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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File Number 0-24816
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
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(Exact name of Registrant as Specified in its Charter)
Delaware 23-2610414
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(State of other jurisdiction (IRS Employer Identification No.)
incorporation or organization)
230 S. Broad Street, Mezzanine, Philadelphia, Pennsylvania 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(215)790-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class to Name of exchange on
be so registered which each class
is to be registered
None N/A
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporate by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate Market Value of Voting and Non-Voting Common Equity Held by
non-affiliates of the Registrant: N/A
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Part I Part II Part III Part IV
(None) (None) (None) Exhibits from Form 10
Registration Statement
and from Form 10-K
Annual Report filed
April 1, 1996
No. 0-24816
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INDEX
Page
PART I
Item 1. Business............................................................................ 1
I. Summary....................................................................... 1
II. NPAMLP Objectives and Policies................................................ 2
III. Glossary...................................................................... 4
Item 2. Properties.......................................................................... 6
Item 3. Legal Proceedings................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders................................. 7
PART II
Item 5. Market Price for the Registrant's Common
Equity and Related Stockholder Matters............................................. 15
I. No Trading Market............................................................. 15
II. Distributions of Cash Flow From Operations.................................... 15
III. Proceeds of Sales Distributions............................................... 15
IV. Certain Income Tax Considerations............................................. 15
Item 6. Selected Financial Data............................................................. 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 18
I. Liquidity and Capital Resources............................................... 18
II. Critical Accounting Policies.................................................. 20
III. Results of Operations......................................................... 21
IV. Indebtedness Secured by the Properties........................................ 25
Item 8. Financial Statements and Supplementary Data......................................... 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................................ 27
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 28
Item 11. Executive Compensation.............................................................. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 28
Item 13. Certain Relationships and Related Party Transactions................................ 28
I. Compensation and Fees......................................................... 28
II. Property and Management Affiliate............................................. 29
III. Conflicts of Interest......................................................... 29
IV. Summary of Relationships...................................................... 30
V. Related Party Transactions.................................................... 30
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 32
I. Documents Filed as Part of this Report........................................ 32
II. Reports of Form 8-K........................................................... 33
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PART I
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 - III. Results of Operations - E. 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 40 properties as of December 31, 2002, 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 - III. Results of Operations - E. 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.
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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 will terminate on December 31, 2013. See "Item 7.
Management's Discussion and Analysis of financial Condition and results of
Operations - III. Results of Operations - E. 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 may 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 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 or 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 18 states. Of the 40 Properties
owned by NPAMLP, 23 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
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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. Properties." The high concentration of minimum rent received from
Anchor Tenants under the terms of long term leases generally provide NPAMLP with
protection against a significant reduction in rental income; however, this also
restricts the growth opportunity for NPAMLP.
NPAMLP's primary Anchor Tenant is Kmart Corporation and its
subsidiaries ("Kmart") which in 2002 accounted for approximately 43% 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, 2002,
NPAMLP had 18 leases with Kmart aggregating approximately 1,738,000 square feet.
NPAMLP's average rent per square foot for all of the Kmart leases as of December
31, 2002, was $2.98. As of December 31, 2002, the total amount due from Kmart
was $954,000. Four stores under lease with Kmart were vacant as of December 31,
2001. Subsequent to its bankruptcy petition, Kmart rejected three of the four
leases and ceased the payment of rent on these leases effective February 1,
2002. These stores are located in Fort Wayne, Indiana; Lake Mary, Florida and
Newberry, South Carolina. Each of the stores that were rejected were previously
vacated Anchor Tenants in Single Tenant Properties. The fourth Kmart lease
vacant at December 31, 2001 was leased to another Anchor Tenant in 2002. Also,
in the second quarter of 2002, leases at the Bowling Green, Ohio and Hutchinson,
Minnesota properties were rejected by Kmart in bankruptcy.
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. During 2002, the Sparks, Fort Wayne and Newberry properties
were disposed which resulted in a net gain, including forgiveness of wraparound
mortgages, net of discounts of $2,128,000, $1,136,000 and $522,000,
respectively. The Hutchinson property is expected to be foreclosed and conveyed
to the property's lender in 2003. As of December 31, 2002, the carrying value of
the Hutchinson property was $1,326,000 and the balance of the related wraparound
mortgages payable, net of discounts, was $2,069,000.
The Managing General Partner has had regularly scheduled meetings with
representatives of Kmart to review and discuss with them their plans for the
various Kmart stores. In the past, in instances where Kmart stores were
determined to be undersized and inadequate to accommodate Kmart's current needs,
expansions of the existing facilities were undertaken wherever possible.
Discussions and negotiations with sub-tenants and prospective tenants are in
process at the Lake Mary and Bowling Green properties; however, there can be no
assurance new leases can be successfully negotiated or that the rental income
will be comparable. In the event that NPAMLP is not able to obtain comparable
leasing commitments, these properties could be lost to foreclosure. The carrying
value of the Lake Mary property was $7,199,000 and the balance of the related
wraparound mortgages payable, net of discounts, was $5,492,000 as of December
31, 2002. The carrying value of the Bowling Green property was $1,973,000 and
the balance of the related wraparound mortgages payable, net of discounts, was
$5,539,000 as of December 31, 2002.
As a result of Kmart's January 2002 Chapter 11 filing, NPAMLP could
have difficulty refinancing the aggregate of $17,071,000 of balloon payments
(due over the next 10 years) on the Third Party Underlying Obligations on
Properties where Kmart is the Anchor Tenant. See "Item 2. Properties."
In January 2003, Kmart filed its Joint Plan of Reorganization and
corresponding Disclosure Statement with the United States Bankruptcy Court. The
Plan of Reorganization contemplates confirmation in the second quarter of 2003.
In addition, in January 2003, Kmart submitted its second official store closing
list of 326 stores which did not include any of the stores in properties owned
by NPAMLP.
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2. LOCAL TENANTS
Marketing of Local Tenant space is accomplished through signage, direct
mailing, advertisements and through coordinated listings with local leasing
brokers.
The NPAMLP Properties' occupancy rate for Local Tenant space is 83%.
The lease terms for Local Tenant space typically range from 1 to 3 years. The
competitive conditions applicable to Local Tenant space vary from Property to
Property. However, as a general matter, it can be said that the market for Local
Tenant space is highly competitive and, with respect to NPAMLP Properties, is
typically a function of NPAMLP's rental rates as compared to the local market's.
However, in instances where a multi-tenant Property has Anchor Tenant space and
the Anchor Tenant space is vacant (currently one Shopping Center Property has
Anchor Tenant space which is vacant), the vacancy in the Anchor Tenant space
makes the rental of the Local Tenant space more difficult.
C. PROHIBITED ACTIVITIES AND INVESTMENTS
NPAMLP will not engage in any business not related to the operations of
the Properties. Additionally, NPAMLP will not (i) sell additional limited
partnership interests in NPAMLP; (ii) issue limited partnership interests in
exchange for property; (iii) issue senior securities or make loans or
investments in real estate mortgages other than in connection with a
contemplated purchase or sale or disposition of the Properties; (iv) make loans
to the General Partners or its affiliates (v) invest in or underwrite the
securities of other issuers for any purpose, including investing in securities
for the purpose of exercising control; (vi) operate in such a manner as not to
be exempt from classification as an "investment company" for purposes of the
Investment Company Act of 1940; (vii) purchase or lease any property from or
sell or lease any property to the General Partners or its affiliates, except
that with respect to leases, the General Partners and its affiliates may lease
space in the Properties on terms no more favorable than those offered to
non-affiliated persons; (viii) invest in junior mortgages or deeds of trust,
except that the acquisition or granting of junior mortgages or deeds of trust in
connection with the sale, purchase, financing or refinancing of a Property shall
not be deemed to be investing in junior mortgages or deeds of trust; (ix)
commingle the funds of NPAMLP with any other person's; (x) invest in limited
partnership interests; (xi) construct or develop properties; (xii) enter into
joint venture agreements; or (xiii) receive rebates or give-ups in connection
with NPAMLP.
D. INSURANCE ON PROPERTIES
The Managing General Partner has obtained liability insurance covering
the Properties. The third party liability coverage insures, among others, NPAMLP
and the General Partners. Property insurance has also been obtained that insures
NPAMLP for fire and other casualty losses in an amount which covers the
replacement cost of the Properties. In addition, NPAMLP is covered under
fidelity insurance policies in amounts which the Managing General Partner deems
sufficient. Such insurance coverage is reviewed at least annually and adjusted
to account for variations in value.
III. GLOSSARY
"CAPITAL IMPROVEMENT" shall mean any improvement to any Property which
is required to be capitalized or amortized by NPAMLP, pursuant to accounting
principles generally accepted in the United States of America.
"CAPITAL IMPROVEMENT DEBT" shall mean indebtedness incurred by NPAMLP
for Capital Improvements.
"CASH FLOW FROM OPERATIONS" shall mean, with respect to NPAMLP,
Operating Revenues less Operating Cash Expenses and Reserves.
"CONSOLIDATION" shall mean the consolidation of the ownership and
operations of the Properties in NPAMLP.
"DEBT SERVICE" shall mean the aggregate principal and interest payments
required on the Third Party Underlying Obligations in calendar year 1990 with
respect to the Properties owned by NPAMLP.
"EQUITY GENERAL PARTNER" shall mean Feldman International, Inc., a
Delaware corporation.
"EXCESS PROCEEDS" shall mean the Proceeds of Sales of the Properties in
excess of the Minimum Payoff Amount and Capital Improvement Debt.
"GENERAL PARTNERS" shall mean EBL&S, Inc., the Managing General Partner
of NPAMLP and Feldman International, Inc., the Equity General Partner of NPAMLP.
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"INVESTOR NOTE PAYMENTS" shall mean the payment by Investor Note Payors
of amounts becoming due on or after June 1, 1989 on the Investor Notes.
"INVESTOR NOTE PAYORS" shall mean the Limited Partners of Partnerships
who made payments which became due on or after June 8, 1989 on the Investor
Notes.
"INVESTOR NOTE RECOVERY" shall mean the Excess Proceeds available for
distribution to NPAMLP after the first $28 million of Excess Proceeds has been
retained by NPAMLP, in an amount equal to the lesser of the Investor Note
Payments or $25 million.
"INVESTOR NOTES" shall mean the promissory notes executed and tendered
by Limited Partners as payments for a portion of the purchase price of their
interest in a Partnership.
"LIMITED PARTNERS" shall mean all persons who hold limited partnership
interests in NPAMLP.
"MANAGEMENT AGREEMENT" shall mean the agreement entered into by and
between NPAMLP and EBL&S Property Management, Inc. pursuant to which the
Property Manager will manage the Properties in consideration of a property
management fee (equal to five percent (5%) of NPAMLP's gross operating revenues)
and a leasing fee (equal to the fee customarily charged in the geographic areas
in which the Properties are located).
"MANAGING GENERAL PARTNER" shall mean EBL&S, Inc, a Delaware
corporation.
"MINIMUM PAYOFF AMOUNT" shall mean the payment made by NPAMLP pursuant
to the Restructuring Agreement equal to the sum of (i) the balance of the Third
Party Underlying Obligations on a Property on January 1, 1990 and (ii) any
prepayment penalties or premiums.
"MLPG" shall mean Main Line Pension Group, a Delaware limited
partnership.
"NPA" shall mean National Property Analysts, Inc. and the corporations
and partnerships now or previously controlled by, related to or affiliated with,
directly or indirectly, National Property Analysts, Inc. and Mr. Edward Lipkin,
including, but not limited to E & H Properties, Inc., National Property Analysts
Management Company, and National Property Management Corp.
"NPAEP" shall mean National Property Analysts Employee Partnership, a
Delaware limited partnership.
"NPAMLP" shall mean National Property Analysts Master Limited
Partnership, a Delaware limited partnership.
