-----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, SFCRRX+hkEASlFY8xzUjIT0EwFynsQOFMD4owtqWOumzLAS3yfm5eDgBJTK8RiKV DALNwqpX2mdOWhzXvx1MVQ== 0000950148-98-002600.txt : 19981123 0000950148-98-002600.hdr.sgml : 19981123 ACCESSION NUMBER: 0000950148-98-002600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981120 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: 000-29766 FILM NUMBER: 98755924 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 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 SEPTEMBER 30, 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 SEPTEMBER 30, 1998 PART I. FINANCIAL INFORMATION Item 1. Financial Statements and Notes to Financial Statements Balance Sheets, September 30, 1998 and December 31, 1997 ..................................1 Statements of Operations, Nine and Three Months Ended September 30, 1998 and 1997 .............................2 Statement of Partners' Equity (Deficiency), Nine Months Ended September 30, 1998 ................................................3 Statements of Cash Flows, Nine Months Ended September 30, 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...............................................................................12 Item 6. Exhibits and Reports on Form 8-K ...............................................................12 Signatures...............................................................................................13
3 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ASSETS
1998 (Unaudited) 1997 ------------ ------------ 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 (14,393,605) (13,839,796) ------------ ------------ 17,977,376 18,531,185 ------------ ------------ CASH AND CASH EQUIVALENTS 883,570 1,354,289 ------------ ------------ OTHER ASSETS: Due from affiliated rental agent (Note 5) 863,806 645,785 Other receivables and prepaid expenses 211,934 259,864 ------------ ------------ 1,075,740 905,649 ------------ ------------ TOTAL ASSETS $ 19,936,686 $ 20,791,123 ============ ============ LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Mortgage notes payable (Notes 2 and 7) $ 14,257,046 $ 14,443,323 Accrued fees and expenses due general partner (Notes 5 and 7) 767,192 735,685 Accrued interest payable (Note 2) 56,383 56,383 Accounts payable and accrued expenses (Note 1) 250,824 270,019 Liability for earthquake loss (Note 1) 506,016 506,016 Tenant security deposits 217,066 217,066 ------------ ------------ 16,054,527 16,228,492 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 1, 5 and 6) PARTNERS' EQUITY 3,882,159 4,562,631 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 19,936,686 $ 20,791,123 ============ ============
The accompanying notes are an integral part of these financial statements. 1 4 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Nine months Three months Nine months Three months ended ended ended ended Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997 -------------- -------------- -------------- -------------- RENTAL OPERATIONS: Revenues Rental income $ 3,716,442 $ 1,273,641 $ 3,504,850 $ 1,170,623 Other income 146,627 59,021 138,726 45,675 ----------- ----------- ----------- ----------- 3,863,069 1,332,662 3,643,576 1,216,298 ----------- ----------- ----------- ----------- Expenses Operating expenses 2,040,079 698,151 1,674,618 510,315 Management fees - affiliate (Note 4) 191,510 66,294 180,803 60,869 Depreciation (Note 1) 553,809 184,603 553,809 184,603 General and administrative expenses 168,720 46,874 177,203 40,998 Interest expense (Note 2) 1,017,220 337,647 1,022,210 320,193 ----------- ----------- ----------- ----------- 3,971,338 1,333,569 3,608,643 1,116,978 ----------- ----------- ----------- ----------- Income (Loss) from rental operations (108,269) (907) 34,933 99,320 ----------- ----------- ----------- ----------- PARTNERSHIP OPERATIONS: Interest income 36,790 8,606 91,285 12,112 ----------- ----------- ----------- ----------- Expenses General and administrative expenses (Note 5) 211,167 105,922 82,365 30,034 Professional fees 32,985 2,879 77,367 15,908 Interest expense - general partner (Note 5) 31,507 10,618 31,507 10,618 ----------- ----------- ----------- ----------- 275,659 119,419 191,239 56,560 ----------- ----------- ----------- ----------- Loss from partnership operations (238,869) (110,813) (99,954) (44,448) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (347,138) $ (111,720) $ (65,021) $ 54,872 =========== =========== =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST (Note 4) $ (12) $ (4) $ (2) $ 2 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 2 5 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 1998 (3,472) (343,666) (347,138) Cash distributions (33,334) (300,000) (333,334) ----------- ----------- ----------- EQUITY (DEFICIENCY), September 30, 1998 $(1,658,606) $ 5,540,765 $ 3,882,159 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 3 6 REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (347,138) $ (65,021) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 553,809 553,809 Changes in operating assets and liabilities: Decrease (increase) in: Due from affiliated rental agent (218,021) 18,663 Other receivables and prepaid expenses 47,930 (27,977) Increase (decrease) in: Accrued fees and expenses due general partner 31,507 31,507 Accounts payable and accrued expenses (19,195) 6,626 Accrued interest payable (17,449) ----------- ----------- Net cash provided by operating activities 48,892 500,158 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (333,334) (1,334,189) Proceeds from mortgage note payable 5,600,000 Principal payments on mortgage notes payable (186,277) (5,162,417) Payments on liability for earthquake loss -- (10,134) ----------- ----------- Net cash used in financing activities (519,611) (906,740) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (470,719) (406,582) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,354,289 1,827,286 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 883,570 $ 1,420,704 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 7 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 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 September 30, 1998, and the results of operations for the nine and three months then ended and changes in cash flows for the nine 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. On September 25, 1998, the Partnership entered into an agreement to sell the rental properties. 5 8 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Partnership performed an extensive review of its properties in connection with a proposed sale to the REIT as set forth below. The Partnership incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $258,000 through September 30, 1998 including approximately $121,000 and $12,000 for the nine months ended September 30, 1998 and 1997, respectively, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO proposed to purchase from the Partnership the rental properties owned by the Partnership for a total price of $24,876,300. The REIT planned to raise the cash to purchase such properties through a private placement of its equity securities. The purchase was subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the consent of the limited partners to the sale of the rental properties owned by REP; and (iii) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. On August 14, 1998, an unrelated party contacted the Partnership to express its interest in acquiring the properties. As of September 25, 1998, the affiliate of NAPICO withdrew its offer and the Partnership entered into a purchase and sale agreement with the new buyer that included a purchase price of $31,900,000. A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership. Consummation of the sale is subject to the approval of a majority-in-interest of the limited partners. 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) SEPTEMBER 30, 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 approximately $12,099,000 at September 30, 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 approximately $2,158,000 at September 30, 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 $191,000 and $180,000 for the nine months ended September 30, 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 this period (Note 1). Included in payments to the affiliate of NAPICO was $122,773 paid under a contract 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) SEPTEMBER 30, 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 September 30, 1998 and December 31, 1997 was approximately $767,002 and $725,000, 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. The Partnership made distributions in the amount of $150,000 to the limited partners during the nine months ended September 30, 1998. The Partnership reimburses NAPICO for certain expenses. The reimbursement paid to NAPICO was approximately $9,400 and $8,700 for the nine months ended September 30, 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 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 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. 8 11 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 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. The Partnership made distributions in the amount of $300,000 to the limited partners in the nine months ended September 30, 1998. 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. Based on the purchase and sale agreement entered into between the Partnership and a proposed buyer, it is anticipated that the Partnership will make a distribution to the limited partners of approximately $16,554,000 from the net proceeds of the sale. If the sale is consummated, it will result in a dissolution of the Partnership under the terms of the Partnership Agreement. 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 nine months ended September 30, 1998, a 3 percent increase from the same period in 1997. Both properties operated with positive cash earnings for the nine months ended September 30, 1998 (excluding capital repair costs). Positive cash earnings for the nine months ended September 30, 1998 were approximately $27,200 and $2,400 for Warner Willows I and II, respectively. 