<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 SEPTEMBER 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 SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1997 and December 31, 1996 ..................1
Statements of Operations,
Nine and Three Months Ended September 30, 1997 and 1996 ..............2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 1997 .................................3
Statements of Cash Flows,
Nine Months Ended September 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
SEPTEMBER 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 (13,655,193) (13,101,384)
------------ ------------
18,715,788 19,269,597
------------ ------------
CASH AND CASH EQUIVALENTS 1,420,704 1,827,286
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 4) 691,192 709,855
Other receivables and prepaid expenses 271,234 243,257
------------ ------------
962,426 953,112
------------ ------------
TOTAL ASSETS $ 21,098,918 $ 22,049,995
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 2 and 7) $ 14,502,497 $ 14,064,914
Accrued fees and expenses due general partner
(Notes 5 and 7) 725,067 693,560
Accrued interest payable 39,092 56,541
Accounts payable and accrued expenses (Note 1) 186,307 179,681
Liability for earthquake loss (Note 1) 506,016 516,150
Tenant security deposits 229,690 229,690
------------ ------------
16,188,669 15,740,536
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' EQUITY 4,910,249 6,309,459
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 21,098,918 $ 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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 3,504,850 $ 1,170,623 $ 3,541,982 $ 1,171,944
Other income 138,726 45,675 128,825 40,284
----------- ----------- ----------- -----------
3,643,576 1,216,298 3,670,807 1,212,228
----------- ----------- ----------- -----------
Expenses
Operating expenses 1,674,618 510,315 1,596,554 476,625
Management fees - affiliate (Note 4) 180,803 60,869 183,592 58,956
Depreciation (Note 1) 553,809 184,603 639,831 184,603
General and administrative expenses 177,203 40,998 171,938 41,516
Interest expense (Note 2) 1,022,210 320,193 1,050,365 343,262
----------- ----------- ----------- -----------
3,608,643 1,116,978 3,642,280 1,104,962
----------- ----------- ----------- -----------
Income (loss) from rental operations 34,933 99,320 28,527 107,266
----------- ----------- ----------- -----------
PARTNERSHIPS OPERATIONS:
Interest and other income 91,285 12,112 54,465 19,159
----------- ----------- ----------- -----------
Expenses
General and administrative expenses 82,365 30,034 44,978 16,178
Professional fees 77,367 15,908 32,510 4,768
Interest expense - general partner (Note 5) 31,507 10,618 31,622 10,618
----------- ----------- ----------- -----------
191,239 56,560 109,110 31,564
----------- ----------- ----------- -----------
Loss from partnership operations (99,954) (44,448) (54,645) (12,405)
----------- ----------- ----------- -----------
GAIN ON FORECLOSURE OF RENTAL PROPERTIES -- -- 259,088 --
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (65,021) $ 54,872 $ 232,970 $ 94,861
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST $ (2) $ 2 $ 8 $ 3
=========== =========== =========== ===========
</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)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS,
September 30, 1997 30,000
===========
EQUITY (DEFICIENCY),
January 1, 1997 $ (718,484) $ 7,027,943 $ 6,309,459
Net loss for the nine months
ended September 30, 1997 (651) (64,370) (65,021)
Cash distributions (884,189) (450,000) (1,334,189)
----------- ----------- -----------
EQUITY (DEFICIENCY),
September 30, 1997 $(1,603,324) $ 6,513,573 $ 4,910,249
=========== =========== ===========
</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
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (65,021) $ 232,970
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 553,809 639,831
Gain on foreclosure of rental property -- (259,088)
Decrease (increase) in:
Due from affiliated rental agent 18,663 (259,879)
Other receivables and prepaid expenses (27,977) (23,102)
Receivable for earthquake loss -- 334,591
Increase (decrease) in:
Accrued fees and expenses due general partner 31,507 31,622
Accounts payable and accrued expenses 6,626 (30,798)
Accrued interest payable (17,449) (6,818)
----------- -----------
Net cash provided by operating activities 500,158 659,329
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (1,334,189) --
Proceeds from mortgage note payable 5,600,000 --
Principal payments on mortgage notes payable (5,162,417) (171,037)
Payments on liability for earthquake loss (10,134) (111,589)
----------- -----------
Net cash used in financing activities (906,740) (282,626)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (406,582) 376,703
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,827,286 1,794,041
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,420,704 $ 2,170,744
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
During 1996, the Partneship was relieved of a nonrecourse
mortgage note payable and related accrued interest upon
foreclosure of a rental property, summarized as follows:
Mortgage note payable $ 3,453,485
Accrued interest payable 281,462
Write off of rental property (3,469,351)
Write off of other assets and liabilities (6,508)
----------- -----------
Gain on foreclosure of rental property $ 259,088
=========== ===========
</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
SEPTEMBER 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 September 30, 1997,
and the results of operations for the nine and three months then ended and
changes in cash flows for the nine 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)
SEPTEMBER 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 $45,563 per month and having
maturity dates from September 1998 to June 2007. These notes total
$12,264,546 at September 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 $2,237,951 at September 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)
SEPTEMBER 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 $180,800 and $183,600 for the nine
months ended September 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 $857,700 as of
September 30, 1997 (Note 1). Included in payments to the affiliate of
NAPICO was $122,773 paid under a contract for $123,456 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.
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
7
<PAGE> 10
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED)
acquired. In March 1994, the Partnership paid approximately $2,300,000 to
the corporate general partner from refinancing proceeds. The amount
outstanding as of September 30, 1997 and 1996 was $725,067 and $682,900,
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 $450,000
to the limited partners and $50,000 to the general partners in 1997.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
paid to NAPICO was $8,734 and $9,621 for the nine months ended September
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 which it
has invested. The Partnership has began to incur expenses in connection
with this review by various third party professionals, which amounted to
$12,075 for the nine months ended September 30, 1997.
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)
SEPTEMBER 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
$450,000 to the limited partners and $50,000 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)
SEPTEMBER 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 94 percent
for the nine months of 1997, a 2 percent increase from the same period in
1996. Both properties operated with positive cash earnings for the nine
months ended September 30, 1997, (excluding earthquake repair costs,
depreciation and principal payments on the mortgage loans). Positive cash
earnings for the nine months ended September 30, 1997 were approximately
$52,000 and $9,000 for Warner Willows I and II, respectively.
Occupancy at the Arbor Glen property averaged 97 percent during the first
nine months of 1997, a 1 percent increase from the same period in 1996.
The property operated with a positive cash flows of approximately $4,000
during the first nine 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 92 percent during the first
nine months of 1997, a 17 percent increase from the same period in 1996.
The property operated with a positive cash flows of approximately $113,000
(excluding earthquake repair costs, depreciation and principal payments on
the mortgage loan) during the first nine months of 1997.
Occupancy at the Willowbrook property averaged 92 percent during the first
nine months of 1997, a 2 percent decrease from the same period in 1996.
The property operated with a positive cash flow of approximately $236,000,
(excluding depreciation and principal payments on the mortgage loan)
during the first nine 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 September
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 of 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 $857,700 as of
September 30, 1997. Included in payments to the affiliate of NAPICO was
$122,773 paid under a contract for $123,456 entered into by the
Partnership on February 22, 1996, after receiving competitive bids.
10
<PAGE> 13
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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 which it
has invested. The Partnership has began to incur expenses in connection
with this review by various third party professionals, which amounted to
$12,075 for the nine months ended September 30, 1997.
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 September 30, 1997 was approximately $725,000.
11
<PAGE> 14
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 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)
SEPTEMBER 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> SEP-30-1997
<CASH> 1,420,704
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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