10-Q 1 v327637_10q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended September 30, 2012
   
  OR
   
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from    to   

 

Commission file number: 000-24816

 

National Property Analysts Master Limited Partnership
(Exact name of registrant as specified in its charter)

 

Delaware   23-2610414
   (State or other jurisdiction of incorporation or organization)      (I.R.S. Employer Identification No.)
     
230 South Broad Street, Mezzanine    
Philadelphia, Pennsylvania   19102
(Address of principal executive offices)   (Zip Code)

 

(215) 790-4700

 

(Registrant’s telephone number, including area code)

 

[None]

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

  Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class   Outstanding at November 14, 2012
Units of Limited Partnership Interest   97,752 units

 

 
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

 

INDEX

 

    Page No.
PART I.  FINANCIAL INFORMATION    
     
Item 1.  Combined Condensed Financial Statements (Unaudited)    
     
Combined Condensed Balance Sheets  - September 30, 2012 and December 31, 2011   3
     
Combined Condensed Statements of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit - Three and nine months ended September 30, 2012 and 2011   4
     
Combined Condensed Statements of Cash Flows - Nine months ended September 30, 2012 and 2011   5
     
Notes to Combined Condensed Financial Statements   6
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.   13
     
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.   16
     
Item 4.  Controls and Procedures.   16
     
PART II.  OTHER INFORMATION    
     
Item 1.  Legal Proceedings.   17
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.   17
     
Item 3.  Defaults Upon Senior Securities.   17
     
Item 4.  Mine Safety Disclosures.   17
     
Item 5.  Other Information.   17
     
Item 6.  Exhibits.   17
     
SIGNATURES    
     
Signatures   18

 

2
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Combined Condensed Balance Sheets

(in thousands)

 

   September 30,   December 31, 
   2012   2011 
  (Unaudited)     
Assets          
Rental property, at cost:          
Land  $6,946   $7,568 
Buildings   99,594    107,994 
Tenant-in-common property   22,662    22,662 
    129,202    138,224 
Less: accumulated depreciation   74,269    81,063 
Rental property, net   54,933    57,161 
           
Cash and cash equivalents   2,009    897 
Restricted cash   88    126 
Investment securities available for sale, at market   -    1,441 
Tenant accounts receivable, net of allowance of $30 as of September 30, 2012 and December 31, 2011, respectively   244    85 
Unbilled rent receivable   1,245    1,259 
Other assets, net (1)   67    399 
           
Total assets  $58,586   $61,368 
           
Liabilities and Partners' Deficit          
Wraparound mortgages payable (1)  $130,509   $140,491 
Less: unamortized discount based on imputed interest rate of 12% (1)   16,211    25,794 
           
Wraparound mortgages payable less unamortized discount (1)   114,298    114,697 
           
Due to NPAEP (1)   3,412    3,379 
Other borrowings (1)   610    194 
Accounts payable and other liabilities (1)   3,440    3,420 
Deferred revenue   4,231    195 
Finance lease obligation   700    1,750 
           
Total liabilities   126,691    123,635 
           
Partners' deficit   (68,105)   (62,267)
           
Total liabilities and partners' deficit  $58,586   $61,368 

 

(1) See Note 3: Related Party Transactions.

See accompanying notes to Combined Condensed Financial Statements (unaudited).

 

3
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Combined Condensed Statements of Operations, Comprehensive Income (Loss) and Changes in Partners' Deficit (unaudited)

(in thousands, except per-unit data)

 

   Three months ended
September 30,
   Nine months ended
September 30,
 
   2012   2011   2012   2011 
Income:                
Rental income  $2,971   $3,008   $8,855   $9,028 
Other charges to tenants   684    766    2,039    2,392 
Interest and dividend income   -    9    20    57 
Total income   3,655    3,783    10,914    11,477 
                     
Operating expenses:                    
Interest expense (1)   3,343    3,208    9,995    9,559 
Real estate taxes   656    752    2,041    2,271 
Management fees (1)   115    133    382    394 
Common area maintenance expenses   274    261    983    1,145 
Ground rent (1)   187    190    562    583 
Repairs and maintenance   65    84    114    241 
General and administrative (1)   54    60    341    336 
Depreciation   625    975    2,015    2,925 
Amortization   9    5    31    28 
Total operating expenses   5,328    5,668    16,464    17,482 
Operating loss   (1,673)   (1,885)   (5,550)   (6,005)
                     
