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, 1998or
[ ] 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)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/944-0100
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 this 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 22, 1999, 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
1
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
<S> <C> <C>
PART I
1 Business 3
2 Properties 3
3 Legal Proceedings 4
4 Submission of Matters to a Vote of Security Holders 4
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 4
6 Selected Financial Data 4
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
7A Quantitative and Qualitative Disclosures About Market Risk 8
8 Financial Statements and Supplementary Data 8
9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 8
PART III
10 Directors and Executive Officers of the Registrant 8
11 Executive Compensation 9
12 Security Ownership of Certain Beneficial Owners and
Management 9
13 Certain Relationships and Related Transactions 9
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 10
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
Retail Equity Partners Limited Partnership (the "Partnership") is a North
Carolina limited partnership, which was organized in 1987 for the purpose of
acquiring, holding, operating and managing 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, and 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 New
Market Square Limited Partnership ("NMS"), a newly formed partnership. The
Partnership was the sole general partner holding a 99.99% 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 to
refinance New Market Square's mortgage loan payable failed and alternative
financing could not be obtained. In May 1993, NMS successfully completed
restructuring of the mortgage loan payable with the lender and emerged from
bankruptcy,
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
a net loss on sale of $499,000. NMS was dissolved in 1996.
In September 1998, the Cape Henry Plaza land, building and personal property
were sold to an unrelated party for a contract price of $3,900,000, resulting in
a net gain on sale of $515,000.
Plaza West has been listed for sale since January 1998. The general partner
entered into a contract for sale of the property in 1998 that failed. In April
1999, the general partner entered into another contract for sale of this center
in the near future.
Partnership Business. Rental revenue is derived from the leasing of shopping
center space, subject to net leases. Tenants reimburse the Partnership for
substantially all common area maintenance and certain other costs incurred.
Historically, a significant portion of rental revenue has been derived from
anchor tenants. Major tenants (those leasing greater than 10% of total leasable
space) at December 31, 1998, are as follows:
Base Rental Lease
Tenant Shopping Center Square Feet Revenue Expires
- --------------------------------------------------------------------------------
Harris Teeter Plaza West 25,000 $ 143,000 2006
Big Ape Gym Plaza West 12,450 70,000 2001
The Partnership has no employees.
ITEM 2. PROPERTIES
Plaza West is a neighborhood shopping center, and is held subject to a loan. The
center was constructed in 1986 and acquired by the Partnership in May 1988.
Plaza West is located in Raleigh, North Carolina, and has approximately 63,800
square feet of rental space. The center has been at or near 100% occupancy from
1996 through 1998.
3
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Partnership was not a party to any material pending legal proceedings.
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 1998.
PART II
ITEM 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.
The Partnership made distributions to limited partners of $356,000 in 1998 and
$298,000 in 1996. These distributions consisted entirely of return of capital,
and were funded from the net proceeds of the sales of shopping centers, less
amounts required to maintain adequate operating reserves. No distributions were
made in 1997.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31
1998 (1) 1997 1996 (2) 1995 (3) 1994
- -------------------------------------- -------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Data
Rental revenue $ 911,028 $1,032,474 $1,095,417 $ 1,632,519 $ 1,767,669
Net income (loss) 552,573 (76,500) (150,488) (828,548) (269,830)
Net income (loss) per BAC 1.64 (0.23) (0.45) (2.46) (0.80)
Distributions per BAC (4) .00 .00 .00 .00 .00
Balance Sheet Data (at year end)
Total assets 3,714,145 6,348,223 6,490,838 13,029,394 14,116,654
Notes payable 3,326,672 6,812,467 6,874,644 12,797,111 13,060,575
<FN>
(1) Cape Henry Plaza shopping center was sold to an unrelated third party in
September 1998.
(2) New Market Square shopping center was sold to an unrelated third party in
February 1996.
(3) 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.
(4) Cash distributions to limited partners have consisted entirely of return of
capital.
