Phase I
refinancing to pay off debt secured by the Operating Partnership's interest in
GCLP.
In September 1998, GCLP completed Phase III of the refinancing by
refinancing the properties secured by the Phase II bridge loan. The mortgage
debt secured by 16 of the properties, in Arizona, California, Colorado,
Florida, Georgia, Kansas, Michigan, Missouri, Nebraska, Tennessee, Texas and
Virginia was refinanced in the total amount of $90.7 million. GCLP received
net cash of $1.7 million after paying off $83.4 million of Phase II principal
and interest and funding of required escrows and the payment of various
closing costs associated with the Phase III refinancing.
In 1998, the Partnership received from GCLP, in addition to the GCLP
refinancing proceeds discussed above, excess cash flow and property sales
proceeds totaling $71.6 million.
23
<PAGE>
The Partnership has paid quarterly distributions since the fourth quarter of
1993. The Partnership declared total distributions of $.50 per unit or $3.2
million in 1998.
Management reviews the carrying values of the Partnership's properties and
mortgage notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash flow from the property
(undiscounted and without interest) is less than the carrying amount of the
property. For notes receivable impairment is considered to exist if it is
probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The Partnership's mortgage
note receivable review includes an evaluation of the collateral property
securing such note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market
rents, a review of the property's expenses, a review of maintenance
requirements, a review of the property's cash flow, discussions with the
manager of the property and a review of properties in the surrounding area.
As more fully discussed in NOTE 15. "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 other things, the
required withdrawal of the Partnership's General Partner upon election of a
successor.
Pursuant to the Partnership Agreement and the Moorman Settlement Agreement,
the withdrawal of the General Partner required 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. The Moorman Settlement Agreement provided that any payment for
such Redeemable General Partner Interest, fees and other compensation during
the pendency of the Moorman Settlement Agreement could have, at the option of
the Oversight Committee (also established under the Moorman Settlement
Agreement), been paid over three years pursuant to a secured promissory note
bearing interest at a financial institution's prime rate. The fair value of
the Redeemable General Partner Interest at December 31, 1997 was calculated to
be $49.6 million. The Partnership would have been entitled to offset against
such payment the then outstanding principal balance of the note receivable
($4.2 million at December 31, 1997) plus all accrued and unpaid interest ($7.2
million at December 31, 1997) on the note receivable from the General Partner
representing its capital contribution to the Partnership.
In the accompanying December 31, 1997 Consolidated Balance Sheet, the
Redeemable General Partner Interest is shown as a reduction of Partners'
Equity and the note receivable from the General Partner was offset against the
Redeemable General Partner Interest.
On July 15, 1998, National Realty, Syntek Asset Management, L.P. ("SAMLP")
and the Oversight Committee executed an Agreement for Cash Distribution and
Election of Successor General Partner (the "Cash Distribution Agreement")
which provided for the nomination of NRLP Management Corp. ("NMC"), which is
an entity affiliated with SAMLP, to be the successor general partner of the
Partnership, for the distribution of $11.4 million to the Moorman Class
Members and for the resolution of all related matters under the Moorman
Settlement Agreement. The Cash Distribution Agreement was submitted to the
Court on July 23, 1998. On August 4, 1998, the Court entered an order granting
preliminary approval of the Cash Distribution Agreement. On September 9, 1998,
a notice was mailed to the Moorman Class Members describing the Cash
Distribution Agreement. On October 16, 1998, a final hearing was held to
consider any objections to the Cash Distribution Agreement. On October 23,
1998, the Court entered an order granting final approval of the Cash
Distribution Agreement. The Court also entered orders requiring the
Partnership to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's fees to
Robert A. McNeil's legal counsel.
24
<PAGE>
Pursuant to the order, $11.4 million was deposited by the Partnership into
an escrow account and then transferred to the control of an independent
settlement administrator. The distribution of the cash shall be made to the
Moorman Class Members pro rata based upon the number of units originally
issued to each Moorman Class Member upon the formation of the Partnership in
1987. On March 10, 1999, the Court entered an order providing for the initial
distribution of the cash not later than March 31, 1999. The distribution of
cash is under the control of the independent settlement administrator.
The proposal to elect NMC as the successor general partner was submitted to
the unitholders of National Realty for a vote at a special meeting of
unitholders held on December 18, 1998. All units of the Partnership owned by
affiliates of SAMLP (approximately 61.8% of the outstanding units of National
Realty as of the November 27, 1998, record date) were voted pro rata with the
vote of the other limited partners. NMC was elected by a majority vote of the
unitholders. The Moorman Settlement Plan remained in effect until December 18,
1998, when SAMLP resigned as general partner and NMC was elected successor
general partner and took office.
Under the Cash Distribution Agreement, SAMLP waived its right under the
Moorman Settlement Agreement to receive any payment from the Partnership of
the fees it was entitled to receive upon the election of a successor general
partner. As of December 31, 1997, the Redeemable General Partner Interest was
calculated to be $49.6 million. In addition, pursuant to the Cash Distribution
Agreement, the Partnership Agreement was amended to provide that, upon
voluntary resignation of the general partner, the resigning general partner
shall not be entitled to the repurchase of its general partner interest under
Paragraph 17.9 of the Partnership Agreement.
Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's
note for its capital contribution to the Partnership. In addition, NMC assumed
liability for a note which requires the repayment to the Partnership of the
$11.4 million paid by the Partnership under the Cash Distribution Agreement
plus the $808,000 in court ordered attorney's fees and the $30,000 paid to
Joseph B. Moorman. This note requires repayment over a ten-year period, bears
interest at a variable rate, currently 7.0% per annum, and is guaranteed by
American Realty Trust, Inc. ("ART"), which is the owner of approximately 55.4%
of the outstanding units of the Partnership.
In March 1999, the Board of Directors of the General Partner affirmed
National Realty's unit repurchase program which was established in 1987. The
Board also established a new authorization for the repurchase of up to 500,000
additional units in open-market transactions. Through December 31, 1998, the
Partnership had purchased a total of 402,960 units under the prior
authorization at a total cost of $5.1 million. The Partnership has not
purchased any additional units under such purchase program since January 1993.
In 1999, the Partnership has committed to fund $62.7 million in loans under
three agreements including $45.2 million to ART.
In May 1996, the Partnership announced an offer to buy back its units of
limited partner interest from unitholders owning 99 or fewer units. The
Partnership paid a premium of $.50 per unit over the average closing price of
its units as reported on the AMEX from May 10, 1996 through June 28, 1996, the
expiration date of the offer. On July 12, 1996, the Partnership repurchased
77,725 units at a total cost of $841,000. The Partnership extended this
repurchase offer through August 5, 1996. On August 16, 1996, the Partnership
repurchased an additional 9,677 units at a total cost of $113,000.
Results of Operations
1998 Compared to 1997. The Partnership had net income of $47.5 million for
1998 as compared to net income of $8.7 million for 1997. Included in the
Partnership's 1998 net income are gains on the sale of real estate of $52.6
million. Included in the Partnership's 1997 net income are gains on the sale
of real estate of $8.4 million. The primary factors affecting the
Partnership's operating results are discussed in the following paragraphs.
25
<PAGE>
Rents decreased to $107.1 million for 1998, from $112.9 million for 1997.
This decrease was primarily due to a decrease of $9.6 million from the sale of
an apartment and three commercial properties in 1997 and ten apartments, two
commercial properties and one parcel of undeveloped land in 1998. This
decrease was partially offset by an increase of $3.7 million due to increased
rental rates at the Partnership's apartment and commercial properties. Rents
are expected to continue to decrease during 1999 as the Partnership continues
to selectively sell properties.
Interest income increased to $6.7 million for 1998, from $4.5 million for
1997. An increase of $3.5 million was attributable to loans funded in 1997 and
1998 and an additional $865,000 was due to increased short-term investment
income. These increases were partially offset by a decrease of $2.2 million
due to loans paid off during 1997 and 1998. Interest income for 1999 is
expected to increase due to the funding of additional mortgage loans.
Interest expense decreased to $26.7 million for 1998 from $34.2 million for
1997. A decrease of $5.0 million was due to loans paid off in 1997 and 1998,
secured by mortgage notes receivable. A decrease of $1.2 million was due to
the payoff of the pension notes in September 1997. A decrease of $2.3 million
was due to a total of 16 properties being sold, subject to debt, in 1997 and
1998. These decreases were partially offset by increases of $1.2 million due
to interest expense recorded on borrowings in 1997, secured by mortgages on
four unencumbered commercial properties, the Operating Partnership's interest
in GCLP and six notes receivable and four unencumbered apartments and seven
notes receivable in 1998, the refinancing of 47 of the GCLP apartments and the
refinancing of mortgages in 1997 and 1998 where the loan balance was
increased. Interest expense is expected to decline in 1999 as a result of the
refinancing of the GCLP debt at a lower interest rate and the expected
continued sale of selected properties by the Partnership.
Deferred borrowing costs for 1998 were the unamortized borrowing costs
associated with the November 1992 blanket mortgage refinancing of the GCLP
properties. The mortgage debt was refinanced in July 1998, as described in
"Liquidity and Capital Resources," above. See NOTE 7. "NOTES AND INTEREST
PAYABLE."
Property taxes and insurance, utilities, property level payroll and other
operating expenses for 1998 declined from 1997 due to the sale of 10
apartments and two commercial properties in 1998 and an apartment and three
commercial properties in 1997. Repairs and maintenance and property management
fees approximated that of 1997. These costs are expected to continue to
decrease during 1999 as the Partnership continues to selectively sell
properties.
General and administrative expenses decreased to $6.8 million in 1998 from
$7.9 million in 1997. The decrease is due to a decrease in legal fees related
to the Southern Palms litigation of $754,000, a decrease of $256,000 in legal
and other fees related to the Moorman settlement, a decrease of $580,000
related to the Partnership overhead reimbursements to BCM and a decrease of
$125,000 is due to a decrease in audit and tax preparation costs.
For 1998, gains on sale of real estate totaled $52.6 million, including $3.1
million on the sale of Brookview Apartments in April 1998, $2.9 million on the
sale of Creekwood Apartments in April 1998, $772,000 on the sale of Indian
Meadows land in April 1998, $8.5 million on the sale of Alexandria Apartments
in May 1998, $1.1 million on the sale of Countryside Plaza in June 1998, $1.7
million on the sale of Lakewood Park Apartments in July 1998, $3.9 million on
sale of the Royal Oaks Apartments in July 1998, $5.0 million on the sale of
Skipper's Pond Apartments in October 1998, $2.9 million on the sale of Towne
Oaks Apartments in December 1998, $4.2 million on the sale of Oakmont
Apartments in December 1998, $3.8 million on the sale of River Glen Apartments
in December 1998, $2.7 million on the sale of Wisperwood Apartments in
December 1998 and $1.0 million from the early payoff as well as an $11.2
million deferred gain on the prior year sale of the Warner Creek Apartments,
on the collection in June 1998 of the $17.5 million financing provided by the
Partnership at the time of sale. See NOTE 3. "REAL ESTATE AND DEPRECIATION"
and NOTE 4. "NOTES RECEIVABLE." For 1997, gains on sale of real estate totaled
$8.4 million, including $3.6 million on the sale of the Tollhill East Office
Building, a $2.1 million deferred gain recognized on the payoff of the Nellis
26
<PAGE>
Bonanza note receivable, a gain of $563,000 on the sale of Crestview Shopping
Center and a gain of $2.1 million on the sale of Village Square Apartments.
1997 Compared to 1996. The Partnership reported net income of $8.7 million
for 1997 as compared to net loss of $375,000 for 1996. Contributing to the
Partnership's 1997 net income were gains on sale of real estate of $8.4
million. The primary factors affecting the Partnership's operating results are
discussed in the following paragraphs.
Rents increased from $109.4 million in 1996 to $112.9 million in 1997. This
increase is primarily attributable to a 3.0% increase in average rental rates
combined with a 1.0% increase in average occupancy rates at the Partnership's
apartment complexes and an average 1.0% increase in commercial rental rates
combined with a 3.0% increase in occupancy rates as compared to 1996. These
increases are partially offset by a decrease of $750,000 due to the sale of
the Tollhill East Office Building in April 1997, the Fondren Office Building
in June 1997, Crestview Shopping Center in November 1997 and Village Square
Apartments in December 1997.
Interest income increased from $3.3 million in 1996 to $4.5 million in 1997.
This increase is due to 13 mortgage and other loans being funded in 1997.
Interest expense increased from $33.8 million in 1996 to $34.2 million in
1997. Of this increase, $802,000 is due to an increase in interest expense on
the variable rate portion of the blanket mortgage secured by the GCLP
properties. An additional increase of $657,000 is due to mortgage debt which
was refinanced in 1996 and 1997. These increases are partially offset by a
decrease of $741,000 due to loans paid in full, including the pension notes,
and a decrease of $117,000 due to the sale of the Tollhill East Office
Building in April 1997, the Crestview Shopping Center in November 1997, and
the Village Square Apartments in December 1997.
Depreciation, property taxes and insurance, utilities, property-level
payroll costs, repairs and maintenance, other property operation expenses and
property management fees for 1997 approximated those of 1996.
General and administrative expenses increased from $6.0 million in 1996 to
$7.9 million in 1997. This increase is primarily attributable to an increase
in legal and consulting fees related to the Southern Palms Associates
litigation of $892,000, an increase of $151,000 related to insurance
deductibles and an increase of $1.0 million in the Partnership's overhead
reimbursements to BCM. These increases are partially offset by a decrease of
$180,000 due to a decrease in legal fees relating to the Moorman litigation
and a decrease of $237,000 related to a decrease in appraisals and other
professional fees.
In 1996, the Partnership recognized a gain on the sale of real estate of
$61,000 on the sale of unimproved land in Colorado, compared to gains on the
sale of real estate totaling $8.4 million in 1997, $3.6 million on the sale of
the Tollhill East Office Building, a $2.1 million deferred gain recognized on
the payoff of the Nellis Bonanza note receivable, a gain of $563,000 on the
sale of Crestview Shopping Center and a gain of $2.1 million on the sale of
Village Square Apartments. See NOTE 3. "REAL ESTATE AND DEPRECIATION" and NOTE
4. "NOTES RECEIVABLE."
