<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, 1999
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, 1999
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1999 and December 31, 1998............ 1
Statements of Operations, Nine and Three Months Ended
September 30, 1999 and 1998 .................................. 2
Statement of Partners' Equity (Deficiency), Nine Months Ended
September 30, 1999 ........................................... 3
Statements of Cash Flows, Nine Months Ended September 30, 1999
and 1998 ..................................................... 4
Notes to Financial Statements ...................................... 5
Item 2. Management's Discussion and Analysis of Financial Position and
Results of Operations ......................................... 8
Item 1. Legal Proceedings ........................................................ 10
Item 6. Exhibits and Reports on Form 8-K .......................................... 10
Signatures ........................................................................ 11
</TABLE>
<PAGE> 3
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999
(Unaudited) 1998
------------ ------------
<S> <C> <C>
RENTAL PROPERTY, at cost (Note 1)
Land $ -- $ 6,553,357
Buildings -- 22,096,723
Furniture and equipment -- 3,720,901
------------ ------------
-- 32,370,981
Less accumulated depreciation -- (14,578,209)
------------ ------------
-- 17,792,772
------------ ------------
CASH AND CASH EQUIVALENTS 1,965,420 182,829
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 3) -- 986,214
Other receivables and prepaid expenses -- 231,390
------------ ------------
-- 1,217,604
------------ ------------
TOTAL ASSETS $ 1,965,420 $ 19,193,205
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 5) $ -- $ 14,181,382
Accrued fees and expenses due general partner
(Notes 3 and 5) -- 777,810
Accrued interest payable -- 57,247
Accounts payable and accrued expenses 50 338,702
Liability for earthquake loss -- 506,016
Tenant security deposits -- 241,928
------------ ------------
50 16,103,085
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY 1,965,370 3,090,120
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,965,420 $ 19,193,205
============ ============
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 1999 Sept 30, 1999 Sept 30, 1998 Sept 30, 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 848,441 $ -- $ 3,716,442 $ 1,273,641
Other income 29,866 -- 146,627 59,021
------------ ------------ ------------ ------------
878,307 -- 3,863,069 1,332,662
------------ ------------ ------------ ------------
Expenses
Operating expenses 342,179 -- 2,040,079 698,151
Management fees - affiliate (Note 3) 43,856 -- 191,510 66,294
Depreciation (Note 1) 98,455 -- 553,809 184,603
General and administrative expenses 27,682 -- 168,720 46,874
Interest expense 212,229 -- 1,017,220 337,647
------------ ------------ ------------ ------------
724,401 -- 3,971,338 1,333,569
------------ ------------ ------------ ------------
Income (Loss) from rental operations 153,906 -- (108,269) (907)
------------ ------------ ------------ ------------
PARTNERSHIP OPERATIONS:
Interest income 54,133 20,526 36,790 8,606
------------ ------------ ------------ ------------
Expenses
General and administrative expenses (Note 3) 59,043 14,274 211,167 105,922
Professional fees 74,230 21,300 32,985 2,879
Interest expense - general partner (Note 3) 5,540 -- 31,507 10,618
------------ ------------ ------------ ------------
138,813 35,574 275,659 119,419
------------ ------------ ------------ ------------
Loss from partnership operations (84,680) (15,048) (238,869) (110,813)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE THE SALE OF ASSETS 69,226 (15,048) (347,138) (111,720)
GAIN ON SALE OF ASSETS (Note 1) 13,977,577 25,997 -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) 14,046,803 10,949 (347,138) (111,720)
============ ============ ============ ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ 2 $ (1) $ (12) $ (4)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------- ------------- ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 30,000
============
EQUITY (DEFICIENCY),
January 1, 1999 $ (1,696,526) $ 4,786,646 $ 3,090,120
Net income for the nine months
ended September 30, 1999 140,468 13,906,335 14,046,803
Cash distributions (166,567) (15,004,986) (15,171,553)
------------ ------------ ------------
EQUITY (DEFICIENCY),
September 30, 1999 $ (1,722,625) $ 3,687,995 $ 1,965,370
============ ============ ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,046,803 $ (347,138)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 98,455 553,809
Changes in operating assets and liabilities:
Decrease (increase) in:
Due from affiliated rental agent 986,214 (218,021)
Other receivables and prepaid expenses 231,390 47,930
(Decrease) increase in:
Accrued fees and expenses due general partner (777,810) 31,507
Accounts payable and accrued expenses (338,652) (19,195)
------------ ------------
Net cash provided by operating activities 14,246,400 48,892
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets 16,889,126 --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (15,171,553) (333,334)
Principal payments on mortgage notes payable (14,181,382) (186,277)
------------ ------------
Net cash used in financing activities (29,352,935) (519,611)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,782,591 (470,719)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 182,829 1,354,289
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,965,420 $ 883,570
============ ============
</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, 1999
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, 1998 filed by
Real Equity Partners (the "Partnership"). National Partnership Investments Corp.