</FN>
</TABLE>
4
<PAGE>
ITEM 7. 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. When you
consider such forward-looking statements, you should keep in mind the following
important factors that could cause our actual results to differ materially from
those contained in any forward-looking statement:
-our markets could suffer unexpected increases in the development of other
rental alternatives;
-general economic conditions could cause the financial condition of a large
number of our tenants to deteriorate;
-we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
-we may not be able to lease or re-lease space quickly or on as favorable
terms as under existing leases;
-we may have incorrectly assessed the environmental condition of our
properties;
-an unexpected increase in interest rates could increase our debt service
costs;
-we may not be able to meet our long-term liquidity requirements on
favorable terms;
-we could lose key executive officers; and
-our concentrated markets may suffer an unexpected decline in economic
growth or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly release the
results of any revision to these forward-looking statements that may be made to
reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
You should read the discussion in conjunction with the financial statements and
notes thereto included in this Annual Report.
Results of Operations
Revenues. Rental revenues in 1998 decreased by 12% from 1997, primarily
attributable to the sale of Cape Henry Plaza in September 1998. Rental revenues
in 1997 decreased by 6% from 1996, primarily attributable to the sale of New
Market Square in February 1996. Monthly revenues at Plaza West and Cape Henry
Plaza were generally consistent in 1998, 1997 and 1996, and occupancy levels
remained consistently high throughout the three years.
In September 1998, Cape Henry Plaza was sold to an unrelated third party for a
contract price of $3,900,000. The Partnership recorded a net gain of $515,000
related to this sale.
In late December 1995, the Partnership entered into an agreement to sell New
Market Square Shopping Center that was completed in February 1996. In
conjunction with this sale, the Partnership recorded a provision of $510,000
5
<PAGE>
in 1995 (subsequently reduced by $11,000 in 1996) to reduce the recorded net
book value of New Market Square assets to estimated net realizable value.
Expenses. Decreases in operating expenses in 1998 compared to 1997, and in 1997
compared to 1996, generally reflect the impact of the sales of shopping centers.
For Plaza West, and for Cape Henry prior to its sale, operating expenses were
consistent in 1998 and 1997. For these two centers, owned throughout 1997 and
1996, operating expenses decreased by 10% in 1997 compared to 1996, primarily
due to repairs at Plaza West in 1996.
In January 1998, both Plaza West and Cape Henry Plaza were listed for sale. In
accordance with generally accepted accounting principles, no depreciation is
recorded on assets held for sale. Depreciation was generally unchanged in 1997
compared to 1996.
Previously deferred loan costs related to Plaza West and Cape Henry Plaza became
fully amortized in July 1998. Otherwise, amortization charges for these loans
were unchanged in 1998, 1997 and 1996. The 1996 extraordinary item for loss on
extinguishment of debt relates to write-off of loan costs related to New Market
Square.
Decreases in interest expense in 1998 compared to 1997, and in 1997 compared to
1996, were again attributable to the sales of shopping centers.
Liquidity and Capital Resources
Plaza West continues to generate nominal positive cash flow from operations, and
the Partnership currently generates sufficient cash flow to meet its immediate
operating needs. However, any adverse development could create a material
deficiency in the Partnership's short-term liquidity.
In August 1998, Phase I environmental tests performed at Plaza West shopping
center revealed a small amount of dry cleaning fluid in the soil immediately
adjacent to the dry cleaning facility at that property. Phase II and Phase III
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 the dry cleaner. We are currently pursuing a claim to
hold the dry cleaner responsible for remediation.
The environmental engineers have recommended that remediation be "natural
attenuation" (continue to monitor and allow the problem to resolve over time).
The estimated cost of natural attenuation, as recommended, is approximately
$80,000. If corrective remediation becomes necessary, the estimated cost of such
remediation is approximately $250,000.
In April 1999, the general partner entered into a contract for sale of Plaza
West for approximately $3.6 million, an amount that exceeds the deed of trust
loan related to the property. Because the transaction is not closed at this time
the amount of the gain that may ultimately be realized of approximately
$675,000, which is net of sales costs of approximately $109,500, is included in
the financial statements as a deferred gain as an adjustment in liquidation at
December 31, 1998. Under the terms of this contract, the buyer will take the
property subject to the environmental issues identified above.
