ITEM 1. BUSINESS
I. SUMMARY
The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in the Annual Report. Reference is made to the Glossary which appears at the end of this section for the definition of certain capitalized terms used in the Summary and elsewhere in this Report.
A. THE MASTER LIMITED PARTNERSHIP
National Property Analysts Master Limited Partnership ("NPAMLP") was organized under the Delaware Revised Uniform Limited Partnership Act in January, 1990 as part of a consolidation of the operation of properties owned by certain limited partnerships (the "Partnerships") previously sponsored by National Property Analysts, Inc. and its affiliates ("NPA"). The term of NPAMLP will continue until December 31, 2013, unless sooner terminated in accordance with the terms of the limited partnership agreement of NPAMLP (the "Partnership Agreement"). See "Item 7. Management's Discussion and Analysis of financial Condition and results of Operations - V. Indebtedness Secured by the Properties - - D. Future Interest Agreement."
NPAMLP's principal executive offices are located at 230 South Broad Street, Mezzanine, Philadelphia, Pennsylvania 19102 (telephone: 215-790-4700).
B. THE GENERAL PARTNERS
The General Partners of NPAMLP are EBL&S, Inc., an affiliate of NPA (the "Managing General Partner") and Feldman International, Inc. (the "Equity General Partner"). The Managing General Partner and the Equity General Partner are collectively referred to as the "General Partners". The Managing General Partner manages and controls all aspects of the business of NPAMLP. The Managing General Partner is owned 100% by E & H Properties, Inc., an affiliate of NPA and holds no ownership interest in NPAMLP. The Equity General Partner holds a 1% general partner interest in NPAMLP. See "Item 13. Certain Relationships and Related Party Transactions."
C. THE PROPERTIES AND INDEBTEDNESS SECURED BY THE PROPERTIES
NPAMLP owns 37 properties as of December 31, 2003, which consist primarily of shopping centers and free standing, single tenant retail stores (the "Properties"). The Properties are subject to certain indebtedness which was incurred in connection with the acquisition of the Properties by the Partnerships. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
D. NPAMLP OBJECTIVES AND POLICIES
NPAMLP intends to hold the Properties until such time as it is deemed prudent to dispose of the Properties. However, the Partnership in accordance with the terms of the Partnership Agreement will terminate on December 31, 2013. See "Item 7. Management's Discussion and Analysis of financial Condition and results of Operations - V. Indebtedness Secured by the Properties - D. Future Interest Agreement."
E. LIMITED PARTNERS' SHARE OF CASH FLOW FROM OPERATIONS
The Limited Partners will receive, on an annual basis, 99% of the Cash Flow from Operations as defined in the Partnership Agreement. It is not anticipated that NPAMLP will be in a position to distribute Cash Flow from Operations to its partners in the foreseeable future.
F. LIMITED PARTNERS' SHARE OF PROCEEDS OF SALES DISTRIBUTIONS
Proceeds of Sales of the Properties available to be distributed by NPAMLP will be distributed 99% to the Limited Partners and 1% to the Equity General Partner. It is not anticipated that NPAMLP will be in a position to distribute Proceeds of Sales to its partners in the foreseeable future.
G. ALLOCATIONS OF PROFITS AND LOSSES
Taxable income from NPAMLP operations or from a capital transaction will be allocated 99% to the Limited Partners and 1% to the Equity General Partner. Taxable losses from NPAMLP operations or from capital transactions generally will be allocated 99% to the Limited Partners and 1% to the Equity General Partner.
H. COMPENSATION TO THE GENERAL PARTNER AND AFFILIATES
The Managing General Partner will receive certain compensation for its services including reimbursement of certain of its expenses and the Equity Partner will receive a portion of Cash Flow from Operations and Proceeds of Sales of the Properties. An affiliate of the Managing General Partner will receive a management fee for managing the Properties and a leasing fee for obtaining or renewing leases. See "Item 13. Certain Relationships and Related Party Transactions - I. Compensation and Fees."
I. FISCAL YEAR
NPAMLP's fiscal year will begin on January 1 and end on December 31 of each year.
II. NPAMLP OBJECTIVES AND POLICIES
A. NPAMLP OBJECTIVES
NPAMLP intends to hold the Properties until such time as it is deemed prudent to dispose of one or more or all of the Properties. The precise timing of disposition of Properties is in the discretion of the Managing General Partner. However, the Partnership in accordance with the terms of the Partnership Agreement is expected to terminate not later than December 31, 2013. See "Item 7. Management's Discussion and Analysis of financial Condition and results of Operations - V. Indebtedness Secured by the Properties - D. Future Interest Agreement."
It is anticipated that the forgiveness of Wrap Mortgages and the process of selling Properties, which are owned by Unaudited Partnerships, and applying sales proceeds to make payments on the Wrap Mortgages will result in the Limited Partners having to report substantial taxable income when the Properties are sold without the corresponding receipt of any cash proceeds therefrom (unless and until the Threshold Amount has been exceeded). It is intended, however, that by avoiding a foreclosure of Properties, the Consolidation and Restructuring will preserve for Limited Partners the potential for deriving an economic benefit from the future sales of the Properties, while at the same time possibly deferring the recognition of taxable income for some Limited Partners.
The objectives of NPAMLP are, to attempt to implement, with respect to the Properties, effective management, leasing, cost control and capital improvement policies and techniques and thereby to (i) preserve and protect NPAMLP's Properties in order to avoid the loss of any Properties to foreclosure; (ii) enhance the potential for appreciation in the value of NPAMLP's Properties; and (iii) provide Cash Flow from Operations. It is not anticipated that NPAMLP will be in a position to distribute Cash Flow from Operations to its partners in the foreseeable future.
The determination of whether a Property should be sold or otherwise disposed of will be made by the Managing General Partner after consideration of relevant factors, including performance of the Property, market conditions, the financial requirements of NPAMLP and the tax consequences to Limited Partners, with a view toward achieving the principal investment objectives of NPAMLP. In connection with a sale of a Property, a purchase money obligation secured by a mortgage may be taken as part payment; there are no limitations or restrictions on NPAMLP's taking such purchase money obligations. The terms of payment to NPAMLP will be affected by custom in the area in which each Property is located and the then-prevailing economic conditions. To the extent the Partnership receives notes and other property instead of cash on sales, such proceeds (other than any interest payable thereon) will not be included in Proceeds of Sales of the Properties until and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed of; and therefore, the distribution of such proceeds to NPAMLP may be delayed until such time.
NPAMLP may not acquire additional properties. However, in the Managing General Partner's discretion, NPAMLP may, in appropriate circumstances, exchange Properties for new properties in transactions structured to be non-taxable events in whole or in substantial part under Section 1031 of the Internal Revenue Code, and the proceeds of an involuntary conversion may be invested in property in transactions structured to be non-taxable in whole or in part under Section 1033 of the Internal Revenue Code.
B. COMPETITION FOR TENANTS
NPAMLP's Properties consist primarily of shopping centers and free standing, single tenant retail stores located in 17 states. Of the 37 Properties owned by NPAMLP, 20 properties have only 1 or 2 tenants ("Single Tenant Properties"). The tenants in the Single Tenant Properties are primarily national
retailers or supermarkets ("Anchor Tenants"). The 17 remaining properties are multi-tenant shopping center properties ("Shopping Center Properties"). The tenants in the Shopping Center Properties generally include Anchor Tenants and a variety of tenants occupying less substantial portions of the property ("Local Tenants").
1. ANCHOR TENANTS
The Anchor Tenant leases are usually for 20 to 25 years. These Anchor Tenant leases are at various stages of maturity. Upon expiration of the initial lease term, renewal options are usually available to the Anchor Tenants. See "Item 2.
ITEM 2. PROPERTIES
NPAMLP's Properties consist primarily of shopping centers and free standing, single tenant retail stores. As of December 31, 2003, NPAMLP owned and operated 37 Properties located in 17 states. Approximately 54% of the Properties are Single Tenant Properties and 46% are Shopping Center Properties.
Set forth below are schedules providing information with respect to the Properties and the indebtedness secured by the Properties. Schedule 1 provides a description of the Properties and certain tenant information. Schedule 2 provides certain information regarding tenant lease expirations. Schedule 3 provides information regarding the Third Party Underlying Obligations secured by the Properties.
Under applicable law, in certain circumstances, the owner or operator of real property has an obligation to clean up hazardous and toxic substances on the property. This obligation is often imposed without regard to the timing, cause or person responsible for such substances on the property. The presence of such substances on a Property would have an adverse impact on the operating costs and sale or refinancing of such Property. None of the Properties are presently the subject of any environmental enforcement actions under any such statutes, and the General Partners do not have any information or knowledge about the presence of such substances requiring remediation on any of the Properties. If it is claimed or determined that such substances do exist on any of such Properties, NPAMLP could be subject to such cleanup obligations. The presence of such substances may make a Property unmarketable or substantially decrease its value. Any environmental cleanup expenses incurred in connection with a sale would directly reduce proceeds derived from the sale of the Property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
NPAMLP is involved in various claims and legal actions arising in the ordinary course of property operations. In the opinion of the General Partners, the ultimate disposition of these matters will not have a material adverse effect on NPAMLP's financial position, results of operations or liquidity.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
SCHEDULE 1
DESCRIPTION OF PROPERTY TENANT INFORMATION
(a) Gross Leasable Area.
(b) Based on leases in effect as of December 31, 2003.
(c) Based on occupied space.
SCHEDULE 1, CONTINUED
DESCRIPTION OF PROPERTY TENANT INFORMATION
(a) Gross Leasable Area.
(b) Tenant pays percentage rent only - amount based on projected sales for 2004.
(c) Month-to-month lease
SCHEDULE 2
TENANT LEASE EXPIRATIONS
(a) Gross Leasable Area.
SCHEDULE 2, CONTINUED
TENANT LEASE EXPIRATIONS
(a) Gross Leasable Area.
(b) In 2007, one of the two lease expirations represents an expiring ground lease ($6,000).
SCHEDULE 2, CONTINUED
TENANT LEASE EXPIRATIONS
(a) Gross Leasable Area.
SCHEDULE 3
THIRD PARTY UNDERLYING OBLIGATIONS
(a) Mortgages are cross - collateralized and cross - defaulted.
(b) Mortgages are cross - collateralized and cross - defaulted.
(c) Mortgages are cross - collateralized and cross - defaulted.
(d) Loan is callable on November 1, 2006.
(e) Five year extention of loan term was negotiated with lender.
The extention will be finalized in the first quarter of 2004.
SCHEDULE 3, CONTINUED
THIRD PARTY UNDERLYING OBLIGATIONS
(a) Mortgages are cross - collateralized and cross - defaulted.
(b) Mortgages are cross - collateralized and cross - defaulted.
(c) Mortgages are cross - collateralized and cross - defaulted.
(d) Loan is callable on November 1, 2006.
(e) Five year extention of loan term was negotiated with lender.
The extention will be finalized in the first quarter of 2004.
PART II
ITEM 5.
ITEM 5. MARKET PRICE FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
I. NO TRADING MARKET
There is no trading market for the Units in NPAMLP. NPAMLP Units are not transferrable except by will, inheritance or operation of law. To date no transfers other than those by will, inheritance and operation of law have been permitted.
