ITEM 1. BUSINESS.
NATIONAL PROPERTIES INVESTMENT TRUST (the "Trust") was organized on January 16, 1985, as a Massachusetts Business Trust. On July 23, 1993, the Trust changed its name from Richard Roberts Real Estate Growth Trust I to its current name. The Trust has made for 1995 and prior years, and intends to make for 1996, an election to file as a real estate investment trust REIT under the provisions of the Internal Revenue Code and intends to maintain this status as long as it will benefit the Trust's shareholders.
Since inception, the Trust has invested directly in equity interests in five commercial properties in the United States which have income-producing capabilities, four of which have been lost to foreclosure. The Trust has experienced a loss of $18,598, income of $52,971 and a loss of $272,220 for fiscal years ended December 31, 1996, 1995 and 1994, respectively. The Trust considers its business to be operating in one industry segment, investment in real property.
Due to past adverse conditions in the real estate market, and the economy in general, the Trustees have determined that it would be necessary to extend the holding period for its property beyond the property s anticipated four to seven year period. The results of the Trust's operations depend upon its property's competitive position in its respective leasing market. The Shoppes at Lake Mary, a strip shopping center located in Lake Mary, Florida, is the Trust's sole remaining property.
The Trust's business is not significantly affected by seasonal factors. The Trust requires working capital to finance property operations and normal repairs and maintenance. In December 1996, the Trust began to install new sewer lines as required by the City of Lake Mary.
The shareholders of the Trust, at their Annual Meeting on October 19, 1995, voted to change the management structure of the Trust to a self-managed REIT, effective October 27, 1995 when the advisor agreement with First Investment Properties, Inc. (the "Advisor") expired.
COMPETITION
The Trust's remaining property investment is subject to competition from similar types of properties in the vicinity in which it is located. While the market in which the property operates is experiencing a recovery, the property values generally remain below the highs realized in the mid-1980 s. The property's current 96% occupancy rate, and the Trust's holding of several long-term leases with automatic escalation clauses, are indicators that the Trust is not currently facing heavy competition for tenants.
INSURANCE
The Trust's current property insurance contract is for a one-year period expiring on June 11, 1997. Under this policy, the buildings owned by the Trust are covered under a property and combined business, and extra expense, insurance policy for replacement costs, with a blanket limit of $2,100,000, subject to a deductible of $1,000 per occurrence.
The Trust also maintains comprehensive general liability insurance for claims or suits for bodily injury and property damage to third parties on a per occurrence basis up to the policy s aggregate limit of $1,000,000, after which the Trust becomes legally obligated to pay. There is no deductible on this insurance policy and is subject to various occurrence liability limits based on the incident covered.
Although the Trust carries comprehensive insurance on its properties, there are certain risks (such as environmental hazards, earthquakes, floods and wars) which may be uninsurable or not fully insurable at an economically feasible cost. In addition, there can be no assurance that particular risks, which are currently insurable, will continue to be so, on an economical basis, or that current levels of coverage will continue to be available on an economical basis. The Managing Trustee will use his discretion in determining the scope of coverage, limits, and deductible provisions on insurance, with a view to obtaining appropriate insurance on its properties at an appropriate cost, and on suitable terms. This may result in insurance which will not cover, in the event of a substantial loss, the full current market value, or the current replacement cost, of a property or the full amount of third party claims or suits. If the Trust is unable to, or does not, obtain insurance for a certain type of risk, and a disaster involving such risk occurs causing loss, damage or destruction to a Trust property or third party, the Trust could lose its economic interest in such property.
The Trustees are not aware of any known environmental problems at the property site.
ITEM 2.
ITEM 2. PROPERTIES.
The Shoppes at Lake Mary (Lake Mary, Florida)
On March 31, 1986, the Trust purchased The Shoppes at Lake Mary, a 38,125 square foot neighborhood strip shopping center located on 4.7 acres of land in Lake Mary, Florida, from an unaffiliated entity for $3,200,000 in cash. The Shoppes at Lake Mary is a two-story shopping center and office facility consisting of three buildings and a parking lot with 191 parking spaces. Lake Mary is located in Seminole County, Florida, slightly north and to the east of Orlando.
The Shoppes at Lake Mary's occupancy rate was approximately 96% at December 31, 1996, as compared to 97% at December 31, 1995, and 93% at December 31, 1994. During 1996, the Trust entered into two (2) new leases, seven (7) lease extensions, and there is currently one (1) vacant unit as of December 31, 1996.
The Board of Trustees, after reviewing the market and financial conditions relating to this asset, have decided to hold this property for the Trust's account. The physical asset and current rent roll will be advantageous for the future growth of the Trust. Consequently, any plans to sell this property have been terminated.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
NONE
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF HOLDERS OF BENEFICIAL INTEREST.
A special meeting was held on June 25, 1996. At this meeting, the shareholders of the Trust voted to elect Jay Goldman as a Trustee.
An annual meeting of the shareholders was not held during 1996. The Declaration of Trust of National Properties Investment Trust requires an annual meeting to be held within six months of the Trust's year end. The matters which would have been addressed at the annual meeting were the subject of the special meeting held June 25, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Trust was engaged in public offering through April 30, 1987. The Trust has the authority to issue unlimited number of shares of Beneficial Interest, without par value. There is no established public trading market for the Trust's shares. The Trust had 1,788 shareholders of record at March 15, 1997.
