SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as premitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Partnership)
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1) Title of each class of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.)
$3,400,000
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4) Proposed maximum aggregate value of transaction:
$3,400,000
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5) Total fee paid:
$680.00
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
A NORTH CAROLINA LIMITED PARTNERSHIP
NOTICE OF SOLICITATION OF CONSENTS OF LIMITED PARTNERS
Retail Equity Partners Limited Partnership, a North Carolina limited
partnership (the "Partnership"), hereby solicits from the Limited Partners of
the Partnership (the "Limited Partners") written consent authorizing Boddie
Investment Company, the General Partner of the Partnership (the "General
Partner"), to sell Plaza West Shopping Center, Raleigh, North Carolina ("Plaza
West," the "Shopping Center" or "Partnership Assets") for a minimum purchase
price of $3,400,000.00 pursuant to a transaction that will enable the
Partnership to liquidate all liabilities of the Partnership. Because the
Shopping Center comprises substantially all of the assets of the Partnership,
sale of the Shopping Center will result in the automatic dissolution of the
Partnership in accordance with the terms and conditions of the Agreement of
Limited Partnership dated as of June 15, 1987 (the "Partnership Agreement"). The
General Partner recommends approval by the Limited Partners of such sale.
The proposal is more fully described in the Proxy Statement
accompanying this Notice.
The Limited Partners of record at the close of business on September 1,
1999, are entitled to notice of the solicitation and to submit Consents.
YOUR CONSENT IS IMPORTANT, REGARDLESS OF THE NUMBER OF LIMITED
PARTNERSHIP INTERESTS YOU OWN. TO ASSURE THAT YOUR CONSENT WILL BE CONSIDERED,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED CONSENT AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE SO THAT IS RECEIVED NO LATER THAN THE CLOSE OF BUSINESS ON
NOVEMBER 15, 1999.
By the General Partner
/s/ Douglas E. Anderson
Boddie Investment Company
By: Douglas E. Anderson, Vice President
October ___, 1999
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RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
A NORTH CAROLINA LIMITED PARTNERSHIP
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PROXY STATEMENT
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This Proxy Statement 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
conditions or state other "forward-looking" information. Although the General
Partner believes 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.
SUMMARY OF THE PROPOSAL TO BE CONSIDERED
Retail Equity Partners Limited Partnership, a North Carolina limited
partnership (the "Partnership"), seeks consent, by the affirmative vote of the
Partnership's limited partners (the "Limited Partners") of record holding more
than 50% of the limited partnership interests in the Partnership held by all
Limited Partners of record (the "Majority Interest"), to sell all of the
remaining assets of the Partnership for a minimum purchase price of $3,400,000.
In June 1998, the Limited Partners authorized the General Partner to sell all or
substantially all of the assets of the Partnership, consisting of two shopping
centers, Plaza West Shopping Center in Raleigh, North Carolina ("Plaza West,"
the "Shopping Center," or the "Partnership Assets") and Cape Henry Plaza in
Virginia Beach, Virginia ("Cape Henry"), and to liquidate the Partnership by
distributing the net proceeds of the sales to the Limited Partners. This prior
authorization required that the minimum aggregate purchase price for the sale of
both Plaza West and Cape Henry be $7,500,000. In September 1998, the Partnership
sold Cape Henry for the purchase price of $3,900,000.
At the time of the sale of Cape Henry, the Partnership had entered into
a purchase contract with Aegis Realty Operating Partnership, L.P. dated April
20, 1998, for the sale of Plaza West for the purchase price of $3,850,000. At
this price, the aggregate purchase price for both Cape Henry and Plaza West
would have exceeded the minimum aggregate purchase price of $7,500,000
previously authorized by the Limited Partners. The original purchase contract
for the sale of Plaza West was subject to a number of routine conditions,
including an environmental examination. During the environmental examination, a
small amount of dry cleaning fluid was detected in the soil next to the dry
cleaning store at Plaza West. As a result of this finding, the buyer under the
original contract decided to withdraw its offer to purchase Plaza West. The
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Partnership then entered into a purchase contract with KPT Properties, L.P.
("KPT") dated April 16, 1999, to sell Plaza West for the purchase price of
$3,650,000. This purchase contract was subject to further environmental testing
at Plaza West, including a Phase III Environmental Report. Following extensive
environmental testing, it was determined that the estimated cost to correct the
contamination at Plaza West was approximately $250,000. Notwithstanding the
environmental findings, KPT indicated that it would be willing to buy Plaza West
with a substantial price reduction; however, KPT would not agree to take
immediate steps to remediate the contamination nor would KPT agree to indemnify
the Partnership against any litigation arising as a result of the environmental
contamination at the Shopping Center. As a result of the Partnership's refusal
to accept the price reduction and other conditions of sale demanded by KPT, KPT
retracted its offer to buy Plaza West.
The General Partner has now entered into a Purchase and Sale Agreement
between Zapolski/Rudd, LLC, which is unrelated to the Partnership, as buyer, and
the Partnership, as seller, dated July 13, 1999, as amended by a First Amendment
to Purchase and Sale Agreement dated August 27, 1999, and a Second Amendment to
Purchase and Sale Agreement dated September 28, 1999 (the "Purchase Agreement")
for the sale of the Shopping Center for the purchase price of $3,415,000. The
Purchase Agreement provides that the buyer will place in escrow the amount of
$250,000 to cover the estimated cost of remediating the environmental problem at
Plaza West. The buyer also agrees to take whatever steps are required to correct
and remediate the environmental problem, to indemnify the Partnership against
any litigation arising as a result of the environmental contamination at the
Shopping Center, and to purchase $1,000,000 in environmental impairment
insurance coverage as to litigation arising as a result of the environmental
contamination, with the Partnership as a named insured. The Purchase Contract
requires that the terms, consideration, and conditions of the sale of Shopping
Center be approved by the Majority Interest.
While the General Partner has every reason to believe that the Shopping
Center, which constitutes substantially all of the Partnership's remaining
assets, will be sold pursuant to the Purchase Agreement, the sale is subject to
the satisfaction of certain conditions prior to consummation of the sale.
Accordingly, as is discussed in greater detail herein, the General Partner
believes that it is in the best interests of the Partnership to authorize the
sale of substantially all of the Partnership's assets for a minimum purchase
price of $3,400,000. Therefore, the General Partner seeks the consent of the
Limited Partners to sell the Partnership's assets for a minimum purchase price
of $3,400,000, which would permit the sale of the Shopping Center pursuant to
the Purchase Agreement for $3,415,000.00. If the Partnership's assets are not
sold pursuant to the Purchase Agreement, the General Partner will continue to
solicit offers to purchase the assets for a minimum purchase price of
$3,400,000. If the General Partner does not receive a final offer to purchase
the Partnership's assets for a purchase price of at least $3,400,000, it will
not sell the Partnership's assets without resoliciting the consent of the
Limited Partners.
Since the Shopping Center comprises substantially all of the assets of
the Partnership, the assets of the Partnership following the sale thereof will
consist solely of cash and accounts receivable. Pursuant to the terms of the
Agreement of Limited Partnership dated June 15, 1987 (the "Partnership
Agreement"), the sale of all or substantially all of the Partnership's assets
results in the automatic dissolution of the Partnership. Following dissolution,
the General
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Partner will liquidate all liabilities of the Partnership and distribute the
remaining cash assets to the Limited Partners in accordance with the terms of
the Partnership Agreement. Thereafter, the Partnership will be terminated by the
filing of a Certificate of Cancellation with the Secretary of State of North
Carolina.