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 additional extensions
or replacement financing will be obtainable.
Assuming that the 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.
6
<PAGE>
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:
-In April 1999, the Partnership entered into a contract for sale of Plaza
West. Consummation of the sale will result in dissolution of the
Partnership. Assuming the sale of Plaza West is completed by June 1999, the
general partner intends to liquidate the Partnership by the end of 1999.
-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.
-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.
-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
inquiries by our management agent 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.
-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 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 our results of operations or financial position.
7
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The assets of Plaza West shopping center collateralize the Partnership's sole
note payable. This loan matured in August 1998 but has been extended to July
1999. Principal and interest at 9.25% are payable in monthly installments of
$28,588. The recorded value of this financial instrument approximates fair
value.
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 Annual Report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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.
BIC, the general partner, 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 69, President of BIC, together with his brother, Nicholas B.
Boddie, and their late uncle, Carleton Noell, founded Boddie-Noell Enterprises,
Inc. ("Enterprises") in 1961. Enterprises, 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. Enterprises owns and
operates approximately 365 Hardee's Restaurants. B. Mayo Boddie is chairman of
the board of Enterprises. Mr. Boddie serves as a director of First Union
National Bank of North Carolina. He attended the University of North Carolina at
Chapel Hill.
Nicholas B. Boddie, age 71, a Vice President of BIC, is vice chairman and a
director of Enterprises. He is a director of First Union National Bank of Rocky
Mount. Mr. Boddie attended the University of North Carolina at Chapel Hill.
Douglas E. Anderson, age 51, a Vice President and Secretary of BIC, has been
with Enterprises since 1977 and is currently executive vice president, secretary
and a director of that company. Mr. Anderson is also president of BNE Land and
Development Company, a division of Enterprises, and is Vice President of
Boddie-Noell Properties, Inc., a real estate investment trust traded on the
American Stock Exchange. He serves as a director of Wachovia Bank of Rocky
Mount, North Carolina. He presently serves on the Executive Committee for the
UNC Educational Foundation at Chapel Hill. Mr. Anderson holds a BS degree from
the University of North Carolina at Chapel Hill.
W. Craig Worthy, age 46, Treasurer of BIC, has been with Enterprises since 1979
and is currently senior vice president and chief financial officer of that
company. He serves as a director of First Union National 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.
8
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
During the year ended December 31, 1998, the Partnership paid no compensation to
the general partner or to the executive officers, directors or partners of its
affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are no BAC owners with a 5 percent or greater ownership interest.
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.
BNP Management, Inc. is engaged by the Partnership to provide management and
certain leasing services for its shopping centers. Certain officers and
directors of BIC are also officers and directors of BNP Management, Inc.
Management and partnership administration fees totaling approximately $52,000
were paid to BNP Management, Inc. during 1998. In addition, the Partnership
reimbursed BNP Management, Inc. for certain administrative costs in the amount
of approximately $10,500.
The general partner, subject to audit by independent public accountants,
maintains the books and records of the Partnership. Purchasers of BACs have no
right to participate in the management of the Partnership. It is not intended
that there will be annual meetings of investors.
The Partnership relies on BIC and BNP Management, Inc. for day-to-day
management. BIC and BNP Management, Inc. believe they have sufficient personnel
to be fully capable of discharging their responsibility to all partnerships or
groups to which they are responsible. BIC and BNP Management, Inc. have
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 they may organize. The partners, officers, and
directors of BIC and BNP Management, Inc. 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.
9
<PAGE>
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 Auditors 12
Statement of Net Liabilities in Liquidation as of December 31, 1998 and
Balance Sheet as of December 31, 1997 13
Statement of Operations in Liquidation for the Year Ended December 31, 1998
and Statements of Operations for the Years Ended December 31,1997 and 1996 14
Statement of Changes in Net Liabilities in Liquidation for the Year Ended
December 31, 1998 and Statements of Partners' Deficit for the Years Ended
December 31,1997 and 1996 15
Statement of Cash Flows in Liquidation for the Year Ended December 31, 1998
and Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 16
Notes to Financial Statements 17
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 23
</TABLE>
The financial statements and schedule are filed as part of this Annual 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.
