UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 33-15427
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina 56-1590235
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3710 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/333-1367
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Beneficial Assignment Certificates None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 15, 1996, was not determinable (no active market).
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
Index to Exhibits at Page 24 Total number of Pages 25
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. FINANCIAL INFORMATION Page No.
<S> <C> <C>
PART I
1 Business 3
2 Properties 4
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security Holders 5
PART II
5 Market for Registrant's Common Equity and Related Stockholder
Matters 5
6 Selected Financial Data 6
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
8 Financial Statements and Supplementary Data 7
9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 7
PART III
10 Directors and Executive Officers of the Registrant 8
11 Executive Compensation 8
12 Security Ownership of Certain Beneficial Owners and Management
8
13 Certain Relationships and Related Transactions 9
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K 9
</TABLE>
2
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PART I
ITEM 1. BUSINESS
Retail Equity Partners Limited Partnership (the "Partnership") is a North
Carolina limited partnership organized in 1987 to acquire, hold, operate and
manage three neighborhood shopping centers. The general partner of the
Partnership is Boddie Investment Company ("BIC"), a North Carolina corporation.
The Partnership offered a minimum of 50,000 and a maximum of 1,000,000
Beneficial Assignment Certificates ("BACs") representing beneficial assignments
of limited partnership interests at $20 per BAC on a best effort basis through
Planned Management Company, the dealer/manager. The Partnership received
aggregate subscription funds of $6,671,543. The offering closed on April 2,
1990.
The Partnership made cash and leveraged investments in three neighborhood
shopping centers located in Burlington, North Carolina (New Market Square),
Raleigh, North Carolina (Plaza West), and Virginia Beach, Virginia (Cape Henry
Plaza).
In October 1991, the ownership of New Market Square was transferred to a newly
formed partnership, New Market Square Limited Partnership ("NMS"). The
Partnership is the sole general partner and holds a 99.99 percent interest in
NMS. In February 1992, NMS filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code. This action was taken after
negotiations for refinancing of New Market Square's mortgage loan payable of
$6,400,000 failed and alternative financing could not be obtained. NMS received
court approval to continue normal operations. In May 1993, NMS successfully
completed its restructuring of the mortgage loan payable with the lender and
emerged from bankruptcy. The principal balance of the mortgage loan was
increased to $6,425,000, with the $25,000 increase representing legal fees
incurred to restructure the loan. In May 1993, a $100,000 principal payment was
due and paid.
Rose's, Inc., an anchor tenant at New Market Square, renounced its lease
pursuant to a Chapter 11 bankruptcy filing on August 1, 1994, vacated the rental
space and ceased making rental payments. Rose's filed a claim against the
Partnership in the amount of $45,743 for rent which it claimed was paid
improperly after the filing of its bankruptcy petition, for which the
Partnership paid $20,000 in full settlement in February 1995. The Partnership
had filed a proof of claim against Rose's for unpaid future rent in the amount
of $880,000. In January 1995, the Partnership and Rose's agreed to fix the claim
at $512,808, and in March 1995, the Partnership sold the claim to an unrelated
third party for an immediate cash payment of $82,049.
After the departure of Rose's, the Partnership did not have sufficient cash flow
to make full payments required under the New Market Square mortgage loan. The
lender and the Partnership entered into a forbearance agreement under which NMS
remitted to the lender net cash flow after payment of operating expenses
monthly. In June 1995, the forbearance agreement was terminated and the NMS
mortgage loan was brought current by using substantially all of the
Partnership's cash reserves. During the last half of 1995 BIC advanced the
Partnership sufficient funds to cover operating shortfalls.
In February 1996, the New Market Square land, building and personal property
were sold to an unrelated party for a contract price of $6,558,000, resulting in
an estimated loss on sale of $510,000. (See discussion in Notes to Financial
Statements included in Item 14 of this Report.)
Partnership Business. In 1995 and previous years, rental revenue was derived
from the leasing of shopping center space to approximately 40 tenants and from a
ground lease to a bank for an out-parcel. The shopping centers are leased
subject to net leases. Tenants reimburse the Partnership for common area
maintenance and certain other costs incurred.
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Historically, a significant portion of rental revenue was derived from anchor
tenants for which leases extend to 2006. Major tenants of the shopping centers
(those leasing greater than 10 percent of total leasable space of 238,550 square
feet) have been as follows:
<TABLE>
<CAPTION>
- --------------------- ------------------------ --------------- --------------- ---------------
1995 Rental Lease Expires
Tenant Shopping Center Square Feet Revenue
<S> <C> <C> <C> <C>
Harris Teeter Plaza West 25,000 $143,000 2006
Food Lion Cape Henry Plaza 25,000 178,000 2006
Winn Dixie New Market Square 35,900 216,000 2006
Rose's/vacant* New Market Square 54,000 -- --
139,900 $537,000
- --------------------- ------------------------ --------------- --------------- ---------------
</TABLE>
*Rose's, Inc. renounced its lease pursuant to a bankruptcy filing on August 1,
1994, vacated the rental space and ceased making rental payments.
