-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RiEdS3WnGNIrHjyBgv/bDldTrZIIWVtfOH9fINIoUtdc1vKMjL2i2JwhHLcNbLRF o9OijaajFVj3mFpQxssTTw== 0000950134-96-004066.txt : 19960813 0000950134-96-004066.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950134-96-004066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL REALTY L P CENTRAL INDEX KEY: 0000819671 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 752163175 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09648 FILM NUMBER: 96608149 BUSINESS ADDRESS: STREET 1: 10670 N CENTRAL EXPRWY STREET 2: SUITE 300 CITY: DALLAS STATE: TX ZIP: 75231 BUSINESS PHONE: 2146924700 MAIL ADDRESS: STREET 1: 10670 N CENTRAL EXPRWY STREET 2: SUITE 300 CITY: DALLAS STATE: TX ZIP: 75231 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1996 ------------- Commission File Number 1-9648 ------ NATIONAL REALTY, L.P. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 75-2163175 -------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10670 North Central Expressway, Suite 300, Dallas, Texas 75231 - --------------------------------------------------------- ------------- (Address of Principal Executive Office) (Zip Code) (214) 692-4700 ------------------------------ (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Units of Limited Partner Interest 6,340,415 - --------------------------------- --------------------------------- (Class) (Outstanding at July 26, 1996) 1 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying Consolidated Financial Statements have not been examined by independent certified public accountants, but in the opinion of the management of National Realty, L.P., all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of consolidated results of operations, consolidated financial position and consolidated cash flows at the dates and for the periods indicated, have been included. NATIONAL REALTY, L.P. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1996 1995 -------------- -------------- (dollars in thousands) Assets ------ Real estate held for investment Land.................................................................... $ 50,208 $ 51,342 Buildings and improvements.............................................. 394,119 391,097 -------------- -------------- 444,327 442,439 Less - accumulated depreciation......................................... (217,997) (212,957) -------------- -------------- 226,330 229,482 Notes and interest receivable, net of deferred gains of $15,787 in 1996 and 1995....................................... 13,640 12,156 Less - allowance for estimated losses................................... (1,910) (1,910) -------------- -------------- 11,730 10,246 Cash and cash equivalents................................................ 4,886 20,699 Accounts receivable (including $4,000 in 1996 from affiliates)........................................................ 5,181 1,220 Prepaid expenses (including $174 in 1996 to affiliates)............................................................. 1,186 1,253 Escrow deposits and other assets......................................... 16,145 14,930 Marketable equity securities of affiliate, at market.................................................................. 942 722 Deferred financing costs................................................. 13,363 14,378 -------------- -------------- $ 279,763 $ 292,930 ============== ==============
The accompanying notes are an integral part of these Consolidated Financial Statements. 2 3 NATIONAL REALTY, L.P. CONSOLIDATED BALANCE SHEETS - Continued
June 30, December 31, 1996 1995 -------------- -------------- (dollars in thousands) Liabilities and Partners' Equity (Deficit) ------------------------------------------ Liabilities Notes and interest payable...................... $ 324,458 $ 326,500 Pension notes and related interest payable...... 12,732 12,034 Accrued property taxes.......................... 5,853 6,792 Accounts payable and other liabilities (including $276 in 1995 to affiliates)........ 4,810 11,966 Tenant security deposits........................ 3,015 2,908 -------------- -------------- 350,868 360,200 Commitments and contingencies Redeemable General Partner Interest............... 31,997 31,997 Partners' equity (deficit) General Partner................................. 2,639 2,656 Limited Partners (6,417,683 units in 1996 and 6,417,981 units in 1995)...................... (70,242) (66,204) Unrealized gain on marketable equity securities. 673 453 -------------- -------------- (66,930) (63,095) Less - Redeemable General Partner Interest...... (36,172) (36,172) -------------- -------------- (103,102) (99,267) -------------- -------------- $ 279,763 $ 292,930 ============== ==============
