<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 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 SEPTEMBER 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements
Balance Sheets, September 30, 1998 and December 31, 1997 ..................................1
Statements of Operations,
Nine and Three Months Ended September 30, 1998 and 1997 .............................2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 1998 ................................................3
Statements of Cash Flows,
Nine Months Ended September 30, 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...............................................................................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, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998
(Unaudited) 1997
------------ ------------
<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 (14,393,605) (13,839,796)
------------ ------------
17,977,376 18,531,185
------------ ------------
CASH AND CASH EQUIVALENTS 883,570 1,354,289
------------ ------------
OTHER ASSETS:
Due from affiliated rental agent (Note 5) 863,806 645,785
Other receivables and prepaid expenses 211,934 259,864
------------ ------------
1,075,740 905,649
------------ ------------
TOTAL ASSETS $ 19,936,686 $ 20,791,123
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgage notes payable (Notes 2 and 7) $ 14,257,046 $ 14,443,323
Accrued fees and expenses due general partner
(Notes 5 and 7) 767,192 735,685
Accrued interest payable (Note 2) 56,383 56,383
Accounts payable and accrued expenses (Note 1) 250,824 270,019
Liability for earthquake loss (Note 1) 506,016 506,016
Tenant security deposits 217,066 217,066
------------ ------------
16,054,527 16,228,492
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6)
PARTNERS' EQUITY 3,882,159 4,562,631
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 19,936,686 $ 20,791,123
============ ============
</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, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues
Rental income $ 3,716,442 $ 1,273,641 $ 3,504,850 $ 1,170,623
Other income 146,627 59,021 138,726 45,675
----------- ----------- ----------- -----------
3,863,069 1,332,662 3,643,576 1,216,298
----------- ----------- ----------- -----------
Expenses
Operating expenses 2,040,079 698,151 1,674,618 510,315
Management fees - affiliate (Note 4) 191,510 66,294 180,803 60,869
Depreciation (Note 1) 553,809 184,603 553,809 184,603
General and administrative expenses 168,720 46,874 177,203 40,998
Interest expense (Note 2) 1,017,220 337,647 1,022,210 320,193
----------- ----------- ----------- -----------
3,971,338 1,333,569 3,608,643 1,116,978
----------- ----------- ----------- -----------
Income (Loss) from rental operations (108,269) (907) 34,933 99,320
----------- ----------- ----------- -----------
PARTNERSHIP OPERATIONS:
Interest income 36,790 8,606 91,285 12,112
----------- ----------- ----------- -----------
Expenses
General and administrative expenses (Note 5) 211,167 105,922 82,365 30,034
Professional fees 32,985 2,879 77,367 15,908
Interest expense - general partner (Note 5) 31,507 10,618 31,507 10,618
----------- ----------- ----------- -----------
275,659 119,419 191,239 56,560
----------- ----------- ----------- -----------
Loss from partnership operations (238,869) (110,813) (99,954) (44,448)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (347,138) $ (111,720) $ (65,021) $ 54,872
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST (Note 4) $ (12) $ (4) $ (2) $ 2
=========== =========== =========== ===========
</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, 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 nine months
ended September 30, 1998 (3,472) (343,666) (347,138)
Cash distributions (33,334) (300,000) (333,334)
----------- ----------- -----------
EQUITY (DEFICIENCY),
September 30, 1998 $(1,658,606) $ 5,540,765 $ 3,882,159
=========== =========== ===========
</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, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (347,138) $ (65,021)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 553,809 553,809
Changes in operating assets and liabilities:
Decrease (increase) in:
Due from affiliated rental agent (218,021) 18,663
Other receivables and prepaid expenses 47,930 (27,977)
Increase (decrease) in:
Accrued fees and expenses due general partner 31,507 31,507
Accounts payable and accrued expenses (19,195) 6,626
Accrued interest payable (17,449)
----------- -----------
Net cash provided by operating activities 48,892 500,158
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (333,334) (1,334,189)
Proceeds from mortgage note payable 5,600,000
Principal payments on mortgage notes payable (186,277) (5,162,417)
Payments on liability for earthquake loss -- (10,134)
----------- -----------
Net cash used in financing activities (519,611) (906,740)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (470,719) (406,582)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,354,289 1,827,286
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 883,570 $ 1,420,704
=========== ===========
</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, 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 September 30,
1998, 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 $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. On September 25,
1998, the Partnership entered into an agreement to sell the rental
properties.