The Partnership's two remaining properties are well located in cities with
strong economies and rapidly growing populations. The properties have been well
maintained. Cape Henry Plaza was painted in 1995, and certain roof and parking
lot repairs are scheduled for 1996. With the completion of these repairs the
centers will remain in good physical condition.
Occupancy remains high at both centers. At December 31, 1995, and March 15,
1996, occupancy at Cape Henry Plaza was 100 percent, compared to 95 percent at
December 31, 1994. For Plaza West occupancy was 100 percent at December 31,
1994, December 31, 1995, and March 15, 1996.
Rental rates for local tenant renewals and new local tenant leases appear to be
improving at both properties. This improvement appears to be attributable to the
combined effect of an improving economy, good locations and a lack of new
construction of similar type centers.
ITEM 2. PROPERTIES
All three properties are neighborhood shopping centers, held subject to loans.
All of the centers were constructed in 1986 and were acquired by the Partnership
in May 1988. (See discussion of major tenants and occupancy percentages in
Business discussion included in Item 1 of this Report.)
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------- ----------------
Approx. Sq. Ft.
Shopping Center Name Location Rental Space
<S> <C> <C>
Plaza West Raleigh, North Carolina 63,800
Cape Henry Plaza Virginia Beach, Virginia 50,000
New Market Square* Burlington, North Carolina 125,000
- ------------------------------ ----------------------------- ----------------
</TABLE>
*New Market Square was sold in February 1996.
Summary information regarding occupancy rates is as follows:
4
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
As of December 31,
1995 1994 1993
<S> <C> <C> <C>
Plaza West 100% 100% 100%
Cape Henry Plaza 100 95 100
New Market Square 55 57 100
- -------------------------------- -------------- -------------- --------------
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Partnership was not a party to any material pending legal proceedings during
the fourth quarter of 1995 or at December 31, 1995. See discussion of legal
proceedings with respect to the New Market Square Rose's vacancy and disposition
thereof during first quarter 1995 in Business discussion included in Item 1 of
this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the fourth
quarter of fiscal year 1995.
PART II
5. MARKET FOR REGISTRANT'S BENEFICIAL ASSIGNMENT CERTIFICATES AND RELATED
MATTERS
The Partnership received aggregate subscription funds of $6,671,543 for 333,577
beneficial assignment certificates ("BACs") from approximately 480 investors.
There is currently no established public trading market for the BACs. The
Partnership is unaware of any secondary market for its securities.
No distributions were made in 1995, 1994, or 1993. The general partner is
currently evaluating the Partnership's remaining properties to determine
appropriate levels for operating reserves. The Partnership intends to distribute
the net proceeds from the sale of New Market Square less any amounts required to
maintain adequate operating reserves. The Partnership is expected to make a
capital distribution during the first half of 1996.
5
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6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------- -----------------------------------------------------------------------------
For the years ended December 31,
1995 (1) 1994 1993 1992 (2) 1991
- ----------------------------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Data
Rental revenue $1,632,519 $1,767,669 $1,811,601 $1,814,882 $1,855,323
Net loss (828,548) (269,830) (277,204) (2,036,308) (205,349)
Net loss per BAC (2.46) (0.80) (0.82) (6.04) (0.61)
Distributions per BAC (3) .00 .00 .00 0.23 1.80
Balance Sheet Data (at year end)
Total assets 13,029,394 14,116,654 14,493,681 14,952,836 17,065,222
Notes payable 12,797,111 13,060,575 13,266,616 13,445,000 13,445,000
- ----------------------------------- --------------- --------------- --------------- --------------- --------------
</TABLE>
(1) In 1995, the Partnership recorded a charge of $510,000 to reduce the
recorded basis of the New Market Square Shopping Center property to estimated
net realizable value. The property was subsequently sold to an unrelated third
party in February 1996.
(2) In 1992, the Partnership recorded a charge of $1,750,000 to reduce the
recorded basis of its shopping centers to estimated net realizable value.
(3) Under generally accepted accounting principals, distributions have consisted
entirely of return of capital.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included in Item 14 of this Report.
Results of Operations
Revenues. Rental revenue was generally consistent in 1990 through 1993, with
occupancy at all three shopping centers consistently above 90 percent. In August
1994, Rose's, a key tenant which occupied approximately 45 percent of available
space at New Market Square, renounced its lease pursuant to a bankruptcy filing
and vacated its space. As a result of this significant vacancy, rental revenue
decreased 2.4 percent in 1994 and 7.6 percent in 1995. Occupancy levels and
related rental income at Plaza West and Cape Henry have remained consistently
high.
In 1995 the Partnership recognized other income of approximately $82,000 related
to sale of its claim against Rose's for unpaid future rent. There were no other
significant income items in 1995, 1994 or 1993.