The accompanying notes are an integral part of these Consolidated Financial Statements. 3 4 NATIONAL REALTY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------------- --------------------------------- 1996 1995 1996 1995 -------------- -------------- --------------- ------------- (dollars in thousands, except per unit) Revenues Rents................................. $ 27,171 $ 26,856 $ 54,185 $ 53,104 Interest.............................. 764 686 1,510 1,351 -------------- -------------- --------------- ------------- 27,935 27,542 55,695 54,455 Expenses Interest.............................. 8,433 8,646 16,860 17,161 Depreciation & amortization........... 2,530 2,526 5,040 5,086 Property taxes & insurance............ 3,082 3,005 6,175 5,988 Utilities............................. 2,833 2,712 5,803 5,662 Property-level payroll costs.......... 1,448 1,540 3,118 3,248 Repairs and maintenance............... 6,578 6,677 12,070 12,037 Other operating expenses.............. 972 1,078 2,070 2,246 Property management fees.............. 1,172 1,149 2,327 2,279 General and administrative............ 1,265 1,586 3,078 3,329 -------------- -------------- --------------- ------------- 28,313 28,919 56,541 57,036 -------------- -------------- --------------- ------------- Net (loss)............................. $ (378) $ (1,377) $ (846) $ (2,581) ============== ============== =============== ============= Earnings per unit Net (loss)............................ $ (.06) $ (.22) $ (.14) $ (.40) ============== ============== ============== ============= Weighted average units of limited partner interest used in computing earnings per unit.............................. 6,417,832 6,418,140 6,417,832 6,418,176 ============== ============== ============== =============
The accompanying notes are an integral part of these Consolidated Financial Statements. 4 5 NATIONAL REALTY, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT) FOR THE SIX MONTHS ENDED JUNE 30, 1996
Unrealized Gain On Redeemable Marketable General Partners' General Limited Equity Partner Equity Partner Partners Securities Interest (Deficit) ------------- ------------- ------------- ------------- ------------- (dollars in thousands) Balance, January 1, 1996......... $ 2,656 $ (66,204) $ 453 $ (36,172) $ (99,267) Distributions ($.50 per unit).... - (3,209) - - (3,209) Unrealized gain on marketable equity securities of affiliate. - - 220 - 220 Net (loss)....................... (17) (829) - - (846) ------------- ------------- ------------- ------------- ------------- Balance, June 30, 1996........... $ 2,639 $ (70,242) $ 673 $ (36,172) $ (103,102) ============= ============= ============= ============= =============
The accompanying notes are an integral part of these Consolidated Financial Statements. 5 6 NATIONAL REALTY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, ----------------------------------- 1996 1995 -------------- ------------- (dollars in thousands) Cash Flows From Operating Activities Rents collected................................. $ 54,401 $ 53,262 Interest collected.............................. 1,432 1,240 Interest paid................................... (15,869) (15,273) Payments for property operations................ (33,369) (33,694) General and administrative expenses paid........ (2,999) (3,286) -------------- -------------- Net cash provided by operating activities..... 3,598 2,249 Cash Flows From Investing Activities Acquisition of real estate...................... - (463) Real estate improvements........................ (1,888) (1,228) Collections on notes receivable................. - 10 Funding of note receivable...................... (1,485) - -------------- -------------- Net cash (used in) investing activities....... (3,373) (1,681) Cash Flows From Financing Activities Proceeds from notes payable..................... 2,400 7,957 Payoffs on notes payable........................ (2,331) Advances from (repayments to affiliates, net.... (4,277) 1,343 Payments on notes payable....................... (2,405) (8,854) Deferred financing costs........................ (70) (175) Distributions to unitholders.................... (9,355) (855) -------------- -------------- Net cash (used in) financing activities....... (16,038) (584) -------------- -------------- Net (decrease) in cash and cash equivalents... (15,813) (16) Cash and cash equivalents at beginning of period.. 20,699 3,748 -------------- -------------- Cash and cash equivalents at end of period........ $ 4,886 $ 3,732 ============== ============== Reconciliation of net (loss) to net cash provided by operating activities Net (loss)........................................ $ (846) $ (2,581) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation and amortization................... 5,040 5,063 Decrease in other assets........................ 807 953 (Increase) in interest receivable............... (25) (19) Increase in interest payable.................... 163 681 (Decrease) in other liabilities................. (1,541) (1,848) -------------- -------------- Net cash provided by operating activities..... $ 3,598 $ 2,249 ============== ============== Schedule of noncash financing activities Unrealized gain on marketable equity securities of affiliate.................................. $ 220 $ 6 Note payable from acquisition of real estate.... - 1,200