The Trust declared and paid cash distributions on a monthly basis from February 1986 through September 1988. On April 11, 1989, the Trustees voted to suspend the quarterly shareholders' dividend indefinitely, effective with the scheduled distribution for the first quarter of 1989. This decision was predicated upon the desire to direct all available funds into property operations. A one-time dividend was declared in January 1996, paid in February 1996, payable to shareholders of record as of September 30, 1995, of $0.05 per share. This dividend was a return of capital to the shareholders. The dividend was declared by the sole vote of the Managing Trustee (See Item 13 - -Certain Relationships and Related Transactions).
The Trusts old CUSIP number was 763-077-104 and its new CUSIP number is 637-255-100.
Over the past year, the Trustees have spent a considerable amount of time investigating various alternatives in order to enhance shareholder value and return on equity. The Trustee's primary goal is to protect the shareholders current investment and to enhance their current return by reduced general and administrative costs. The Trustees have spoken to numerous people throughout the country involved in all aspects and segments of the real estate industry. The Trustees had received various proposals, and they had performed extensive due diligence in assessing these proposals. The Trust has retained Prudential Securities to assist the Trustees with the identification and evaluation potential candidates for the Trust to acquire additional properties or a possible merger. As a result of these activities, the Trustees have been negotiating with a major Northeast based real estate company which has expressed serious interest in proceeding with formal talks with the Trust. Prudential Securities' knowledge of, and the Trustees' preliminary investigations have, indicated that this company would be an excellent fit with the Trust. Upon the advice of Prudential Securities, the Trustees anticipate the possibility of entering into a Letter of Intent with this real estate company to issue shares of beneficial interest in exchange for real properties. The results of the proposed transaction would make the real estate company the single largest shareholder and would likely substantially reduce the administrative burden currently being placed on the Trust's property. These conversations are preliminary and the Trustees are unable to predict whether such a transaction will become a reality and if consummated, whether the shareholders will receive an increased return on their investment. The Trustees feel this is a very exciting step for the Trust, as the Northeast based real estate company has all the necessary ingredients Wall Street investors are seeking in a REIT. While this direction is not without risk, the Managing Trustee feels it is in the best interest of the Shareholders.
The Trust has made for prior years, and intends to make for 1996, an election to file as a real estate investment trust (REIT) for federal tax purposes, and if so qualified, will not be taxed on earnings distributed to shareholders. Dividends to shareholders will be taxable dividends to the extent the Trust has taxable income. Dividends in excess of taxable income will be a return of capital to the shareholders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data for the Trust for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, and should be read in conjunction with the accompanying financial statements.
- ------------------------
(1) Earnings (Loss) per Share of Beneficial Interest are computed based on the weighted average number of Shares of Beneficial Interest outstanding during the period.
(2) On November 30, 1993, the Trust borrowed $400,000 to extinguish old payables, pay delinquent real estate taxes and accumulate working capital. The Shoppes at Lake Mary were pledged as collateral for this loan.
(3) On May 4, 1994, the Trust borrowed $25,000 to accumulate working capital. The Shoppes at Lake Mary were pledged as collateral for this loan.
(4) On October 26, 1995, the Trust borrowed $600,000 to extinguish the mortgage payable, make capital and tenant improvements, pay delinquent real estate taxes, accumulate working capital and to provide funds to pay a one-time dividend. The Shoppes at Lake Mary were pledged as collateral for this loan.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The proceeds from the offering, which terminated on April 30, 1987, interest earned on temporary investments, the outstanding balance of mortgages assumed in connection with the acquisition of real estate, proceeds of loans, and cash flow from the operation of investment properties have been the Trust's principal sources of funds.
At December 31, 1996, the Trust has cash of approximately $44,404, which is comprised almost entirely of the remaining proceeds from the refinancing of the first and second mortgages on the Trust's property during 1995 and the accrual of 1996's real estate taxes. The Trust anticipates the need for $75,000 to $100,000 for capital expenditures for mandated new sewer lines and tenant improvements during December 1996 and the first half of 1997.
During 1995, the cash flow from the operation of The Shoppes at Lake Mary has included funds received pursuant to refinancing of the first and second mortgages on the Trust's property. The Advisor (See Item 13 - -Certain Relationships and Related Transactions) of the Trust refinanced the first and second mortgages on the Trust s real property for $600,000 on October 26, 1995. The proceeds were used to repay the first and second mortgages, in which the first mortgage was due in December 1996, pay the prior years and current years property taxes, provide working capital to perform tenant improvements for two new tenants, provide capital to install sewer lines mandated by the Town of Lake Mary, and to provide funds to issue a shareholder dividend.
During 1994, the cash flow from the operation of The Shoppes at Lake Mary has included funds received pursuant to a second mortgage of $25,000 placed on the property May 4, 1994.