The Shopping Center is encumbered by a mortgage loan from State Mutual
Life Assurance. On September 30, 1999, the end of the Partnership's most recent
fiscal quarter, the outstanding indebtedness to the mortgage lender was
$3,299,334. The maturity date of the Partnership's outstanding mortgage loan was
in August 1998, and the Partnership did not have the financial resources to meet
its loan maturity obligation on such date. The Partnership has received
extensions from its mortgage lender of the maturity date of the Partnership's
outstanding mortgage loan until December 31, 1999, or the termination of the
Zapolski/Rudd contract, whichever is earlier. Accordingly, prior to the
expiration of this extension period, it will be necessary for the Partnership to
refinance the Partnership's indebtedness. There can be no assurance, however,
that replacement loans will be available with terms and conditions that will
enable the Partnership to refinance successfully.
As a result of the foregoing events, the Partnership is presently not
able to obtain a minimum aggregate purchase price of $7,500,000 for both Cape
Henry and Plaza West. Given the historical results of operation of the Shopping
Center and its present condition, the General Partner believes that it is in the
best interests of the Limited Partners to sell the Shopping Center if a sale can
be effected for a minimum purchase price of $3,400,000, rather than to attempt
to refinance the indebtedness on the Shopping Center. Therefore, Boddie
Investment Company, the General Partner of the Partnership (the "General
Partner"), is now seeking the approval and authorization of the Limited Partners
to sell Plaza West for a minimum purchase price of $3,400,000. The General
Partner recommends that the Limited Partners vote in favor of such sale.
Capitalized terms not otherwise defined in this Proxy Statement shall
have the meanings given them in the Partnership Agreement.
End of Summary
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THE PARTNERSHIP
History
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 a
North Carolina corporation with its principal office in Rocky Mount, North
Carolina.
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 in the Partnership, at $20 per BAC, on a best
efforts basis through Planned Management Company, the dealer/manager. The
Partnership received aggregate subscription funds of $6,671,543 in such
offering, and the offering was 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). 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
percent 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 NMS's outstanding mortgage loan in the
amount of $6,400,000 failed and alternative financing could not be obtained. NMS
received court approval to continue normal operations. In May 1993, NMS
successfully completed restructuring of its outstanding mortgage loan with the
lender and emerged from bankruptcy. The principal balance of the mortgage loan
was increased to $6,425,000, the additional $25,000 being attributed to legal
fees incurred in connection with restructuring the loan. In May 1993, a $100,000
principal payment was due and paid.
In August 1994, Rose's, Inc., an anchor tenant at New Market Square,
renounced its lease pursuant to a Chapter 11 bankruptcy filing, vacated the
rental space and ceased making rental payments. Rose's filed a post petition
rent claim against NMS that was settled in February 1995 for $20,000. NMS filed
a claim against Rose's for unpaid future rent. An agreement to fix the claim at
$512,808 was reached in January 1995 and the claim was sold by NMS in March 1995
to an unrelated party for an immediate cash payment of $82,049.
Due to the departure of Rose's, NMS was unable to generate sufficient
cash flow to make full payments required under the mortgage loan that was
restructured in May 1993. The lender and NMS entered into a forbearance
agreement under which NMS agreed to remit to the lender its net cash flow, after
payment of monthly operating expenses. In June 1995, the forbearance agreement
was terminated and the NMS mortgage loan was brought current by using
substantially all of NMS's cash reserves. During the last half of 1995, the
General Partner advanced NMS sufficient funds to cover operating shortfalls.
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 of $499,000. Proceeds from the sale were used to retire
the outstanding indebtedness on New Market Square
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and, in July 1996, NMS was dissolved and a distribution in the aggregate amount
of $297,985 was made to the Limited Partners. In addition, the Partnership
recorded an extraordinary loss of $30,163 in connection with the sale of the
shopping center as a result of write-offs of deferred financing costs related to
the mortgage loan on the property.
Following the sale of New Market Square in 1996, the Partnership
operated only two neighborhood shopping centers, Plaza West, a 63,800 square
foot property in Raleigh, North Carolina, and Cape Henry, a 50,000 square foot
property in Virginia Beach, Virginia. In June 1998, the Limited Partners
authorized the General Partner to sell all or substantially all of the assets of
the Partnership, consisting of Plaza West and Cape Henry, and to liquidate the
Partnership by distributing the net proceeds of the sales to the Limited
Partners. This prior authorization required that the minimum aggregate purchase
price for the sale of both Plaza West and Cape Henry be $7,500,000. In September
1998, the Partnership sold Cape Henry to Aegis Realty Trust for the purchase
price of $3,900,000 and distributed $356,376 among the Limited Partners ($1.07
per unit of limited partnership interest in the Partnership).
A sale of the Shopping Center as contemplated at that time did not occur.
The Shopping Center is encumbered by a mortgage loan from State Mutual
Life Assurance, having a total outstanding indebtedness to the mortgage lender
on September 30, 1999 of $3,299,334. The Shopping Center was constructed in 1986
and acquired by the Partnership in May 1988. In 1998, rental revenue derived
from the Shopping Center came from net leases of shopping center space to
approximately 12 tenants. The Partnership is reimbursed for substantially all
common area maintenance and certain other costs incurred.
Historically, a significant portion of rental revenue from the Shopping
Center has been derived from its anchor tenant. During 1998, the Partnership
received base rental revenue in the amount of $143,000 from Harris Teeter, which
leases 25,000 square feet at the Shopping Center. The Partnership received base
rental revenue in the amount of $70,000 from Big Ape Gym, which leases 12,450
square feet. These are the only two tenants that lease more than 10,000 square
feet. The Harris Teeter lease has a term extending until 2006 and Big Ape Gym
lease has a term extending until 2001.
Raleigh has a strong economy and a rapidly growing population. The
Shopping Center has been well maintained, and the parking lot at Plaza West was
repaired in 1996. As a result of this maintenance and repair, the Shopping
Center is in reasonably good physical condition.
Occupancy remains high at the Shopping Center. On December 31, 1997,
and December 31, 1998, occupancy rates at Plaza West were 100 percent and 100
percent, respectively. On June 30, 1999, occupancy rates at Plaza West were
100%. Rental rates for local tenant renewals and new local tenant leases
improved during 1998 at the Shopping Center. This improvement is attributable to
the combined effect of an improving economy, good location and a lack of new
construction of similar type centers.
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Results of Operations for the Year Ended December 31, 1998
The following discussion should be read in conjunction with the
Financial Statements and Notes thereto included in Item 7 of the 1998 Annual
Report (the "1998 Annual Report") a copy of which accompanies this Proxy
Statement and is incorporated by reference herein.
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
were generally consistent in 1998, 1997 and 1996, and occupancy levels remained
consistently high throughout the three years.
In September 1998, Cape Henry 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 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 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
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.
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Results of Operations for the Period Ended March 31, 1999
Summary operating results of Plaza West Shopping Center for the quarter
ending March 31, 1999, are as follows:
Three months ended
March 31
1999 1998
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Revenues $128,556 $126,477
Property operations, taxes and insurance 20,976 22,499
General and administrative 6,481 6,927
Management fees 9,990 9,820
Amortization - 2,274
Interest 85,158 77,645
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Total operating expenses 122,605 119,165
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$ 5,951 $ 7,312
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Operating revenues and expenses were generally consistent in the first
quarter of 1999 compared to the first quarter of 1998. For the first quarter of
1999, interest expense includes approximately $8,000 extension fees.
Results of Operations for the Period Ended June 30, 1999
Summary operating results of Plaza West Shopping Center for the quarter
ending June 30, 1999, are as follows:
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
-------------- --------------- -------------- --------------
Revenues $129,706 $126,671 $261,972 $254,579
Property operations, taxes, insurance 24,200 19,607 45,176 42,107
General and administrative 32,112 20,042 38,593 26,969
Management fees 9,893 9,827 19,883 19,647
Amortization - 2,274 - 4,548
Interest 84,940 77,456 170,098 155,101
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Total operating expenses 151,145 129,206 273,750 248,372
-------------- --------------- -------------- --------------
$ (21,439) $ (2,535) $ (11,778) $ 6,207
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Except for approximately $4,000 in repairs incurred in June 1999,
operating revenues and expenses were generally consistent in 1999 compared to
1998. General and administrative expense amounts for 1999 include approximately
$12,000 in legal costs associated with the failed sale contract and $2,000 in
legal costs related to environmental issues at Plaza West. Interest expense
amounts for 1999 include approximately $8,000 in extension fees paid in each of
the two quarters.