In addition, the Partnership Agreement places additional restrictions on the transferability of the Units. The Limited Partners of NPAMLP are prohibited from selling their Units unless such sale is at the Managing General Partner's direction, is accomplished in a single transaction involving all Limited Partners' interests to a single purchaser, and is accomplished simultaneously with the sale of the Equity General Partner's interest in NPAMLP.
As of December 31, 2003, there were 97,752 Units outstanding held by approximately 2,600 Limited Partners.
II. DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS
NPAMLP may make annual distributions to its partners in an aggregate amount equal to its Cash Flow from Operations. NPAMLP has not made any distributions of Cash Flow from Operations to its partners since its organization. It is not anticipated that NPAMLP will be in a position to distribute Cash Flow from Operations to its partners in the foreseeable future.
NPAMLP may not reinvest Cash Flow from Operations in additional real estate investments.
III. PROCEEDS OF SALES DISTRIBUTIONS
The Proceeds of Sales of the Properties may not be reinvested in additional real properties, except as permitted with respect to transactions that are non-taxable in whole or in substantial part under Section 1031 or 1033 of the Internal Revenue Code. The Proceeds of Sales of the Properties, after payment of related expenses and indebtedness and provision for reasonable reserves, will be available for NPAMLP purposes, including paying Debt Service or providing for Capital Improvements with respect to other Properties owned by NPAMLP. All proceeds not utilized for NPAMLP purposes will, after making the payments required by the Restructuring Agreement with respect to the Wrap Mortgages, be distributed to the partners of NPAMLP.
The Restructuring Agreement provides for a sharing of cash from the Proceeds of Sales of the Properties after repayment of the Third Party Underlying Obligations once the net Proceeds of Sale of the Properties exceed the Threshold Amount. Additionally, the Limited Partners of NPAMLP receive 40% of the Cash Flow from Operations, if any, in excess of Debt Service and any Capital Improvements and Reserves as considered necessary. The remaining cash flow, if any, is applied to the Wrap Mortgages in payment of accrued interest and then principal.
NPAMLP has not made any Proceeds of Sales Distributions to its partners since its organization. It is not anticipated that NPAMLP will be in a position to distribute Proceeds of Sales to its partners in the foreseeable future.
IV. CERTAIN INCOME TAX CONSIDERATIONS
A. RECOGNITION OF GAIN
It is anticipated that future forgiveness of Wrap Mortgages, if any, and the potential of selling Properties, which are owned by Unaudited Partnerships, and applying sales proceeds to make payments on the Wrap Mortgages may require the Limited Partners to report substantial taxable income when the Properties are sold without the corresponding receipt of any cash proceeds therefrom (unless and until the Threshold Amount has been exceeded).
Limited Partners are allocated their share of NPAMLP's taxable income and gain even if they receive no cash distributions from NPAMLP with which to pay any resulting tax liability, and will be allocated their share of NPAMLP's tax losses, including depreciation deductions. It is anticipated that NPAMLP will generate gradually increasing amounts (which will ultimately be substantial) of taxable income, inasmuch as interest expense and depreciation expense are gradually decreasing each year.
As and when the Properties are sold or otherwise disposed of (and whether
or not any cash is distributed to Limited Partners in respect of such sales), all taxable income will be allocated among those Limited Partners who were partners in the Partnership which owned the Property prior to the Consolidation up to the amount by which the fair market value of such Properties exceeded their adjusted basis at the time of contribution to NPAMLP (gain in excess of such amounts will be allocated ratably among all Limited Partners). This rule does not apply to tax-free exchanges except to the extent of cash or "other property" received.
B. TREATMENT OF DISTRIBUTIONS BY NPAMLP
Cash distributions made to a Limited Partner are not, per se, taxable; rather, they represent a return of capital up to the amount of his adjusted basis in his interest in NPAMLP. A return of capital generally does not result in any recognition of gain or loss for federal income tax purposes, but reduces the recipient's adjusted basis in his investment. Certain partners whose returns were audited and adjusted (in connection with their investment in NPA sponsored limited partnerships) may have signed a closing agreement with the Internal Revenue Service ("IRS"); pursuant to the terms of such closing agreement, their tax treatment may vary from the foregoing; such partners are urged to consult with their own tax advisors with respect to this issue.
Distributions, if any, in excess of a Limited Partner's adjusted basis in his NPAMLP interest immediately prior thereto will result in the recognition of gain to that extent. Except in the unlikely event that NPAMLP is treated for tax purposes as a "dealer" in real property, such gain generally should be capital gain.
C. OPERATING INCOME (LOSS) OF NPAMLP
Each Limited Partner will receive an annual Schedule K-1 (U.S. Form 1065) to indicate his share of NPAMLP's taxable income or loss for each tax year. Such income or loss, rather than the distributions described in Part B above, is reportable by the Limited Partner. Since any loss generated by NPAMLP is, with respect to Limited Partners, a passive loss, the deductibility of such loss is governed by Section 469 of the Internal Revenue Code of 1986, and may be limited thereby.
Certain Partnerships were audited by the IRS (the "Audited Partnerships") and the partners thereof executed an agreement relating to their past and future federal tax liability (the "Closing Agreement"). The foregoing paragraph applies to those investors who have not signed a Closing Agreement with IRS with respect to their Units. As to those Limited Partners who have signed such a Closing Agreement, the appropriate tax treatment may differ from the foregoing and is governed by the Closing Agreement.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following is selected financial data for NPAMLP for the five years ended December 31, 2003, derived from the audited financial statements of NPAMLP prepared in conformity with accounting principles generally accepted in the United States of America. The selected financial data set forth below should be read in conjunction with "Managements Discussion and Analysis of Financial Condition and Results of Operations" and with the Combined Financial Statements of NPAMLP and the notes thereto included elsewhere in this Form 10-K.
Year Ended December 31 (In Thousands, except per unit data)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with NPAMLP's combined financial statements and notes thereto appearing elsewhere in this Report.
I. LIQUIDITY AND CAPITAL RESOURCES
A. GENERAL
As previously noted, the Properties owned by NPAMLP are encumbered by the Wrap Mortgages. As a result of the Restructuring, the Debt Service on the Wrap Mortgages was adjusted to be the same as the 1990 debt service required on the Third Party Underlying Obligations. NPAMLP's ability to meet its obligations on the Wrap Mortgages is dependent on the Properties generating sufficient cash flow to meet the Debt Service.
B. THIRD PARTY DEBT SERVICE
As of December 31, 2003, the Third Party Underlying Obligations were current for all the Properties except for the property located in San Mateo, California.
With respect to the San Mateo property, Kmart remits its rent directly to the holder of the Third Party Underlying Obligation in accordance with the loan documents. A portion of the rent due for 2002 was a pre-petition obligation of Kmart and was not paid to the lender. The lender has not issued a default notice for this mortgage.
As of December 31, 2003, the net book value and net Wrap Mortgage balance for this Property is:
See "Item 7. Management's Discussion and Analysis of Financial Condition - II Critical Accounting Policies."
C. WORKING CAPITAL
As of December 31, 2003, NPAMLP has working capital of approximately $1,733,000 excluding amounts due to the Managing General Partner and the Pension Groups of $1,437,000 and $662,000, respectively. NPAMLP's operating budget for 2004 projects positive cash flow of approximately $200,000.
To date, NPAMLP has replenished its working capital reserves through the sale of Properties. This has occurred when holders of the Second Mortgage and Wrap Mortgage have released their liens on Properties which have been sold, notwithstanding that pursuant to the terms of the Restructuring Agreement the proceeds were payable to the holders of the Second Mortgage and the Wrap Mortgage. They have agreed in certain instances to release their liens and provide proceeds from the sale to NPAMLP because their mortgages are cross-collateralized against all of the Properties and because the proceeds from the sale of such Properties have been utilized for the remaining Properties. Although the Second Mortgage lenders are not obligated to subordinate or release their mortgages, their continued cooperation in this regard is expected. Pursuant to the 2003 Agreement (See "Item 7. Management's Discussion and Analysis of financial Condition and results of Operations - V. Indebtedness Secured by the Properties - D. Future Interest Agreement"), the holders of the Wrap Mortgages are obligated to release their mortgages in the event of a sale of Property. As of December 31, 2003, the Managing General Partner has advanced approximately $1,437,000 to NPAMLP but may require the repayment of the advances for its own operational needs.
D. LOAN OBLIGATIONS
Although all the Third Party Underlying Obligations on which balloons have become due to date have ultimately been refinanced, there can be no assurance that loan extensions will be successfully negotiated with the lenders holding the Third Party Underlying Obligations on these Properties. In the event that NPAMLP is not able to obtain refinancing commitments from alternative lenders or loan extensions from the lenders holding the existing Third Party Underlying Obligations, the properties could be lost to foreclosure. See "Item 2. Properties."
E. CAPITAL REQUIREMENTS
The average age of the Properties owned by NPAMLP is in excess of 20 years. Due to the age of the Properties, there is a continuing need for capital expenditures in order to properly maintain the Properties. At December 31, 2003, NPAMLP was obligated for approximately $1,087,000 of capital commitments which were primarily for property redevelopment. The 2004 operating budget for the Properties provides for approximately $318,000 in capital repair reserves.
During 2003, NPAMLP had two outstanding lines of credit with E&H Properties, Inc., an affiliate of NPA ("E&H"), under which E&H would advance up to $1.25 million to NPAMLP for purposes of making Capital and Tenant Improvements (the "NPAMLP Lines"). The NPAMLP Lines include a $1,000,000 line of credit (the "Hudson Line") and a $250,000 line of credit (the "Firstrust Line"). Pursuant to the NPAMLP Lines, the obligation of E&H to make advances to NPAMLP is at all times in the sole and absolute discretion of E&H. At December 31, 2003, there were $1,093,000 of advances and $19,000 in accrued interest was due under the NPAMLP Lines.
Amounts advanced pursuant to the Hudson Line and Firstrust Line bear interest at the Prime Rate as published in the Wall Street Journal's "Money Rates" section. Amounts advanced pursuant to the Firstrust Line are secured by a $250,000 mortgage and an assignment of rents and leases on the property in Sault Ste. Marie, Michigan.
In 1999, E&H secured a line of credit with Firstrust Bank of Conshohocken, PA ("Firstrust Bank"), which will enable E&H to fund the Firstrust Line and the Hudson Line in order to finance Capital and Tenant Improvements (the "E&H Firstrust Line").
At December 31, 2003, the E&H Firstrust Line permitted E&H to borrow up to $2,500,000 which it can loan to NPAMLP and can use for E&H's general working capital.
Pursuant to the promissory note executed with respect to the E&H Firstrust Line (the "Firstrust Note"), the amounts advanced pursuant to the Firstrust Note bear interest at the Prime Rate as published in the Wall Street Journal's "Money Rates" section (the "E&H Firstrust Borrowing Rate"). The current E&H Firstrust Borrowing Rate is 4.00%.
The Firstrust Note is secured by an assignment of certain Wrap Notes and Second Mortgages and certain Guaranty and Suretyship Agreements executed by EBL&S Property Management, Inc. and Edward B. Lipkin. Additionally, the Firstrust Note contains a confession of judgment against E&H and the Guaranty and Suretyship Agreements contain a confession of judgment against EBL&S Property Management, Inc. and Edward B. Lipkin.
