10-Q 1 v344121_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 March 31, 2013
   
  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 ¨ 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 May 14, 2013
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 - March 31, 2013 and December 31, 2012    1
     
Combined Condensed Statements of Operations, Comprehensive Income (Loss) and Changes in Partners’ Deficit - Three months ended March 31, 2013 and 2012    2
     
Combined Condensed Statements of Cash Flows - Three months ended March 31, 2013 and 2012    3
     
Notes to Combined Condensed Financial Statements   4
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.   11
     
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.   14
     
Item 4.  Controls and Procedures.   14
     
PART II.  OTHER INFORMATION    
     
Item 1.  Legal Proceedings.   15
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.   15
     
Item 3.  Defaults Upon Senior Securities.   15
     
Item 4.  Mine Safety Disclosures.   15
     
Item 5.  Other Information.   15
     
Item 6.  Exhibits.   15
     
SIGNATURES    
     
Signatures   16

  

 
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Combined Condensed Balance Sheets

(in thousands)

 

   March 31,   December 31, 
   2013   2012 
   (Unaudited)     
Assets          
Rental property, at cost:          
Land  $6,946   $6,946 
Buildings   99,954    99,715 
Tenant-in-common property   22,662    22,662 
    129,562    129,323 
Less: accumulated depreciation   75,619    74,944 
Rental property, net   53,943    54,379 
           
Cash and cash equivalents   1,969    2,181 
Restricted cash   839    140 
Tenant accounts receivable, net of allowance of $30 as of March 31, 2013 and December 31, 2012, respectively   330    234 
Unbilled rent receivable   1,306    1,245 
Other assets, net (1)   785    493 
           
Total assets  $59,172   $58,672 
           
Liabilities and Partners' Deficit          
Wraparound mortgages payable (1)  $128,241   $128,617 
Less: unamortized discount based on imputed interest rate of 12% (1)   9,739    13,017 
           
Wraparound mortgages payable less unamortized discount (1)   118,502    115,600 
           
Due to NPAEP (1)   3,079    3,422 
Other borrowings (1)   955    610 
Accounts payable and other liabilities (1)   3,490    3,576 
Deferred revenue   3,810    4,040 
Finance lease obligation   700    700 
           
Total liabilities   130,536    127,948 
           
Partners' deficit   (71,364)   (69,276)
           
Total liabilities and partners' deficit  $59,172   $58,672 

 

(1) See Note 3: Related Party Transactions.

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

 

1
 

 

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
March 31,
 
   2013   2012 
Income:          
Rental income  $3,074   $2,924 
Other charges to tenants   750    704 
Interest and dividend income   5    10 
Total income   3,829    3,638 
           
Expenses:          
Interest expense (1)   3,563    3,537 
Real estate taxes   676    688 
Management fees (1)   128    133 
Common area maintenance expenses   436    326 
Ground rent (1)   193    187 
Repairs and maintenance   75    36 
General and administrative (1)   162    138 
Impairment of rental property   -    74 
Depreciation   675    695 
Amortization   9    10 
Total expenses   5,917    5,824 
Loss before other income and discontinued operations   (2,088)   (2,186)
           
Other income  (loss):          
Realized loss on investment securities   -    (1)
Loss from continuing operations   (2,088)   (2,187)
           
Discontinued operations:          
Income from operations of discontinued components, including net gain from disposition of property of $356 in 2012   -    310 
Net loss   (2,088)   (1,877)
           
Other comprehensive income:          
Net change in unrealized gains on investment securities   -    21 
Comprehensive loss   (2,088)   (1,856)
           
Partners' deficit:          
Beginning of period   (69,276)   (62,267)
           
End of period  $(71,364)  $(64,123)
           
Loss per unit from continuing operations  $(21.36)  $(22.37)
Income (loss) per unit from discontinued operations   -    3.17 
Net loss per unit  $(21.36)  $(19.20)
Weighted average units outstanding   97,752    97,752 

 

(1) See Note 3: Related Party Transactions.