27 Financial Data Schedule (electronic filing)
(b) Reports on Form 8-K:
None
10
<PAGE>
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
April 15, 1999 /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 April 15, 1999
- ---------------------------------
B. Mayo Boddie
/s/ Nicholas B. Boddie Director April 15, 1999
- ---------------------------------
Nicholas B. Boddie
11
<PAGE>
Report of Independent Auditors
To the Partners of
Retail Equity Partners Limited Partnership
We have audited the accompanying statement of net liabilities in liquidation of
Retail Equity Partners Limited Partnership as of December 31, 1998, and the
related statement of operations in liquidation, changes in net liabilities in
liquidation and cash flows in liquidation for the year then ended. In addition,
we have audited the accompanying balance sheet of Retail Equity Partners Limited
Partnership as of December 31, 1997, and the related statements of operations,
changes in partners' deficit and cash flows for each of the two years in the
period ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the partnership's management. 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
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the partners of Retail
Equity Partners Limited Partnership approved, subject to certain conditions, the
sale of the Partnership's assets and the liquidation of the Partnership. As a
result, the Partnership has changed its basis of accounting from the
going-concern basis to the liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net liabilities in liquidation of Retail Equity
Partners Limited Partnership as of December 31, 1998, and the related statements
of operations in liquidation, changes in net liabilities in liquidation and cash
flows in liquidation for the year then ended and the financial position of
Retail Equity Partners Limited Partnership as of December 31, 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 12, 1999, except for Notes 1 and 7
as to which the date is April 9, 1999
12
<PAGE>
Retail Equity Partners Limited Partnership
Statement of Net Liabilities in Liquidation as of December 31, 1998 and
Balance Sheet as of December 31, 1997
<TABLE>
<CAPTION>
December 31
1998 1997
------------------ -------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 112,719 $ 76,863
Restricted cash - tenant security deposits 20,616 22,243
Accounts receivable 12,150 51,621
Prepaids and other assets 28,160 30,154
Deferred cost, net of amortization of $182,142 in 1997 - 9,800
Property held for sale 3,540,500 6,157,542
------------------ -------------------
Total assets $ 3,714,145 $ 6,348,223
================== ===================
Liabilities and partners' deficit
Mortgage loans payable $ 3,326,672 $ 6,812,467
Deferred gain on real estate assets 674,541 -
Reserve for estimated costs during the period
of liquidation 50,000 -
Trade accounts payable and accrued expenses 36,397 52,522
Prepaid rents and tenant security deposits 17,053 19,949
------------------ -------------------
Total liabilities 4,104,663 6,884,938
Partners' deficit:
Limited partners - (468,604)
General partner - (68,111)
------------------ -------------------
Total partners' deficit - (536,715)
------------------ -------------------
Total liabilities and partners' deficit $ 4,104,663 $ 6,348,223
================== ===================
Net liabilities in liquidation $ (390,518)
==================
</TABLE>
See accompanying notes.