At December 31, 2003, $1,093,000 has been advanced and $19,000 in accrued interest was due under the NPAMLP Lines and $1,133,000 has been borrowed under the E&H Firstrust Line, respectively.
F. TENANT IMPROVEMENTS
The current retail rental market is such that proposed tenants for vacant space and those tenants whose leases are scheduled for renewal are aware of the pressure landlords are under to obtain and keep tenants and in certain instances are able to negotiate lease terms at reduced rental rates. Many of these tenants insist on substantial tenant improvement contributions from landlords. In the event that the tenants pay for their own improvements, they may pay a correspondingly lower rental rate than they would otherwise pay or are allowed rental abatements during the term of their leases. For the year ending December 31, 2003, approximately $25,000 was provided to tenants in rental abatements.
II. CRITICAL ACCOUNTING POLICIES
NPAMLP uses estimates and assumptions that can have a significant effect on the amounts that are reported in its financial statements. Management believes the following are its most significant accounting policies as they may require a higher degree of judgement and estimation.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Asset. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 supercedes the accounting and reporting
provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, SFAS No. 144 retains the requirements of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in distribution to owners), or is classified as held for sale.
NPAMLP adopted SFAS No. 144 on January 1, 2002 and accordingly, the results of operations of the properties disposed of or held for sale during the years ended December 31, 2003 and 2002 have been classified as Discontinued operations in the Statement of Operations and Changes in Partners' Deficit for the three years ended December 31 2003, 2002 and 2001. The gain reported in discontinued components was $808,000 for the year ended December 31, 2003. For the years ended December 31, 2002 and 2001, a loss of $5,064,000 and $1,549,000, respectively, was reported in discontinued operations. See "Item 6. Selected Financial Data."
As required by SFAS No. 144, rental properties are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of rental properties is measured by comparison of the carrying amount of the properties to future net cash flows expected to be generated by the properties or to an appraised amount. If any property is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds its fair value. Properties to be disposed are reported at the lower of the carrying amount or the fair value less costs to sell.
During the year ended December 31, 2002, an analysis of the estimated future undiscounted cash flows from the Hutchinson, Minnesota property indicated that the property might be impaired. A write-down of $413,000 was required under SFAS No. 144 and is included in discontinued components for the year ended December 31, 2002. During the year ended December 31, 2001, an analysis of the estimated future undiscounted cash flows from the Borger, Texas property indicated that the property might be impaired. A write-down of $250,000 was required under SFAS No. 121 and is included in Write-down of rental property for the year ended December 31, 2001. The estimated fair value of these properties was determined by management based on projected cash flows and market trends. In July 2003, the Hutchinson property was foreclosed by the property's lender (see "Results of Operations - Property Dispositions During Fiscal 2003" below).
III. RESULTS OF OPERATIONS
A. PROPERTY DISPOSITIONS DURING FISCAL 2003
NPAMLP owned 37 and 40 properties at December 31, 2003, and 2002, respectively. As a result of Kmart's bankruptcy petition and subsequent rejection of certain leases, the Sparks, Fort Wayne and Newberry properties were disposed and the Lake Mary property could be disposed. Also, the Kmart lease at the Bowling Green property was rejected during the second quarter of 2002. See "Item 1. Business - II. NPAMLP Objectives and Policies - B. Competition for Tenants - Anchor Tenants."
During the first quarter of 2003 NPAMLP sold the Escanaba, MI property and the vacant anchor tenant space at the Wheelersburg, OH property. The net gain on sale of the Escanaba property, including the forgiveness of wraparound mortgages payable, net of discounts was $495,000. The net gain on the sale of the vacant anchor tenant space at the Wheelersburg property was $336,000.
During the second quarter of 2003 the Clackamas, OR property was conveyed to the holder of a 1995 option agreement in accordance with its terms. The net gain on this transaction, including the forgiveness of wraparound mortgages payable, net of discounts was $186,000. In addition, the Hutchinson, MN property was foreclosed by the holder of the Third Party Underlying Mortgage. As a result, NPAMLP recorded a net gain in disposition of properties, including forgiveness of wraparound mortgages, net of discounts in the amount of $1,197,000.
B. PROPERTY ACQUISITIONS DURING FISCAL 2001
During 2001, a property located in Lawnside, New Jersey was acquired to complete a 2000 transaction structured to be a tax-free exchange in accordance with Section 1031 of the Internal Revenue Code. See "Item 5. Market Price for the Registrant's Common Equity and Related Stockholder Matters - IV. Certain Income Tax Consequences - A. Recognition of Gain."
C. FULL FISCAL YEARS
Over the five year period ended December 31, 2003, NPAMLP disposed of 14 Properties and acquired 2 Properties. Between 1999 and 2001, 2 Properties were disposed and 2 Properties were acquired in transactions structured to be tax-free exchanges in accordance with Section 1031 of the Internal Revenue Code. The net number of Properties owned and disposed of by year are as follows:
The disposition of Properties resulted in "Net (loss) gain on disposition of properties" and "Forgiveness of wraparound mortgages payable on disposition of properties" as reflected in the financial statements.
The following table reflects the operating results (in thousands) for NPAMLP for the years ended December 31, 2003, 2002, 2001, 2000 and 1999, excluding the operating results for 14 Properties that were disposed and 2 Properties that were acquired during the five year period. The table is presented in order to facilitate an understanding of the operating results and trends of NPAMLP.
The fluctuations in "Rental Income" between years has been modest and did not exceed 1.7% for any of the years presented. This is consistent with the Property portfolio which has a significant portion of space rented to Anchor Tenants under long term leases. Variances from year to year are primarily a result of increased or decreased percentage rental income which is derived from tenant sales. Anchor Tenant sales depend largely on the overall economy, however, also during 2002, NPAMLP's major tenant (Kmart) filed for bankruptcy protection. This has resulted in a general decrease in Rental income and Other charges to tenants as well as an increase in Other operating expenses.
The reduction in Other charges to tenants between 2001 and 2002 was primarily a result of reduced common area maintenance reimbursements which primarily resulted from reduced snow removal expenses during 2001.
The Properties are financed by long term fixed rate debt and consequently fluctuations between 1999 and 2003 did not exceed 3.2% for any of these years.
The increase in Other operating expenses between 2001 and 2003 was primarily a result of increased general and administrative costs. Between 2001 and 2002, these costs included a large increase in bad debt expense which was partially due to direct write-offs of uncollectible accounts receivable and to an increase in the allowance for bad debt. The allowance and corresponding expense was increased by $220,000 due to the Kmart bankruptcy and management's recent experience with other uncollectible accounts from tenants other than Kmart. Also, additional legal and other professional fees were incurred as a result of the Kmart bankruptcy, which further increased NPAMLP's general and administrative expenses between 2001 and 2002 and between 2002 and 2003. An additional increase in Other operating expenses between 2002 and 2003 resulted from increased repairs and maintenance expenses which included environmental remediation incurred in connection with the preparation of new tenant space.
The increases in depreciation and amortization between 1999 and 2003 are due to capital improvements.
IV. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
V. INDEBTEDNESS SECURED BY THE PROPERTIES
The Properties are subject to certain indebtedness which was incurred in connection with the acquisition of the Properties by the Partnerships. As of December 31, 2003, the aggregate indebtedness of NPAMLP pursuant to the Wrap Mortgages was approximately $238 million, of which approximately $65 million constituted indebtedness under the Third Party Underlying Obligations and $20 million constituted indebtedness under the Second Mortgages. See "Item 5. Market Price for the Registrant's Common Equity and Related Stockholder Matters - IV. Certain Income Tax Considerations - A. Recognition of Gain." As of December 31, 2003, the aggregate historical cost of the Properties securing the indebtedness of NPAMLP mortgages was approximately $182 million. The original acquisition of the Properties by the Partnerships was typically structured as set forth below.
Typically, NPA acquired a Property from an unaffiliated seller. NPA thereafter sold the Property to a Pension Group. The Partnership acquired the Property from the Pension Group. In both the original acquisition and the purchase by the Pension Group, the purchasers (i.e., NPA and the Pension Group) took the Properties subject to existing mortgages in favor of the sellers or unaffiliated third parties. Consequently, as a general matter, at the time it was acquired by the Partnership, each Property was subject to a Third Party Underlying Obligation and a Second Mortgage.
The Partnerships typically paid the purchase price for the Properties in part by delivering to the Pension Group a Wrap Mortgage. The Wrap Mortgage represented a lien on the Property subordinate to the Third Party Underlying Obligation and the Second Mortgage. Neither the Third Party Underlying Obligation nor the Second Mortgage represented direct financial obligations of the Partnership. Rather, the Wrap Mortgage required the Pension Group to use the payments made thereunder to make the required payments under the Third Party Underlying Obligation and the Second Mortgage. The Third Party Underlying Obligation and the Second Mortgage continued, however, as liens against the Property. The Wrap Mortgage obligated the Partnership to comply with all the terms and conditions of the Third Party Underlying Obligation and the Second Mortgage.
The Properties whose ownership was consolidated in NPAMLP remain subject to the Third Party Underlying Obligations, Second Mortgages and Wrap Mortgages incurred in connection with the acquisition of the Properties. However, the Wrap Mortgages and Second Mortgages have been restructured.
A. THIRD PARTY UNDERLYING OBLIGATIONS
Information relating to the Third Party Underlying Obligations is included in Schedule 3 which appears under "Item 2. Properties" above.
B. THE SECOND MORTGAGES AND NOTES
Under the terms of the Restructuring Agreement, no payments are currently due on the Second Mortgages. The approximate outstanding principal balance of the Second Mortgages as of December 31, 2003, was approximately $20 million. The Restructuring Agreement provides that this indebtedness will be paid from proceeds realized from the sale of property subject to the sharing arrangement established in the Restructuring Agreement.
C. THE RESTRUCTURED WRAP MORTGAGES
The Wrap Mortgages represent an obligation of NPAMLP and a lien against the Properties in favor of the Pension Groups. The lien is subordinate to the Third Party Underlying Obligations and the Second Mortgages.
The Restructuring Agreement amended and restructured each Wrap Note to provide that each Wrap Note would consist of the obligation to pay two principal balances, an interest-bearing principal balance equal to the original principal indebtedness when the Wrap Note was first executed and delivered by the
Partnership less amounts of principal, if any, paid prior to January 1, 1990, and an non-interest bearing principal balance equal to the amount of interest accrued and unpaid under the Wrap Note prior to January 1, 1990. The Restructuring Agreement adjusted the interest rate on the Wrap Notes in such a way that the interest bearing principal balance earns interest at a rate elected by the Managing General Partner to assure that there will be adequate interest paid over the life of the Wrap Note to comply with applicable Internal Revenue Code requirements in order to prevent the imputation of interest. The interest rates on the Restructured Wrap Mortgages (the "Restructured Wrap Mortgages") range from 0% of the principal balance of some Wrap Mortgages to 10%. The Wrap Notes mature on December 31, 2013.
