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 September 30, 1998
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:13
1
<PAGE>
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 9
PART II - Other Information
6 Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 468,962 $ 76,863
Restricted cash - tenant security deposits 25,561 22,243
Accounts receivable, net 13,795 51,621
Prepaids and other assets 82,817 30,154
Deferred financing costs, net - 9,800
Property held for sale 2,865,958 6,157,542
------------------ ------------------
Total assets $3,457,093 $6,348,223
================== ==================
Liabilities and Partners' Equity (Deficit)
Deed of trust loans payable $3,335,372 $6,812,467
Trade accounts payable and accrued expenses 57,160 52,522
Prepaid rents and tenant security deposits 17,053 19,949
------------------ ------------------
Total liabilities 3,409,585 6,884,938
Partners' equity (deficit):
Limited partners 109,777 (468,604)
General partner (62,269) (68,111)
------------------ ------------------
Total partners' equity (deficit) 47,508 (536,715)
------------------ ------------------
Total liabilities and partners' equity (deficit) $3,457,093 $6,348,223
================== ==================
</TABLE>
3
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue $ 269,844 $ 256,159 $ 779,882 $ 773,426
Gain on sale of
Cape Henry Shopping Center 520,148 - 520,148 -
Interest and other income 2,502 1,574 5,935 5,988
----------------- ---------------- ----------------- ----------------
792,494 257,733 1,305,965 779,414
Expenses
Property operations 27,592 19,580 66,490 68,608
General and administrative 8,992 6,149 41,727 35,501
Property taxes and insurance 25,433 22,555 76,886 71,747
Management fees 13,589 13,453 41,813 41,878
Depreciation - 44,283 - 132,849
Amortization 194 4,803 9,800 14,409
Interest 170,585 158,153 485,026 475,525
----------------- ---------------- ----------------- ----------------
246,385 268,976 721,742 840,517
----------------- ---------------- ----------------- ----------------
Net income (loss) $ 546,109 $ (11,243) $ 584,223 $ (61,103)
================= ================ ================= ================
Allocation of
net income (loss):
Limited partners (99%) $ 540,648 $ (11,131) $ 578,381 $ (60,492)
================= ================ ================= ================
General partner (1%) $ 5,461 $ (112) $ 5,842 $ (611)
================= ================ ================= ================
Net income (loss) per
limited partnership unit $ 1.62 $ (0.03) $ 1.73 $ (0.18)
================= ================ ================= ================
Weighted average number of
limited partnership units
outstanding 333,577 333,577 333,577 333,577
================= ================ ================= ================
</TABLE>
4
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Changes in Partners' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1997 $(468,604) $(68,111) $(536,715)
Net income 24,754 250 25,004
--------------- --------------- ---------------
Balance at March 31, 1998 (443,850) (67,861) (511,711)
Net income 12,979 131 13,110
--------------- --------------- ---------------
Balance at June 30, 1998 (430,871) (67,730) (498,601)
Net income 540,648 5,461 546,109
--------------- --------------- ---------------
Balance at September 30, 1998 $109,777 $(62,269) $47,508
=============== =============== ===============
</TABLE>
5
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
1998 1997
----------------- ----------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 584,223 $ (61,103)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Gain on sale of Cape Henry Shopping Center (520,148) -
Depreciation and amortization 9,800 147,258
Changes in operating assets and liabilities:
Rent and other receivables 37,826 24,007
Prepaid expenses and other assets (52,663) (44,173)
Accounts payable and accrued expenses 4,638 44,756
Security deposits and deferred revenue (6,214) (334)
----------------- ----------------
Net cash provided by operating activities 57,462 110,411
Investing activities:
Net proceeds from sale of Cape Henry Shopping Center 3,811,732 -
Additions to properties - (104,085)
----------------- ----------------
Net cash provided by (used in) investing activities 3,811,732 (104,085)
Financing activities:
Principal payments on notes payable (3,477,095) (46,092)
----------------- ----------------
Increase (decrease) in cash and cash equivalents 392,099 (39,766)
Cash and cash equivalents at beginning of period 76,863 119,440
----------------- ----------------
Cash and cash equivalents at end of period $ 468,962 $ 79,674
================= ================
</TABLE>
6
<PAGE>
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Notes to Financial Statements - September 30, 1998
(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 balance sheet at December 31, 1997. We derived the amounts in the
balance sheet at December 31, 1997, from the financial statements included in
our 1997 Annual Report on Form 10-K. We believe that all adjustments (consisting
of normal recurring accruals) 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 1997 Annual
Report on Form 10-K.
The results for the first nine months of 1998 are not necessarily indicative of
future financial results.
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
Note 2. Cape Henry Plaza Shopping Center
The Cape Henry Plaza Shopping Center property was sold to an unrelated third
party on September 29, 1998, for a contract price of $3,900,000. Estimated
direct costs of the sale total approximately $90,000. Carrying value of these
assets at June 30, 1998, was as follows:
Land $ 1,021,855
Buildings and improvements 3,260,036
Personal property 8,036
---------------
4,289,927
Less - Accumulated depreciation (998,343)
---------------
$ 3,291,584
===============
The statements of operations for the three and nine months ended September 30,
1998 and 1997, respectively, include the operations of Cape Henry Plaza through
September 28, 1998.