Other gain  (loss):                    
Realized gains on investment securities   -    12    21    95 
Loss from continuing operations   (1,673)   (1,873)   (5,529)   (5,910)
                     
Discontinued operations:                    
Loss from operations of discontinued components including gain from disposition of property of $356 for the nine months ended September 30, 2012   (170)   (280)   (309)   (910)
Net loss   (1,843)   (2,153)   (5,838)   (6,820)
                     
Other comprehensive income (loss):                    
Net change in unrealized gains on investment securities   -    (101)   -    (186)
Comprehensive loss   (1,843)   (2,254)   (5,838)   (7,006)
                     
Partners' deficit:                    
Beginning of period   (66,262)   (58,954)   (62,267)   (54,202)
                     
End of period  $(68,105)  $(61,208)  $(68,105)  $(61,208)
                     
Loss per unit from continuing operations  $(17.11)  $(19.16)  $(56.56)  $(60.46)
Loss per unit from discontinued operations   (1.74)   (2.86)   (3.16)   (9.30)
Net loss per unit  $(18.85)  $(22.02)  $(59.72)  $(69.76)
Weighted average units outstanding   97,752    97,752    97,752    97,752 

 

(1) See Note 3: Related Party Transactions.

See accompanying notes to Combined Condensed Financial Statements (unaudited).

 

4
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Combined Condensed Statements of Cash Flows (unaudited)

(in thousands, except per-unit data)

 

   Nine months ended September 30, 
   2012   2011 
Cash flows from operating activities:          
           
Net loss  $(5,838)  $(6,820)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   2,051    3,064 
Amortization of discount (1)   9,583    9,036 
Realized gains on investment securities   (21)   (95)
Impairment of rental property   74    - 
Net gain on disposition of properties   (356)   - 
Change in assets and liabilities          
(Increase) decrease in tenant accounts receivable   (159)   28 
Decrease in unbilled rent receivable   14    1 
(Increase) decrease in other assets (1)   301    (17)
Increase in accounts payable and other liabilities (1)   20    298 
Increase (decrease) in deferred revenue   4,036    (98)
Net cash provided by operating activities   9,705    5,397 
           
Cash flows from investing activities:          
Proceeds from disposition of properties   100    - 
Improvements to rental property   (932)   (565)
Decrease (increase) in restricted cash   38    (74)
Purchases of investment securities   (607)   (4,831)
Sales of investment securities   2,067    6,070 
Net cash provided by investing activities   666    600 
           
Cash flows from financing activities:          
Payments on wraparound mortgages (1)   (9,708)   (6,163)
Increase in other borrowings   416    - 
Increase in due to NPAEP   33    22 
Net cash used in financing activities   (9,259)   (6,141)
           
Increase (decrease) in cash and cash equivalents   1,112    (144)
           
Cash and cash equivalents:          
Beginning of period   897    611 
           
End of period  $2,009   $467 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for interest  $756   $958 
Supplemental disclosure of non-cash investing and financing activities:          
Reduction of wraparound mortgages related to disposition of property  $274   $- 
Reduction in finance lease obligation related to disposition of property  $1,050   $- 

 

(1) See Note 3: Related Party Transactions.

See accompanying notes to Combined Condensed Financial Statements (unaudited).

 

5
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

Note 1:  Basis of Presentation

 

The accompanying unaudited Combined Condensed Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such instructions, although NPAMLP believes that the included disclosures are adequate for a fair presentation. The information furnished reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations and cash flows for the interim periods presented. These Combined Condensed Financial Statements should be read in conjunction with the Combined Financial Statements and notes thereto filed with our Form 10-K for the year ended December 31, 2011. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2012.

 

Note 2:   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.

 

The properties included in NPAMLP consist primarily of regional shopping centers or malls with national retailers as anchor tenants. The ownership and operations of these properties have been combined in NPAMLP.

 

The financial statements include the accounts of 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 were allocated their interests in NPAMLP as if their partnership interests had been contributed on January 1, 1990.

