-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WdBh5dQS5voQyOVTQaS+1MYJ2N7hHRdj6Nebm2Tb0kmN1Ym3TMMpVyfsMwIRL4ur mqsLBUUPubysgpgK6wnUFg== 0000950148-98-001399.txt : 19980521 0000950148-98-001399.hdr.sgml : 19980521 ACCESSION NUMBER: 0000950148-98-001399 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980520 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL EQUITY PARTNERS CENTRAL INDEX KEY: 0000717303 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953881219 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-82765 FILM NUMBER: 98628672 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 10-Q 1 FORM 10-Q (DATED 03/31/1998) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended MARCH 31, 1998 Commission File Number 2-82765 REAL EQUITY PARTNERS (A California Limited Partnership) I.R.S. Employer Identification No. 95-3784125 9090 WILSHIRE BLVD., SUITE 201 BEVERLY HILLS, CA 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 PART I. FINANCIAL INFORMATION Item 1. Financial Statements and Notes to Financial Statements Balance Sheets, March 31, 1998 and December 31, 1997 1 Statements of Operations, Three Months Ended March 31, 1998 and 1997 .... 2 Statement of Partners' Equity (Deficiency), Three Months Ended March 31, 1998 ............. 3 Statements of Cash Flows, Three Months Ended March 31, 1998 and 1997 .... 4 Notes to Financial Statements ...................... 5 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations ................ 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings ...................................... 13 Item 6. Exhibits and Reports on Form 8-K ....................... 13 Signatures ..................................................... 14
3 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 ASSETS
1998 1997 (Unaudited) (Audited) ------------ ------------ RENTAL PROPERTY, at cost (Notes 1 and 2) Land $ 6,553,357 $ 6,553,357 Buildings 22,096,723 22,096,723 Furniture and equipment 3,720,901 3,720,901 ------------ ------------ 32,370,981 32,370,981 Less accumulated depreciation (14,024,399) (13,839,796) ------------ ------------ 18,346,582 18,531,185 ------------ ------------ CASH AND CASH EQUIVALENTS 1,180,347 1,354,289 ------------ ------------ OTHER ASSETS: Due from affiliated rental agent (Note 5) 676,642 645,785 Other receivables and prepaid expenses 252,712 259,864 ------------ ------------ 929,354 905,649 ------------ ------------ TOTAL ASSETS $ 20,456,283 $ 20,791,123 ============ ============ LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Mortgage notes payable (Notes 2 and 7) $ 14,382,667 $ 14,443,323 Accrued fees and expenses due general partner (Notes 5 and 7) 746,072 735,685 Accrued interest payable (Note 2) 56,383 56,383 Accounts payable and accrued expenses (Note 1) 263,427 270,019 Liability for earthquake loss (Note 1) 506,016 506,016 Tenant security deposits 217,066 217,066 ------------ ------------ 16,171,631 16,228,492 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6) PARTNERS' EQUITY 4,284,652 4,562,631 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 20,456,283 $ 20,791,123 ============ ============
The accompanying notes are an integral part of these financial statements. 4 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- RENTAL OPERATIONS: Revenues Rental income $ 1,198,461 $ 1,170,104 Other income 36,379 48,530 ----------- ----------- 1,234,840 1,218,634 ----------- ----------- Expenses Operating expenses 661,077 515,997 Management fees - affiliate (Note 4) 61,040 59,851 Depreciation (Note 1) 184,603 184,603 General and administrative expenses 65,822 46,031 Interest expense (Note 2) 340,509 343,121 ----------- ----------- 1,313,051 1,149,603 ----------- ----------- Income (loss) from rental operations (78,211) 69,031 ----------- ----------- PARTNERSHIP OPERATIONS: Interest income 14,134 64,180 ----------- ----------- Expenses General and administrative expenses (Note 5) 43,112 24,068 Professional fees 10,403 20,733 Interest expense - general partner (Note 5) 10,387 10,387 ----------- ----------- 63,902 55,188 ----------- ----------- Income (loss) from partnership operations (49,768) 8,992 ----------- ----------- NET INCOME (LOSS) $ (127,979) $ 78,023 =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST (Note 4) $ (4) $ 3 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE THREE MONTHS ENDED MARCH 31, 1998 (Unaudited)
General Limited Partners Partners Total ----------- ----------- ----------- PARTNERSHIP INTERESTS 30,000 =========== EQUITY (DEFICIENCY), January 1, 1998 $(1,621,800) $ 6,184,431 $ 4,562,631 Net loss for the three months ended March 31, 1998 (1,280) (126,699) (127,979) Cash distributions -- (150,000) (150,000) ----------- ----------- ----------- EQUITY (DEFICIENCY), March 31, 1998 $(1,623,080) $ 5,907,732 $ 4,284,652 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 6 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (127,979) $ 78,023 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 184,603 184,603 Changes in operating assets and liabilities: Decrease (increase) in: Due from affiliated rental agent (30,857) (154,851) Other receivables and prepaid expenses 7,152 (49,257) Increase (decrease) in: Accrued fees and expenses due general partner 10,387 10,387 Accounts payable and accrued expenses (6,592) 595 ----------- ----------- Net cash provided by operating activities 36,714 69,500 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (150,000) (984,188) Principal payments on mortgage notes payable (60,656) (58,880) Payments on liability for earthquake loss -- (15,593) ----------- ----------- Net cash used in financing activities (210,656) (1,058,661) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (173,942) (989,161) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,354,289 1,794,041 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,180,347 $ 804,880 =========== ===========