13
<PAGE>
Retail Equity Partners Limited Partnership
Statement of Operations in Liquidation for the Year Ended December 31, 1998
and Statements of Operations for the Year Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
------------------- ------------------ ------------------
<S> <C> <C> <C>
Revenue:
Rental revenue $ 911,028 $ 1,032,474 $ 1,095,417
Interest 10,926 9,205 12,934
Gain on sale of Cape Henry Shopping Center 515,401 - -
------------------- ------------------ ------------------
1,437,355 1,041,679 1,108,351
Expenses:
Property operations 81,624 91,533 153,514
General and administrative 85,028 39,226 31,841
Property taxes and insurance 87,140 98,482 101,743
Management fees 52,416 55,302 58,682
Depreciation - 181,610 177,400
Amortization 9,800 19,194 20,782
Interest 568,774 632,832 696,171
Provision for loss on sale of New Market Square Shopping
Center - - (11,457)
------------------- ------------------ ------------------
884,782 1,118,179 1,228,676
------------------- ------------------ ------------------
Income (loss) before extraordinary item 552,573 (76,500) (120,325)
Extraordinary item - loss on extinguishment of debt - - (30,163)
------------------- ------------------ ------------------
Net income (loss) $ 552,573 $ (76,500) $ (150,488)
================== ==================
Deficiency in assets, beginning of year (536,715)
Liquidating activities:
Adjustment to liquidation basis (50,000)
Distributions to limited partners (356,376)
-------------------
Net liabilities in liquidation $ (390,518)
===================
Net income (loss) allocated to limited partners (99%) $ 547,047 $ (75,735) $ (148,983)
=================== ================== ==================
Net income (loss) allocated to general partner (1%) $ 5,526 $ (765) $ (1,505)
=================== ================== ==================
Net income (loss) per limited partnership unit $ 1.64 $ (0.23) $ (0.45)
=================== ================== ==================
Weighted average number of limited partnership units
outstanding 333,577 333,577 333,577
=================== ================== ==================
See accompanying notes.
</TABLE>
14
<PAGE>
Retail Equity Partners Limited Partnership
Statement of Changes in Net Liabilities in Liquidation for the Year Ended
December 31, 1998 and Statements of Partners' Deficit for the Years Ended
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------- ------------------ ------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 54,099 $ (65,841) $ (11,742)
Distribution to limited partners (297,985) - (297,985)
Net loss (148,983) (1,505) (150,488)
------------------- ------------------ ------------------
Balance at December 31, 1996 (392,869) (67,346) (460,215)
Net loss (75,735) (765) (76,500)
------------------- ------------------ ------------------
Balance at December 31, 1997 (468,604) (68,111) (536,715)
Distribution to limited partners (356,376) - (356,376)
Net income 547,047 5,526 552,573
Adjustment to liquidation basis (49,500) (500) (50,000)
------------------- ------------------ ------------------
Net Liabilities in Liquidation at December 31, 1998 $ (327,433) $ (63,085) $ (390,518)
=================== ================== ==================
</TABLE>
See accompanying notes.
15
<PAGE>
Retail Equity Partners Limited Partnership
Statement of Cash Flows in Liquidation for the Year Ended December 31, 1998 and
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ending December 31
1998 1997 1996
----------------- ------------------- -------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 552,573 $ (76,500) $ (150,488)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 9,800 200,804 198,182
Gain on sale of Cape Henry Shopping Center (515,401) - -
Adjustment to liquidation basis (50,000) - -
Extraordinary item - loss on early extinguishment of debt - - 30,163
Provision for loss on sale of New Market Square - - (11,457)
Changes in operating assets and liabilities:
Accounts receivable 39,471 12,304 49,215
Prepaids and other assets 1,994 (1,529) 7,468
Reserve for estimated costs during the period
of liquidation 50,000 - -
Trade accounts payable and accrued expenses (16,125) (470) (53,335)
Prepaid rent and tenant security deposits (1,269) (304) (3,147)
Accrued interest due to affiliates - - (1,846)
----------------- ------------------- -------------------
Net cash provided by operating activities 71,043 134,305 64,755
Investing activities
Proceeds from sale of shopping centers 3,806,984 - 6,363,400
Additions to shopping center properties - (114,705) (25,730)
----------------- ------------------- -------------------
Net cash provided by (used in) investing activities 3,806,984 (114,705) 6,337,670
Financing activities
Payments of long-term debt (3,485,795) (62,177) (5,922,467)
Distributions to limited partners (356,376) - (297,985)
Repayments to general partner - - (79,000)
----------------- ------------------- -------------------
Net cash used in financing activities (3,842,171) (62,177) (6,299,452)
----------------- ------------------- -------------------
Net increase (decrease) in cash and cash equivalents 35,856 (42,577) 102,973
Cash and cash equivalents at beginning of year 76,863 119,440 16,467
----------------- ------------------- -------------------
Cash and cash equivalents at end of year $ 112,719 $ 76,863 $ 119,440
================= =================== ===================
</TABLE>
See accompanying notes.