 

Note 3:   Related Party Transactions

 

Management fees, leasing commissions and certain administrative services, including legal fees are paid to EBL&S Property Management, Inc (“EBL&S”), which is owned entirely by E&H Properties, Inc (“E&H”), a corporation owned and controlled by Edward B. Lipkin (“Lipkin”), a related party. Management fees are paid exclusively to EBL&S and are included in Management fees in the Combined Condensed Statements of Operations. Leasing commissions are deferred over the life of their respective leases and are included in other assets on the Combined Condensed Balance Sheets at September 30, 2012 and December 31, 2011. Certain administrative services, including legal fees, are reimbursed to EBL&S and are included in General and administrative expense on the Combined Condensed Statements of Operations. National Property Analysts Employee Partnership (“NPAEP”) holds the Wraparound mortgages debt. Lipkin controls NPAEP. Due to NPAEP, unamortized discount and interest expense are all financial statement accounts that relate directly to the Wraparound mortgages payable. Other borrowings represent amounts due to E&H Properties of Delaware, Inc, (“EHD”), an affiliate of E&H, and controlled by Lipkin. Included within Accounts payable and other liabilities are $2,794 and $2,729 due EBL&S at September 30, 2012 and December 31, 2011, respectively.

 

As of September 30, 2012, NPAMLP had an outstanding line of credit (the “NPAMLP Line”) with EHD, under which EHD has agreed to advance up to $2,500 to NPAMLP for the purposes of making capital and tenant improvements to the properties. The line bears interest at a variable rate, based on the prime rate (3.25% at September 30, 2012), and expires in December 2013. Any amounts advanced to NPAMLP are not directly secured by any collateral. Pursuant to the terms of the NPAMLP Line, the obligation of EHD to make advances to NPAMLP is at all times in the sole and absolute discretion of EHD. During the third quarter of 2012, EHD advanced $416 under the NPAMLP Line to fund the tenant improvements at the Marquette, Michigan property. As of September 30, 2012, there were $610 of advances and $146 of related accrued interest due under the NPAMLP Line.

 

6
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

NPAEP owns two parcels in Marquette, Michigan that are ground leased by NPAMLP. NPAMLP’s annual obligations under these leases is $32.

 

Note 4:   Major Tenants

 

NPAMLP’s primary anchor tenants are Sun Microsystems (the tenant at the tenant-in-common property), Sears Holdings Corporation and its subsidiaries (“Sears”) and CVS Corporation (“CVS”). The number of locations, gross leasable area (“GLA”) and percentage of minimum rent for these tenants for the nine-month period ended September 30, 2012 and 2011 are detailed in the table below. As of September 30, 2012, Sears had outstanding balances on one of its five locations, totaling $10. Neither Sun Microsystems nor CVS had outstanding balances due under any leases with NPAMLP at September 30, 2012.

 

   As of September 30, 2012   As of September 30, 2011 
Tenant  No. of
Locations
   GLA   % of
Minimum
Rent
   No. of
Locations
   GLA   % of
Minimum
Rent
 
Sun Microsystems   1    249,832    28%   1    249,832    26%
Sears   5    497,445    15%   6    619,120    17%
CVS   5    56,770    10%   5    56,770    15%

 

Note 5:  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 provided that NPAEP and PVPG: (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 (the reduction in the interest rate was evaluated by NPAMLP in accordance with FASB authoritative guidance, and was determined not to be a substantial modification of terms as defined therein); (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 modified 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 certain partnerships comprising NPAMLP. 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.

 

7
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

The Managing General Partner believes that the execution of the 2003 Agreement had 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 realized reductions in interest that it otherwise would have been obligated to pay during the period between January 1, 2003 and September 30, 2012 and (ii) NPAMLP has been 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 certain Partnerships recognized non-recurring ordinary income (forgiveness of indebtedness) in 2003. The tax impact of this recognition depended upon numerous factors related to each investor’s particular tax situation, including his marginal tax rate and his suspended passive losses from prior years.

 

The 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 (October 1, 2012 through December 31, 2013) the projected balance due for all of the Wrap Mortgages at December 31, 2013 is expected to approximate $108,000. As of September 30, 2012, wraparound mortgage principal payment requirements for the remainder of 2012 are $1,894. 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 Managing 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 Managing 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 has preserved 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.