Expenses. Property operating expenses, exclusive of depreciation, amortization
and interest, were generally consistent, increasing 3.3 percent in 1994, and no
increase in 1995. General and administrative expenses, including legal fees,
were unusually high in 1993 due to the bankruptcy and related loan modification
of the Partnership's subsidiary, New Market Square Limited Partnership ("NMS"),
but returned to more typical levels in 1994 and 1995. Depreciation and
amortization expenses were consistent throughout the three year period. Nominal
declines in interest expense reflect amortization of loan principal.
In late December 1995, the Partnership entered into an agreement to sell New
Market Square Shopping Center which was subsequently executed in February 1996.
In conjunction with this sale in 1995 the Partnership recorded a
6
<PAGE>
$510,000 charge to reduce the recorded net book value of New Market Square
assets to estimated net realizable value (contract sale price of $6,558,000 less
estimated direct costs of the sale totaling approximately $195,000). (See
discussion of New Market Square in Notes to Financial Statements included in
Item 14 of this Report.)
Summary Results of Operations. The Partnership recorded net losses of $277,000,
$270,000, and $829,000 in 1993, 1994 and 1995, respectively. Depreciation and
amortization of approximately $420,000 in each year are significant non-cash
expenses which have a significant impact on reported results.
Net losses related to operations of New Market Square were $99,000, $98,000, and
$726,000 in 1993, 1994 and 1995, respectively, including depreciation and
amortization of approximately $225,000 in each year and a provision for
estimated loss on sale of New Market Square of $510,000 in 1995.
Liquidity and Capital Resources
The Partnership has had long term financing in place on all three shopping
centers. The first mortgage loans on the two shopping centers remaining after
sale of New Market Square mature in 1998 and require monthly principal
reduction. (See discussion of Mortgage Loans Payable in Notes to Financial
Statements included in Item 14 of this Report.)
If not for the Rose's bankruptcy and resulting vacancy at New Market Square
since August 1994, the Partnership would have been operating reasonably well.
Following the Rose's departure, New Market Square did not generate sufficient
cash flow to pay full payments required under its mortgage loan. The lender and
the Partnership entered into a forbearance agreement under which monthly
payments varied based on New Market's cash flow after payment of operating
expenses. In June 1995, the forbearance agreement was terminated, and the New
Market mortgage loan was brought current by using substantially all of the
Partnership's cash reserves. During the remainder of the year, the general
partner advanced approximately $79,000 to the Partnership to cover operating
shortfalls.
Plaza West and Cape Henry Plaza continue to generate positive cash flow from
operations. Leases at these shopping centers are generally long-term, with
substantially all increases in operating expenses, taxes and insurance passed
through to and paid by tenants. Additionally, most leases include built-in rent
increases based on changes in the consumer price index. The Partnership should
have sufficient cash flow to meet its capital needs.
The Partnership did not pay any distributions to partners in 1993, 1994 or 1995.
The Partnership expects to make some distribution to partners with the net
proceeds of sale of New Market Square in 1996; however, other distributions have
been suspended until property operations allow.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item 14(a) and
filed as part of this Report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. The Partnership
Agreement provides that the management of the affairs of the Partnership and the
administration of its day-to-day operations will be performed solely by the
general partner. From the inception of the Partnership until April 14, 1994, the
general partner was BT Venture Partners ("BTVP"), a North Carolina general
partnership formed in June 1985. The two general partners of BTVP were Boddie
Investment Company ("BIC"), a North Carolina corporation, and Tom G. Thornburg
("Thornburg"). In April 1994, BIC purchased Thornburg's interest in BTVP and
certain affiliated partnerships and corporations. In conjunction with this
transaction, BIC became the general partner of the Partnership as of April 14,
1994.
BIC was formed in June 1985 to engage in the business of real estate investment.
B. Mayo Boddie and Nicholas B. Boddie own all of the outstanding shares of
capital stock of BIC and are its only directors. Biographical information
concerning the officers of BIC is set forth below.
B. Mayo Boddie, age 66, President of BIC, together with his brother, Nicholas B.
Boddie, and their late uncle, Carleton Noell, founded Boddie-Noell Enterprises,
Inc. ("BNE") in 1961. BNE, which is headquartered in Rocky Mount, North
Carolina, is the largest privately owned and the second largest franchisee of
Hardee's Restaurants in the United States. BNE owns and operates approximately
365 Hardee's Restaurants. B. Mayo Boddie is chairman of the board and chief
executive officer of BNE. Mr. Boddie serves as a director of First Union
National Bank of North Carolina, Factory Stores of America, North Carolina
Wesleyan College, the East Carolina Council of Boy Scouts of America, a member
of the Board of Visitors of the Kenan-Flagler Business School (University of
North Carolina at Chapel Hill) and is President of the Rocky Mount Chamber of
Commerce. He attended the University of North Carolina at Chapel Hill.