16
<PAGE>
Retail Equity Partners Limited Partnership
Notes to Financial Statements
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
Retail Equity Partners Limited Partnership (the "Partnership") is a North
Carolina limited partnership originally formed to acquire, hold, operate and
manage three neighborhood shopping centers. In 1998 and 1996, respectively, Cape
Henry Plaza Shopping Center and New Market Square Shopping Center were sold to
unrelated third parties (see Note 5). The financial statements include the
operating activities of these properties through their sale dates.
Under the terms of the partnership agreement, net income (loss) and cash
distributions from operations are allocated 99 percent to the limited partners
and 1 percent 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 percent to the limited partners and 10 percent to the general partner. Upon
the sale or refinancing of the Partnership property, the partnership agreement
specifies certain allocations of net proceeds.
Sale of Partnership Property and Plan of Liquidation - In June 1998, a plan to
sell the Partnership's properties was approved by the partners. Cape Henry Plaza
was sold to an unrelated third party on September 29, 1998 (see Note 5). The
Partnership has entered into a contract for sale of the Plaza West property (see
Note 7). Consummation of the sale will result in the dissolution of the
Partnership and require the General Partner to liquidate the Partnership and
distribute the proceeds therefrom to the limited partners. There is no assurance
that the sale will be consummated since the closing is conditioned upon
contigencies beyond the control of the Registrant. If the sales goes through, it
will result in the dissolution of the Registrant.
As a result of the partners approval to sell the properties and liquidate the
Partnership, the Partnership's financial statements as of December 31, 1998, and
for the year then ended have been prepared on a liquidation basis. Accordingly,
assets have been valued at estimated net realizable value and liabilities
include estimated costs associated with carrying out the plan of liquidation.
Adjustments to convert from the going-concern (historical cost) basis to the
liquidation basis of accounting are as follows:
<TABLE>
<S> <C>
Increase to reflect net realizable value of property held for sale $ 674,541
Deferral of gain on increase in net realizable value of property held for sale (674,541)
Estimated liabilities associated with the liquidation of the Partnership (50,000)
---------------
Net decrease in net assets $ (50,000)
===============
</TABLE>
The accompanying 1997 and 1996 financial statements have been prepared on a
going concern (historical cost) basis.
17
<PAGE>
Rental Revenue and Expenses
Rental revenue is derived from the leasing of shopping center space and from a
ground lease 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 1998, 1997 or 1996. The shopping centers are
leased subject to net leases. Tenants reimburse the Partnership for common area
maintenance and certain other expenses incurred.
Property
In December 1997, all real estate investments were reclassified as property held
for sale. Property held for sale is stated at the lower of cost or fair value,
and no depreciation is charged. Prior to that date, all property to be held and
used was stated at cost. Buildings were depreciated on a straight-line basis
over the estimated useful life of 33 years. Capitalized building improvements
and personal property were depreciated using an accelerated method over 15 years
and 7 years, respectively. Repairs and maintenance costs are expensed as
incurred.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Deferred Costs
Financing costs were capitalized and amortized over the term of the related
mortgages.
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.
Fair Values of Financial Instruments
The following methods and assumptions are used by the Partnership in estimating
its fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amount reported on the balance sheet for
cash and cash equivalents approximates fair value.
18
<PAGE>
Notes Payable: The fair value of the Partnership's fixed rate mortgage notes is
estimated using discounted cash flow analysis based on estimated incremental
borrowing rates. The carrying amounts of the Partnership's borrowings under
notes payable approximate fair value at December 31, 1998.
Use of 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. Depreciation amounts included in these
financial statements reflect management's estimate of the life and related
depreciation rates for rental properties. Actual results could differ from those
estimates.
New Accounting Pronouncements
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 our results of operations or financial position.