Capital Resources and Liquidity
Plaza West continues to generate nominal positive cash flow from
operations. The Partnership currently generates sufficient cash flow to meet its
immediate operating needs. However, any adverse development, such as the loss of
a major tenant, the loss of multiple smaller tenants, or the failure of a
significant tenant to pay rent, could create a material deficiency in the
Partnership's short-term liquidity. In addition, the Partnership may not
generate sufficient cash flow to make significant repairs, improvements or
modifications to the center, if such needs arise.
The Partnership has recorded a contingent liability for possible costs of
remediation of soil contamination at Plaza West Shopping Center. Environmental
tests completed in November 1998 indicated that contamination is limited to the
soil immediately around the dry cleaner. No off-site contamination of soil or
water was found. We have notified all appropriate regulatory agencies, and we
are currently pursuing a claim to hold the dry cleaner responsible for
remediation. Environmental engineers have estimated the cost of remediation at
between $80,000 and $250,000.
Further information concerning the business and operations of the
Partnership is included in the 1998 Annual Report and the Partnership's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1999,
and June 30, 1999, respectively (the "Quarterly Reports"), each of which is
enclosed herewith and incorporated by reference herein.
REASONS FOR THE PROPOSED TRANSACTION
In June 1998, the Limited Partners of the Retail Equity Partners voted
to give the General Partner authority to sell the Partnership's two shopping and
liquidate the Partnership by distributing the sales proceeds, net of costs and
loan repayments, to the Limited Partners. The only condition placed on the sale
of the properties by the vote was that the combined sales price for both
shopping centers would be no less than $7,500,000.
Following this vote, the General Partner with the assistance of
Berkeley Capital Advisors, a real estate brokerage firm specializing in
commercial real estate, began to seek buyers for the centers. In September 1998,
the Partnership sold Cape Henry to Aegis Realty Trust for $3,900,000 and
distributed $356,376 ($1.07 per unit) in net proceeds to the Partnership's
Limited Partners. At the time of the sale of Cape Henry, the Partnership had a
contract to sell Plaza West for $3,850,000. At this price, the combined sales
price of both properties would have exceeded the $7,500,000 limit imposed by the
vote of the Limited Partners. Unfortunately, the sale did not close and it has
now become clear that the Partnership will not be able to obtain the price
target
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set in the original vote. The General Partner is thus now seeking your approval
to sell Plaza West for $3,400,000.
The events leading up to this recommendation can be summarized as
follows:
The original contract to sell Plaza West was subject to a number of
routine conditions, including an environmental examination. During the
environmental examination a small amount of dry cleaning fluid was detected in
the soil next to the dry cleaning store at Plaza West. As a result of this
finding, the buyer under the original contract decided to withdraw its offer to
purchase the center.
The Partnership then entered a second contract to sell the center. This
contract provided for a purchase price of $3,650,000, but was subject to further
environmental testing. Following extensive environmental testing, it was
determined that the estimated cost to correct the contamination at Plaza West
was approximately $250,000. The buyer indicated that they would be willing to
buy the center at a substantial price reduction. The buyer would not agree,
however, to take immediate steps to fix the problem nor would it agree to
indemnify the Partnership against any lawsuits that might arise as a result of
the environmental situation at Plaza West As a result of the Partnership's
refusal to accept the price reduction and other conditions of sale demanded by
the buyer, the buyer retracted its offer to buy the center.
The Partnership has now entered into a third contract for the sale of
the property. This contact provides for a purchase price of $3,415,000. It
further provides that the purchaser will escrow $250,000 to cover the estimated
cost of correcting the environmental problem, will take whatever steps are
required by the government to correct the problem, will indemnify the
Partnership against any environmental lawsuits, and will acquire $1,000,000 in
environmental impairment insurance to protect against environmental lawsuits
(the Partnership will be a named insured). The only condition on this contract
is that the sale must be approved by a majority of the Limited Partners.
USE OF PROCEEDS AND
DISTRIBUTION TO LIMITED PARTNERS
The following table shows the projected use of proceeds and estimated
distribution for each unit of limited partnership interests in the Partnership
outstanding ("Units"). The exact amount of the proceeds available for
distribution to the Limited Partners may be more or less than the estimate set
forth below, depending on the outcome of the final accounting for the sale of
the Partnership Assets. Factors which may affect the distribution to the Limited
Partners include, but are not limited to, the final sales price for the Shopping
Center, legal fees in connection with the sale of the Shopping Center and this
solicitation, accounting fees, maintenance requirements of the Shopping Center
and the operation of the Shopping Center pending closing of the sale of the
Shopping Center. The following assumes that the Shopping Center is sold for the
price of $3,415,000.00 provided in the Purchase Agreement.
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Use of Proceeds and Distribution
(Estimated)
Sales Price $3,415,000
Cost of Sale ( 155,000)
(including real estate commissions
payable to third parties, taxes
legal, accounting, partnership
termination expenses and contingency)
Payoff of Outstanding Property Loans (3,300,000)
Other Assets, net of other Liabilities 95,000
Net Proceeds 55,000
Outstanding Units 333,577
Estimated Distribution per Unit $ 0.16
To calculate the estimated amount of your total distribution upon the
sale of the Partnership Assets at a purchase price of $3,415,000, divide your
initial investment by $20.00 and multiply the result by the Estimated
Distribution per Unit of $0.16. (Example: If you invested $10,000 in Units, your
estimated total distribution upon a sale of the Partnership Assets at a purchase
price of $3,415,000 would be $80.00, or $10,000/$20 = 500 Units x $0.16 =
$80.00.)
The above information constitutes only the best estimates of the
Partnership's management as to the results of the proposed sale of the Shopping
Center and distribution to Limited Partners and, therefore, are subject to
change. Actual results of the proposed sale of the Partnership Assets could
differ substantially from such projections and there is no assurance that
Limited Partners will receive the distribution estimated above upon the sale of
the Partnership Assets.
EFFECT OF THE TRANSACTION ON LIMITED PARTNERS
Pursuant to the terms of the Purchase Agreement, the total proceeds
estimated to be received by the Partnership in connection with the sale of the
Shopping Center is $3,415,000. After payment of the outstanding debt of the
Partnership and costs associated with the sale of the Shopping Center, net
proceeds from the sale of the Shopping Center are estimated to be $3,260,000.
For tax purposes, the Partnership's adjusted basis in the Shopping Center
currently is estimated to be $3,715,000. Thus, the Partnership is expected to
recognize a loss of approximately $455,000 as a result of the sale of the
Shopping Center. Since the Partnership is a partnership for federal and state
income tax purposes, the Partnership will not be able to recognize the loss but
such loss will be passed through to the Limited Partners in proportion to
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their ownership of the units in the Partnership. Thus, based on the foregoing
estimates, for tax purposes, each Unit will be allocated approximately $1.35 of
loss arising from the sale of the Shopping Center. The General Partner will
provide further information as it becomes available.
The General Partner is not in a position to advise the Limited Partners
as to the effect of the sale of the Shopping Center on an individual Limited
Partner's federal, state, or local income tax liability, and each Limited
Partner is encouraged to consult with its own income tax advisors to determine
how the proposed transaction will affect it or its income tax liability.