"OPERATING CASH EXPENSES" shall mean the amount of cash paid by NPAMLP
for costs and expenses incurred in the ordinary course of its business
including, without limitation, (i) Debt Service, (ii) debt service payments on
Capital Improvement Debt, (iii) fees to be paid to the Property Manager and (iv)
repairs and maintenance, utilities, taxes and certain Tenant Improvements,
employee salaries, travel on NPAMLP business, advertising and promotion,
supplies, legal, accounting, statistical or bookkeeping services, and printing
and mailing of reports and communications.
"OPERATING REVENUES" shall mean the cash receipts of NPAMLP, other than
(i) the Proceeds of Sales of the Properties and (ii) proceeds of borrowings of
NPAMLP, received in cash during NPAMLP's fiscal year.
"PARTNERSHIP AGREEMENT" shall mean the limited partnership agreement
entered into between the General Partners and the Limited Partners of NPAMLP.
"PARTNERSHIPS" shall mean certain limited partnerships previously
sponsored by NPA.
"PENSION GROUPS" shall mean the limited partnerships comprised of
various pension and profit sharing trusts which sold the Properties to the
Partnerships, and includes Main Line Pension Group ("MLPG"), a Delaware limited
partnership which acquired the ownership of the Wrap Mortgages from the original
holders and National Property Analysts Employee Partnership ("NPAEP") and Penn
Valley Pension Group ("PVPG"), both Delaware limited partnerships which
subsequently acquired ownership of certain Wrap Mortgages from MLPG.
"PROCEEDS OF SALES DISTRIBUTIONS" shall mean the distributions made by
NPAMLP from the proceeds of sales of the Properties as defined in the
Partnership Agreement.
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"PROCEEDS OF SALES OF THE PROPERTIES" shall mean, for purposes of the
Restructuring Agreement and as of and at the time of the calculation thereof,
(a) the gross sales proceeds (including the then-outstanding principal amount of
indebtedness for borrowed money assumed or taken subject to) from the sale of
any Property or Properties occurring and after the date the Properties were
transferred to NPAMLP, minus (b) all reasonable costs and expenses incurred by a
Partnership or a successor to a Partnership (including NPAMLP), in connection
with any such sale, including without limitation, brokerage commissions to
independent third parties, legal fees and costs, transfer taxes, mortgage taxes,
prepayment penalties payable to independent third parties, title insurance and
all other customary closing costs and expenses.
"PROPERTY" OR "PROPERTIES" shall mean one, some or all of the parcels
of real property owned by NPAMLP.
"PVPG" shall mean Penn Valley Pension Group, a Delaware limited
partnership.
"PROPERTY MANAGER" shall mean EBL&S Property Management, Inc.
"REFINANCING" shall mean either (i) a restructuring of indebtedness of
NPAMLP or the Partnerships which only changes the terms thereof without
increasing the indebtedness being restructured or (ii) refinancing indebtedness
of NPAMLP or the Partnerships for the purpose of making a Capital Improvement.
"RESERVES" shall mean the amount determined by the Managing General
Partner, in its sole discretion, to be set aside for future requirements of
NPAMLP. At the end of each year, any unexpended reserves not continued as
Reserves will be treated as Cash Flow from Operations.
"RESTRUCTURING" shall mean the restructuring of the Wrap Mortgages and
the Second Mortgages.
"RESTRUCTURING AGREEMENT" shall mean the agreement entered into by and
between NPAMLP, the Pension Groups and certain NPA affiliates to restructure the
Wrap Mortgages and the Second Mortgages.
"RESTRUCTURED WRAP MORTGAGES" shall mean the Wrap Mortgages as modified
by the Restructuring Agreement.
"SECOND MORTGAGE" shall mean any purchase money mortgage or deed of
trust created by a Pension Group upon its purchase of a Property that is a
subordinate lien against the Property in favor of an NPA affiliate and evidenced
by a promissory note.
"TENANT IMPROVEMENTS" shall mean construction to the Properties
completed for the benefit of the tenants' use of the Property.
"THIRD PARTY DEBT SERVICE" shall mean payments of principal and
interest on Third Party Underlying Obligations.
"THIRD PARTY UNDERLYING OBLIGATIONS" shall mean those obligations
secured by the Property underlying the Wrap Mortgages held by persons or
entities other than NPA, or its affiliates.
"THRESHOLD AMOUNT" shall mean payments on the Wrap Mortgages generated
by Proceeds of Sales of the Properties in an amount equal to $45,000,000 in
excess of the Third Party Underlying Obligations as of January 1, 1990 secured
by such Properties. As of December 31, 2002, approximately $35,134,000 had been
applied in reduction of the Threshold Amount.
"UNAUDITED PARTNERSHIPS" shall mean the Partnerships included in NPAMLP
which were not audited by the Internal Revenue Service.
"UNITS" shall mean units of limited partnership interest in NPAMLP.
"WRAP MORTGAGES" shall mean the mortgages securing the Wrap Notes which
were delivered to the Pension Groups by the Partnerships at the time of the
acquisition of the Property.
"WRAP NOTES" shall mean the promissory notes secured by the Wrap
Mortgages.
ITEM 2. PROPERTIES
NPAMLP's Properties consist primarily of shopping centers and free
standing, single tenant retail stores. As of December 31, 2002, NPAMLP owned and
operated 40 Properties located in 18 states. Approximately 57% of the Properties
are Single Tenant Properties and 43% are Shopping Center Properties.
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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. 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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SCHEDULE 1
DESCRIPTION OF PROPERTY TENANT INFORMATION
- ---------------------------------------------------------------------------------------
TOTAL AVERAGE
PROPERTY TOTAL OCCUPANCY MINIMUM RENT
LOCATION GLA (a) RATE RENT (b) PSF
- ---------------------------------------------------------------------------------------
Ardmore, OK 216,790 90.9% $ 974,503 $ 4.95
Bowling Green, OH 135,203 29.0% 145,938 3.72
Cahokia, IL 26,000 100.0% 24,133 0.93
Chesapeake, VA 162,020 100.0% 402,725 2.49
Clackamas, OR 58,543 100.0% 227,808 3.89
Cottage Grove, MN 110,328 88.7% 763,750 7.80
Crescent City, CA 33,000 100.0% 60,000 1.82
Dunmore, PA 26,475 100.0% 78,696 2.97
East Haven, CT 158,057 75.6% 778,820 6.52
Escanaba, MI 40,175 100.0% 114,715 2.86
Federal Way, WA 37,560 100.0% 45,000 1.20
Huntington, WV 141,710 32.5% 105,160 2.29
Huntsville, AL 104,000 100.0% 244,400 2.35
Independence, MO 134,634 97.2% 371,814 2.84
International Falls, MN 83,552 100.0% 237,000 2.84
Kalamazoo, MI 120,958 89.6% 462,278 4.27
Lake Mary, FL 107,400 100.0% 590,700 5.50
Lawnside, NJ 102,552 100.0% 498,012 4.86
Lockport, IL 100,828 100.0% 341,850 3.39
Marquette, MI 254,516 94.7% 1,173,705 4.87
Maryville, MO 35,099 88.2% 102,777 3.32
Menominee, MI 82,611 100.0% 197,848 2.39
New Hope, MN 115,492 100.0% 319,462 2.77
North Sarasota, FL 134,805 100.0% 540,326 4.01
O' Fallon, MO 91,061 100.0% 356,277 3.91
Oak Lawn, IL 155,990 100.0% 794,762 5.09
Ocala, FL 103,964 100.0% 226,310 2.18
Painesville, OH 22,000 100.0% 168,011 7.64
Philadelphia, PA 128,006 100.0% 556,500 4.35
San Mateo, CA 84,704 100.0% 476,546 5.63
Sault Ste. Marie, MI 92,650 100.0% 240,834 2.60
Seven Hills, OH 121,677 100.0% 325,095 2.67
Steger, IL 87,678 100.0% 261,013 2.98
Taylorville, IL 43,127 88.2% 321,580 8.46
Urbana, IL 55,531 100.0% 444,732 8.01
Waverly, OH 55,102 100.0% 282,462 5.13
Wheelersburg, OH 125,958 29.0% 93,378 2.56
Yazoo City, MS 79,996 67.7% 163,195 3.01
(a) Gross Leasable Area.
(b) Based on leases in effect as of December 31, 2002.
8
SCHEDULE 1, CONTINUED
DESCRIPTION OF PROPERTY TENANT INFORMATION
- -----------------------------------------------------------------------------------------------------------------
MAJOR TENANT INFORMATION
PROPERTY ANNUAL LEASE
LOCATION NAME GLA (a) RENT EXPIRATION OPTIONS
- -----------------------------------------------------------------------------------------------------------------
Ardmore, OK Hobby Lobby 57,120 $106,243 02/26/2005 2 / 5 YR
Beall's 25,632 83,304 04/30/2005 3 / 5 YR
Staples 22,720 124,900 02/28/2009 4 / 5 YR
Goody's Family Clothing 26,432 218,064 10/31/2011 2 / 5 YR
Bowling Green, OH Dollar General 11,000 44,100 01/31/2006 1 / 3 YR
Cahokia, IL Goodyear Service Center 26,000 24,133 02/28/2004 None
Chesapeake, VA Kmart 162,020 402,725 10/31/2005 6 / 10 YR
Clackamas, OR Safeway (regional office) 58,543 227,808 06/14/2003 6 / 5 YR
Cottage Grove, MN Rainbow Foods 70,130 606,624 07/11/2016 6 / 5 YR
Crescent City, CA Safeway 33,000 60,000 05/31/2004 6 / 5 YR
Dunmore, PA Price Chopper 26,475 78,696 11/30/2005 3 / 5 YR
East Haven, CT National Wholesale Liquidators 84,180 441,945 01/31/2006 5 / 5 YR
Escanaba, MI Kmart 40,175 114,715 09/30/2006 9 / 5 YR
Federal Way, WA Safeway 37,560 45,000 10/31/2003 6 / 5 YR
Huntington, WV Office Depot (b) 25,900 60,000 02/28/2005 4 / 5 YR
CVS 7,000 28,000 01/31/2004 None
Huntsville, AL Kmart 104,000 244,400 11/30/2010 4 / 5 YR
Independence, MO Kmart 116,799 308,634 03/31/2010 5 / 5 YR
International Falls, MN Kmart 83,552 237,000 07/31/2006 10 / 5 YR
Kalamazoo, MI Kmart 84,180 248,770 02/28/2005 9 / 5 YR
SuperPetz, LLC 18,047 166,935 01/31/2005 None
Lake Mary, FL Old Time Pottery 107,400 590,700 03/31/2003 None
Lawnside, NJ Kmart 102,552 498,012 06/30/2025 10 / 5 YR
Lockport, IL Kmart 54,000 133,684 06/30/2004 10 / 5 YR
Sterk's Super Foods, Inc. 35,170 121,603 05/20/2006 3 / 5 YR
Marquette, MI Kohl's Department Stores, Inc. 85,480 171,960 11/30/2024 9 / 5 YR
Younker's 44,068 92,543 10/01/2011 None
J.C. Penney 33,996 118,286 08/31/2009 4 / 5 YR
Maryville, MO J.C. Penney 22,060 65,502 10/31/2006 2 / 5 YR
Menominee, MI Kmart 82,611 197,848 04/30/2010 8 / 5 YR
New Hope, MN Kmart 115,492 319,462 06/30/2012 9 / 5 YR
North Sarasota, FL Kmart 84,180 280,440 11/30/2003 10 / 5 YR
Bealls 40,000 141,040 11/20/2003 5 / 5 YR
O' Fallon, MO Kmart 83,061 279,415 11/30/2005 10 / 5 YR
Oak Lawn, IL Home Depot 97,415 380,000 01/31/2028 5 / 5 YR
Jewel Foods 58,575 414,762 01/03/2004 3 / 5 YR
Ocala, FL Kmart 103,964 226,310 06/30/2007 9 / 5 YR
Painesville, OH CVS 22,000 168,011 01/31/2019 6 / 5 YR
Philadelphia, PA Kmart 91,033 388,500 03/31/2005 10 / 5 YR
Acme 36,973 168,000 06/30/2005 6 / 5 YR
San Mateo, CA Kmart 84,704 476,546 01/31/2015 None
Sault Ste. Marie, MI Kmart 92,650 240,834 09/30/2016 10 / 5 YR
Seven Hills, OH Kmart 121,677 318,595 08/31/2007 8 / 5 YR
Steger, IL Kmart 87,678 261,013 11/30/2010 10 / 5 YR
Taylorville, IL Kroger 27,958 237,761 03/31/2007 5 / 5 YR
CVS 10,069 81,319 03/31/2007 5 / 5 YR
Urbana, IL Jerry's IGA 43,667 370,648 03/31/2007 5 / 5 YR
Waverly, OH Kroger 38,268 154,558 11/30/2004 4 / 5 YR
Wheelersburg, OH Kroger 25,168 62,291 07/31/2004 3 / 5 YR
Yazoo City, MS Miss. Baptist Medical Ctr. 20,116 61,957 05/31/2005 1 / 5 YR
Sunflower Supermarket 20,000 45,000 04/30/2005 1 / 5 YR
(a) Gross Leasable Area.
