<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended JUNE 30, 1997
Commission File Number 2-82765
REAL EQUITY PARTNERS
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3784125
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CA 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed 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 JUNE 30, 1997
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, June 30, 1997 and December 31, 1996 ...........1
Statements of Operations,
Six and Three Months Ended June 30, 1997 and 1996 .......2
Statement of Partners' Equity (Deficiency),
Six Months Ended June 30, 1997 ..........................3
Statements of Cash Flows,
Six Months Ended June 30, 1997 and 1996 .................4
Notes to Financial Statements .................................5
Item 2. Management's Discussion and Analysis of Financial
Position and Results of Operations ............................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................12
Item 6. Exhibits and Reports on Form 8-K ................................12
Signatures................................................................13
</TABLE>
<PAGE> 3
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
RENTAL PROPERTY, at cost (Notes 1 and 2)
Land $ 6,553,357 $ 6,553,357
Buildings 22,096,723 22,096,723
Furniture and equipment 3,720,901 3,720,901
------------ ------------
32,370,981 32,370,981
Less accumulated depreciation (13,470,590) (13,101,384)
------------ ------------
18,900,391 19,269,597
------------ ------------
CASH AND CASH EQUIVALENTS 1,329,981 1,827,286
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 4) 769,536 709,855
Other receivables and prepaid expenses 281,585 243,257
------------ ------------
1,051,121 953,112
------------ ------------
TOTAL ASSETS $ 21,281,493 $ 22,049,995
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 2 and 7) $ 14,562,880 $ 14,064,914
Accrued fees and expenses due general partner
(Notes 5 and 7) 714,449 693,560
Accrued interest payable 56,521 56,541
Accounts payable and accrued expenses (Note 1) 196,256 179,681
Liability for earthquake loss (Note 1) 500,557 516,150
Tenant security deposits 229,690 229,690
------------ ------------
16,260,353 15,740,536
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' EQUITY 5,021,140 6,309,459
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 21,281,493 $ 22,049,995
============ ============
</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
SIX AND THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 2,334,227 $ 1,164,122 $ 2,370,038 $ 1,128,555
Other income 93,051 44,522 88,541 39,519
----------- ----------- ----------- -----------
2,427,278 1,208,644 2,458,579 1,168,074
----------- ----------- ----------- -----------
Expenses
Operating expenses 1,164,303 648,306 1,119,929 518,126
Management fees - affiliate (Note 4) 119,934 60,083 124,636 56,828
Depreciation (Note 1) 369,206 184,603 455,228 227,614
General and administrative expenses 136,205 90,174 130,422 57,743
Interest expense (Note 2) 702,016 358,895 707,103 269,039
----------- ----------- ----------- -----------
2,491,664 1,342,061 2,537,318 1,129,350
----------- ----------- ----------- -----------
Income (loss) from rental operations (64,386) (133,417) (78,739) 38,724
----------- ----------- ----------- -----------
PARTNERSHIPS OPERATIONS:
Interest and other income 75,391 11,211 35,306 19,037
----------- ----------- ----------- -----------
Expenses
General and administrative expenses 52,329 28,259 28,799 9,318
Professional fees 58,584 37,853 27,743 6,478
Interest expense - general partner (Note 5) 20,889 10,502 21,004 10,502
----------- ----------- ----------- -----------
131,802 76,614 77,546 26,298
----------- ----------- ----------- -----------
Loss from partnership operations (56,411) (65,403) (42,240) (7,261)
----------- ----------- ----------- -----------
GAIN ON FORECLOSURE OF RENTAL PROPERTIES -- -- 259,088 259,088
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (120,797) $ (198,820) $ 138,109 $ 290,551
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST $ (4) $ (7) $ 5 $ 10
=========== =========== =========== ===========
</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 (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS,
June 30, 1997 30,000
===========
EQUITY (DEFICIENCY),
January 1, 1997 $ (718,484) $ 7,027,943 $ 6,309,459
Net loss for the six months
ended June 30, 1997 (1,208) (119,589) (120,797)
Cash distributions (867,522) (300,000) (1,167,522)
----------- ----------- -----------
EQUITY (DEFICIENCY),
June 30, 1997 $(1,587,214) $ 6,608,354 $ 5,021,140
=========== =========== ===========
</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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (120,797) $ 138,109
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 369,206 455,228
Gain on foreclosure of rental property -- (259,088)
Decrease (increase) in:
Due from affiliated rental agent (59,681) (248,702)
Other receivables and prepaid expenses (38,328) (29,845)
Receivable for earthquake loss -- 334,591
Increase (decrease) in:
Accrued fees and expenses due general partner 20,889 21,004
Accounts payable and accrued expenses 16,575 (31,792)
Accrued interest payable (20) (50,016)
----------- -----------
Net cash provided by operating activities 187,844 329,489
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (1,167,522) --
Proceeds from mortgage note payable 5,600,000 --
Principal payments on mortgage notes payable (5,102,034) (113,357)
Payments on liability for earthquake loss (15,593) (36,317)
----------- -----------
Net cash used in financing activities (685,149) (149,674)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (497,305) 179,815
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,827,286 1,794,041
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,329,981 $ 1,973,856
=========== ===========
</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
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited 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, 1996 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 June 30, 1997,
and the results of operations for the six and three months then ended
and changes in cash flows for the six months then ended.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 Northridge 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. The total estimated expenditures needed to repair the
properties, net of the insurance recoveries, of approximately $824,000,
were expensed in 1994 since they did not extend the useful life of the
properties.