Over the past year, the Trustees have spent a considerable amount of time investigating various alternatives in order to enhance shareholder value and return on equity. The Trustee's primary goal is to protect the shareholders current investment and to enhance their current return by reduced general and administrative costs. The Trustees have spoken to numerous people throughout the country involved in all aspects and segments of the real estate industry. The Trustees had received various proposals, and they had performed extensive due diligence in assessing these proposals. The Trust has retained Prudential Securities to assist the Trustees with the identification and evaluation potential candidates for the Trust to acquire additional properties or a possible merger. As a result of these activities, the Trustees have been negotiating with a major Northeast based real estate company which has express serious interest in proceeding with formal talks with the Trust. Prudential Securities knowledge of, and the Trustees' preliminary investigations have, indicated that this company would be an excellent fit with the Trust. Upon the advice of Prudential Securities, the Trustees anticipate the possibility of entering into a Letter of Intent with this real estate company to issue shares of beneficial interest in exchange for real
properties. The results of the proposed transaction would make the real estate company the single largest shareholder and would likely substantially reduce the administrative burden currently being placed on the Trust's property. These conversations are preliminary and the Trustees are unable to predict whether such a transaction will become a reality and if consummated, whether the shareholders will receive an increased return on their investment. The Trustees feel this is a very exciting step for the Trust, as the Northeast based real estate company has all the necessary ingredients Wall Street investors are seeking in a REIT. While this direction is not without risk, the Managing Trustee feels it is in the best interest of the Shareholders.
The principal assets of the Trust consists of an equity position in an income producing commercial property and cash.
INFLATION
Inflation has been consistently low during the periods presented in these financial statements and, as a result, has not had a significant effect on the operations of the Trust.
COMPETITION
The Trust's remaining property investment is subject to competition from similar types of properties in the vicinity in which it is located. While the market in which the property operates is experiencing a recovery, the property values generally remain below the highs realized in the mid-1980's. The properties current 96% occupancy rate, and the Trust's holding of several long-term leases with automatic escalation clauses, are indicators that the Trust is not currently facing heavy competition for tenants.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
For the year ended December 31, 1996, the Trust reported net income from property operations (before General and Administrative expenses) of $98,990, as compared to net income from property operations of $96,593 for the year ended December 31, 1995. This increase is directly related to increased occupancy at The Shoppes at Lake Mary and a firming in the local rental market. Also, the Trust experienced a net loss from operations of $18,598 for the year ended December 31, 1996, compared to a income of $52,971 in the prior year. The loss reported for 1996 is largely attributable to the payment of trustee fees and the increase in costs associated with operational expenses, and the travel and related costs incurred with evaluating new investments.
The appraised market value of The Shoppes at Lake Mary was $2,050,000 as of October I5, 1993, based upon an appraisal prepared by Pomeroy Appraisal Associates of Florida, Inc. This increase in value over the September, 1991 appraisal reflects the stabilization of the tenancy, the increased occupancy at the center and the firming of the local real estate market in general. The Trust's administrative expenses consist of shareholder reporting, legal expenses, record keeping and audit expense, all of which are necessary but provide an unfair burden on a single property (See Item 13 - -Certain Relationships and Related Transactions).
The Advisor began, and the Managing Trustee is continuing, conversations with other REIT and real estate portfolios concerning merging in order for both entities to benefit from the ability to share overhead. The Trustee's primary goal is to protect the shareholders current investment and to enhance their current return by reduced general and administrative costs. These conversations are preliminary and the Managing Trustee is unable to predict whether such a merger will become a reality and if consummated, whether the shareholders will receive an increased return on their investment. While this direction is not without risk, the Managing Trustee feels it is in the best interest of the Shareholders.
Currently, there is no agreement with regards to compensation of the Managing Trustee (See Item 13 - -Certain Relationships and Related Transactions) and compensation paid to the Managing Trustee was $46,000 for the year ended December 31, 1996.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
For the year ended December 31, 1995, the Trust reported net income from property operations (before General and Administrative expenses) of $96,593, as compared to net income from property operations of $81,204 for the year ended December 31, 1994. This increase is directly related to increased occupancy at The Shoppes at Lake Mary and a firming in the local rental market. Also, the Trust experienced a net income from operations of $52,971 for the year ended December 31, 1995, compared to a loss of $272,220 in the prior year. The income reported for 1995 is largely attributable to the accrual of advisor fees and the limitation of operating expenses per the Declaration of the Trust (See Item 13 - -Certain Relationships and Related Transactions) and the reduction in costs associated with operational expenses, and the travel and related costs incurred with evaluating new investments.
On October 27, 1995, the Trust changed its operating structure to a self-administered trust. The former Advisor and the managing Trustee have made a concerted effort to reduce the operating expenses and general and administrative expenses of the Trust. They have terminated the lease for their administrative offices located in Connecticut and are operating out of an office provided by the Managing Trustee (See Item 13 - -Certain Relationships and Related Transactions). The travel and investigative expenses have been curtailed to a level which the Managing Trustee feels will be supported by the Trust's Cash Flow. The Trust has entered into a new leasing contract with a local (Florida) real estate company to find new tenants, and where the leasing commission is to be paid on an annual basis, rather than entirely up front. This contract should reduce the strain on cash flow due to substantial prepaid fees.
There was no agreement with regards to compensation of the Managing Trustee (See Item 13 - Certain Relationships and Related Transactions) and no compensation was provided for the period of October 27, 1995 to December 31, 1995.
