<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, 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 MARCH 31, 1999
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, March 31, 1999 and December 31, 1998 ............1
Statements of Operations,
Three Months Ended March 31, 1999 and 1998 ................2
Statement of Partners' Equity (Deficiency),
Three Months Ended March 31, 1999 .........................3
Statements of Cash Flows,
Three Months Ended March 31, 1999 and 1998 ................4
Notes to Financial Statements ...................................5
Item 2. Management's Discussion and Analysis of Financial
Position and Results of Operations ..............................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................8
Item 6. Exhibits and Reports on Form 8-K ......................................8
Signatures......................................................................9
</TABLE>
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REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
RENTAL PROPERTY, at cost (Notes 1 and 2)
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 1,068,585 182,828
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 5) -- 1,049,010
Other receivables and prepaid expenses -- 168,596
------------
-- 929,354
------------ ------------
TOTAL ASSETS $ 1,068,585 $ 19,193,206
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 2 and 7) $ -- $ 14,181,382
Accrued fees and expenses due general partner
(Notes 5 and 7) -- 777,810
Accrued interest payable (Note 2) -- 57,247
Accounts payable and accrued expenses (Note 1) 6,908 338,702
Liability for earthquake loss (Note 1) -- 506,016
Tenant security deposits -- 241,931
------------ ------------
6,908 16,103,088
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6)
PARTNERS' EQUITY 1,061,677 3,090,118
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,068,585 $ 19,193,206
============ ============
</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
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 848,441 $ 1,198,461
Other income 29,866 36,379
------------ ------------
878,307 1,234,840
------------ ------------
Expenses
Operating expenses 342,179 661,077
Management fees - affiliate (Note 4) 43,856 61,040
Depreciation (Note 1) 98,455 184,603
General and administrative expenses 27,682 65,822
Interest expense (Note 2) 212,229 340,509
------------ ------------
724,401 1,313,051
------------ ------------
Income (loss) from rental operations 153,906 (78,211)
------------ ------------
PARTNERSHIP OPERATIONS:
Interest income 18,180 14,134
------------ ------------
Expenses
General and administrative expenses (Note 5) 17,159 43,112
Professional fees 22,857 10,403
Interest expense - general partner (Note 5) 5,540 10,387
------------ ------------
45,556 63,902
------------ ------------
Loss from partnership operations (27,376) (49,768)
------------ ------------
NET INCOME (LOSS) BEFORE SALE OF ASSETS 126,530 (127,979)
------------ ------------
GAIN ON THE SALE OF ASSETS 13,016,580 --
------------ ------------
NET INCOME (LOSS) $ 13,143,110 $ (127,979)
============ ============
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST (Note 4) $ 438 $ (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 THREE MONTHS ENDED MARCH 31, 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 three months
ended March 31, 1999 131,431 13,011,679 13,143,110
Cash distributions (166,567) (15,004,986) (15,171,553)
------------ ------------ ------------
EQUITY (DEFICIENCY),
March 31, 1999 $ (1,731,662) $ 2,793,339 $ 1,061,677
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL-EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,143,110 $ (127,979)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 98,455 184,603
Changes in operating assets and liabilities:
Decrease (increase) in:
Due from affiliated rental agent 1,049,010 (30,857)
Other receivables and prepaid expenses 168,596 7,152
Increase (decrease) in:
Accrued fees and expenses due general partner (777,810) 10,387
Accounts payable and accrued expenses (331,794) (6,592)
------------ ------------
Net cash provided by operating activities 13,349,567 36,714
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets 16,889,125 --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (15,171,553) (150,000)
Principal payments on mortgage notes payable (14,181,382) (60,656)
------------ ------------
Net cash used in financing activities (29,352,935) (210,656)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 885,757 (173,942)
CASH AND CASH EQUIVALENTS, beginning of period 182,828 1,354,289
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,068,585 $ 1,180,347
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 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, 1999,
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
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 $17,226,470. The partnership made
cash distributions of $15,004,986 to the limited partners and $166,567
to the general partner. There are no remaining rental properties owned
by the Partnership, therefore no rental property cost and accumulated
depreciation are included in the March 31, 1999 financial statements.
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.
5
<PAGE> 8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was $0 and $3,153 for the three months
ended March 31, 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 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.
6
<PAGE> 9
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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. 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 $15,171,553 to the partners during the three months ended
March 31, 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 March 31, 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.
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
7
<PAGE> 10
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
(as defined in the Partnership Agreement). Using proceeds from
the sale of the properties, the deferred acquisition fee of $783,000
was paid to NAPICO.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 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.
8
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REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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.
Corporate General Partner
/s/ BRUCE NELSON
--------------------------------------
Bruce Nelson
President
Date: May 20 , 1999
--------------------------------------
/s/ CHARLES H. BOXENBAUM
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: May 20 , 1999
--------------------------------------
9
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 220,457
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 220,457
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,421,621
<CURRENT-LIABILITIES> 247,614
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,706,946
<TOTAL-LIABILITY-AND-EQUITY> 11,421,621
<SALES> 0
<TOTAL-REVENUES> 218,966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,216,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,997,493)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,997,493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,997,493)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