In March 1996, the Partnership received from the insurance company a
final settlement payment of $334,591 related to the earthquake loss.
This was reflected in income in 1995 and as a receivable at December 31,
1995.
5
<PAGE> 8
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Parkside Apartments rental property was operating at a deficit and
NAPICO was unsuccessful in its attempt to negotiate a mortgage
modification with the lender to improve the situation. In March 1995,
the Parkside Apartments rental property ceased making payments to the
mortgage lender. The mortgage lender filed a notice of default on
January 17, 1996, and foreclosed on the property on May 23, 1996. The
foreclosure resulted in a gain of $259,088 in May 1996 because the
Partnership was relieved of nonrecourse liabilities which were in excess
of the net book value of the property. The gain was classified as an
ordinary gain because the fair value of the property approximated the
liabilities that were relieved.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
one high credit quality financial institution. Such cash and cash
equivalents are in excess of the FDIC insurance limit.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Accounting for the Improvement of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a
significant effect on its financial statements. The Partnership reviews
long-lived assets to determine if there has been any permanent
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of the
expected future cash flows is less than the carrying amount of the
assets, the Partnership recognizes an impairment loss.
NOTE 2 - MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following:
a. Conventional mortgage notes bearing interest at rates ranging
from 9.125 percent to 10.25 percent per annum, payable in monthly
installments ranging from $13,653 to $43,100 per month and having
maturity dates from September 1998 to June 2007. These notes
total $12,305,711 June 30, 1997.
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 note has a balance of $2,257,169
at June 30, 1997.
The mortgage notes are secured by deeds of trust on the rental
properties.
6
<PAGE> 9
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - MORTGAGE NOTES PAYABLE (CONTINUED)
In March 1995, the Parkside Apartments rental property ceased making
payments to the mortgage lender and the mortgage was in default. A Trust
Deed Sale was completed and the property was foreclosed upon on May 23,
1996. The assets and liabilities were written off in May 1996.
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 plus
reimbursement of certain expenses. Management fees charged to operations
under this agreement were approximately $119,900 and $124,600 for the
six months ended June 30, 1997 and 1996, respectively.
An affiliate of NAPICO performed certain of the earthquake repairs at
the Park Creek and Warner Willows I and II rental properties. The
payments to this affiliate for these repairs were approximately $856,262
as of June 30, 1997 (Note 1). Included in payments to the affiliate of
NAPICO was $121,357 paid under a contract for $121,607 entered into by
the Partnership on February 22, 1996, after receiving competitive bids.
NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER
Under the terms of the Partnership Agreement, the Partnership is
obligated to NAPICO for a deferred acquisition fee. This fee is for
services rendered in connection with the selection, purchase,
acquisition, development, and monitoring the operations of its
properties. Distribution of any part of this from net cash from
operations 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 the deferred acquisition fee 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.
7
<PAGE> 10
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER (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
June 30, 1997 and 1996 was $714,449 and $672,324, respectively.
Under the terms of the Partnership Agreement, cash available for
distribution is to be allocated 90 percent to the limited partners as a
group and 10 percent to the general partners. Based on cash
distributions made to the limited partners as of December 31, 1996,
$834,188 was due to the general partners as their 10% percent share of
cash available for distribution. This amount was paid to the general
partners in February 1997.
Additionally, the Partnership made distributions in the amount of
$300,000 to the limited partners and $33,334 to the general partners in
1997.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was $5,886 and $5,388 for the six months
ended June 30, 1997 and 1996, respectively, and is included in general
and administrative expenses.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The corporate general partner of the Partnership is involved in various
lawsuits lawsuits arising from transactions in the ordinary course of
business. In the opinion of management and the corporate general
partner, the claims will not result in any material liability to the
Partnership.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection with
this review by various third party professionals. Amounts incurred to
date are not material to the operating results of the Partnership.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. One of the mortgage notes payable is insured by HUD
and is secured by a rental property. The operations generated by the
property are subject to various government rules, regulations and
restrictions which make it impracticable to estimate the fair value of
this mortgage note payable. The book values of all other debt
instruments approximate their fair values because the interest rates of
these instruments are comparable to rates currently offered to the
Partnership. The carrying amount of other assets and liabilities
reported on the balance sheets that require such disclosure approximates
fair value due to their short-term maturity.
8
<PAGE> 11
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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 Partnership
acquired 6 buildings at various dates during 1984 and 1985. One of the
buildings was foreclosed in 1996.
The Partnership's primary sources of funds are income from rental
operations and interest income earned on cash reserves.