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

 

2
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Combined Condensed Statements of Cash Flows (unaudited)

(in thousands, except per-unit data)

 

   Three months ended March 31, 
   2013   2012 
Cash flows from operating activities:          
Net loss  $(2,088)  $(1,877)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   684    710 
Amortization of discount (1)   3,278    3,194 
Impairment of rental property   -    74 
Net gain on disposition of properties   -    (356)
Realized loss on investment securities   -    1 
Change in assets and liabilities          
Increase in tenant accounts receivable   (96)   (159)
(Increase) decrease in unbilled rent receivable   (61)   2 
Decrease in other assets (1)   77    148 
(Decrease) increase in accounts payable and other liabilities (1)   (86)   95 
(Decrease) increase in deferred revenue   (230)   3,979 
Net cash provided by operating activities   1,478    5,811 
           
Cash flows from investing activities:          
Improvements to rental property   (239)   (277)
Increase in restricted cash   (699)   (64)
Purchases of investment securities   -    (603)
Sales of investment securities   -    755 
Net cash used in investing activities   (938)   (189)
           
Cash flows from financing activities:          
Payments on wraparound mortgages (1)   (1,918)   (5,962)
Proceeds from wraparound mortgages (1)   810    - 
Proceeds from other borrowings (1)   345    - 
Increase in due to NPAEP   11    11 
Net cash (used in) financing activities   (752)   (5,951)
           
Decrease in cash and cash equivalents   (212)   (329)
           
Cash and cash equivalents:          
Beginning of period   2,181    897 
           
End of period  $1,969   $568 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for interest  $234   $267 
Supplemental disclosure of non-cash investing and financing activities:          
Reduction of wraparound mortgages from assumption of debt  $-   $274 
Increase in wraparound mortgages from tenant-in-common debt refinancing  $732   $- 
Reduction in due to NPAEP obligation from tenant-in-common debt refinancing  $354   $- 
Reduction in finance lease obligation related to disposition of property  $-   $550 

 

(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)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(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 Condensed Financial Statements and notes thereto filed with our Form 10-K for the year ended December 31, 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the financial results that may be expected for the full year ended December 31, 2013.

 

Reclassifications

 

Certain amounts from the prior year combined condensed financial statements have been reclassified to conform to the current year presentation. As a result of the dispositions of the Seven Hills, Ohio and Kalamazoo, Michigan properties in 2012, the financial results associated with these properties were classified as discontinued operations on the NPAMLP’s Combined Condensed Statement of Operations, Comprehensive Income (Loss) and Changes in Partners’ Capital for the three months ended March 31, 2012 (See Note 7).  These reclassifications had no impact on the NPAMLP’s Combined Condensed Balance Sheets as of March 31, 2013 and December 31, 2012 and Statements of Cash Flows for the three months ended March 31, 2013 and 2012.

 

Note 2: Formation and Description of Business and Going Concern

 

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. 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. In accordance with the partnership agreement, the partnership is scheduled to terminate on December 31, 2013, however, the managing general partner has not formally approved a plan for liquidation of NPAMLP at this time. As such, NPAMLP will continue to report its combined condensed financial statements on a going concern basis until a formal plan of liquidation is approved by the managing general partner.

 

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.

 

Going Concern

 

The accompanying combined condensed financial statements have been prepared assuming that NPAMLP will continue as a going concern. Although NPAMLP expects to collect approximately $6,922 in future minimum rent in 2013 and has $1,969 of unrestricted cash and $1,545 available under its line of credit as of March 31, 2013 to satisfy future short-term obligations, it does not have the ability to satisfy its wraparound mortgage obligations, totaling $128,241 as of March 31, 2013, which mature and are due in full on December 31, 2013. As disclosed in Note 5, NPAMLP has agreed to deliver deeds of future interest or assignments of future leasehold interest in all of its property holdings in exchange for the satisfaction of the wraparound mortgage indebtedness. As a result, these conditions raise substantial doubt about the NPAMLP’s ability to continue as a going concern. The combined financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