(b) Tenant pays percentage rent only - amount based on projected sales for
2003.
9
SCHEDULE 2
TENANT LEASE EXPIRATIONS
/--------------2003----------------/ /--------------2004-------------/
- ----------------------------------------------------- ----------------------------------- ---------------------------------
TOTAL NUMBER NUMBER
PROPERTY TOTAL MINIMUM OF MINIMUM OF MINIMUM
LOCATION GLA (a) RENT TENANTS RENT S.F. TENANTS RENT S.F.
- ----------------------------------------------------- ----------------------------------- ---------------------------------
Ardmore, OK 216,790 $ 974,503 4 $ 59,705 4,608 5 $ 178,266 24,541
Bowling Green, OH 135,203 145,938 1 101,838 28,210
Cahokia, IL 26,000 24,133 1 24,133 26,000
Chesapeake, VA 162,020 402,725
Clackamas, OR 58,543 227,808 1 227,808 58,543
Cottage Grove, MN 110,328 763,750
Crescent City, CA 33,000 60,000 1 60,000 33,000
Dunmore, PA 26,475 78,696
East Haven, CT 158,057 778,820 1 32,400 5,000 2 64,850 9,350
Escanaba, MI 40,175 114,715
Federal Way, WA 37,560 45,000 1 45,000 37,560
Huntington, WV 141,710 105,160 2 17,640 2,040 1 28,000 7,000
Huntsville, AL 104,000 244,400
Independence, MO 134,634 371,814 1 10,980 1,800 1 36,000 9,840
International Falls, MN 83,552 237,000
Kalamazoo, MI 120,958 462,278
Lake Mary, FL 107,400 590,700 1 590,700 107,400
Lawnside, NJ 102,552 498,012
Lockport, IL 100,828 341,850 1 33,015 3,100 1 133,684 54,000
Marquette, MI 254,516 1,173,705 4 149,373 12,680 5 151,513 11,858
Maryville, MO 35,099 102,777
Menominee, MI 82,611 197,848
New Hope, MN 115,492 319,462
North Sarasota, FL 134,805 540,326 2 421,480 124,180 1 14,376 1,200
O' Fallon, MO 91,061 356,277 1 20,000 2,000
Oak Lawn, IL 155,990 794,762 1 414,762 58,575
Ocala, FL 103,964 226,310
Painesville, OH 22,000 168,011
Philadelphia, PA 128,006 556,500
San Mateo, CA 84,704 476,546
Sault Ste. Marie, MI 92,650 240,834
Seven Hills, OH 121,677 325,095
Steger, IL 87,678 261,013
Taylorville, IL 43,127 321,580
Urbana, IL 55,531 444,732 1 8,960 1,400
Waverly, OH 55,102 282,462 4 211,634 46,068
Wheelersburg, OH 125,958 93,378 2 18,727 9,262 2 74,651 27,228
Yazoo City, MS 79,996 163,195 2 43,950 12,600
--------- ----------- -- ----------- ------- -- ----------- -------
TOTALS 3,769,752 13,512,115 23 1,752,616 406,983 27 1,420,829 312,060
--------- ----------- ----------- ------- ----------- -------
ANNUAL % TO TOTAL 100.0% 100.0% 13.0% 10.8% 10.5% 8.3%
--------- ----------- ----------- ------- ----------- -------
CUMULATIVE % 13.0% 10.8% 23.5% 19.1%
----------- ------- ----------- -------
(a) Gross Leasable Area.
10
SCHEDULE 2, CONTINUED
TENANT LEASE EXPIRATIONS
/--------------2005----------------/ /--------------2006-------------/
- ----------------------------------------------------- ----------------------------------- ---------------------------------
TOTAL NUMBER NUMBER
PROPERTY TOTAL MINIMUM OF MINIMUM OF MINIMUM
LOCATION GLA (a) RENT TENANTS RENT S.F. TENANTS RENT S.F.
- ----------------------------------------------------- ----------------------------------- ---------------------------------
Ardmore, OK 216,790 $ 974,503 9 $ 301,239 101,462
Bowling Green, OH 135,203 145,938 1 $ 44,100 11,000
Cahokia, IL 26,000 24,133
Chesapeake, VA 162,020 402,725 1 402,725 162,020
Clackamas, OR 58,543 227,808
Cottage Grove, MN 110,328 763,750 3 67,125 8,550
Crescent City, CA 33,000 60,000
Dunmore, PA 26,475 78,696 1 78,696 26,475
East Haven, CT 158,057 778,820 1 27,000 4,500 1 441,945 84,180
Escanaba, MI 40,175 114,715 1 114,715 40,175
Federal Way, WA 37,560 45,000
Huntington, WV 141,710 105,160 2 5,892 26,635
Huntsville, AL 104,000 244,400
Independence, MO 134,634 371,814
International Falls, MN 83,552 237,000 1 237,000 60,842
Kalamazoo, MI 120,958 462,278 4 462,278 108,355
Lake Mary, FL 107,400 590,700
Lawnside, NJ 102,552 498,012
Lockport, IL 100,828 341,850 1 22,530 3,755 1 121,603 35,170
Marquette, MI 254,516 1,173,705 4 42,945 5,933 2 45,371 11,605
Maryville, MO 35,099 102,777 3 37,275 8,750 1 65,502 22,204
Menominee, MI 82,611 197,848
New Hope, MN 115,492 319,462
North Sarasota, FL 134,805 540,326 2 64,300 7,025 1 26,400 1,500
O' Fallon, MO 91,061 356,277 1 279,415 83,061 1 29,862 3,000
Oak Lawn, IL 155,990 794,762
Ocala, FL 103,964 226,310
Painesville, OH 22,000 168,011
Philadelphia, PA 128,006 556,500 2 556,500 128,006
San Mateo, CA 84,704 476,546
Sault Ste. Marie, MI 92,650 240,834
Seven Hills, OH 121,677 325,095
Steger, IL 87,678 261,013
Taylorville, IL 43,127 321,580 1 15,000 3,000
Urbana, IL 55,531 444,732 2 17,125 2,800
Waverly, OH 55,102 282,462 3 72,124 9,034
Wheelersburg, OH 125,958 93,378
Yazoo City, MS 79,996 163,195 2 106,957 40,116
--------- ----------- -- ----------- ------- -- ----------- -------
TOTALS 3,769,752 13,512,115 42 2,559,126 729,477 10 1,126,498 269,676
--------- ----------- ----------- ------- ----------- -------
ANNUAL % TO TOTAL 100.0% 100.0% 18.9% 19.4% 8.3% 7.2%
--------- ----------- ----------- ------- ----------- -------
CUMULATIVE % 42.4% 38.5% 50.7% 45.7%
----------- ------- ----------- -------
(a) Gross Leasable Area.
11
SCHEDULE 2, CONTINUED
TENANT LEASE EXPIRATIONS
/--------------2007----------------/
- ----------------------------------------------------- -----------------------------------
TOTAL NUMBER
PROPERTY TOTAL MINIMUM OF MINIMUM
LOCATION GLA (a) RENT TENANTS RENT S.F.
- ----------------------------------------------------- -----------------------------------
Ardmore, OK 216,790 $ 974,503 1 $ 6,564 623
Bowling Green, OH 135,203 145,938
Cahokia, IL 26,000 24,133
Chesapeake, VA 162,020 402,725
Clackamas, OR 58,543 227,808
Cottage Grove, MN 110,328 763,750
Crescent City, CA 33,000 60,000
Dunmore, PA 26,475 78,696
East Haven, CT 158,057 778,820 1 24,000 3,500
Escanaba, MI 40,175 114,715
Federal Way, WA 37,560 45,000
Huntington, WV 141,710 105,160
Huntsville, AL 104,000 244,400
Independence, MO 134,634 371,814 1 8,400 1,200
International Falls, MN 83,552 237,000
Kalamazoo, MI 120,958 462,278
Lake Mary, FL 107,400 590,700
Lawnside, NJ 102,552 498,012
Lockport, IL 100,828 341,850 1 13,857 2,053
Marquette, MI 254,516 1,173,705 3 85,127 6,250
Maryville, MO 35,099 102,777
Menominee, MI 82,611 197,848
New Hope, MN 115,492 319,462
North Sarasota, FL 134,805 540,326
O' Fallon, MO 91,061 356,277
Oak Lawn, IL 155,990 794,762
Ocala, FL 103,964 226,310 1 226,310 103,964
Painesville, OH 22,000 168,011
Philadelphia, PA 128,006 556,500
San Mateo, CA 84,704 476,546
Sault Ste. Marie, MI 92,650 240,834
Seven Hills, OH 121,677 325,095 1 318,595 121,677
Steger, IL 87,678 261,013
Taylorville, IL 43,127 321,580 2 319,080 38,027
Urbana, IL 55,531 444,732 2 406,648 49,931
Waverly, OH 55,102 282,462
Wheelersburg, OH 125,958 93,378
Yazoo City, MS (b) 79,996 163,195 1 6,000 0
--------- ----------- -- ----------- -------
TOTALS 3,769,752 13,512,115 14 1,414,581 327,225
--------- ----------- ----------- -------
ANNUAL % TO TOTAL 100.0% 100.0% 10.5% 8.6%
--------- ----------- ----------- -------
CUMULATIVE % 61.2% 54.3%
----------- -------
(a) Gross Leasable Area.
(b) Lease expiration represents ground lease.