 

Note 6:  Commitments and Contingencies

 

In June 2006, NPAMLP and a limited liability company controlled by Lipkin (ARJAX) entered into an agreement with an anchor tenant (the “Agreement”), whereby the lease with the anchor tenant would be assigned to NPAMLP or ARJAX effective February 2009 (the “Effective Date”). In June 2008, the Agreement was amended extending the Effective Date to January 31, 2011. In December 2010, the Agreement was further amended extending the Effective Date to February 28, 2014. In consideration for the assignment, the anchor tenant would receive payments totaling $2,550 during the period from June 2006 through the Effective Date. To date, ARJAX has remitted $1,400 to the anchor tenant in accordance with the terms of the Agreement. In addition, the anchor tenant was obligated to complete, by the Effective Date, $500 in repairs or improvements which would otherwise be the responsibility of NPAMLP to six other stores leased from NPAMLP. As of September 30, 2012, the anchor tenant has completed the $500 in repairs and improvements required under the Agreement. Under the Agreement, the commitment to the anchor tenant is borne by ARJAX and NPAMLP, however it is anticipated that ARJAX shall fund all of the consideration due. In September 2006, NPAMLP sold the property encumbered by the affected anchor tenant lease to ARJAX. NPAMLP would be liable for the payments required under the Agreement should ARJAX fail to do so. Lipkin has personally guaranteed the obligations to the anchor tenant under the Agreement.

 

8
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

As of September 30, 2012, NPAMLP was obligated for $67 in capital commitments primarily for tenant improvements at its Marquette, Michigan property.

 

Note 7:   Disposition of Property

 

In January 2012, the ground lease on the Seven Hills, Ohio property terminated in accordance with its terms and the buildings were effectively conveyed to the ground owner. As part of this transaction, the ground owner assumed the balance of the underlying indebtedness in the amount of $274, and accordingly NPAMLP reduced the wraparound mortgages payable by the same amount. In addition, NPAMLP was effectively relieved of the related finance lease obligation in the amount of $550. The net book value of the property at the disposal date was $468. As a result of this transaction, NPAMLP recognized a gain from the disposition of this property of approximately $356.

 

In April 2012, NPAMLP and the owner of the land in Kalamazoo, Michigan leased by NPAMLP, entered into an agreement to terminate the ground lease covering this property. The lease for the Anchor Tenant at this property expired in February 2010, and NPAMLP had been actively marketing the space since that time. Under the terms of the ground lease, new tenants for this vacancy required NPAMLP to obtain the consent of the ground owner. NPAMLP was unable to obtain the required consent for a prospective tenant and accordingly, entered into the ground lease termination agreement to forestall any further carrying costs of this vacant property. The ground lease termination agreement also provided that the ground owner reimburse NPAMLP $100 for certain property improvement costs. In addition, NPAMLP was effectively relieved of the related finance lease obligation in the amount of $500. As a result of this transaction, NPAMLP recognized a loss from the disposition of this property of approximately $74. In accordance with the FASB authoritative guidance, NPAMLP recognized this loss as an impairment charge in the first quarter of 2012. As a result of the disposition of this property in the second quarter of 2012, this impairment charge is included in loss from discontinued operations in the Combined Condensed Statement of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit for the nine months ended September 30, 2012. The balance of the wraparound mortgage indebtedness, net of discounts, in the amount of $6,048 remains a liability of NPAMLP.

 

Income or loss from operations of sold properties is reported as discontinued operations in accordance with FASB authoritative guidance. Accordingly, the results of operations of properties disposed of or held for sale are classified as Discontinued operations in the Combined Statement of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit.

 

Note 8:   Deferred Revenue

 

Under the terms of the respective leases at the Grand Rapids, Michigan and Rockville, Maryland properties, the anchor tenant had the option of either refinancing the existing underlying indebtedness or paying it off. In January 2012, the Anchor Tenant elected to satisfy the underlying indebtedness in full on both properties in the approximate amount of $4,121. Accordingly, NPAMLP reduced the wraparound mortgages payable balance on these properties in the same amount. In accordance with the FASB authoritative guidance, NPAMLP recognized deferred revenue, and will be amortizing the balance on a straight line basis to income over the balance of the respective lease terms. The revenue recognized for the three and nine month periods ended September 30, 2012 was $85 and $255, respectively. As of September 30, 2012, the balance of deferred revenue for these leases was $3,866.