INFORMATION CONCERNING THE PURCHASE AGREEMENT
The Partnership has entered into the Purchase Contract for the sale of
the Shopping Center with the assistance of Berkeley Capital Advisors, a real
estate brokerage firm specializing in commercial real estate. The Purchase
Contract provides for a purchase price of $3,415,000, and further, that the
buyer will place in escrow the amount of $250,000 to cover the estimated cost of
remediating the environmental problem at Plaza West. The buyer also agrees to
take whatever steps are required to correct and remediate the environmental
problem, to indemnify the Partnership against any litigation arising as a result
of the environmental contamination at the Shopping Center, and to purchase
$1,000,000 in environmental impairment insurance coverage as to litigation
arising as a result of the environmental contamination, with the Partnership as
a named insured. The Purchase Contract requires that the terms, consideration,
and conditions of the sale of Shopping Center be approved by the Majority
Interest. As of the date hereof, the inspection period has expired, and the
General Partner has no reason to believe that the conditions precedent to the
sale of the Shopping Center will not be fulfilled or that the Shopping Center
will not be sold substantially in accordance with the terms and conditions of
the Purchase Agreement. Under the terms of the Purchase Agreement, the approval
of the sale by the Majority Interest must occur by December 10, 1999, and the
sale must close no later than December 31, 1999.
In the event the Shopping Center is not sold pursuant to the Purchase
Agreement, the General Partner will solicit additional offers to purchase the
Partnership Assets. The General Partner, however, will not accept an offer to
purchase the Partnership Assets unless it provides for the sale of the
Partnership Assets for cash consideration in the minimum amount of $3,400,000.
CERTAIN CONDITIONS TO SALE OF THE PARTNERSHIP ASSETS
Section 10.03 of the Partnership Agreement provides that the Limited
Partners shall not exercise their voting rights to approve the sale of all or
substantially all of the assets of the Partnership unless and until the
Partnership has received an opinion of counsel, which counsel is satisfactory to
a majority in interest of the Limited Partners, to the effect that the sale (i)
is legal, (ii) may be effected without subjecting the Limited Partners to
liability as General Partners under the North Carolina Revised Uniform Limited
Partnership Act, and (iii) may be effected without changing the Partnership's
status for tax purposes. Section 10.03 further provides that, for purposes of
Section 10.03, counsel will be deemed satisfactory to the Limited Partners if
proposed by the General Partners and not disapproved in writing within 45 days
by a majority in interest of the Limited Partners.
-12-
The General Partner previously engaged the services of Poyner &
Spruill, L.L.P., Rocky Mount, North Carolina ("Poyner & Spruill") to render the
aforesaid legal opinion in relation to the June 1998 solicitation. The General
Partner intends to rely on said legal opinion in the presently proposed sale of
the Partnership Assets, as there has been no change in any of the facts or
circumstance relied upon in rendering said legal opinion, and does not intend to
obtain any additional opinion. Attached as Appendix A to this Proxy Statement is
a copy of the opinion delivered by Poyner & Spruill to the Partnership in
accordance with the provisions of Section 10.03.
INFORMATION CONCERNING THE SOLICITATION
General
The Consent attached as Appendix B is solicited on behalf of the
General Partner of the Partnership. The Partnership's principal executive
offices are located at 1021 Noell Lane, Rocky Mount, North Carolina 27802. The
telephone number is (252) 937-2800.
These solicitation materials were mailed to the Limited Partners on or
about October ___, 1999. The cost of this solicitation will be borne by the
Partnership. Certain officers and directors of the General Partner may solicit
consents personally or by telephone or telegram, without additional
compensation.
Consent Required
Approval of the proposal set forth in the accompanying Notice of
Solicitation of Consents of Limited Partners and described herein requires the
affirmative vote of a Majority Interest of the Partnership. Returning the
Consent without indicating a choice will be deemed by the General Partner as
CONSENT to the sale of the Shopping Center. All Consents are required to be
returned and received not later than the close of business on November 15, 1999,
in order to be effective. Failure to return a Consent will have the effect of a
vote against the proposal.
Any Limited Partner who executes and delivers a Consent has the right
to revoke it at any time before the authority conferred therein is exercised by
the Partnership by filing with Douglas E. Anderson, Vice President and Secretary
of the General Partner, an instrument revoking such Consent.
Limited Partners of record at the close of business on September 1,
1999 (the "Record Date") are entitled to notice of the solicitation and to
submit Consents. On September 1, 1999 there were 333,577 outstanding Units held
by 453 Limited Partners. No Limited Partner owned or controlled more than 5% of
the Units as of the Record Date.
Effect of Approval
If the proposal is approved by a Majority Interest of the Limited
Partners and the Partnership Assets are sold pursuant to the Purchase Agreement,
or, if the Partnership Assets are not sold pursuant to the Purchase Agreement,
but the Partnership receives a final offer to purchase the Partnership Assets
for a minimum price of $3,400,000, and all conditions in connection with the
closing of said offer are satisfied, the following transactions will occur:
-13-
(1) The Partnership will transfer ownership of the Shopping
Center to the purchasers in exchange for cash;
(2) The Partnership will pay, in full, the outstanding balance
of principal and interest on the mortgage loan encumbering the Shopping Center
of approximately $3,300,000;
(3) The Partnership will collect all accounts receivable due
the Partnership and pay all other liabilities of the Partnership;
(4) The Partnership will distribute all remaining assets in
complete liquidation of the Partnership; and
(5) The Partnership will file a Certificate of Cancellation
with the Secretary of State of North Carolina.
Recommendation of the General Partner
The General Partner believes that the proposed sale of the Partnership
Assets pursuant to the terms and conditions of the Purchase Agreement, and the
sale of the Partnership Assets for a minimum price of $3,400,000 in the event
the Shopping Center is not sold pursuant to the Purchase Agreement, followed by
the complete liquidation of the Partnership, is in the best interests of the
Partnership. Accordingly, the General Partner recommends that the Limited
Partners execute Consents FOR the approval of the transaction proposed herein
for the following reasons:
(1) The Partnership does not have sufficient funds to make
necessary repairs to the Shopping Center and to remediate the environmental
problems discussed above;
(2) The mortgage loan on the Shopping Center is past due
(although currently under extension), and a sale at the minimum price of
$3,400,000 would allow the Partnership to pay off the outstanding balance of
principal and interest;
(3) If the proposed sale of the Shopping Center is not
approved, the Partnership will likely be forced to file for bankruptcy
protection to forestall a foreclosure on the Partnership Assets;
(4) The General Partner believes that the terms, consideration
and conditions of the Purchase Contract are as favorable as the Partnership can
reasonably expect to receive for the Shopping Center; and
(5) The Purchase Contract will allow the sale of the of the
Partnership Assets to be completed prior to the end of this year, thereby
allowing the use of deferred tax losses by the Limited Partners on their 1999
tax returns.
FINANCIAL STATEMENTS
A copy of each of the Partnership's Annual Report on Form 10-K, without
exhibits, for the fiscal year ended December 31, 1998, and the Partnership's
Quarterly Reports on Form 10-Q,
-14-
without exhibits, for the quarterly periods ended March 31, 1999, and June 30,
1999, each as filed with the Securities and Exchange Commission, is enclosed
herewith and incorporated herein by reference.
By the General Partner
/s/ Douglas E. Anderson
Boddie Investment Company
By: Douglas E. Anderson, Vice President
Dated: October 8, 1999
Rocky Mount, North Carolina
-15-
APPENDIX A
POYNER & SPRUILL, L.L.P. LETTERHEAD
Michael S. Colo
Direct Dial: 919/972-7105
Direct Fax: 919/972-7014
E-Mail: mscolo@poynerspruill.com
June 2, 1998
Retail Equity Partners Limited Partnership
c/o Boddie Investment Company, General Partner
1021 Noell Lane
Rocky Mount, North Carolina 27802
Gentlemen:
The foregoing opinion is rendered pursuant to the provisions of Section
10.03 of the Agreement of Limited Partnership among the Limited Partners and
General Partner (the "Partnership Agreement") of Retail Equity Partners Limited
Partnership (the "Partnership"). Unless otherwise defined herein, capitalized
terms shall have meanings ascribed to them in the Partnership Agreement.