12
SCHEDULE 3
- -----------------------------------------------------------------------------------------------------------------------------------
THIRD PARTY UNDERLYING OBLIGATIONS
PRINCIPAL
PROPERTY MORTGAGE INTEREST BALANCE AT
LOCATION MORTGAGEE (S) TYPE RATE DUE DATE 31-DEC-02
- -----------------------------------------------------------------------------------------------------------------------------------
Ardmore, OK GMAC Mortgage Company 1st 8.59% 01-Apr-2010 $ 6,631,305
Bowling Green, OH Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 2,454,669
Cahokia, IL NONE
Chesapeake, VA John Hancock Real Estate Finance 1st 8.00% 01-Jan-2004 325,461
Lawrence Kadish 2nd 9.00% 01-Jan-2006 492,849
Clackamas, OR First Oxford Corporation 1st 9.00% 01-Jul-2003 720,261
Cottage Grove, MN IDS Life Insurance (d) 1st 8.75% 01-Nov-2016 4,901,495
Crescent City, CA Firstrust Bank (c) 1st 9.37% 01-Feb-2005 162,036
Dunmore, PA NONE
East Haven, CT Aetna Life Insurance Company 1st 8.88% 01-Sep-2005 937,402
Beal Bank 2nd 8.53% 01-Aug-2005 1,063,433
Escanaba, MI Developers Diversified 1st 9.75% 01-Nov-2012 717,705
Federal Way, WA Firstrust Bank (c) 1st 9.37% 01-Feb-2005 121,527
Huntington, WV Suburban Capital Markets, Inc. (a) 1st 9.13% 01-Feb-2007 1,608,100
Huntsville, AL Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 678,138
Hutchinson, MN Developers Diversified Wrap 8.75% 01-Jul-2013 1,612,970
Independence, MO Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 1,537,750
International Falls, MN Developers Diversified Wrap 8.75% 01-Aug-2013 1,620,939
Kalamazoo, MI NONE
Lake Mary, FL Kidder Peabody Mortgage Capital 1st 7.88% 01-Jan-2016 7,786,969
Lawnside, NJ Wachovia Securities 1st 8.71% 15-Sep-2020 4,291,548
Lockport, IL Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 1,595,057
Marquette, MI Union Labor Life Insurance Company 1st 7.88% 01-Nov-2003 5,700,081
Maryville, MO NONE
Menominee, MI NONE
New Hope, MN Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 1,681,018
North Augusta, SC NONE
North Sarasota, FL Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 3,056,397
O' Fallon, MO Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 2,234,990
Oak Lawn, IL National Electrical Beneficial Fund 1st 8.50% 30-Jun-2003 2,021,601
Ocala, FL B & K Properties 1st 9.00% 01-Mar-2013 1,353,748
Painesville, OH Credit Suisse First Boston 1st 6.48% 06-Dec-2018 1,841,858
Philadelphia, PA Equitable Life Assurance Society 1st 9.25% 01-Jun-2010 2,126,901
San Mateo, CA Amerus Capital Management 1st 8.25% 01-Feb-2005 964,440
Sault Ste. Marie, MI EDC County of Chippewa, MI 1st 6.70% 01-Jan-2007 700,000
Seven Hills, OH B & K Properties 1st 9.75% 01-Nov-2012 1,690,694
Steger, IL Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 2,177,683
Taylorville, IL Suburban Capital Markets, Inc. (a) 1st 9.13% 01-Feb-2007 1,387,023
Urbana, IL Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 2,368,708
Waverly, OH Suburban Capital Markets, Inc. (a) 1st 9.13% 01-Feb-2007 1,387,023
Wheelersburg, OH Equitable Life Assurance Society 1st 10.00% 01-Jan-2003 878,274
Yazoo City, MS Credit Suisse First Boston (b) 1st 7.05% 31-Jul-2008 1,098,393
(a) Mortgages are cross - collateralized and cross - defaulted (Suburban
Capital Markets, Inc.)
(b) Mortgages are cross - collateralized and cross - defaulted (Credit Suisse
First Boston)
(c) Mortgages are cross - collateralized and cross - defaulted (Firstrust Bank)
(d) Loan is callable on November 1, 2006
13
SCHEDULE 3, CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
THIRD PARTY UNDERLYING OBLIGATIONS OWNERSHIP
ANNUAL BALLOON INTEREST
PROPERTY MORTGAGE DEBT DUE AT FEE/
LOCATION MORTGAGEE (s) TYPE SERVICE EXPIRATION LEASEHOLD
- -----------------------------------------------------------------------------------------------------------------------------------
Ardmore, OK GMAC Mortgage Company 1st $ 627,994 $ 6,137,464 Fee
Bowling Green, OH Credit Suisse First Boston (b) 1st 206,223 2,207,962 Fee
Cahokia, IL NONE Fee
Chesapeake, VA John Hancock Real Estate Finance 1st 334,776 0 Leasehold
Lawrence Kadish 2nd 44,356 0
Clackamas, OR First Oxford Corporation 1st 227,100 637,586 Fee
Cottage Grove, MN IDS Life Insurance (d) 1st 636,272 105,663 Fee
Crescent City, CA Firstrust Bank (c) 1st 49,731 0 Fee
Dunmore, PA NONE Leasehold
East Haven, CT Aetna Life Insurance Company 1st 381,258 0 Fee
Beal Bank 2nd 116,716 985,836
Escanaba, MI Developers Diversified 1st 112,032 19,146 Fee
Federal Way, WA Firstrust Bank (c) 1st 37,298 0 Fee
Huntington, WV Suburban Capital Markets, Inc. (a) 1st 177,949 1,454,799 Fee
Huntsville, AL Credit Suisse First Boston (b) 1st 56,976 609,982 Leasehold
Hutchinson, MN Developers Diversified Wrap 229,632 0 Fee
Independence, MO Credit Suisse First Boston (b) 1st 129,192 1,383,198 Fee
International Falls, MN Developers Diversified Wrap 236,250 0 Fee
Kalamazoo, MI NONE Leasehold
Lake Mary, FL Kidder Peabody Mortgage Capital 1st 919,440 0 Fee
Lawnside, NJ Wachovia Securities 1st 442,483 0 Fee
Lockport, IL Credit Suisse First Boston (b) 1st 134,004 1,434,746 Fee
Marquette, MI Union Labor Life Insurance Company 1st 615,161 5,542,557 Leasehold
Maryville, MO NONE Leasehold
Menominee, MI NONE Leasehold
New Hope, MN Credit Suisse First Boston (b) 1st 141,216 1,512,067 Fee
North Augusta, SC NONE Leasehold
North Sarasota, FL Credit Suisse First Boston (b) 1st 256,764 2,749,213 Fee
O' Fallon, MO Credit Suisse First Boston (b) 1st 187,764 2,010,362 Fee
Oak Lawn, IL National Electrical Beneficial Fund 1st 433,810 1,888,273 Leasehold
Ocala, FL B & K Properties 1st 217,350 0 Fee
Painesville, OH Credit Suisse First Boston 1st 168,011 0 Fee
Philadelphia, PA Equitable Life Assurance Society 1st 395,220 0 Leasehold
San Mateo, CA Amerus Capital Management 1st 474,046 0 Leasehold
Sault Ste. Marie, MI EDC County of Chippewa, MI 1st 131,320 0 Fee
Seven Hills, OH B & K Properties 1st 263,917 66,537 Leasehold
Steger, IL Credit Suisse First Boston (b) 1st 182,952 1,958,814 Fee
Taylorville, IL Suburban Capital Markets, Inc. (a) 1st 153,404 1,254,615 Fee
Urbana, IL Credit Suisse First Boston (b) 1st 198,996 2,130,640 Fee
Waverly, OH Suburban Capital Markets, Inc. (a) 1st 153,404 1,254,615 Fee
Wheelersburg, OH Equitable Life Assurance Society 1st 87,827 878,274 Fee
Yazoo City, MS Credit Suisse First Boston (b) 1st 92,280 987,998 Fee
(a) Mortgages are cross - collateralized and cross - defaulted (Suburban Capital
Markets, Inc.)
(b) Mortgages are cross - collateralized and cross - defaulted (Credit Suisse
First Boston)
(c) Mortgages are cross - collateralized and cross - defaulted (Firstrust Bank)
(d) Loan is callable on November 1, 2006
14
PART II
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, 2002, 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. 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
15
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, 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.
16
ITEM 6. SELECTED FINANCIAL DATA
The following is selected financial data for NPAMLP for the five years
ended December 31, 2002, 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)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
INCOME:
Rental income $ 14,975 $ 15,406 $ 15,535 $ 16,067 $ 18,284
Other charges to tenants 4,358 4,506 4,585 5,017 5,879
Interest income 217 230 262 228 200
Other income - - - 150 62
-------- -------- -------- -------- --------
TOTAL INCOME 19,550 20,142 20,382 21,462 24,425
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Interest expense 13,476 13,355 13,395 13,615 15,003
Other operating expenses 8,639 8,024 8,297 8,345 8,900
Depreciation and
amortization 5,850 5,821 5,905 5,941 6,774
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES 27,965 27,200 27,597 27,901 30,677
-------- -------- -------- -------- --------
OPERATING LOSS <8,415> <7,058> <7,215> <6,439> <6,252>
-------- -------- -------- -------- --------
OTHER (EXPENSE) INCOME:
Realized loss on
investment securities <185> - - - -
Gain (loss) on disposition
of properties - - 1,769 <3,415> <11,894>
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS <8,600> <7,058> <5,446> <9,854> <18,146>
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
components (including loss on
disposition of properties of
$3,548 and write-down of
rental property of $413
for the year ended
December 31, 2002) <4,925> <1,368> <1,238> <1,109> <1,084>
-------- -------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY
GAIN <13,525> <8,426> <6,684> <10,963> <19,230>
-------- -------- -------- -------- --------
EXTRAORDINARY ITEM:
Forgiveness of wraparound
mortgages payable on
disposition of properties 10,770 - - 4,240 51,183
-------- -------- -------- -------- --------
NET (LOSS) INCOME $ <2,755> $ <8,426> $ <6,684> $ <6,723> $ 31,953
======== ======== ======== ======== ========
PER UNIT DATA:
Operating loss $ <86.09> $ <72.20> $ <73.81> $ <65.87> $ <63.12>
======== ======== ======== ======== ========
Net (loss) income $ <28.18> $ <86.20> $ <68.38> $ <68.78> $ 322.55
======== ======== ======== ======== ========
Weighted average units
outstanding 97,752 97,752 97,752 97,752 99,053
======== ======== ======== ======== ========
ASSETS:
Rental property - net $ 83,180 $106,937 $109,008 $116,667 $127,093
Other assets 8,695 7,710 7,897 7,420 7,811
-------- -------- -------- -------- --------
TOTAL ASSETS $ 91,875 $114,647 $116,905 $124,087 $134,904
======== ======== ======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT:
Wraparound mortgages
payable less
unamortized discount(1) $130,427 $149,877 $144,409 $144,223 $149,265
Other liabilities 7,678 8,223 7,521 8,205 7,257
-------- -------- -------- -------- --------
Total liabilities $138,105 $158,100 $151,930 $152,428 $156,522
Partners' deficit <46,230> <43,453> <35,025> <28,341> <21,618>
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 91,875 $114,647 $116,905 $124,087 $134,904
======== ======== ======== ======== ========
- ------------------------------
(1) Unamortized discount is based on imputed interest at 12%.
17
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, 2002, the Third Party Underlying Obligations were
current for all the Properties except for the properties located in Huntington,
West Virginia; Hutchinson, Minnesota; Lake Mary, Florida; San Mateo, California;
Taylorville, Illinois and Waverly, Ohio.
The Huntington, Taylorville and Waverly properties are subject to the
same Third Party Underlying Obligation which is cross-collateralized and cross-
defaulted. This mortgage is not current due to the bankruptcy and lease
rejection by Ames, the Anchor Tenant at the Huntington property. NPAMLP is
negotiating with the holder of the mortgage to modify the terms of the Third
Party Underlying Obligation. If NPAMLP is not able to modify the terms of the
Third Party Underlying Obligation, the properties could be lost to foreclosure.
The Third Party Underlying Obligations for the Hutchinson, Lake Mary
and San Mateo properties are not current due to the bankruptcy and lease
rejection of Kmart, the Anchor Tenant at each of these properties. The
Hutchinson property was vacant at December 31, 2002, and is expected to be
conveyed to the holder of the Third Party Underlying Obligation in 2003. NPAMLP
has negotiated a short term lease with the subtenant at the Lake Mary property
and is negotiating with the holder of the Third Party Underlying Obligation. If
NPAMLP is not able to modify the terms of the Third Party Underlying Obligation,
this property could be lost to foreclosure.