 

Note 9:   Disclosure of Fair Value of Financial Instruments

 

In addition to the disclosures in Note 10 for assets which are recorded at fair value, GAAP also requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The following disclosure of estimated fair value was determined by NPAMLP using available market information and appropriate valuation methodologies.  However, considerable judgment is necessary to interpret market data and develop estimated fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts NPAMLP could realize on disposition of the financial instruments at September 30, 2012 and December 31, 2011. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

9
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

Cash equivalents, receivables, accounts payable, accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values due to their short term nature as of September 30, 2012 and December 31, 2011. Investment securities available for sale are carried at fair value and valued based on quoted market prices in an exchange and active markets. During the nine month period ended September 30, 2012, NPAMLP sold its entire portfolio of investment securities.

 

In accordance with FASB authoritative guidance, 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 September 30, 2012 and December 31, 2011. NPAMLP classifies the fair value of the wraparound mortgages within Level 3 of the valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair values.  Disclosure about fair value of financial instruments is based on pertinent information available to management as of September 30, 2012 and December 31, 2011. Although NPAMLP is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2011 and current estimates of fair value may differ significantly from the amounts presented herein.

 

Note 10:   Fair Value Measurements

 

NPAMLP applies the guidance of the FASB regarding fair value measurements. The guidance establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. This guidance does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.

 

The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

·Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

·Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

·Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions

 

The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy:

 

Level 1 Fair Value Measurements

 

Mutual funds and exchange traded funds are valued based on quoted market prices in active markets, which represent the net asset values of shares held by NPAMLP at period end and are classified as Level 1 investments.

 

Level 2 Fair Value Measurements

 

There were no Level 2 inputs used in the valuation.

 

Level 3 Fair Value Measurements

 

There were no Level 3 inputs used in the valuation.

 

There were no assets or liabilities measured on a non-recurring basis at September 30, 2012 and December 31, 2011. There were no assets or liabilities measured on a recurring basis at September 30, 2012. Fair value measurements on a recurring basis at December 31, 2011 are as follows.

 

10
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

       Fair Value Measurements at December 31, 2011
Using Fair Value Hierarchy
 
   Fair Value as of
December 31, 2011
   Level 1   Level 2   Level 3 
Investment Securities:                    
Exchange traded funds:                    
US Treasury short term bonds  $752   $752   $-   $- 
Mutual funds:                    
US Treasury short term bonds   689    689    -    - 
                     
Investment securities available for sale  $1,441   $1,441   $-   $- 

  

Note 11:   Comprehensive Income (Loss)

 

Comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 is included in the statement of operations and comprehensive income (loss). Comprehensive income (loss) represents the total of net loss plus the change in unrealized gains (losses) on investment securities classified as available for sale. As of September 30, 2012, the Partnership sold its entire portfolio of investment securities available for sale.  As a result, comprehensive loss is equal to the net loss reported for the three and nine months ended September 30, 2012. 

 

An analysis of the changes in components of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2012 and 2011 is as follows:

 

   Three months ended   Nine months ended  
   September 30,
2012
   September 30,
2011
   September 30,
2012
   September 30,
2011
 
Other comprehensive income (loss):                    
                     
Unrealized gain (loss) on investment securities  $-   $(89)  $21   $(91)
Less: reclassification for realized (loss) gain included in net loss   -    12    21    95 
                     
Other comprehensive income (loss)  $-   $(101)  $-   $(186)

 

Note 12:   Litigation Settlement

 

In March 2012, NPAMLP entered into an agreement with the buyer of the Ardmore, Oklahoma property in settlement of a past due note receivable. The agreement provides that principal payments aggregating $670, plus interest on unpaid principal at 6% per annum, are due NPAMLP in monthly installments from March 2012 through May 2014. The original promissory note was in the amount of $480, for which NPAMLP recorded $240 as an allowance for doubtful accounts at December 31, 2010. NPAMLP has recorded the additional amount due as a note receivable, and as a result of the buyer’s continued delinquency, a related additional allowance for doubtful accounts in the amount of $190 at September 30, 2012 and December 31, 2011 (See Part II. Other Information, Item 1. Legal Proceedings). Through September 30, 2012 the buyer has made all required payments due under the terms of the agreement whereby the outstanding balance due on the note at September 30, 2012, net of the allowance for doubtful accounts of $430, has been reduced to $0 and a bad debt recovery of $29 has been included as a reduction of general and administrative expenses in the Combined Condensed Statement of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit for the nine months ended September 30, 2012.