Nicholas B. Boddie, age 68, a Vice President of BIC, is vice chairman and a
director of BNE. He is a director of First Union National Bank of Rocky Mount,
Lake Waccamaw Boys and Girls Home of North Carolina, East Carolina Council of
Boy Scouts and Rocky Mount Junior Achievement. Mr. Boddie attended the
University of North Carolina at Chapel Hill.
Douglas E. Anderson, age 48, a Vice President and Secretary of BIC, has been
with BNE since 1977 and is currently executive vice president and secretary and
a director of that company. Mr. Anderson is also president of BNE Land and
Development Company, a division of BNE. He serves as a director of Wachovia Bank
of Rocky Mount, North Carolina, the Educational Foundation of the University of
North Carolina and is a former director of Golden Corral Real Estate Investment
Trust. Mr. Anderson attended the University of North Carolina at Chapel Hill.
W. Craig Worthy, age 43, Treasurer of BIC, has been with BNE since 1979 and is
currently senior vice president and chief financial officer of that company. He
serves as a director of First Union Bank of Rocky Mount, North Carolina. He
received a BA degree from the University of Virginia in 1974 and a Master of
Accountancy and of Business Administration from the University of South
Carolina.
ITEM 11. EXECUTIVE COMPENSATION
During the year ended December 31, 1995 the Partnership paid no compensation to
the general partner or to the executive officers, directors or partners of its
affiliates. See Item 13. Certain Relationships and Related Transactions for
discussion of amounts which were paid or which may be paid to the general
partner and certain affiliates of the general partner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are no BAC owners with a 5 percent or greater ownership interest.
8
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The general partner of the Partnership is BIC, a North Carolina corporation. See
Item 10, Directors and Executive Officers of the Registrant for information
concerning BIC. During 1995 BIC made advances totaling $79,000 to the
Partnership to cover operating deficits. Such advances accrue interest at a
prime rate; during 1995 the Partnership recorded interest expense related to
these advances totaling approximately $2,000.
Boddie-Noell Properties, Inc. ("BNP"), an affiliate of the general partner, was
engaged by the Partnership to provide management and certain leasing services
for its three shopping centers. BNP is a publicly-held real estate investment
trust. Certain officers and directors of BIC are also officers and directors of
BNP. Effective October 1, 1995, BNP transferred management and leasing services
rights to its subsidiary, BNP Management, Inc. Total fees paid to BNP and BNP
Management, Inc. were approximately $51,000. In addition, the Partnership
reimbursed BNP and BNP Management for certain administrative costs in the amount
of approximately $12,000.
The books and records of the Partnership are maintained by the general partner,
subject to audit by independent public accountants. Purchasers of BACs have no
right to participate in the management of the Partnership, and it is not
intended that there will be annual meetings of investors.
The Partnership does not have independent management and will rely on BIC and
BNP Management, Inc. for day-to-day management of the Partnership. BIC and BNP
Management, Inc. believe they have sufficient staff personnel to be fully
capable of discharging their responsibility to all partnerships or groups to
which they are responsible. BIC has conflicts of interest in allocating
management time, services and other functions among affiliated publicly held and
privately held entities and other partnerships or ventures that it may organize.
The partners, officers and directors of BIC and BNP will devote only such time
to the affairs of the Partnership as they, within their sole discretion
exercised in good faith, determine to be necessary to carry out their
obligations under the Partnership Agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules listed below are filed as part of this
Annual Report on the pages indicated.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements and Notes:
Report of Independent Accountants 12
Consolidated Balance Sheets as of December 31, 1995 and 1994 13
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994, and 1993 14
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 15
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994, and 1993 16
Notes to Consolidated Financial Statements 17
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 23
</TABLE>
9
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The financial statements and schedule are filed as part of this report. All
other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
(a) 3. Exhibits
The Registrant agrees to furnish a copy of all agreements related to long-term
debt upon request of the Commission.
Exhibit
No.
2* Plan for Reorganization and Disclosure Statement, a Motion seeking
authority to make post-petition expenditures and certain other
related filings (filed as Exhibit 29(e) to the Partnership 8-K
filing dated February 14, 1992, and incorporated herein by
reference)
4* Retail Equity Partners Limited Partnership Agreement of Limited
Partnership (filed as Exhibit 4 to the Partnership's Registration
Statement (File No. 33-15427) on Form S-11 and incorporated herein
by reference)
27 Financial Data Schedule (electronic filing)
* Incorporated herein by reference
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Partnership during the quarter
ended December 31, 1995. The Partnership subsequently filed a Current Report on
Form 8-K as of February 8, 1996, to report the sale of New Market Square
Shopping Center.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RETAIL EQUITY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: Boddie Investment Company
General Partner
Date: March 27, 1996 By: /s/ Philip S. Payne
Philip S. Payne
Duly Authorized Agent
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ B. Mayo Boddie Director March 27, 1996
B. Mayo Boddie
/s/ Nicholas B. Boddie Director March 27, 1996
Nicholas B. Boddie
11
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Report of Independent Public Accountants
To Retail Equity Partners Limited Partnership:
We have audited the accompanying consolidated balance sheets of Retail Equity
Partners Limited Partnership (a North Carolina limited partnership) as of
December 31, 1995, and 1994, and the related consolidated statements of
operations, changes in partners' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
and the schedule referred to below are the responsibility of the managing
general partner. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the managing general partner,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Retail Equity Partners Limited
Partnership as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 8, 1996.
