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 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 New Market Square's mortgage loan payable 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 the mortgage loan payable 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 to restructure 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 the Partnership, which was settled in February 1995 for $20,000. The Partnership 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 in March 1995 to an unrelated third party for an immediate cash payment of $82,049.
Due to the departure of Rose's, the Partnership was unable to generate sufficient cash flow to make full payments required under the NMS mortgage loan. The lender and the Partnership entered into a forbearance agreement under which NMS remitted to the lender 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 the Partnership's cash reserves. During the last half of 1995, BIC advanced the Partnership 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 on sale of $499,000.
Cape Henry Plaza and Plaza West are currently held for sale. The general partner anticipates entering into contracts for sale of both properties in the near future.
Partnership Business. Following the sale of New Market Square Shopping Center in February 1996, the Partnership continues to operate two shopping centers, Cape Henry and Plaza West. Rental revenue is derived from the leasing of shopping center space to approximately 24 tenants and from a ground lease to a bank for an out-parcel. The shopping centers are leased 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 for which leases extend to 2006. Major tenants (those leasing greater than 10 percent of total leasable space of 113,800 square feet) are as follows:
Base Rental Lease Tenant Shopping Center Square Feet Revenue Expires - --------------------------------------------------------------------------------
Harris Teeter Plaza West 25,000 $ 143,000 2006 Food Lion Cape Henry 33,000 180,000 2006
The Partnership's two properties are located in cities with strong economies and rapidly growing populations. The properties have been well maintained. Cape Henry Plaza was painted in 1995 and roof repairs were completed in 1996. The parking lot at Plaza West was repaved in 1997. With the completion of these repairs, the centers are in reasonably good physical condition.
Occupancy remains high at both centers. At December 31, 1997, occupancy was 97% at Cape Henry Plaza and 98% at Plaza West. Rental rates for local tenant renewals and new local tenant leases continue to improve at both properties. This improvement appears to be attributable to the combined effect of an improving economy, good locations and a lack of new construction of similar type centers.
As of March 20, 1998, the Partnership had no employees.
ITEM 2.
ITEM 2. PROPERTIES
Both properties are neighborhood shopping centers held subject to loans. The centers were constructed in 1986 and acquired by the Partnership in May 1988.
Approx. Sq. Ft. Shopping Center Name Location Rental Space - --------------------------------------------------------------------------------
Plaza West Raleigh, North Carolina 63,800 Cape Henry Plaza Virginia Beach, Virginia 50,000
Summary information regarding occupancy rates is as follows:
As of December 31 1997 1996 1995 - --------------------------------------------------------------------------------
Plaza West 98% 100% 100% Cape Henry Plaza 97% 100% 100%
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership was not a party to any material pending legal proceedings.
ITEM 4.
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 1997.
PART II
ITEM 5.
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.
During second quarter 1996, the Partnership made a distribution in the amount of $297,985 to the limited partners. This distribution consisted entirely of return of capital, and was funded from the net proceeds of the sale of New Market Square less amounts required to maintain adequate operating reserves. Further distributions have been suspended until such time that property operations allow. No distributions were made in 1997 or 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains forward-looking statements within the meaning of Federal securities law. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other "forward-looking" information. Although management 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. This discussion should be read in conjunction with the Financial Statements and Notes thereto included in Item 14 of this Annual Report.
Results of Operations
Revenues. Rental revenues in 1997 decreased by 6% from 1996, primarily attributable to the sale of New Market Square in February 1996. Rental revenues in 1996 decreased by 38% from 1995, again primarily attributable to the
sale of New Market Square in February 1996. Although rental revenues in total decreased, revenues at the two centers owned throughout the three years, Cape Henry and Plaza West, were consistent in 1997 compared to 1996, and increased by 4% in 1996 compared to 1995. Occupancy levels at Cape Henry and Plaza West have remained consistently high.
In 1995 the Partnership recognized approximately $82,000 in other income related to the sale of its claim against Rose's for unpaid future rent. There were no other significant income items in 1997, 1996 or 1995.