Each amended Wrap Note requires a minimum annual payment from NPAMLP in an amount equal to the 1990 Debt Service payable on the Third Party Underlying Obligations secured by the same Properties as the Wrap Mortgages which secured such Wrap Note prior to the Restructuring. These minimum payments are applied first to past due interest and principal payments under the Wrap Notes, if any, then to current interest and principal payments due on the Wrap Notes, then against the interest-bearing principal balances of the Wrap Notes, allocated among the Wrap Notes as the Pension Groups elect, and finally to the non-interest-bearing principal balances, allocated among the Wrap Notes as the Pension Groups elect. The Restructuring Agreement requires NPAMLP to make additional payments on the Wrap Notes on April 10th of each year equal to sixty percent (60%) of the amounts by which Cash Flow from Operations for the previous year exceeded the sum of the minimum annual payment in such year plus the current payments due in such year on any indebtedness incurred after January 1, 1990 for Capital Improvements to any of the Properties. The holder of the Wrap Notes applies the minimum annual payments to pay the current payments due on the Third Party Underlying Obligations.
The Restructuring Agreement provides that all the Wrap Notes which were originally secured by Wrap Mortgages on the Properties which NPAMLP acquired from partnerships audited by the Internal Revenue Service will be secured by all of those Wrap Mortgages and will not be secured by Wrap Mortgages on the Properties which NPAMLP acquired from the Unaudited Partnerships. All of the Wrap Notes which were originally secured by Wrap Mortgages on the Properties which NPAMLP acquired from Unaudited Partnerships are secured by all of those Wrap Mortgages and are not secured by Wrap Mortgages on the Properties which NPAMLP acquired from partnerships audited by the Internal Revenue Service. The holder of the Wrap Mortgages agreed in the Restructuring Agreement to release from the lien of the Wrap Mortgages any Property sold by NPAMLP, upon payment to the holder of the Wrap Mortgages, as a pre-payment of the Wrap Notes, an amount equal to all of the Proceeds of Sales of the Properties not permitted by the Restructuring Agreement to be retained by NPAMLP.
The Restructuring Agreement permits NPAMLP to have the opportunity to retain, in certain circumstances, a portion of the Excess Proceeds. In accordance with the Restructuring Agreement the Excess Proceeds derived from the Proceeds of Sales of the Properties are applied as noted below.
The Excess Proceeds are applied as follows: (a) 100% of the Excess Proceeds are applied in payment of the Wrap Mortgages until the Threshold Amount has been paid; (b) the next $70 million of Excess Proceeds are allocated 60% to the payment of the Wrap Mortgage and 40% are retained by NPAMLP; (c) 100% of the next Excess Proceeds up to an amount equal to the Investor Note Recovery or $25 million, whichever is less, are retained by NPAMLP and distributed by NPAMLP to the Investor Note Payors; (d) the next Excess Proceeds are allocated by 60% to the payment of the Wrap Mortgages and 40% are retained by NPAMLP up to an amount equal to the outstanding balances for the Wrap Mortgages on January 1, 1990 less the sum of: (i) the aggregate amount of the sums previously paid as Minimum Payoff Amounts; (ii) the Investor Note Recovery, and (iii) $70 million; (e) 100% of the next Excess Proceeds are applied in payment of the Wrap Mortgages in the amount equal to (i) the amount necessary to pay in full the Wrap Mortgages on Properties acquired from partnerships audited by the Internal Revenue Service, in the case of Excess Proceeds generated by the sale of such a Property, and (ii) the amount necessary to pay in full the Wrap Mortgages on Properties acquired from Unaudited Partnerships, in the case of Excess Proceeds generated by the sale of such a Property; and (f) 100% of any additional Excess Proceeds are retained by NPAMLP.
The Restructuring Agreement provides for indebtedness which may be incurred to finance Capital Improvements to the Properties after January 1, 1990, and requires that in connection with any sale of Property by NPAMLP, the loans for Capital Improvements to such Property must either be paid in full or assumed by the purchaser of the Property before the Wrap Mortgage on such Property will be released.
The Restructuring Agreement permits the holders of the Wrap Mortgages to refinance or negotiate modifications to the Third Party Underlying Obligations,
so long as the aggregate amount of all Third Party Underlying Obligations is not increased. The fees and expenses associated with any such refinancing or modification are required to be borne by the holders of the Wrap Mortgages.
The Restructuring Agreement spreads the lien securing each of the Second Mortgages to all of the Properties owned by NPAMLP and all of the Second Mortgages have been "wrapped" or included within all of the Wrap Mortgages.
D. FUTURE INTEREST AGREEMENT
In March 2003 NPAMLP, NPAEP and PVPG, entered into an Agreement, effective as of January 1, 2003 (the "2003 Agreement"), in which NPAEP and PVPG agreed with NPAMLP to modify the terms of Wrap Mortgages held by NPAEP and PVPG. The terms of the 2003 Agreement provide that NPAEP and PVPG will: (a) reduce to 4.1% per year the annual interest rate payable on any NPAEP Wrap Note or PVPG Wrap Note that bears a stated annual interest rate in excess of that amount; (b) remove certain of the properties secured by the NPAEP and PVPG Wrap Mortgages from the burden of the cross-default and cross-collateralization provisions currently contemplated by the Restructuring Agreement effective as of January 1, 1990 by and among MLPG, NPAMLP, National Property Analysts, Inc. and others; and (c) agree to release the lien of the Wrap Mortgages from the Properties upon a sale of or the agreement of a leasehold estate in any Property prior to the maturity of the applicable Wrap Note. In consideration for the above, NPAMLP will modify the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages to provide that (i) there is an event of default under the applicable NPAEP Wrap Mortgages or PVPG Wrap Mortgages, as the case may be, if a judgment or other lien is entered against the title or lease-holding entity thereby entitling NPAEP or PVPG, as the case may be, to avail itself of the post-default rights or remedies under the relevant security document; and (ii) for cross-default and cross-collateralization among the Unaudited Partnerships and, separately, among the Audited Partnerships. In addition NPAMLP shall execute and deliver to NPAEP or PVPG, as the case may be, a currently recordable deed of future interest (or assignment of future leasehold interest) sufficient to convey to NPAEP or PVPG, as the case may be, all of NPAMLP's right, title, interest and estate in and to its fee or leasehold interest in the encumbered properties effective upon the maturity on December 31, 2013 of the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages unless the Wrap Mortgages have previously been paid in full.
The Managing General Partner believes that the execution and delivery of the 2003 Agreement will have the following effects for NPAMLP: as a result of the reduction in the annual interest rate on the NPAEP Wrap Notes and the PVPG Wrap Notes (i) NPAMLP expects to realize significant reductions in interest that it otherwise would have been obligated to pay during the period between January 1, 2003 and December 31, 2013 when these loans mature and (ii) NPAMLP will be able to allocate a greater portion of its available cash flow to principal repayments. As a result of the faster repayment of principal, the Limited Partners will recognize additional taxable income (or smaller tax losses) in each year from 2003 until the maturity of the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages. In addition, the anticipated date of dissolution of NPAMLP will now occur in 2013 rather than 2015. Further, because the reduced interest rate is below the Applicable Federal Rate ("AFR") prescribed under Section 1274 of the Internal Revenue Code of 1986, as amended, investors in Unaudited Partnerships will recognize non-recurring ordinary income (forgiveness of indebtedness) on average of approximately $4,000 per Limited Partner in 2003. The tax impact of this recognition will depend upon numerous factors related to each investor's particular tax situation, including his marginal tax rate and his suspended passive losses from prior years. Each investor is urged to consult his own tax advisor for further advice on this point.
Under the terms of the Restructuring Agreement, all Wrap Mortgages owned by NPAEP or PVPG are due and payable in substantial "balloon" amounts on December 31, 2013. Assuming no sales of Properties by NPAMLP in the interim period (2003 through 2013) the projected balance due for all of the Wrap Mortgages at December 31, 2013 is expected to approximate $143,000,000. As described above, in return for the reduction in interest rate and other consideration set forth above, including the satisfaction of the Wrap Mortgages due on December 31, 2013, NPAMLP's general partner has agreed to deliver deeds of future interest and assignments of leasehold interest, to be recorded currently, effective December 31, 2013, to NPAEP and PVPG. NPAMLP's general partner has determined that it is in the best interests of NPAMLP and its partners to do so. The effect of these deeds and assignments will be to facilitate a transfer of fee and leasehold ownership to the holders of the Wrap Mortgages at maturity (unless the Wrap Mortgages have been previously paid in full). Notwithstanding the foregoing, NPAEP and PVPG have agreed in the 2003 Agreement to (a) release the liens of the Wrap Mortgages and (b) deliver such deeds of future interest, assignments of leasehold interests, or other documents or instruments as are necessary to facilitate or effect such sales of the Properties prior to December 31, 2013 as the Managing General Partner shall otherwise deem desirable. The costs incurred arising from the recordation of any of the documents described in the 2003
Agreement shall be borne by NPAEP or PVPG, as the case may be. The Managing General Partner believes that the result of the forgoing actions taken pursuant to the 2003 Agreement will preserve all rights of the Limited Partners under the Restructuring Agreement, including their right to share in certain sales proceeds or cash flows prior to maturity of the Wrap Mortgages.
Neither NPAMLP, NPAEP nor PVPG were represented by independent counsel or retained other independent advisers or consultants in connection with the negotiation, execution or delivery of the 2003 Agreement. Nonetheless, the Managing General Partner believes that the transactions permitted or contemplated by the 2003 Agreement are fair and equitable to NPAMLP and the other parties involved.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks to NPAMLP primarily relate to changes in interest rates. The interest rate exposure of NPAMLP primarily relates to its Wrap Mortgage obligations. A significant portion of the Wrap Mortgage interest expense is based upon an imputed rate which exceeds the stated rate. As a result, management does not believe that NPAMLP's debt structure would be significantly impacted by a change in the market rate of interest. The Wrap Mortgages and the imputation of its interest is further discussed in NPAMLP's combined financial statements and the accompanying notes 2(e) and 9 thereto which are included in Part IV, Item 15 of this Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The combined financial statements, including the notes thereto and the report of the independent certified public accountants, are included in Part IV, Item 15 of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 22, 2002, the General Partners of NPAMLP approved the engagement of Asher & Company, Ltd as its independent public accountants for the fiscal year ending December 31, 2002, to replace the firm of KPMG LLP, which was dismissed as auditors of NPAMLP effective May 22, 2002. The appointment of Asher & Company, Ltd. is not subject to ratification by NPAMLP's Limited Partners.
In connection with the audits of NPAMLP's financial statements for the fiscal years ended December 31, 2001 and December 31, 2000, and in the subsequent period through May 22, 2002, there were no disagreements between NPAMLP and KPMG LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of KPMG LLP would have caused them to make reference to the matter in their report.
The reports of KPMG LLP on NPAMLP's combined financial statements for the years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.
During the years ended December 31, 2001 and December 31, 2000 and during the subsequent period through May 22, 2002, NPAMLP did not consult Asher & Company, Ltd with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on NPAMLP's combined financial statements, or any other matters or reportable events as set forth in Items 304 (a) (2) (i) and (ii) of Regulation S-K.
ITEM 9(a). CONTROLS AND PROCEDURES
Within the ninety-day period prior to the filing of this report on form 10-K, an evaluation was carried out under the supervision and with the participation of NPAMLP's management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of NPAMLP's disclosure controls and procedures. The conclusions of such officers with respect to the effectiveness of NPAMLP's disclosure controls and procedures are set forth hereinafter. Additionally, there were no significant changes in NPAMLP's internal controls or in other factors that could significantly affect these controls subsequent to the date of such officer's evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses (none of which were found to exist). (See "Certifications" set forth as Exhibits).
