<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 2-82765
REAL EQUITY PARTNERS
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. EMPLOYER IDENTIFICATION NO. 95-3784125
9090 Wilshire Boulevard, Suite 201,
Beverly Hills, CA 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Securities Registered Pursuant to
Section 12(b) or 12(g) of the Act
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve 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 X No
--- ---
<PAGE> 2
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . 1
Statements of Operations,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 2
Statement of Partners' Equity,
Three Months Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
RENTAL PROPERTY, at cost
Land $ 7,077,565 $ 7,077,565
Buildings 26,949,118 26,949,118
Furniture and equipment 4,034,243 4,034,243
------------ ------------
38,060,926 38,060,926
Less accumulated depreciation (13,814,700) (13,587,088)
------------ ------------
24,246,226 24,473,838
------------ ------------
CASH AND CASH EQUIVALENTS 1,170,357 1,195,937
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent 820,056 703,125
Other receivables and prepaid expenses 286,050 295,129
------------ ------------
1,106,106 998,254
------------ ------------
$ 26,522,689 $ 26,668,029
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 17,878,661 $ 17,959,940
Accrued fees and expenses due general partner 619,582 609,195
Accounts payable and accrued expenses 1,055,465 1,069,300
Tenant security deposits 279,359 279,359
------------ ------------
19,833,067 19,917,794
PARTNERS' EQUITY 6,689,622 6,750,235
------------ ------------
$ 26,522,689 $ 26,668,029
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
RENTAL OPERATIONS
Revenues
Rental income $1,334,267 $1,309,320
Other 64,135 57,110
---------- ----------
1,398,402 1,366,430
---------- ----------
Expenses
Operating expenses 612,832 599,730
Depreciation 227,613 227,391
General and administrative 57,763 55,484
Management fees 73,467 75,061
Interest expense 448,215 386,012
Provision for earthquake damage - -
---------- ----------
1,419,890 1,343,678
---------- ----------
Income (loss) from rental operations (21,488) 22,752
---------- ----------
PARTNERSHIP OPERATIONS
Interest income 4,912 4,979
---------- ----------
Expenses
Interest expense 10,387 49,743
General and administrative 21,527 37,284
Professional fees 12,123 16,877
---------- ----------
44,037 103,904
---------- ----------
Loss from partnership operations (39,125) (98,925)
---------- ----------
Net loss $ (60,613) $ (76,173)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- ----------- ----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS,
March 31, 1995 1 30,000 30,001
========= ========== ==========
BALANCE (DEFICIENCY),
at January 1, 1995 $(717,075) $7,467,310 $6,750,235
Net loss for the three months
ended March 31, 1995 (606) (60,007) (60,613)
--------- ---------- ---------
BALANCE (DEFICIENCY),
at March 31, 1995 $(717,681) $7,407,303 $6,689,622
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (60,613) $ (76,173)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 227,613 227,391
Increase) decrease in:
Other receivables and prepaid expenses 9,079 (186,454)
Due from rental agent (116,931) 365,904
Increase (decrease) in:
Accrued fees and expenses due general partners 10,387 (2,260,654)
Accounts payable and accrued expenses (13,835) (17,615)
---------- -----------
Net cash provided by (used in) operating activities 55,700 (1,947,601)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners - (150,000)
Principal payments on mortgage notes payable (81,280) (35,224)
Proceeds from mortgage notes payable - 5,785,000
Payments of mortgage notes payable - (3,096,178)
---------- -----------
Net cash provided by (used in) financing activities (81,280) 2,503,598
---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (25,580) 555,997
CASH AND CASH EQUIVALENTS, at beginning of period 1,195,937 736,699
---------- -----------
CASH AND CASH EQUIVALENTS, at end of period $1,170,357 $ 1,292,696
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information as of December 31, 1994 and the following notes to the
financial statements are condensed from the audited annual financial
statements; accordingly, the financial statements included herein should
be reviewed in conjunction with the financial statements and related
notes thereto contained in the Annual Report for the year ended December
31, 1994 filed by Real Equity Partners (the "Partnership"). National
Partnership Investments Corp. ("NAPICO") is the corporate general
partner of the Partnership. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not
necessarily indicative of the results for the entire year.
In the opinion of the general partners of the Partnership, the
accompanying unaudited financial statements contain all adjustments
(consisting primarily of normal recurring accruals) necessary to present
fairly the financial position of the Partnership as of March 31, 1995,
and the results of operations and changes in cash flow for the three
months then ended.
RENTAL PROPERTY AND DEPRECIATION
Rental property is stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the buildings
and equipment.
On January 17, 1994, the Park Creek and Warner Willows I and II rental
properties sustained damage, estimated at approximately $1,454,000, due
to the earthquake in the Los Angeles area. Insurance proceeds of
approximately $630,000 were allocated to the Partnership in 1994, as the
estimated full settlement under a master umbrella insurance policy
covering earthquake damage for these and other properties managed by a
related party. Included in liabilities at March 31, 1995 is
approximately $633,300 related to the earthquake damages. The total
estimated expenditures needed to repair the properties, net of the
insurance recoveries, which nets to approximately $824,000, were
expensed in the period ended December 31, 1994, since they did not
extend the useful life of the properties.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit.