Expenses. Decreases in operating expenses in 1997 compared to 1996, and in 1996 compared to 1995, generally reflect the impact of the sale of New Market Square. For the two centers owned throughout the three years, operating expenses decreased by 10% in 1997 compared to 1996, primarily due to repairs at Plaza West in 1996. For these two centers, 1996 operating expenses increased approximately 20% compared to 1995 (this increase also reflects the impact of repairs at Plaza West in 1996). Depreciation and amortization were generally unchanged in 1997 compared to 1996. The decrease in depreciation and amortization in 1996 compared to 1995 reflects the impact of sale of New Market Square. The decrease in interest expense in 1997 compared to 1996, and the decrease in 1996 compared to 1995, was again attributable to the sale of New Market Square.
In late December 1995, the Partnership entered into an agreement to sell New Market Square Shopping Center which 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 (contract sale price of $6,558,000 less direct costs of the sale totaling approximately $214,000). (See discussion of New Market Square in Notes to Financial Statements included in Item 14 of this Annual Report.)
Summary Results of Operations. The consolidated statements of operations include the operations of NMS through February 1996. Decreases in revenues and expenses in 1996 compared to 1995 generally reflect the effect of the sale of New Market Square Shopping Center in early February. Summary operating results of Cape Henry Plaza and Plaza West shopping centers are as follows:
1997 1996 1995 ----------------- ----------------- -----------------
Revenue Rental revenue $1,032,474 $1,031,987 $ 993,566 Interest 9,205 8,527 5,903 ----------------- ----------------- ----------------- 1,041,679 1,040,514 999,469
Expenses Operating expenses 284,543 314,558 261,708 Depreciation 181,610 177,400 177,534 Amortization 19,194 19,194 19,194 Interest 632,832 638,349 643,379 ----------------- ----------------- ----------------- 1,118,179 1,149,501 1,101,815 ----------------- ----------------- ----------------- Net loss $ (76,500) $ (108,987) $ (102,346) ================= ================= =================
Liquidity and Capital Resources
The two remaining shopping centers continue to generate nominal positive cash flow from operations. The leases held by the Partnership are generally long-term, with substantially all increases in operating expenses, taxes and insurance passed through to, and paid by, tenants. Additionally, most leases include built-in rent increases based on changes in the consumer price index or percentage rents based on total sales. Although the Partnership currently generates sufficient cash flow to meet its immediate operating and capital needs, virtually 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 centers should such needs arise.
In January 1998, Cape Henry Plaza and Plaza West were listed for sale. The general partner is currently evaluating numerous offers that have been received, and anticipates entering into contracts for sale of both centers in the near future. In the event the properties are sold, the general partner does not believe that the sale will result in sufficient funds, after repayment of the first mortgage loans, to allow for more than nominal distributions to investors.
The Partnership's two mortgage loans mature in August 1998. In the event the Partnership's properties have not been sold prior to that date, the Partnership will be required to refinance these loans. The general partner can offer no assurance that, at that time, replacement financing will be obtainable.
During 1997 the Partnership made capital repairs to Plaza West totaling approximately $115,000. A distribution of approximately $298,000 was made to the limited partners in 1996 from the net proceeds of the sale of New Market Square. The Partnership made no distributions in 1997 or 1995. Distributions have been suspended until property operations allow.
ITEM 8.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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. From the inception of the Partnership until April 14, 1994, the general partner was BT Venture Partners ("BTVP"), a North Carolina general partnership formed in June 1985. The two general partners of BTVP were Boddie Investment Company ("BIC"), a North Carolina corporation, and Tom G. Thornburg ("Thornburg"). In April 1994 BIC purchased Thornburg's interest in BTVP and certain affiliated partnerships and corporations. In conjunction with this transaction, BIC became the general partner of the Partnership as of April 14, 1994.
BIC 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 68, 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 70, 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 50, 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 45, 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
During the year ended December 31, 1997, the Partnership paid no compensation to the general partner or to the executive officers, directors or partners of its affiliates.
ITEM 12.
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.
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 $55,000 were paid to BNP Management, Inc. during 1997. In addition, the Partnership reimbursed BNP Management, Inc. for certain administrative costs in the amount of approximately $12,000.
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 it 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.
PART IV
ITEM 14.
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.
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.