In rendering our opinion, we have (i) examined the Partnership
Agreement, (ii) had discussions with management of the General Partner in
connection with the transaction for which the consent of the Limited Partners of
the Partnership is being solicited, (iii) reviewed applicable law, and (iv)
examined such other laws and documents as we have deemed necessary or
appropriate for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The sale of substantially all of the assets of the
Partnership, in the manner contemplated by the Proxy Statement
dated June 2, 1998 (the "Proxy Statement"), resulting in the
automatic dissolution of the Partnership, is legal;
2. The sale of substantially all of the assets of the
Partnership, in the manner contemplated by the Proxy
Statement, may be effected without subjecting the Limited
Partners and BAC holders to liability as general partners
under North Carolina Revised Uniform Limited Partnership Act;
and
3. The sale of substantially all of the assets of the
Partnership, in the manner contemplated by the Proxy
Statement, can be effected without changing the Partnership's
status for tax purposes.
-16-
Please be advised that we are members of the Bar of the State of North
Carolina and do not purport to be experts in the laws of any jurisdiction other
than the State of North Carolina. Accordingly, this opinion is limited in all
respects to the laws of the State of North Carolina and Federal law. This
opinion is solely for the benefit of the Limited Partners and General Partner of
the Partnership in connection with the transaction contemplated by the
aforementioned Proxy Statement. It may not be otherwise distributed or relied
upon by any person or quoted or reproduced, in whole or in part, in any document
other than the aforementioned Proxy Statement, or filed with any governmental
agency, except in connection with the aforementioned Proxy Statement, without
our prior written consent.
This opinion is specifically limited to the matters expressed herein,
effective as of the date hereof. We assume no duty to inform you of any change
in our opinion hereafter due to any change in law or facts which may hereafter
occur or come to our attention.
Kindest personal regards.
Yours very truly,
/s/Poyner & Spruill, L.L.P.
-17-
APPENDIX B
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
1021 Noell Lane, Rocky Mount, North Carolina 27802
CONSENT OF LIMITED PARTNERS
The undersigned Limited Partner of Retail Equity Partners Limited
Partnership (the "Partnership") hereby:
________ CONSENTS to the sale of Plaza West Shopping Center, which
constitutes substantially all of the assets of the
Partnership, for a minimum sales price of $3,400,000, which
will result in the automatic dissolution of the Partnership.
________ DOES NOT CONSENT to the sale of Plaza West Shopping Center,
which constitute substantially all of the assets of the
Partnership, for a minimum sales price of $3,400,000, which
will result in the automatic dissolution of the Partnership.
Please indicate your choice by checking one of the above. Failure to indicate a
choice will be deemed by the General Partner as CONSENT to the sale of the
Partnership's assets.
Date: ____________________, 1999
-----------------------------------------
Name of Limited Partner (please print)
-----------------------------------------
Signature of Limited Partner
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
ENVELOPE. THE CONSENT SHOULD BE RECEIVED BY THE GENERAL PARTNER BY THE CLOSE OF
BUSINESS ON NOVEMBER 15, 1999.
-18-
APPENDIX C
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
-19-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
TABLE OF CONTENTS
Item No. Page No.
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
2
-20-
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
-21-
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
For the years ended December 31
1998 (1) 1997 1996 (2) 1995 (3) 1994
- -------------------------------------- -------------- --------------- --------------- -------------- ---------------
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>
4
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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
-23-
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
-24-
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
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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
-26-
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
-27-
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
PAGE
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
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
-28-
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
-29-
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
-30-
Retail Equity Partners Limited Partnership
Statement of Net Liabilities in Liquidation as of December 31, 1998 and
Balance Sheet as of December 31, 1997
December 31
1998 1997
------------------ -------------------
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)
==================
See accompanying notes.
13
-31-
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
Year ended December 31
1998 1997 1996
------------------- ------------------ ------------------
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.
14
-32-
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
Limited General
Partners Partner Total
------------------- ------------------ ------------------
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)
=================== ================== ==================
See accompanying notes.
15
-33-
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
Year ending December 31
1998 1997 1996
----------------- ------------------- -------------------
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
================= =================== ===================
See accompanying notes.
16
-34-
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:
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)
===============
The accompanying 1997 and 1996 financial statements have been prepared on a
going concern (historical cost) basis.
17
-35-
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
-36-
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
-37-
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:
1998 1997
------------------ ------------------
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
================== ==================
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
-38-
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:
1998 1997 1996
------------------ ----------------- ----------------
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)
================== ================= ================
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
-39-
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
-40-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Schedule III - Real Estate and
Accumulated Depreciation
Year Ended December 31, 1998
Description Encumb. Initial Costs Costs
------------- -------- --------------- Capitalized
Buildings & Subsequent
Land Improvem'ts to Acquisition
Plaza West Shopping Center,
Raleigh, NC $3,326,672 $1,422,557 $3,307,336 $874,398 (1)
==================================================================================
Description Gross Amount at Which
------------- Carried at Close of Period
----------------------------
Buildings & Accumulated Date of Date Life
Land Improvem'ts Total Depreciation Constr. Acquired (Years)
Plaza West Shopping Center,
Raleigh, NC $1,072,779 $3,348,736 $4,421,515 $881,016 1986 May-88 33
===================================================================
Years ended December 31,
1998 1997 1996
---------------------------------------------------------
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>
23
-41-
INDEX TO EXHIBITS
Exhibit No. Page
27 Financial Data Schedule (electronic filing) -
24
-42-
APPENDIX D
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 33-15427
Retail Equity Partners Limited Partnership
(Exact name of Registrant as specified in its charter)
North Carolina 56-1590235
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
704/944-0100
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
Total number of pages: 11
1
-43-
TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
3 Quantitative and Qualitative Disclosures About Market Risk
11
PART II - Other Information
6 Exhibits and Reports on Form 8-K 11
2
-44-
PART I - Financial Information
Item 1. Financial Statements.
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Net Liabilities in Liquidation
March 31 December 31
1999 1998
------------------ ------------------
(Unaudited)
Assets
Cash and cash equivalents $ 107,874 $ 112,719
Restricted cash - tenant security deposits 20,714 20,616
Accounts receivable, net 7,652 12,150
Prepaids and other assets 39,170 28,160
Property held for sale 2,865,958 3,540,500
------------------ ------------------
Total assets $ 3,041,368 $ 3,714,145
================== ==================
Liabilities
Deed of trust loans payable $ 3,317,769 $ 3,326,672
Deferred gain on real estate assets - 674,541
Trade accounts payable and accrued expenses 37,403 36,397
Prepaid rents and tenant security deposits 17,053 17,053
Reserve for estimated costs during period of liquidation 50,000 50,000
Contingent liability - environmental clean-up 250,000 -
------------------ ------------------
Total liabilities $ 3,672,225 $ 4,104,663
================== ==================
Net liabilities in liquidation $ (630,857) $ (390,518)
================== ==================
3
-45-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Operations in Liquidation for the Three Months Ended March 31, 1999
and Statement of Operations for the Three Months Ended March 31, 1998
(Unaudited)
Three months ended
March 31
1999 1998
----------------- ----------------
Revenues
Rental revenue $ 128,556 $257,331
Interest and other income 3,710 1,431
----------------- ----------------
132,266 258,762
Expenses
Property operations 9,772 22,671
General and administrative 6,481 8,761
Property taxes and insurance 11,204 26,142
Management fees 9,990 13,969
Amortization - 4,803
Interest 85,158 157,412
Provision for environmental
clean-up costs 250,000 -
----------------- ----------------
372,605 233,758
----------------- ----------------
Net income (loss) (240,339) $ 25,004
================
Deficiency in assets,
beginning of year (390,518)
-----------------
Net liabilities in liquidation $(630,857)
=================
Allocation of
net income (loss):
Limited partners (99%) $(237,936) $ 24,754
================= ================
General partner (1%) $ (2,403) $ 250
================= ================
Net income (loss) per
limited partnership unit $ (0.71) $ 0.07
================= ================
Weighted average number of
limited partnership units
outstanding 333,577 333,577
================= ================
4
-46-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Changes in Net Liabilities in Liquidation
(Unaudited)
Limited General
Partners Partner Total
--------------- --------------- ---------------
Net liabilities in liquidation at December 31, 1998 $(327,433) $(63,085) $(390,518)
Net loss (237,936) (2,403) (240,339
--------------- --------------- ---------------
Net liabilities in liquidation at March 31, 1999 $(565,369) $(65,488) $(630,857)
=============== =============== ===============
5
-47-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
Three months ended
March 31
1999 1998
----------------- ----------------
Operating activities:
Net income (loss) $(240,339) $ 25,004
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Provision for environmental clean-up costs 250,000 -
Amortization - 4,803
Changes in operating assets and liabilities:
Rent and other receivables 4,498 9,620
Prepaid expenses and other assets (11,009) (22,371)
Accounts payable and accrued expenses 1,006 25,296
Security deposits and deferred revenue (98) (832)
----------------- ----------------
Net cash provided by operating activities 4,058 41,520
Financing activities:
Principal payments on notes payable (8,903) (16,461)
----------------- ----------------
Increase (decrease) in cash and cash equivalents (4,845) 25,059
Cash and cash equivalents at beginning of period 112,719 76,863
----------------- ----------------
Cash and cash equivalents at end of period $ 107,874 $ 101,922
================= ================
6
-48-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Notes to Financial Statements - March 31, 1999
(Unaudited)
Note 1. Interim financial statements
Our independent accountants have not audited the accompanying financial
statements of Retail Equity Partners Limited Partnership (the "Partnership"),
except for the statement of net liabilities in liquidation at December 31, 1998.