 

11
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

September 30, 2012

(dollars in thousands)

 

Note 13:   Recent Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (" ASU") 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (" ASU 2011-04"). The amendments in ASU 2011-04 change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 is effective during interim and annual periods beginning after December 15, 2011. NPAMLP adopted the provisions of this ASU in the first quarter of 2012. The adoption of this standard did not have a material impact on NPAMLP’s financial position, results of operations or cash flows as a result of this change.

 

In September 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income” (ASU 2011-05). The amendments to Topic 220 (Comprehensive Income) eliminate the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders' equity, require consecutive presentation of the statement of net income and other comprehensive income and require reclassification adjustments from other comprehensive income to net income to be shown on the financial statements. In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income — Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in ASU 2011-05," to defer the effective date of the provision requiring entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. However, the remaining requirements of ASU 2011-05 are effective for the first interim and annual periods beginning after December 15, 2011. NPAMLP has adopted the provisions of this ASU. Any required changes in presentation requirements and disclosures have been included in the Combined Financial Statements beginning with the first quarter of 2012. The adoption of the standard did not have a material effect on NPAMLP’s Combined Results of Operations and Financial Condition.

 

In October 2012, the FASB issued ASU No. 2012-04 (“ASC Update 2012-04), Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, the amendments will make the Codification easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarifications. The amendments in this ASU that will not have transition guidance are effective upon issuance of the ASU, which is the fourth quarter of 2012. The amendments that are subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. NPAMLP does not anticipate any impact on its financial statements as a result of the adoption of this ASU.

 

12
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

September 30, 2012

(dollars in thousands)

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

From time to time, management may provide information, whether orally or in writing, including certain statements in this Quarterly Report on Form 10-Q, which are deemed to be “forward-looking” within the meaning of the federal securities laws. These forward-looking statements reflect management’s current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside management’s control that may cause actual results to differ materially from those projected.

 

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect management’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar expressions. Management does not intend to update these forward-looking statements, except as required by law. In accordance with the provisions of the federal securities laws, we are making the limited partners aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K and any exhibits hereto or thereto. Such factors include, but are not limited to: the outcome of litigation and regulatory proceedings to which NPAMLP may be a party; actions of competitors; changes and developments affecting our industry; quarterly or cyclical variations in financial results; the ability to attract and retain tenants at market rates; interest rates and cost of borrowing; management’s ability to maintain and improve cost efficiency of operations; changes in economic conditions, political conditions, and other factors that are set forth in the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q, as well as in our Annual Report on Form 10-K.

 

Liquidity and Capital Resources

 

Net cash provided by operating and investing activities for the nine-month period ended September 30, 2012 was $9,705 and $666, respectively. Net cash used in financing activities was $9,259. As a result of the above, there was a $1,112 increase in cash and cash equivalents for the nine months ended September 30, 2012. The primary sources of cash were operating activities, the sale of investment securities of $2,067 and additional borrowing under the NPAMLP Line (see below) to fund recent capital additions and capital commitments. The primary uses of cash were $932 in capital improvements, the purchase of investment securities of $607 and payments on wraparound mortgages of $9,708.

 

As of September 30, 2012, NPAMLP had an outstanding line of credit (the “NPAMLP Line”) with EHD, a related party, under which EHD has agreed to advance up to $2,500 to NPAMLP for the purposes of making capital and tenant improvements to the properties. The line bears interest at a variable rate, based on the prime rate (3.25% at September 30, 2012), and expires at the end of December 2013. Any amounts advanced to NPAMLP are not directly secured by any collateral. Pursuant to the terms of the NPAMLP Line, the obligation of EHD to make advances to NPAMLP is at all times in the sole and absolute discretion of EHD. As of September 30, 2012, there were $610 of advances and $146 of related accrued interest under the NPAMLP Line.