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
I. SUMMARY
EBL&S, Inc., a Delaware corporation incorporated in December, 1989, and an affiliate of NPA, is the Managing General Partner of NPAMLP. Feldman International, Inc., a Delaware corporation incorporated in September 1998 is the Equity General Partner of NPAMLP. The Managing General Partner is owned 100% by E&H Properties, Inc., a Pennsylvania corporation incorporated in July, 1979, which is owned 100% by Edward B. Lipkin. The Equity General Partner is owned 100% by Robert McKinney.
The directors and executive officers of the General Partners are as follows:
Edward B. Lipkin, age 58, serves as Director of the Managing General Partner. Mr. Lipkin has also been President of NPA since it was organized in 1976. Mr. Lipkin received a Bachelor of Science degree in Finance from Temple University. Mr. Lipkin was a Trustee of the International Council of Shopping Centers, a leading industry organization, from 1986 to 1992.
Robert McKinney, age 48, serves as Director of the Equity General Partner. Mr. McKinney received a Masters of Science and Masters of Business Administration from Villanova University and Temple University, respectively.
II. CODE OF ETHICS
In view of the fiduciary obligation that the Managing General Partner has to NPAMLP, the Managing General Partner believes an adoption of a formal code of ethics is unnecessary and would not benefit NPAMLP, particularly, in light of NPAMLP's limited business activities.
III. AUDIT COMMITTEE FINANCIAL EXPERT
Because the Managing General Partner does not have an audit committee, it has not designated an audit committee financial expert.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Neither the General Partners nor the officers of the General Partners receive compensation from NPAMLP. Certain administrative services related to tax and accounting service and to investor note collections were performed by the Managing General Partner on behalf of NPAMLP as provided in the Partnership Agreement. The amount payable to the Managing General Partner for such services aggregated $157,000, $160,000 and $77,000 for the years ended December 31, 2003, 2002 and 2001, respectively. See "Item 13. Certain Relationships and Related Transactions - I. Compensation and Fees and II. Property Management by Affiliate."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
I. COMPENSATION AND FEES
The amounts and kinds of compensation and fees to be paid to the General Partners and its affiliates during the operation of NPAMLP are summarized below.
II. PROPERTY MANAGEMENT BY AFFILIATE
As of January 1, 1990, NPAMLP entered into a management agreement with EBL&S Property Management, Inc., a Delaware corporation ("Property Manager"), with respect to the management of the Properties ("Management Agreement"). EBL&S Property Management, Inc. is owned 100% by E&H Properties, Inc. which also is the sole shareholder of NPAMLP's Managing General Partner, EBL&S, Inc. The directors of EBL&S Property Management, Inc. are the same as those of the Managing General Partner.
Pursuant to the Management Agreement, the Property Manager receives a management fee equal to five (5%) percent of all gross operating revenues derived from the Properties payable as and when such income is received, plus a leasing fee for all obtained or renewed leases equal to the fees customarily charged in the geographic area of the leased property, payable as customary in such area.
- --------------------- (1) All expenses of NPAMLP are billed directly to and paid by NPAMLP. The Managing General Partner is reimbursed for the actual cost of goods and materials used for or by NPAMLP and obtained from entities which are not affiliates of the Managing General Partner. In addition, the Managing General Partner is reimbursed for administrative services performed for NPAMLP, provided that such services are necessary for the prudent operation of NPAMLP and further provided that such reimbursement is at the lower of (i) the Managing General Partner's actual cost or (ii) the cost of obtaining comparable administrative services from independent parties in the same geographic location. Reimbursement to the Managing General Partner for services for which it is entitled to compensation by way of a separate fee is not allowed. No reimbursement is made for rent, depreciation, utilities, or capital equipment in the building in which NPAMLP maintains offices and other overhead costs.
An aggregate of approximately $887,000 was earned by the Property Manager for management fees, and an aggregate of approximately $107,000 was earned by the Property Manager for leasing fees for the fiscal year 2003.
III. CONFLICTS OF INTEREST
From time to time, there may be conflicts of interest between the Managing General Partner and its affiliates (including the Property Manager) on the one hand and NPAMLP and its Limited Partners on the other hand. The Managing General Partner will attempt to resolve any conflicts of interest by exercising the good faith required of fiduciaries, and the Managing General Partner believes that it will generally be able to resolve conflicts on an equitable basis. Depending on the relevant facts and circumstances, however, the resolution of any particular conflict may not be in favor of NPAMLP. A resolution which is unfavorable to NPAMLP will result only if the Managing General Partner determines in good faith, bearing in mind its fiduciary duties, that it is the most appropriate to deal with the overall situation. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - I. Liquidity and Capital Resources."
A. CONFLICT REGARDING SALES AND REFINANCING
The Managing General Partner is an affiliate of NPA. NPA or its affiliates hold the Second Mortgages aggregating $20 million. This lack of independence gives rise to certain conflicts of interest with respect to the sale or refinancing of the Properties.
The Managing General Partner oversees sales, leases, financing, operations and management of the Properties and decides which Properties are sold and how to apply the Proceeds of Sales of the Properties. Because NPA or its affiliates hold the Second Mortgages on the Properties which will be repaid from the Proceeds of Sales of the Properties and the Managing General Partner is an affiliate of NPA, the Managing General Partner may not be solely interested in ensuring that sales of Properties generate sufficient proceeds to enable the Limited Partners to receive distributions with respect thereto. However, pursuant to the Restructuring Agreement, a portion of all proceeds derived from sale of the Properties in excess of the Threshold Amount will be applied in payment of the Wrap Mortgages. Accordingly, the Managing General Partner (as an affiliate of NPA) will have a financial incentive to cause NPAMLP to maximize Proceeds of Sales of the Properties. Furthermore, the Managing General Partner is accountable to NPAMLP and the Limited Partners as a fiduciary and, consequently, must exercise good faith and integrity in handling the affairs of NPAMLP and must take its Limited Partners' interests in account in making decisions regarding sales and refinancing.
B. OTHER ACTIVITIES OF THE AFFILIATES OF THE GENERAL PARTNERS
There is no limitation on the right of the affiliates of the General Partners to engage in any business even if the business is competitive with the business of NPAMLP. For instance, if an affiliate of the General Partners owns or manages a property which competes for tenants with a Property owned by NPAMLP, the economic interest of the equity owners of the General Partners in that affiliate may create a conflict between the General Partners or the Property Manager on the one hand and NPAMLP on the other with respect to allocating prospective tenants between competitive properties. The Managing General Partner and its affiliates presently own properties that are competitive with the Properties and affiliates of the Managing General Partner may act as manager of such properties.
C. COMPETITION BY NPAMLP WITH AFFILIATES OF THE MANAGING GENERAL PARTNER FOR SERVICES OF OFFICERS AND EMPLOYEES
NPAMLP depends on the Managing General Partner to operate NPAMLP. The Managing General Partner believes it will have sufficient staff personnel and resources to perform all of its duties with respect to managing NPAMLP. However, because the staff personnel and resources are shared with affiliates, the Managing General Partner and certain of its affiliates have conflicts of interest in the allocation of management and staff time, services and functions among NPAMLP and other entities in existence or which may be organized.
IV. SUMMARY OF RELATIONSHIPS
E&H Properties, Inc. owns 100% of the equity interest in EBL&S, Inc. (the Managing General Partner) and EBL&S Property Management, Inc. (the Property Manager). E&H Properties, Inc. is owned 100% by Edward B. Lipkin (Lipkin). Feldman International, Inc. is owned 100% by Robert McKinney, an employee of the Property Manager. The General Partners and the Property Manager both have ongoing relationships with NPAMLP. E&H Properties, Inc. and the affiliates which it controls are the holders of the Second Mortgages.
V. RELATED PARTY TRANSACTIONS
During 1996, the El Paso, Texas property was sold to a limited partnership owned by directors and executives of the Managing General Partner. The sales price of the property was determined to be at fair market value by an independent appraiser. In connection with the transaction, a promissory note was issued to NPAMLP in the approximate amount of $436,000. The note is interest only, bears interest at 10% and matures on November 1, 2008.
During the first quarter of 2001, NPAMLP completed a transaction structured as a tax-free exchange in accordance with Section 1031 of the Internal Revenue Code by purchasing a property located in Lawnside, New Jersey for $4,507,000 which included the assumption of related debt in the amount of $4,507,000 from a limited partnership controlled by Lipkin.
During the first quarter of 2002, NPAMLP sold a property located in Newberry, South Carolina for $1,080,000 which included the assumption of related debt in the amount of $650,000 to a limited partnership in which Lipkin owned the 1% interest of the general partner. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $522,000. During the third quarter of 2002, NPAMLP sold a property located in Fairfield, Iowa for $650,000 to a limited partnership in which Lipkin owned the 1% interest of the general partner. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $690,000.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
I. AUDIT FEES
The aggregate fees billed for each of the last two fiscal years for professional services rendered by Asher & Company, Ltd. and KPMG, LLP for the audit of NPAMLP's annual financial statements and review of financial statements included in NPAMLP's Form 10-Q, or services that are normally provided by the accountant in connection with the statutory and regulatory filings or engagements for such two fiscal years, amounted to $106,000 ($56,000 and $50,000 for the years ended December 31, 2003 and 2002, respectively), and $21,000 ($7,000 and $14,000 for the years ended December 31, 2003 and 2002, respectively), respectively.
II. AUDIT RELATED FEES
The aggregate fees billed in each of the last two fiscal years for assurance and related services by KPMG, LLP that are reasonably related to the performance of the audit or review of NPAMLP's financial statements and are not reported above in "Item 14 - I. Audit Fees", amounted to $5,000 for the year ended December 31, 2002. The nature of the services comprising the fees disclosed under this category included the review of Form 8-K and predecessor review of audit workpapers.
III. TAX FEES
The aggregate fees billed in each of the last two fiscal years for professional services rendered by Asher & Company, Ltd. for tax compliance, tax advice and tax planning were $12,000 ($6,000 for each of the years ended December 31, 2003 and 2002).
IV. ALL OTHER FEES
There were no fees billed in each of the last two fiscal years for products or services provided by Asher & Company, Ltd. other than the services reported in the three preceding paragraphs.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
I. DOCUMENTS FILED AS PART OF THIS REPORT
A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
B. EXHIBITS
* Incorporated by reference from Registrant's Report on Form 10 filed July 14, 1994 (0-24816)
** Incorporated by reference from Registrant's Report on Form 10-K filed April 1, 1996 (0-24816).
*** Incorporated by reference from Registrant's Report on Form 10-K filed March 31, 2003 (0-24816).
**** Incorporated by reference from Registrant's Report on Form 10-Q filed November 11, 2003 (0-24816).
II. REPORTS ON FORM 8-K
On May 29, 2002, NPAMLP reported on Form 8-K that the General Partners of NPAMLP approved the engagement of Asher & Company, Ltd as its independent public accountants for the fiscal year ending December 31, 2002, to replace the firm of KPMG LLP, which was dismissed as auditors of NPAMLP effective May 22, 2002. See "Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure."