We derived the amounts in the statement of net liabilities in liquidation at
December 31, 1998, from the financial statements included in our 1998 Annual
Report on Form 10-K. We believe that all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included.
We have condensed or omitted certain notes and other information from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
You should read these financial statements in conjunction with our 1998 Annual
Report on Form 10-K.
Note 2. Cape Henry Plaza Shopping Center
The Cape Henry Plaza Shopping Center property was sold to an unrelated third
party in September 1998. The statement of operations for the three months ended
March 31, 1998, includes the operations of Cape Henry Plaza.
Results of operations of Cape Henry Plaza for this period were as follows:
Rental revenue $130,854
Property operations, taxes and insurance 26,314
General and administrative 1,834
Management fees 4,149
Amortization 2,529
Interest 79,767
--------------------
114,593
--------------------
$ 16,261
====================
Note 3. Plaza West Shopping Center
In April 1999, the general partner entered into a contract for sale of Plaza
West Shopping Center that subsequently failed. A deferred gain on this
anticipated sale was recorded at December 31, 1998, and was reversed as of March
31, 1999. The Partnership has recorded a contingent liability for possible costs
of remediation of soil contamination immediately adjacent to a dry cleaning
facility at Plaza West Shopping Center.
The Partnership's deed of trust loan secured by Plaza West has been extended to
July 1999. The general partner can offer no assurance that, at that date,
additional extensions or replacement financing will be obtainable. Assuming that
a sale of Plaza West is completed by June 1999, the general partner intends to
liquidate the Partnership by the end of 1999. If the Partnership is not able to
obtain an additional extension of its loan maturity, it will be unable to
continue its normal operations, and will be required to file bankruptcy.
7
-49-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Although we believe that
our plans, intentions, and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will
achieve our plans, intentions or expectations. Such statements are subject to
various risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors identified in our Annual
Report on Form 10-K for the year ending December 31, 1998. You should read the
following discussion in conjunction with the financial statements and notes
thereto included in this Quarterly Report and our Annual Report on Form 10-K.
Partnership Profile
Retail Equity Partners Limited Partnership is a North Carolina limited
partnership formed in 1987 to acquire, hold, operate and manage three
neighborhood shopping centers. In February 1996, one of the shopping centers was
sold to an unrelated party.
In January 1998, the two remaining shopping center properties were listed
for sale. In June 1998, the partners approved a plan to sell the Partnership's
properties and subsequently liquidate the Partnership. In September 1998, Cape
Henry Plaza Shopping Center was sold to an unrelated party.
The Partnership received aggregate subscription funds of $6,671,543 for
333,577 beneficial assignment certificates ("BACs") from approximately 480
investors. There is currently no established public trading market for the BACs.
We are not aware of any secondary market for the Partnership's securities. There
is currently no established fair market value for the BACs.
Results of Operations
The statement of operations for the three months ended March 31, 1998,
includes the operations of Cape Henry Plaza Shopping Center.
Summary operating results of Plaza West Shopping Center are as follows:
Three months ended
March 31
1999 1998
-------------- --------------
Revenues $128,556 $126,477
Property operations, taxes and insurance 20,976 22,499
General and administrative 6,481 6,927
Management fees 9,990 9,820
8
-50-
Three months ended
March 31
1999 1998
-------------- --------------
Amortization - 2,274
Interest 85,158 77,645
-------------- --------------
Total operating expenses 122,605 119,165
-------------- --------------
$ 5,951 $ 7,312
============== ==============
Operating revenues and expenses were generally consistent in the first
quarter of 1999 compared to the first quarter of 1998. For the first quarter of
1999, interest expense includes approximately $8,000 extension fees.
Capital Resources and Liquidity
Plaza West continues to generate nominal positive cash flow from
operations. The Partnership currently generates sufficient cash flow to meet its
immediate operating needs. However, any adverse development, such as the loss of
a major tenant, the loss of multiple smaller tenants, or the failure of a
significant tenant to pay rent, could create a material deficiency in the
Partnership's short-term liquidity. In addition, the Partnership may not
generate sufficient cash flow to make significant repairs, improvements or
modifications to the center, if such needs arise.
In April 1999, the general partner entered into a contract for sale of
Plaza West Shopping Center that subsequently failed. A deferred gain on this
anticipated sale was recorded at December 31, 1998, and was reversed as of March
31, 1999.
The Partnership has recorded a contingent liability for possible costs of
remediation of soil contamination at Plaza West Shopping Center. Environmental
tests completed in November 1998 indicated that contamination is limited to the
soil immediately around the dry cleaner. No off-site contamination of soil or
water was found. We have notified all appropriate regulatory agencies, and we
are currently pursuing a claim to hold the dry cleaner responsible for
remediation. Environmental engineers estimated the cost of remediation at
between $80,000 and $250,000.
The Partnership's deed of trust loan secured by Plaza West has been
extended to July 1999. The general partner can offer no assurance that, at that
date, additional extensions or replacement financing will be obtainable.
The Partnership has put Plaza West back on the market for sale. While
there have been several indications of interest in the center, to date the
Partnership has not received any offers for purchase of the property. There can
be no assurance that the Partnership will receive an acceptable offer for the
property.
Assuming that a sale of Plaza West is completed by June 1999, the general
partner intends to repay the existing loan and liquidate the Partnership by the
end of 1999. If the property has not been sold by the maturity date of the loan
and the Partnership is not able to obtain an additional extension of its loan
maturity, it will be unable to continue its normal operations, and will be
required to file bankruptcy.
9
-51-
Year 2000 Issue
The Year 2000 issue refers to the inability of certain computer systems to
accurately store and use dates after 1999. This could result in a system failure
or miscalculation that could cause disruption of operations.