The accompanying notes are an integral part of these Consolidated Financial Statements. 6 7 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying Consolidated Financial Statements of National Realty, L.P. and consolidated entities (the "Partnership") have been prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the six-month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K"). Units and per unit data have been restated for the three for one forward unit split effected January 2, 1996. NOTE 2. EARNINGS PER UNIT Net (loss) per unit of limited partner interest (per "unit") is computed based upon the weighted average number of units outstanding during each period. The limited partners of National Realty, L.P. ("National Realty") have a 99% interest and the general partner, Syntek Asset Management, L.P. (the "General Partner" or "SAMLP"), has an aggregate 1% interest in the net income, net loss and distributions of National Realty. National Realty is allocated 99% of the net income or net loss of National Operating, L.P. ("NOLP" or the "Operating Partnership"), and the General Partner is allocated an aggregate 1% of the net income or net loss of the Operating Partnership. The 1% General Partner interest in each of National Realty and the Operating Partnership is equal to a 1.99% interest on a combined basis. Accordingly, net (loss) per unit is derived by dividing 98.01% of the net (loss) in each period by the respective weighted average units of limited partner interest. NOTE 3. NOTES RECEIVABLE In June 1996, the Partnership funded a $1.5 million to JNC Enterprises, Ltd. The loan is secured by a first lien on 100 acres of land in Denton, Texas and by a second lien on 182 acres of land in McKinney, Texas. The loan bears interest at 16.0% per annum and matures December 10, 1996. All principal and interest is due at maturity. NOTE 4. NOTES PAYABLE In March 1996, the Partnership refinanced the mortgage debt secured by the Whispering Pines Apartments in Canoga Park, California in the amount of $2.4 million. The Partnership received net cash of $37,000 after the payoff of $2.3 million in existing mortgage debt, which matured in December 1995. The new mortgage bears interest at the rate of 7.5% per annum, requires monthly payments of principal and interest of $19,000 and matures in April 2001. 7 8 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 5. WARRANTS Pursuant to a litigation settlement agreement, on February 14, 1992, the Partnership issued warrants to purchase an aggregate of 2,019,579 of its units of limited partner interest subject to adjustment. Each warrant entitles the holder thereof to purchase three quarters of one unit at the exercise price ($12.00 per warrant), equal to $16.00 per unit, subject to adjustment. The warrants may be exercised for five years from the February 14, 1992 date of issuance or until earlier redemption. See NOTE 7. "LEGAL PROCEEDINGS - Moorman Settlement." NOTE 6. INCOME TAXES No federal or state income taxes have been provided for in the accompanying Consolidated Statements of Operations as the partners include their share of Partnership income or loss in their respective tax returns. For income or loss allocation purposes, limited partners are allocated their proportionate share of income or loss commencing with the calendar month subsequent to their entry into the Partnership. NOTE 7. LEGAL PROCEEDINGS Moorman Settlement. The Partnership is party to a settlement agreement, dated as of May 9, 1990, between plaintiffs Joseph B. Moorman, et al. and defendants Robert A. McNeil, National Realty, the Operating Partnership, SAMLP, Gene E. Phillips and William S. Friedman, and Shearson Lehman Hutton Inc., successor-in-interest to defendant E.F. Hutton & Company Inc., relating to the action entitled Moorman, et al. v. Southmark Corporation, et al. Such action was filed on September 2, 1987, in the Superior Court of the State of California, County of San Mateo. On May 9, 1990, the Partnership agreed to settle such action pursuant to the terms of a written agreement (the "Moorman Settlement Agreement"). On June 29, 1990, after a hearing as to its fairness, reasonableness and adequacy, the Moorman Settlement Agreement was granted final court approval. The Moorman Settlement Agreement is complex and the following summary is qualified in its entirety by reference to the text thereof, which was previously included as an exhibit to the Partnership's Form 10-Q for the quarter ended March 31, 1990, as filed with the Securities and Exchange Commission. The Moorman Settlement Agreement provides for a plan (the "Moorman Settlement Plan") consisting of, among other things, the following: (i) the appointment and operation of a committee (the "Oversight Committee"), to oversee the implementation of the Moorman Settlement Plan, (ii) the appointment and operation of an audit committee having a majority of members unaffiliated with Messrs. Phillips and Friedman or SAMLP, (iii) the establishment of specified annually increasing targets described below (each a "Target") for each of the next five years through May 1995, relating to the price of the units of limited partner interest as decreased for certain distributions to unitholders, (iv) an agreement by SAMLP not to seek reimbursement of greater than $500,000 per year for Messrs. Phillips' and Friedman's 8 9 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. LEGAL PROCEEDINGS (Continued) salaries for serving as general partners of SAMLP, (Mr. Friedman resigned as general partner of SAMLP effective March 4, 1994) and a deferral of such payments until such time as a Target may be met, and, if SAMLP resigns as General Partner, a waiver of any compensation so