Year Ended December 31, 1994 compared to Year Ended December 31, 1993
For the year ended December 31, 1994, the Trust reported net income from property operations (before General and Administrative expenses) of $81,204, as compared to net income from property operations of $69,810 for the year ended December 31, 1993. This increase is directly related to increased occupancy at The Shoppes at Lake Mary and a firming in the local rental market. Also, the Trust experienced a net loss from operations of $272,220 for the year ended December 31, 1994, compared to a loss of $160,901 in the prior year. The loss reported for 1994 is largely attributable to the cost associated with shareholder communication, operational expenses, and the travel and related costs incurred with evaluating new investments.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NATIONAL PROPERTIES INVESTMENT TRUST
INDEX
INDEPENDENT AUDITORS' REPORTS
Comparative Balance Sheet as of December 31, 1996 and 1995
Comparative Statement of Operations for the Years Ended December 31, 1996, 1995 and 1994
Comparative Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994
Comparative Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
Comparative Schedule of Real Estate Expenses for the Years Ended December 31, 1996, 1995 and 1994
Notes to the Financial Statements
Supplemental Financial Statement Schedules:
Schedule III, Real Estate and Accumulated Depreciation
- --------------------
Schedules Not Filed:
All schedules except, those indicated above, have been omitted because either the required information is not applicable or the information is shown in the financial statements or notes thereto.
BERNARDI, ALFIN & KOOS, L.L.C. CERTIFIED PUBLIC ACCOUNTANTS 80 SOUTH MAIN STREET WEST HARTFORD, CONNECTICUT 06107-2408 ------------- TEL: (860) 521-3430 FAX: (860) 521-6148
JOSEPH A. BERNARDI, CPA JOHN T. SALEMI, CPA JEFFREY S. ALFIN, CPA CARLO M. SPARAGNA, CPA KENNETH J. KOOS, CPA ---------- ROBERT H. LONDON, CPA
March 18, 1997
Trustees National Properties Investment Trust P.O. Box 148 Canton Center, Connecticut 06020
We have audited the accompanying balance sheet of National Properties Investment Trust as of December 31, 1996 and December 31, 1995, and the related statements of operations, changes in shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of National Properties Investment Trust as of December 31, 1994 were audited by other auditors whose reports dated March 15, 1995, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Properties Investment Trust as of December 31, 1996 and December 31, 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Also in our opinion, the financial statement schedules, when considered in relation to the basic financial statements, presents fairly in all material respects the information shown therein.
Respectfully Submitted,
/s/ BERNARDI, ALFIN & KOOS, L.L.C.
BERNARDI, ALFIN & KOOS, L.L.C. Certified Public Accountants
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT COMPARATIVE BALANCE SHEET
The accompanying notes are an integral part of the financial statements.
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT COMPARATIVE STATEMENT OF OPERATIONS
The accompanying notes are an integral part of the financial statements.
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT COMPARATIVE STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of the financial statements.
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT COMPARATIVE STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
The accompanying notes are an integral part of the financial statements.
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT COMPARATIVE SCHEDULE OF RENTAL EXPENSES
The accompanying notes are an integral part of the financial statements.
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES:
A. ORGANIZATION:
National Properties Investment Trust (formerly Richard Roberts Real Estate Growth Trust I) (the "Trust") was organized on January 16, 1985 as a Massachusetts Business Trust. The Trust invests directly in equity interests in commercial, industrial and/or residential properties in the United States which have income-producing capabilities and intends to hold its properties for long-term investment (approximately four to seven years). The Trust currently owns a single property located in central Florida. Due to past adverse conditions in the real estate market, and the economy in general, the Trustees have determined that it would be necessary to extend the holding period for its property beyond the property's anticipated four to seven years. The results of the Trust's operations depend upon the Trust's property's competitive position in its respective leasing market. The Shoppes at Lake Mary, a strip shopping center located in Lake Mary, Florida, is the Trust's sole remaining property.
B. Method of Accounting:
The financial statements of the Trust have been prepared on the accrual basis of accounting.
C. Cash Equivalents:
For financial statement purposes, the Trust considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
D. Income Taxes:
The Trust has made for prior years, and intends to make for 1996, an election to file as a real estate investment trust (REIT) for federal tax purposes, and if so qualified, will not be taxed on earnings distributed to shareholders. Accordingly, no provision for federal income taxes has been made for the periods ended December 31, 1996 and 1995. However, the Trust is subject to state income taxes, where applicable.
E. Depreciation:
Depreciation was computed using the straight-line method over an estimated depreciable life of 40 years for real property, 7 years for personal property, and over the life of the related lease for tenant improvements. The only property owned by the Trust was written down to its realizable value at December 31, 1991.
F. Accumulated Deficit:
The accumulated deficit, reported as a reduction of Shareholders' Equity, includes net losses recognized and distributions made to Shareholders as a return of capital invested.
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES: (Continued)
G. Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 2--RELATED PARTY TRANSACTIONS:
The Trust paid the Managing Trustee $46,000 and $15,569 as compensation for managing the Trust property for the years ended December 31, 1996 and 1995, respectively. In addition, Effective in November 1995, the Trust offices are located at premises owned by the Managing Trustee. No rent was charged to the Trust in 1996 and 1995, however, the Trust paid utility bills for the office of $1,647 in 1996.