We do not believe that the Year 2000 issue will have a material effect on
the business of the Partnership, the results of its operations, cash flows or
its financial condition. This belief is based on the following:
o Assuming a sale of Plaza West is completed by June 1999, the general
partner intends to liquidate the Partnership by the end of 1999.
o The Partnership's sole asset is Plaza West shopping center, a single story
"strip" center that does not contain any elevators, escalators or computer
controlled mechanical systems. Neither the Partnership nor Plaza West owns
or operates any computer systems.
o The Partnership's property management agent has identified other systems,
such as telecommunications, security, HVAC, fire and safety systems, for
which it is responsible and which may contain embedded technology that
could raise Year 2000 issues. Based on the management agent's knowledge of
our property and systems and the results of inquiries to the manufacturers
and servicing agents of such systems, we do not believe the Year 2000 issue
will impact these systems. It is important to note that the leases at Plaza
West make the tenants responsible for the maintenance of such systems
within or servicing their leasehold spaces.
o Certain third-party vendors provide services to the Partnership or its
property. These vendors include suppliers of building-related products and
services (landscaping and trash removal), utilities and banking. Based on
our management agent's inquiries of utility providers, significant vendors
and service providers, and bank, we do not believe the Year 2000 issue will
have a material impact on the Partnership's operating results, cash flows
or financial condition.
o The Partnership's management agent provides property management and
administration of the Partnership. The management agent has represented to
the Partnership that all of the computer systems, hardware and software,
used in providing these services are Year 2000 compliant.
To date there has been no indication that any significant Year 2000 issues
must be resolved. We currently have not formalized a contingency plan in the
event that we or a significant third-party supplier do not resolve any material
Year 2000 issues that may arise. We will review our status on a quarterly basis
to determine if such a plan is necessary.
Various of our disclosures and announcements concerning our Year 2000
programs are intended to constitute "Year 2000 Readiness Disclosures" as defined
in the recently enacted Year 2000 Information and Readiness Disclosure Act. The
Act provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection
10
-52-
from liability for certain types of Year 2000 disclosures made after January 1,
1996, and before the date of enactment of the Act.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require the recognition of all derivatives on an entity's balance sheet at
fair value. We do not anticipate that the adoption of this Statement will have a
material impact on the Partnership's results of operations or financial
position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information that would be provided
under Item 305 of Regulation S-K since December 31, 1998.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 Financial data schedule (electronic filing)
b) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RETAIL EQUITY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: Boddie Investment Company
General Partner
May 13, 1999 /s/ Philip S. Payne
----------------------------------------
Philip S. Payne
(Duly authorized officer)
11
-53-
APPENDIX E
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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 33-15427
Retail Equity Partners Limited Partnership
(Exact name of Registrant as specified in its charter)
North Carolina 56-1590235
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
704/944-0100
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
Total number of pages: 12
1
-54-
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
3 Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - Other Information
6 Exhibits and Reports on Form 8-K 12
2
-55-
PART I - Financial Information
Item 1. Financial Statements.
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Net Liabilities in Liquidation
June 30 December 31
1999 1998
------------------ ------------------
(Unaudited)
Assets
Cash and cash equivalents $ 77,274 $ 112,719
Restricted cash - tenant security deposits 20,817 20,616
Accounts receivable, net 6,242 12,150
Prepaids and other assets 49,999 28,160
Property held for sale 2,870,082 3,540,500
------------------ ------------------
Total assets $3,024,414 $3,714,145
================== ==================
Liabilities
Deed of trust loans payable $3,308,657 $3,326,672
Deferred gain on real estate assets - 674,541
Trade accounts payable and accrued expenses 51,000 36,397
Prepaid rents and tenant security deposits 17,053 17,053
Reserve for estimated costs during period of liquidation 50,000 50,000
Contingent liability - environmental clean-up 250,000 -
------------------ ------------------
Total liabilities $3,676,710 $4,104,663
================== ==================
Net liabilities in liquidation $ (652,296) $ (390,518)
================== ==================
3
-56-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Operations in Liquidation for the Three and Six Months Ended June
30, 1999, and Statements of Operations for the Three and Six Months
Ended June 30, 1998
(Unaudited)
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
----------------- ---------------- ----------------- ----------------
Revenues
Rental revenue $ 128,438 $252,707 $ 256,994 $510,038
Interest and other income 1,268 2,002 4,978 3,433
----------------- ---------------- ----------------- ----------------
129,706 254,709 261,972 513,471
Expenses
Property operations 12,971 16,227 22,743 38,898
General and administrative 32,112 23,974 38,593 32,735
Property taxes and insurance 11,229 25,311 22,433 51,453
Management fees 9,893 14,255 19,883 28,224
Amortization - 4,803 - 9,606
Interest 84,940 157,029 170,098 314,441
Provision for environmental
clean-up costs - - 250,000 -
----------------- ---------------- ----------------- ----------------
151,145 241,599 523,750 475,357
----------------- ---------------- ----------------- ----------------
Net income (loss) (21,439) $ 13,110 (261,778) $ 38,114
================ ================
Deficiency in assets,
beginning of period (630,857) (390,518)
----------------- -----------------
Net liabilities in liquidation $(652,296) $(652,296)
================= =================
Allocation of
net income (loss):
Limited partners (99%) $ (21,225) $ 12,979 $(259,160) $ 37,733
================= ================ ================= ================
General partner (1%) $ (214) $ 131 $ (2,618) $ 381
================= ================ ================= ================
Net income (loss) per
limited partnership unit $ (0.06) $ 0.04 $ (0.78) $ 0.11
================= ================ ================= ================
Weighted average number of
limited partnership units
outstanding 333,577 333,577 333,577 333,577
================= ================ ================= ================
4
-57-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statement of Changes in Net Liabilities in Liquidation
(Unaudited)
Limited General
Partners Partner Total
--------------- --------------- ---------------
Net liabilities in liquidation at December 31, 1998 $(327,433) $(63,085) $(390,518)
Net loss (237,936) (2,403) (240,339)
--------------- --------------- ---------------
Net liabilities in liquidation at March 31, 1999 (565,369) (65,488) (630,857)
Net loss (21,225) (214) (21,439)
--------------- --------------- ---------------
Net liabilities in liquidation at June 30, 1999 $(586,594) $(65,702) $(652,296)
=============== =============== ===============
5
-58-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
Six months ended
June 30
1999 1998
----------------- ----------------
Operating activities:
Net income (loss) $(261,778) $ 38,114
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Provision for environmental clean-up costs 250,000 -
Amortization - 9,606
Changes in operating assets and liabilities:
Rent and other receivables 5,908 32,132
Prepaid expenses and other assets (21,839) (28,508)
Accounts payable and accrued expenses 14,603 25,493
Security deposits and deferred revenue (201) (978)
----------------- ----------------
Net cash provided by operating activities (13,307) 75,859
Investing activities:
Additions to properties (4,123) -
----------------- ----------------
(4,123)
Financing activities:
Principal payments on notes payable (18,015) (33,305)
----------------- ----------------
(18,015) (33,305)
----------------- ----------------
Increase (decrease) in cash and cash equivalents (35,445) 42,554
Cash and cash equivalents at beginning of period 112,719 76,863
----------------- ----------------
Cash and cash equivalents at end of period $ 77,274 $119,417
================= ================
6
-59-
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
Notes to Financial Statements - June 30, 1999
(Unaudited)
Note 1. Interim financial statements
Our independent accountants have not audited the accompanying financial
statements of Retail Equity Partners Limited Partnership (the "Partnership"),
except for the statement of net liabilities in liquidation at December 31, 1998.
We derived the amounts in the statement of net liabilities in liquidation at
December 31, 1998, from the financial statements included in our 1998 Annual
Report on Form 10-K. We believe that all adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included.
We have condensed or omitted certain notes and other information from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
You should read these financial statements in conjunction with our 1998 Annual
Report on Form 10-K.