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Partnership may be potentially liable for removal or
remediation costs, as well as certain other potential costs relating to
hazardous or toxic substances (including governmental fines and injuries to
persons and property) where property-level managers have arranged for the
removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the
Partnership for personal injury associated with such materials.
The General Partner is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the
Partnership's business, assets or results of operations.
27
<PAGE>
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, 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.
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. 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.
Year 2000
BCM has informed management that its computer hardware operating system and
computer software have been certified as year 2000 compliant.
Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM that
performs property management services for the Partnership's properties, has
informed management that effective January 1, 1999, it began using year 2000
compliant computer hardware and property management software for the
Partnership's commercial properties. With regard to the Partnership's
apartments, Carmel, Ltd. has informed management that its subcontractors
either have in place or will have in place in the first quarter of 1999, year
2000 compliant computer hardware and property management software.
The Partnership has not incurred nor does it expect to incur any costs
related to its computer hardware and accounting and property management
computer software being modified, upgraded or replaced to make them year 2000
compliant. Such costs have been or will be borne by either BCM, Carmel, Ltd.
or the property management subcontractors of Carmel, Ltd.
Management has completed its evaluation of the Partnership's computer
controlled building systems, such as security, elevators, heating and cooling,
etc., to determine what systems are not year 2000 compliant. Management
believes that necessary modifications are insignificant and do not require
significant expenditures to make the affected systems year 2000 compliant, as
enhanced operating systems are readily available.
The Partnership has or will have in place the year 2000 compliant systems
that will allow it to operate. The risks the Partnership faces are that
certain of its vendors will not be able to supply goods or services and that
financial institutions and taxing authorities will not be able to accurately
apply payments made to them. Management believes that other vendors are
readily available and that financial institutions and taxing authorities will,
if necessary, apply monies received manually. The likelihood of the above
having a significant impact on the Partnership's operations is negligible.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
The Partnership's future operations, cash flow and fair values of financial
instruments are partially dependent upon the then existing market interest
rates and market equity prices. Market risk is the changes in the market rates
and prices, and the effect of the changes on the future operations of the
Partnership. The Partnership manages its market risk by matching the
property's anticipated net operating income to an appropriate financing.
28
<PAGE>
The following table contains only those exposures that existed at December
31, 1998. Anticipation of exposures of risk on positions that could possibly
arise was not considered. The Partnership's ultimate interest rate risk and
its affect on the operations will depend on future capital market exposures,
which cannot be anticipated with a probable assurance level. Dollars are in
thousands.
<TABLE>
<CAPTION>
Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Trading Instruments-
Equity Price Risk
Marketable securities
at market value $ 3,205
Non-trading Instruments-
Equity Price Risk
Notes receivable
Variable interest rate-
fair value $ 9,085
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
------- ------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Instrument's
maturities $ -- $ -- $ -- $ -- $ -- $ 5,491 $ 5,491
Instrument's
amortization......... -- 500 500 500 750 4,500 6,750
Interest............. 882 846 810 774 720 11,978 16,010
Average rate......... 7.2% 7.1% 7.1% 7.1% 7.0% 7.0%
Fixed interest rate-fair
value $103,099
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
------- ------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Instrument's
maturities $40,012 $6,020 $ -- $ -- $ 57,820 $ -- $103,852
Instrument's
amortization......... -- -- -- -- -- -- --
Interest............. 10,697 7,508 6,938 6,938 5,355 -- 37,436
Average rate......... 12.6% 12.2% 12.0% 12.0% 12.1% -- %
<CAPTION>
Liabilities
<S> <C> <C> <C> <C> <C> <C> <C>
Non-trading Instruments-
Equity Price Risk
Notes payable
Variable interest rate-
fair value $ 4,582
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
------- ------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Instrument's
maturities $ -- $ -- $ -- $6,235 $ -- $ 6,557 $ 12,792
Instrument's
amortization......... 329 358 390 243 158 961 2,439
Interest............. 1,255 1,230 1,203 781 570 2,561 7,600
Average rate......... 8.3% 8.4% 8.4% 7.9% 7.5% 7.5%
Fixed interest rate-fair
value $319,494
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
------- ------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Instrument's
maturities $15,235 $ -- $2,145 $ -- $136,796 $141,766 $295,942
Instrument's
amortization......... 5,166 5,524 5,901 6,070 4,827 18,540 46,028
Interest............. 24,103 22,510 21,979 21,196 16,944 47,833 154,565
Average rate......... 7.3% 7.1% 7.1% 7.0% 7.0% 6.8%
</TABLE>
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants........................ 31
Consolidated Balance Sheets--December 31, 1998 and 1997................... 32
Consolidated Statements of Operations--Years Ended December 31, 1998, 1997
and 1996................................................................. 33
Consolidated Statements of Partners' Equity (Deficit)--Years Ended
December 31, 1998, 1997
and 1996................................................................. 34
Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997
and 1996................................................................. 35
Notes to Consolidated Financial Statements................................ 37
Schedule III--Real Estate and Accumulated Depreciation.................... 54
Schedule IV--Mortgage Loans on Real Estate................................ 58
</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.
30
<PAGE>
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, 1998 and 1997, 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, 1998.
We have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
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 and
schedules 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedules present fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
March 24, 1999
31
<PAGE>
NATIONAL REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- --------
(dollars in
thousands)
<S> <C> <C>
Assets
Real estate held for investment
Land..................................................... $ 39,400 $ 48,738
Buildings and improvements............................... 325,779 386,477
--------- ---------
365,179 435,215
Less--Accumulated depreciation........................... (197,770) (223,791)
--------- ---------
167,409 211,424
Notes and interest receivable
Performing (including $62,357 in 1998 from affiliate).... 109,628 23,893
Nonperforming............................................ 6,807 2,960
--------- ---------
116,435 26,853
Less--allowance for estimated losses...................... (1,910) (1,910)
--------- ---------
114,525 24,943
Cash and cash equivalents................................. 9,025 17,180
Accounts receivable (including $11,046 in 1998 from
affiliates).............................................. 12,316 3,327
Prepaid expenses.......................................... 1,230 1,069
Escrow deposits and other assets (including $730 in 1998
and $267 in 1997
from affiliate).......................................... 20,506 6,597
Marketable equity securities of affiliate (at market)..... 3,205 2,814
Deferred financing costs.................................. 9,566 12,226
--------- ---------
$ 337,782 $ 279,580
========= =========
Liabilities and Partners' Equity (Deficit)
Liabilities
Notes and interest payable............................... $ 358,100 $ 339,102
Accrued property taxes................................... 7,121 6,906
Tenant security deposits................................. 2,919 3,163
Accounts payable and other liabilities................... 1,757 7,242
--------- ---------
369,897 356,413
Commitments and contingencies
Redeemable General Partner Interest....................... -- 45,442
Partners' equity (deficit)
General Partner.......................................... (408) 2,822
Limited Partners (6,321,609 units in 1998 and 6,323,438
units in 1997).......................................... (34,642) (78,024)
Unrealized gain on marketable equity securities of
affiliate............................................... 2,935 2,544
--------- ---------
(32,115) (72,658)
Redeemable General Partner Interest....................... -- (49,617)
--------- ---------
(32,115) (122,275)
--------- ---------
$ 337,782 $ 279,580
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
32
<PAGE>
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December
31,
------------------------------
1998 1997 1996
--------- --------- ---------
(dollars in thousands, except
per unit)
<S> <C> <C> <C>
Revenues
Rents......................................... $ 107,127 $ 112,875 $ 109,384
Interest (including $404 in 1998 from
affiliate)................................... 6,707 4,490 3,297
--------- --------- ---------
113,834 117,365 112,681
Expenses
Interest...................................... 26,722 34,189 33,759
Deferred borrowing costs written off.......... 12,963 -- --
Depreciation.................................. 9,691 10,338 10,247
Property taxes & insurance.................... 10,791 12,279 12,511
Utilities..................................... 10,738 12,059 11,712
Repairs and maintenance....................... 25,888 24,735 23,726
Property-level payroll costs.................. 6,070 6,412 6,338
Other property operation expenses............. 4,299 4,344 4,160
Property management fees (including $1,290 in
1998, $826 in 1997
and $811 in 1996 to affiliates).............. 4,950 4,791 4,689
General and administrative (including $3,865
in 1998, $4,448 in 1997
and $3,329 in 1996 to affiliates)............ 6,820 7,856 5,975
--------- --------- ---------
118,932 117,003 113,117
--------- --------- ---------
<CAPTION>
Income (loss) from operations.................. (5,098) 362 (436)
<S> <C> <C> <C>
Gain on sale of real estate.................... 52,589 8,356 61
--------- --------- ---------
Net income (loss).............................. $ 47,491 $ 8,718 $ (375)
========= ========= =========
Earnings per unit
Net income (loss).............................. $ 7.36 $ 1.35 $ (.06)
========= ========= =========
Weighted average units of limited partner
interest used in computing earnings per unit.. 6,321,425 6,327,418 6,387,270
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
33
<PAGE>
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated Redeemable
Other General Partners
General Limited Comprehensive Partner Equity
Partner Partner Income Interest (Deficit)
------- -------- ------------- ---------- ---------
(dollars in thousands, except per unit)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $ 2,656 $(66,204) $ 453 $(36,172) $ (99,267)
Comprehensive income
Unrealized gain on
marketable equity
securities of
affiliate............. -- -- 550 -- 550
Net (loss)............. (7) (368) -- -- (375)
---------
175
Adjustment to Redeemable
General Partner
Interest............... -- -- -- (5,858) (5,858)
Repurchase of units of
limited partner
interest............... -- (954) -- -- (954)
Distributions ($1.10 per
unit).................. -- (7,042) -- -- (7,042)
------- -------- ------ -------- ---------
Balance, December 31,
1996................... 2,649 (74,568) 1,003 (42,030) (112,946)
Comprehensive income
Unrealized gain on
marketable equity
securities of
affiliate............. -- -- 1,541 -- 1,541
Net income............. 173 8,545 -- -- 8,718
------- -------- ------ -------- ---------
10,259
Adjustment to Redeemable
General Partner
Interest............... -- -- -- (7,587) (7,587)
Units issued on exercise
of warrants............ -- 20 -- -- 20
Distributions ($1.90 per
unit).................. -- (12,021) -- -- (12,021)
------- -------- ------ -------- ---------
Balance, December 31,
1997................... 2,822 (78,024) 2,544 (49,617) (122,275)
Comprehensive income
Unrealized gain on
marketable equity
securities of
affiliate............. -- -- 391 -- 391
Net income............. 945 46,546 -- -- 47,491
---------
47,882
Adjustment to Redeemable
General Partner
Interest............... (4,175) -- -- 49,617 45,442
Distributions ($.50 per
unit).................. -- (3,164) -- -- (3,164)
------- -------- ------ -------- ---------
Balance, December 31,
1998................... $ (408) $(34,642) $2,935 $ -- $ (32,115)
======= ======== ====== ======== =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
34
<PAGE>
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected................................. $107,135 $113,379 $109,439
Interest collected (including $132 in 1998 from
affiliate)..................................... 4,139 4,111 3,265
Interest paid................................... (27,878) (30,345) (29,238)
Payments for property operations (including
$1,290 in 1998, $826
in 1997 and $811 in 1996 to affiliates)........ (64,244) (62,835) (65,146)
General and administrative expenses paid
(including $3,865 in 1998, $4,448 in 1997 and
$3,329 in 1996 to affiliates).................. (7,810) (9,536) (6,100)
Other........................................... (427) 241 (412)
-------- -------- --------
Net cash provided by operating activities.... 10,915 15,015 11,808
Cash Flows From Investing Activities
Proceeds from sales of real estate.............. 61,025 14,294 61
Real estate improvements........................ (2,820) (5,004) (5,529)
Collections on notes receivable................. 24,160 13,522 500
Funding of notes receivable..................... (98,716) (22,898) (3,500)
-------- -------- --------
Net cash (used in) investing activities...... (16,351) (86) (8,468)
Cash Flows From Financing Activities
Proceeds from notes payable..................... 352,813 36,351 8,116
Payments of notes payable....................... (320,712) (23,047) (10,159)
Payment of pension notes........................ -- (14,645) --
Payments from (to) affiliates, net.............. (11,046) -- (191)
(Deposit to) receipt from escrow................ (5,957) 12,423 --
Deferred financing costs (including $2,674 in
1998 and $332 in 1997
to affiliate).................................. (10,948) (2,346) (1,459)
Deposits on pending financings.................. (2,298) -- --
Purchase of units of limited partner interest... -- -- (954)
Exercise of warrants............................ -- 20 --
Distributions to unitholders.................... (3,164) (12,021) (13,405)
Distributions to Garden Capital, L.P. general
partners....................................... (1,407) (356) (115)
-------- -------- --------
Net cash (used in) financing activities...... (2,719) (3,621) (18,167)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (8,155) 11,308 (14,827)
Cash and cash equivalents at beginning of year... 17,180 5,872 20,699
-------- -------- --------
Cash and cash equivalents at end of year......... $ 9,025 $ 17,180 $ 5,872
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
35
<PAGE>
NATIONAL REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss)........................ $ 47,491 $ 8,718 $ (375)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities
Depreciation............................ 9,691 10,338 10,247
Gain on sale of real estate............. (52,589) (8,356) (61)
Amortization of deferred financing
costs.................................. 2,617 2,950 2,222
Deferred borrowing costs written off.... 10,346 -- --
(Increase) in interest receivable....... (2,568) (36) (32)
(Increase) decrease in other assets..... (419) 443 (357)
(Decrease) increase in interest
payable................................ (1,156) 259 2,299
(Decrease) increase in other
liabilities............................ (2,498) 699 (2,135)
---------- ---------- ----------
Net cash provided by operating
activities......................... $ 10,915 $ 15,015 $ 11,808
========== ========== ==========
Schedule of noncash investing activities
Notes payable assumed by buyer upon sale
of properties........................... $ 17,116 $ -- $ --
Unrealized gain on marketable equity
securities of affiliate................. 391 1,541 550
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
36
<PAGE>
NATIONAL REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of National Realty, L.P.
and controlled 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," and are, along with the remainder of the Notes to
Consolidated Financial Statements, 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 1996 and 1997 have been reclassified to conform to the
1998 presentation.
