UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 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 PART I - Financial Information Item 1. Financial Statements. RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP - ------------------------------------------------------------------------------- Statements of Net Liabilities in Liquidation September 30 December 31 1999 1998 ------------------ ------------------ (Unaudited) Assets Cash and cash equivalents $ 68,589 $ 112,719 Restricted cash - tenant security deposits 20,924 20,616 Accounts receivable, net 10,739 12,150 Prepaids and other assets 67,973 28,160 Property held for sale 2,870,082 3,540,500 ------------------ ------------------ Total assets $3,038,307 $3,714,145 ================== ================== Liabilities Deed of trust loans payable $3,299,334 $3,326,672 Deferred gain on real estate assets - 674,541 Trade accounts payable and accrued expenses 59,197 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 $3,675,584 $4,104,663 ================== ================== Net liabilities in liquidation $ (637,277) $ (390,518) ================== ================== 3 RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP - ------------------------------------------------------------------------------- Statements of Operations in Liquidation for the Three and Nine Months Ended September 30, 1999, and Statements of Operations for the Three and Nine Months Ended September 30, 1998 (Unaudited) Three months ended Nine months ended September 30 September 1999 1998 1999 1998 ----------------- ---------------- ----------------- ---------------- Revenues Rental revenue $ 130,504 $ 269,844 $ 387,498 $ 779,882 Gain on sale of shopping center - 520,148 - 520,148 Interest and other income 401 2,502 5,379 5,935 ----------------- ---------------- ----------------- ---------------- 130,905 792,494 392,877 1,305,965 Expenses Property operations 8,288 27,592 31,031 66,490 General and administrative 991 8,992 39,584 41,727 Property taxes and insurance 12,121 25,433 34,554 76,886 Management fees 9,781 13,589 29,664 41,813 Amortization - 194 - 9,800 Interest 84,705 170,585 254,803 485,026 Provision for environmental clean-up costs - - 250,000 - ----------------- ---------------- ----------------- ---------------- 115,886 246,385 639,636 721,742 ----------------- ---------------- ----------------- ---------------- Net income (loss) 15,019 $ 546,109 (246,759) $ 584,223 ================ ================ Deficiency in assets, beginning of period (652,296) (390,518) ----------------- ----------------- Net liabilities in liquidation $(637,277) $(637,277) ================= ================= Allocation of net income (loss): Limited partners (99%) $ 14,869 $ 540,648 $(244,291) $ 573,381 ================= ================= ================ ================ General partner (1%) $ 150 $ 5,461 $ (2,468) $ 5,842 ================= ================ ================= ================ Net income (loss) per limited partnership unit $ 0.05 $ 1.62 $ (0.73) $ 1.73 ================= ================ ================= ================ Weighted average number of limited partnership units outstanding 333,577 333,577 333,577 333,577 ================= ================ ================= ================ 4 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) Net income 14,869 150 15,019 --------------- --------------- --------------- Net liabilities in liquidation at September 30, 1999 $(571,725) $(65,552) $(637,277) =============== =============== =============== 5 RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP - ------------------------------------------------------------------------------- Statements of Cash Flows (Unaudited) Nine months ended September 30 1999 1998 ----------------- ---------------- Operating activities: Net income (loss) $ (246,759) $ 584,223 Adjustments to reconcile net income (loss) to net cash provided by operations: Gain on sale of shopping center - (520,148) Provision for environmental clean-up costs 250,000 - Amortization - 9,800 Changes in operating assets and liabilities: Rent and other receivables 1,411 37,826 Prepaid expenses and other assets (39,813) (52,663) Accounts payable and accrued expenses 22,800 4,638 Security deposits and deferred revenue (308) (6,214) ----------------- ---------------- Net cash provided by operating activities (12,669) 57,462 Investing activities: Net proceeds, sale of shopping center - 3,811,732 Additions to properties (4,123) - ----------------- ---------------- Net cash (used in) provided by investing activities (4,123) 3,811,732 Financing activities: Principal payments on notes payable (27,338) (3,477,095) ----------------- ---------------- (Decrease) increase in cash and cash equivalents (44,130) 392,099 Cash and cash equivalents at beginning of period 112,719 76,863 ----------------- ---------------- Cash and cash equivalents at end of period $ 68,589 $ 468,962 ================= ================ 6 RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP - ------------------------------------------------------------------------------- Notes to Financial Statements - September 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 nine months ended September 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 Nine months ended September 30, 1998 September 30, 1998 Rental revenue $141,706 $400,598 Property operations, taxes and insurance 31,588 79,832 General and administrative 1,677 7,443 Management fees 3,817 12,394 Amortization 109 5,167 Interest 86,596 245,936 -------------------------- ------------------------- 123,787 350,772 -------------------------- ------------------------- $ 17,919 $ 49,826 ========================== ========================= 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. This contract was subject to approval of a majority of the limited partners of the Partnership, which was received in November 1999. The general partner now expects the sale of Plaza West to 7 occur on or about December 1, 1999. Assuming the sale is completed as anticipated, the Partnership will liquidate prior to December 31, 1999. The Partnership's deed of trust loan secured by Plaza West has been extended to the later of December 1999 or the termination of the sales contract. If, for any reason, the sale is not consummated, 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 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. In October 1999, a plan to sell the Partnership's remaining shopping center was presented to the Partnership's limited partners. In November 1999, a majority of the limited partners approved the sale. 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 nine months ended September 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 Nine months ended September 30 September 30 1999 1998 1999 1998 -------------- --------------- -------------- -------------- Revenues $130,905 $130,640 $392,877 $385,219 9 Three months ended Nine months ended September 30 September 30 1999 1998 1999 1998 -------------- --------------- -------------- -------------- Property operations, taxes, insurance 20,409 21,437 65,585 63,544 General and administrative 991 7,315 39,584 34,284 Management fees 9,781 9,772 29,664 29,419 Amortization - 85 - 4,633 Interest 84,705 83,989 254,803 239,090 -------------- --------------- -------------- -------------- Total operating expenses 115,886 122,598 389,636 370,970 -------------- --------------- -------------- -------------- $ 15,019 $ 8,042 $ 3,241 $ 14,249 ============== =============== ============== ============== 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 include extension fees of approximately $8,000 per quarter beginning in the third quarter of 1998. 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. This contract was subject to approval of a majority of the limited partners of the Partnership, which was received in November 1999. The general partner now expects the sale of Plaza West to occur on or about December 1, 1999. Assuming the sale is completed as anticipated, the Partnership will liquidate prior to December 31, 1999. The Partnership's deed of trust loan secured by Plaza West has been extended to the later of December 1999, or the termination of the sales contract. If, for any reason, the sale is not consummated, 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 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 11 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 November 10, 1999 /s/ Philip S. Payne -------------------------------- (Duly authorized officer) 12