The accompanying notes are an integral part of these financial statements. 7 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the annual audited financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the annual report for the year ended December 31, 1997 filed by Real Equity Partners (the "Partnership"). National Partnership Investments Corp. ("NAPICO") is the corporate general partner of the Partnership. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. In the opinion of the general partners of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position of the Partnership as of March 31, 1998, and the results of operations and changes in cash flows for the three months then ended. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RENTAL PROPERTY AND DEPRECIATION Rental property is stated at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the buildings and equipment. On January 17, 1994, the Park Creek and Warner Willows I and II rental properties sustained damage, estimated at approximately $1,454,000, due to the Northridge earthquake in the Los Angeles area. Insurance proceeds of approximately $965,000 were allocated to the Partnership in 1995 and 1994, as the settlement under a master umbrella insurance policy covering earthquake damage for these and other properties managed by a related party. The total estimated expenditures needed to repair the properties, net of the insurance recoveries were expensed in 1994 since they did not extend the useful life of the properties. 5 8 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Partnership is undergoing an extensive review of properties for disposition to the REIT as set forth below, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to approximately $153,000 through March 31, 1998, including approximately $16,000 included in general and administrative expenses for the three months ended March 31, 1998. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REP; and (iv) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity of three months or less. The Partnership has its cash and cash equivalents on deposit primarily with one high credit quality financial institution. Such cash and cash equivalents are in excess of the FDIC insurance limit. IMPAIRMENT OF LONG-LIVED ASSETS The Partnership adopted Statement of Financial Accounting Standards No. 121, Accounting for the Improvement of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a significant effect on its financial statements. The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. 6 9 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 2 - MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following: a. Conventional mortgage notes bearing interest at rates ranging from 9.125 percent to 10.25 percent per annum, payable in monthly installments ranging from $13,653 to $45,563 per month and having maturity dates from September 1998 to June 2007. These notes total $12,184,171 at March 31, 1998. b. Mortgage note, insured by the Department of Housing and Urban Development under the Section 221(d)(4) program, bearing interest at the rate of 7 percent per annum, payable in monthly installments of approximately $19,500, including interest through maturity in the year 2013. The note has a balance of $2,198,496 at March 31, 1998. The mortgage notes are secured by deeds of trust on the rental properties. NOTE 3 - INCOME TAXES No provision has been made for income taxes in the accompanying financial statements as such taxes, if any, are the liability of the individual partners. NOTE 4 - RELATED PARTY TRANSACTIONS The Partnership has entered into agreements with an affiliate of NAPICO to manage the operations of the rental properties. The agreements are on a month-to-month basis and provide, among other things, for a management fee equal to 5 percent of gross rentals and other collections plus reimbursement of certain expenses. Management fees charged to operations under this agreement were approximately $61,000 and $59,900 for the three months ended March 31, 1998 and 1997, respectively. An affiliate of NAPICO performed certain of the earthquake repairs at the Park Creek and Warner Willows I and II rental properties. The payments to this affiliate for these repairs were approximately $859,000 as of March 31, 1998 (Note 1). Included in payments to the affiliate of NAPICO was $122,773 paid under a contract for $123,456 entered into by the Partnership on February 22, 1996, after receiving competitive bids. NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER Under the terms of the Partnership Agreement, the Partnership is obligated to NAPICO for a deferred acquisition fee. This fee is for services rendered in connection with the selection, purchase, acquisition, development, and monitoring the operations of its properties. Distribution of any part of this from net cash from operations shall be subordinated to receipt by each Limited Partner of an amount equal to 7 10 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 5 - FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED) a cumulative non-compounded 