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 NRLP Management Corp. (the "General
Partner" or "NMC"). NMC is a wholly-owned subsidiary of American Realty Trust,
Inc. ("ART"), a publicly held real estate investment company. As of March 5,
1999, ART owned approximately 55.4% of National Realty's outstanding units of
limited partner interest.
NMC, as General Partner, manages the affairs of the Partnership. 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 General
Partner. The executive officers of NMC also serve as executive officers of
ART.
In November 1992, the Partnership refinanced 52 of its apartments and a
wraparound mortgage note receivable with a financial institution. To
facilitate the refinancing, the Operating Partnership 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. 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 apartments. Each of the single asset limited partnerships
has no significant assets other than an apartment encumbered by mortgage debt.
Garden National Realty, Inc. ("GNRI"), a Nevada corporation and wholly-owned
subsidiary of ART, is currently the .7% general partner of GCLP and 1% general
partner of the single asset partnerships. In July 1998, the GCLP debt was
refinanced. See NOTE 7. "NOTES AND INTEREST PAYABLE."
Basic Capital Management, Inc. ("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 is a
company owned by a trust for the benefit of the children of Gene E. Phillips.
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 10. "GENERAL PARTNER FEES AND COMPENSATION."
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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 of National Realty. National Realty has
a 99% and the General Partner has 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 GNRI has a .7% general partner interest in the net income or net
loss and distributions of GCLP. GCLP has a 99% interest and GNRI has a 1%
interest in the net income or net loss and distributions of the single asset
partnerships. GNRI's .7% general partner interest in GCLP and its 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. The General Partner
receives base compensation equal to 10% of the distributions to unitholders
from the Partnership's cash from operations.
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 or 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, 1998 and 1997.
In the accompanying December 31, 1997, Consolidated Balance Sheet, the note
receivable from the General Partner is offset against the Redeemable General
Partner Interest as described in NOTE 15. "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.
GNRI received its .7% general partner interest in GCLP in exchange for a
mortgage note receivable. National Realty subsequently purchased the mortgage
note receivable for a $900,000 note payable. GNRI received its 1% general
partner interest in the single asset partnerships in exchange for agreeing to
manage the apartments owned by each of the single asset partnerships.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation. The Consolidated Financial Statements include the
accounts of National Realty, the Operating Partnership, and controlled
partnerships and subsidiaries. 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 management 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.
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Real estate held for investment and depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") requires that a property 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 property. If impairment
exists, an impairment loss is recognized, by a charge against earnings, equal
to the amount by which the carrying amount of the property exceeds the fair
value of the property. If impairment of a property is recognized, the carrying
amount of the property is reduced by the amount of the impairment, and a new
cost for the property is established. Such new cost is depreciated over the
property's remaining useful life. Depreciation is provided by the straight-
line method over estimated useful lives, which range from 5 to 40 years.
Real estate held for sale. Foreclosed real estate is initially recorded at
new cost, defined as the lower of original cost or fair value minus estimated
costs of sale. SFAS No. 121 also requires that properties held for sale be
reported at the lower of carrying amount or fair value less costs of sale. If
a reduction in a held for sale property's carrying amount to fair value less
costs of sale is required, a provision for loss is recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale property's estimated fair value less costs of sale is recorded as an
adjustment to the property's carrying amount, but not in excess of the
property's carrying amount when originally classified as held for sale. A
corresponding charge against or credit to earnings is recognized. Properties
held for sale are not depreciated.
Allowance for estimated losses. A valuation allowance is provided for
estimated losses on notes receivable considered to be impaired. Impairment is
considered to exist when it is probable that all amounts due under the terms
of the note will not be collected. Valuation allowances are provided for
estimated losses on notes receivable to the extent that the Partnership's
investment in the note exceeds the Partnership's estimate of the fair value of
the collateral securing such note.
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.
Operating segments. Management has determined that the Partnership's
reportable operating segments are those that are based on the Partnership's
method of internal reporting, which disaggregates its operations by type of
real estate.
Deferred financing costs. Deferred financing costs, which include bank,
legal, appraisal and consulting fees, are capitalized and amortized on the
interest 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. For notes payable, the fair value was estimated using
current rates for mortgages with similar terms and maturities, which, at
December 31, 1998 and 1997, approximated carrying value.
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Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Partnership considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Earnings per unit. Income (loss) per unit is presented in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Income (loss) per unit of limited partner interest is derived by multiplying
the Partnership's net income (loss) by 98.01% and dividing the result by the
weighted average number of units outstanding in each year, 6,321,425,
6,327,418, 6,387,270 units in 1998, 1997 and 1996, respectively.
NOTE 3. REAL ESTATE AND DEPRECIATION
In 1998, the Partnership sold 10 apartments with a total of 2,581 units:
Brookview Apartments in Smyrna, Georgia; Creekwood Apartments in College Park,
Georgia; Alexandria Apartments in Decatur, Georgia; Lakewood Apartments in St.
Petersburg, Florida; Royal Oaks Apartments in Stone Mountain, Georgia;
Skipper's Pond Apartments and Wisperwood Apartments in Tampa, Florida; Towne
Oaks Apartments and Oakmont Apartments in Monroe, Louisiana; and River Glen
Apartments in Tulsa, Oklahoma; the 184,878 sq. ft. Countryside Plaza Shopping
Center in Clearwater, Florida; and a 338 acre parcel of unimproved land in
Granby, Colorado. The Partnership received $40.5 million in net cash from the
sales after paying off $18.8 million in mortgage debt and the payment of
various closing costs. An aggregate gain of $39.3 million was recognized.
In December 1998, the Partnership acquired an undivided interest in one of
the ground leases under the Westwood Shopping Center for $507,000 in cash.
The Partnership had a 75% general partner interest in Southern Palms
Associates ("Southern Palms"), which owned the Southern Palms Shopping Center.
In December 1997, the Partnership entered into an agreement with the 25%
general partner, which provided the partner with an option to purchase the
Partnership's 75% interest in Southern Palms. The 25% general partner
exercised his option in May 1998 and acquired the Partnership's interest in
Southern Palms for $5.5 million in cash. No gain or loss was recognized.
In 1997, the Partnership sold two office buildings with a total of 128,923
sq. ft.: Tollhill East in Dallas, Texas; and Fondren in Houston, Texas; the
80,679 sq. ft. Crestview Shopping Center in Crestview, Texas; and the 310 unit
Village Square Apartments in Stone Mountain, Georgia. The Partnership received
$8.8 million in net cash from the sales, after paying off $5.0 million in
mortgage debt and the payment of various closing costs. An aggregate gain of
$6.3 million was recognized.
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NOTE 4. NOTES RECEIVABLE
Notes and interest receivable consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------------ ---------------------
Estimated
Fair Book Estimated
Value Value Fair Value Book Value
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable
Performing (including $62,085 in
1998 from affiliate)............. $102,984 $106,893 $36,168 $34,927
Nonperforming..................... 9,200 9,200 5,500 5,500
-------- -------- ------- -------
$112,184 116,093 $41,668 40,427
======== =======
Interest receivable (including $272
in 1998 from affiliate)............ 2,882 255
Unamortized (discounts)............. (109) (109)
Deferred gains...................... (2,431) (13,720)
-------- -------
$116,435 $26,853
======== =======
</TABLE>
Interest income is recognized on nonperforming notes receivable on a cash
basis. For the years 1998 and 1997, unrecognized interest income on
nonperforming notes receivable totaled $716,000 and $127,000.
Notes receivable mature from 1999 through 2009 with interest rates ranging
from 7.21% to 18.0% with a weighted average interest rate of 11.9% at December
31, 1998. Discounts were based on interest rates at the time of origination.
Notes receivable are generally collateralized by real estate or interests in
real estate and personal guarantees of the borrower. A majority of the notes
receivable provide for interest to be paid at the note's maturity.
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. See NOTE 2. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Revenue
recognition on the sale of real estate."
Effective December 1993, the Partnership ceased accruing interest income in
excess of the "pay rate" (cash received) on the note receivable secured by the
Warner Creek Apartments in Woodland Hills, California, as the carrying value
of the note receivable approximated the fair value of the collateral securing
such note. Unrecognized interest income was $195,000, $598,000 and $541,000 in
1998, 1997 and 1996, respectively. The note was paid off in 1998.
Beginning in 1997 and through December 1998, the Partnership funded $1.5
million of a $1.6 million loan commitment to Bordeaux Investments Two, L.L.C.
("Bordeaux"). The loan is secured by (1) a 100% limited partnership interest
in Bordeaux, which owns a shopping center in Oklahoma City, Oklahoma; (2) 100%
of the stock of Bordeaux Investments One, Inc., which owns 6.5 acres of
undeveloped land in Oklahoma City, Oklahoma; and (3) the personal guarantees
of the Bordeaux partners. The loan bears interest at 14.0% per annum. Until
November 1998, the loan required monthly payments of interest only at the rate
of 12.0% per annum, with the deferred interest payable at maturity in January
1999. In November 1998, the loan was modified to allow payments based on
monthly cash flow of the collateral property and the maturity date was
extended to December 1999. The property has had no cash flow. The remaining
$50,000 of the loan was funded in January 1999.
During 1998, the Partnership funded a total of $8.0 million of a $23.8
million loan commitment to Centura Tower, Ltd. The loan is secured by 2.244
acres of land and an office building under construction in Dallas, Texas. The
loan bears interest at 12.0% per annum, requires monthly payments based on net
revenues after development of the land and building and matures in January
2003. The borrower has not obtained a construction loan,
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therefore, the Partnership may be required to fund construction costs in
excess of its loan commitment, in order to preserve its collateral interest.
Estimated cost to construct the office building is in excess of $60.0 million.
Through February 1999, the Partnership funded an additional $2.5 million.
During 1998, the Partnership funded $2.1 million of a $2.2 million loan
commitment to Varner Road Partners, L.L.C. The loan is secured by 129.77 acres
of land in Riverside County, California and a pledge of the stock of the
borrower. The loan bears interest at 15.0% per annum and matures in November
1999. All principal and interest are due at maturity.
During the first and second quarters of 1998, the Partnership funded a
$356,000 loan to Ellis Development Company, Inc. The loan is secured by 4.5
acres of land in Abilene, Texas. The loan bears interest at 14.0% per annum
and had an original maturity of April 1999. All principal and interest are due
at maturity. In August 1998, the loan was modified and extended, increasing
the loan commitment to $946,000, of which $942,000 has been funded and
extending the maturity date to August 1999. In exchange for the modification
and extension the borrower pledged additional collateral consisting of the
personal guarantees of the principal owners of the borrower and a collateral
assignment of a $220,000 note receivable. All other terms of the loan remained
unchanged.
In May 1998, the Partnership funded $713,000 of an original $836,000 loan
commitment to Warwick of Summit, Inc., of which $619,000 was used to repay an
affiliate's loan from the Partnership. The new loan is secured by a second
lien on a shopping center in Rhode Island, by 100% of the stock of the
borrower and by the personal guarantee of the principal shareholder of the
borrower. The loan bears interest at 14.0% per annum and matures in December
1999. All principal and interest are due at maturity. In June 1998, the
Partnership funded the remaining $123,000 of the initial loan commitment and
in July 1998, an additional $301,000 was funded, increasing the loan balance
to $1.1 million. In August 1998, the loan was modified, increasing the
commitment to $1.8 million, which has been fully funded. All other terms of
the loan remained unchanged.
In June 1998, the Partnership funded a $365,000 loan to RB Land & Cattle,
L.L.C. The loan is secured by a pledge of a note secured by 7,200 acres of
undeveloped land near Crowell, Texas, and the personal guarantee of the
borrower. The loan bore interest at 10.0% per annum and matured in December
1998. All principal and interest were due at maturity. The borrower did not
make the required payments and the loan was placed in non-accrual. The
Partnership has begun foreclosure proceedings. The Partnership expects to
incur no loss on foreclosure as the fair value of the collateral property less
estimated costs of sale, exceeds the carrying value of the note.
Also in June 1998, the Partnership funded a $2.4 million loan to Cuchara
Partners, Ltd. and Ski Rio Partners, Ltd., affiliates of JNC Enterprises, Ltd.
("JNC"). The loan is secured by (1) a first lien on approximately 1,000 acres
of land in Huerfano County, Colorado, known as Cuchara Valley Mountain Ski
Resort; (2) assignment of a $2.0 million promissory note which is secured by
approximately 2,623 acres of land in Taos County, New Mexico, known as Ski Rio
Resort; and (3) a pledge of all related partnership interests. The loan bears
interest at 16.0% per annum and matures in June 1999. All principal and
interest are due at maturity. In July 1998, the Partnership funded an
additional $1.8 million, increasing the loan balance to $4.2 million. All
other terms of the loan remained unchanged. In the fourth quarter of 1998, the
Partnership received $109,000 on the sale of 11 parcels of the collateral
property in Taos, New Mexico. This loan is cross-collateralized with other JNC
loans discussed below.
In the second quarter of 1998, the Partnership received a total of $3.7
million on the collection of two of its mortgage notes receivable. The
Partnership also made a $3.5 million paydown of a mortgage partially secured
by another of the paid off notes.
In June 1998, GCLP collected $18.5 million in full payment of a mortgage
note receivable, receiving net cash of $3.9 million after paying off a $14.6
million underlying lien including a prepayment penalty. GCLP recognized a gain
of $1.0 million on the early collection, as well as a previously deferred gain
of $11.2 million
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related to the 1988 sale of the property, the gain having been deferred until
the seller provided financing was paid off.
In July 1998, the Partnership paid in full two mortgage loans in the total
amount of $3.5 million secured by six of the Partnership's mortgage notes
receivable.
In August 1998, the Partnership funded a $6.0 million loan to Centura
Holdings, LLC, a subsidiary of Centura Tower, Ltd. The loan is secured by
6.4109 acres of land in Dallas, Texas. The loan bears interest at 15.0% per
annum and matures in August 2000. All principal and interest are due at
maturity.