The Trust had entered into an agreement (the "Advisory Agreement") with First Investment Properties, Inc., (the "Advisor"), a Connecticut Corporation, pursuant to which the Advisor is acting as an investment advisor and administrator of the Trust's day-to-day affairs. Peter Stein, the Managing Trustee, is the manager of First Investment Properties, Inc. The Advisory Agreement expired on October 27, 1995 and was not renewed by the Trust.
Under the terms of the Advisory Agreement, the Trust pays to the Advisor: (a) a reimbursement for organizational, offering and selling expenses advanced on behalf of the Trust by the Advisor; (b) an annual Advisory Fee equals to 2.5% of all cash receipts from operations in the ordinary course of business after deducting payments for operating expenses, debt service, capital expenditures with respect to real property investments, amounts set aside for reserves, after the reimbursement of expenses incurred in the performance of advisory duties described below, which is subordinate to an annual cumulative (but not compounded) return to the investors of 10% per annum on the original Price Per Share to the public in the offering, less all distributions of the net proceeds from the sale or refinancing of the Trust's properties (the "Adjusted Price Per Share"); (c) an Acquisition Fee equal to 6% of the purchase price of any real property acquired by the Trust, from which fee, the Advisor, will pay all real estate and mortgage commissions due to unaffiliated parties; (d) a Disposition Fee equal to 15% of any net proceeds from a sale, refinancing or other capital transaction with respect to any of its investments, after the Shareholders have received a return of their capital plus a cumulative (but not compounded) return of 10% per annum on the Adjusted Price Per Share, of which Disposition Fee, the Advisor, may pay up to 10% to any consultants; and (e) a Real Estate Brokerage Commission upon the sale of any Trust real property investments, equal to 3% of the gross sale price. The Trust will also reimburse the Advisor for any expenses attributable to the performance of its duties pursuant to the Advisory Agreement. The Advisor will refund to the Trust within 120 days after the end of the fiscal year, the greater of the amount, if any,
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RELATED PARTY TRANSACTIONS: (CONTINUED)
by which the Operating Expenses of the Trust (as defined in the Prospectus) exceeded either (a) 2% of the Book Value of Invested Assets (as defined in the Prospectus) or (b) 25% of net income of the Trust, whichever is greater, or (c) 2% of the Trust's base assets defined as total assets of the Trust less cash, cash items and unsecured indebtedness. The Trust had Operating Expenses in excess of the above limits of $85,481 during 1995 which were applied to a note payable due to the Advisor.
The prior financial statements referred to the note payable to the Advisor as a Due to Consultant. This liability arose as a result of the costs associated from replacing the prior Advisor and Trustees in 1993. The contract with the consultant was entered into with First Investment Properties, Inc. and the Trust was not a party to the agreement. The Declaration of the Trust prohibits the Trust from directly paying third party contractors of the Advisor, but instructs the Trust to pay the Advisor directly and the Advisor is responsible for paying the third party. The Trust has no liability to the consultant. First Investment Properties, Inc. is solely liable to the consultant. First Investment Properties, Inc. has received $85,481 directly and indirectly as payment of this note. The remaining $19,519 due to the Advisor has been forgiven by First Investment Properties, Inc. Additionally, First Investment Properties, Inc. has waived all rights to Advisory fees accrued in 1995 of $32,607 and any fees accrued in prior years, which are not payable until such time as the shareholders receive a cumulative, but not compounded ten percent return on their investment. First Investment Properties, Inc. has agreed to this waiver due to the fact they recognize that such a condition will never be met.
In March 1995, the Trust issued 847 shares of Beneficial Interest to Gretchen Stein, spouse of Peter Stein, in exchange for the note payable at $1 per share per the agreement with the Trust in 1994. The remaining $20,000 balance was contributed to the Trust as capital.
In December 1994, the Trust issued 30,000 shares of beneficial interest at $1 per share to the shareholders of the Advisor in lieu of cash renumeration.
Leasing commissions paid to Keystone Advisors, Inc. amounted to $0, $0, and $25,845, for the years ended December 31, 1996, 1995 and 1994, respectively.
Due to Advisor is comprised of the following:
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--EARNINGS PER SHARE:
Earnings per Share of Beneficial Interest are computed on the weighted average number of Shares of Beneficial Interest outstanding during the period.
NOTE 4--INVESTMENT IN REAL ESTATE AND PERSONAL PROPERTY:
The Trust purchased The Shoppes at Lake Mary, a 38,125 square foot shopping center located in Lake May, Florida on March 31, 1986 for $3,200,000. Pursuant to the purchase agreement, the seller guaranteed that the revenues generated by the project during the first two years of its operation would be at least equal to the aggregate of all expenses incurred in connection with the use and operation of the project during each such year plus $360,000. The seller placed $300,000 of the purchase price in an interest bearing escrow account as security for the guarantee. On September 26, 1986, the Trust released the seller from the guarantee in consideration for the funds held in escrow. The funds held in escrow were forwarded to the Trust on October 2, 1986. The basis of the property acquired has been reduced by the amount received under the terms of the cash flow guarantee. On December 31, 1991 the Trust reduced the book value of real property by $1,677,901 to its net realizable value.