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Retail Equity Partners Limited Partnership
Consolidated Balance Sheets -- December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
---------- ------------ ------------
<S> <C> <C>
Investments in shopping centers:
Land $ 2,094,634 $ 2,094,634
Buildings and improvements 5,769,651 5,769,651
Personal property 32,181 32,181
Less - Accumulated depreciation (1,520,349) (1,342,815)
6,376,117 6,553,651
New Market Square Shopping Center (see Note 5) 6,363,530 7,088,184
Cash 16,467 149,639
Restricted cash - Tenant security deposits 32,695 27,153
Accounts receivable, less allowance for doubtful accounts of
$7,443 in 1995 and $55,200 in 1994 113,140 123,435
Prepaids and other assets 47,507 62,770
Deferred costs, less amortization of $175,504 in 1995 and $144,000 in 1994 79,938 111,822
$13,029,394 $14,116,654
Liabilities and Partners' Equity (Deficit)
------------------------------------------------
Mortgage loans payable $ 6,931,348 $ 6,983,060
Mortgage loan and accrued interest payable - New Market Square Shopping Center 5,909,756 6,172,455
Trade accounts payable and accrued expenses 31,905 52,861
Prepaid rent 2,752 11,263
Tenant security deposits 31,100 26,381
Accrued interest payable 53,429 53,828
Advances and accrued interest due to affiliates 80,846 0
Total liabilities 13,041,136 13,299,848
Partners' equity (deficit):
Limited partners 54,099 874,362
General partner (65,841) (57,556)
Total partners' equity (deficit) (11,742) 816,806
$13,029,394 $14,116,654
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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Retail Equity Partners Limited Partnership
Consolidated Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Rental revenue $1,632,519 $1,767,669 $1,811,601
Interest 9,205 4,731 7,644
Other income 82,049 0 0
1,723,773 1,772,400 1,819,245
Expenses:
Property operations 193,793 186,776 171,279
General and administrative 55,496 47,112 100,697
Property taxes and insurance 163,824 165,184 166,882
Property management fees 51,330 57,063 57,722
Depreciation 392,188 393,258 393,622
Amortization 31,884 31,935 25,914
Interest 1,153,806 1,160,902 1,180,333
Provision for estimated loss on sale of New Market Square
Shopping Center 510,000 0 0
2,552,321 2,042,230 2,096,449
Net loss $ (828,548) $ (269,830) $ (277,204)
Net loss allocated to limited partners (99%) $ (820,263) $ (267,132) $ (274,432)
Net loss allocated to general partner (1%) $ (8,285) $ (2,698) $ (2,772)
Net loss per limited partnership unit $ (2.46) $ (0.80) $ (0.82)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
14
<PAGE>
Retail Equity Partners Limited Partnership
Consolidated Statements of Changes in Partners' Equity (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------ ----------- ------------
<S> <C> <C> <C>
Balance, December 31, 1992 $1,415,926 $(52,086) $1,363,840
Net loss (274,432) (2,772) (277,204)
Balance, December 31, 1993 1,141,494 (54,858) 1,086,636
Net loss (267,132) (2,698) (269,830)
Balance, December 31, 1994 874,362 (57,556) 816,806
Net loss (820,263) (8,285) (828,548)
Balance, December 31, 1995 $ 54,099 $(65,841) $ (11,742)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
15
<PAGE>
Retail Equity Partners Limited Partnership
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (828,548) $ (269,830) $ (277,204)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization 424,072 425,193 419,536
Provision for estimated loss on sale of New Market Square
Shopping Center 510,000 0 0
Changes in operating assets and liabilities:
Tenant security deposits (823) (996) (480)
Accounts receivable 10,295 18,882 30,531
Receivables from affiliates 0 20,000 (20,000)
Prepaids and other assets 15,263 (23,689) 7,247
Trade accounts payable and accrued expenses
(20,956) 38,529 8,300
Prepaid rent (8,511) 11,263 0
Payables to affiliates 0 (4,708) (11,007)
Accrued interest (51,346) 51,702 (2,572)
Accrued interest due to affiliates 1,846 0 0
Net cash provided by operating activities 51,292 266,346 154,341
Cash flows used in investing activities - Additions to shopping
centers 0 0 (10,000)
Cash flows from financing activities:
Repayment of principal on mortgage loans (263,464) (206,041) (203,384)
Advances from affiliates 79,000 0 0
Net cash used in financing activities (184,464) (206,041) (203,384)
Increase (decrease) in cash (133,172) 60,305 (59,033)
Cash, beginning of year 149,639 89,334 148,367
Cash, end of year $ 16,467 $ 149,639 $ 89,334
Supplemental disclosure of cash flow and noncash flows information:
Cash payments for interest $1,203,306 $1,109,200 $1,182,905
Deferred financing costs funded from mortgage loan 0 0 25,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
16
<PAGE>
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. Organization and Summary of Significant Accounting Policies:
Retail Equity Partners Limited Partnership (the Partnership) is a North Carolina
limited partnership formed to acquire, hold, operate and manage three
neighborhood shopping centers. In October 1991, the ownership of one of the
shopping centers was transferred to a newly formed partnership, New Market
Square Limited Partnership (NMS), which is 99.99% owned by the Partnership. The
financial statements include the accounts of NMS, and all significant
intercompany accounts and transactions have been eliminated. Under the terms of
the partnership agreement, net income (loss) and cash distributions from
operations are allocated 99% to the limited partners and 1% to the general
partner. When the limited partners have received distributions equal to their
equity contributions plus a priority return (as defined), any further taxable
income, losses or distributions will be allocated 90% to the limited partners
and 10% to the general partner. Upon the sale or refinance of the partnership
property, the partnership agreement specifies certain allocations of net
proceeds.
Rental Revenue and Expenses
Rental revenue is derived from the leasing of shopping center space to
approximately 40 tenants and from a ground lease to a bank for an out-parcel.
Fixed rental amounts are recorded as they accrue under the terms of each lease.
Contingent rents based on tenants' sales or future changes in the Consumer Price
Index are recorded at the time such amounts are both determinable and due under
the terms of related leases. (There was no contingent rental income earned in
1995, 1994 or 1993.) The shopping centers are leased subject to net leases.
Tenants reimburse the Partnership for common area maintenance and certain other
expenses incurred.
Property/Depreciation
All property is stated at the lower of cost or estimated net realizable value.
Buildings are depreciated on a straight-line basis over the estimated useful
life of 33 years. Capitalized building improvements and personal property are
depreciated using an accelerated method over 15 years and 7 years, respectively.
Repairs and maintenance costs are expensed as incurred.
New Market Square Shopping Center
Subsequent to December 31, 1995, the New Market Square Shopping Center land,
building, and personal property were sold to an unrelated party. These assets
and related mortgage liability have been segregated in the balance sheets
presented, and certain amounts in the balance sheet as of December 31, 1994,
have been reclassified to conform to the 1995 presentation.
17
<PAGE>
Deferred Costs
Financing costs have been capitalized and are amortized over the term of the
related mortgage. Organization costs are amortized over 5 years. Leasing
commissions are capitalized and amortized over their respective lease terms.
Syndication and Offering Costs
Fees related to the sale of limited partnership units were charged against
partners' equity. These fees included various legal and accounting services and
sales commissions.
Income Taxes
Under current income tax laws, income or loss of the Partnership is included in
the income tax returns of the partners. Accordingly, no provision has been made
for federal or state income taxes in the accompanying financial statements. The
tax returns of the Partnership are subject to examination by federal and state
taxing authorities. If such examinations occur and result in changes with
respect to the partnership qualification or in changes to partnership income or
loss, the tax liability of the partners would be changed accordingly.
Estimates
The preparation of the 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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Per Unit Amounts
Net loss allocated per limited partnership unit was determined based on the
average number of units outstanding during the year (333,577 units in 1995, 1994
and 1993).
2. Investments in Shopping Centers:
The investments in shopping centers (excluding New Market Square - see Note 5)
include the following:
<TABLE>
<CAPTION>
Approximate
Square Feet
Shopping Center Name Location Rental Space
<S> <C> <C>
Cape Henry Plaza Virginia Beach, Virginia 50,000
Plaza West Raleigh, North Carolina 63,800
</TABLE>
Approximately 30% of rental revenue at these two properties is derived from two
anchor tenants for which leases extend to 2006. Annual base rental revenue from
these two major tenants was approximately $143,000 and $178,000, respectively.
18
<PAGE>
The following is a schedule of minimum future rentals on noncancellable
operating leases, excluding reimbursement of operating expenses and contingent
rent, in effect as of December 31, 1995 (excluding New Market Square - see Note
5):
<TABLE>
<S> <C>
1996 $ 805,000
1997 708,000
1998 662,000
1999 614,000
2000 609,000
Thereafter 2,676,000
------------
$6,074,000
</TABLE>
3. Mortgage Loans Payable:
Mortgage loans payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Mortgage loan payable to a financial institution, secured by Cape
Henry Plaza assets; interest at 9.25% payable monthly through
August 1993; thereafter, principal and interest at 9.25% payable
in monthly installments of $29,370, with outstanding balance due
August 1998. Prepayment penalty is the greater of 1% of
outstanding principal balance or an amount calculated based on
annual yield of U.S. Government Securities, as defined.
$ 3,512,408 $ 3,538,612
Mortgage loan payable to a financial institution, secured by Plaza
West assets; interest at 9.25% payable monthly through August
1993; thereafter, principal and interest at 9.25% payable in
monthly installments of $28,588 , with outstanding balance due
August 1998. Prepayment penalty is the greater of 1% of
outstanding principal balance or an amount calculated based on
annual yield of U.S. Government Securities, as defined.
3,418,940 3,444,448
Mortgage loan payable to a financial institution, secured by New
Market Square assets; interest at 8.5% through May 1993, 8.25%
through May 1995, then 9%, paid monthly through June 1993;
effective July 1993, principal and interest payable in monthly
installments of $58,000. Note was subsequently retired February
1996.
5,865,763 6,077,515
$ 12,797,111 $ 13,060,575
</TABLE>
19
<PAGE>
Scheduled principal payments on mortgage loans are as follows. For purposes of
this schedule, the entire balance of the mortgage loan payable related to New
Market Square has been classified as due in 1996.
<TABLE>
<S> <C>
1996 $ 5,922,467
1997 62,178
1998 6,812,466
------------
$12,797,111
</TABLE>
4. Transactions with Affiliates:
In April 1994, Boddie Investment Company (BIC) purchased and redeemed Tom G.
Thornburg's interests in BT Venture Partners (BTVP, the former general partner),
BT Venture Corporation (BTVC, the former management agent) and other related
entities. Mr. Thornburg had served as managing general partner of BTVP and as
president of BTVC. In conjunction with this transaction, BIC became the general
partner of the Partnership effective April 14, 1994, and all amounts due to BTVP
were assigned to BIC as of that date. On October 1, 1994, BTVC was acquired by
and merged into Boddie-Noell Properties, Inc. (BNP), a publicly held real estate
investment trust. Certain officers and directors of BIC, the general partner,
are also officers and directors of BNP. Prior to its merger into BNP, BTVC
assigned all amounts receivable from the Partnership to BIC. BNP assumed BTVC's
rights as the management agent at the merger date. In June 1995, BNP transferred
rights as the management agent to its subsidiary, BNP Management, Inc. In 1993,
the Partnership paid certain costs which were determined to be reimbursed by
BTVP. The outstanding receivable balance was $20,000 at December 31, 1993. These
costs were repaid during 1994. During 1995, BIC made advances to NMS for
operating shortfalls totaling $79,000. Such advances accrue interest at a prime
rate (8.5% at December 31, 1995). During 1995, the Partnership recorded interest
expense related to these advances totaling approximately $1,900. The Partnership
is charged a property management fee of 3% of gross collections, as defined. In
addition, the management agents allocated certain costs to the Partnership
totaling $12,000 in 1995, 1994 and 1993. Operating expenses paid on behalf of
the Partnership are reimbursed on a monthly basis.
5. New Market Square Limited Partnership:
In February 1992, NMS filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code. This action was taken after negotiations for
refinancing of NMS's mortgage loan payable of $6,400,000 failed and alternative
financing could not be obtained. NMS received court approval to continue normal
operations.
20
<PAGE>
In May 1993, NMS successfully completed its restructuring of the mortgage loan
payable with the lender and emerged from bankruptcy. Terms of the modified
mortgage loan are described in Note 3 above. In addition, the principal balance
was increased to $6,425,000, with the $25,000 increase representing legal fees
incurred to restructure the mortgage note. In May 1993, a $100,000 principal
payment was made. During August 1994, a major tenant at NMS, Roses' Inc.,
renounced its lease pursuant to its Chapter 11 bankruptcy filing, vacated the
rental space and ceased making rental payments. Roses' filed a claim against the
Partnership in the amount of $45,743 for rent which it claims was paid
improperly after the filing of its bankruptcy petition. In February 1995, the
Company paid Roses' $20,000 in settlement of the claim for payment of post
petition rent. In addition, the Company settled and sold its claim against
Roses', for unpaid future rent for the net amount of $82,000, with proceeds paid
to the mortgage lender applied against principal and interest in arrears.