Under the terms of the Partnership Agreement, cash available for
distribution is to be allocated 90 percent to the limited partners as a
group and 10 percent to the general partners. Distributions of net cash
from operations were normally intended to be made to the 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. From
November 1994 through May 1996, distributions to the partners were not
made due to the Partnership setting aside funds for losses incurred by
REP as a result of the January 17, 1994 Northridge Earthquake. Based on
cash distributions made to the partners as of December 31, 1996,
$834,188 was due to the general partners as their 10 percent share of
cash available for distribution. This amount was paid to the general
partners in February 1997. Additionally, the Partnership made
distributions in the amount of $300,000 to the limited partners and
$33,334 to the general partners in 1997.
Currently, it is anticipated that the Partnership will continue to meet
its current and long term obligations as they become due.
On May 21, 1997, the mortgage on Arbor Glen was refinanced with a
non-recourse loan in the amount of $5,600,000 bearing interest at 9.125%
per annum. The note is due June 1, 2007.
RESULTS OF OPERATIONS
Rental operations consist primarily of rental income and depreciation
expense, debt service, and normal operating expenses to maintain the
properties. Depreciation is provided on the straight-line method over
the estimated useful lives of the buildings and equipment. Substantially
all of the rental units in the apartment projects are leased on a
month-to-month basis.
An annual property management fee, which shall in any event not exceed 5
percent of gross revenues from each property under management, is
payable by the properties to an affiliate of NAPICO.
The Parkside Apartments rental property was operating at a deficit and
NAPICO was unsuccessful in its attempt to negotiate a mortgage
modification with the lender to improve the situation. In March 1995,
the Parkside Apartments rental property ceased making payments to the
mortgage lender. The
9
<PAGE> 12
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
mortgage lender filed a notice of default on January 17, 1996, and
foreclosed on the property on May 23, 1996. The foreclosure resulted in
a gain of $259,088 because the Partnership was relieved of nonrecourse
liabilities which were in excess of the net book value of the property.
Occupancy at the Warner Willows I and II properties averaged 93 percent
for the six months of 1997, a 1 percent increase from the same period in
1996. Both properties operated with positive cash earnings for the six
months ended June 30, 1997, (excluding earthquake repair costs,
depreciation and principal payments on the mortgage loans). Positive
cash earnings for the six months ended June 30, 1997 were approximately
$31,000 and $9,000 for Warner Willows I and II, respectively.
Occupancy at the Arbor Glen property averaged 98 percent during the
first six months of 1997, a 3 percent increase from the same period in
1996. The property operated with a positive cash flows of approximately
$40,000 during the first six months of 1997. On May 21, 1997, the
property was refinanced with a new non-recourse loan in the amount of
$5,600,000. The loan matures on June 1, 2007 and bears interest at
9.125% per annum.
Occupancy at the Park Creek property averaged 93 percent during the
first six months of 1997, a 23 percent increase from the same period in
1996. The property operated with a positive cash flows of approximately
$70,000 (excluding earthquake repair costs, depreciation and principal
payments on the mortgage loan) during the first six months of 1997.
Occupancy at the Willowbrook property averaged 91 percent during the
first six months of 1997, a 1 percent decrease from the same period in
1996. The property operated with a positive cash flow of approximately
$124,000, (excluding depreciation and principal payments on the mortgage
loan) during the first six months of 1997.
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 January 1994. Included in liabilities as of June
30, 1997 is approximately $500,000 related to the earthquake damages.
The total estimated expenditures needed to repair the properties, net of
the insurance recoveries in 1994 of $630,000, which nets to
approximately $824,000, were expensed in 1994, since they did not extend
the useful life of the properties. In April 1996, the Partnership
received from the insurance company a final settlement payment of
$334,591 related to the earthquake loss.
An affiliate of NAPICO performed certain of the earthquake repairs at
the Park Creek and Warner Willows I and II rental properties. The
payments to this affiliate for these repairs were approximately $863,000
as of June 30, 1997. Included in payments to the affiliate of NAPICO was
$121,357 paid under a contract for $121,607 entered into by the
Partnership on February 22, 1996, after receiving competitive bids.
10
<PAGE> 13
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection with
this review by various third party professionals. Amounts incurred to
date are not material to the operating results of the Partnership.
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
Amended and Restated Certificate and Agreement of Limited Partnership
Agreement Partnership, the Partnership is obligated to the general
partner for a deferred acquisition fee for services rendered in
connection with the selection, purchase, development, and management of
the Partnership and monitoring the operations of the properties, in an
amount which, when calculated on a present value basis (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. 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. On March 21, 1994, 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. The amount outstanding as of June 30, 1997
was approximately $714,000.
11
<PAGE> 14
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 1997, the Partnership's corporate general partner is involved in
various lawsuits. None of these are 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.
12
<PAGE> 15
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
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
--------------------------------------
Bruce Nelson
President
Date:
-------------------------------------
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
-------------------------------------
13
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,329,981
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,381,102
<PP&E> 32,370,981
<DEPRECIATION> 13,470,590
<TOTAL-ASSETS> 21,281,493
<CURRENT-LIABILITIES> 910,705
<BONDS> 0
0
0
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</TABLE>
