<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 MARCH 31, 1998
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 MARCH 31, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1998 and December 31, 1997 1
Statements of Operations,
Three Months Ended March 31, 1998 and 1997 .... 2
Statement of Partners' Equity (Deficiency),
Three Months Ended March 31, 1998 ............. 3
Statements of Cash Flows,
Three Months Ended March 31, 1998 and 1997 .... 4
Notes to Financial Statements ...................... 5
Item 2. Management's Discussion and Analysis of Financial
Position and Results of Operations ................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 13
Item 6. Exhibits and Reports on Form 8-K ....................... 13
Signatures ..................................................... 14
</TABLE>
<PAGE> 3
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
(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 (14,024,399) (13,839,796)
------------ ------------
18,346,582 18,531,185
------------ ------------
CASH AND CASH EQUIVALENTS 1,180,347 1,354,289
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 5) 676,642 645,785
Other receivables and prepaid expenses 252,712 259,864
------------ ------------
929,354 905,649
------------ ------------
TOTAL ASSETS $ 20,456,283 $ 20,791,123
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 2 and 7) $ 14,382,667 $ 14,443,323
Accrued fees and expenses due general partner
(Notes 5 and 7) 746,072 735,685
Accrued interest payable (Note 2) 56,383 56,383
Accounts payable and accrued expenses (Note 1) 263,427 270,019
Liability for earthquake loss (Note 1) 506,016 506,016
Tenant security deposits 217,066 217,066
------------ ------------
16,171,631 16,228,492
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6)
PARTNERS' EQUITY 4,284,652 4,562,631
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 20,456,283 $ 20,791,123
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 1,198,461 $ 1,170,104
Other income 36,379 48,530
----------- -----------
1,234,840 1,218,634
----------- -----------
Expenses
Operating expenses 661,077 515,997
Management fees - affiliate (Note 4) 61,040 59,851
Depreciation (Note 1) 184,603 184,603
General and administrative expenses 65,822 46,031
Interest expense (Note 2) 340,509 343,121
----------- -----------
1,313,051 1,149,603
----------- -----------
Income (loss) from rental operations (78,211) 69,031
----------- -----------
PARTNERSHIP OPERATIONS:
Interest income 14,134 64,180
----------- -----------
Expenses
General and administrative expenses (Note 5) 43,112 24,068
Professional fees 10,403 20,733
Interest expense - general partner (Note 5) 10,387 10,387
----------- -----------
63,902 55,188
----------- -----------
Income (loss) from partnership operations (49,768) 8,992
----------- -----------
NET INCOME (LOSS) $ (127,979) $ 78,023
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST (Note 4) $ (4) $ 3
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 30,000
===========
EQUITY (DEFICIENCY),
January 1, 1998 $(1,621,800) $ 6,184,431 $ 4,562,631
Net loss for the three months
ended March 31, 1998 (1,280) (126,699) (127,979)
Cash distributions -- (150,000) (150,000)
----------- ----------- -----------
EQUITY (DEFICIENCY),
March 31, 1998 $(1,623,080) $ 5,907,732 $ 4,284,652
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (127,979) $ 78,023
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 184,603 184,603
Changes in operating assets and liabilities:
Decrease (increase) in:
Due from affiliated rental agent (30,857) (154,851)
Other receivables and prepaid expenses 7,152 (49,257)
Increase (decrease) in:
Accrued fees and expenses due general partner 10,387 10,387
Accounts payable and accrued expenses (6,592) 595
----------- -----------
Net cash provided by operating activities 36,714 69,500
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (150,000) (984,188)
Principal payments on mortgage notes payable (60,656) (58,880)
Payments on liability for earthquake loss -- (15,593)
----------- -----------
Net cash used in financing activities (210,656) (1,058,661)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (173,942) (989,161)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,354,289 1,794,041
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,180,347 $ 804,880
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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, 1997 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, 1998, and
the results of operations and changes in cash flows for the three 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 $965,000 were allocated to the Partnership in 1995 and 1994,
as the 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 were expensed in 1994 since they did not
extend the useful life of the properties.
5
<PAGE> 8
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership is undergoing an extensive review of properties for
disposition to the REIT as set forth below, refinancing or re-engineering
alternatives for the properties in which the limited partnerships have
invested. The Partnership has incurred expenses in connection with this
review by various third party professionals, including accounting, legal,
valuation, structural and engineering costs, which amounted to
approximately $153,000 through March 31, 1998, including approximately
$16,000 included in general and administrative expenses for the three
months ended March 31, 1998.
A real estate investment trust ("REIT") organized by an affiliate of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership interests
held for investment by the Partnership.