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, 2002, the net book value and net Wrap Mortgage
balance for these Properties were as follows:
Property Net Book Value Net Wrap Mortgage Balance
- -------- -------------- -------------------------
Huntington $ 2,209,000 $ 2,664,000
Hutchinson (a) 913,000 2,069,000
Lake Mary 7,199,000 5,492,000
San Mateo 1,965,000 2,528,000
Taylorville 1,755,000 2,398,000
Waverly 1,554,000 2,895,000
(a) Net Book Value after $413,000 write down for impairment during the year
ended December 31, 2002. See "Item 7. Management's Discussion and Analysis of
Financial Condition - II Critical Accounting Policies."
C. WORKING CAPITAL
As of December 31, 2002, NPAMLP has working capital of approximately
$3,001,000 excluding amounts due to the Managing General Partner and the Pension
Groups of $1,269,000 and $576,000, respectively. NPAMLP's operating budget for
2003 projects a cash deficit of approximately $41,000.
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.
18
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 - III. Results of
Operations - E. 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, 2002, the Managing General Partner has advanced approximately
$1,269,000 to NPAMLP but may require the repayment of the advances for its own
operational needs.
D. LOAN OBLIGATIONS
As of December 31, 2002, the Third Party Underlying Obligation for the
Wheelersburg, Ohio property had matured and had a balloon payment due. The Third
Party Underlying Obligation that had matured relating to this property is
$878,000. NPAMLP is currently in negotiations to refinance or extend this loan.
If NPAMLP is not successful in this matter, Wheelersburg could be lost in
foreclosure which would result in a $279,000 net gain, including the forgiveness
of wraparound mortgages, net of discounts.
For the year ended December 31, 2003, the Third Party Underlying
Obligations for the Marquette, Michigan ($5,557,000) and Oak Lawn, Illinois
($1,911,000) properties will mature and have balloon payments due. NPAMLP is
currently negotiating to refinance or extend these mortgages.
The Clackamas, Oregon property is subject to a 1995 sales contract and
is scheduled to be conveyed in 2003 before the balloon payment is due on the
Third Party Underlying Obligation ($638,000).
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, 2002,
NPAMLP was obligated for approximately $420,000 of capital commitments which
were primarily for property redevelopment and roof replacement. The 2003
operating budget for the Properties provides for approximately $318,000 in
capital repair reserves.
During 2002, 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,
2002, there were $770,000 of advances and $79,000 in accrued interest was due
under the NPAMLP Lines.
Amounts advanced pursuant to the Hudson Line bear interest at the rate
of 1% above "E&H Borrowing Rate" (as defined below, currently 5.25%). Amounts
advanced pursuant to the Hudson Line are not directly secured by any collateral.
However, the East Haven, Connecticut property has been pledged to secure a line
of credit extended to E&H by Hudson United Bank of Philadelphia, Pennsylvania
("Hudson United") which will enable E&H to fund the Hudson Line in order to
finance Capital and Tenant Improvements (the "E&H Hudson Line"). In accordance
with the terms of the E&H Hudson Line, NPAMLP has granted a security interest in
and assigned a deed-in-lieu of foreclosure with respect to the East Haven
property to Hudson United (the "East Haven Security").
At December 31, 2002, the E&H Hudson Line permitted E&H to borrow up to
$2,000,000 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 Hudson
Line (the "Hudson Note"), the amounts advanced pursuant to the Hudson Note bear
interest at a rate equal to .25% per annum in excess of the "Base Rate" of
Hudson United (the "E&H Borrowing Rate"). The current E&H Borrowing Rate is
5.25%.
19
The Hudson Note is secured by an assignment of certain Wrap Notes and
Second Mortgages, the East Haven Security and certain Guaranty and Suretyship
Agreements executed by EBL&S, Inc., EBL&S Property Management, Inc., National
Property Analysts Partners and Edward B. Lipkin. Additionally, the Hudson Note
contains a confession of judgment against the borrower.
The Hudson Note provides for certain events of default. In addition to
providing for an event of default arising from a failure to pay principal and
interest on the E&H Hudson Line when due, the Hudson Note provides that Hudson
United may declare a default if, in its sole discretion, it determines that it
is insecure with respect to any of the collateral or the ability of E&H or any
other obligor to perform all of its obligations under the Hudson Note or any of
the other loan documents. The loan and security agreement executed by E&H in
connection with the E&H Hudson Line (the "Hudson Loan and Security Agreement")
provides that upon the occurrence of an event of default, Hudson United will
have the right to sell the East Haven property and apply the proceeds of the
sale to payment of all amounts due pursuant to the Hudson Note, the Hudson Loan
and Security Agreement or the other loan documents in such order of priority as
Hudson United may determine in its sole discretion.
Amounts advanced pursuant to the 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 in order to finance Capital and Tenant Improvements (the "E&H Firstrust
Line").
At December 31, 2002, 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 4.75%.
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, 2002, $770,000 has been advanced and $79,000 in accrued
interest was due under the NPAMLP Lines and $70,000 and $1,025,000 have been
borrowed under the E&H Hudson Line and 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, 2002, 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
20
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, 2002 have been classified as Discontinued operations in
the Statement of Operations and Changes in Partners' Deficit. The loss reported
in discontinued components was $4,925,000 for the year ended December 31, 2002.
The losses previously reported in continuing operations and now presented in
discontinued components were $1,368,000, $1,238,000, $1,109,000 and $1,084,000
for the years ended December 31, 2001, 2000, 1999 and 1998, respectively. 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. 144 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.
III. RESULTS OF OPERATIONS
A. PROPERTY DISPOSITIONS DURING FISCAL 2002
NPAMLP owned 40 and 49 properties at December 31, 2002, and 2001,
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 leases at
the Hutchinson and Bowling Green properties were 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 2002, NPAMLP sold the Newberry property to
a limited partnership in which Edward B. Lipkin, a related party, owned the 1%
interest of the general partner. The sale completed a transaction structured as
a tax-free exchange in accordance with Section 1031 of the Internal Revenue
Code. During the third quarter of 2002, NPAMLP sold a property located in
Fairfield, Iowa to a limited partnership in which Lipkin owned the 1% interest
of the general partner. See "Item 13. Certain Relationships and Related
Transactions - V. Related Party Transactions."
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 - $303,000;
Washington - $282,000; Fairfield - $52,000 (resulting from forgiveness of debt
only) and $690,000 (resulting from the subsequent sale); and Huron - $623,000.
During the year ended December 31, 1991, NPAMLP sold the land under the
Fairborn, Ohio property and simultaneously leased the land back. Proceeds
received from the sale of the land were recorded as a Finance lease obligation.
Any gain or loss from this transaction was to be recognized at the date upon
which title to the buildings was conveyed to the ground lessor. In February
2002, the ground lease on the Fairborn property was terminated and the property
was conveyed to the ground lessor. The termination of the ground lease resulted
from the inability of the property to make future payments on its ground lease
and underlying mortgage obligations due to the Kmart bankruptcy petition as well
21
as other tenant vacancies within the property. The net gain on this transaction
including the forgiveness of wraparound mortgages, net of discounts, was
$1,609,000.
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 $444,000. In June 2002, a portion of the Cottage Grove, Minnesota property
was sold. The net loss on this transaction was $566,000.
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. FORGIVENESS OF WRAP MORTGAGES DURING FISCAL 1998
During 1998, MLPG agreed to the forgiveness of $98,239,000 of Wrap
Mortgages with related discounts of $59,677,000, of which $13,908,000 of Wrap
Mortgages with related discounts of $4,441,000 were written off with the
dispositions of the East Meadow and Las Vegas properties during the 1st half of
1998. In addition, MLPG agreed to the forgiveness of $1,954,000 which was due to
MLPG for past due payments. The aggregate of $31,049,000 is included in
"Forgiveness of wraparound mortgages payable on disposition of properties."
Through December 31, 1997, MLPG had forgiven the Wrap Mortgages
remaining after the disposition of Properties which were owned by Audited
Partnerships. In 1998 MLPG agreed to forgive certain Wrap Mortgages remaining
after the disposition of Properties which were owned by Unaudited Partnerships.
For the year ended December 31, 1998, Wrap Mortgages of approximately
$36,523,000 with related discounts of $16,389,000 were forgiven in connection
with various Property dispositions. The aggregate of $20,134,000 is in
"Forgiveness of wraparound mortgages payable on disposition of properties." The
forgiveness of these Wrap Mortgages may result in tax liabilities to those who
had been Limited Partners in the Partnerships which had the Wrap Mortgages
forgiven. See "Item 5. Market Price for the Registrant's Common Equity and
Related Stockholder Matters - IV. Certain Income Tax Consequences - A.
Recognition of Gain."
Affiliates of the Managing General Partner ("Affiliates") had acquired
in 1995 an option to purchase certain of the Wrap Mortgages from MLPG. In
anticipation of this acquisition and in order to prevent potential adverse tax
consequences described below, Affiliates had to divest themselves of their
interests in NPAMLP. Therefore, on August 1, 1998, Affiliates assigned their
entire economic interest as limited partners to NPAMLP in exchange for NPAMLP's
interest in Mountain View Mall Associates ("Mountain View"). Affiliates have
agreed to hold one of Mountain View's two properties (the "Ardmore Property") in
trust for NPAMLP, with all benefits of ownership of the Ardmore Property
accruing to NPAMLP. Affiliates will also remit a portion of sales proceeds in
excess of related debt, if any, of Mountain View's other property (the "Trenton
Property") to NPAMLP. The debt on the Trenton Property greatly exceeds the
anticipated sales price for this property. Because Affiliates assigned their
interests to NPAMLP before MLPG effectively forgave the Wrap Mortgages as
described above, the Affected Limited Partners will have an additional tax
liability which is not expected to be significant. Such liability may be offset
by any suspended passive losses available to such partner.
During 1998, Affiliates exercised their option to purchase certain Wrap
Mortgages from MLPG. These obligations remain outstanding, with no economic
change to NPAMLP. If Affiliates had remained as either equity general or limited
partners of NPAMLP, the partners might have been required to recognize
substantial current income (without corresponding cash distributions) and
further, NPAMLP's ability to deduct future losses, if any, could have been
called into question. This could have effectively eliminated the tax basis of
all partners in NPAMLP. To prevent this result, Affiliates assigned their
interests in NPAMLP as described above.
The net effect of this series of transactions for NPAMLP was to reduce
NPAMLP's Wrap Mortgages by $120,854,000 with related discounts of $71,625,000,
to reduce the number of outstanding Units of NPAMLP by the 2,248 Units formerly
owned by Affiliates (2.25% of the outstanding Units) and, as to the Affected
Limited Partners, to recognize certain amounts of ordinary income for tax
purposes.
22
D. FULL FISCAL YEARS
Over the five year period ended December 31, 2002, NPAMLP disposed of
18 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:
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Beginning of year 49 48 48 49 56
Properties (acquired) disposed 9 < 1> - 1 7
-- ---- -- -- --
End of year 40 49 48 48 49
-- -- == == ==
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 for NPAMLP for the
years ended December 31, 2002, 2001, 2000, 1999 and 1998, excluding the
operating results for 18 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.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
INCOME:
Rental income $13,808 $14,092 $ 14,033 $ 14,266 $ 14,011
Other charges
to tenant 4,043 4,425 4,313 4,709 4,495
Interest income 221 220 239 210 200
Other income - - - 150 62
------- ------- -------- -------- --------
TOTAL INCOME 18,067 18,737 18,585 19,335 18,768
------- ------- -------- -------- --------
OPERATING EXPENSES:
Interest expense 8,847 8,724 8,472 8,294 7,958
Other operating
expenses 8,996 8,321 8,232 8,167 8,433
Depreciation and
amortization 5,929 5,543 5,516 5,476 5,532
------- ------- -------- -------- --------
TOTAL OPERATING
EXPENSES 23,772 22,588 22,220 21,937 21,923
------- ------- -------- -------- --------
OPERATING LOSS $<5,705> $<3,851> $ <3,635> $ <2,602> $ <3,155>
======= ======= ======== ======== ========
The fluctuations in "Rental Income" between years has been modest and
did not exceed 2.1% 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 2002 did not exceed 3% for any of
these years. During 1998, $84,331,000 of Wrap Mortgages were forgiven on
properties previously owned by Unaudited Partnerships resulting in a substantial
decrease in interest expense between 1997 and 1998, which, in turn, created a
larger than normal increase between 1998 and 1999.