deferred, (v) a deferral until such time as a Target may be met of certain future annual General Partner compensation payable, pursuant to the Partnership's governing documents, to SAMLP or its affiliates, and, if SAMLP resigns as General Partner, a waiver of any compensation so deferred, (vi) the required distribution to unitholders of all the Partnership's operating cash flow in excess of certain renovation costs, unless the Oversight Committee approves alternative uses for such operating cash flow, (vii) the issuance of Warrants to purchase an aggregate of up to 2,019,579 units (the "Warrants") to Class Members, (viii) the contribution by certain co-defendants of cash and notes payable to the Partnership aggregating $5.5 million (including $2.5 million to be contributed by SAMLP and its general partners over a four-year period), (ix) the amendment of the Partnership Agreement to reduce the vote required to remove the General Partner from a two-thirds vote to a majority vote of the units, (x) the Partnership's redemption of its unit purchase rights and an agreement not to adopt a similar rights plan without Oversight Committee approval and (xi) the Partnership's payment of certain settlement costs, including plaintiffs' attorneys' fees in the amount of $3.4 million. The Moorman Settlement Plan will remain in effect until SAMLP has resigned as General Partner and a successor general partner is elected and takes office, and the Warrants will remain exercisable for five years from the February 14, 1992 date of issuance or until earlier redemption. SAMLP, on behalf of itself and its general partners, has made the payments of $2.5 million (including accrued interest), to the Partnership, as required by the Moorman Settlement Agreement. If Targets are not met for any two successive years of the Moorman Settlement Plan or for the final year of the Moorman Settlement Plan, SAMLP will be required to withdraw as General Partner effective at the time a successor general partner is elected. Upon, among other things, the withdrawal of SAMLP as General Partner and the due election and taking office of a successor, the Moorman Settlement Plan would terminate. The Targets for the first and second anniversary dates were not met. Since the Targets were not met for two successive years, the Moorman Settlement Agreement requires that SAMLP resign as General Partner, effective upon the election and qualification of its successor. On July 8, 1992, SAMLP notified the Oversight Committee of the failure to meet the Target for two successive years. Upon, among other things, the withdrawal of SAMLP as General Partner and the due election and taking office of a successor, the Moorman Settlement Plan will terminate. Withdrawal of SAMLP as General Partner 9 10 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. LEGAL PROCEEDINGS (Continued) pursuant to the Moorman Settlement Agreement requires unitholders to elect a successor general partner by majority vote. Upon the withdrawal or removal of the General Partner without the selection of a successor, the Partnership would be dissolved. The Moorman Settlement Agreement provides that between the date of the certification causing the General Partner's resignation and the date a successor general partner takes office, the resigning General Partner shall limit its activities, as General Partner, to the conduct of the business of the Partnership in the ordinary course, shall not, without consent of the Oversight Committee, purchase or sell any real estate or other assets of the Partnership not in progress on said date, shall cooperate in the election of a successor general partner and shall cooperate with its successor to facilitate a change in the office of General Partner of the Partnership. The resigning General Partner will continue to receive fees, expenses and distributions, if any, while the solicitation is prepared. The withdrawal of the General Partner would require the Partnership to acquire the General Partner's interest in the Partnership (the "Redeemable General Partner Interest") at its then fair value, and to pay certain fees and other compensation, as provided in the Partnership Agreement and the Moorman Settlement Agreement. Under the Moorman Settlement Agreement, payment for such Redeemable General Partner Interest, fees and other compensation may, at the Oversight Committee's option, be paid over a three year period pursuant to a secured promissory note bearing interest at the prime rate and containing commercially reasonable terms and collateral. Under the Moorman Settlement Plan, the purchase price for Redeemable General Partner Interest would be calculated, as of the time SAMLP withdraws as General Partner under the Partnership's governing documents. The Managing General Partner has calculated the Redeemable General Partner Interest at December 31, 1995 to be $36.2 million, and believes there has been no material change in such value since such date. The Partnership would be entitled to offset against any such payment the then outstanding principal balance ($4.2 million at June 30, 1996) plus all accrued but unpaid interest ($5.7 million at June 30, 1996) on the note receivable from SAMLP for its capital contribution to the Partnership. In the accompanying