2* Plan for Reorganization and Disclosure Statement, a Motion seeking authority to make post-petition expenditures and certain other related filings (filed as Exhibit 29(e) to the Partnership 8-K filing dated February 14, 1992, and incorporated herein by reference) 4* Retail Equity Partners Limited Partnership Agreement (filed as Exhibit 4 to the Partnership's Registration Statement (File No. 33-15427) on Form S-11 and incorporated herein by reference) 27 Financial Data Schedule (electronic filing)
* Incorporated herein by reference
(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
March 24, 1998 /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 March 24, 1998 - ----------------------------------- B. Mayo Boddie
/s/ Nicholas B. Boddie Director March 24, 1998 - ----------------------------------- Nicholas B. Boddie
Report of Independent Auditors
To the Partners of Retail Equity Partners Limited Partnership
We have audited the accompanying consolidated balance sheets of Retail Equity Partners Limited Partnership as of December 31, 1997 and 1996 and the related consolidated statements of operations, changes in partners' deficit and cash flows for the years then ended. Our audits also included the financial statement schedule as of and for the years ended December 31, 1997 and 1996 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 audits 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Retail Equity Partners Limited Partnership as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule as of and for the years ended December 31, 1997 and 1996 when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 6 to the financial statements, the Partnership's recurring losses from operations and net capital deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans as to these matters are also described in Note 6. The 1997 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP ERNST & YOUNG LLP Raleigh, North Carolina February 4, 1998
Report of Independent Public Accountants
To the Retail Equity Partners Limited Partnership:
We have audited the accompanying consolidated statements of operations, changes in partners' deficit and cash flows of Retail Equity Partners Limited Partnership (a North Carolina limited partnership) for the year ended December 31, 1995. These financial statements are the responsibility of the managing general partner. Our responsibility is to express an opinion on those financial statements based on our audit.
We conducted our audit 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Retail Equity Partners Limited Partnership for the year ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Charlotte, North Carolina, February 8, 1996
Retail Equity Partners Limited Partnership
Consolidated Balance Sheets
See accompanying notes.
Retail Equity Partners Limited Partnership
Consolidated Statements of Operations
See accompanying notes.
Retail Equity Partners Limited Partnership
Consolidated Statements of Partners' Deficit
See accompanying notes.
Retail Equity Partners Limited Partnership
Consolidated Statements of Cash Flows
See accompanying notes.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization and Summary of Significant Accounting Policies
Retail Equity Partners Limited Partnership (the "Partnership") is a North Carolina limited partnership formed to acquire, hold, operate and manage three neighborhood shopping centers. In October 1991 the ownership of one of the shopping centers was transferred to a newly formed partnership, New Market Square Limited Partnership ("NMS"), which was 99.99 percent owned by the Partnership. In 1996, NMS was sold to an unrelated third party (see Note 5). The financial statements for the two years ended December 31, 1996 include the accounts of NMS, and all significant intercompany accounts and transactions have been eliminated.
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.
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 1997, 1996 or 1995. The shopping centers are leased subject to net leases. Tenants reimburse the Partnership for common area maintenance and certain other expenses incurred.
Property
All property to be held and used is stated at cost. Buildings are depreciated on a straight-line basis over the estimated useful life of 33 years. Capitalized building improvements and personal property are depreciated using an accelerated method over 15 years and 7 years, respectively. Repairs and maintenance costs are expensed as incurred. Property held for sale is stated at the lower of cost or fair value.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
New Market Square Shopping Center
The New Market Square Shopping Center land, building and personal property were sold to an unrelated party in February 1996.
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 have been capitalized and are amortized over the term of the related mortgages. Leasing commissions are capitalized and amortized over related lease terms.
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.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
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.
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, 1997.
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.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to conform to the 1997 and 1996 presentation. These reclassifications had no effect on net income or partners' deficit as previously reported.
Impact of Recently Issued Accounting Standards
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") and No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), which are both effective for fiscal years beginning after December 15, 1997. SFAS 130 addresses reporting amounts of other comprehensive income and SFAS 131 addresses reporting segment information. The Partnership does not believe that the adoption of these new standards will have a material impact on its financial statements.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
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 at December 31, 1997, 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
Approximately 35 percent of rental revenue at these two properties is derived from two anchor tenants for which leases extend to 2006. Annual base rental revenue from these two major tenants was approximately $180,000 and $143,000, respectively in 1997, 1996 and 1995.