The increase in Other operating expenses between 2001 and 2002 was
primarily a result of increased general and administrative costs. 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.
The increases in depreciation and amortization between 1999 and 2002
are due to capital improvements. The net decrease between 1998 and 1999 was due
to adjustments to the estimated useful lives of certain tenant improvements
where the tenant had vacated prior to December 31, 1998.
23
E. 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,
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.
24
IV. 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, 2002, the aggregate indebtedness of NPAMLP pursuant to the Wrap
Mortgages was approximately $253 million, of which approximately $72 million
constituted indebtedness under the Third Party Underlying Obligations and $24
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,
2002, the aggregate historical cost of the Properties securing the indebtedness
of NPAMLP mortgages was approximately $189 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, 2002, was approximately $27
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
25
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.
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 14 of this Form 10-K.
26
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.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 57, 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 47, 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.
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 $160,000, $77,000 and $71,000 for the years ended December 31, 2002,
2001 and 2000, respectively. See "Item 13. Certain Relationships and Related
Transactions - I. Compensation and Fees and II. Property Management by
Affiliate."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
AMOUNT AND
----------
NAME & ADDRESS OF NATURE OF
----------------- ---------
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP % OF CLASS
- -------------- ---------------- -------------------- ----------
Units of Limited Robert McKinney 1,000 Units 1.0%
Partnership Interest 230 S. Broad Street
Philadelphia, PA 19102
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.
PERSON RECEIVING ESTIMATED AMOUNT
COMPENSATION TYPE OF COMPENSATION OF COMPENSATION
------------ -------------------- ----------------
ORGANIZATIONAL PHASE
Equity General Partner 1% general partners'
interest in NPAMLP.
OPERATIONAL PHASE
-----------------
Equity General Partner General Partners' share of On an annual basis,
Cash Flow from Operations 1% of Cash Flow from
Operations. Actual
amounts will depend
upon future
operations and are
not now determinable.
EBL&S Property Property Management Fees Annual fee of 5% of
Management, Inc. gross operating
revenues derived from
the Properties.
Actual amounts will
depend upon future
operations and are
not now determinable.
28
EBL&S Property Leasing Fees For all obtained or
Management, Inc. renewed leases, an
amount equal to the
fees customarily
charged in the
geographic area of
leased property.
Actual amounts will
depend upon future
operations and are
not now determinable.
Equity General Partner General Partners' share The Equity General
Of Profit and Losses Partner will be
allocated 1% of the
profits and losses
from NPAMLP
operations.
Managing General Reimbursement of Expenses1 Actual cost of goods
Partner and services utilized
for or by NPAMLP,
including certain
administrative
services performed by
the Managing General
Partner.
LIQUIDATION PHASE
Equity General Partner General Partners' share The Equity General
of Proceeds of Sales of Partner will be
the Properties. allocated 1% of the
Proceeds of Sale of
the Properties.
E&H Properties, Inc. Repayment of Indebtedness Actual amounts will
secured by Second Mortgages depend on the price
of Properties and are
not now determinable.
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. An aggregate of approximately $890,000 was earned by the Property
Manager for management fees, and an aggregate of approximately $283,000 was
earned by the Property Manager for leasing fees for the fiscal year 2002.
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
- -------------
(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.
29
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 $24 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 1998, the Third Party Underlying Obligation on the North
Augusta, South Carolina property was acquired by E & H Properties for its
balance as of
30
the date of acquisition. The mortgage was extended and fully amortized on
October 1, 1999.
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 interest
in NPAMLP in exchange for the transfer of the Trenton property and related
wraparound mortgage obligations. As a result, NPA and its principals did not own
any of the 97,752 units as of December 31, 2002, 2001 and 2000. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - III. Results of Operations - C. Forgiveness of Wrap Mortgages
During Fiscal 1998."
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.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
I. DOCUMENTS FILED AS PART OF THIS REPORT
A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report.............................. F-1
Combined Financial Statements:
Combined Balance Sheets at December 31, 2002 and 2001... F-3
Combined Statements of Operations and Changes
in Partners' Deficit for the years ended
December 31, 2002, 2001 and 2000........................ F-4
Combined Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000........................ F-5
Notes to Combined Financial Statements.................... F-6
Attachments
1 Properties Effectively Owned by NPAMLP at
December 31, 2002.................................... F-16
2 Schedules II and III to the Combined Financial
Statements........................................... F-17
B. EXHIBITS
Exhibit No. Description
- ----------- -----------
*2.1 Consolidation Agreement by and
among the National Property
Analysts Master Limited
Partnership ("NPAMLP"); EBL&S,
Inc. ("EBL&S") and Buster, Inc.
("Buster").
*2.2 Settlement Agreement by and
among plaintiffs as a class,
National Property Analysts, Inc.
("NPA") and certain additional
defendants in James O'Brien, et
al. v. National Property
Analysts, Inc., et al. (the
"Action").
*2.3 Judgment and Order Approving the
Transaction, the Formation of
the Master Limited Partnership,
and the Allocation of Interests
in the Master Limited
Partnership entered by the
Court.
*3.1 Initial Limited Partnership
Agreement of NPAMLP.
*3.2 Amended and Restated Limited
Partnership Agreement of NPAMLP.
*3.3 Certificate of Limited
Partnership of NPAMLP.
*10.1 Restructuring and Mortgage
Modification Agreement by and
among Main Line Pension Group,
L.P. ("MLPG"), NPAMLP and
National Property Analysts, Inc.
*10.2 Leasing and Management Agreement
by and between EBL&S Property
Management, Inc. and NPAMLP.
32
*10.3 Information Statement Relating
to the formation of NPAMLP.
*10.4 Proof of Claim and Release and
Vote on Consolidation.
**10.5 Loan and Security Agreement
between E&H Properties, Inc. and
Jefferson Bank.
**10.6 Line of Credit Promissory Note.
10.7 Agreement between NPAMLP, NPAEP
and PVPG.
16.1 Letter from
replaced
accountants
(previously
filed with
Form 8-K dated
May 29, 2002).
99.1 Certification Pursuant To
Section 906.
99.2 Certification Pursuant To
section 906.
99.3 Certification Pursuant To
Section 906.
*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)
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."
33
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 27, 2003
By: Feldman International, Inc., its equity general partner
By: /s/ Robert McKinney
-------------------
Robert McKinney
Director
Date: March 27, 2003
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.
Signature Capacity Date
/s/Edward B. Lipkin Director of EBL&S, Inc.
- ------------------- Principal Executive Officer,
Edward B. Lipkin Principal Accounting Officer and
Principal Financial Officer March 27, 2003
/s/Robert McKinney Director of Feldman International, Inc. March 27, 2003
- ------------------
Robert McKinney
CERTIFICATION
I, Edward B. Lipkin, certify that:
1. I have reviewed this annual report on Form 10-K of National Property
Analysts Master Limited Partnership;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
34
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 27, 2003
By: EBL&S, Inc., the registrant's managing general partner
By: /s/ Edward B. Lipkin
------------------------------------------------------
Name: Edward B. Lipkin
Title: President
CERTIFICATION
I, Robert McKinney, certify that:
1. I have reviewed this annual report on Form 10-K of National Property
Analysts Master Limited Partnership;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
35
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 27, 2003
By: Feldman International Inc., the registrant's equity general partner
By: /s/ Robert McKinney
-------------------------------------------------------------------
Name: Robert McKinney
Title: President
CERTIFICATION
I, David A. Simon, certify that:
1. I have reviewed this annual report on Form 10-K of National Property
Analysts Master Limited Partnership;
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 27, 2003
By: EBL&S Property Management Inc., Agent for the registrant
By: /s/ David A. Simon
--------------------------------------------------------
Name: David A. Simon
Title: Vice President and Chief Financial Officer
36
INDEPENDENT AUDITORS' REPORT
General Partners
National Property Analysts Master Limited Partnership
We have audited the accompanying combined balance sheet of National
Property Analysts Master Limited Partnership (NPAMLP) (a limited partnership) as
of December 31, 2002 and the related combined statements of operations and
changes in partners' deficit, and cash flows for the year then ended. In
connection with our audit 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, 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 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 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
audit provides 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, 2002
and the combined results of their operations and their cash flows for the year
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 15, 2003
F-1
INDEPENDENT AUDITORS' REPORT
General Partners
National Property Analysts Master Limited Partnership
We have audited the combined balance sheet of National Property Analysts Master
Limited Partnership (NPAMLP) (a limited partnership), as of December 31, 2001,
and the related combined statements of operations and changes in partners'
deficit, and cash flows for each of the years in the two-year period then ended.
In connection with our audits of the combined financial statements referred to
above, we have also audited the financial statement schedules of combined
valuation and qualifying accounts and combined real estate and accumulated
depreciation as of December 31, 2001 and 2000. 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 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
audits provide a reasonable basis for our opinion.