Consolidated Financial Statements, the Redeemable General Partner Interest is shown as a reduction of Partners' Equity. The note receivable from the General Partner has been offset against the Redeemable General Partner Interest. The Oversight Committee previously has informed the Partnership that it calculated the amount of such Redeemable General Partner Interest to be less than the amount calculated by the Managing General Partner. When SAMLP withdraws as General Partner of the Partnership, the value of the Redeemable General Partner Interest would depend on the fair value of the Partnership's assets at the time of calculation and there can be no assurance that the 10 11 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. LEGAL PROCEEDINGS (Continued) Redeemable General Partner Interest, fees and other compensation payable on any such withdrawal will not be substantially higher or lower than any current estimate or calculation. On January 27, 1995, National Realty, SAMLP and the Oversight Committee executed an Implementation Agreement which provides for the nomination of a successor general partner and for the resolution of all related matters under the Moorman Settlement. On February 20, 1996, the parties to the Implementation Agreement executed an Amended and Restated Implementation Agreement. Provided that the successor general partner is elected pursuant to the terms of the Amended and Restated Implementation Agreement, SAMLP shall receive $12,471,500 from the Partnership. This amount represents a compromise settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's withdrawal as General Partner and any amounts which SAMLP and its affiliates may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a promissory note in accordance with the terms set forth in the Amended and Restated Implementation Agreement. The Amended and Restated Implementation Agreement has been submitted to the Supervising Judge for tentative approval and approval of the notice to be sent to the original class members. Upon final approval by the Supervising Judge, the proposal to elect the successor general partner will be submitted to the unitholders of National Realty for a vote. In addition, the unitholders will vote upon amendments to the National Realty Partnership Agreement which relate to the proposed compensation of the successor general partner and other related matters. Upon approval by the unitholders, SAMLP shall resign as General Partner and the successor general partner shall take office. If the required approvals are obtained, National Realty anticipates that the successor general partner may be elected and take office during the fourth quarter of 1996. The Amended and Restated Implementation Agreement provides that SAMLP, and its affiliates owning units in National Realty, shall not vote to remove the successor general partner, except for removal with cause, for a period of 36 months from the date the successor general partner takes office. Upon the election and taking office of the successor general partner, the Moorman Settlement Plan and the Oversight Committee shall terminate. If the successor general partner nominee does not stand for election or is not elected, the existing Moorman Settlement Agreement shall remain in full force and effect and all of the provisions of the Amended and Restated Implementation Agreement shall be voided. 11 12 NATIONAL REALTY, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. LEGAL PROCEEDINGS (Continued) Other. The Partnership is involved in various lawsuits arising in the ordinary course of business. Management of the Partnership is of the opinion that the outcome of these lawsuits would have no material impact on the Partnership's financial condition. __________________________ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction National Realty, L.P. ("National Realty") is a Delaware limited partnership formed on January 29, 1987, the business of which consists primarily of owning and operating through National Operating, L.P., also a Delaware limited partnership (the "Operating Partnership"), a portfolio of real estate. Most of the Operating Partnership's properties were acquired in transactions consummated on September 18, 1987, pursuant to which National Realty acquired all of the assets, and assumed all of the liabilities, of 35 public and private limited partnerships. National Realty and the Operating Partnership operate as an economic unit and, unless the context otherwise requires, all references herein to the "Partnership" shall constitute references to National Realty and the Operating Partnership as a unit. In November 1992, the Operating Partnership, in conjunction with a refinancing of 52 of its apartment properties and a wraparound note receivable, transferred such assets to Garden Capital, L.P. ("GCLP"), a Delaware limited partnership in which the Operating Partnership holds a 99.3% limited partner interest. Liquidity and Capital Resources Cash and cash equivalents aggregated $4.9 million at June 30, 1996 compared to $20.7 million at December 31, 1995. The principal reasons for this decrease in cash are discussed in the paragraphs below. The Managing General Partner of the Partnership's General Partner has discretion in determining methods of obtaining funds for the Partnership's operations. The Partnership's governing documents place no limitation on the amount of leverage that the Partnership may incur either in the aggregate or with respect to any particular property or other investment. At June 30, 1996, the aggregate loan-to-value ratio of the Partnership's real estate portfolio was 47.2%, computed on the basis of the ratio of total property-related debt to aggregate appraised values as of December 31, 1995, as compared with a loan-to-value ratio of 47.3% at December 31, 1995. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) Liquidity and Capital Resources (Continued) The Partnership's principal sources of cash flow have been and will continue to be from property operations and externally generated funds. Externally generated funds include borrowings, proceeds from the sale of Partnership properties and other assets and proceeds from the issuance of debt secured by Partnership properties or mortgage notes receivable. The Partnership expects that its cash on hand, cash flow from property operations together with externally generated funds will be sufficient to meet the Partnership's various cash needs in 1996, including but not limited to the payment of distributions, debt service obligations coming due and property maintenance and improvements, as more fully discussed in the paragraphs below. In November 1992, in conjunction with the transfer of the net assets of 52 apartment complexes and a wraparound note receivable to GCLP, such assets were refinanced under a $223 million blanket mortgage loan. The blanket mortgage loan requires that cash flow from the GCLP properties be used to fund various escrow and reserve accounts and limits the payment of distributions to the Partnership. During the three and six months ended June 30, 1996, the Partnership received distributions from GCLP totaling $250,000 and $800,000, compared to distributions totaling $625,000 and $1.3 million received during the three and six months ended June 30, 1995. On January 2, 1996, the Partnership paid a total of $6.8 million in distributions that had been declared in 1995. In the first six months of 1996, the Partnership declared and paid quarterly and special distributions aggregating $0.50 per unit, or a total of $3.2 million. 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 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. The Partnership's net cash flow from property operations (rents collected less payments for property operating expenses) increased from $10.2 million and $19.6 million for the three and six months ended June 1995 to $10.3 million and $21.0 million for the three and six months ended June 1996. These increases are primarily due to an increase in rental and occupancy rates at the Partnership's apartment complexes and commercial properties, partially offset by a decrease of $400,000 and $800,000 due to the sale of the Vineyards and Harbour Pointe Apartments in December 1995. As discussed in NOTE 7. "LEGAL PROCEEDINGS," the Moorman litigation settlement agreement (the "Moorman Settlement Agreement") sets forth certain aggressive, annually increasing targets relating to the price of the Partnership's units of limited partner interest which were not met, 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) resulting in, among other things, the required withdrawal of the General Partner upon election of a successor and the resulting required purchase of the Redeemable General Partner Interest, as defined below. The withdrawal of the General Partner requires the Partnership to acquire the General Partner's interest in the Partnership (the "Redeemable General Partner Interest") at its then fair value, and to pay certain fees and other compensation, as provided in the Partnership Agreement and the Moorman Settlement Agreement. The Moorman Settlement Agreement provides that any payment for such Redeemable General Partner Interest, fees and other compensation during the pendency of the Moorman Settlement Agreement may, at the option of the Oversight Committee (also established under the Moorman Settlement Agreement), be made over three years pursuant to a secured promissory note bearing interest at a financial institution's prime rate. The Managing General Partner has calculated the fair value of the Redeemable General Partner Interest at December 31, 1995 to be $36.2 million, and believes that there has been no material change in such value since that date. The Partnership would be entitled to offset against such payment the then outstanding principal balance of the note receivable ($4.2 million at June 30, 1996) plus all accrued and unpaid interest ($5.7 million at June 30, 1996) on the note receivable from the General Partner representing its capital contribution to the Partnership. When Syntek Asset Management, L.P. ("SAMLP") withdraws as General Partner of the Partnership, the fair value of the Redeemable General Partner Interest would depend on the value of the Partnership's assets at the time of calculation and there can be no assurance that the Redeemable General Partner Interest, fees and other compensation payable on any such withdrawal will not be substantially higher or lower than any current estimate or calculation. In