Minimum future rentals on noncancelable operating leases, excluding reimbursement of operating expenses and contingent rent, in effect as of December 31, 1997, are as follows:
1998 $ 862,100 1999 817,400 2000 795,000 2001 682,400 2002 459,700 Thereafter 1,638,600 --------------------- $ 5,255,200 =====================
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
3. Mortgage Loans Payable
Mortgage loans payable at December 31 consist of the following:
Interest payments totaled approximately $633,300, $742,400, and $1,203,300, in 1997, 1996, and 1995, respectively.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
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.
During 1995, BIC made advances to the Partnership totaling $79,000, which were repaid in 1996. Such advances accrued interest at the prime rate.
The Partnership is charged a property management fee of 3 percent of gross collections, as defined. In 1997 and 1996 the Partnership was also charged a partnership administration fee of $24,000. In addition, the management agent allocates certain costs to the Partnership totaling $12,000 in 1997, 1996 and 1995. Operating expenses paid on behalf of the Partnership are reimbursed on a monthly basis.
5. New Market Square Limited Partnership
In February 1992 NMS filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. NMS received court approval to continue normal operations. In May 1993 NMS successfully completed its restructuring of the mortgage loan payable with the lender and emerged from bankruptcy.
During August 1994 a major tenant at NMS, Rose's Inc., renounced its lease pursuant to its Chapter 11 bankruptcy filing, vacated the rental space and ceased making rental payments. Rose's filed a claim against the Partnership in the amount of $45,743 for rent which it claimed was paid improperly after the filing of its bankruptcy petition. In February 1995 the Partnership paid Rose's $20,000 in settlement of the claim for payment of post petition rent. In addition, the Partnership settled and sold its claim against Rose's for unpaid future rent for the net amount of $82,000, with proceeds paid to the mortgage lender applied against principal and interest in arrears.
Subsequent to Rose's vacating its rental space, NMS was unable to fund the required debt service on the mortgage loan secured by its assets. As a result, the lender and general partner entered into a forbearance agreement under which NMS paid the lender net cash flow, as defined, in lieu of the principal and interest requirement of the original note. In June 1995 the forbearance agreement was terminated and the NMS mortgage loan was brought current by using substantially all of the Partnership's cash reserves.
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
5. New Market Square Limited Partnership (continued)
New Market Square Shopping Center was subsequently sold to an unrelated third party on February 8, 1996, for a contract price of $6,558,000. Direct costs of the sale totaled approximately $214,000.
Proceeds from the sale were used to pay off the mortgage loan secured by the assets of New Market Square Shopping Center. The Partnership also recorded an extraordinary loss of $30,163 consisting of the write-off of deferred financing costs related to that mortgage loan.
NMS was dissolved effective July 31, 1996. During 1996 the partnership made a distribution to the limited partners totaling $297,985 from proceeds of the sale of New Market Square Shopping Center.
Results of operations of NMS were as follows:
Retail Equity Partners Limited Partnership
Notes to Consolidated Financial Statements (continued)
6. Liquidity
The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. The Partnership's mortgage loans totaling $6.8 million mature in August 1998. In light of the Partnership's current projected earnings and cash flow, management believes the Partnership has the financial resources to maintain its current level of operations until the August 1998 mortgage loans are due. However, cash generated from operations alone will not be sufficient to repay the $6.8 million in August 1998, without proceeds from the sale of assets or a refinancing or restructuring of the mortgage loans prior to such date.
The properties are held for sale, and it is the intent of the general partner to consummate a sale of the properties to the highest bidder prior to the maturity date of the mortgage loans. Proceeds from the sale will be used to repay the mortgage loans and liquidate the Partnership. The net proceeds from the disposition are expected to exceed the current carrying value. If the Partnership does not make the August 1998 mortgage loan payment, it will be unable to continue its normal operations, and will be required to file bankruptcy.
RETAIL EQUITY PARTNERS LIMITED PARTNERSHIP - ------------------------------------------------------------------------------- Schedule III - Real Estate and Accumulated Depreciation Year Ended December 31, 1997
INDEX TO EXHIBITS