SIGNATURES
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 PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (Registrant)
By: EBL&S, Inc., its managing general partner
By: /s/ Edward B. Lipkin ------------------------------ Edward B. Lipkin Director
Date: March 12, 2004
By: Feldman International, Inc., its equity general partner
By: /s/ Robert McKinney ------------------------------ Robert McKinney Director
Date: March 12, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEPENDENT AUDITORS' REPORT
General Partners National Property Analysts Master Limited Partnership
We have audited the accompanying combined balance sheets of National Property Analysts Master Limited Partnership (NPAMLP) (a limited partnership) as of December 31, 2003 and 2002 and the related combined statements of operations and changes in partners' deficit, and cash flows for the years then ended. In connection with our audits of the combined financial statements, referred to above, we have also audited the financial statement schedules of properties effectively owned by NPAMLP (Schedule I), combined valuation and qualifying accounts (Schedule II), and combined real estate and accumulated depreciation schedule (Schedule III) as of December 31, 2003 and 2002. These combined financial statements and financial statement schedules are the responsibility of NPAMLP's management. Our responsibility is to express an opinion on these combined financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of National Property Analysts Master Limited Partnership as of December 31, 2003 and 2002 and the combined results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic combined financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania March 5, 2004
INDEPENDENT AUDITORS' REPORT
General Partners National Property Analysts Master Limited Partnership
We have audited the combined statement of operations and changes in partners' deficit of National Property Analysts Master Limited Partnership (NPAMLP) (a limited partnership), and the related combined statement of cash flows for the year ended December 31, 2001. In connection with our audit of the combined financial statements referred to above, we have also audited the financial statement schedules of combined valuation and qualifying accounts for the year ended December 31, 2001 and combined real estate and accumulated depreciation as of December 31, 2001. These combined financial statements and financial statement schedules are the responsibility of NPAMLP's management. Our responsibility is to express an opinion on these combined financial statements and financial statement schedules based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amount and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2001 combined financial statements referred to above present fairly, in all material respects, the results of operations of NPAMLP and its cash flows for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related combined financial statement schedules, when considered in relation to the basic combined financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ KPMG, LLP
Philadelphia, PA March 15, 2002
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Combined Balance Sheets December 31, 2003 and 2002 (in thousands)
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Combined Statements of Operations and Changes in Partners' Deficit Years ended December 31, 2003, 2002 and 2001 (in thousands, except unit data)
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Combined Statements of Cash Flows Years ended December 31, 2003, 2002 and 2001 (in thousands)
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
(1) FORMATION AND DESCRIPTION OF BUSINESS
National Property Analysts Master Limited Partnership (NPAMLP), a limited partnership, was formed effective January 1, 1990. NPAMLP is owned 99% by the limited partners and 1% collectively by EBL&S, Inc., the managing general partner, and Feldman International, Inc. (FII), the equity general partner. EBL&S, Inc. assigned its economic interest as general partner to FII on September 30, 1998.
The properties included in NPAMLP consist primarily of shopping centers and free-standing, single-tenant retail stores with national retailers as prime tenants. The ownership and operations of these properties have been combined in NPAMLP pursuant to a consolidation (the Consolidation) of properties owned by certain limited partnerships (the Electing Partnerships) previously sponsored by National Property Analysts, Inc. and its affiliates (NPA). NPAMLP intends to hold the properties until such time as it is deemed prudent to dispose of them. The precise timing of disposition of the properties is at the discretion of the managing general partner. However, in accordance with the partnership agreement, the partnership will terminate on December 31, 2013. It is anticipated that as a result of the sale of the properties, the limited partners will have to report substantial taxable income without the corresponding receipt of any cash proceeds.
The properties were originally purchased by the Electing Partnerships from unaffiliated limited partnerships owned by various pension and profit sharing trusts, whose interests were subsequently acquired by Main Line Pension Group (MLPG). Properties were purchased by the Electing Partnerships subject to existing senior mortgages in favor of the sellers or unaffiliated third parties. In connection with the acquisition of the properties, wraparound mortgages were delivered by the Electing Partnerships to MLPG which were subordinate to the third- party underlying mortgage obligations and other second mortgages. Neither these third-party underlying obligations nor the second mortgages represented direct financial obligations of the Electing Partnerships. The Electing Partnerships were required to make payments on the wraparound mortgages to MLPG, which was required to make payments on the underlying obligations.
In accordance with the Consolidation, the Electing Partnerships transferred their interests to NPAMLP. The Electing Partnerships include both partnerships that contributed their interests to NPAMLP and certain partnerships whose partnership interests were not contributed as of the effective date of NPAMLP's formation on January 1, 1990, but allocated their interests in NPAMLP as if they were contributed on January 1, 1990. The combined financial statements include the accounts of all Electing Partnerships.
In connection with the Consolidation, NPAMLP, MLPG and certain affiliates entered into a restructuring agreement to modify the terms of repayment of the wraparound notes. The restructuring agreement provided that all wraparound notes which were originally secured by wraparound mortgages on properties owned by Electing Partnerships that were audited by the Internal Revenue Service (the Audited Partnerships) are cross-collateralized by all other wraparound mortgages on other Audited Partnerships. In addition, all wraparound notes which were originally secured by wraparound mortgages on properties owned by Electing Partnerships that were not audited by the Internal Revenue Service (the Unaudited Partnerships) are cross-collateralized by all other wraparound mortgages on other Unaudited Partnerships.
Effective October 1, 1998, National Property Analysts Employee Partnership (NPAEP) and Penn Valley Pension Group (PVPG) acquired the interest of MLPG in certain wraparound mortgages. MLPG, NPAEP and PVPG are collectively referred to as the Pension Groups.
The restructuring agreement provides for a sharing of cash from the proceeds of sales of properties. The restructuring agreement generally provides that the limited partners of NPAMLP receive 40% of the net proceeds, if any, from the sale of properties after repayment of the third-party underlying mortgage obligations once the net proceeds, as defined in the restructuring agreement, from the sale of properties exceed a threshold amount of $45,000 (the Threshold).
Through December 31, 2003, NPAMLP sold properties that generated approximately $35,178 in net proceeds that have been applied as a reduction of the Threshold amount. NPAMLP has not distributed any sales proceeds to its partners since its organization.
Additionally, the limited partners of NPAMLP receive 40% of the cash flow, if any, from operations in excess of debt service requirements and any capital improvements or reserves considered necessary. The remaining cash flow, if any, is applied to the wraparound mortgages in payment of accrued interest and then principal. It is not anticipated that NPAMLP will be in a position to distribute cash flow to its partners in the foreseeable future.
Under the terms of the NPAMLP partnership agreement, the limited partners are entitled to a 99% share of any income or loss and the equity general partner is entitled to a 1% share.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
NPAMLP has working capital as of December 31, 2003, of approximately $1,733, excluding amounts due to the managing general partner and the Pension Groups of $1,437 and $662, respectively. NPAMLP has $773 of unrestricted cash and $157 available under line of credit agreements at December 31, 2003, to meet its short-term obligations. Through December 31, 2003, NPAMLP has replenished its working capital reserves through the sale of properties on which the holders of the second mortgage and the wraparound mortgage have released their liens. In addition, as of December 31, 2003, the managing general partner has advanced approximately $1,437 to NPAMLP but may require the repayment of the advances for its own operational needs.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) RENTAL PROPERTY
Rental properties are stated at original cost to the Electing Partnerships. Depreciation on buildings and building improvements is calculated on the straight-line method over their estimated useful lives of 30 years and 15 to 39 years, respectively.
As required by Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, rental properties are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of rental properties is measured by comparison of the carrying amount of the properties to future net cash flows expected to be generated by the properties or to an appraised amount. If any property is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds its fair value. Properties to be disposed are reported at the lower of the carrying amount or the fair value less costs to sell. Prior to 2002, NPAMLP followed SFAS 121. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and (b) measurement of long-lived assets to be disposed of by sale.
During the years ended December 31, 2002 and 2001, an analysis of the estimated future undiscounted cash flows from the Hutchinson, Minnesota and Borger, Texas properties, respectively, indicated that the properties might be impaired. A write-down of $413 and $250 was required under SFAS No. 144 and SFAS 121, respectively, and is included in "Loss from operations of discontinued components" for the years ended December 31, 2002 and 2001, respectively. In July 2003, the Hutchinson property was foreclosed by the property's lender (see Note 5).
The estimated fair value of these properties was determined by management based on projected cash flows and market trends.
(b) CASH AND CASH EQUIVALENTS
All highly liquid interest-bearing deposits with original maturities of three months or less are considered to be cash equivalents.
(c) RESTRICTED CASH
Restricted cash consists principally of amounts held in escrow for capital improvements, real estate taxes and insurance expenses and amounts due from various bank trust departments, in connection with certain property rents that are assigned to these banks in order to satisfy the debt service on the underlying mortgage obligations. The banks' trust departments periodically remit excess funds to NPAMLP as required under the respective trust agreements. Restricted cash also includes amounts held in reserve for tenant security deposits received.
(d) INVESTMENT SECURITIES
Investment securities, consisting of common and preferred stock, are classified as available for sale and carried at estimated fair value. Unrealized gains and losses on the investment securities are included as a separate component of Partners' Deficit.
(e) DISCOUNT ON WRAPAROUND MORTGAGES
The discount on wraparound mortgages represents the difference between the present value of mortgage payments at the stated interest rate and the imputed rate. The discount is amortized using the interest method over the terms of the mortgages and is recorded as interest expense.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
(f) RENTAL INCOME
Rental income is recognized on a straight-line basis over the terms of the respective leases. Unbilled rent receivable represents the amount by which the straight-line rentals exceed the current rent collectible under the payment terms of the lease agreements. Tenant pass-through charges including common area maintenance, real estate taxes and property insurance are recognized in income when earned and are recorded as other charges to tenants.
(g) INCOME TAXES
No provision has been made in the combined financial statements for income taxes as any such liability is the liability of the individual partners.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of the fair value of certain financial instruments. Cash, investment securities, tenant accounts receivable, accounts payable, and other liabilities as reflected in the combined financial statements approximate fair value because of the short-term maturity of these instruments.
In accordance with SFAS No. 107, NPAMLP has determined the estimated fair value of its wraparound mortgages based on discounted future cash flows at a current market rate. Management estimates that the carrying value approximates the estimated fair value of the wraparound mortgages at December 31, 2003 and 2002.
(i) DISCONTINUED OPERATIONS
In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44, and 64. SFAS No. 145 rescinds Statement of Financial Accounting Standards No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item. Under SFAS 145, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. As a result of this adoption, gains from extinguishment of debt previously reported as extraordinary for the period ended December 31, 2002, have been reclassified in the accompanying combined statement of operations for that period to conform to the presentation required by SFAS No. 145.
(j) NEW PRONOUNCEMENT
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities" with the objective of improving financial reporting by companies involved with variable interest entities. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Historically, entities generally were not consolidated unless the entity was controlled through voting interests. FIN 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the "primary beneficiary" of that entity. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 46 apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003, with early adoption permitted. Also, certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46 did not have an impact on NPAMLP.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates have been made by management with respect to the recoverability of the carrying amounts of rental property. Actual results could differ from these estimates.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
(l) RECLASSIFICATIONS
It is policy of NPAMLP to reclassify prior year financial statements to conform to the current year's presentation. Such reclassifications have no effect on Net loss in the Combined Statements of Operations and Changes in Partners' Deficit.