In our opinion, the 2001 and 2000 combined financial statements referred to
above present fairly, in all material respects, the financial position of NPAMLP
as of December 31, 2001, and the results of its operations and its cash flows
for each of the years in the two-year period then ended, 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
F-2
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Combined Balance Sheets
December 31, 2002 and 2001
(in thousands)
ASSETS 2002 2001
----------- -----------
Rental property at cost:
Land $ 11,983 $ 15,340
Buildings 176,756 215,352
----------- -----------
188,739 230,692
Less: accumulated depreciation 105,559 123,755
----------- -----------
Rental property, net 83,180 106,937
Cash and cash equivalents 2,587 3,559
Restricted cash 2,384 2,406
Investment securities available for sale, at market 1,453 98
Tenants accounts receivable, net of allowance of $250 and
$30 for 2002 and 2001, respectively 745 393
Due from Pension Groups - 44
Unbilled rent receivable 226 212
Tenant leasing costs 20 26
Accounts receivable and other assets (1) 1,280 972
----------- -----------
Total assets $ 91,875 $ 114,647
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Wraparound mortgages payable (1) $ 252,746 $ 291,469
Less: unamortized discount based on imputed interest rate of 12% (1) 122,319 141,592
----------- -----------
Wraparound mortgages payable less unamortized discount (1) 130,427 149,877
Due to Pension Groups (1) 576 -
Other borrowings (1) 770 770
Deferred revenue 500 705
Accounts payable and other liabilities (1) 3,381 2,047
Finance lease obligation 2,150 2,650
Deposit on sale of property 301 2,051
----------- -----------
Total liabilities 138,105 158,100
Unrealized loss on investment securities (24) (2)
Partners' deficit (46,206) (43,451)
----------- -----------
Total partners' deficit (46,230) (43,453)
----------- -----------
Total liabilities and partners deficit $ 91,875 $ 114,647
=========== ===========
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
F-3
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Combined Statements of Operations and Changes in Partners' Deficit
Years ended December 31, 2002, 2001 and 2000
(in thousands, except unit data)
2002 2001 2000
--------- ---------- ----------
Income:
Rental income $ 14,975 $ 15,406 $ 15,535
Other charges to tenants 4,358 4,506 4,585
Interest income 217 230 262
Other income - - -
--------- ---------- ----------
Total income 19,550 20,142 20,382
--------- ---------- ----------
Operating expenses:
Interest expense (1) 13,476 13,355 13,395
Real estate taxes 3,960 3,825 3,999
Management fees (1) 851 895 927
Common area maintenance expenses 1,928 2,050 2,130
Ground rent 488 492 491
Repairs and maintenance 173 203 194
General and administrative 1,239 559 556
Depreciation 5,662 5,657 5,741
Amortization 188 164 164
--------- ---------- ----------
Total operating expenses 27,965 27,200 27,597
--------- ---------- ----------
Operating loss (8,415) (7,058) (7,215)
--------- ---------- ----------
Other (expense) income:
Realized loss on investment securities (185) - -
Gain on disposition of properties - - 1,769
--------- ---------- ----------
Loss from continuing operations (8,600) (7,308) (5,446)
Discontinued operations:
Loss from operations of discontinued components
(including loss on disposition of properties
of $3,548 and write-down of rental property of
$413 and $250 for the years ended December 31,
2002 and 2001) (1) (4,925) (1,368) (1,238)
--------- ---------- ----------
Loss before extraordinary gain (13,525) (8,426) (6,684)
Extraordinary gain:
Forgiveness of wraparound mortgages payable
on disposition of properties (1) 10,770 - -
--------- ---------- ----------
Net loss (2,755) (8,426) (6,684)
Partners' deficit:
Beginning of year (43,453) (35,025) (28,341)
Net change in unrealized loss on investment securities (22) (2) -
--------- ---------- ----------
End of year $ (46,230) $ (43,453) $ (35,025)
========= ========== ==========
Net loss per unit $ (28.18) $ (86.20) $ (68.38)
========= ========== ==========
Weighted average units outstanding 97,752 97,752 97,752
========= ========== ==========
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
F-4
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Combined Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
--------- -------- ---------
Cash flows from operating activities:
Net loss $ (2,755) $ (8,426) $ (6,684)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 6,272 7,019 7,100
Amortization of discount (1) 7,257 7,672 7,295
Provision for bad debts 220 - -
Net gain on disposition of properties including
forgiveness of wraparound mortgage payable (7,222) - (1,769)
Gain on finance lease obligation (500) - -
Realized loss on investment securities 185 - -
Write-down of rental property 413 250 -
Changes in assets and liabilities:
(Increase) decrease in tenants accounts
receivable (572) (275) 194
(Increase) decrease in unbilled rent receivable (14) 209 110
Decrease in tenant leasing costs 6 9 15
(Increase ) decrease in accounts receivable
and other assets (308) 1,643 (931)
Increase (decrease) in accounts payable and
other liabilities 1,334 129 (71)
(Decrease) increase in deferred revenue (205) 622 (473)
--------- -------- ---------
Net cash provided by operating activities 4,111 8,852 4,786
--------- -------- ---------
Cash flows from investing activities:
Disposition (acquisition) of properties 4,434 (4,507) 3,748
Improvements to rental property (1,384) (691) (1,420)
Decrease (increase) in restricted cash 22 5 (95)
(Decrease) in deposit on sale of property (1,750) - -
Purchase of investment securities (4,909) (100) -
Sale of investment securities 3,347 - -
--------- -------- ---------
Net cash (used in) provided by investing activities (240) (5,293) 2,233
--------- -------- ---------
Cash flows from financing activities:
Payments on wraparound mortgages (5,463) (6,711) (7,109)
Increase (decrease) in due to/from Pension Groups 620 (93) (140)
Proceeds from additional debt - 4,507 -
--------- -------- ---------
Net cash used in financing activities (4,843) (2,297) (7,249)
--------- -------- ---------
(Decrease) increase in cash and cash equivalents (972) 1,262 (230)
Cash and cash equivalents:
Beginning of year 3,559 2,297 2,527
--------- -------- ---------
End of year $ 2,587 $ 3,559 $ 2,297
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 6,561 $ 8,511 $ 9,037
========= ======== =========
Supplemental disclosure of noncash activities:
Reduction in wraparound mortgages from forgiveness
of debt, net of related discount $ 21,244 $ - $ -
========= ======== =========
(1) See Note 3: Related Party Transactions.
See accompanying notes to combined financial statements.
F-5
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(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, 2002, NPAMLP sold properties that generated
approximately $35,134 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 it 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.
F-6
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
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.
NPAMLP has working capital as of December 31, 2002, of approximately
$3,001, excluding amounts due to the managing general partner and the
Pension Groups of $1,269 and $576, respectively. NPAMLP has $2,587 of
unrestricted cash and $480 available under line of credit agreements at
December 31, 2002, to meet its short-term obligations. Through December
31, 2002, 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, 2002, the managing general partner has advanced
approximately $1,269 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.
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, were classified as available for sale and were carried
at estimated fair value. Unrealized gains and losses on the
investment securities were included as a separate component of
Partners' Deficit.
F-7
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
(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.
(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, 2002 and 2001.
(i) NEW PRONOUNCEMENT
In April 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other provisions, SFAS No. 145 rescinds
SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt. Accordingly, gains or losses from extinguishment of debt
shall not be reported as extraordinary items unless the
extinguishment qualifies as an extraordinary item under the
criteria 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.
Gains or losses from extinguishment of debt that do not meet
the criteria of APB No. 30 should be reclassified to income
from continuing operations in all prior periods presented.
Management believes that the adoption of SFAS No. 145 will not
have a significant impact on NPAMLP.
(j) 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.
(k) 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.
F-8
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
(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
Accounts receivable and 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 Accounts receivable and 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
NPAEP, PVPG and MLPG. 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, 2002, are $1,269 due
EBL&S, $79 due E&H and $101 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:
2002 2001 2000
------ ------ ------
Property management fees $ 890 $1,070 $1,103
Leasing commissions 283 64 62
Administrative services 160 77 71
------ ------ ------
$1,333 $1,211 $1,236
====== ====== ======
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. 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 any of the 97,752 units of
NPAMLP at December 31, 2002, 2001 and 2000, respectively.
NPA holds purchase money mortgages on certain properties of NPAMLP. The
purchase money mortgages aggregated approximately $24,408 and $26,803
at December 31, 2002 and 2001, respectively.
F-9
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
(4) TENANT LEASES
At December 31, 2002 and 2001, NPAMLP effectively owned and operated 40
and 49 properties, respectively, as listed in Attachment 1, that were
comprised principally of shopping centers and free standing,
single-tenant retail stores with approximately 170 and 180 tenants,
respectively, 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 22 years.
Future minimum lease rentals to be received under noncancellable leases
are approximately:
2003 $12,376
2004 10,517
2005 8,770
2006 6,823
2007 5,553
Thereafter 42,718
-------
Total $86,757
=======
Rental income includes approximately $1,018, $1,107 and $974 related to
percentage rents for the years ended December 31, 2002, 2001 and 2000,
respectively.
(5) MAJOR TENANT
NPAMLP's primary anchor tenant is Kmart Corporation and its
subsidiaries ("Kmart") which in 2002, 2001 and 2000 accounted for
approximately 43%, 55% 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,
2002, NPAMLP had 18 remaining leases with Kmart aggregating
approximately 1,738,000 square feet. As of December 31, 2002, the total
due from Kmart was $954. 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) and
under these 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 $7,199 and the balance of the related wraparound mortgages
payable, net of discounts, was $5,492 as of December 31, 2002. In March
2002, the Newberry property was sold to a limited partnership in which
a related party owned a 1% general partner interest.
In the second quarter of 2002, leases at the Bowling Green, Ohio; and
Hutchinson, Minnesota properties were rejected by Kmart in bankruptcy.
There can be no assurance that new leases can be successfully
negotiated or that the rental income will be comparable. The Hutchinson
property is expected to be foreclosed and conveyed to the property's
lender in 2003 and, as a result, its operations were included in
Discontinued operations. The Bowling Green property had a carrying
value of $1,973 and the balance of the related wraparound mortgages
payable, net of discounts, was $5,539 as of December 31, 2002. The
Hutchinson property had a carrying value of $913 and the balance of the
related wraparound mortgages payable, net of discounts, was $2,069 as
of December 31, 2002. As of December 31, 2002 Kmart was current with
respect to its post-petition obligations for its remaining leases.
F-10
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
In January 2003, Kmart filed its Joint Plan of Reorganization and
corresponding Disclosure Statement with the United States Bankruptcy
Court. The Plan of Reorganization contemplates confirmation in the
second quarter of 2003. In addition, in January 2003, Kmart submitted
its second official store closing list of 326 stores which did not
include any of the stores in properties owned by NPAMLP.
(6) IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
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 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.
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.
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 2002 have been classified as Discontinued operations in the
Statement of Operations and Changes in Partners' Deficit for the three
years ended December 31, 2002, 2001 and 2000. For the year ended
December 31, 2002, a loss of $4,925 was reported in discontinued
components. For the years ended December, 31, 2001 and 2000, losses of
$1,368 and $1,238, respectively, were previously reported in continuing
operations but are now presented in discontinued components.
(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, 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.
F-11
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
Future minimum lease payments under all noncancellable ground leases as
of December 31, 2002 are approximately.
2003 $ 798
2004 842
2005 559
2006 492
2007 492
Thereafter 9,303
-------
Total $12,486
=======
Total rental expense for ground leases for the years ended December 31,
2002, 2001, 2000, was approximately $488, $492 and $491, respectively.
In addition, $220, $256 and $260 of ground rent was recorded as
interest expense for the years ended December 31, 2002, 2001 and 2000,
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 (5.25% at
December 31, 2002) and has no expiration date. Any amounts advanced to
NPAMLP are not directly secured by any collateral; however, the East
Haven, Connecticut property (with a net book value of rental property
of $4,043 and a wraparound mortgage payable of $4,990 at December 31,
2002) has been pledged to secure a line of credit extended to E&H by a
bank, which enables E&H to make advances to NPAMLP. As of December 31,
2002, and 2001, $770 was owed by NPAMLP under this line of credit,
excluding $79 in accrued interest at December 31,2002. As of December
31, 2002 and 2001, E&H owed $70 and $440, respectively under its bank
line of credit. 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 (4.75% at December 31, 2002) 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. During the years
ended December 31, 2002 and 2001, there were no advances to NPAMLP from
E&H under this additional line of credit. As of December 31, 2002 and
2001, E&H owed $1,025 and $1,105, respectively, under this additional
bank line 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,
2002, wraparound mortgage obligations of approximately $19,128 with
related discounts of $10,995 were forgiven in connection with various
property dispositions. The net amount of $8,133 is included in
Extraordinary Gain from 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%.
F-12
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
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, 2003.
Wraparound mortgage principal payment requirements for the next five
years are approximately:
2003 $4,601
2004 4,742
2005 4,888
2006 5,246
2007 5,585
(10) PROPERTY SUBJECT TO SALES CONTRACTS
During the years ended December 31, 1990 and 1995, NPAMLP sold options
for the purchase of two and three rental properties, respectively.
Aggregate proceeds received from the sale of the options were recorded
as a 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. The 1990
options provided that title to the land and buildings would be conveyed
the holder of the options without additional consideration on November
14, 2003 (the Fort Wayne property) and December 11, 2006 (the Sparks
property) or would be conveyed automatically to the holder of the
options in the event of a default of the underlying tenant leases or
mortgages. The properties subject to the 1990 options were leased by
the Kmart at December 31, 2001. Under the option agreements, the
bankruptcy filing by Kmart constituted a default on the tenant leases.
In January and December 2002, the Sparks and Fort Wayne properties were
conveyed to the holders of their options. The remaining 1995 option
provides that title to the land and buildings will be conveyed to the
holder of the option without additional consideration on June 30, 2003
(the Clackamas, Oregon property).
(11) EXCHANGE OF PROPERTIES
During the year ended December 31, 2000, the Fond du Lac, Wisconsin
property was sold in a transaction structured to be a tax-free exchange
in accordance with Section 1031 of the Internal Revenue Code. This
transaction was completed in the first quarter of 2001 with an
acquisition of a property located in Lawnside, New Jersey. As a result
of the sale, a gain of $1,769 was recognized during 2000. During the
year ended December 31, 1999, the Minot, North Dakota property was sold
in a transaction structured to be a tax-free exchange in accordance
with Section 1031 of the Internal Revenue Code. This transaction was
completed in the first quarter of 2000 with an acquisition of a
property located in Painesville, Ohio. No gain or loss was recognized
during 2001.