6 percent annual distribution with respect to the adjusted capital value (as defined in the Partnership Agreement). The aggregate amount of the deferred acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3 percent of the investment in properties plus any proceeds from sale or refinancing of the properties. The deferred acquisition fee shall be an amount which, when present valued at 8 percent from certain dates as defined in the Partnership Agreement, equals 10 percent of the gross proceeds of the offering ($3,000,000). Distribution of the deferred acquisition fee will be made from net cash from operations and net proceeds from sale or refinancing for a maximum of 15 years, or until the above limit is met. The present value of the deferred acquisition fee plus accrued interest has been reflected in the accompanying financial statements and has been capitalized as part of the cost of rental property acquired. The amount outstanding as of March 31, 1998 and December 31, 1997 was $746,072 and $735,685, respectively. Under the terms of the Partnership Agreement, cash available for distribution is to be allocated 90 percent to the limited partners as a group and 10 percent to the general partners. Based on cash distributions made to the limited partners as of December 31, 1996, $834,188 was due to the general partners as their 10% percent share of cash available for distribution. This amount was paid to the general partners in February 1997. The Partnership made distributions in the amount of $150,000 to the limited partners during the three months ended March 31, 1998. The Partnership reimburses NAPICO for certain expenses. The reimbursement paid to NAPICO was $3,153 and $2,804 for the three months ended March 31, 1998 and 1997, respectively, and is included in general and administrative expenses. NOTE 6 - COMMITMENTS AND CONTINGENCIES The corporate general partner of the Partnership is involved in various lawsuits lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the corporate general partner, the claims will not result in any material liability to the Partnership. NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. One of the mortgage notes payable is insured by HUD and is secured by a rental property. The operations generated by the property are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of this mortgage note 8 11 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) payable. The book values of all other debt instruments approximate their fair values because the interest rates of these instruments are comparable to rates currently offered to the Partnership. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 9 12 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership was formed to invest in residential rental properties either directly or through investments in joint ventures and other partnerships which will invest in such real estate. The Partnership acquired 6 buildings at various dates during 1984 and 1985. One of the buildings was foreclosed in 1996. The Partnership's primary sources of funds are income from rental operations and interest income earned on cash reserves. Under the terms of the Partnership Agreement, cash available for distribution is to be allocated 90 percent to the limited partners as a group and 10 percent to the general partners. Distributions of net cash from operations were normally intended to be made to the partners of record on a quarterly basis during the months of February, May, August, and November pro rata in proportion to the number of units held. From November 1994 through May 1996, distributions to the partners were not made due to the Partnership setting aside funds for losses incurred by REP as a result of the January 17, 1994 Northridge Earthquake. Based on cash distributions made to the partners as of December 31, 1996, $834,188 was due to the general partners as their 10 percent share of cash available for distribution. This amount was paid to the general partners in February 1997. The Partnership made distributions in the amount of $150,000 to the limited partners in the three months ended March 31, 1998. Currently, it is anticipated that the Partnership will continue to meet its current and long term obligations as they become due. On May 21, 1997, the mortgage on Arbor Glen was refinanced with a non-recourse loan in the amount of $5,600,000 bearing interest at 9.125% per annum. The note is due June 1, 2007. RESULTS OF OPERATIONS Rental operations consist primarily of rental income and depreciation expense, debt service, and normal operating expenses to maintain the properties. Depreciation is provided on the straight-line method over the estimated useful lives of the buildings and equipment. Substantially all of the rental units in the apartment projects are leased on a month-to-month basis. An annual property management fee, which shall in any event not exceed 5 percent of gross revenues from each property under management, is payable by the properties to an affiliate of NAPICO. Occupancy at the Warner Willows I and II properties averaged 97 percent for the three months of 1998, a 4 percent increase from the same period in 1997 (excluding capital repair costs). Both properties operated with positive cash earnings for the three months ended March 31, 1998. Positive cash earnings for the three months ended March 31, 1998 were approximately $17,000 and $23,000 for Warner Willows I and II, respectively. 