(3) RELATED-PARTY TRANSACTIONS
NPAMLP is owned 99% by the limited partners and 1% collectively by EBL&S, Inc., the managing general partner and FII, the equity general partner. EBL&S, Inc. assigned its economic interest as general partner to FII, and FII was admitted as the equity general partner on September 30, 1998. EBL&S, Inc. is owned by E&H Properties, Inc (E&H), a corporation owned and controlled by Edward B. Lipkin (Lipkin), a related party.
NPAMLP entered into a leasing and property management agreement with EBL&S Property Management, Inc. (EBL&S) in 1990, which is owned entirely by E&H. Under the agreement, EBL&S is to receive a property management fee equal to 5% of the gross annual rentals collected, including tenant reimbursements for common area maintenance charges, real estate taxes and property insurance. EBL&S is also entitled to receive leasing commissions for obtaining or renewing leases and reimbursement for services provided to NPAMLP for Partnership administration. The leasing commissions paid or due to EBL&S are deferred over the life of their respective leases and are included in Other assets on the Balance Sheet. The leasing commissions due to EBL&S are included in Account payable and other liabilities on the Balance Sheet.
Management fees and administrative services are paid exclusively to EBL&S and are included in the Statement of Operations. Also, included in Other assets is a $436 loan receivable from a partnership in which Lipkin owns a 50% general partnership interest. The loan is unsecured, interest only, bears interest at 10% and matures on November 1, 2008. The Wraparound mortgages payable are held by the Pension Groups. NPAEP and PVPG, which collectively own approximately 97 percent of the outstanding balance of the Wraparound mortgages payable, are controlled by Lipkin. Due from Pension Groups, unamortized discount and interest expense are all financial statement accounts which relate directly to the Wraparound mortgages payable. Other borrowings represent amounts due to E&H. Included within Accounts payable and other liabilities as of December 31, 2003, are $1,437 due EBL&S, $19 due E&H and $125 due limited partnerships where Lipkin has a controlling interest. The amounts due to EBL&S were primarily for property management fees, leasing commissions, administrative services and cash advances for debt service. Amounts earned by EBL&S for the years ended December 31 were as follows:
During the first quarter of 2001, NPAMLP completed a transaction structured as a tax-free exchange in accordance with Section 1031 of the Internal Revenue Code by purchasing a property located in Lawnside, New Jersey for $4,507 which included the assumption of related debt in the amount of $4,507 from a limited partnership controlled by Lipkin. During the first quarter of 2002, NPAMLP sold a property located in Newberry, South Carolina for $1,080 which included the assumption of related debt in the amount of $650 to a limited partnership in which Lipkin owned the 1% interest of the general partner. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $522. During the third quarter of 2002, NPAMLP sold a property located in Fairfield, Iowa for $650 to a limited partnership in which Lipkin owned the 1% interest of the general partner. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $742.
During 1996, the El Paso, Texas property was sold to a limited partnership owned by directors and executives of EBL&S. The sales price of the property was determined to be at fair market value by an independent appraiser. In connection with the transaction, a promissory note was issued to NPAMLP in the approximate amount of $436, which is included in Other assets in the accompanying financial statements. The note is unsecured, interest only, bears interest at 10% and matures on November 1, 2008.
NPA and its principals owned 4,362 of the 100,000 units of NPAMLP as of December 31, 1997. During 1998, NPA and its principals redeemed their interests in NPAMLP in exchange for the transfer of the Trenton, New Jersey property and related wraparound mortgage obligations. As a result, NPA and its principals did not own
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
any of the 97,752 units of NPAMLP at December 31, 2003, 2002 and 2001, respectively.
NPA holds purchase money mortgages on certain properties of NPAMLP. The purchase money mortgages aggregated approximately $19,903 and $24,408 at December 31, 2003 and 2002, respectively.
(4) TENANT LEASES
At December 31, 2003 and 2002, NPAMLP effectively owned and operated 37 and 40 properties, respectively, as listed in Schedule I, that were comprised principally of shopping centers and free standing, single-tenant retail stores with approximately 170 tenants, under various lease agreements which are treated as operating leases.
In addition to minimum rental payments, the leases generally provide for additional rents based on operating results of the tenants, reimbursement for certain common area maintenance charges, real estate taxes and property insurance and renewal options. The leases expire under their original terms at various dates over the next 21 years.
Future minimum lease rentals to be received under noncancellable leases are approximately:
Rental income includes approximately $1,255, $1,018 and $1,107 related to percentage rents for the years ended December 31, 2003, 2002 and 2001, respectively.
(5) MAJOR TENANT
NPAMLP's primary anchor tenant is Kmart Corporation and its subsidiaries ("Kmart") which in 2003, 2002 and 2001 accounted for approximately 39%, 43% and 55%, respectively, of the rental income received by NPAMLP. In January 2002, Kmart filed for protection under Chapter 11 of the United States Bankruptcy Code. As of December 31, 2003, NPAMLP had 17 remaining leases with Kmart aggregating approximately 1,632,000 square feet. As of December 31, 2003, the total due from Kmart was $206. Four of the stores occupied by Kmart had been vacated as of December 31, 2001; however, Kmart had continued to make rental payments under the terms of its lease for each of these properties until three of the four leases were rejected by Kmart in bankruptcy during the first quarter of 2002. Subsequent to its bankruptcy petition, Kmart rejected the leases and ceased payment of rent on the Fort Wayne, Indiana; Lake Mary, Florida and Newberry, South Carolina properties effective February 1, 2002. The fourth Kmart lease vacant at December 31, 2001 was leased to another anchor tenant in 2002. During the year ended December 31, 1990, NPAMLP sold options for the purchase of the Fort Wayne, Indiana and Sparks, Nevada properties (the Sparks property was also leased to Kmart at December 31, 2001). Aggregate proceeds received from the sale of the options were recorded as a Deposit on sale of property. Any gain or loss from these transactions was to be recognized at the date upon which title to the land and buildings was conveyed to the holder of the option. The option provided that the title to the land and buildings was to be conveyed to the holder of the option without any additional consideration on December 11, 2006 for the Sparks property and November 14, 2003 for the Fort Wayne property, or would be conveyed automatically to the holder of the option in the event of a default of the underlying tenant leases or mortgages. Under the option agreements, the bankruptcy filing by Kmart constituted a default on the tenant leases. In January 2002, the Sparks property was conveyed to the holder of its option. As a result of this transaction, the Deposit on sale of property was reduced by $1,050 and a net gain, including the forgiveness of wraparound mortgages, net of discounts was recorded for $2,128. In December 2002, the Fort Wayne property was conveyed to the holder of its option. As a result of this transaction, the Deposit on sale of property was reduced by $600 and a net gain, including the forgiveness of wraparound mortgages, net of discounts was recorded for $1,136. NPAMLP has negotiated a short term lease with the subtenant at the Lake Mary property. If NPAMLP is unable to negotiate a further extension of this lease and negotiate a modification of the mortgage with the property's lender, the Lake Mary property could be lost to foreclosure. The carrying value of this property was $7,009 and the balance of the related wraparound mortgages payable, net of discounts, was $6,209 as of December 31, 2003. In March 2002, the Newberry property was sold to a limited partnership in which a related party owned a 1% general partner interest.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
In the second quarter of 2002, leases at the Bowling Green, Ohio; and Hutchinson, Minnesota properties were rejected by Kmart in bankruptcy. In July 2003, the Hutchinson property was foreclosed by the property's lender. As a result of this transaction, a net gain, including the forgiveness of wraparound mortgages, net of discounts was recorded for $1,197. There can be no assurance that new leases can be successfully negotiated or that the rental income will be comparable with the Bowling Green property. The Bowling Green property had a carrying value of $1,796 and the balance of the related wraparound mortgages payable, net of discounts, was $5,887 as of December 31, 2003. As of December 31, 2003 Kmart was current with respect to its post-petition obligations for its remaining leases.
In January 2003, Kmart filed its Joint Plan of Reorganization and corresponding Disclosure Statement with the United States Bankruptcy Court. The Plan of Reorganization was confirmed in the second quarter of 2003.
(6) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
On January 1 2002, NPAMLP adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 supercedes the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, SFAS No. 144 retains the requirements of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in distribution to owners), or is classified as held for sale. Accordingly, the results of operations of properties disposed of or held for sale have been classified as Discontinued operations in the Statement of Operations and Changes in Partners' Deficit.
In February 2003, the Escanaba, Michigan property was sold. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $495. In March 2003, a portion of the Wheelersburg, Ohio property was sold. The net gain on this transaction was $336. Both of these transactions were included in Discontinued operations in the Statement of Operations and Changes in Partners' Deficit for the year ended December 31, 2003.
In May 2002, the Borger, Texas property was sold. The net gain on this transaction including the forgiveness of wraparound mortgages, net of discounts, was $444. In June 2002, a portion of the Cottage Grove, Minnesota property was sold. The net loss on this transaction was $566. Both of these transactions were included in Discontinued operations in the Statement of Operations and Changes in Partners' Deficit for the year ended December 31, 2002.
(7) GROUND LEASES / FINANCE LEASE OBLIGATION
NPAMLP is obligated under 12 noncancellable ground leases that expire between 2003 and 2078, excluding renewal options (see Schedule I).
During the year ended December 31, 1991, NPAMLP sold the land underlying the Chesapeake, Virginia; Fairborn, Ohio; Kalamazoo, Michigan; Philadelphia, Pennsylvania and Seven Hills, Ohio properties and simultaneously entered into ground leases to leaseback the land from the buyer that expire between 2003 and 2012. The aggregate proceeds from the five land sales were $2,650 and were recorded as Finance lease obligations. The amounts paid in accordance with these ground leases are recorded as interest expense. Any gain or loss from the transactions will be recognized at the date upon which title to the buildings is conveyed to the ground lessor. During the term of these ground leases, including renewal options, NPAMLP is responsible for maintaining the buildings and building improvements, as well as making the respective mortgage payments. Under the terms of the 1991 sales, at the expiration of the respective 1991 ground leases, including renewal options, title to the buildings will be conveyed to the buyer with no additional consideration and any amounts still outstanding under the respective wraparound mortgages will remain the liability of NPAMLP.
In February, 2002, the ground lease on the Fairborn property was terminated and the property was conveyed to the ground lessor. The termination of this ground lease resulted from the inability of the property to generate sufficient cash flow to make future payments on its ground lease and underlying mortgage obligations due to the Kmart bankruptcy petition as well as other tenant vacancies within the property. As a result of this transaction,
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
the Finance lease obligation was reduced by $500 and a net gain, including the forgiveness of wraparound mortgages, net of discounts was recorded for $1,609.
Future minimum lease payments under all noncancellable ground leases as of December 31, 2003 are approximately.
Total rental expense for ground leases for the years ended December 31, 2003, 2002, 2001, was approximately $556, $488 and $492, respectively. In addition, $306, $220 and $256 of ground rent was recorded as interest expense for the years ended December 31, 2003, 2002 and 2001, respectively.