("NAPICO") is a 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, 1999, 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 PROPERTIES AND DEPRECIATION
On February 17, 1999, the Partnership sold its properties to JH Real Estate
Partners, Inc. for a price of $31,900,000. The sale resulted in cash proceeds to
the Partnership of $16,889,126 and a gain of $13,977,577, including an
adjustment to the gain of $935,000 and $25,997 during the three months ended
June 30, 1999 and September 30, 1999, respectively. The Partnership made cash
distributions of $15,004,986 to the limited partners and $166,567 to the general
partner during 1999. There are no remaining rental properties owned by the
Partnership, therefore no rental property cost and accumulated depreciation are
included in the September 30, 1999 financial statements.
5
<PAGE> 8
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the limited
partners' share of net income by the number of limited partnership interests
outstanding during the year. The number of limited partnership interests was
30,000 for the periods presented.
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 - 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 3 - FEES AND EXPENSES DUE GENERAL PARTNER
The Partnership had entered into agreements with an affiliate of NAPICO to
manage the operations of the rental properties. The agreements were on a
month-to-month basis and provided, 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
6
<PAGE> 9
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
NOTE 3 - FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED)
under the agreements were approximately $44,000 from January 1, 1999 through
February 17, 1999, the date the properties were sold, and $191,000 for the nine
months ended September 30, 1999.
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 was 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). Using proceeds from the sale of the properties, the
deferred acquisition fee of $783,200 was paid to NAPICO in 1999.
The Partnership reimburses NAPICO for certain expenses. The reimbursement paid
to NAPICO was $0 and $9,451 for the nine months ended September 30, 1999 and
1998, respectively, and is included in general and administrative expenses.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The corporate general partner of the Partnership is involved in various 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 5 - 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.
7
<PAGE> 10
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
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. On
February 17, 1999, the remaining properties were sold to JH Real Estate
Partners, Inc. for $31,900,000.
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. The
Partnership made distributions in the amount of $15,171,553 to the partners
during the nine months ended September 30, 1999.
RESULTS OF OPERATIONS
There are no remaining rental properties owned by the Partnership, therefore no
rental property cost and accumulated depreciation are included in the September
30, 1999 financial statements.
The Partnership operations consist primarily of rental income and depreciation
expense, debt service, and normal operating expenses to maintain the properties
until the date of disposition, and 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.
8
<PAGE> 11
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
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). Using the proceeds from the sale of the properties, the
deferred acquisition fee of $783,200 was paid to NAPICO in 1999.
9
<PAGE> 12
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 1999, 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.
10
<PAGE> 13
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1999
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.,
its General Partner
By: /s/ BRUCE NELSON
------------------------------
Bruce Nelson
President
Date: November 17, 1999
----------------------------
By: /s/ CHARLES H. BOXENBAUM
------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: November 17, 1999
----------------------------
11
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,965,420
<SECURITIES> 0
<RECEIVABLES> 1,965,420
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,965,420
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,965,420
<CURRENT-LIABILITIES> 50
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,965,370
<TOTAL-LIABILITY-AND-EQUITY> 1,965,420
<SALES> 0
<TOTAL-REVENUES> 14,910,017
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 863,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,046,803
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,046,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,046,803
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