 

As of September 30, 2012, future minimum lease rentals to be received by NPAMLP under non-cancellable leases through NPAMLP’s dissolution on December 31, 2013 are $11,301. As of September 30, 2012, wraparound mortgage principal payment requirements and future minimum lease payments under all non-cancellable ground leases through December 31, 2012 were $1,894, and $238, respectively. Pursuant to the terms of the Future Interest Agreement (See Note 5), the balloon payments due on the wraparound mortgages at December 31, 2013 will be satisfied by conveying the fee and leasehold interests of NPAMLP to the holder of the wraparound mortgages.

 

As of September 30, 2012, the third party underlying mortgages were current for all the properties

 

As of September 30, 2012, NPAMLP was obligated for $67 in capital commitments primarily for tenant improvements.

 

Critical Accounting Policies

 

There were no significant changes to NPAMLP’s critical accounting policies and estimates during the nine-month period ended September 30, 2012.

 

Results of Operations

 

NPAMLP owned 22 and 24 properties, respectively, at September 30, 2012 and 2011.

 

The loss from continuing operations for the three and nine-month periods ended September 30, 2012 versus September 30, 2011, decreased by $200 and $381, respectively. The decrease in the loss from continuing operations for the nine month period ending September 30, 2012 versus September 30, 2011 was primarily due to decreases in depreciation expense, common area maintenance expenses and repairs and maintenance. These decreases were partially offset by an increase in interest expense and lower realized gains on sales of investment securities. The decrease in depreciation expense was due to certain properties becoming fully depreciated as of the end of the prior year and the disposition of the properties in Seven Hills, Ohio and Kalamazoo, Michigan. The decrease in common area expenses was due to significantly lower snow removal expenses. The increase in interest expense for the three and nine-month periods ended September 30, 2012 versus September 30, 2011 was $135 and $436, respectively, and is consistent with an increase in the balance of the wraparound mortgages, net of the unamortized discount, as the amortization of the discount was greater than the principal reduction on wraparound mortgages payable for the three and nine-month periods ended September 30, 2012. The decrease in repairs and maintenance expenses is due to certain non-recurring costs incurred in the first quarter of 2011 relating to the vacant Anchor Tenant space at the property in Kalamazoo, Michigan. (See Note 7. Disposition of Property).

 

13
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

September 30, 2012

(dollars in thousands)

 

In January 2012, the ground lease on the Seven Hills, Ohio property terminated in accordance with its terms and the buildings were effectively conveyed to the ground owner. As part of this transaction, the ground owner assumed the balance of the underlying indebtedness in the amount of $274, and accordingly NPAMLP reduced the wraparound mortgages payable by the same amount. In addition, NPAMLP was effectively relieved of the related finance lease obligation in the amount of $550. The net book value of the property at the disposal date was $468. As a result of this transaction, NPAMLP recognized a gain from the disposition of this property of approximately $356.

 

In April 2012, NPAMLP and the owner of the land in Kalamazoo, Michigan leased by NPAMLP, entered into an agreement to terminate the ground lease covering this property. The lease for the Anchor Tenant at this property expired in February 2010, and NPAMLP had been actively marketing the space since that time. Under the terms of the ground lease, new tenants for this vacancy required NPAMLP to obtain the consent of the ground owner. NPAMLP was unable to obtain the required consent for a prospective tenant and accordingly, entered into the ground lease termination agreement to forestall any further carrying costs of this vacant property. The ground lease termination agreement also provided that the ground owner reimburse NPAMLP $100 for certain property improvement costs. In addition, NPAMLP was effectively relieved of the related finance lease obligation in the amount of $500. As a result of this transaction, NPAMLP recognized a loss from the disposition of this property of approximately $74. In accordance with the FASB authoritative guidance, NPAMLP recognized this loss as an impairment charge in the first quarter of 2012. As a result of the disposition of this property in the second quarter of 2012, this impairment charge is included in loss from operations of discontinued components in the Combined Statement of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit for the nine months ended September 30, 2012.

 

Income or loss from operations of the two properties that were disposed of during the nine months ended September 30, 2012 (Seven Hills, Ohio and Kalamazoo, Michigan) are classified as part of discontinued operations within the Combined Statements of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit for the three and nine month periods ended September 30, 2012 and 2011.