2. Property Held for Sale
In 1997, the Partnership transferred all investments in shopping centers to
property held for sale (see Note 6). Property held for sale includes the
following:
Approximate
Square Feet
Shopping Center Name Location Rental Space
- ------------------------------- ----------------------------- -----------------
Cape Henry Plaza * Virginia Beach, Virginia 50,000
Plaza West Raleigh, North Carolina 63,800
*Sold September, 1998
Approximately 35 percent of rental revenue at each of these properties was
derived from a single anchor tenant. At Plaza West, the lease with this anchor
tenant extends to 2006. Annual base rental income from this anchor tenant was
approximately $143,000 in 1998, 1997 and 1996. Base rental income from the Cape
Henry Plaza anchor tenant was $134,000 in 1998 and $180,000 in 1997 and 1996.
19
<PAGE>
Minimum future rentals on noncancelable operating leases at Plaza West,
excluding reimbursement of operating expenses and contingent rent, in effect as
of December 31, 1998, are as follows:
1999 $ 426,000
2000 426,000
2001 327,000
2002 159,000
2003 153,000
Thereafter 348,000
---------------------
$ 1,839,000
=====================
3. Mortgage Loans Payable
Mortgage loans payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C> <C>
Mortgage loan payable to a financial institution, collateralized by
Plaza West assets; principal and interest at 9.25% payable in
monthly installments of $28,588. This loan matured in August 1998
but has been extended to July 1999. $ 3,326,672 $ 3,360,302
Mortgage loan payable to a financial institution, collateralized by
Cape Henry Plaza assets; principal and interest at 9.25% payable
in monthly installments of $29,370. This loan was retired in
September 1998. - 3,452,165
------------------ ------------------
$ 3,326,672 $ 6,812,467
================== ==================
</TABLE>
Interest payments totaled approximately $595,400, $633,300, and $742,400, in
1998, 1997, and 1996, respectively.
4. Transactions with Affiliates
The general partner in the Partnership is Boddie Investment Company ("BIC"). BNP
Management, Inc. serves as management agent of the rental property and
Partnership matters. Certain officers of BIC are also officers of BNP
Management, Inc.
The Partnership is charged a property management fee of 3 percent of gross
collections, as defined. The Partnership is also charged a monthly partnership
administration fee of $2,000. In addition, the management agent allocates
certain costs to the Partnership totaling $10,500 in 1998 and $12,000 in 1997
and 1996. Operating expenses paid on behalf of the Partnership are reimbursed on
a monthly basis.
20
<PAGE>
5. Cape Henry Plaza and New Market Square
Cape Henry Plaza was sold to an unrelated third party on September 29, 1998, for
a contract price of $3,900,000. Direct costs of the sale totaled approximately
$93,000. New Market Square Shopping Center was sold to an unrelated third party
on February 8, 1996, for a contract price of $6,558,000. Direct costs of this
sale totaled approximately $214,000.
Proceeds from the sales were used to pay off the mortgage loans secured by the
assets of the shopping centers. The Partnership also recorded an extraordinary
loss of $30,163 in 1996 consisting of the write-off of deferred financing costs
related to the New Market Square mortgage loan.
Results of operations of these shopping centers were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- ----------------
<S> <C> <C> <C>
Revenue:
Rental revenue $ 400,598 $ 521,633 $ 602,051
Interest - (178) 4,407
------------------ ----------------- ----------------
400,598 521,455 606,458
Expenses:
Property operations 39,137 49,382 71,981
General and administrative 7,512 11,270 7,999
Property taxes and insurance 42,167 53,535 57,452
Management fees 13,004 15,824 19,910
Depreciation - 98,243 98,720
Amortization 5,167 10,107 11,695
Interest 245,935 320,683 381,300
Provision for loss on sale of
New Market Square Shopping Center - - (11,457)
------------------ ----------------- ----------------
352,922 559,044 637,600
------------------ ----------------- ----------------
Income (loss) before extraordinary item 47,676 (37,589) (31,142)
Extraordinary item - loss on extinguishment of debt - - (30,163)
------------------ ----------------- ----------------
Net income (loss) $ 47,676 $ (37,589) $ (61,305)
================== ================= ================
</TABLE>
6. Plaza West
A contract for sale of the Plaza West shopping center was entered into and
failed during 1998. Costs of approximately $30,000 related to this failed
contract have been included in general and administrative expense.