Also in August 1998, the Partnership funded a $3.7 million loan to JNC. The
loan was secured by a contract to purchase 387 acres of land in Collin County,
Texas, the guaranty of the borrower and the personal guarantees of its
partners. The loan bore interest at 12.0% per annum and matured the earlier of
termination of the purchase contract or February 1999. All principal and
interest were due at maturity. This loan was cross-collateralized with the
Cuchara/Ski Rio loan and other JNC loans. In January 1999, ART purchased the
contract from JNC and acquired the land. In connection with the purchase, GCLP
funded an additional $6.0 million of a $95.0 million loan commitment to ART. A
portion of the funds were used to payoff the $3.7 million loan, including
accrued but unpaid interest, paydown by $1.3 million the JNC line of credit
and paydown a portion of the $820,000 of the JNC Frisco Panther Partners, Ltd.
loan, discussed below. See "Related Party."
Further in August 1998, the Partnership funded a $635,000 loan to La Quinta
Partners, LLC. The loan is secured by interest bearing accounts prior to being
used as escrow deposits toward the purchase of a total of 956 acres of land in
La Quinta, California. The loan bore interest at 10.0% per annum and matured
in November 1998. All principal and interest were due at maturity. In November
and December 1998, the Partnership received $250,000 in principal paydowns and
in the second quarter of 1999, the remaining $385,000 was expected to be
collected.
In September 1998, the Partnership received payment in full of an $800,000
note receivable which had matured.
In December 1997, the Partnership funded a $3.4 million loan to Stratford &
Graham Developers, L.L.C. The loan is secured by 1,485 acres of unimproved
land in Riverside County, California. The loan bears interest at 15.0% per
annum and matures in June 1999. All principal and interest are due at
maturity. In the second, third and fourth quarters of 1998, the Partnership
funded an additional $370,000, increasing the loan balance to $3.8 million. In
January and February 1999, the Partnership funded an additional $105,000,
increasing the loan balance to $3.9 million.
In October 1998, the Partnership funded three loans to JNC or affiliated
entities. The first JNC loan of $1.0 million is secured by a second lien on
3.5 acres of land in Dallas, Texas, the guaranty of the borrower and the
personal guarantees of its partners. The loan bears interest at 14.0% per
annum and matures in October 1999. All principal and interest are due at
maturity. The second loan, also $1.0 million, was secured by a second lien on
2.92 acres of land in Dallas, Texas, the guaranty of the borrower and the
personal guarantees of its partners. The loan bore interest at 14.0% per annum
and matured in October 1999. All principal and interest were due at maturity.
This loan was paid in full in March 1999. The third loan, in the amount of
$2.1 million was to Frisco Panther Partners, Ltd. The loan is secured by a
second lien on 408.23 acres of land in Frisco, Texas, the guaranty of the
borrower and the personal guarantees of its partners. The loan bears interest
at 14.0% per annum and matures in October 1999. All principal and interest are
due at maturity. These loans are cross-collateralized with the Cuchara/Ski Rio
and other JNC loans funded by the Partnership. In January 1999, the
Partnership received a paydown of $820,000 on the Frisco Panther Partners,
Ltd. loan.
Also in October 1998, the Partnership funded a $350,000 loan to Four "J"
International Corp., 5J-CTMS, Ltd. and an individual. The loan was secured by
1.1 million Class A limited partnership units in Grapevine American Ltd.,
which are convertible into shares of Series G Cumulative Convertible Preferred
Stock of ART.
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The loan bore interest at 15.0% per annum and matured in February 1999. All
principal and interest were due at maturity. The loan was collected in full in
January 1999.
In March 1998, the Partnership ceased receiving the required payments on a
$3.0 million note receivable secured by an office building in Dallas, Texas.
In October 1998, the Partnership began foreclosure proceedings. In March 1999,
the Partnership received payment in full, including accrued but unpaid
interest.
In December 1998, the Partnership funded $3.3 million of a $5.0 million loan
commitment to JNC. The loan is secured by a second lien on 1,791 acres of land
in Denton County, Texas, and a second lien of 220 acres of land in Tarrant
County, Texas. The loan bears interest at 12.0% per annum and matures in
December 1999. All principal and interest are due at maturity. The loan is
cross-collateralized with the Cuchara/Ski Rio and other JNC loans funded by
the Partnership. In January 1999, the Partnership received a $1.3 million
paydown on the loan, as discussed below. In January and February 1999, the
Partnership funded an additional $2.0 million.
At December 31, 1998, the Partnership's one wraparound mortgage note
receivable was in default. The Partnership has been vigorously pursuing its
rights regarding the loan. The Partnership expects to incur no loss in excess
of reserve previously provided if it is unable to collect the balance due.
In July 1997, the Partnership funded a $700,000 loan to an individual. In
February 1998, the Partnership funded an additional $40,000 and the loan was
modified, increasing the principal balance to $740,000. The loan is secured by
a security interest in an oil, gas and mineral lease in Anderson County, Texas
and by a second lien mortgage on a ranch in Henderson County, Texas. The loan
bears interest at 12.0% per annum, requires monthly payments of interest only
and originally matured in December 1998. In October 1998, the loan was
modified, extending the maturity date to September 1999.
In 1997, the Partnership originated 13 mortgage or other loans totaling
$22.9 million, secured by land, an office building, a single-family residence,
a security interest in an oil, gas and mineral lease, partnership interests in
entities owning real property, personal guarantees and by second liens on a
ranch and a shopping center. The loans bore interest rates ranging from 10.0%
to 18.0% per annum, required either monthly, quarterly, or at maturity,
payments of interest, and matured from October 1997 to December 1999.
Also in 1997, the Partnership collected $13.5 million on its mortgage notes
receivable from the payoff of six notes. In connection with one of the
payoffs, the Partnership paid off an underlying note payable in the amount of
$1.0 million and recognized a deferred gain of $2.1 million from the
Partnership's 1986 sale of the property securing such loan.
Related Party. In November and December 1998, GCLP funded $50.0 million of a
$95.0 million loan commitment to ART. The loan is secured by second liens on
(1) an office building in Minnesota, (2) three apartments in Mississippi, and
(3) one apartment and 130.54 acres of land in Texas, (4) by the stock of ART
Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,349,535 National
Realty units of limited partnership, and (5) by the stock of NMC. The loan
bears interest at 12.0% per annum, requires monthly payments of interest only
and matures in November 2003. In January 1999, the Partnership funded an
additional $6.0 million.
In December 1998, in connection with the Moorman lawsuit settlement, NMC, a
wholly-owned subsidiary of ART, and the new general partner of the
Partnership, assumed responsibility for repayment to the Partnership of the
$12.2 million paid by the Partnership to the Moorman Class Members and legal
counsel. The loan bears interest at the 90 day LIBOR (London InterBank Offered
Rate) plus 2.0% per annum, currently 7.0% per annum, adjusted every 90 days
and requires annual payments of accrued interest plus principal payments of
$500,000 in each of the first three years, $750,000 in each of the next three
years, $1.0 million in each of the next three years, with payment in full of
the remaining balance in the tenth year. The note is guaranteed by ART. The
note matures upon the earlier of the liquidation or dissolution of the
Partnership, NMC ceasing to be general partner or ten years from March 31,
1999, the date of the first cash distribution to the Moorman Class Members.
See NOTE 15. "COMMITMENTS AND CONTINGENCIES."
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<PAGE>
NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES
The allowance for estimated losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance December 31,....................................... $1,910 $1,910 $1,910
====== ====== ======
</TABLE>
NOTE 6. INVESTMENTS IN MARKETABLE EQUITY SECURITIES OF AFFILIATE
The Partnership owns 195,732 shares of ART common stock, which the
Partnership acquired in open market purchases in 1990 at an adjusted cost of
$269,000. ART is a publicly held real estate investment company. The
Partnership considers the ART common stock to be available-for-sale and the
shares are carried at fair value (period end market value). The market value
of the ART common stock was $3.2 million at December 31, 1998 and $2.8 million
at December 31, 1997. See NOTE 1. "ORGANIZATION."
NOTE 7. NOTES AND INTEREST PAYABLE
Notes and interest payable consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Notes payable............................. $334,076 $357,201 $322,245 $336,830
======== ========
Interest payable.......................... 899 2,272
-------- --------
$358,100 $339,102
======== ========
</TABLE>
Scheduled notes payable principal payments are due as follows:
<TABLE>
<S> <C>
1999............................................................. $ 20,731
2000............................................................. 5,883
2001............................................................. 8,436
2002............................................................. 12,532
2003............................................................. 141,759
Thereafter....................................................... 167,860
--------
$357,201
========
</TABLE>
Notes payable at December 31, 1998 and 1997 are collateralized by land,
buildings and improvements and are generally nonrecourse to the partnership.
The GCLP Phase I mortgage debt, as discussed below, is cross-collateralized
and cross-defaulted among the 18 apartments that serve as collateral for such
debt. Notes payable at December 31, 1998, bear interest at stated rates
ranging from 6.2% to 10.0% per annum with a weighted average rate of 8.6% per
annum and such notes have maturities or call dates ranging from one to 25
years.
In 1998, the Partnership refinanced the mortgage debt secured by three
apartments, obtained a second lien mortgage on another apartment and obtained
mortgage financing for four unencumbered apartments and seven notes receivable
in the total amount of $37.4 million. The Partnership received net cash of
$27.8 million after paying off $7.1 million in mortgage debt, the funding of
escrows and the payment of various closing costs. The mortgages bear interest
rates ranging from 6.2% to 14.0% per annum, require monthly payments of
principal and interest of $277,000 and mature from December 1999 to September
2009.
In addition, in July 1998, the Partnership paid in full two mortgage loans
in the total amount of $7.0 million secured by six of the Partnership's
mortgage notes receivable.
45
<PAGE>
Also in July 1998, GCLP commenced a three-phase refinancing of the mortgage
debt secured by the 50 properties held by it. Phase I consisted of 18 of the
properties, in Arizona, Florida, Illinois, Indiana, Kansas, Missouri, Oklahoma
and Texas, which were refinanced in the total amount of $150.0 million. GCLP
received net cash of $33.6 million after paying off $102.9 million in mortgage
debt, the funding of required escrows and the payment of various closing
costs. This new mortgage bears interest at 6.88% per annum, requires monthly
payments of principal and interest of $1.0 million and matures in July 2003.
The new $150.0 million mortgage loan requires that the cash flow from the 18
properties be used to fund various escrow and reserve accounts and limits the
payment of distributions to the Partnership.
Phase II consisted of a bridge financing of 29 of the properties, in
Arizona, Arkansas, California, Colorado, Florida, Georgia, Kansas, Louisiana,
Michigan, Missouri, Nebraska, Ohio, Oklahoma, Tennessee, Texas and Virginia,
which were refinanced in the total amount of $86.2 million. GCLP received net
cash of $1.4 million after paying off $80.0 million in existing mortgage debt,
the funding of required escrows and the payment of various closing costs. This
bridge financing bore interest at a variable rate, required monthly payments
of interest only. Three GCLP properties are unencumbered.
In September 1998, GCLP completed Phase III of the refinancing by
refinancing the properties secured by the Phase II bridge loan. The mortgage
debt secured by 16 of the properties, in Arizona, California, Colorado,
Florida, Georgia, Kansas, Michigan, Missouri, Nebraska, Tennessee, Texas and
Virginia was refinanced in the total amount of $90.7 million. GCLP received
net cash of $1.7 million after paying off $83.4 million of Phase II principal
and interest and funding of required escrows and the payment of various
closing costs. The new mortgages bear interest at rates ranging from 6.535% to
6.77% per annum, require monthly payments of principal and interest totaling
$582,690 and mature in October 2008. Thirteen Phase II properties were
unencumbered after the payoff of the bridge loan.
The Partnership used $13.2 million of the net cash received from the
refinancings to pay off debt secured by NOLP's interest in GCLP.
In 1997, the Partnership refinanced the mortgage debt secured by three
apartments and obtained mortgage financing for four unencumbered office
buildings and six notes receivable in the total amount of $33.1 million. The
Partnership received net cash of $21.7 million after paying off $10.0 million
in mortgage debt, the funding of escrows and the payment of various closing
costs. The mortgages bore interest rates ranging from 7.5% to 13.0% per annum,
required monthly payments of principal and interest of $261,000 and matured
from December 1998 to November 2007. In addition, the Partnership modified and
extended the mortgage secured by the Cross County Mall in Mattoon, Illinois.
In conjunction with the modification, the Partnership made a principal
reduction payment of $137,500. The modified and extended mortgage bears
interest at a variable rate, currently 8.8% per annum, requires monthly
payments of principal and interest of $71,262 and has an extended maturity of
April 2002. Also in 1997, the Partnership modified the mortgage debt secured
by the Club Mar Apartments in Sarasota, Florida, under the Housing and Urban
Development ("HUD") Partial Payment of Claim ("PPC") program. Under the PPC
program, $736,000 of the original principal balance and $871,000 of accrued
but unpaid interest were rolled into a new second lien mortgage. The first
mortgage was reduced to $5.2 million, the interest rate was reduced to 8.18%
per annum, the monthly payments were reduced to $40,800 and the maturity date
of July 2023 remained unchanged. The new second lien mortgage of $1.6 million
bears interest at 6.91% per annum, requires monthly payments of 50% of the
property's net cash flow as defined and matures in July 2023. In conjunction
with the modification, the Partnership funded improvement escrows of $381,000
and paid $345,000 as a principal paydown on the second lien mortgage from
accumulated cash flow that had been held by the servicer.
In conjunction with the 1997 refinancing of the Pheasant Ridge and Regency
Apartments, the Partnership purchased the Federal National Mortgage
Association ("FNMA") insured mortgage backed securities issued by the lender
to finance the loans. These securities bear interest at 6.84% per annum and
mature in July 2007. The Partnership borrowed 97% of the face amount of the
securities from FNMA. The effect of these purchases was
46
<PAGE>
to lower the effective interest rate on the refinancings. In July 1998, the
Partnership sold the securities for $9.4 million in cash, receiving net cash
of $579,000 after paying off the associated financing.
The Partnership holds a wraparound mortgage note receivable secured by a
shopping center in La Crosse, Wisconsin. The underlying note payable has
matured.
NOTE 8. PENSION NOTES
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 were unsecured, subordinated obligations of the Partnership and bore
interest at the rate of 8% compounded annually. Principal and accrued interest
were paid at maturity on September 18, 1997. The 8% stated interest rate on
the Pension Notes was different than the assumed market rate at the time of
issuance. Such discount was amortized over the term of the Pension Notes using
the interest method. Interest expense of $1,167,000 and $1,444,000 was
recognized on the Pension Notes in 1997 and 1996, respectively.