(8) OTHER BORROWINGS
During 1995, NPAMLP negotiated with E & H Properties, Inc. (E&H), a related party, for E&H to advance up to $1,000 to NPAMLP for the purpose of making capital and tenant improvements to the properties. Pursuant to the resulting agreement, the obligation of E&H to make advances to NPAMLP is at all times the sole and absolute discretion of E&H. The line bears interest based on a variable rate (4.00% at December 31, 2003) and has no expiration date. Any amounts advanced to NPAMLP are not directly secured by any collateral. During 1999, NPAMLP negotiated with E&H for E&H to advance up to an additional $250 to NPAMLP for the purpose of making capital and tenant improvements to the properties. Pursuant to the agreement, the obligation of E&H to make advances to NPAMLP is at all times the sole and absolute discretion of E&H. This additional line bears interest based on the prime rate (4.00% at December 31, 2003) and is scheduled to expire May 2003. During 1999, E&H secured an additional line of credit with a bank that will enable E&H to fund advances to NPAMLP. Any amounts advanced to NPAMLP are secured by a $250 second mortgage on the Sault Ste. Marie, Michigan property. As of December 31, 2003, and 2002, $1,093 and $770, respectively were owed by NPAMLP under these lines of credit, excluding $19 and $79 in accrued interest at December 31,2003 and 2002. As of December 31, 2003 and 2002, E&H owed $1,133 and $70, respectively under its bank lines of credit.
(9) WRAPAROUND MORTGAGES
The properties combined in NPAMLP are subject to nonrecourse wraparound mortgages. The wraparound mortgages are cross-collateralized among the properties owned by NPAMLP. The wraparound mortgages are secured by liens on the properties and are subordinate to the third-party underlying mortgage obligations and the purchase money mortgages, collectively the senior mortgage obligations. The wraparound mortgages are payable to the Pension Groups, and the Pension Groups are liable to the holders of the senior mortgage obligations.
NPAEP and PVPG acquired the interests of MLPG in certain wraparound mortgages. Each wraparound mortgage is secured by liens on specific properties and is subordinate to the senior mortgage obligations as stated above.
Through December 31, 1997, MLPG had forgiven the wraparound mortgages remaining after the disposition of properties that were owned by Audited Partnerships. In 1998, MLPG agreed to forgive certain wraparound mortgages remaining after the disposition of properties that were owned by Unaudited Partnerships. For the year ended December 31, 2003, wraparound mortgage obligations of approximately $9,161 with related discounts of $4,091 were forgiven in connection with various property dispositions. The net amount of $5,070 is included in Other income (expense) as Forgiveness of wraparound mortgages payable on disposition of properties for the year ended December 31, 2003.
The wraparound mortgages have maturity dates varying from August 2009 to December 2013 and stated interest rates varying from 0% to 10%.
Certain wraparound mortgages are fully amortized over the life of the mortgage loan while other wraparound mortgages require balloon payments to satisfy the wraparound mortgage obligations. Also, the Pension Groups have balloon payments due on the third-party underlying mortgage obligations. No balloon payments are due during the year ended December 31, 2004.
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
Wraparound mortgage principal payment requirements for the next five years are approximately:
(10) PROPERTY SUBJECT TO SALES CONTRACTS
In prior years, NPAMLP sold options for the purchase of five rental properties. Aggregate proceeds received from the sale of the options were recorded as Deposit on sale of property. Any gain or loss arising from these transactions will be recognized at the date upon which title to the land and buildings is conveyed to the holder of the option. In 2002, two properties were conveyed to the holders of their options for no additional consideration, in accordance with the agreements. In June 2003, the final property (Clackamas, Oregon) was conveyed to the holder of its option. As a result of this transaction, the deposit on sale of property was reduced by $301 and a net gain, including the forgiveness of wraparound mortgages, net of discounts was recorded for $186.
(11) INVESTMENT SECURITIES AVAILABLE FOR SALE
Investments in available for sale common and preferred stock securities were as follows as of December 31, 2003, 2002 and 2001:
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
(12) PARTNERS' DEFICIT
Following is a summary of the combined changes in partners' deficit for the three years ended December 31, 2003 (in thousands except unit data):
(13) SETTLEMENT OF CONTINGENCY
In January 2002, an agreement was reached to settle a dispute involving the interpretation of a lease. Under this agreement, the Wahpeton, North Dakota and Washington, Iowa properties were conveyed to the lessee and the Fairfield, Iowa and Huron, South Dakota properties were retained by NPAMLP. The Fairfield and Huron properties were subsequently sold in August, 2002 and February, 2002, respectively. The net gains on these transactions including the forgiveness of wraparound mortgages, net of discounts, were as follows: Wahpeton - $303; Washington - $282; Fairfield - $52 (resulting from forgiveness of debt only) and $690 (resulting from the subsequent sale); and Huron - $622.
(14) COMMITMENTS AND CONTINGENCIES
Upon NPAMLP's formation, the titles of the properties of the Electing Partnerships were to be transferred to NPAMLP. State and local laws vary with respect to transfer taxes and are susceptible to varying interpretations. NPAMLP's interpretation of the laws relating to these transfer taxes could result in significant adjustments if successfully challenged by the respective taxing authority; however, a reasonable estimation of the potential liability, if any, cannot be made at this time. NPAMLP is involved in various claims and legal actions arising in the ordinary course of property operations. In the opinion of the managing general partner, the ultimate disposition of these matters will not have a material adverse effect on NPAMLP's financial position, results of operations or liquidity.
(15) FUTURE INTEREST AGREEMENT
In March 2003 NPAMLP, NPAEP and PVPG, entered into an Agreement, effective as of January 1, 2003 (the "2003 Agreement"), in which NPAEP and PVPG agreed with NPAMLP to modify the terms of Wrap Mortgages held by NPAEP and PVPG. The terms of the 2003 Agreement provide that NPAEP and PVPG will: (a) reduce to 4.1% per year the annual interest rate payable on any NPAEP Wrap Note or PVPG Wrap Note that bears a stated annual interest rate in excess of that amount; (b) remove certain of the properties secured by the NPAEP and PVPG Wrap Mortgages from the burden of the cross-default and cross-collateralization provisions currently contemplated by the Restructuring Agreement effective as of January 1, 1990 by and among MLPG, NPAMLP, National Property Analysts, Inc. and others; and (c) agree to release the lien of the Wrap Mortgages from the Properties upon a sale of or the agreement of a leasehold estate in any Property prior to the maturity of the
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership) Notes to Combined Financial Statements December 31, 2003, 2002 and 2001 (dollars in thousands)
applicable Wrap Note. In consideration for the above, NPAMLP will modify the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages to provide that (i) there is an event of default under the applicable NPAEP Wrap Mortgages or PVPG Wrap Mortgages, as the case may be, if a judgment or other lien is entered against the title or lease-holding entity thereby entitling NPAEP or PVPG, as the case may be, to avail itself of the post-default rights or remedies under the relevant security document; and (ii) for cross-default and cross-collateralization among the Unaudited Partnerships and, separately, among the Audited Partnerships. In addition NPAMLP shall execute and deliver to NPAEP or PVPG, as the case may be, a currently recordable deed of future interest (or assignment of future leasehold interest) sufficient to convey to NPAEP or PVPG, as the case may be, all of NPAMLP's right, title, interest and estate in and to its fee or leasehold interest in the encumbered properties effective upon the maturity on December 31, 2013 of the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages unless the Wrap Mortgages have previously been paid in full.
The Managing General Partner believes that the execution and delivery of the 2003 Agreement will have the following effects for NPAMLP: as a result of the reduction in the annual interest rate on the NPAEP Wrap Notes and the PVPG Wrap Notes (i) NPAMLP expects to realize significant reductions in interest that it otherwise would have been obligated to pay during the period between January 1, 2003 and December 31, 2013 when these loans mature and (ii) NPAMLP will be able to allocate a greater portion of its available cash flow to principal repayments. As a result of the faster repayment of principal, the Limited Partners will recognize additional taxable income (or smaller tax losses) in each year from 2003 until the maturity of the NPAEP Wrap Mortgages and the PVPG Wrap Mortgages. In addition, the anticipated date of dissolution of NPAMLP will now occur in 2013 rather than 2015. Further, because the reduced interest rate is below the Applicable Federal Rate ("AFR") prescribed under Section 1274, Internal Revenue Code of 1986, as amended, investors in Unaudited Partnerships will recognize non-recurring ordinary income (forgiveness of indebtedness) in 2003. The tax impact of this recognition will depend upon numerous factors related to each investor's particular tax situation, including his marginal tax rate and his suspended passive losses from prior years. Each investor is urged to consult his own tax advisor for further advice on this point.
Under the terms of the Restructuring Agreement, all Wrap Mortgages owned by NPAEP or PVPG are due and payable in substantial "balloon" amounts on December 31, 2013. Assuming no sales of Properties by NPAMLP in the interim period (2003 through 2013) the projected balance due for all of the Wrap Mortgages at December 31, 2013 is expected to approximate $143,000. As described above, in return for the reduction in interest rate and other consideration set forth above, including the satisfaction of the Wrap Mortgages due on December 31, 2013, NPAMLP's general partner has agreed to deliver deeds of future interest and assignments of leasehold interest, to be recorded currently, effective December 31, 2013, to NPAEP and PVPG. NPAMLP's general partner has determined that it is in the best interests of NPAMLP and its partners to do so. The effect of these deeds and assignments will be to facilitate a transfer of fee and leasehold ownership to the holders of the Wrap Mortgages at maturity (unless the Wrap Mortgages have been previously paid in full). Notwithstanding the foregoing, NPAEP and PVPG have agreed in the 2003 Agreement to (a) release the liens of the Wrap Mortgages and (b) deliver such deeds of future interest, assignments of leasehold interests, or other documents or instruments as are necessary to facilitate or effect such sales of the Properties prior to December 31, 2013 as the Managing General Partner shall otherwise deem desirable. The costs incurred arising from the recordation of any of the documents described in the 2003 Agreement shall be borne by NPAEP or PVPG, as the case may be. The Managing General Partner believes that the result of the forgoing actions taken pursuant to the 2003 Agreement will preserve all rights of the Limited Partners under the Restructuring Agreement, including their right to share in certain sales proceeds or cash flows prior to maturity of the Wrap Mortgages.
Neither NPAMLP, NPAEP nor PVPG were represented by independent counsel or retained other independent advisers or consultants in connection with the negotiation, execution or delivery of the 2003 Agreement. Nonetheless, the Managing General Partner believes that the transactions permitted or contemplated by the 2003 Agreement are fair and equitable to NPAMLP and the other parties involved.
SCHEDULE I
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership)
Properties Effectively Owned by NPAMLP at December 31, 2003 (1)
*Properties with ground leases.
+Land sales.
(1) Effectively owned refers to the fact that legal title to the properties is held by certain partnerships as nominee titleholder and agent for NPAMLP. NPAMLP has all beneficial interest in and equitable title to the properties and has the right to cause a transfer of legal title at its request.
SCHEDULE II
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership)
Combined Valuation and Qualifying Accounts
December 31, 2003, 2002 and 2001 (in thousands)
SCHEDULE III
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2003, 2002 and 2001 (in thousands)
SCHEDULE III, CONTINUED
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2003, 2002 and 2001 (in thousands)
SCHEDULE III, CONTINUED
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP (a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2003, 2002 and 2001 (in thousands)
Properties consist primarily of shopping centers and free standing, single tenant stores.
Depreciation of NPAMLP's investment in building and improvements reflected in the statements of operations is calculated over the estimated useful lives of the assets as follows:
Base building 30 years Building components 15-39 years
The changes in total real estate assets and accumulated depreciation for the years ended December 31, are as follows: