UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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
incorporation or organization Identification No.)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
704/944-0100
(Registrant's telephone number)
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 whether the registrant has filed all documents and
reports required to be filed by Sections 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 ___
Total number of pages: 11
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TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
3 Quantitative and Qualitative Disclosures About Market Risk
11
PART II - Other Information
6 Exhibits and Reports on Form 8-K 11
2
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PART I - Financial Information
Item 1. Financial Statements.
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Net Liabilities in Liquidation
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 107,874 $ 112,719
Restricted cash - tenant security deposits 20,714 20,616
Accounts receivable, net 7,652 12,150
Prepaids and other assets 39,170 28,160
Property held for sale 2,865,958 3,540,500
------------------ ------------------
Total assets $ 3,041,368 $ 3,714,145
================== ==================
Liabilities
Deed of trust loans payable $ 3,317,769 $ 3,326,672
Deferred gain on real estate assets - 674,541
Trade accounts payable and accrued expenses 37,403 36,397
Prepaid rents and tenant security deposits 17,053 17,053
Reserve for estimated costs during period of liquidation 50,000 50,000
Contingent liability - environmental clean-up 250,000 -
------------------ ------------------
Total liabilities $ 3,672,225 $ 4,104,663
================== ==================
Net liabilities in liquidation $ (630,857) $ (390,518)
================== ==================
</TABLE>
3
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Operations in Liquidation for the Three Months Ended March 31, 1999
and Statement of Operations for the Three Months Ended March 31, 1998
(Unaudited)
Three months ended
March 31
1999 1998
----------------- ----------------
Revenues
Rental revenue $ 128,556 $257,331
Interest and other income 3,710 1,431
----------------- ----------------
132,266 258,762
Expenses
Property operations 9,772 22,671
General and administrative 6,481 8,761
Property taxes and insurance 11,204 26,142
Management fees 9,990 13,969
Amortization - 4,803
Interest 85,158 157,412
Provision for environmental
clean-up costs 250,000 -
----------------- ----------------
372,605 233,758
----------------- ----------------
Net income (loss) (240,339) $ 25,004
================
Deficiency in assets,
beginning of year (390,518)
-----------------
Net liabilities in liquidation $(630,857)
=================
Allocation of
net income (loss):
Limited partners (99%) $(237,936) $ 24,754
================= ================
General partner (1%) $ (2,403) $ 250
================= ================
Net income (loss) per
limited partnership unit $ (0.71) $ 0.07
================= ================
Weighted average number of
limited partnership units
outstanding 333,577 333,577
================= ================
4
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Changes in Net Liabilities in Liquidation
(Unaudited)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Net liabilities in liquidation at December 31, 1998 $(327,433) $(63,085) $(390,518)
Net loss (237,936) (2,403) (240,339
--------------- --------------- ---------------
Net liabilities in liquidation at March 31, 1999 $(565,369) $(65,488) $(630,857)
=============== =============== ===============
</TABLE>
5
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
----------------- ----------------
<S> <C> <C>
Operating activities:
Net income (loss) $(240,339) $ 25,004
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Provision for environmental clean-up costs 250,000 -
Amortization - 4,803
Changes in operating assets and liabilities:
Rent and other receivables 4,498 9,620
Prepaid expenses and other assets (11,009) (22,371)
Accounts payable and accrued expenses 1,006 25,296
Security deposits and deferred revenue (98) (832)
----------------- ----------------
Net cash provided by operating activities 4,058 41,520
Financing activities:
Principal payments on notes payable (8,903) (16,461)
----------------- ----------------
Increase (decrease) in cash and cash equivalents (4,845) 25,059
Cash and cash equivalents at beginning of period 112,719 76,863
----------------- ----------------
Cash and cash equivalents at end of period $ 107,874 $ 101,922
================= ================
</TABLE>
6
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Notes to Financial Statements - March 31, 1999
(Unaudited)
Note 1. Interim financial statements
Our independent accountants have not audited the accompanying financial
statements of Retail Equity Partners Limited Partnership (the "Partnership"),
except for the statement of net liabilities in liquidation at December 31, 1998.
We derived the amounts in the statement of net liabilities in liquidation at
December 31, 1998, from the financial statements included in our 1998 Annual
Report on Form 10-K. We believe that all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included.
We have condensed or omitted certain notes and other information from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
You should read these financial statements in conjunction with our 1998 Annual
Report on Form 10-K.
Note 2. Cape Henry Plaza Shopping Center
The Cape Henry Plaza Shopping Center property was sold to an unrelated third
party in September 1998. The statement of operations for the three months ended
March 31, 1998, includes the operations of Cape Henry Plaza.
Results of operations of Cape Henry Plaza for this period were as follows:
Rental revenue $130,854
Property operations, taxes and insurance 26,314
General and administrative 1,834
Management fees 4,149
Amortization 2,529
Interest 79,767
--------------------
114,593
--------------------
$ 16,261
====================
Note 3. Plaza West Shopping Center
In April 1999, the general partner entered into a contract for sale of Plaza
West Shopping Center that subsequently failed. A deferred gain on this
anticipated sale was recorded at December 31, 1998, and was reversed as of March
31, 1999. The Partnership has recorded a contingent liability for possible costs
of remediation of soil contamination immediately adjacent to a dry cleaning
facility at Plaza West Shopping Center.
The Partnership's deed of trust loan secured by Plaza West has been extended to
July 1999. The general partner can offer no assurance that, at that date,
additional extensions or replacement financing will be obtainable. Assuming that
a sale of Plaza West is completed by June 1999, the general partner intends to
liquidate the Partnership by the end of 1999. If the Partnership is not able to
obtain an additional extension of its loan maturity, it will be unable to
continue its normal operations, and will be required to file bankruptcy.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Although we believe that
our plans, intentions, and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will
achieve our plans, intentions or expectations. Such statements are subject to
various risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors identified in our Annual
Report on Form 10-K for the year ending December 31, 1998. You should read the
following discussion in conjunction with the financial statements and notes
thereto included in this Quarterly Report and our Annual Report on Form 10-K.
Partnership Profile
Retail Equity Partners Limited Partnership is a North Carolina limited
partnership formed in 1987 to acquire, hold, operate and manage three
neighborhood shopping centers. In February 1996, one of the shopping centers was
sold to an unrelated party.
In January 1998, the two remaining shopping center properties were listed
for sale. In June 1998, the partners approved a plan to sell the Partnership's
properties and subsequently liquidate the Partnership. In September 1998, Cape
Henry Plaza Shopping Center was sold to an unrelated party.
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.
We are not aware of any secondary market for the Partnership's securities. There
is currently no established fair market value for the BACs.
Results of Operations
The statement of operations for the three months ended March 31, 1998,
includes the operations of Cape Henry Plaza Shopping Center.
Summary operating results of Plaza West Shopping Center are as follows:
Three months ended
March 31
1999 1998
-------------- --------------
Revenues $128,556 $126,477
Property operations, taxes and insurance 20,976 22,499
General and administrative 6,481 6,927
Management fees 9,990 9,820
8
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Three months ended
March 31
1999 1998
-------------- --------------
Amortization - 2,274
Interest 85,158 77,645
-------------- --------------
Total operating expenses 122,605 119,165
-------------- --------------
$ 5,951 $ 7,312
============== ==============
Operating revenues and expenses were generally consistent in the first
quarter of 1999 compared to the first quarter of 1998. For the first quarter of
1999, interest expense includes approximately $8,000 extension fees.
Capital Resources and Liquidity
Plaza West continues to generate nominal positive cash flow from
operations. The Partnership currently generates sufficient cash flow to meet its
immediate operating needs. However, any adverse development, such as the loss of
a major tenant, the loss of multiple smaller tenants, or the failure of a
significant tenant to pay rent, could create a material deficiency in the
Partnership's short-term liquidity. In addition, the Partnership may not
generate sufficient cash flow to make significant repairs, improvements or
modifications to the center, if such needs arise.
In April 1999, the general partner entered into a contract for sale of
Plaza West Shopping Center that subsequently failed. A deferred gain on this
anticipated sale was recorded at December 31, 1998, and was reversed as of March
31, 1999.
The Partnership has recorded a contingent liability for possible costs of
remediation of soil contamination at Plaza West Shopping Center. Environmental
tests completed in November 1998 indicated that contamination is limited to the
soil immediately around the dry cleaner. No off-site contamination of soil or
water was found. We have notified all appropriate regulatory agencies, and we
are currently pursuing a claim to hold the dry cleaner responsible for
remediation. Environmental engineers estimated the cost of remediation at
between $80,000 and $250,000.
The Partnership's deed of trust loan secured by Plaza West has been
extended to July 1999. The general partner can offer no assurance that, at that
date, additional extensions or replacement financing will be obtainable.
The Partnership has put Plaza West back on the market for sale. While
there have been several indications of interest in the center, to date the
Partnership has not received any offers for purchase of the property. There can
be no assurance that the Partnership will receive an acceptable offer for the
property.
Assuming that a sale of Plaza West is completed by June 1999, the general
partner intends to repay the existing loan and liquidate the Partnership by the
end of 1999. If the property has not been sold by the maturity date of the loan
and the Partnership is not able to obtain an additional extension of its loan
maturity, it will be unable to continue its normal operations, and will be
required to file bankruptcy.
9
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Year 2000 Issue
The Year 2000 issue refers to the inability of certain computer systems to
accurately store and use dates after 1999. This could result in a system failure
or miscalculation that could cause disruption of operations.
We do not believe that the Year 2000 issue will have a material effect on
the business of the Partnership, the results of its operations, cash flows or
its financial condition. This belief is based on the following:
o Assuming a sale of Plaza West is completed by June 1999, the general
partner intends to liquidate the Partnership by the end of 1999.
o The Partnership's sole asset is Plaza West shopping center, a single story
"strip" center that does not contain any elevators, escalators or computer
controlled mechanical systems. Neither the Partnership nor Plaza West owns
or operates any computer systems.
o The Partnership's property management agent has identified other systems,
such as telecommunications, security, HVAC, fire and safety systems, for
which it is responsible and which may contain embedded technology that
could raise Year 2000 issues. Based on the management agent's knowledge of
our property and systems and the results of inquiries to the manufacturers
and servicing agents of such systems, we do not believe the Year 2000 issue
will impact these systems. It is important to note that the leases at Plaza
West make the tenants responsible for the maintenance of such systems
within or servicing their leasehold spaces.
o Certain third-party vendors provide services to the Partnership or its
property. These vendors include suppliers of building-related products and
services (landscaping and trash removal), utilities and banking. Based on
our management agent's inquiries of utility providers, significant vendors
and service providers, and bank, we do not believe the Year 2000 issue will
have a material impact on the Partnership's operating results, cash flows
or financial condition.
o The Partnership's management agent provides property management and
administration of the Partnership. The management agent has represented to
the Partnership that all of the computer systems, hardware and software,
used in providing these services are Year 2000 compliant.
To date there has been no indication that any significant Year 2000 issues
must be resolved. We currently have not formalized a contingency plan in the
event that we or a significant third-party supplier do not resolve any material
Year 2000 issues that may arise. We will review our status on a quarterly basis
to determine if such a plan is necessary.
Various of our disclosures and announcements concerning our Year 2000
programs are intended to constitute "Year 2000 Readiness Disclosures" as defined
in the recently enacted Year 2000 Information and Readiness Disclosure Act. The
Act provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection
10
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from liability for certain types of Year 2000 disclosures made after January 1,
1996, and before the date of enactment of the Act.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require the recognition of all derivatives on an entity's balance sheet at
fair value. We do not anticipate that the adoption of this Statement will have a
material impact on the Partnership's results of operations or financial
position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information that would be provided
under Item 305 of Regulation S-K since December 31, 1998.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 Financial data schedule (electronic filing)
b) None
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.
RETAIL EQUITY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: Boddie Investment Company
General Partner
May 13, 1999 /s/ Philip S. Payne
----------------------------------------
Philip S. Payne
(Duly authorized officer)
11
<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 THREE MONTHS
ENDED MARCH 31, 1999, 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> 107,874
<SECURITIES> 0
<RECEIVABLES> 7,652
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 175,410
<PP&E> 2,865,958
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,041,368
<CURRENT-LIABILITIES> 54,456
<BONDS> 3,317,769
0
0
<COMMON> 0
<OTHER-SE> (630,857)
<TOTAL-LIABILITY-AND-EQUITY> 3,041,368
<SALES> 0
<TOTAL-REVENUES> 132,266
<CGS> 0
<TOTAL-COSTS> 20,976
<OTHER-EXPENSES> 266,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,158
<INCOME-PRETAX> (240,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,339)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