NOTE 2 - MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following:
a. Conventional mortgage notes bearing interest at rates ranging
from 8% to 10.375% per annum, payable in monthly installments
ranging from $11,710 to $44,300 per month and having maturity
dates from February 1996 to March 2001.
5
<PAGE> 8
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
NOTE 2 - MORTGAGE NOTES PAYABLE (CONTINUED)
b. Mortgage note, insured by the Department of Housing and Urban
Development under the Section 221(d)(4) program, bearing interest
at the rate of 7 percent per annum, payable in monthly
installments of approximately $19,500, including interest through
maturity in the year 2013.
The mortgage notes are secured by deeds of trust on the rental
properties.
NOTE 3 - INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements as such taxes, if any, are the liability of the
individual partners.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Partnership has entered into agreements with an affiliate of NAPICO
to manage the operations of the rental properties. The agreements are
on a month-to-month basis and provide, among other things, for a
management fee equal to 5 percent of gross rentals and other
collections. Management fees charged to operations under this agreement
were approximately $73,500 and $75,000 for the three months ended March
31, 1995 and 1994, respectively.
An affiliate of the corporate general partner repaired certain of the
earthquake damage at the Park Creek and Warner Willows I and II rental
properties. The payments to this affiliate for these repairs was
approximately $733,000 through March 31, 1995.
Under the terms of the Restated Certificate and Agreement of Limited
Partnership (the "Partnership Agreement"), the Partnership is obligated
to the corporate general partner for a deferred acquisition fee. This
fee is for services rendered in connection with the selection, purchase,
acquisition, development, and management of the Partnership and
monitoring the operations of the properties. Distribution of any part
of this fee shall be subordinated to receipt by each Limited Partner of
an amount equal to a cumulative non- compounded 6 percent annual
distribution with respect to the adjusted capital value (as defined in
the Partnership Agreement). The aggregate amount of the deferred
acquisition fee distributed in any year from net cash from operations
shall not exceed an amount equal to 3 percent of the investment in
properties plus any proceeds from sale or refinancing of the properties.
The deferred acquisition fee shall be an amount which, when present
valued at 8 percent from certain dates as defined in the Partnership
Agreement, equals 10 percent of the gross proceeds of the offering
($3,000,000). Distribution of deferred acquisition fees will be made
from net cash from operations and net proceeds from sale or refinancing
for a maximum of 15 years, or until the above limit is met.
6
<PAGE> 9
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED)
The present value of the deferred acquisition fee plus accrued interest
has been reflected in the accompanying financial statements and has been
capitalized as part of the cost of rental property acquired. In March
1994, the Partnership paid approximately $2,300,000 to the corporate
general partner from refinancing proceeds. The amount outstanding as of
March 31, 1995 was approximately $600,000.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO of $2,676 was paid and included in the
Partnership's operating expenses in the three months ended March 31,
1995.
NOTE 5 - GENERAL PARTNER LITIGATION
The corporate general partner of the Partnership is a plaintiff in
various lawsuits and has also been named as defendant in other lawsuits
arising from transactions in the ordinary course of business. In the
opinion of management and the corporate general partner, these claims
will not result in any material liability to the Partnership.
7
<PAGE> 10
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership was formed to invest in residential rental properties
either directly or through investments in joint ventures and other
partnerships which will invest in such real estate. The seven buildings
owned by the Partnership were acquired at various dates during 1984 and
1985.
The Partnership's primary source of funds are income from rental
operations and interest income earned on cash reserves.
Distributions of net cash from operations were normally intended to be
made to the Limited Partners of record on a quarterly basis during the
months of February, May, August, and November pro rata in proportion to
the number of units held. The distributions for February, May and
August, 1994, in the amount of $150,000 each were made to the Limited
Partners. The November 1994 distribution to the limited partners was
not made due to the Partnership setting aside funds for losses incurred
by REP as a result of the January 17, 1995 Northridge earthquake. The
Partnership will resume distributions to the limited partners once
sufficient funds are in cash reserves to repair such earthquake damage.
On March 18, 1994, the mortgages on Warner Willows I and II were
refinanced with nonrecourse loans in the amounts of $2,925,000 and
$2,860,000, respectively, bearing interest at an initial interest rate
of 8 percent per annum. The mortgages are due March 1, 2001. In 1994,
the Partnership received a combined total of approximately $2,266,000 in
excess financing proceeds. The excess proceeds received from the Park
Creek and the Warner Willows I and II refinancings, were used to
partially pay the deferred acquisition fees due the general partner
(NAPICO).