5
<PAGE> 8
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership performed an extensive review of its properties in
connection with a proposed sale to the REIT as set forth below. The
Partnership incurred expenses in connection with this review by various
third party professionals, including accounting, legal, valuation,
structural review and engineering costs, which amounted to approximately
$258,000 through September 30, 1998 including approximately $121,000 and
$12,000 for the nine months ended September 30, 1998 and 1997,
respectively, which are included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO proposed to purchase from the Partnership the rental properties
owned by the Partnership for a total price of $24,876,300. The REIT
planned to raise the cash to purchase such properties through a private
placement of its equity securities. The purchase was subject to, among
other things, (i) consummation of such private placement by the REIT;
(ii) the consent of the limited partners to the sale of the rental
properties owned by REP; and (iii) the consummation of a minimum number
of purchase transactions with other NAPICO affiliated partnerships.
On August 14, 1998, an unrelated party contacted the Partnership to
express its interest in acquiring the properties. As of September 25,
1998, the affiliate of NAPICO withdrew its offer and the Partnership
entered into a purchase and sale agreement with the new buyer that
included a purchase price of $31,900,000. A consent solicitation
statement will be sent to the limited partners setting forth the terms
and conditions of the sale of the properties owned by the Partnership.
Consummation of the sale is subject to the approval of a
majority-in-interest of the limited partners.
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)
SEPTEMBER 30, 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 approximately $12,099,000 at September 30,
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
approximately $2,158,000 at September 30, 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 $191,000 and $180,000 for the
nine months ended September 30, 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 this period (Note 1). Included in payments to the affiliate of
NAPICO was $122,773 paid under a contract entered into by the
Partnership on February 22, 1996, after receiving competitive bids.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
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)
SEPTEMBER 30, 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 September 30, 1998 and December 31, 1997 was
approximately $767,002 and $725,000, 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. The Partnership made
distributions in the amount of $150,000 to the limited partners during
the nine months ended September 30, 1998.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $9,400 and $8,700 for the
nine months ended September 30, 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 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 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, 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. The
Partnership made distributions in the amount of $300,000 to the limited
partners in the nine months ended September 30, 1998.
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.
Based on the purchase and sale agreement entered into between the
Partnership and a proposed buyer, it is anticipated that the Partnership
will make a distribution to the limited partners of approximately
$16,554,000 from the net proceeds of the sale. If the sale is
consummated, it will result in a dissolution of the Partnership under
the terms of the Partnership Agreement.
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 nine months ended September 30, 1998, a 3 percent increase from
the same period in 1997. Both properties operated with positive cash
earnings for the nine months ended September 30, 1998 (excluding capital
repair costs). Positive cash earnings for the nine months ended
September 30, 1998 were approximately $27,200 and $2,400 for Warner
Willows I and II, respectively.
9
<PAGE> 12
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 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 99 percent during the
first nine months ended September 30, 1998, a 2 percent increase from
the same period in 1997. The property operated with a positive cash
flows of approximately $164,000 (excluding capital repair costs) during
the first nine months ended September 30, 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 97 percent during the
first nine months 1998, a 5 percent increase from the same period in
1997. The property operated with a positive cash flows of approximately
$102,100 (excluding capital repair costs) during the first nine months
ended September 30, 1998.
Occupancy at the Willowbrook property averaged 91 percent during the
first nine months ended September 30, 1998, a 1 percent decrease from
the same period in 1997. The property operated with a positive cash flow
of approximately $261,000 (excluding capital repair costs) during the
first nine months ended September 30, 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
September 30, 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 September 30, 1998. Included in payments to the affiliate of
NAPICO was $122,773 paid under a contract 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.
10
<PAGE> 13
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Partnership performed an extensive review of its properties in
connection with a proposed sale to the REIT as set forth below. The
Partnership incurred expenses in connection with this review by various
third party professionals, including accounting, legal, valuation,
structural review and engineering costs, which amounted to approximately
$258,000 through September 30, 1998 including approximately $121,000 and
$12,000 for the nine months ended September 30, 1998 and 1997,
respectively, which are included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO proposed to purchase from the Partnership the rental properties
owned by the Partnership for a total price of $24,876,300. The REIT
planned to raise the cash to purchase such properties through a private
placement of its equity securities. The purchase was subject to, among
other things, (i) consummation of such private placement by the REIT;
(ii) the consent of the limited partners to the sale of the rental
properties owned by REP; and (iii) the consummation of a minimum number
of purchase transactions with other NAPICO affiliated partnerships.