(12) INVESTMENT SECURITIES AVAILABLE FOR SALE
Investments in available for sale common and preferred stock
securities were as follows as of December 31, 2002 and 2001:
DECEMBER 31, 2002
-----------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- -------------- -----------
Common stock $ 217 $ 4 $ 8 $ 213
Preferred stock 1,258 14 32 1,240
------------- ------------- -------------- -----------
Securities available for sale $ 1,475 $ 18 $ 40 $ 1,453
============= ============= ============== ===========
DECEMBER 31, 2001
-----------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- -------------- -----------
Preferred stock 100 - 2 98
------------- ------------- -------------- -----------
Securities available for sale $ 100 $ - $ 2 $ 98
============= ============= ============== ===========
F-13
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(dollars in thousands)
(13) PARTNERS' DEFICIT
Following is a summary of the combined changes in partners' deficit for
the three years ended December 31, 2002 (in thousands except unit
data):
UNITS PARTNERS' DEFICIT
------------------------------- --------------------------------
GENERAL LIMITED GENERAL LIMITED
PARTNERS PARTNERS TOTAL PARTNERS PARTNERS TOTAL
-------- -------- ----- -------- -------- -----
December 31, 1999 1,000 96,752 97,752 $ (283) (28,058) $(28,341)
Net loss - - - (67) (6,617) (6,684)
----- ------ ------ -------- ------- --------
December 31, 2000 1,000 96,752 97,752 (350) (34,675) (35,025)
Net loss - - - (85) (8,341) (8,426)
Unrealized loss on
Investment securities - - - - (2) (2)
----- ------ ------ -------- ------- --------
December 31, 2001 1,000 96,752 97,752 (435) (43,018) (43,453)
Net loss - - - (27) (2,728) (2,755)
Unrealized loss on
Investment securities - - - - (22) (22)
----- ------ ------ -------- ------- --------
December 31, 2002 1,000 96,752 97,752 $ (462) (45,768) $(46,230)
===== ====== ====== ======== ======= ========
(14) 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.
(15) 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.
(16) SUBSEQUENT EVENT - 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
F-14
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Notes to Combined Financial Statements
December 31, 2002, 2001 and 2000
(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.
F-15
SCHEDULE I
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Properties Effectively Owned by NPAMLP at December 31, 2002 (1)
PROPERTY LOCATION
- ----------------------------------------------------------------------------------------------
Ardmore, OK Hutchinson, MN Oak Lawn, IL*
Bowling Green, OH Independence, MO Ocala, FL
Cahokia, IL International Falls, MN Painesville, OH
Chesapeake, VA*+ Kalamazoo, MI*+ Philadelphia, PA*+
Clackamas, OR** Lake Mary, FL San Mateo, CA*
Cottage Grove, MN Lawnside, NJ Sault Ste. Marie, MI
Crescent City, CA Lockport, IL Seven Hills, OH*+
Dunmore, PA* Marquette, MI* Steger, IL
East Haven, CT Maryville, MO* Taylorville, IL
Escanaba, MI Menominee, MI* Urbana, IL
Federal Way, WA New Hope, MN Waverly, OH
Huntington, WV North Augusta, SC* Wheelersburg, OH
Huntsville, AL* North Sarasota, FL Yazoo City, MS
O'Fallon, MO
*Properties with ground leases.
**Property subject to sales contracts.
+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.
F-16
SCHEDULE II
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP
(a limited partnership)
Combined Valuation and Qualifying Accounts
December 31, 2002, 2001 and 2000
(in thousands)
BALANCE, ADDITIONS
BEGINNING CHARGED TO BALANCE,
OF YEAR OPERATIONS DEDUCTIONS END OF YEAR
--------- ---------- ---------- -----------
Allowance for doubtful accounts:
Year ended December 31, 2000 $ 30 17 (17) $ 30
Year ended December 31, 2001 30 48 (48) 30
Year ended December 31, 2002 30 427 (207) 250
F-17
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP SCHEDULE III
(a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2002, 2001 and 2000
(in thousands)
COST CAPITALIZED (WRITTEN OFF)
INITIAL COST SUBSEQUENT TO ACQUISITION
---------------------------------------------------------
BUILDINGS AND BUILDINGS AND
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------------------------------------------------------------------------------------------
Ardmore, OK $ 9,543 750 14,989 --- 764
Bowling Green, OH 5,539 496 5,270 --- 68
Cahokia, IL --- 600 5,800 (578) (5,790)
Chesapeake, VA 3,859 416 4,798 --- ---
Clackamas, OR 1,062 124 3,091 --- ---
Cottage Grove, MN 6,965 740 5,550 (364) 2,751
Crescent City, CA 1,690 129 2,220 --- ---
Dunmore, PA 798 --- 1,350 --- ---
East Haven, CT 3,238 447 4,883 --- 2,681
Escanaba, MI 1,071 159 1,616 --- ---
Federal Way, WA 2,542 86 1,894 --- ---
Huntington, WV 2,664 336 3,649 --- 596
Huntsville, AL 1,178 0 1,904 --- 186
Hutchinson, MN 2,069 179 3,304 --- (413)
Independence, MO 2,900 394 3,550 --- 446
International Falls, MN 1,659 179 3,071 --- ---
Kalamazoo, MI 2,872 250 4,850 --- 331
Lake Mary, FL 5,492 1,310 7,422 --- ---
Law nside, NJ 4,918 633 3,874 --- 60
Lockport, IL 2,436 286 2,572 --- 502
Marquette, MI 7,112 --- 5,700 --- 8,741
Maryville, MO 316 --- 1,248 --- 117
Menominee, MI 2,073 --- 2,722 --- 100
New Hope, MN 3,494 357 3,774 --- 409
North Augusta, SC 2,589 100 2,900 --- 165
North Sarasota, FL 4,647 459 5,686 --- 292
O'Fallon, MO 3,355 343 3,626 --- 101
Oak Lawn, IL 7,079 --- 9,029 --- 533
Ocala, FL 2,765 417 3,301 --- ---
Painesville, OH 3,328 180 1,990 --- ---
Philadelphia, PA 3,784 529 5,859 --- 278
San Mateo, CA 2,528 --- 6,672 --- ---
Sault St. Marie, MI 2,050 375 2,816 --- ---
Seven Hills, OH 1,991 371 3,771 --- ---
Steger, IL 2,233 332 2,489 --- 225
Taylorville, IL 2,398 492 3,696 --- 118
Urbana, IL 3,516 633 4,753 --- 101
Waverly, OH 2,895 471 2,920 --- 170
Wheelersburg, OH 1,358 194 2,081 --- 240
Yazoo City, MS 2,624 158 1,820 --- 474
-----------------------------------------------------------
Total $ 124,630 12,925 162,510 (942) 14,246
===========================================================
Cross-collateralized wraparound
mortgages on properties
previously disposed $ 5,797
---------
$ 130,427
=========
F-18
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP SCHEDULE III, CONTINUED
(a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2002, 2001 and 2000
(in thousands)
BUILDINGS AND ACCUMULATED DATE OF
PROPERTY LOCATION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUISITION LIFE METHOD
- ----------------------------------------------------------------------------------------------------------------------------------
Ardmore, OK $ 750 15,753 16,503 9,397 09/83 Varies Varies
Bowling Green, OH 496 5,338 5,834 3,861 02/81 Varies Varies
Cahokia, IL 22 10 32 5 10/82 Varies Varies
Chesapeake, VA 416 4,798 5,214 3,252 09/82 30 years Straight Line
Clackamas, OR 124 3,091 3,215 1,992 09/83 30 years Straight Line
Cottage Grove, MN 376 8,301 8,677 3,399 11/81 Varies Varies
Crescent City, CA 129 2,220 2,349 1,443 07/83 30 years Straight Line
Dunmore, PA --- 1,350 1,350 1,241 06/75 30 years Straight Line
East Haven, CT 447 7,564 8,011 3,968 08/80 Varies Varies
Escanaba, MI 159 1,616 1,775 1,091 10/82 30 years Straight Line
Federal Way, WA 86 1,894 1,980 1,373 04/81 30 years Straight Line
Huntington, WV 336 4,245 4,581 2,372 10/84 Varies Varies
Huntsville, AL --- 2,090 2,090 1,227 03/84 Varies Varies
Hutchinson, MN 179 2,891 3,070 2,157 06/83 30 years Straight Line
Independence, MO 394 3,996 4,390 2,711 05/81 Varies Varies
International Falls, MN 179 3,071 3,250 1,996 07/83 30 years Straight Line
Kalamazoo, MI 250 5,181 5,431 3,724 09/80 Varies Varies
Lake Mary, FL 1,310 7,422 8,732 1,533 12/94 Varies Varies
Lawnside, NJ 633 3,934 4,567 260 02/01 30 years Straight Line
Lockport, IL 286 3,074 3,360 1,925 07/82 Varies Varies
Marquette, MI --- 14,441 14,441 7,177 05/83 Varies Varies
Maryville, MO --- 1,365 1,365 819 11/83 Varies Varies
Menominee, MI --- 2,822 2,822 1,937 10/81 Varies Varies
New Hope, MN 357 4,183 4,540 2,813 03/81 Varies Varies
North Augusta, SC 100 3,065 3,165 2,206 03/80 30 years Straight Line
North Sarasota, FL 459 5,978 6,437 4,271 11/80 Varies Varies
O'Fallon, MO 343 3,727 4,070 2,666 03/81 Varies Varies
Oak Lawn, IL --- 9,562 9,562 6,517 10/81 Varies Varies
Ocala, FL 417 3,301 3,718 2,192 02/83 30 years Straight Line
Painesville, OH 180 1,990 2,170 198 03/00 30 years Straight Line
Philadelphia, PA 529 6,137 6,666 4,488 08/80 Varies Varies
San Mateo, CA --- 6,672 6,672 4,707 11/81 30 years Straight Line
Sault St. Marie, MI 375 2,816 3,191 1,893 11/82 30 years Straight Line
Seven Hills, OH 371 3,771 4,142 2,546 10/82 30 years Straight Line
Steger, IL 332 2,714 3,046 1,773 11/81 Varies Varies
Taylorville, IL 492 3,814 4,306 2,551 11/82 Varies Varies
Urbana, IL 633 4,854 5,487 3,210 11/82 Varies Varies
Waverly, OH 471 3,090 3,561 2,007 10/82 Varies Varies
Wheelersburg, OH 194 2,321 2,515 1,436 10/83 Varies Varies
Yazoo City, MS 158 2,294 2,452 1,225 09/84 Varies Varies
----------------------------------------------------
Total $ 11,983 176,756 188,739 105,559
====================================================
F-19
NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP SCHEDULE III, CONTINUED
(a limited partnership)
Combined Real Estate and Accumulated Depreciation Schedule
December 31, 2002, 2001 and 2000
(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:
TOTAL REAL ESTATE ASSETS
------------------------------------------------------
2002 2001 2000
------------------------------------------------------
Beginning Balance $ 230,692 225,744 230,969
Improvements 1,384 691 1,420
Acquisitions --- 4,507 2,170
Disposals / write-downs (43,337) (250) (8,815)
------------------------------------------------------
$ 188,739 230,692 225,744
======================================================
ACCUMULATED DEPRECIATION
------------------------------------------------------
2002 2001 2000
------------------------------------------------------
Beginning Balance $ 123,755 116,736 114,302
Depreciation - Original 5,211 6,282 6,397
Depreciation - Improvements 1,061 737 703
Disposals (24,468) --- (4,666)
------------------------------------------------------
$ 105,559 123,755 116,736
======================================================
F-20