9 12 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 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 99 percent during the first nine months ended September 30, 1998, a 2 percent increase from the same period in 1997. The property operated with a positive cash flows of approximately $164,000 (excluding capital repair costs) during the first nine months ended September 30, 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 97 percent during the first nine months 1998, a 5 percent increase from the same period in 1997. The property operated with a positive cash flows of approximately $102,100 (excluding capital repair costs) during the first nine months ended September 30, 1998. Occupancy at the Willowbrook property averaged 91 percent during the first nine months ended September 30, 1998, a 1 percent decrease from the same period in 1997. The property operated with a positive cash flow of approximately $261,000 (excluding capital repair costs) during the first nine months ended September 30, 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 September 30, 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 September 30, 1998. Included in payments to the affiliate of NAPICO was $122,773 paid under a contract 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. 10 13 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) The Partnership performed an extensive review of its properties in connection with a proposed sale to the REIT as set forth below. The Partnership incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $258,000 through September 30, 1998 including approximately $121,000 and $12,000 for the nine months ended September 30, 1998 and 1997, respectively, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO proposed to purchase from the Partnership the rental properties owned by the Partnership for a total price of $24,876,300. The REIT planned to raise the cash to purchase such properties through a private placement of its equity securities. The purchase was subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the consent of the limited partners to the sale of the rental properties owned by REP; and (iii) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. On August 14, 1998, an unrelated party contacted the Partnership to express its interest in acquiring the properties. As of September 25, 1998, the affiliate of NAPICO withdrew its offer and the Partnership entered into a purchase and sale agreement with the new buyer that included a purchase price of $31,900,000. A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership. Consummation of the sale is subject to the approval of a majority-in-interest of the limited partners. 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. As of September 30, 1998 approximately $767,000 of the deferred acquisition fee was due to the Corporate General Partner. 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. 11 14 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 report 8-K relating to an unsolicited offer to buy units of limited partnership interests (the "Units"), as discussed below, was filed with the Securities and Exchange Commission during the quarter ended September 30, 1998. On March 9, 1998, Riley Bauer Equities 2, L.L.C. (the "Buyer") made an unsolicited offer to buy a certain number of Units in the Partnership for a price of $300 per Unit. The Buyer did not contact the Corporate General Partner prior to commencing its tender offer. By letter dated July 13, 1998, the Corporate General Partner advised limited partners that it had determined not to take a position with respect to the tender offer but cautioned limited partners to consider certain items before determining whether to tender their Units to the Buyer. A copy of the letter from the Buyer is attached as an Exhibit to this form 10-Q. 12 15 REAL EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 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/ PAUL PATIERNO --------------------------------- Paul Patierno Chief Financial Officer Date: ----------------------------------- /s/ CHARLES BOXENBAUM --------------------------------- Charles Boxenbaum Chief Executive Officer Date: ----------------------------------- 13 16 [RILEY BOWER EQUITIES 2, LLC LETTERHEAD] To the Holders of Limited Partnership Interests in March 9, 1998 REAL EQUITY PARTNERS Dear Investor, We are offering you an opportunity to sell your limited partnership interest in Units (the "Units") in REAL EQUITY PARTNERS, a California limited partnership (the "Partnership") for cash in the amount of $300.00 (THREE HUNDRED DOLLARS) PER UNIT, less transfer fee and any distributions made subsequent to the date of this letter. The following are several reasons why you may wish to sell: o HIGHER THAN SECONDARY MARKET: According to the Partnership Spectrum, the average price paid for this Partnership per unit in the most recent reporting period was $256.67. OUR OFFER IS MORE THAN AN 18% PREMIUM, BEFORE THE ADDED SAVINGS OF A COMMISSION FREE SALE. o CASH RESERVES REDUCED BY MORE THAN $830,000.00: In February 1997, The Partnership paid the General Partner $834,188.00 for deferred distributions (the GP was allocated 10 percent of "cash available for distribution" and had been deferring this distribution for several years). This reduced the Partnership's cash reserves significantly. o OUR PAPERWORK IS EASY: Simply sign and complete the rest of the information on the back of the enclosed Agreement of Transfer and Assignment and mail back to us in the enclosed envelope. NO NOTARY OR SIGNATURE GUARANTEE IS REQUIRED. o TWO PROPERTIES HAVE BEEN FORECLOSED: The Partnership has had two of its original seven properties foreclosed on, one in 1993 and one in 1996. o NO COMMISSIONS OR FUTURE K-1S: Our offer is a net price to you, without the commissions and costs typically associated with third party sales. Additionally, the sale will result in the elimination of the expense of your filing a partnership K-1 in future