On August 14, 1998, an unrelated party contacted the Partnership to
express its interest in acquiring the properties. As of September 25,
1998, the affiliate of NAPICO withdrew its offer and the Partnership
entered into a purchase and sale agreement with the new buyer that
included a purchase price of $31,900,000. A consent solicitation
statement will be sent to the limited partners setting forth the terms
and conditions of the sale of the properties owned by the Partnership.
Consummation of the sale is subject to the approval of a
majority-in-interest of the limited partners.
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. As of September 30, 1998
approximately $767,000 of the deferred acquisition fee was due to the
Corporate General Partner. 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.
11
<PAGE> 14
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 report 8-K relating to an unsolicited offer to buy units of limited
partnership interests (the "Units"), as discussed below, was filed with
the Securities and Exchange Commission during the quarter ended
September 30, 1998.
On March 9, 1998, Riley Bauer Equities 2, L.L.C. (the "Buyer") made an
unsolicited offer to buy a certain number of Units in the Partnership
for a price of $300 per Unit. The Buyer did not contact the Corporate
General Partner prior to commencing its tender offer. By letter dated
July 13, 1998, the Corporate General Partner advised limited partners
that it had determined not to take a position with respect to the tender
offer but cautioned limited partners to consider certain items before
determining whether to tender their Units to the Buyer. A copy of the
letter from the Buyer is attached as an Exhibit to this form 10-Q.
12
<PAGE> 15
REAL EQUITY PARTNERS
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 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/ PAUL PATIERNO
---------------------------------
Paul Patierno
Chief Financial Officer
Date: January 18, 1999
-----------------------------------
/s/ CHARLES BOXENBAUM
---------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: January 18, 1999
-----------------------------------
13
<PAGE> 16
[RILEY BOWER EQUITIES 2, LLC LETTERHEAD]
To the Holders of Limited Partnership Interests in March 9, 1998
REAL EQUITY PARTNERS
Dear Investor,
We are offering you an opportunity to sell your limited partnership interest in
Units (the "Units") in REAL EQUITY PARTNERS, a California limited partnership
(the "Partnership") for cash in the amount of $300.00 (THREE HUNDRED DOLLARS)
PER UNIT, less transfer fee and any distributions made subsequent to the date of
this letter.
The following are several reasons why you may wish to sell:
o HIGHER THAN SECONDARY MARKET: According to the Partnership Spectrum, the
average price paid for this Partnership per unit in the most recent
reporting period was $256.67. OUR OFFER IS MORE THAN AN 18% PREMIUM,
BEFORE THE ADDED SAVINGS OF A COMMISSION FREE SALE.
o CASH RESERVES REDUCED BY MORE THAN $830,000.00: In February 1997, The
Partnership paid the General Partner $834,188.00 for deferred distributions
(the GP was allocated 10 percent of "cash available for distribution"
and had been deferring this distribution for several years). This
reduced the Partnership's cash reserves significantly.
o OUR PAPERWORK IS EASY: Simply sign and complete the rest of the information
on the back of the enclosed Agreement of Transfer and Assignment and mail
back to us in the enclosed envelope. NO NOTARY OR SIGNATURE GUARANTEE IS
REQUIRED.
o TWO PROPERTIES HAVE BEEN FORECLOSED: The Partnership has had two of its
original seven properties foreclosed on, one in 1993 and one in 1996.
o NO COMMISSIONS OR FUTURE K-1S: Our offer is a net price to you, without the
commissions and costs typically associated with third party sales.
Additionally, the sale will result in the elimination of the expense of
your filing a partnership K-1 in future years.
Our offer is limited to approximately 1,000 units. We will pay for all
Partnership transfer fees and costs. We are an investment group not affiliated
with the General Partner. However, it should be noted that we feel the General
Partner is competent and carrying out their fiduciary responsibilities.
An Agreement of Transfer is enclosed which you can use to accept our offer. YOU
ARE ONLY REQUIRED TO SIGN AND PRINT YOUR NAME AND COMPLETE THE REST OF THE
INFORMATION ON THE REVERSE SIDE OF THE AGREEMENT, AND RETURN TO OUR OFFICES IN
THE ENCLOSED ENVELOPE. (If your investment is in an IRA account, we will obtain
your Custodian's signature after you have returned the completed and signed
Agreement). Our offer will expire at 5:00 p.m. on Friday, July 18th, 1997;
however, we may extend our offer at our discretion. Please call toll free at
888-622-1144, extension 22, if you have any questions.