NOTE 9. 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. Each warrant entitled the holder to purchase
three quarters of one unit at the exercise price of $16.00 per unit. The
warrants were exercisable for five years from the date of issuance and expired
on February 14, 1997. Prior to their expiration a total of 1,631 warrants were
exercised for the purchase of 1,226 units. See NOTE 15. "COMMITMENTS AND
CONTINGENCIES--Moorman Settlement."
NOTE 10. GENERAL PARTNER FEES AND COMPENSATION
General. NMC is the general partner of the Partnership. The executive
officers of NMC 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 (1) First Equity Properties, Inc. ("First
Equity"), which is 50% owned by a subsidiary of BCM, (2) Gene E. Phillips and
(3) a trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management and leasing of nine of the
Partnership's commercial properties to Carmel Realty, Inc. ("Carmel Realty")
which is a company owned by First Equity. 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.
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 partner or any of their affiliates participate in the
operation or administration of the Partnership, the general partner and its
affiliates are to be reimbursed under the Partnership Agreement 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.
47
<PAGE>
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 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 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.
Fees and cost reimbursement to NMC and its affiliates:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
Property and construction management fees*.............. $ 1,786 $ 826 $ 744
Loan placement fees..................................... 2,735 332 89
Real estate commissions................................. 2,029 414 --
Leasing commissions..................................... 82 96 67
Reimbursement of administrative expenses................ 3,865 4,448 3,329
-------- ------ ------
$ 10,497 $6,116 $4,229
======== ====== ======
</TABLE>
- --------
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
48
<PAGE>
NOTE 11. 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, 1998:
<TABLE>
<S> <C>
1999.................................................................. $ 7,317
2000.................................................................. 5,800
2001.................................................................. 3,958
2002.................................................................. 3,508
2003.................................................................. 3,003
Thereafter............................................................ 7,299
-------
$30,885
=======
</TABLE>
NOTE 12. 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 that partnership
losses for certain publicly traded partnerships be 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 13. OPERATING SEGMENTS
Significant differences among the accounting policies of the segments as
compared to the Partnership's consolidated financial statements principally
involve the calculation and allocation of administrative expenses. Management
evaluates the performance of its operating segments and allocates resources to
them based on net operating income and cash flow. The Partnership based
reconciliation of expenses that are not reflected in the segments is $6.8
million of administrative expenses. There are no intersegment revenues and
expenses and the Partnership conducts all of its business within the United
States.
The Partnership has not disclosed prior years' operating segment information
on a comparative basis, because it was impractical to obtain the necessary
data.
The table below presents information about the reported operating income of
the Partnership for 1998. Asset information by operating segment is also
presented below.
<TABLE>
<CAPTION>
Commercial
Properties Apartments Receivables Total
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Operating revenue.................. $9,985 $ 97,142 $ -- $107,127
Operating expenses................. 4,566 58,170 -- 62,736
Interest income.................... -- -- 5,235 5,235
Interest expense--notes
receivable........................ -- -- 1,164 1,164
------ -------- ------- --------
Net operating income............... 5,419 38,972 4,071 48,462
Depreciation....................... 2,450 7,241 -- 9,691
Interest on debt................... 3,669 34,435 -- 38,104
Capital expenditures............... 1,150 1,670 -- 2,820
Segment assets at December 31,
1998.............................. 27,279 140,130 116,435 283,844
</TABLE>
49
<PAGE>
Property sales:
<TABLE>
<CAPTION>
Commercial
Properties Apartments Other
---------- ---------- -----
<S> <C> <C> <C>
Sales price......................................... $17,900 $62,300 $800
Cost of sales....................................... 16,343 20,867 --
Gain on sale........................................ 831 38,586 772
</TABLE>
NOTE 14. QUARTERLY DATA
The following is a tabulation of the Partnership's quarterly results of
operations for the years 1998 and 1997 (unaudited).
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
1998 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............................ $29,578 $28,186 $27,897 $28,173
Expenses............................ 29,070 34,678 29,829 25,355
------- ------- ------- -------
Income (loss) from operations....... 508 (6,492) (1,932) 2,818
Gain on sale of real estate......... -- 28,633 5,583 18,373
------- ------- ------- -------
Net income.......................... $ 508 $22,141 $ 3,651 $21,191
======= ======= ======= =======
Earnings per unit
Net income........................ $ .08 $ 3.43 $ .57 $ 3.28
======= ======= ======= =======
</TABLE>
During the second quarter of 1998, the Partnership sold three apartments,
two shopping centers and 338 acres of undeveloped land for gains totaling
$16.4 million and recognized a gain of $1.0 million, as well as a deferred
gain of $11.2 million on the payoff of a note receivable. During the third
quarter of 1998, the Partnership sold two apartments for gains totaling $5.6
million. During the fourth quarter of 1998, the Partnership sold five
apartments for gains totaling $18.4 million. See NOTE 3. "REAL ESTATE AND
DEPRECIATION" and NOTE 4. "NOTES RECEIVABLE."
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
1997 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues........................... $28,559 $28,814 $29,797 $30,195
Expenses........................... 28,786 29,080 29,645 29,492
------- ------- ------- -------
Income (loss) from operations...... (227) (266) 152 703
Gain on sale of real estate........ -- 3,587 2,067 2,702
------- ------- ------- -------
Net income (loss).................. $ (227) $ 3,321 $ 2,219 $ 3,405
======= ======= ======= =======
Earnings per unit
Net income (loss)................ $ (.04) $ .51 $ .34 $ .54
======= ======= ======= =======
</TABLE>
In the second quarter of 1997, the Partnership sold an office building for a
gain of $3.6 million. In the third quarter of 1997, the Partnership recognized
a deferred gain of $2.1 million on the payoff of a note receivable. In the
fourth quarter of 1997, the Partnership sold an apartment complex and a
shopping center for gains totaling $2.7 million. See NOTE 3. "REAL ESTATE AND
DEPRECIATION" and NOTE 4. "NOTES RECEIVABLE."
50
<PAGE>
NOTE 15. COMMITMENTS AND CONTINGENCIES
Moorman Settlement
The Partnership entered into a settlement agreement, dated as of May 9,
1990, relating to the action entitled Moorman, et al. v. Southmark
Corporation, et al. Such action was filed on September 2, 1987, in the
Superior Court of the State of California, County of San Mateo. The
Partnership agreed to settle such action pursuant to the terms of a written
agreement (the "Moorman Settlement Agreement").
The Moorman Settlement Agreement provided for a plan (the "Moorman
Settlement Plan") consisting of, among other things, the following: (1) the
appointment and operation of a committee (the "Oversight Committee"), to
oversee the implementation of the Moorman Settlement Plan, and (2) the
establishment of specified annually increasing targets (each a "Target") for
each of the five years through May 1995, relating to the price of the units of
limited partner interest.
If the Targets were not met for any two successive years of the Moorman
Settlement Plan or for the final year of the Moorman Settlement Plan, Syntek
Asset Management, L.P. ("SAMLP") was required to withdraw as general partner
effective at the time a successor general partner was elected. 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 required
that SAMLP resign as general partner, effective upon the election and
qualification of its successor. On July 8, 1992, SAMLP notified the Oversight
Committee of the failure to meet the Target for two successive years.
Upon, among other things, the withdrawal of SAMLP as General Partner and the
due election and taking office of a successor, the Moorman Settlement Plan
would terminate. Withdrawal of SAMLP as general partner pursuant to the
Moorman Settlement Agreement required unitholders to elect a successor general
partner by majority vote.
The Moorman Settlement Agreement provided that withdrawal of SAMLP as
general partner would require the Partnership to acquire its 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 could have, at the Oversight Committee's option,
been paid over a three year period pursuant to a secured promissory note
bearing interest at a financial institution's prime rate and containing
commercially reasonable terms and collateral. Under the Moorman Settlement
Plan, the purchase price for Redeemable General Partner Interest would have
been calculated, as of the time SAMLP withdrew as general partner under the
Partnership's governing documents. The Redeemable General Partner Interest was
calculated at December 31, 1997, to be $49.6 million. The Partnership would
have been entitled to offset against any such payment the then outstanding
principal balance ($4.2 million at December 31, 1997) plus all accrued but
unpaid interest ($7.2 million at December 31, 1997) on the note receivable
from SAMLP described in NOTE 1. "ORGANIZATION." In the accompanying December
31, 1997, Consolidated Balance Sheet, the Redeemable General Partner Interest
is shown as a reduction of Partners' Equity, and the note receivable from the
General Partner being offset against the Redeemable General Partner Interest.
The Oversight Committee had previously informed the Partnership that it had
calculated the amount of such Redeemable General Partner Interest to be a
lessor amount.
On July 15, 1998, National Realty, SAMLP and the Oversight Committee
executed an Agreement for Cash Distribution and Election of Successor General
Partner (the "Cash Distribution Agreement") which provided for the nomination
of NMC, which is an entity affiliated with SAMLP, to be the successor general
partner of the Partnership, for the distribution of $11.4 million to the
Moorman Class Members and for the resolution of all related matters under the
Moorman Settlement Agreement. The Cash Distribution Agreement was submitted to
the Court on July 23, 1998. On August 4, 1998, the Court entered an order
granting preliminary approval of the Cash Distribution Agreement. On September
9, 1998, a notice was mailed to the Moorman Class Members
51
<PAGE>
describing the Cash Distribution Agreement. On October 16, 1998, a hearing was
held to consider any objections to the Cash Distribution Agreement. On October
23, 1998, the Court entered an order granting final approval of the Cash
Distribution Agreement. The Court also entered orders requiring the
Partnership to pay $404,000 in attorney's fees to Joseph B. Moorman's legal
counsel, $30,000 to Joseph B. Moorman and $404,000 in attorney's fees to
Robert A. McNeil's legal counsel.
Pursuant to the order, $11.4 million was deposited by the Partnership into
an escrow account and then transferred to the control of an independent
settlement administrator. The distribution of the cash shall be made to the
Moorman Class Members pro rata based upon the number of units originally
issued to each Moorman Class Member upon the formation of the Partnership in
1987. On March 10, 1999, the Court entered an order providing for the initial
distribution of the cash not later than March 31, 1999. The distribution of
cash is under the control of the independent settlement administrator.
The proposal to elect NMC the successor general partner was submitted to the
unitholders of National Realty for a vote. All units of the Partnership owned
by affiliates of SAMLP (approximately 61.8% of the outstanding units of
National Realty as of the November 27, 1998, record date) were voted pro rata
with the vote of the other limited partners. NMC was elected by a majority of
the unitholders. The Moorman Settlement Plan remained in effect until December
18, 1998, when SAMLP resigned as general partner and NMC was elected and took
office.
Under the Cash Distribution Agreement, SAMLP waived its right under the
Moorman Settlement Agreement to receive any payment from the Partnership for
its Redeemable General Partner Interest or fees it was entitled to receive
upon the election of a successor general partner. As of December 31, 1997, the
Redeemable General Partner Interest was calculated to be $49.6 million. In
addition, pursuant to the Cash Distribution Agreement, the Partnership
Agreement was amended to provide that, upon voluntary resignation of the
general partner, the resigning general partner shall not be entitled to the
repurchase of its general partner interest under Paragraph 17.9 of the
Partnership Agreement.
Under the Cash Distribution Agreement, NMC assumed liability for SAMLP's
note for its capital contribution to the Partnership. In addition, NMC assumed
liability for a note receivable which will require the repayment to the
Partnership of the $11.4 million paid by the Partnership under the Cash
Distribution Agreement plus the $808,000 in court ordered attorney's fees and
the $30,000 paid to Joseph B. Moorman. This note requires repayment over a
ten-year period, bears interest at a variable rate, currently 7.0% per annum,
and is guaranteed by ART, which is the parent of NMC, and owns approximately
55.4% of the outstanding units of the Partnership.
Other Litigation. The Partnership is also involved in various other
lawsuits arising in the ordinary course of business. In the opinion of
management, the outcome of these lawsuits will not have a material effect on
the Partnership's financial condition, results of operations or liquidity.
NOTE 16. SUBSEQUENT EVENTS
In January 1999, GCLP sold the 199 unit Olde Towne Apartments in Middleton,
Ohio, for $4.6 million, receiving net cash of $4.4 million after the payment
of various closing costs. A gain will be recognized on the sale.
In February 1999, the Partnership obtained mortgage financing secured by the
unencumbered 56 Expressway Office Building in Oklahoma City, Oklahoma, in the
amount of $1.7 million, receiving net cash of $1.7 million after the payment
of various closing costs. The mortgage bears interest at a variable rate,
currently 8.5% per annum, requires monthly payments of principal and interest
of $15,000 and matures in February 2019.
Also in February 1999, the Partnership obtained mortgage financing secured
by the unencumbered Melrose Business Park in Oklahoma City, Oklahoma, in the
amount of $900,000, receiving net cash of $870,000 after the
52
<PAGE>
payment of various closing costs. The mortgage bears interest at a variable
rate, currently 8.5% per annum, requires monthly payments of principal and
interest of $8,000 and matures in February 2019.
Further in February 1999, GCLP sold the 225 unit Santa Fe Apartments in
Kansas City, Missouri, for $4.6 million, receiving net cash of $4.3 million
after the payment of various closing costs. A gain will be recognized on the
sale.
In February 1999, GCLP sold the 480 unit Mesa Ridge Apartments in Mesa,
Arizona, for $19.5 million, receiving net cash of $793,000 after the payment
of various closing costs, including a real estate brokerage commission of
$585,000 to Carmel Realty and remitting $17.8 million to the lender to hold in
escrow pending a substitution of collateral. Such funds will be released when
substitute collateral is approved. If substitute collateral is not provided by
August 1999, $13.0 million of the escrow will be applied against the
mortgage's principal balance, approximately $885,000 will be retained by the
lender as a prepayment penalty and the remaining $3.9 million will be returned
to GCLP. A gain will be recognized on the sale. NMC will earn an incentive
sales fee on the sale in accordance with the partnership agreement.