the accompanying Consolidated Balance Sheets, the Redeemable General Partner Interest is shown as a reduction in Partners' Equity and the note receivable from the General Partner has been offset against the Redeemable General Partner Interest. On January 27, 1995, National Realty, SAMLP and the Oversight Committee executed an Implementation Agreement which provides for the nomination of a successor general partner and for the resolution of all related matters under the Moorman Settlement. On February 20, 1996, the parties to the Implementation Agreement executed an Amended and Restated Implementation Agreement. Provided that the successor general partner is elected pursuant to the terms of the Amended and Restated Implementation Agreement, SAMLP shall receive $12,471,500 from the Partnership. This amount represents a compromise settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's withdrawal as General Partner and any amounts which SAMLP and its affiliates may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a promissory note in accordance with the terms set forth in the Amended and Restated Implementation Agreement. 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) The Amended and Restated Implementation Agreement has been submitted to the Supervising Judge for tentative approval and approval of the notice to be sent to the original class members. Upon final approval by the Supervising Judge, the proposal to elect the successor general partner will be submitted to the unitholders of National Realty for a vote. In addition, the unitholders will vote upon amendments to the National Realty Partnership Agreement which relate to the proposed compensation of the successor general partner and other related matters. Upon approval by the unitholders, SAMLP shall resign as General Partner and the successor general partner shall take office. If the required approvals are obtained, National Realty anticipates that the successor general partner may be elected and take office during the fourth quarter of 1996. The Amended and Restated Implementation Agreement provides that SAMLP, and its affiliates owning units in National Realty, shall not vote to remove the successor general partner, except for removal with cause, for a period of 36 months from the date the successor general partner takes office. Upon the election and taking office of the successor general partner, the Moorman Settlement Plan and the Oversight Committee shall terminate. If the successor general partner is not elected, the existing Moorman Settlement Agreement shall remain in full force and effect and all of the provisions of the Amended and Restated Implementation Agreement shall be voided. Results of Operations The Partnership reported a net loss of $378,000 and $846,000 for the three and six months ended June 30, 1996 as compared to a net loss of $1.4 million and $2.6 million for the three and six months ended June 30, 1995. The primary factors effecting the Partnership's operating results are discussed in the following paragraphs. Net rental income for the Partnership (rents less property operating expenses) increased to $11.1 million and $22.6 million for the three and six months ended June 30, 1996 from $10.6 million and $21.6 million for the three and six months ended June 30, 1995. These increases are primarily due to increased rental rates at the Partnership's apartment properties. Interest income increased from $686,000 and $1.4 million for the three and six months ended June 30, 1995 to $764,000 and $1.5 million for the three and six months ended June 30, 1996. This increase is primarily attributable to an increase in interest earned on a credit enhancement escrow account. Interest expense decreased from $8.7 million and $17.2 million for the three and six months ended June 30, 1995 to $8.4 million and $16.9 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) million for the three and six months ended June 30, 1996. This decrease is due primarily to the sale of two apartment properties in 1996. General and administrative expenses decreased from $1.6 million and $3.3 million for the three and six months ended June 30, 1995 to $1.3 million and $3.1 million for the three months ended June 30, 1996. This decrease is primarily due to a decrease in advisor cost reimbursements. Tax Matters National Realty is a publicly traded limited partnership and, for federal income tax purposes, all income or loss generated by the Partnership is included in the income tax returns of the individual partners. In December 1987, Congress passed legislation requiring certain publicly traded partnerships to be taxed as corporations. National Realty qualifies for "grandfather" treatment and will be treated as a partnership until at least 1997, unless the Partnership adds a substantial new line of business, which would require approval of the Oversight Committee, and will continue to be so treated thereafter if 90% or more of its gross income consists of qualifying income from real estate activities. As presently operated, the Partnership meets these requirements. Under Internal Revenue Service guidelines generally applicable to publicly traded partnerships and thus to the Partnership, a limited partner's use of his or her share of partnership losses is subject to special limitations. Inflation The effects of inflation on the Partnership's operations are not quantifiable. Revenues from property operations generally fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of the Partnership's properties and, correspondingly, the ultimate gains to be realized by the Partnership from property sales. To the extent that inflation affects interest rates, the Partnership's earnings from short-term investments and the cost of new borrowings as well as the cost of its variable rate borrowings will be affected. Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, the Partnership, may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery from the Partnership for personal injury associated with such materials. 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Environmental Matters (Continued) The General Partner is not aware of any environmental liability relating to the above matters that would have a material adverse effect on the Partnership's business, assets or results of operations. Recent Accounting Pronouncement In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of". The statement requires that long-lived assets be considered impaired "...if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset." If impairment exists, an impairment loss shall be recognized, by a charge against earnings, equal to "...the amount by which the carrying amount of the asset exceeds the fair value of the asset." If impairment of a long-lived asset is recognized, the carrying amount of the asset shall be reduced by the amount of the impairment, shall be accounted for as the asset's "new cost" and such new cost shall be depreciated over the asset's remaining useful life. SFAS No. 121 further requires that long-lived assets held for sale "...be reported at the lower of carrying amount or fair value less cost to sell." If a reduction in a held for sale asset's carrying amount to fair value less cost to sell is required, a provision for loss shall be recognized by a charge against earnings. Subsequent revisions, either upward or downward, to a held for sale asset's fair value less cost to sell shall be recorded as an adjustment to the asset's carrying amount, but not in excess of the asset's carrying amount when originally classified as held for sale. A corresponding charge or credit to earnings is to be recognized. Long-lived assets held for sale are not to be depreciated. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. The Partnership adopted SFAS No. 121 effective January 1, 1996. The adoption of SFAS No. 121 had no effect on the Partnership's depreciation or reported net loss for the six months ended June 30, 1996. [THIS SPACE INTENTIONALLY LEFT BLANK.] 17 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See NOTE 7. "LEGAL PROCEEDINGS - Moorman Settlement," of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in PART I for information relating to legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit Number Description - ------- ----------- 11.0 Computation of Earnings Per Unit 27.0 Financial Data Schedule (b) Reports on Form 8-K: None. 18 19 NATIONAL REALTY, L.P. Signature Page Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL REALTY, L.P. By its General Partner: SYNTEK ASSET MANAGEMENT, L.P. By its Managing General Partner: SYNTEK ASSET MANAGEMENT, INC. Date: August 12, 1996 By: /s/ Randall M. Paulson ------------------------- ----------------------------------- Randall M. Paulson President Date: August 12, 1996 By: /s/ Thomas A. Holland ------------------------- ----------------------------------- Thomas A. Holland Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 19 20 NATIONAL REALTY, L.P. EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q For the Quarter ended June 30, 1996 Exhibit Page Number Description Number - ------- ----------- ------ 11.0 Computation of Earnings Per Unit 21 27.0 Financial Data Schedule 22 20 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11.1 NATIONAL REALTY, L.P. A DELAWARE LIMITED PARTNERSHIP Computation of Earnings Per Unit
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------------- --------------------------------- 1996 1995 1996 1995 -------------- -------------- --------------- ------------- (dollars in thousands, except per unit) Net (loss).................... $ (378) $ (1,377) $ (846) $ (2,581) Less - General Partners' 1.99% Interest............ (8) (27) (17) (51) -------------- -------------- --------------- ------------- Net (loss) allocable to Limited Partner............. $ (370) $ (1,350) $ (829) $ (2,530) ============== ============== =============== ============= Earnings Per Unit Net (loss).................. $ (.06) $ (.22) $ (.14) $ (.40) ============== ============== =============== ============= Weighted average units of limited partner interest used in computing earnings per unit.................... 6,417,832 6,418,140 6,417,832 6,418,176 ============== ============== =============== =============
21 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 4,886 942 13,640 1,910 0 0 444,327 217,997 279,763 0 337,190 0 0 0 (103,102) 279,763 0 54,185 0 31,563 5,040 0 16,860 (846) 0 (846) 0 0 0 (846) (.14) (.14)
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