 

14
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

September 30, 2012

(dollars in thousands)

 

Factors That May Influence Future Results of Operations

 

Economic Conditions.     In the United States, recent market and economic conditions have resulted in tighter credit conditions and limited growth through the third quarter of 2012. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets. Concern about the stability of the markets has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Since there are no balloon payments due on the third party underlying mortgages until 2013, NPAMLP has less exposure to these credit conditions. Continued turbulence in the U.S. and international markets and economies may adversely affect the liquidity and financial condition of our tenants and consequently, NPAMLP’s liquidity. If these market conditions continue, they may limit the ability of our tenants, to timely refinance maturing liabilities and access the capital markets to meet liquidity needs.

 

Real Estate Asset Valuation.    General economic conditions and the resulting impact on market conditions or a downturn in tenants’ businesses may adversely affect the value of NPAMLP’s assets. Periods of economic slowdown or recession in the U.S., a decrease in market rental rates and/or market values of real estate assets, could have a negative impact on the value of NPAMLP properties and related tenant improvements. If NPAMLP was required under Generally Accepted Accounting Pronouncements to write down the carrying value of any properties to the lower of cost or market due to impairment, or if as a result of an early lease termination we were required to remove and dispose of material amounts of tenant improvements that are not reusable to another tenant, NPAMLP’s results of operations would be negatively affected.

 

Leasing Activity and Rental Rates.     The amount of net rental income generated by NPAMLP properties depends principally on the ability to maintain the occupancy rates of currently leased space and to lease currently available space, and space available from unscheduled lease terminations. The amount of rental income generated also depends on the ability to maintain or increase rental rates at the properties. Negative trends in one or more of these factors could adversely affect rental income in future periods.

 

 

15
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

September 30, 2012

(dollars in thousands)

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4.   Controls and Procedures

 

NPAMLP’s managing general partner, equity general partner and its agent’s chief financial officer, after evaluating the effectiveness of the design and operation of NPAMLP’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded, based on the evaluation of these controls and procedures required by paragraph (b) of the Exchange Act Rules 13a-15 or 15d-15, that NPAMLP’s disclosure controls and procedures were effective for the nine-month period ending September 30, 2012. Disclosure controls and procedures ensure that information to be disclosed in reports that the NPAMLP files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the Securities and Exchange Commission, and ensure that information required to be disclosed in the reports that NPAMLP files or submits under the Exchange Act is accumulated and communicated to  NPAMLP's management, including its managing general partner, equity general partner and its agent's chief financial officer, to allow timely decisions regarding required disclosure. 

 

There were no changes in NPAMLP’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during NPAMLP’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, NPAMLP’s internal control over financial reporting.

 

16
 

 

PART II - OTHER INFORMATION

(dollars in thousands)

 

Item 1. 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.

 

In 2005 NPAMLP sold the property in Ardmore, Oklahoma to an unrelated third party. In connection with this sale, NPAMLP accepted a $480 promissory note in consideration of a portion of the sale price. The note was due in October 2010. In October 2010 NPAMLP filed suit to collect the balance due. The obligor of this note challenged the legality of the note and did not make any required payments of principal or interest during the period from September 2010 through February 2012. In March 2012, NPAMLP obtained a judgment against the obligor and subsequently entered into a Settlement Agreement, Forbearance and Release (“Forbearance Agreement”). Under the terms of the Forbearance Agreement, the obligor of this note is to pay the sum of $670, comprised of an initial payment of $150 in March 2012 and twenty-six consecutive monthly payments of $20. Interest accruing at 6% per annum over the twenty-six month payment period is to be paid at the completion of the payment schedule. The initial payment due under the Forbearance Agreement and all scheduled monthly installments due have been received by NPAMLP through September 30, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit No.   Description
     
31.1   Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
31.2   Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
31.3   Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
32.1   Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
32.2   Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
32.3   Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

 

17
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and 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)
     
  Date: November 14, 2012
     
  By: EBL&S, Inc., its managing general partner
     
  By: /s/ Edward B. Lipkin
  Name:  Edward B. Lipkin
  Title: President
     
  By: Feldman International, Inc., its equity general partner
     
  By: /s/ Robert McKinney
  Name:  Robert McKinney
  Title: President

 

18