All of the Trust's property are recorded at historical cost, except for it s real property which is recorded at its historical cost, less $310,762 for the reduction in basis due to the release of funds escrowed at closing, and less $1,677,901 loss reserve to reduce the property value to its net realizable value.
The Trust's property and equipment are as follows:
NOTE 5- Receivables:
Receivables consist of the following:
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Allowance for Doubtful Accounts is as follows:
NOTE 6--Accrued Expenses:
Accrued Expenses consist of the following:
NOTE 7--MORTGAGE PAYABLE:
The following sets forth the principal payments due on the mortgages payable:
1997 29,205 1998 542,053
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CORRECTION OF ERRORS:
In May, 1993 the First Investment Properties, Inc. entered into a consulting agreement with a company, owned by a relative of the former Advisor, to help with the transfer of the Advisor, the resignations of the original Trustees, and the transfer of management of the Lake Mary property. The Trust was not a party to the agreement and is not liable on the note payable. The liability should have been properly classified as an amount Due to Advisor.
During 1996 and 1995, the Trust has updated its shareholder records and has corrected several errors by the previous transfer agent. These are reflected in 1996 and 1995 as corrections in the number of shares.
NOTE 9--TENANT LEASES:
The Trust has entered into operating lease agreements with tenants of its rental property which have various termination dates. Certain leases also contain provisions for inflationary increases and the pass through of a portion of operating expenses under specified circumstances. Future minimum lease payments under noncancellable operating leases are as follows:
1997 $279,903 1998 215,880 1999 145,864 2000 67,486 2001 6,300 -------- Total $715,433 -------- --------
NOTE 10--DIVIDENDS PAID TO SHAREHOLDERS:
A one time dividend was declared in January 1996, paid in February 1996, and payable to shareholders of record as of September 30, 1995, of $0.05 per share. This dividend was a return of capital to the shareholders. The dividend was declared by the sole vote of the Managing Trustee.
The Trust declared and paid cash dividends on a monthly basis from February 1986 through September 1988. On April 11, 1989, the Trustees voted to suspend the quarterly shareholders' dividend effective with the scheduled distribution for the first quarter of 1989. There have been no subsequent distributions.
Dividends declared per share, are based upon the actual number of shares outstanding on the date of declaration and not upon the weighted average number of shares outstanding during the period used in computing earnings per share.
A specific date of re-establishment of the quarterly shareholders' dividend has not yet been determined. Distributions made by the Trust are at the discretion of the Trustees. Future distributions, if any, will be dependent upon the earnings and cash flow of the Trust, its financial condition and other relevant factors.
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--CONTINGENCIES:
Salvatore R. Carabetta, an Independent Trustee, resigned on June 30, 1996. A successor Trustee has not been appointed to date, which is greater than 60 day period required by the Declaration of Trust for the appointment of a successor Trustee. The Declaration of the Trust requires a new Trustee to be appointed within 60 days. Additionally until June 25, 1996 when Jay Goldman was elected as Trustee of the Trust, Peter Stein, the Managing Trustee, had been acting on behalf of the Trust without the express approval of the majority of the Trustees. Peter Stein and Salvatore Carabetta were the sole remaining Trustees and since a majority of Trustees need to be present to have a vote, both Trustees need to be present to hold a vote.
On January 6, 1996 the Managing Trustee has declared a dividend without the express approval of Mr. Carabetta. Mr. Stein believes that the request for a vote sent to Mr. Carabetta twice by certified mail and not responded to, constitutes a presence at a vote and abstention from the vote.
A successor Trustee has not been appointed and it has delayed the full implementation of the self managed trust organization. The Trustees have drafted a proposed amended and restated Declaration of Trust to define the powers and limitations on the "Officers" and "Board of Directors" of the Trust for a vote by the shareholders. A group of Trustee's has not been appointed to serve as the Board of Directors to oversee the management of the Trust by the Managing Trustee. It has caused the Managing Trustee to operate the Trust without an employment agreement.
George Knude, an Independent Trustee, resigned on November 13, 1995. A successor Trustee had not been appointed until June 25, 1996 which was greater than the 60 days provided in the Declaration of Trust.
Management is unable to determine the effects the above events will have on the financial condition of the Trust, if any.
NATIONAL PROPERTIES INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
- ------------------------
Refer to the Notes on the following page See Notes 1,4 and 7 of the Notes to the Financial Statements
NATIONAL PROPERTIES INVESTMENT TRUST CANTON CENTER, CONNECTICUT SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (Continued)
NOTES TO SCHEDULE III:
(1) Mortgage payable in monthly installments of principal of $7,201 plus interest charged at 2% over prime on the outstanding balance. The balance of principal & interest is due in full in October, 1998. The loan is secured by a first mortgage lien on the real property.
(2) The useful lives of tenant improvements are determined based on the remaining lease term and vary lease to lease.
(3) The aggregate cost of properties owned at December 31, 1996 for Federal Income Tax purposes is $1,608,169
(4) Reconciliation of Investment Properties Owned:
(5) Reconciliation of Accumulated Depreciation:
(6) The Trust recorded a basis reduction of $310,762 in October 1986 for the reduction in basis due to the release of funds escrowed at closing from the seller, and recorded an impairment writedown of $1,677,901 on December 31, 1991.