Note 2. Cape Henry Plaza Shopping Center
The Cape Henry Plaza Shopping Center property was sold to an unrelated third
party in September 1998. The statements of operations for the three and six
months ended June 30, 1998, include the operations of Cape Henry Plaza. Results
of operations of Cape Henry Plaza for these periods were as follows:
Three months ended Six months ended
June 30, 1998 June 30, 1998
Rental revenue $128,038 $258,892
Property operations, taxes and insurance 21,931 48,244
General and administrative 3,932 5,766
Management fees 4,428 8,577
Amortization 2,529 5,058
Interest 79,573 159,340
------------------------- ------------------------
112,393 226,985
------------------------- ------------------------
$ 15,645 $ 31,907
========================= ========================
Note 3. Plaza West Shopping Center
At December 31, 1998, the Partnership had recorded a deferred gain on an
anticipated sale of Plaza West Shopping Center. That anticipated sale
subsequently failed, and the deferred gain was reversed as of March 31, 1999.
The Partnership has recorded a contingent liability for possible costs of
remediation of soil contamination immediately adjacent to a dry cleaning
facility at Plaza West Shopping Center.
In July 1999, the general partner entered into a contract for sale of Plaza West
to a third party, subject to a 45-day period for buyer's due diligence during
which the buyer may terminate the contract for any reason. Assuming that a sale
of Plaza West is completed by mid-September 1999, the general partner intends to
liquidate the Partnership by the end of 1999.
7
-60-
The Partnership's deed of trust loan secured by Plaza West has been extended to
the later of October 1999 or the termination of the sales contract. If the
contract is not successful, the general partner can offer no assurance that
additional extensions or replacement financing will be obtainable. 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.
8
-61-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Although we believe that
our plans, intentions, and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will
achieve our plans, intentions or expectations. Such statements are subject to
various risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors identified in our Annual
Report on Form 10-K for the year ending December 31, 1998. You should read the
following discussion in conjunction with the financial statements and notes
thereto included in this Quarterly Report and our Annual Report on Form 10-K.
Partnership Profile
Retail Equity Partners Limited Partnership is a North Carolina limited
partnership formed in 1987 to acquire, hold, operate and manage three
neighborhood shopping centers. In February 1996, one of the shopping centers was
sold to an unrelated party.
In January 1998, the two remaining shopping center properties were listed
for sale. In June 1998, the partners approved a plan to sell the Partnership's
properties and subsequently liquidate the Partnership. In September 1998, Cape
Henry Plaza Shopping Center was sold to an unrelated party.
The Partnership received aggregate subscription funds of $6,671,543 for
333,577 beneficial assignment certificates ("BACs") from approximately 480
investors. There is currently no established public trading market for the BACs.
We are not aware of any secondary market for the Partnership's securities. There
is currently no established fair market value for the BACs.
Results of Operations
The statements of operations for the three and six months ended June 30,
1998, include the operations of Cape Henry Plaza Shopping Center, which was
subsequently sold in September 1998. Comparative summary results for the
remaining operations are as follows:
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
-------------- --------------- -------------- --------------
Revenues $129,706 $126,671 $261,972 $254,579
Property operations, taxes, insurance 24,200 19,607 45,176 42,107
General and administrative 32,112 20,042 38,593 26,969
Management fees 9,893 9,827 19,883 19,647
9
-62-
Amortization - 2,274 - 4,548
Interest 84,940 77,456 170,098 155,101
-------------- --------------- -------------- --------------
Total operating expenses 151,145 129,206 273,750 248,372
-------------- --------------- -------------- --------------
$(21,439) $ (2,535) $(11,778) $ 6,207
============== =============== ============== ==============
Except for approximately $4,000 repairs incurred in June 1999, operating
revenues and expenses were generally consistent in 1999 compared to 1998.
General and administrative expense amounts for 1999 include approximately
$12,000 legal costs associated with the failed sale contract and $2,000 legal
costs related to environmental issues at Plaza West. Interest expense amounts
for 1999 include approximately $8,000 extension fees paid in each of the two
quarters.
Capital Resources and Liquidity
Plaza West continues to generate nominal positive cash flow from
operations. The Partnership currently generates sufficient cash flow to meet its
immediate operating needs. However, any adverse development, such as the loss of
a major tenant, the loss of multiple smaller tenants, or the failure of a
significant tenant to pay rent, could create a material deficiency in the
Partnership's short-term liquidity. In addition, the Partnership may not
generate sufficient cash flow to make significant repairs, improvements or
modifications to the center, if such needs arise.
The Partnership has recorded a contingent liability for possible costs of
remediation of soil contamination at Plaza West Shopping Center. Environmental
tests completed in November 1998 indicated that contamination is limited to the
soil immediately around the dry cleaner. No off-site contamination of soil or
water was found. We have notified all appropriate regulatory agencies, and we
are currently pursuing a claim to hold the dry cleaner responsible for
remediation. Environmental engineers estimated the cost of remediation at
between $80,000 and $250,000.
In July 1999, the general partner entered into a contract for sale of
Plaza West to a third party, subject to a 45-day period for buyer's due
diligence. During the due diligence period the buyer may terminate the contract
for any reason. Assuming that a sale of Plaza West is completed by mid-September
1999, the general partner intends to liquidate the Partnership by the end of
1999.
The Partnership's deed of trust loan secured by Plaza West has been
extended to the later of October 1999, or the termination of the sales contract.
If the contract is not successful, the general partner can offer no assurance
that additional extensions or replacement financing will be obtainable. 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.
10
-63-
Year 2000 Issue
The Year 2000 issue refers to the inability of certain computer systems to
accurately store and use dates after 1999. This could result in a system failure
or miscalculation that could cause disruption of operations.
We do not believe that the Year 2000 issue will have a material effect on
the business of the Partnership, the results of its operations, cash flows or
its financial condition. This belief is based on the following:
o Assuming a sale of Plaza West is completed by mid-September 1999, the
general partner intends to liquidate the Partnership by the end of 1999.
o The Partnership's sole asset is Plaza West shopping center, a single story
"strip" center that does not contain any elevators, escalators or computer
controlled mechanical systems. Neither the Partnership nor Plaza West owns
or operates any computer systems.
o The Partnership's property management agent has identified other systems,
such as telecommunications, security, HVAC, fire and safety systems, for
which it is responsible and which may contain embedded technology that
could raise Year 2000 issues. Based on the management agent's knowledge of
our property and systems and the results of inquiries to the manufacturers
and servicing agents of such systems, we do not believe the Year 2000 issue
will impact these systems. It is important to note that the leases at Plaza
West make the tenants responsible for the maintenance of such systems
within or servicing their leasehold spaces.
o Certain third-party vendors provide services to the Partnership or its
property. These vendors include suppliers of building-related products and
services (landscaping and trash removal), utilities and banking. Based on
our management agent's inquiries of utility providers, significant vendors
and service providers, and bank, we do not believe the Year 2000 issue will
have a material impact on the Partnership's operating results, cash flows
or financial condition.
o The Partnership's management agent provides property management and
administration of the Partnership. The management agent has represented to
the Partnership that all of the computer systems, hardware and software,
used in providing these services are Year 2000 compliant.
To date there has been no indication that any significant Year 2000 issues
must be resolved. We currently have not formalized a contingency plan in the
event that we or a significant third-party supplier do not resolve any material
Year 2000 issues that may arise. We will review our status on a quarterly basis
to determine if such a plan is necessary.
Various of our disclosures and announcements concerning our Year 2000
programs are intended to constitute "Year 2000 Readiness Disclosures" as defined
in the recently enacted Year 2000 Information and Readiness Disclosure Act. The
Act provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection
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from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before the date of enactment of the Act.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. This
Statement, as amended by Statement No. 137, must be adopted in years beginning
after June 15, 2000. The Statement will require the recognition of all
derivatives on an entity's balance sheet at fair value. We do not anticipate
that the adoption of this Statement will have a material impact on the
Partnership's results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information that would be provided
under Item 305 of Regulation S-K since December 31, 1998.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 Financial data schedule (electronic filing)
b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RETAIL EQUITY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: Boddie Investment Company
General Partner
August 13, 1999 /s/ Philip S. Payne
------------------------------------
Philip S. Payne
(Duly authorized officer)
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