4
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

Although the Managing General Partner has not approved a plan of liquidation, as noted above, under the terms of the Partnership Agreement, NPAMLP is scheduled to dissolve on December 31, 2013. The remaining NPAMLP assets not subject to the 2003 Agreement will be liquidated and used to satisfy NPAMLP obligations other than the Wrap Mortgages. To the extent that the remaining assets exceed the amount of the remaining obligations, that excess will be distributed to the Limited Partners in accordance with their ownership interests. It is not anticipated that NPAMLP will be in a position to distribute any excess proceeds from the liquidation of its assets to the Limited Partners upon its dissolution. To the extent that the remaining obligations exceed the amount of the remaining assets, then the proceeds of the remaining assets will be used to satisfy NPAMLP obligations other than the Wrap Mortgages on a pro-rata basis or on such other basis as may be required by law.

 

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 . 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 payable. Lipkin controls NPAEP, which owns 100% of the outstanding balance of the Wraparound mortgages payable. 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 $2,862 and $2,836 due EBL&S at March 31, 2013 and December 31, 2012, respectively.

 

As of March 31, 2013, 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 March 31, 2013), 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. As of March 31, 2013, there were $955 of advances and $155 of related accrued interest due under the NPAMLP Line.

 

NPAEP owns two parcels in Marquette, Michigan that are ground leased by NPAMLP. NPAMLP’s obligation under these leases for the three month periods ended March 31, 2013 and 2012 was $8 and $6, respectively.

 

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 three-month period ended March 31, 2013 and 2012 are detailed in the table below. As of March 31, 2013, Sears owed $128, representing the annual lump-sum real estate tax invoice for one of its locations, billed during the first quarter of 2013. Neither Sun Microsystems nor CVS had outstanding balances due under any leases with NPAMLP.

 

5
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

   As of March 31, 2013   As of March 31, 2012 
Tenant  No. of
Locations
   GLA   % of
Minimum
Rent
   No. of
Locations
   GLA   % of
Minimum
Rent
 
Sun Microsystems   1    249,832    28%   1    249,832    27%
Sears   5    497,443    14%   5    497,443    15%
CVS   5    56,770    10%   5    56,770    13%

 

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 the 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 assignment 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.

 

The Managing General Partner believes that the execution and delivery 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 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 has been able to allocate a greater portion of its available cash flow to principal repayments.

 

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 (through 2013) the projected balance due for all of the Wrap Mortgages at December 31, 2013 is expected to approximate $110,000. 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 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. 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 has 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 will be borne by NPAEP. 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.

 

6
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

In December 2012, NPAEP sold its rights to acquire the properties of NPAMLP under the 2003 Agreement for $100 in cash to EBL&S Realty, LLC. (“EBR”), a company in which Lipkin owns a minority interest. The majority interest in EBR is owned by employees of EBL&S Property Management, Inc. and its affiliates. It is contemplated that EBR or its affiliates, will acquire the properties of NPAMLP effective as of December 31, 2013 pursuant to the 2003 Agreement.

 

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 anchor tenant’s lease 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 has completed, to six other stores leased from NPAMLP, $500 in repairs or improvements, which otherwise would have been the responsibility of NPAMLP. 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.

 

As of March 31, 2013, NPAMLP was obligated for $254 in capital commitments for tenant improvements at the Urbana, Illinois 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 a Ground Lease Termination 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.

 

In accordance with FASB authoritative guidance, 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.