Also in February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at December 31, 1998, owned approximately 15.8% of the
outstanding shares of ART's common stock. The loan bears interest at 12.0% per
annum and matures in February 2000. All principal and interest are due at
maturity. The loan is guaranteed by BCM.
53
<PAGE>
SCHEDULE III
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Gross Amount Carried at
Initial Cost Acquisition Close of Period (1)
------------------- ------------------ ----------------------------
Building and Building and Accumulated Date of
Description Encumbrances (2) Land Improvements Improvements Other Land Improvements Total Depreciation Construction
- ---------------- ---------------- ------ ------------ ------------ ----- ------ ------------ -------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Arlington
Place........... $ 4,393 $ 330 $ 3,275 $ 715 $ -- $ 330 $ 3,990 $ 4,320 $2,886 1973
Pasadena, TX
Barcelona....... 6,989 1,400 5,600 397 -- 1,400 5,997 7,397 1,321 1971
Tampa, FL
Bavarian Woods.. 6,700 547 5,528 257 -- 547 5,785 6,332 2,929 1972
Middletown, OH
Bent Tree....... 8,784 1,047 7,036 699 -- 1,047 7,735 8,782 4,506 1980
Addison, TX
Blackhawk....... 3,776 253 4,081 292 -- 253 4,373 4,626 2,955 1972
Ft. Wayne, IN
Bridgestone..... -- 169 1,780 192 -- 169 1,972 2,141 1,132 1979
Friendswood, TX
Candlelight
Square.......... 3,279 148 1,928 189 -- 145 2,120 2,265 1,416 1971
Lenexa, KS
Chalet I........ 4,233 260 2,994 65 -- 260 3,059 3,319 1,752 1964/
74/78
Topeka, KS
Chalet II....... 1,590 440 1,322 -- -- 440 1,322 1,762 124 1986
Topeka, KS
Chateau......... 3,455 130 1,723 126 -- 130 1,849 1,979 1,086 1968
Bellevue, NE
Club Mar........ 6,370 1,248 4,993 253 -- 1,248 5,246 6,494 764 1973
Sarasota, FL
Confederate
Point........... 5,465 246 3,736 709 -- 246 4,445 4,691 2,967 1969
Jacksonville,
FL
Country Place... 4,380 246 3,268 70 -- 246 3,338 3,584 1,852 1980
Round Rock, TX
Covered Bridge.. 4,513 219 3,425 129 -- 219 3,554 3,773 2,884 1972
Gainesville, FL
Fair Oaks....... 4,928 470 2,661 174 -- 470 2,835 3,305 768 1978
Euless, TX
Four Seasons.... 9,468 1,264 8,447 813 -- 1,264 9,260 10,524 4,258 1970
Denver, CO
Fox Club........ 7,194 902 7,294 970 -- 904 8,262 9,166 4,238 1972
Indianapolis,
IN
Foxwood......... 6,076 218 3,188 509 -- 218 3,697 3,915 2,467 1974
Memphis, TN
Hidden Valley... 8,171 274 3,636 362 -- 261 4,011 4,272 2,305 1973
Grand Rapids,
MI
Horizon East.... 2,600 592 2,628 498 -- 592 3,126 3,718 2,201 1972
Dallas, TX
Kimberly Woods.. 6,336 571 3,802 1,190 -- 571 4,992 5,563 3,496 1973
Tucson, AZ
La Mirada....... 7,673 392 5,454 1,558 -- 392 7,012 7,404 4,628 1971
Jacksonville,
FL
Lake Nora Arms.. 12,818 737 10,774 830 -- 737 11,604 12,341 7,871 1973
Indianapolis,
IN
Lantern Ridge... 2,436 130 1,721 129 -- 177 1,803 1,980 1,435 1974
Richmond, VA
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement of
Operation Dateis
DescriptionCompuAcquiredted
- --------------------------
<S> <C> <C> <C>
Apartments
Arlington
Place........... 11/76 7 - 40 years
Pasadena, TX
Barcelona....... 09/90 7 - 40 years
Tampa, FL
Bavarian Woods.. 01/84 5 - 40 years
Middletown, OH
Bent Tree....... 06/80 7 - 40 years
Addison, TX
Blackhawk....... 12/78 7 - 40 years
Ft. Wayne, IN
Bridgestone..... 06/82 7 - 40 years
Friendswood, TX
Candlelight
Square.......... 11/77 7 - 40 years
Lenexa, KS
Chalet I........ 04/82 7 - 40 years
Topeka, KS
Chalet II....... 03/95 7 - 40 years
Topeka, KS
Chateau......... 02/81 7 - 40 years
Bellevue, NE
Club Mar........ 07/93 7 - 40 years
Sarasota, FL
Confederate
Point........... 05/79 7 - 40 years
Jacksonville,
FL
Country Place... 07/82 7 - 40 years
Round Rock, TX
Covered Bridge.. 10/79 7 - 40 years
Gainesville, FL
Fair Oaks....... 07/89 7 - 40 years
Euless, TX
Four Seasons.... 07/84 7 - 40 years
Denver, CO
Fox Club........ 11/83 7 - 40 years
Indianapolis,
IN
Foxwood......... 08/79 7 - 40 years
Memphis, TN
Hidden Valley... 07/81 7 - 40 years
Grand Rapids,
MI
Horizon East.... 05/78 7 - 40 years
Dallas, TX
Kimberly Woods.. 12/77 7 - 40 years
Tucson, AZ
La Mirada....... 01/79 7 - 40 years
Jacksonville,
FL
Lake Nora Arms.. 06/78 7 - 40 years
Indianapolis,
IN
Lantern Ridge... 03/79 7 - 40 years
Richmond, VA
</TABLE>
54
<PAGE>
SCHEDULE III--(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Gross Amount Carried at
Initial Cost Acquisition Close of Period (1)
------------------ -------------------- ---------------------------
Building and Building and Accumulated
Description Encumbrances (2) Land Improvements Improvements Other Land Improvements Total Depreciation
- ---------------- ---------------- ----- ------------ ------------ ------- ------ ------------ ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments--
Continued
Mallard Lake.... $7,827 $ 534 $ 7,099 $ 768 $ -- $ 534 $ 7,867 $ 8,401 $ 5,083
Greensboro, NC
Manchester
Commons........ 9,141 635 4,654 1,113 -- 635 5,767 6,402 3,884
Manchester, MO
Mesa Ridge...... 12,987 1,447 5,788 618 -- 1,447 6,406 7,853 1,516
Mesa, AZ
Nora Pines...... 5,881 221 3,872 440 -- 221 4,312 4,533 2,925
Indianapolis,
IN
Oak Hollow...... 11,327 745 6,118 765 -- 745 6,883 7,628 4,674
Austin, TX
Oak Tree........ 4,233 304 3,543 246 -- 304 3,789 4,093 1,942
Grandview, MO
Olde Towne...... -- 209 3,272 397 -- 209 3,669 3,878 2,209
Middletown, OH
Pheasant Ridge.. 6,501 231 4,682 1,099 -- 231 5,781 6,012 3,587
Bellevue, NE
Pines........... -- 278 3,490 317 -- 278 3,807 4,085 2,492
Little Rock, AR
Place One....... 7,393 784 5,186 1,007 -- 783 6,194 6,977 4,498
Tulsa, OK
Quail Point..... 3,831 184 2,716 249 -- 184 2,965 3,149 2,180
Huntsville, AL
Regency......... 3,343 304 1,865 412 -- 304 2,277 2,581 1,169
Lincoln, NE
Regency Falls... 5,600 888 7,261 1,565 (100)(/3/) 888 8,726 9,614 6,154
San Antonio, TX
Rockborough..... 10,224 702 4,495 1,004 -- 701 5,500 6,201 3,655
Denver, CO
Santa Fe........ -- 529 5,351 266 -- 529 5,617 6,146 3,000
Kansas City, MO
Shadowood....... 4,849 477 3,208 207 -- 477 3,415 3,892 2,170
Addison, TX
Sherwood Glen... 4,700 352 2,550 532 -- 352 3,082 3,434 2,279
Urbandale, IA
Stonebridge..... -- 193 2,076 247 -- 193 2,323 2,516 1,549
Florissant, MO
Summerwind...... 5,631 493 2,990 138 -- 493 3,128 3,621 2,383
Reseda, CA
Sun Hollow...... 4,713 385 4,159 75 -- 385 4,234 4,619 2,591
El Paso, TX
Tanglewood...... 28,537 5,682 18,340 3,797 -- 5,682 22,137 27,819 15,166
Arlington
Heights, IL
Timber Creek.... 4,786 154 2,327 673 -- 154 3,000 3,154 2,135
Omaha, NE
Villa Del Mar... 3,794 387 3,134 116 -- 387 3,250 3,637 1,877
Wichita, KS
Villas.......... 5,634 516 3,948 607 -- 516 4,555 5,071 2,873
Plano, TX
Whispering
Pines.......... 2,273 311 1,255 163 -- 322 1,407 1,729 217
Canoga Park, CA
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement of
DateOofperatiDateon is
Description ConstructionCAcquiredomputed
- ----------------- ---------------------
<S> <C> <C> <C> <C>
Apartments--
Continued
Mallard Lake.... 1974 05/79 7 - 40 years
Greensboro, NC
Manchester
Commons........ 1972 06/78 7 - 40 years
Manchester, MO
Mesa Ridge...... 1972 05/90 7 - 40 years
Mesa, AZ
Nora Pines...... 1970 05/78 5 - 40 years
Indianapolis,
IN
Oak Hollow...... 1974 05/78 7 - 40 years
Austin, TX
Oak Tree........ 1968 03/82 7 - 40 years
Grandview, MO
Olde Towne...... 1968 03/81 7 - 40 years
Middletown, OH
Pheasant Ridge.. 1974 10/78 5 - 40 years
Bellevue, NE
Pines........... 1977 11/77 7 - 40 years
Little Rock, AR
Place One....... 1970 04/77 7 - 40 years
Tulsa, OK
Quail Point..... 1960 08/75 7 - 40 years
Huntsville, AL
Regency......... 1973 05/82 7 - 40 years
Lincoln, NE
Regency Falls... 1974 11/78 7 - 40 years
San Antonio, TX
Rockborough..... 1973 01/78 7 - 40 years
Denver, CO
Santa Fe........ 1964/67 04/83 7 - 40 years
Kansas City, MO
Shadowood....... 1976 02/79 7 - 40 years
Addison, TX
Sherwood Glen... 1970 12/77 7 - 40 years
Urbandale, IA
Stonebridge..... 1975 10/77 7 - 40 years
Florissant, MO
Summerwind...... 1976 02/77 7 - 40 years
Reseda, CA
Sun Hollow...... 1977 09/79 7 - 40 years
El Paso, TX
Tanglewood...... 1974 03/78 7 - 40 years
Arlington
Heights, IL
Timber Creek.... 1974 10/78 5 - 40 years
Omaha, NE
Villa Del Mar... 1971 10/81 7 - 40 years
Wichita, KS
Villas.......... 1977 04/79 7 - 40 years
Plano, TX
Whispering
Pines.......... 1977 12/93 7 - 40 years
Canoga Park, CA
</TABLE>
55
<PAGE>
SCHEDULE III--(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent to Gross Amount Carried at
Initial Cost Acquisition Close of Period (1)
-------------------- -------------------- -----------------------------
Building and Building and Accumulated
Description Encumbrances (2) Land Improvements Improvements Other Land Improvements Total Depreciation
- ---------------- ---------------- ------- ------------ ------------ ------- ------- ------------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments--Continued
Whispering
Pines........... $ 6,131 $ 228 $ 4,330 $ 1,097 $ -- $ 228 $ 5,427 $ 5,655 $ 3,411
Topeka, KS
Windridge....... 11,149 711 5,812 1,665 -- 711 7,477 8,188 5,299
Austin, TX
Windtree I &
II.............. 5,120 460 2,739 181 -- 460 2,920 3,380 2,157
Reseda, CA
Woodlake........ 8,826 585 5,848 1,041 -- 585 6,889 7,474 4,080
Carrollton, TX
Woodsong II..... 5,887 322 3,705 340 -- 322 4,045 4,367 3,203
Smyrna, GA
Woodstock....... 5,654 888 5,193 417 -- 888 5,610 6,498 3,531
Dallas, TX
Office Buildings
56 Expressway... -- 406 3,976 627 (2,386)(/3/) 406 2,217 2,623 1,934
Oklahoma City,
OK
Executive
Court........... -- 271 2,099 732 -- 271 2,831 3,102 1,643
Memphis, TN
Marina Playa.... 7,970 1,237 4,339 5,303 -- 1,237 9,642 10,879 6,360
Santa Clara, CA
Melrose Business
Park............ -- 367 2,674 240 (1,000)(/3/) 367 1,914 2,281 1,372
Oklahoma City,
OK
University
Square.......... -- 562 3,276 186 (1,875)(/3/) 562 1,587 2,149 1,398
Anchorage, AK
Shopping Centers
Cross County
Mall............ 7,031 608 6,468 6,130 -- 608 12,598 13,206 7,899
Mattoon, IL
Cullman......... 496 400 1,830 160 -- 400 1,990 2,390 1,203
Cullman, AL
Harbor Plaza.... 1,781 817 2,587 380 -- 821 2,963 3,784 1,787
Aurora, CO
Katella Plaza... 1,257 -- 2,844 504 -- -- 3,348 3,348 2,203
Orange, CA
Regency Point... 2,045 647 5,156 2,391 -- 1,792 6,402 8,194 2,785
Jacksonville,
FL
Westwood........ 450 -- 5,424 1,017 522(/4/) 522 6,441 6,963 3,056
Tallahassee,
FL
-------- ------- -------- ------- ------- ------- -------- -------- --------
$348,629 $37,687 $281,973 $50,358 $(4,839) $39,400 $325,779 $365,179 $197,770
======== ======= ======== ======= ======= ======= ======== ======== ========
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement of
DateOofperatiDateon is
Description ConstructionCAcquiredomputed
- ----------------- ---------------------
<S> <C> <C> <C> <C>
Apartments--Continued
Whispering
Pines........... 1972 02/78 7 - 40 years
Topeka, KS
Windridge....... 1974 09/78 7 - 40 years
Austin, TX
Windtree I &
II.............. 1976 11/76 7 - 40 years
Reseda, CA
Woodlake........ 1979 08/78 7 - 40 years
Carrollton, TX
Woodsong II..... 1975 08/80 7 - 40 years
Smyrna, GA
Woodstock....... 1977 12/78 7 - 40 years
Dallas, TX
Office Buildings
56 Expressway... 1981 03/82 7 - 40 years
Oklahoma City,
OK
Executive
Court........... 1980 09/82 5 - 40 years
Memphis, TN
Marina Playa.... 1972 12/76 5 - 40 years
Santa Clara, CA
Melrose Business
Park............ 1980 03/82 5 - 40 years
Oklahoma City,
OK
University
Square.......... 1981 12/81 5 - 40 years
Anchorage, AK
Shopping Centers
Cross County
Mall............ 1971 08/79 5 - 40 years
Mattoon, IL
Cullman......... 1979 02/79 7 - 40 years
Cullman, AL
Harbor Plaza.... 1979 09/81 7 - 40 years
Aurora, CO
Katella Plaza... 1971 12/80 7 - 40 years
Orange, CA
Regency Point... 1982 06/84 5 - 40 years
Jacksonville,
FL
Westwood........ 1980 10/83 5 - 40 years
Tallahassee,
FL
</TABLE>
- --------------------------------------------------------------------------------
(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Does not include mortgages payable totaling $2,472 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.