Environmental tests completed in November 1998 at the Plaza West site revealed a
small amount of dry cleaning fluid in the soil immediately adjacent to the dry
cleaning facility on that site. No off-site contamination of soil or water was
found. The recommendation of environmental engineers is that remediation be
natural attenuation (this means continue to monitor the contamination and allow
the problem to resolve over time). The Partnership has
21
<PAGE>
notified all appropriate regulatory agencies and the dry cleaning establishment
involved. The Partnership is currently pursuing a claim to hold the dry cleaner
responsible for remediation.
The Partnership estimates the cost of natural attenuation to be approximately
$80,000. If corrective remediation becomes necessary, the estimated cost of such
remediation is approximately $250,000. This environmental liability will be
assumed by the buyer under the terms of the contract for sale of Plaza West (see
Note 7).
7. Subsequent Event
On April 9, 1999, the general partner agreed to a contract for sale of Plaza
West to an unaffiliated third party under which the buyer will take the property
subject to the environmental issue discussed in Note 6. The anticipated contract
price exceeds the recorded value and mortgage loan related to the property. The
sales contract provides for a sale price of $3,650,000. Because the transaction
is not closed at this time the amount of the gain that may ultimately be
realized of approximately $675,000, which is net of sales costs of approximately
$109,500, is included as a deferred gain as an adjustment in liquidation at
December 31, 1998.
22
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Schedule III - Real Estate and
Accumulated Depreciation
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Description Encumb. Initial Costs Costs
------------- -------- --------------- Capitalized
Buildings & Subsequent
Land Improvem'ts to Acquisition
<S> <C> <C> <C> <C>
Plaza West Shopping Center,
Raleigh, NC $3,326,672 $1,422,557 $3,307,336 $874,398 (1)
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Description Gross Amount at Which
------------- Carried at Close of Period
----------------------------
Buildings & Accumulated Date of Date Life
Land Improvem'ts Total Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C> <C> <C> <C>
Plaza West Shopping Center,
Raleigh, NC $1,072,779 $3,348,736 $4,421,515 $881,016 1986 May-88 33
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year $8,036,901 $7,922,196 $16,407,921
Additions during year
Acquisitions by merger - - -
Other acquisitions - - -
Improvements, etc. 674,541 (1) 114,705 25,730
Deductions during year
Cost of real estate sold (4,289,927) - (8,511,455)
---------------------------------------------------------
Balance at close of year $4,421,515 $8,036,901 $7,922,196
=========================================================
Accumulated depreciation:
Balance at beginning of year $1,879,359 $1,697,749 $3,668,274
Reserve for depreciation - 181,610 177,400
Reserve for write-down to
estimated net realizable value - - 18,706
Deductions during year
Accumulated depreciation on
real estate sold (998,343) - (2,166,631)
---------------------------------------------------------
Balance at close of year $881,016 $1,879,359 $1,697,749
=========================================================
<FN>
(1) Amount includes a write-up of $674,541 for Plaza West to reflect the minimum
recoverable value to the Partnership.
Notes: In 1993 the Partnership recorded a writedown to net realizable value of
$1,182,776 for Plaza West. Cape Henry Plaza Shopping Center was sold to
an unrelated party effective September 1998. Aggregate cost at
December 31, 1998, for Federal income tax purposes was $6.1 million.
</FN>
</TABLE>
23
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page
27 Financial Data Schedule (electronic filing) -
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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 112,719
<SECURITIES> 0
<RECEIVABLES> 12,150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 173,645
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,714,145
<CURRENT-LIABILITIES> 53,450
<BONDS> 3,326,672
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,714,145
<SALES> 0
<TOTAL-REVENUES> 1,437,355
<CGS> 0
<TOTAL-COSTS> 221,180
<OTHER-EXPENSES> 94,828
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 568,774
<INCOME-PRETAX> 552,573
<INCOME-TAX> 0
<INCOME-CONTINUING> 552,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,573
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 0
</TABLE>