 

7
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

There were no combined assets or liabilities resulting from operations of discontinued components classified as discontinued operations as of March 31, 2013 and December 31, 2012. The combined results of operations of discontinued components classified as discontinued operations for the three months ended March 31, 2013 and 2012 are summarized as follows:

 

  Three month period ended 
Combined Condensed Statements of Operations  March 31, 2013   March 31, 2012 
Total income  $-   $17 
Net gain from disposition of properties   -    356 
Total operating expenses   -    (63)
Income from operations of discontinued components  $-   $310 

 

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. As a result, NPAMLP reduced the wraparound mortgages payable balance on these properties in the same amount. In accordance with the FASB authoritative guidance, NPAMLP recorded deferred lease revenue that will be amortized on a straight line basis to income over the balance of the respective lease terms. The deferred revenue recognized with respect to these leases for each of the three months ended March 31, 2013 and 2012 was $85. At March 31, 2013, included in deferred revenue on the combined condensed balance sheet is $3,695 related to these leases. The remaining balance of the deferred revenue balance represents prepayments of tenant rental income.

 

Note 9: Disclosure of Fair Value of Financial Instruments

 

GAAP 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 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 March 31, 2013 and December 31, 2012.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

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 March 31, 2013 and December 31, 2012.

 

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 March 31, 2013 and December 31, 2012. 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. 

 

8
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

Note 10: 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. Comprehensive income (loss) for the three months ended March 31, 2013 and 2012 is included in the statements of operations, comprehensive income (loss) and changes in Partners’ deficit. As of December 31, 2012, NPAMLP 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 months ended March 31, 2013. Comprehensive loss for the three months ended March 31, 2013 and 2012 was $2,088 and $1,856, respectively. Accumulated other comprehensive income was $0 and $21 at March 31, 2013 and 2012, respectively.

 

An analysis of the changes in components of accumulated other comprehensive income (loss) for the three months ended March 31, 2012 is as follows:

 

   March 31, 2012 
Other comprehensive income (loss):     
      
Unrealized gain on investment securities  $20 
      
Less: reclassification for realized (loss) gain included in net income   (1)
      
Other comprehensive income (loss)  $21 

 

Note 11: Recent Accounting Pronouncements

 

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 did not have transition guidance were effective upon issuance of the ASU in the fourth quarter of 2012. The amendments that are subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. The provisions of this standard which were effective in the fourth quarter of 2012 were adopted by NPAMLP and did not have a material effect on NPAMLP’s 2012 combined results of operations or financial condition. The provisions of this standard which are not yet effective are not anticipated to have any material impact on the NPAMLP’s combined financial statements.

 

In April 2013, the FASB issued ASU No. 2013-07 (“ASU Updated 2013-07”), Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. This ASU provides guidance on the application of the liquidation basis of accounting as provided by U.S. GAAP. The guidance will improve the consistency of financial reporting for liquidating entities. The guidance is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. NPAMLP is currently evaluating the effect that this ASU will have on its combined financial statements.

 

9
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

Notes to Combined Condensed Financial Statements (Unaudited)

March 31, 2013

(dollars in thousands)

 

Note 12: Tenant-in-common property debt refinancing

 

NPAMLP owns an undivided interest in the San Jose, California property through its 23.9% ownership of 2525 North First Street Holdings, a Delaware Statutory Trust, and does not control the decisions over the property or the other tenant-in-common (“TIC”) interests. As a result, the combined condensed financial statements reflect only NPAMLP’s percentage of the TIC’s real property, related mortgage, revenues and expenses.  In March 2013, the independent manager of the TIC property successfully refinanced the third party underlying mortgage on the property. NPAMLP treated the debt refinancing as a debt modification for accounting purposes. As a result of the refinancing, NPAMLP received $810 in proceeds, of which $714 was recorded as restricted cash, and assumed an additional $1,542 in wraparound mortgages payable. Also, $257 in deferred leasing commissions and $475 in deferred loan fees were recorded on the combined condensed balance sheet as a result of this transaction. In addition, NPAEP paid $354 of the deferred loan fees related to the tenant-in-common debt refinancing. This resulted in a reduction of $354 in deferred loan fees and due to NPAEP in NPAMLP’s combined condensed balance sheet.