years. Our offer is limited to approximately 1,000 units. We will pay for all Partnership transfer fees and costs. We are an investment group not affiliated with the General Partner. However, it should be noted that we feel the General Partner is competent and carrying out their fiduciary responsibilities. An Agreement of Transfer is enclosed which you can use to accept our offer. YOU ARE ONLY REQUIRED TO SIGN AND PRINT YOUR NAME AND COMPLETE THE REST OF THE INFORMATION ON THE REVERSE SIDE OF THE AGREEMENT, AND RETURN TO OUR OFFICES IN THE ENCLOSED ENVELOPE. (If your investment is in an IRA account, we will obtain your Custodian's signature after you have returned the completed and signed Agreement). Our offer will expire at 5:00 p.m. on Friday, July 18th, 1997; however, we may extend our offer at our discretion. Please call toll free at 888-622-1144, extension 22, if you have any questions. Sincerely, Riley Bower Equities 2, LLC. 17 AGREEMENT OF TRANSFER & ASSIGNMENT For Limited Partnership Interests in REAL EQUITY PARTNERS 1. ASSIGNMENT OF AND CONSIDERATION FOR THE UNITS Subject to and effective upon acceptance for payment, the undersigned (the "Seller") hereby sells, assigns, transfers, conveys and delivers (the "Transfer") to Riley Bower Equities 2, LLC, a California limited liability company or Assignee (the "Purchaser"), all of the Seller's right, title and interest in Real Equity Partners, a limited partnership (the "Partnership") for a total consideration of $300.00 (THREE HUNDRED DOLLARS) PER UNIT, less transfer fee and any distributions made subsequent to March 9, 1998, net to the Seller in cash. Such Transfer shall include, without limitation, all right in, and claims to, any Partnership profits and losses, cash distributions, voting rights and other benefits of any nature whatsoever distributable or allocable to such purchased Units under the Partnership's Certificate and Agreement of Limited Partnership, as amended (the "Partnership Agreement"). 2. SPECIAL POWER OF ATTORNEY The Seller hereby irrevocably constitutes and appoints the Purchaser, James S. Riley and E. Frank Bower, or any of them, as the true and lawful agent and special attorneys-in-fact of the Seller with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest). The Power of Attorney shall include without limitation, (1) the right to vote, inspect Partnership books and records, (2) the right to execute on behalf of Seller, all assignments, certificates, documents and instruments that may be required for the purpose of transferring the units owned by Seller, (3) the right to deliver such Units and transfer ownership of such Units on the Partnership's books maintained by the General Partner of the Partnership, together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Purchaser; and (4) the right after the Effective Date defined below to receive all benefits and cash distributions, endorse Partnership checks payable to Purchaser and otherwise exercise all rights of beneficial ownership of such Units. The Purchaser shall not be required to post a bond of any nature in connection with this power of attorney. 3. EFFECTIVE DATE OF ASSIGNMENT; ALLOCATION OF DISTRIBUTIONS The Seller agrees that from and after the "Effective Date", defined as March 9, 1998, that the Purchaser shall be entitled to all distributions made by the Partnership with respect to the units, including any distributions attributable to periods or events occurring prior to the Effective Date but not yet distributed. This right also includes the rights to any benefits which may accrue as a result of any litigation or settlement which involves this partnership. Should the Seller receive any distribution by the Partnership from or after the Effective date, the Seller agrees to duly endorse the check or checks representing such distribution payable to order of the Purchaser, and to transmit such check or checks to the Purchaser within two days of its or their receipt by the Seller. 4. SELLER'S REPRESENTATIONS AND WARRANTIES The Seller hereby represents and warrants to the Purchaser that the Seller owns such Units and has full power and authority to validly sell, assign, transfer, convey and deliver such Units to the Purchaser, and that when any such Units are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all options, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claim. If the undersigned is signing on behalf of any entity, the undersigned declares that he has authority to sign this document on behalf of the entity. The Seller further represents and warrants that the Seller is a "United States person", as defined in Section 7701 (a)(30) of the Internal Revenue Code of 1986, as amended, or if the Seller is not a United States person, that the Seller does not own beneficially or of record more than 5% of the outstanding Units. The Seller hereby certifies, under penalties of perjury, that (1) the number shown below on this form as the Seller's Taxpayer Identification Number (or Social Security Number) is correct and (2) Seller is not subject to backup 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. 6-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 883,570 0 0 0 0 1,959,310 32,370,981 (14,393,605) 19,936,686 1,018,016 0 0 0 0 3,882,159 19,936,686 0 3,899,859 0 0 3,198,270 0 1,048,727 (347,138) 0 (347,138) 0 0 0 (347,138) 0 0
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