Subsequent to Roses' vacating NMS, NMS was unable to fund the required debt
service on the mortgage loan secured by NMS assets. As a result, the lender and
general partner entered into a forbearance agreement under which NMS assets paid
the lender net cash flow, as defined, of NMS in lieu of the principal and
interest requirement of the original note. In June 1995, the forbearance
agreement was terminated and the NMS mortgage loan was brought current by using
substantially all of the Partnership's cash reserves. New Market Square Shopping
Center was subsequently sold to an unrelated third party on February 8, 1996,
for a contract price of $6,558,000. Estimated direct costs of the sale total
approximately $195,000. Carrying value of these assets was as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Land $1,459,445 $1,459,445
Buildings and improvements 7,018,876 7,018,876
Personal Property 33,134 33,134
------------- --------------
8,511,455 8,511,455
Less - Accumulated depreciation (1,637,925) (1,423,271)
Reserve for writedown to net realizable value (510,000) 0
============= ==============
$6,363,530 $7,088,184
</TABLE>
21
<PAGE>
Results of operations of New Market Square were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenue-
Rental revenue $ 638,953 $ 833,447 $ 900,807
Net proceeds, sale of Roses' claim 82,049 0 0
Interest and other 3,302 1,418 3,247
------------- ------------- -------------
724,304 834,865 904,054
Expenses-
Property operations 84,944 84,207 75,941
General and administrative 24,169 16,613 75,707
Property taxes and insurance 72,253 72,639 73,849
Property management fees 21,369 25,844 26,911
Depreciation 214,654 215,209 214,951
Amortization 12,690 12,700 6,354
Interest 510,427 505,180 528,955
Provision for estimated loss on sale of New Market
Square Shopping Center 510,000 0 0
============= ============= =============
$(726,202) $ (97,527) $ (98,614)
</TABLE>
22
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Costs
Description Encumb. Initial Costs Capitalized
Buildings & Subsequent
Land Improvem'ts to Acquisition Land
<S> <C> <C> <C> <C> <C>
Cape Henry Plaza Shopping
Center, Virginia Beach, VA $ 3,512,408 $ 1,140,332 $ 3,596,694 $ 16,08$ $ 1,021,855
Plaza West Shopping Center,
Raleigh, NC 3,418,940 1,422,557 3,307,336 80,490 1,072,779
New Market Square Shopping
Center, Burlington, NC 5,865,763 1,472,030 7,050,809 71,593 1,459,445
=====================================================================================
$12,797,111 $ 4,034,919 $ 13,954,839 $ 168,163 $ 3,554,079
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
Buildings & Accumulated Date of Date Life
Improvem'ts Total Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C> <C> <C>
Cape Henry Plaza Shopping
Center, Virginia Beach, VA $ 3,242,342 $ 4,264,197 $ 801,380 n/a May-88 33
Plaza West Shopping Center,
Raleigh, NC 2,559,490 3,632,269 718,969 n/a May-88 33
New Market Square Shopping
Center, Burlington, NC 7,052,010 8,511,455 2,147,925 n/a May-88 33
=====================================================
$ 12,853,842 $ 16,407,921 $ 3,668,274
=====================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year $ 16,407,921 $ 16,407,921 $ 16,397,921
Additions during year
Acquisitions by merger
- - -
Other acquisitions
- - -
Improvements, etc.
- - 10,000
Deductions during year
- - -
====================================================
Balance at close of year $ 16,407,921 $ 16,407,921 $ 16,407,921
====================================================
Accumulated depreciation:
Balance at beginning of year $ 2,766,086 $ 2,372,828 $ 1,979,206
Reserve for depreciation
392,188 393,258 393,622
Reserve for write-down to
estimated net realizable value
510,000 - -
Deductions during year
- - -
====================================================
Balance at close of year $ 3,668,274 $ 2,766,086 $ 2,372,828
====================================================
</TABLE>
Note: There are no significant differences in aggregate cost for financial
reporting purposes and Federal income tax purposes.
23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
<S> <C> <C>
2* Plan for Reorganization and Disclosure Statement, a Motion seeking
authority to make post-petition expenditures and certain other
related filings (filed as Exhibit 29(e) to the Partnership 8-K
filing dated February 14, 1992, and incorporated herein by
reference)
4* Retail Equity Partners Limited Partnership Agreement of Limited
Partnership (filed as Exhibit 4 to the Partnership's Registration
Statement (File No. 33-15427) on Form S-11 and incorporated herein
by reference)
27 Financial Data Schedule (electronic filing) 25
</TABLE>
* Incorporated herein by reference
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Retail Equity
Partners Limited Partnership financial statements as of and for the year ended
December 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,467
<SECURITIES> 0
<RECEIVABLES> 120,583
<ALLOWANCES> (7,443)
<INVENTORY> 0
<CURRENT-ASSETS> 209,809
<PP&E> 16,407,921
<DEPRECIATION> (3,668,274)
<TOTAL-ASSETS> 13,029,394
<CURRENT-LIABILITIES> 200,032
<BONDS> 12,841,104
<COMMON> 0
0
0
<OTHER-SE> (11,742)
<TOTAL-LIABILITY-AND-EQUITY> 13,029,394
<SALES> 1,632,519
<TOTAL-REVENUES> 1,723,773
<CGS> 0
<TOTAL-COSTS> 801,135
<OTHER-EXPENSES> 597,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,153,806
<INCOME-PRETAX> (828,548)
<INCOME-TAX> 0
<INCOME-CONTINUING> (828,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (828,548)
<EPS-PRIMARY> (2.46)
<EPS-DILUTED> 0
</TABLE>