PART III.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trustees collectively have ultimate control over the management of the Trust and the conduct of its affairs. Peter Stein, the Managing Trustee, (See Item 13 - -Certain Relationships and Related Transactions) administers the day-to-day operations of the Trust.
Under the Declaration of Trust, the Trustees or their nominees hold legal title to the property of the Trust. Independent Trustees will at all times comprise a majority of the Trustees in office. The Trustees serve for a term of one year or until their successors are elected and qualified. Trustees were re-elected at the annual meeting. The Declaration of Trust calls for a minimum of three Trustees, and a majority of the Trustees must be independent Trustees. Should a trustee resign and there are less than three trustees, then the Trust may operate as if it has the required minimum Trustees until a new Trustee is appointed, which shall be done within sixty days. A Trustee may be removed with cause by all the remaining Trustees, or with or without cause by the holders of a majority of the outstanding Shares. The independent Trustees do not serve the Trust on a full-time basis and will devote only so much of their time to the Trust as is necessary or required for the conduct of the Trust's business. Each of the independent Trustees has, and will continue to have, a principal occupation and/or source of income other than that of the Trust and it is contemplated that they will not devote a substantial portion of their time to the discharge of their duties as Trustees.
The Trustees are as follows:
PETER M. STEIN
Mr. Stein, who is 44 years old, has a 23 year involvement in investment real estate, being involved in over 55 investment programs. Mr. Stein has directed his own firm since graduating from Lafayette College in 1973. As Managing Trustee (See Item 13 - -Certain Relationships and Related Transactions) of the Trust, Mr. Stein oversees the administration of the Trust and as such is empowered to implement the intentions of the Trustees.
JAY GOLDMAN
Jay Goldman, a lawyer in Boston, Massachusetts, received a B.A. from Lake Forrest College , a J.D. from Boston University Law School, and a LL.M. (Taxation) from Boston University Law School. He has extensive experience in various segments of the real estate industry including development, finance, and tax related syndications.
In addition to his decades of real estate experience, Mr. Goldman has been involved in a broad range of investment banking and financial advisory services for principals and joint venture partners, including such services for start up and emerging companies. Mr. Goldman has also been active in international merchant banking transactions.
Mr. Salvatore R. Carabetta was an independent trustee who resigned on June 30, 1996. A successor trustee has not been appointed to date. (See Item 13 - -Certain Relationships and Related Transactions).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Under the Declaration of Trust, the Independent Trustees are entitled to receive reasonable compensation for their services as Trustees (See Item 13 - -Certain Relationships and Related Transactions). In addition, the Trust will reimburse the Trustees (including those who are affiliates) for travel and other expenses incurred in connection with their duties as Trustees.
The Managing Trustee was paid $46,000 as compensation for managing the Trust's property.
Management anticipates an employment agreement shall be entered into with Peter Stein, the current Managing Trustee, as soon as new Trustees are appointed (See Item 13 - -Certain Relationships and Related Transactions). The Managing Trustee is currently operating the Trust without an employment agreement and the terms of such future agreement are not known.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
To the best knowledge of the Trust, on March 15, 1997, one shareholder of record owned more than five percent of its Shares of Beneficial Interest. The following Trustees hold shares of beneficial interest of the Trust.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Trust paid the Managing Trustee $46,000 and $15,569 as compensation for managing the Trust property for the years ended December 31, 1996 and 1995, respectively. In addition, Effective in November 1995, the Trust offices are located at premises owned by the Managing Trustee. No rent was charged to the Trust in 1996 and 1995, however, the Trust paid utility bills for the office of $1,647 in 1996.
The Trust had entered into an agreement (the "Advisory Agreement") with First Investment Properties, Inc. (the "Advisor"), a Connecticut Corporation, pursuant to which the Advisor is acting as an investment advisor and administrator of the Trust's day-to-day affairs. Peter Stein, the Managing Trustee of the Trust, is the manager of First Investment Properties, Inc. The Advisory Agreement, which is renewed annually at the Meeting of Shareholders, expired October 26, 1995 and was not renewed. For a description of the Trust's former Advisory Agreement, See Note 2 to the Financial Statements.
Jay Goldman was elected by the shareholders of the Trust as a Trustee of the Trust on June 25, 1996 at a Special Meeting of the shareholders.
Salvatore R. Carabetta, an Independent Trustee, resigned on June 30, 1996. A successor Trustee has not been appointed to date, which is greater than 60 day period required by the Declaration of Trust for the appointment of a successor Trustee. The Declaration of the Trust requires a new Trustee to be appointed within 60 days.
George Knude, a Trustee, resigned on November 13, 1995. A successor Trustee was appointed June 25, 1996.
Additionally until June 25, 1996 when Jay Goldman was elected as Trustee of the Trust, Peter Stein, the Managing Trustee, had been acting on behalf of the Trust without the express approval of the majority of the Trustees. Peter Stein and Salvatore Carabetta were the sole remaining Trustees and since a majority of Trustees need to be present to have a vote, both Trustees need to be present to hold a vote. The Managing Trustee has declared a dividend without the formal approval of Mr. Carabetta. Mr. Stein believes that the request for a vote sent to Mr. Carabetta twice by certified mail and not responded to, constitutes a presence at a vote and abstention from the vote.