(4) Acquisition of ground lease.
56
<PAGE>
SCHEDULE III--(Continued)
NATIONAL REALTY, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of Real Estate
Balance at January 1,............................. $435,215 $447,968 $442,439
Improvements..................................... 2,820 5,004 5,529
Sales............................................ (72,856) (17,757) --
-------- -------- --------
Balance at December 31,........................... $365,179 $435,215 $447,968
======== ======== ========
Reconciliation of Accumulated Depreciation
Balance at January 1, ............................ $223,791 $223,204 $212,957
Depreciation..................................... 9,691 10,338 $ 10,247
Sales............................................ (35,712) (9,751) --
-------- -------- --------
Balance at December 31, .......................... $197,770 $223,791 $223,204
======== ======== ========
</TABLE>
57
<PAGE>
SCHEDULE IV
NATIONAL REALTY, L.P. SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount of
Carrying Loans
Amounts Subject to
Face of Mortgage Delinquent
Final Amount Net Principal
Interest Maturity Prior of of or
Description Rate Date Periodic Payment Terms Liens Mortgage Discount(1) Interest
----------- -------- -------- --------------------------------- ----- -------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Loans
Centura Holdings,
LLC(/3/)............... 15.00% 08/00 All principal and interest $ -- $6,020 $6,020 $ --
Secured by 6.4 acres of due at maturity.
developed land in
Dallas, TX.
Centura Tower, Ltd...... 12.00% 01/03 Payments based on net -- 23,796 7,975 --
Secured by 2.244 acres revenues after
of undeveloped land in the land is developed.
Dallas, TX, on which an
office building is
being built.
Cuchara Partners, Ltd.
and Ski Rio Partners,
Ltd.(/3/).............. 16.00% 06/99 All principal and interest -- 4,163 4,163 --
Secured by approximately due at maturity.
1,000 acres of land in
Huerfano County, CO and
a promissory note
secured by 2,623 acres
of land in Taos, NM
Dallas Parkway
Properties, Inc........ 14.00% 08/99 Monthly interest only. -- 2,800 2,950 2,950
Secured by an office
building in Addison,
TX.
Ellis Development
Company, Inc........... 14.00% 08/99 All principal and interest -- 946 942 --
Secured by 4.5 acres of are due at maturity.
land in Abilene, TX;
collateral assignment
of a $220,000 note; and
the guarantees of the
the borrowers.
Highway 544 Partners,
L.P.(/3/).............. 18.00% 04/99 Quarterly interest only at 12% -- 1,500 1,450 --
Secured by 49 acres of per annum, with deferred
undeveloped land in interest paid annually in April.
Plano, TX, a pledge of
100% of the partnership
interest and the
personal guarantee of
the owner of Highway
Partner's general
partner.
Stratford & Graham
Developers,
L.L.C.(/3/)............ 15.00% 07/99 All principal and interest -- 3,450 3,820 --
Secured by 1,485 acres due at maturity or upon sale.
of undeveloped land in
Riverside County, CA.
Varner Road Partners,
L.L.C.. ............... 15.00% 11/99 All principal and interest -- 2,150 2,112 --
Secured by 129.77 acres due at maturity or upon sale.
of land in Riverside
County, CA.
Wraparound Mortgage Loan
Bridgeview.............. 9.00% 02/00 Monthly interest only. May prepay 2,472 5,500 5,391 5,500
Secured by shopping to 9.50% up to 25% of the wrap equity
center in La Crosse, upon 60 days written notice
WI. without penalty.
</TABLE>
58
<PAGE>
SCHEDULE IV--(Continued)
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount of
Carrying Loans
Amounts Subject to
Face of Mortgage Delinquent
Final Amount Net Principal
Interest Maturity Prior of of or
Description Rate Date Periodic Payment Terms Liens Mortgage Discount(1) Interest
----------- -------- -------- -------------------------- ----- -------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Junior Mortgage Loans
JNC Enterprises, Ltd.- 14.00% 10/99 All principal and interest $-- $1,045 $1,045 $--
Field St.(/2/).........
Secured by a second lien are due at maturity.
on 3.5 acres of land in
Dallas, TX.
JNC Enterprises, Ltd.-
Frisco Panther All principal and interest
Partners, Ltd.(/2/).... 14.00% 10/99 due at maturity. -- 2,100 2,083 --
Secured by a second lien
on 408.23 acres of land
in Frisco, TX.
JNC Enterprises, Ltd.-
Line of Credit(/2/).... 12.00% 12/99 All principal and interest -- 5,000 3,250 --
Secured by a second lien are due at maturity.
on 1,791 acres of land
in Denton County, TX
and a second lien on
220 acres of land in
Tarrant County, TX.
JNC Enterprises, Ltd.-
Summer St.(/2/)........ 14.00% 10/99 All principal and interest -- 1,045 1,042 --
Secured by a second lien are due at maturity.
on 2.92 acres of land
in Dallas, TX.
Warwick of Summit,
Inc. .................. 14.00% 12/99 All principal and interest -- 1,765 1,777 --
Secured by a second lien due at maturity.
on a shopping center in
Rhode Island and a
pledge of stock.
Other
American Realty Trust, Monthly interest only.
Inc.................... 12.00% 11/03 -- 50,000 49,844 --
Secured by second liens
on six properties
located in Minnesota,
Mississippi and Texas,
the stock of ART
Holdings, Inc. and the
stock of NMC.
14875 Landmark(/3/)..... 12.00% 12/99 Monthly interest only. -- 1,152 1,152 --
Secured by a pledge of
partnership interest in
Landmark which owns
commercial real estate
in Addison, TX.
Bordeaux Investments.... 14.00% 12/99 All principal and interest -- 1,591 1,541 --
Secured by (1) a 100% are due at maturity.
limited partnership
interest in Bordeaux,
which owns a shopping
center in Oklahoma
City, OK; (2) 100% of
the stock of Bordeaux
Investments One, Inc.,
which owns 6.5 acres of
undeveloped land in
Oklahoma City, OK; and
(3) the personal
guarantees of the
Bordeaux partners.
JNC Enterprises, Ltd. -
Frisco Bridges(/2/).... 12.00% 02/99 All principal and interest -- 3,700 3,680 --
Secured by a pledge of a are due at maturity.
contract to purchase
387 acres of land in
Collin County, TX.
La Quinta Land Partners,
LLC.................... 10.00% 11/98 All principal and interest -- 635 385 385
Secured by interest are due at maturity.
bearing accounts held
by escrow agent pending
purchase of land in CA.
</TABLE>
59
<PAGE>
SCHEDULE IV--(Continued)
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
<TABLE>
<CAPTION>
Principal
Carrying Amount of
Amounts Loans
of Subject to
Face Mortgage Delinquent
Final Amount Net of Principal
Interest Maturity Prior of Discount or
Description Rate Date Periodic Payment Terms Liens Mortgage (1) Interest
----------- -------- -------- --------------------------------------- ------- -------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Other--(Continued)
Mangione................ 15.00% 02/99 All principal and interest $ -- $ 360 $ 360 $ --
Secured by 1,100,000 are due at maturity.
Class A limited
partnership units in a
company; which are
convertible into
preferred stock of a
publicly traded
company.
Preston/Lomo Alto, Monthly interest only.
L.L.C... 12.00% 11/99 -- 1,656 1,656 --
Secured by a pledge of
partnership interests in
two partnerships which
own commercial property
in Dallas and Plano, TX.
RB Land and Cattle,
LLC.................... 10.00% 12/98 All principal and interest -- 350 365 365
Secured by pledge of a are due at maturity.
note secured by a 7,200
acre ranch in Foard
County, TX.
Ward.................... 12.00% 09/99 Monthly interest only. -- 700 740 --
Secured by a first lien
on an oil, gas and
mineral lease in
Anderson County, TX and
by a second lien on a
ranch in Henderson
County, TX.
Unsecured
NRLP Management Corp.... LIBOR + 02/09 Annual payments of interest plus -- 12,241 12,241 --
2.00% $500,000 in each of the first
3 years, $750,000 in each of the
next 3 years, $1.0 million in each
of the next 3 years, with all remaining
principal and interest due at maturity.
------- -------- --------- ------
$ 2,472 $133,665 115,984 $9,200
======= ======== ======
Interest receivable..... 2,882
Deferred gains.......... (2,431)
Allowance for estimated
losses................. (1,910)
---------
$ 114,525
=========
</TABLE>
- --------
(1) The aggregate cost for financial statement purposes approximates that for
federal tax purposes.
(2) Cross-collateralized and cross-defaulted.
(3) Cross-collateral securing a $6.1 million note payable.
60
<PAGE>
SCHEDULE IV--(Continued)
NATIONAL REALTY, L.P.
MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Balance at January 1,............................... $ 40,318 $30,908 $27,863
Additions
Amortization of discount........................... -- 34 45
Funding of notes receivable........................ 98,716 22,898 3,500
Deductions
Collection of principal............................ (23,050) (13,522) (500)
-------- ------- -------
Balance at December 31,............................. $115,984 $40,318 $30,908
======== ======= =======
</TABLE>
61
<PAGE>
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 NRLP Management Corp. ("NMC" or the
"General Partner"). The 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. Basic Capital Management, Inc. ("BCM"), an affiliate of the
General Partner, 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 Directors of NMC 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.
Directors
Karl L. Blaha: Age 51, Director (since December 1998) and Executive Vice
President--Commercial Asset Management (since January 1998) of NMC.
Executive Vice President--Commercial Asset Management (since July 1997),
and Executive Vice President and Director of Commercial Management (April
1992 to August 1995) of BCM, Syntek Asset Management, Inc. ("SAMI"),
Continental Mortgage and Equity Trust ("CMET"), Income Opportunity Realty
Investors, Inc. ("IORI") and Transcontinental Realty Investors, Inc.
("TCI"); Director (since June 1996), President (since October 1993) and
Executive Vice President and Director of Commercial Management (April 1992
to October 1993) of American Realty Trust, Inc. ("ART"); Director (since
November 1998) of SAMI and Garden National Realty, Inc.; Executive Vice
President (October 1992 to July 1997) of Carmel Realty, Inc. ("Carmel
Realty"), a company owned by First Equity Properties, Inc. ("First
Equity"), a company 50% owned by BCM; Director and President (since 1996)
of First Equity; Executive Vice President and Director of Commercial
Management (April 1992 to February 1994) of National Income Realty Trust
("NIRT") and Vinland Property Trust ("VPT"); Partner--Director of National
Real Estate Operations (August 1988 to March 1992) of First Winthrop
Corporation; and Vice President (April 1984 to August 1988) of Southmark
Corporation ("Southmark").
Collene Currie: Age 50, Director (since April 1998).
Vice President and Senior Relationship Manager (since February 1996) of
NationsBank Private Client Group of Dallas; Director (since February 1999)
of ART; Director of Marketing and Communications (October 1993 to January
1999) of the Dallas Opera; and Business Transformation Consultant (August
1988 to October 1993) for IBM.
Randall K. Gonzalez: Age 36, Director (since April 1998).
Chief Executive Officer and President (since October 1989) of The Gonzalez
Company, formerly TMC Realty Advisors (retail and multi-family development
and investment and property management services); shopping center developer
(1987 to 1989) with Dunning Development Co.; real estate broker (1983 to
1987)
62
<PAGE>
with Hammond-Williams; Director (1989 to 1993) of IORI and TCI; Trustee
(1989 to 1993) of CMET; and Director (since 1981) of AGE Refining, Inc.
Randall K. Gonzalez is the son of Al Gonzalez, who serves as a director of
ART.
Board Committees
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 General Partner. The Fairness Committee has had no members since August
1995.
Audit Committee. An Audit Committee was established effective August 3,
1990, pursuant to the Moorman Settlement Agreement. Until January 11, 1999,
the chairman and only member of the Audit Committee was Harry J. Reidler, an
attorney in private practice in Englewood, New Jersey. On January 11, 1999,
the Board of Directors of NMC established a new Audit Committee. The members
of the Audit Committee are Ms. Currie and Mr. Gonzalez.
Mr. Reidler has performed legal services for the Partnership.
Executive Officers
The following persons currently serve as executive officers of NMC: Randall
M. Paulson, President; Karl L. Blaha, Executive Vice President--Commercial
Asset Management; Bruce A. Endendyk, Executive Vice President; Thomas A.
Holland, Executive Vice President and Chief Financial Officer; and Steven K.
Johnson, Executive Vice President--Residential Asset Management. Their
positions with NMC are not subject to a vote of unitholders. Their ages, terms
of service, all positions and offices with NMC, other principal occupations,
business experience and directorships with other companies during the last
five years or more are set forth below (except for Mr. Blaha).
Randall M. Paulson: Age 52, President (since January 1998) and Director
(January 1998 to December 1998) of NMC.
President (since August 1995) and Executive Vice President (January 1995 to
August 1995) of CMET, IORI, TCI and SAMI; President (since August 1995) and
Executive Vice President (October 1994 to August 1995) of BCM; Executive
Vice President (since January 1995) of ART; Director (August 1995 to
November 1998) of SAMI; 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.; and President (1990)
of Paulson Realty Group.