The REIT proposes to purchase such limited partner interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partner interests in the local limited partnerships by the
REIT; (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by REP; and (iv) the
consummation of a minimum number of purchase transactions with other
NAPICO affiliated partnerships. As of March 31, 1998, the REIT had
completed buy-out negotiations with a majority of the general partners of
the local limited partnerships.
A proxy is contemplated to be sent to the limited partners setting forth
the terms and conditions of the purchase of the limited partners'
interests held for investment by the Partnership, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the transaction.
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.
6
<PAGE> 9
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
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
$12,184,171 at March 31, 1998.
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 $2,198,496 at March 31,
1998.
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 plus
reimbursement of certain expenses. Management fees charged to operations
under this agreement were approximately $61,000 and $59,900 for the three
months ended March 31, 1998 and 1997, 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 $859,000 as of March
31, 1998 (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
7
<PAGE> 10
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED)
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 acquired. The amount
outstanding as of March 31, 1998 and December 31, 1997 was $746,072 and
$735,685, 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.
The Partnership made distributions in the amount of $150,000 to the
limited partners during the three months ended March 31, 1998.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
paid to NAPICO was $3,153 and $2,804 for the three months ended March 31,
1998 and 1997, 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.
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
8
<PAGE> 11
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
9
<PAGE> 12
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
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. The Partnership made distributions in the amount of
$150,000 to the limited partners in the three months ended March 31,
1998.
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.
Occupancy at the Warner Willows I and II properties averaged 97 percent
for the three months of 1998, a 4 percent increase from the same period
in 1997 (excluding capital repair costs). Both properties operated with
positive cash earnings for the three months ended March 31, 1998.
Positive cash earnings for the three months ended March 31, 1998 were
approximately $17,000 and $23,000 for Warner Willows I and II,
respectively.
10
<PAGE> 13
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Occupancy at the Arbor Glen property averaged 95 percent during the first
three months of 1998, a 4 percent increase from the same period in 1997.
The property operated with a positive cash flows of approximately $26,000
(excluding capital repair costs) during the first three months of 1998.
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 94 percent during the first
three months of 1998, a 12 percent increase from the same period in 1997.
The property operated with a positive cash flows of approximately $21,000
(excluding capital repair costs) during the first three months of 1998.
Occupancy at the Willowbrook property averaged 97 percent during the
first three months of 1998, a 4 percent increase from the same period in
1997. The property operated with a positive cash flow of approximately
$71,000, (excluding capital repair costs) during the first three months
of 1998.
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 March
31, 1998 is approximately $500,000 related to the earthquake damages. The
total estimated expenditures needed to repair the properties, net of the
insurance recoveries of $965,000, were expensed, since they did not
extend the useful life of the properties.
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 $859,000 as of March
31, 1998. 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.
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.
11
<PAGE> 14
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership is undergoing an extensive review of properties for
disposition to the REIT as set forth below, refinancing or re-engineering
alternatives for the properties in which the limited partnerships have
invested. The Partnership has incurred expenses in connection with this
review by various third party professionals, including accounting, legal,
valuation, structural and engineering costs, which amounted to
approximately $153,000 through March 31, 1998, including approximately
$16,000 included in general and administrative expenses for the three
months ended March 31, 1998.
A real estate investment trust ("REIT") organized by an affiliate of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partner interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partner interests in the local limited partnerships by the
REIT; (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by REP; and (iv) the
consummation of a minimum number of purchase transactions with other
NAPICO affiliated partnerships. As of March 31, 1998, the REIT had
completed buy-out negotiations with a majority of the general partners of
the local limited partnerships.
A proxy is contemplated to be sent to the limited partners setting forth
the terms and conditions of the purchase of the limited partners'
interests held for investment by the Partnership, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the transaction.
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. The amount outstanding as of March
31, 1998 was approximately $746,000. 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.
12
<PAGE> 15
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1998, 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.
13
<PAGE> 16
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
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
/s/ Bruce Nelson
-------------------------------
Bruce Nelson
President
Date: May 18, 1998
-------------------------------
/s/ Charles Boxenbaum
-------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: May 18, 1998
-------------------------------
14
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,180,347
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,109,701
<PP&E> 32,370,981
<DEPRECIATION> 14,024,399
<TOTAL-ASSETS> 20,456,283
<CURRENT-LIABILITIES> 319,810
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,284,652
<TOTAL-LIABILITY-AND-EQUITY> 20,456,283
<SALES> 0
<TOTAL-REVENUES> 1,248,974
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,026,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 350,896
<INCOME-PRETAX> (127,979)
<INCOME-TAX> 0
<INCOME-CONTINUING> (127,979)
<DISCONTINUED> 0
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</TABLE>