The Trustees have drafted a proposed amended and restated Declaration of Trust to define the powers and limitations on the "Officers" and "Board of Directors" of the Trust for a vote by the shareholders. A group of Trustee's has not been appointed to serve as the "Board of Directors" to oversee the management of the Trust by the Managing Trustee. It has caused the Managing Trustee to operate the Trust without an employment agreement.
The Advisor was paid $50,286 for reimbursement for compensation and related fringe benefits paid to the employees of the Advisor in 1995. Due to a limitation of the Operating Expenses allowed under the Declaration of the Trust, none of the reimbursements are deductible by the Trust and are due back to the Trust from the Advisor. In addition, due to the limitation of Operating Expenses contained in the Declaration of the Trust, an additional $35,195 is due from the Advisor totaling $85,481. In 1994 the Independent Trustees voted to waive the limitation on Operating Expenses due to the Declaration of the Trust being written on the premise that a substantially larger investment portfolio would support the general and administrative expense base. Due to the current composition of the Trust's portfolio, the Trust has a necessary, but unfair burden of absorbing administrative expenses in excess of the limits provided in the Declaration of the Trust. No waiver has been provided for the Operating Expenses incurred in excess of the limitation in 1995 due to the Trust's lack of a Trustee's meeting. The Managing Trustee believes all of the expenses are necessary to the operation of the Trust and would have been allowed had the Independent Trustees voted on such expenses. Peter Stein, the Managing Trustee and the manager of First Investment Properties, Inc., the former Advisor, will not ask the Independent Trustees to waive the excess expenses, but instead will apply such amounts paid or deemed paid to the Advisor as payments towards the note payable due to the Advisor. Mr. Stein believes under the current circumstances, this action would be in the best interests of the shareholders, the Trustees, and any new Trustees. If such waiver were to be approved, the Trust would have had a net loss of $32,510 for 1995 compared to income of $52,971.
The prior financial statements referred to the note payable to the Advisor as a Due to Consultant. This liability arose as a result of the costs associated from replacing the prior Advisor and Trustees in 1993. The contract with the consultant was entered into with First Investment Properties, Inc. and the Trust was not a party to the agreement. The Declaration of the Trust prohibits the Trust from directly paying third party contractors of the Advisor, but instructs the Trust to pay the Advisor directly and the Advisor is responsible for paying the third party. The Trust has no liability to the consultant. First Investment Properties, Inc. is solely liable to the consultant. First Investment Properties, Inc. has received $85,481 directly and indirectly as payment of this note. The remaining $19,519 due to the Advisor
has been forgiven by First Investment Properties, Inc. Additionally, First Investment Properties, Inc. has waived all rights to Advisory fees accrued in 1995 of $32,607 and any fees accrued in prior years, which are not payable until such time as the shareholders receive a cumulative, but not compounded ten percent return on their investment. First Investment Properties, Inc. has agreed to this waiver due to the fact they recognize that such a condition will never be met.
In March 1995, the Trust issued 847 shares of Beneficial Interest to Gretchen Stein, spouse of Peter Stein, in exchange for the note payable at $1 per share per the agreement with the Trust in 1994. The remaining $20,000 was contributed as capital. Mr. Stein filed the required Forms 4 and 5 on March 22, 1996 to the Trust and the Securities and Exchange Commission, which was not in compliance with Section 16(a) of the Exchange Act. These were the only Reports not filed on a timely basis.
In December 1994, the Trust issued 30,000 shares of beneficial interest at $1 per share to the shareholders of the Advisor in lieu of cash renumeration.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are enclosed:
(1) Financial Statements (See index to financial statements filed as part of Item 8)
(2) Supplemental Financial Statement Schedules (See index to financial statements filed as part of Item 8)
(3) Exhibits:
3.1 Amended and Restated Declaration of Trust of the Registrant (Exhibit 3.1 to Amendment No. 2 Filed on April 10, 1985 to the Registrant's Registration Statement on Form S-ll, File No. 2-95449, is incorporated herein by reference.)
3.2. Trustee's Regulations of the Registrant (Exhibit 3.2 to Amendment No. 1 filed on March 14, 1985, to the Registrant's Registration Statement on Form S-ll, File No. 2-95449, is incorporated herein by reference)
10.1 Advisory Agreement between the Registrant and First Investment Properties, Inc. (Exhibit 10.1 to Amendment No. 2 filed on August 3, 1993 to the Registrant's Registration Statement on Form S-ll, File No. 2-95449, incorporated herein by reference)
10.2 Dividend Reinvestment Plan (Exhibit 10.2 to Amendment No. 2 filed on April 10, 1985 to the Registrant's Registration Statement on Form S-ll, file No. 2-95449, is incorporated herein by reference)
(b) The following Reports on Form 8-K ("Reports") were filed during the last quarter of the fiscal period.
None.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NATIONAL PROPERTIES INVESTMENT TRUST
Date: By: /s/ Peter M. Stein ------------------ ---------------------------- Peter M. Stein Managing Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date
/s/ Peter M. Stein Managing Trustee - ------------------------ ---------------------- Peter M. Stein
/s/ Jay Goldman Trustee - ------------------------ ---------------------- Jay Goldman