Bruce A. Endendyk: Age 50, Executive Vice President (since January 1998) of
NMC.
President (since January 1995) of Carmel Realty; Executive Vice President
(since January 1995) of BCM, ART, CMET, IORI, TCI and SAMI; Management
Consultant (November 1990 to December 1994); Executive Vice President
(January 1989 to November 1990) of Southmark; and President and Chief
Executive Officer (March 1988 to January 1989) of Southmark Equities
Corporation.
63
<PAGE>
Thomas A. Holland: Age 56, Executive Vice President and Chief Financial
Officer (since January 1998) of NMC.
Executive Vice President and Chief Financial Officer (since August 1995),
Secretary (since February 1997) and Senior Vice President (July 1990 to
August 1995) of CMET, IORI, TCI and SAMI; Executive Vice President and
Chief Financial Officer (since August 1995) and Senior Vice President and
Chief Accounting Officer (July 1990 to August 1995) of BCM and ART; and
Senior Vice President and Chief Accounting Officer (July 1990 to February
1994) of NIRT and VPT.
Steven K. Johnson: Age 41, Executive Vice President--Residential Asset
Management (since August 1998).
Executive Vice President--Residential Asset Management (since August 1998)
and Vice President (August 1990 to August 1991) of BCM, SAMI, ART, CMET,
IORI and TCI; Chief Operating Officer (January 1993 to August 1998) of
Garden Capital, Inc.; Executive Vice President (December 1994 to August
1998) of Garden Capital Management, Inc.; Vice President (August 1991 to
January 1993) of SHL Properties Realty Advisors, Inc. and SHL Acquisition
Corporation II and III; and Vice President (August 1990 to August 1991) of
NIRT and VPT.
Officers
Although not executive officers of NMC, the following persons currently
serve as officers of NMC: Robert A. Waldman, Senior Vice President and General
Counsel; and Drew D. Potera, Vice President and Treasurer. Their positions
with NMC are not subject to a vote of unitholders. Their ages, terms of
service, all positions and offices with NMC, other principal occupations,
business experience and directorships with other companies during the last
five years or more are set forth below.
Robert A. Waldman: Age 46, Senior Vice President, Secretary and General
Counsel (since January 1998) of NMC.
Senior Vice President and General Counsel (since January 1995), Vice
President (December 1990 to January 1995) and Secretary (December 1993 to
February 1997) of CMET, IORI, TCI and SAMI; Vice President and Corporate
Counsel (November 1989 to November 1994), and Secretary (since November
1989) of BCM; and Senior Vice President and General Counsel (since January
1995), Vice President (April 1990 to January 1995) and Secretary (since
December 1990) of SAMI.
Drew D. Potera: Age 39, Vice President and Treasurer (since January 1998) of
NMC.
Vice President (since December 1996) and Treasurer (since December 1990) of
CMET, IORI, TCI and SAMI; Vice President (since December 1996); Vice
President, Treasurer and Securities Manager (since July 1990) of BCM; Vice
President and Treasurer (since February 1992) of SAMI; Treasurer (December
1990 to February 1994) of NIRT and VPT; and Financial Consultant with
Merrill Lynch, Pierce, Fenner & Smith Incorporated (June 1985 to June
1990).
In addition to the foregoing officers, NMC has several vice presidents and
assistant secretaries who are not listed herein.
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 National Realty's General Partner, and any persons holding more
than 10% of National Realty's units of limited partner interest are required
to report their ownership of National Realty'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 National Realty
is required to report any failure to file by these dates during 1998. All of
these filing requirements were satisfied by the directors and executive
officers of National Realty's General Partner
64
<PAGE>
and 10% holders. In making these statements, National Realty has relied on the
written representations of the directors and executive officers of National
Realty's General Partner and its ten percent holders and copies of the reports
that they have filed with the Commission.
Administrative Agent. BCM 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, leasing 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.
<TABLE>
<S> <C>
Mickey N. Phillips...... Director
Ryan T. Phillips........ Director
Randall M. Paulson...... President
Karl L. Blaha........... Executive Vice President--Commercial Asset Management
Bruce A. Endendyk....... Executive Vice President
Thomas A. Holland....... Executive Vice President and Chief Financial Officer
Steven K. Johnson....... Executive Vice President--Residential Asset Management
A. Cal Rossi, Jr........ Executive Vice President
Cooper B. Stuart........ Executive Vice President
Clifford C. Towns, Jr... Executive Vice President--Finance
Dan S. Allred........... Senior Vice President--Land Development
James D. Canon, III..... Senior Vice President--Portfolio Manager
Robert A. Waldman....... Senior Vice President, Secretary and General Counsel
Drew D. Potera.......... Vice President, Treasurer and Securities Manager
</TABLE>
Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is Gene
E. Phillips' son.
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 (1) $50,000 per year to each member of the
Oversight Committee plus $48,000 per year to an analyst engaged by the
Oversight Committee, (2) $4,000 per year to each member of the Fairness and
Audit Committees and (3) 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."
NMC also has no employees, payroll or benefit plans and pays no compensation
to its officers. It does, however, pay compensation to the Independent
Directors of NMC, its general partner. Each Independent Director receives
compensation in the amount of $5,000 per year, plus reimbursement for
expenses.
The Moorman Settlement Agreement provided 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 $500,000 per
year, for any such reimbursement of salaries to be deferred until such time as
a Target,
65
<PAGE>
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,
1998. Mr. Friedman resigned as a general partner of SAMLP on March 4, 1994.
SAMLP resigned as General Partner of the Partnership on December 18, 1998.
Mr. Phillips may indirectly benefit from other payments made by the
Partnership to certain related parties.
Mr. Reidler received $4,000 in 1998 for serving on the Partnership's Audit
Committee. See ITEM 10. "GENERAL PARTNER OF THE REGISTRANT AND EXECUTIVE
OFFICERS OF THE REGISTRANT'S GENERAL PARTNER."
Pursuant to an agreement with the Partnership, Invenex, of which Mr. Baker
is a principal, received $15,000 per month from December 1997 until the
agreement was terminated in November 1998. The Partnership also reimbursed
Invenex for its reasonable costs and expenses incurred in negotiating and
completing the transaction contemplated under the agreement, conducting due
diligence, inspecting properties and retaining experts. In addition, Invenex
received payments totaling $480,000 from SAMLP in connection with the
compromise of any settlement of any claims relating to the termination of the
agreement.
[This space intentionally left blank.]
66
<PAGE>
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 Equity Index ("DJ Equity Index") and the Dow Jones Real Estate
Index ("DJ Real Estate Index"). The comparison assumes that $100 was invested
on December 31, 1993 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.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1998 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
The Partnership 100.00 127.39 158.40 193.33 364.58 370.07
DJ Equity Index 100.00 100.70 138.69 170.63 228.57 294.05
DJ Real Estate Index 100.00 95.11 117.54 157.80 188.75 147.02
</TABLE>
67
<PAGE>
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
5, 1999.
<TABLE>
<CAPTION>
Amount and Nature
Amount and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
--------------------- ----------------- ----------
<S> <C> <C>
American Realty Trust, Inc......................... 3,502,669 55.4%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc...................... 480,775 7.6%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
</TABLE>
- --------
(1) Percentage is based upon 6,321,609 units of limited partner interest
outstanding at March 5, 1999.
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 NMC and
the executive officers and directors of NMC, as of the close of business on
March 5, 1999.
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner Units Units (1)
------------------------ --------- ----------
<S> <C> <C>
NMC and the executive officers and directors of NMC
as a group (7 individuals)... 3,983,444(/2/) 63.0%
</TABLE>
- --------
(1) Percentage is based upon 6,321,609 units of limited partner interest
outstanding as of March 5, 1999.
(2) Includes 3,502,669 units owned by ART and 480,775 units owned by BCM, of
which the directors and executive officers of NMC, ART and BCM may be
deemed to be the beneficial owners by virtue of their positions as
directors and executive officers of NMC, ART and BCM. The directors and
executive officers of NMC, 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. NMC is the
general partner of, and owner of a 1% beneficial interest in, each of National
Realty and the Operating Partnership.
On December 18, 1998, NMC was elected General Partner of National Realty and
the Operating partnership, replacing SAMLP. NMC is a wholly-owned subsidiary
of ART. Gene E. Phillips and SAMI are the general partners of SAMLP, Mr.
Phillips with a combined 1.95% general and limited partner interest and SAMI
with .10% general partner interest. Mr. Friedman has 1.95% limited partner
interest in SAMLP and ART has a 96% limited partner interest in SAMLP. SAMI
serves as the Managing General Partner of SAMLP. SAMLP resigned as General
Partner of National Realty and the Operating Partnership on December 18, 1998.
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% 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 (1) First Equity, which is 50% owned
by a subsidiary of BCM,
68
<PAGE>
(2) Mr. Phillips and (3) 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, Blaha, Endendyk, Holland and Johnson 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,
Blaha, Endendyk, Holland and Johnson serve as executive officers of CMET,
IORI, TCI and ART. BCM serves as advisor to CMET, IORI, TCI and ART.
Related Party Transactions
The Partnership has engaged in business transactions with certain related
parties and may continue to do so. 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. 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 nine of the Partnership's commercial properties to Carmel Realty,
which is a company owned by First Equity. 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. and Carmel Realty also perform similar services for
ART, CMET, IORI and TCI. See NOTE 10. "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. The Fairness Committee has had no members since August 1995.
Related Party. In November and December 1998, GCLP funded $50.0 million of
$95.0 million loan commitment to ART. The loan is secured by second liens on
six ART properties in Minnesota, Mississippi and Texas the stock of ART
Holdings, Inc., a wholly-owned subsidiary of ART that owns 3,349,535 National
Realty units of limited partner interest and by the stock of NMC. The loan
bears interest at 12.0% per annum, requires monthly payments of interest only
and matures in November 2003. In January 1999, the Partnership funded an
additional $6.0 million.
In December 1998, in connection with the Moorman lawsuit settlement, NMC, a
wholly-owned subsidiary of ART, and the new general partner of the
Partnership, assumed responsibility for repayment to the Partnership of the
$12.2 million paid by the Partnership to the Moorman Class Members and legal
counsel. The loan bears interest at the 90 day LIBOR (London InterBank Offered
Rate) plus 2.0% per annum, currently 7.0% per annum, adjusted every 90 days
and requires annual payments of accrued interest plus principal payments of
$500,000 in each of the first three years, $750,000 in each of the next three
years, $1.0 million in each of the next three years, with payment in full of
the remaining balance in the tenth year. The note is guaranteed by ART. The
note matures upon the earlier of the liquidation or dissolution of the
Partnership, NMC ceasing to be the General Partner or ten years from March 31,
1999, the date of the first cash distribution to the Moorman Class Members.
See ITEM 3. "LEGAL PROCEEDINGS."
69
<PAGE>
In February 1999, GCLP funded a $5.0 million unsecured loan to Davister
Corp., which at December 31, 1998 owned approximately 15.8% of the outstanding
shares of ART's common stock. The loan bears interest at 12.0% per annum and
matures in February 2000. All principal and interest are due at maturity. The
loan is guaranteed by BCM.
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, 1998, no payments had been received on such
note. At December 31, 1998, accrued and unpaid interest on the note totaled
$7.2 million. In connection with the election and taking office of NMC as the
new general partner on December 18, 1998, NMC assumed liability under the
note.
70
<PAGE>
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, 1998 and 1997
Consolidated Statements of Operations--Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Changes in Partners' Equity (Deficit)--
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--Years Ended December 31,
1998, 1997 and 1996
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.
3. Exhibits
The following documents are filed as Exhibits to this Report:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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 Restated Certificate of Limited Partnership of Natrional Realty, L.P.
dated as of January 22, 1996, filed herewith.
3.2 Certificate of Amendment to Amended and Restated Certificate of
Limited Partnership of National Realty, L.P., filed herewith.
3.3 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).
3.4 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).
3.5 Second Amendment to First Amended and Restated Agreement of Limited
Partnership of National Realty, L.P. dated as of December 18, 1998,
filed herewith.
3.6 Third Amendment to First Amended and Restated Agreement of Limited
Partnership of National Realty, L.P. dated as of December 18, 1998,
filed herewith.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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).
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.
99.0 Second Restated Amended Agreement of Limited Partnership of National
Operating, L.P. dated as of July 29, 1987 (incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement No. 33-16215
on Form S-4).
99.1 Certificate of Amendment of Limited Partnership Agreement of National
Operating, L.P. dated as of May 14, 1990, filed herewith.
99.2 Second Amendment to Second Restated and Amended Agreement of Limited
Partnership of National Operating, L.P. dated as of December 18, 1998,
filed herewith.
99.3 Third Amendment to Second Restated and Amended Agreement of Limited
Partnership of National Operating, L.P. dated as of December 18, 1998,
filed herewith.
99.4 Amended and Restated Certificate of Limited Partnership of National
Operating, L.P. dated as of December 18, 1998, filed herewith.
99.5 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).
99.6 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).
99.7 Agreement for Establishment of Class Distribution Fund and Election of
Successor General Partner dated December 15, 1997, among National
Realty, L.P., Syntek Asset Management, L.P., National Realty, L.P.
Oversight Committee, Joseph B. Moorman, Invenex and Moorman Class
Counsel (incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K, dated December 15, 1997).
99.8 Agreement for Cash Distribution and Election of Successor General
Partner dated as of July 15, 1998, filed herewith.
</TABLE>
(b) Reports on Form 8-K
None.
72
<PAGE>
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:
NRLP MANAGEMENT CORP.
/s/ Randall M. Paulson
By: _________________________________
Randall M. Paulson
President
/s/ Thomas A. Holland
By: _________________________________
Thomas A. Holland
Executive Vice Presidentand Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of NRLP
Management Corp., as General Partner of the Registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
NRLP MANAGEMENT CORP.
<S> <C> <C>
/s/ Karla L. Blaha Director May 20, 1999
______________________________________
Karla L. Blaha
/s/ Collene Currie Director May 20, 1999
______________________________________
Collene Currie
/s/ Randall K. Gonzalez Director May 20, 1999
______________________________________
Randall K. Gonzalez
</TABLE>
73