 

10
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

(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 and Current Reports on Form 8-K.

 

Liquidity and Capital Resources

 

Net cash provided by operating and used by investing activities for the three-month period ended March 31, 2013 was $1,478 and $938, respectively. The primary sources of cash were from operating activities of $1,478 and proceeds from wraparound mortgages and other borrowings of $1,155. Net cash used in financing activities was $752. The primary uses of cash were $239 in capital improvement to the Urbana, Illinois property and payments on wraparound mortgages of $1,918. As a result of the above, there was a $212 decrease in cash and cash equivalents for the three months ended March 31, 2013.

 

As of March 31, 2013, 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 March 31, 2013), 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. As of March 31, 2013, there were $955 of advances and $155 of related accrued interest under the NPAMLP Line.

 

As of March 31, 2013, the third party underlying mortgages were current for all the properties.

 

As of March 31, 2013, NPAMLP was obligated for $254 in capital commitments for tenant improvements at the Urbana, Illinois property.

 

11
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

(dollars in thousands)

 

The accompanying combined condensed financial statements have been prepared assuming that NPAMLP will continue as a going concern. Although NPAMLP expects to collect approximately $6,922 in future minimum rent in 2013 and has $1,969 of unrestricted cash and $1,545 available under its line of credit as of March 31, 2013 to satisfy future short-term obligations, it does not have the ability to satisfy its wraparound mortgage obligations, totaling $128,241 as of March 31, 2013, which mature and are due in full on December 31, 2013. As disclosed in Note 5, NPAMLP has agreed to deliver deeds of future interest or assignments of future leasehold interest in all of its property holdings in exchange for the satisfaction of the wraparound mortgage indebtedness. As a result, these conditions raise substantial doubt about the NPAMLP’s ability to continue as a going concern. The combined financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Critical Accounting Policies

 

There were no significant changes to NPAMLP’s critical accounting policies and estimates during the three-month period ended March 31, 2013.

 

Results of Operations

 

NPAMLP owned 22 and 23 properties, respectively, at March 31, 2013 and 2012.

 

The loss from continuing operations for the three-month period ended March 31, 2013 versus March 31, 2012, decreased by $99. The decrease in the loss from continuing operations was primarily due to an increase in minimum rent of $150, a decrease in depreciation of $20, and the impairment of rental property recognized in the first quarter of 2012 of $74. This was partially offset by an increase in common area maintenance of $110, repairs and maintenance of $39, and general and administrative expenses of $24 in the first quarter of 2013. The increase in minimum rent was primarily due to a tenant that expanded its store in Marquette, Michigan. The decrease in depreciation expense was due to certain properties becoming fully depreciated and the disposition of the property in Seven Hills, Ohio. The increase in common area expenses was primarily due to higher snow removal costs during 2013. The increase in general and administrative expenses was due to higher legal fees in 2013 related to a dispute with a former tenant and proposed zoning at the Lake Mary, Florida property.

 

Income from discontinued operations for the three months ended March 31, 2012 relates to the operating activity of two properties (Seven Hills, Ohio and Kalamazoo, Michigan) that were disposed of during 2012. Income from discontinued operations of $310 for the three months ended March 31, 2012 consists of a gain on disposal of the Seven Hills property of $356, offset by a net loss from operations of $46. There was no discontinued operations activity for the three months ended March 31, 2013.

 

12
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

(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 first quarter of 2013. 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 2016, 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.

 

13
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

(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 three month period ending March 31, 2013. 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.

 

14
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

(dollars in thousands)

 

PART II - OTHER INFORMATION

 

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 had not made 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% 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. NPAMLP expects to ultimately collect the full amount due under the Forbearance Agreement.

 

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.

 

15
 

 

NATIONAL PROPERTY ANALYSTS MASTER LIMITED PARTNERSHIP

(a limited partnership)

 

March 31, 2013

 

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: May 14, 2013
     
  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

 

16