10 13 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Occupancy at the Arbor Glen property averaged 95 percent during the first three months of 1998, a 4 percent increase from the same period in 1997. The property operated with a positive cash flows of approximately $26,000 (excluding capital repair costs) during the first three months of 1998. On May 21, 1997, the property was refinanced with a new non-recourse loan in the amount of $5,600,000. The loan matures on June 1, 2007 and bears interest at 9.125% per annum. Occupancy at the Park Creek property averaged 94 percent during the first three months of 1998, a 12 percent increase from the same period in 1997. The property operated with a positive cash flows of approximately $21,000 (excluding capital repair costs) during the first three months of 1998. Occupancy at the Willowbrook property averaged 97 percent during the first three months of 1998, a 4 percent increase from the same period in 1997. The property operated with a positive cash flow of approximately $71,000, (excluding capital repair costs) during the first three months of 1998. On January 17, 1994, the Park Creek and Warner Willows I and II rental properties sustained damage, estimated at approximately $1,454,000, due to the earthquake in January 1994. Included in liabilities as of March 31, 1998 is approximately $500,000 related to the earthquake damages. The total estimated expenditures needed to repair the properties, net of the insurance recoveries of $965,000, were expensed, since they did not extend the useful life of the properties. An affiliate of NAPICO performed certain of the earthquake repairs at the Park Creek and Warner Willows I and II rental properties. The payments to this affiliate for these repairs were approximately $859,000 as of March 31, 1998. Included in payments to the affiliate of NAPICO was $122,773 paid under a contract for $123,456 entered into by the Partnership on February 22, 1996, after receiving competitive bids. The Partnership operations consist primarily of interest income earned on certificates of deposit and other temporary investments of funds not required for investment in projects. The amount of interest income varies with market rates available on certificates of deposit and with the amount of funds available for investment. Operating expenses of the Partnership consist substantially of recurring general and administrative expenses and professional fees for services rendered to the Partnership and interest on the deferred acquisition fee due the General Partners. 11 14 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) The Partnership is undergoing an extensive review of properties for disposition to the REIT as set forth below, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to approximately $153,000 through March 31, 1998, including approximately $16,000 included in general and administrative expenses for the three months ended March 31, 1998. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REP; and (iv) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. The Partnership is incurring interest expense at a rate of 8 percent per annum on the unpaid fees due the general partner. Under the terms of the Amended and Restated Certificate and Agreement of Limited Partnership Agreement Partnership, the Partnership is obligated to the general partner for a deferred acquisition fee for services rendered in connection with the selection, purchase, development, and management of the Partnership and monitoring the operations of the properties, in an amount which, when calculated on a present value basis (using a discount factor of 8 percent for this purpose) from the date of payment to the general partners to September 27, 1984 equals 10 percent of the gross proceeds of the offering ($3,000,000). Distribution of any part of this fee from net cash from operations shall be subordinate to receipt by each Limited Partner of an amount equal to a cumulative noncompounded 6 percent distribution. The acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3 percent of investment in properties (approximately $600,000) plus any proceeds from sale or refinancing of the properties. The amount outstanding as of March 31, 1998 was approximately $746,000. An annual property management fee, which shall not in any event exceed 5 percent of gross revenues from each property under management, is also payable to an affiliate of the corporate general partner. 12 15 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of March 31, 1998, the Partnership's corporate general partner is involved in various lawsuits. None of these are related to the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are required per the provision of Item 7 of regulation S-K. 13 16 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) MARCH 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REAL EQUITY PARTNERS (a California limited partnership) By: National Partnership Investments Corp. Corporate General Partner /s/ Bruce Nelson ------------------------------- Bruce Nelson President Date: May 18, 1998 ------------------------------- /s/ Charles Boxenbaum ------------------------------- Charles H. Boxenbaum Chief Executive Officer Date: May 18, 1998 ------------------------------- 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,180,347 0 0 0 0 2,109,701 32,370,981 14,024,399 20,456,283 319,810 0 0 0 0 4,284,652 20,456,283 0 1,248,974 0 0 1,026,057 0 350,896 (127,979) 0 (127,979) 0 0 0 (127,979) 0 0
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