RESULTS OF RENTAL OPERATIONS
Occupancy at the Parkside property averaged 93 percent during the first
three months of 1995, a 5 percent increase from the same period in
1994. The increase in occupancy is a result of overall improvements in
the economy and in the marketplace. Expenses remained consistent
compared with the same period in 1994. Parkside operated at a cash
deficit of approximately $20,500 during the first three months of 1995,
an improvement of approximately $17,500 from the same period in 1994.
Occupancy at the Warner Willows I & II properties averaged 97 percent
during the first three months of 1995, a 2 percent increase from the
same period in 1994. The combined expenses for both properties except
interest expense remain consistent compared with the same period in
1994.
8
<PAGE> 11
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF RENTAL OPERATIONS (CONTINUED)
The properties operated with positive cash flows of approximately
$18,000 and $14,000, respectively.
Occupancy at Arbor Glen averaged 94 percent during the first three
months of 1995, a 3 percent decrease from the same period in 1994.
Arbor Glen operated with positive cash flows of approximately $88,000
during the period.
Occupancy at the Park Creek property averaged 86 percent during the
first three months of 1995, a 4 percent decrease from the same period in
1994. Expenses are consistent when compared with same period in 1994.
The property is operating with positive cash flow of approximately
$31,500 during the first three months of 1995.
Occupancy at the Willowbrook property averaged 97 percent during the
first three months of 1995; a 1 percent increase for the same period in
1994. The property is operating at a cash deficit of approximately
$1,000 for the period.
On January 17, 1994, the Park Creek and Warner Willows I and II rental
properties sustained damage, estimated at approximately $1,454,000, due
to the earthquake in the Los Angeles area. Insurance proceeds of
approximately $630,000 were allocated to the Partnership in 1994, as the
estimated full settlement under a master umbrella insurance policy
covering earthquake damage for these and other properties managed by a
related party. Included in liabilities at March 31, 1995 is
approximately $633,300 related to the earthquake damages. The total
estimated expenditures needed to repair the properties, net of the
insurance recoveries, which nets to approximately $824,000, were
expensed in the period ended December 31, 1994, since they did not
extend the useful life of the properties.
The Partnership operations consist primarily of interest income earned
on certificates of deposit and other temporary investments of funds not
required for investment in projects. The amount of interest income
varies with market rates available on certificates of deposit and with
the amount of funds available for investment.
Operating expenses of the Partnership consist substantially of recurring
general and administrative expenses and professional fees for services
rendered to the Partnership and interest on the deferred acquisition fee
due the General Partners.
The Partnership is incurring interest expense at a rate of 8 percent per
annum on the unpaid fees due the general partner. Under the terms of
the Partnership Agreement, the Partnership is obligated to the general
partner for a deferred acquisition fee for services rendered in
connection with the selection, purchase, development, management and
monitoring the operations of the properties, in an amount which, when
calculated on a present value basis
9
<PAGE> 12
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF RENTAL OPERATIONS (CONTINUED)
(using a discount factor of 8 percent for this purpose) from the date of
payment to the general partners to September 27, 1984 equals 10 percent
of the gross proceeds of the offering ($3,000,000). Distribution of any
part of this fee from net cash from operations shall be subordinate to
receipt by each Limited Partner of an amount equal to a cumulative
noncompounded 6 percent distribution. The acquisition fee distributed
in any year from net cash from operations shall not exceed an amount
equal to 3 percent of investment in properties (approximately $600,000)
plus any proceeds from sale or refinancing of the properties. During
1987, $762,000 was paid to the general partner for this fee. Of this
amount, $612,000 was generated from refinancing one of the mortgage
notes payable. Furthermore, in March, 1994, approximately $2,300,000 of
the excess proceeds received from the Park Creek and Warner Willows I
and II refinancings were used to partially pay the deferred acquisition
fees due the general partner. As of March 31, 1995, approximately
$600,000 was still outstanding.
An annual property management fee, which shall not in any event exceed 5
percent of gross revenues from each property under management, is also
payable to an affiliate of the corporate general partner.
10
<PAGE> 13
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1995, the Partnership's corporate general partner was a
plaintiff or defendant in several suits. None of these suits were related to
the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of
regulation S-K.
11
<PAGE> 14
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
SIGNATURES
Pursuant to the requirements 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.
REAL EQUITY PARTNERS
(a California limited partnership)
By: National Partnership Investments Corp.
Corporate General Partner
Date: 5/17/95
--------------------------------
By: /s/ BRUCE E. NELSON
--------------------------------
Bruce E. Nelson
President
Date: 5/17/95
--------------------------------
By: /s/ SHAWN HORWITZ
--------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,170,357
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,276,463
<PP&E> 38,060,926
<DEPRECIATION> 13,814,700
<TOTAL-ASSETS> 26,522,689
<CURRENT-LIABILITIES> 1,055,465
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 6,689,622
<TOTAL-LIABILITY-AND-EQUITY> 26,522,689
<SALES> 0
<TOTAL-REVENUES> 1,403,314
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,005,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458,602
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,613)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