7
<PAGE>
Results of operations of Cape Henry Plaza for these periods were as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Rental revenue $141,706 $129,664 $400,598 $389,219
Property operations 17,270 13,338 37,231 36,433
General and administrative expense 1,677 2,344 7,443 9,106
Property taxes and insurance 14,318 12,532 42,601 37,978
Property management fees 3,817 3,665 12,394 12,170
Depreciation - 24,747 - 74,241
Amortization 109 2,529 5,167 7,587
Interest 86,596 80,143 245,936 240,969
----------------------------------------------------------
Total expenses 123,787 139,298 350,772 418,484
----------------------------------------------------------
Net income (loss) $ 17,919 $ (9,634) $ 49,826 $(29,265)
==========================================================
</TABLE>
8
<PAGE>
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. Such statements can be identified 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
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there are certain factors such as general economic
conditions, local real estate conditions, or weather conditions that might cause
a difference between actual results and those forward-looking statements. 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 September 1998, one of the two remaining shopping
centers 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
Effective September 29, 1998, the Partnership sold Cape Henry Plaza Shopping
Center to an unaffiliated party for a contract price of $3,900,000.
The statements of operations for the three and nine months ended September 30,
1998 and 1997, respectively, include the operations of Cape Henry Plaza through
September 28, 1998.
9
<PAGE>
Summary operating results of Plaza West Shopping Center and general and
administrative functions are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $130,640 $128,069 $385,219 $390,195
Expenses:
Property operations 10,322 6,242 29,259 32,175
General and administrative 7,315 3,805 34,284 26,395
Property taxes and insurance 11,115 10,023 34,285 33,769
Management fees 9,772 9,788 29,419 29,708
Depreciation and amortization 85 21,810 4,633 65,430
Interest 83,989 78,010 239,090 234,556
----------------------------------------------------------
122,598 129,678 370,970 422,033
----------------------------------------------------------
Net income (loss) $ 8,042 $ (1,609) $ 14,249 $(31,838)
==========================================================
</TABLE>
Plaza West has been fully occupied during the first nine months of 1998 except
for a two-month period in the first quarter. The 1.3% decrease in revenue
compared to the first nine months of 1997 is due primarily to recoveries of
one-time expenses in 1997.
In January 1998, both Cape Henry Plaza and Plaza West were listed for sale. In
accordance with generally accepted accounting principles, no depreciation is
recorded on assets held for sale.
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 and capital 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.
Plaza West is currently under contract for sale, pending resolution of an
environmental issue. During the purchaser's due diligence, we discovered some
soil and ground water contamination caused by dry cleaning fluid. We have hired
an environmental consultant to evaluate the situation and develop a plan of
remediation. The sale of the property cannot take place until the purchaser and
seller have agreed to a plan of remediation.
The Partnership's deed of trust loan secured by Plaza West has been
extended to December 31, 1998. The general partner can offer no assurance that,
at that date, additional extensions or replacement financing will be obtainable.
10
<PAGE>
Year 2000 Issues
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, or its financial
condition. This belief is based on the following:
1. Following the sale of Cape Henry Plaza, the Partnership's sole asset is
Plaza West. Plaza West is a single story "strip" center that does not
contain any elevators, escalators or computer controlled mechanical
systems. Neither the Partnership nor Plaza West own or operate any computer
systems.
2. 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 may
raise Year 2000 issues. Based on the management agent's knowledge of our
property and systems and the results of inquires to the manufactures and
servicing agents of such systems, we do not believe the Year 2000 issue
will impact these systems or have a material impact on our operations or
financial condition. It is important to note that the leases at Plaza West
make the tenants responsible for the maintenance of any such systems within
or servicing their leasehold space.
3. 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
inquires by our management agent of our utility providers, significant
vendors and service providers, and bank, we do not believe that any of
these relationships will involve Year 2000 issues that will have a material
impact on the Partnership's operating results or financial condition.
4. Property management services and administration of the Partnership are
provided by the Partnership's management agent. 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.
Thus, we do not believe that the Year 2000 issue will materially affect the
Partnership. However, to the extent that such belief is based on the
representations of others, we can not warrant or guarantee that all external
agents are or will be Year 2000 compliant nor can we determine the effect of any
such non-compliance by these external agents on the operations of the
Partnership or its property.
11
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 Financial data schedule (electronic filing)
b) Reports on Form 8-K: We filed a Current Report on Form 8-K as of September
29, 1998, to disclose the sale of Cape Henry Plaza Shopping Center.
12
<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
November 12, 1998 /s/ Philip S. Payne
---------------------------------------------------
Philip S. Payne
(Duly authorized officer)
13
<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 NINE MONTHS
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 468962
<SECURITIES> 0
<RECEIVABLES> 13795
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 591135
<PP&E> 2865958
<DEPRECIATION> 0
<TOTAL-ASSETS> 3457093
<CURRENT-LIABILITIES> 74213
<BONDS> 3335372
0
0
<COMMON> 0
<OTHER-SE> 47508
<TOTAL-LIABILITY-AND-EQUITY> 3457093
<SALES> 0
<TOTAL-REVENUES> 1305965
<CGS> 0
<TOTAL-COSTS> 185189
<OTHER-EXPENSES> 51527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 485026
<INCOME-PRETAX> 584223
<INCOME-TAX> 0
<INCOME-CONTINUING> 584223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 584223
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