Sincerely,
Riley Bower Equities 2, LLC.
<PAGE> 17
AGREEMENT OF TRANSFER & ASSIGNMENT
For Limited Partnership Interests in
REAL EQUITY PARTNERS
1. ASSIGNMENT OF AND CONSIDERATION FOR THE UNITS
Subject to and effective upon acceptance for payment, the undersigned
(the "Seller") hereby sells, assigns, transfers, conveys and delivers (the
"Transfer") to Riley Bower Equities 2, LLC, a California limited liability
company or Assignee (the "Purchaser"), all of the Seller's right, title and
interest in Real Equity Partners, a limited partnership (the "Partnership") for
a total consideration of $300.00 (THREE HUNDRED DOLLARS) PER UNIT, less
transfer fee and any distributions made subsequent to March 9, 1998, net to the
Seller in cash. Such Transfer shall include, without limitation, all right in,
and claims to, any Partnership profits and losses, cash distributions, voting
rights and other benefits of any nature whatsoever distributable or allocable
to such purchased Units under the Partnership's Certificate and Agreement of
Limited Partnership, as amended (the "Partnership Agreement").
2. SPECIAL POWER OF ATTORNEY
The Seller hereby irrevocably constitutes and appoints the Purchaser,
James S. Riley and E. Frank Bower, or any of them, as the true and lawful agent
and special attorneys-in-fact of the Seller with respect to such Units, with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest). The Power of Attorney shall
include without limitation, (1) the right to vote, inspect Partnership books
and records, (2) the right to execute on behalf of Seller, all assignments,
certificates, documents and instruments that may be required for the purpose of
transferring the units owned by Seller, (3) the right to deliver such Units and
transfer ownership of such Units on the Partnership's books maintained by the
General Partner of the Partnership, together with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Purchaser; and (4) the
right after the Effective Date defined below to receive all benefits and cash
distributions, endorse Partnership checks payable to Purchaser and otherwise
exercise all rights of beneficial ownership of such Units. The Purchaser shall
not be required to post a bond of any nature in connection with this power of
attorney.
3. EFFECTIVE DATE OF ASSIGNMENT; ALLOCATION OF DISTRIBUTIONS
The Seller agrees that from and after the "Effective Date", defined
as March 9, 1998, that the Purchaser shall be entitled to all distributions
made by the Partnership with respect to the units, including any distributions
attributable to periods or events occurring prior to the Effective Date but not
yet distributed. This right also includes the rights to any benefits which may
accrue as a result of any litigation or settlement which involves this
partnership. Should the Seller receive any distribution by the Partnership from
or after the Effective date, the Seller agrees to duly endorse the check or
checks representing such distribution payable to order of the Purchaser, and to
transmit such check or checks to the Purchaser within two days of its or their
receipt by the Seller.
4. SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants to the Purchaser that the
Seller owns such Units and has full power and authority to validly sell,
assign, transfer, convey and deliver such Units to the Purchaser, and that when
any such Units are accepted for payment by the Purchaser, the Purchaser will
acquire good, marketable and unencumbered title thereto, free and clear of all
options, liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, and
such Units will not be subject to any adverse claim. If the undersigned is
signing on behalf of any entity, the undersigned declares that he has authority
to sign this document on behalf of the entity. The Seller further represents
and warrants that the Seller is a "United States person", as defined in Section
7701 (a)(30) of the Internal Revenue Code of 1986, as amended, or if the Seller
is not a United States person, that the Seller does not own beneficially or of
record more than 5% of the outstanding Units.
The Seller hereby certifies, under penalties of perjury, that (1) the number
shown below on this form as the Seller's Taxpayer Identification Number (or
Social Security Number) is correct and (2) Seller is not subject to backup
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 883,570
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,959,310
<PP&E> 32,370,981
<DEPRECIATION> (14,393,605)
<TOTAL-ASSETS> 19,936,686
<CURRENT-LIABILITIES> 1,018,016
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,882,159
<TOTAL-LIABILITY-AND-EQUITY> 19,936,686
<SALES> 0
<TOTAL-REVENUES> 3,899,859
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,198,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,048,727
<INCOME-PRETAX> (347,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (347,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347,138)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
