<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1994
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: 0-12045
PRUDENTIAL ACQUISITION FUND I, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3173903
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
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 _CK_ 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. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Limited Partners for the year ended December
31, 1994 is incorporated by reference into Parts I, II and IV of this Annual
Report on Form 10-K
Amended and Restated Agreement of Limited Partnership included as part of the
Registration Statement filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of 1933, and amended on January
1, 1987, is incorporated by reference into Part IV of this Annual Report on Form
10-K
Index to exhibits can be found on pages 10 and 11.
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
TABLE OF CONTENTS
PART I PAGE
Item 1 Business.......................................... 3
Item 2 Properties........................................ 4
Item 3 Legal Proceedings................................. 5
Item 4 Submission of Matters to a Vote of Limited
Partners........................................ 5
PART II
Item 5 Market for the Registrant's Units and Related
Limited Partner Matters......................... 5
Item 6 Selected Financial Data........................... 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of
Operations...................................... 6
Item 8 Financial Statements and Supplementary Data....... 6
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure...................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant
Prudential-Bache Properties, Inc.................. 7
Prudential Realty Partnerships, Inc............... 8
Item 11 Executive Compensation............................ 9
Item 12 Security Ownership of Certain Beneficial Owners
and Management.................................. 9
Item 13 Certain Relationships and Related Transactions.... 9
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Financial Statements and Financial Statement
Schedules....................................... 10
Exhibits.......................................... 11
Reports on Form 8-K............................... 11
SIGNATURES....................................................... 22
2
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PART I
Item 1. Business
General
Prudential Acquisition Fund I, L.P. (the ``Registrant''), a Delaware limited
partnership, was formed on February 16, 1983 and will terminate on December 31,
2007 unless terminated sooner under the provisions of the Amended and Restated
Agreement of Limited Partnership (the ``Partnership Agreement''). The Registrant
was formed to acquire and manage income-producing commercial real estate with
proceeds raised from the initial sale of 70,124 limited partnership units
(``Units''). The Registrant's fiscal year for book and tax purposes ends on
December 31.
The Registrant has invested in and operates a real estate investment
portfolio consisting of five properties. These commercial real estate properties
consist of two office buildings, a warehouse and two shopping centers. The
shopping centers were acquired through a joint venture agreement with Prudential
Realty Acquisition Fund II, L.P., an affiliated limited partnership. The
Registrant is engaged solely in the business of real estate investment;
therefore, presentation of industry segment information is not applicable. For
more information regarding the Registrant's operations, see Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations.
As the economy has improved in certain of the markets relating to the
Registrant's properties, the market for commercial real estate has also
generally improved. While property values continue to be below the levels
reached in the mid-1980's, investment capital is more readily available and
investor interest in acquiring certain types of real estate has increased.
Accordingly, the Partnership intends to list its properties for sale. See Note C
to the financial statements of the Registrant's Annual Report to Limited
Partners for the year ended December 31, 1994 (``Registrant's Annual Report'')
which is filed as an exhibit hereto for additional information.
General partners
The general partners of the Registrant are Prudential Realty Partnerships,
Inc. (``PRP'') and Prudential-Bache Properties, Inc. (``PBP'') (collectively,
the ``General Partners'').
Competition
The General Partners and/or their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The real estate industry is highly competitive. The Registrant's properties
are subject to competition from similar properties located in the immediate
vicinity of its properties. See Item 2 Properties.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. See Note G to the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto.
Other Information
On October 27, 1994, an affiliate of PBP, Prudential Securities Incorporated
(``PSI''), entered into cooperation and deferred prosecution agreements (the
``Agreements'') with the Office of the United States Attorney for the Southern
District of New York (the ``U.S. Attorney''). The Agreements resolved a grand
jury investigation that had been conducted by the U.S. Attorney into PSI's sale
during the 1980's of the Prudential-Bache Energy Income Fund oil and gas limited
partnerships (the ``Income Funds''). In connection with the Agreements, the U.S
Attorney filed a complaint charging PSI with a criminal violation of the
securities laws. In its request for a deferred prosecution, PSI acknowledged to
having made certain misstatements in connection with the sale of the Income
Funds. Pursuant to the Agreements, the U.S. Attorney will defer any prosecution
of the charge in the complaint for a period of three years, provided that PSI
complies with certain conditions during the three-year period. These include
conditions that PSI not violate any criminal laws; that PSI
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contribute an additional $330 million to a pre-existing settlement fund; that
PSI cooperate with the government in any future inquiries; and that PSI comply
with various compliance-related provisions. If, at the end of the three-year
period, PSI has complied with the terms of the Agreements, the U.S. Attorney
will be barred from prosecuting PSI on the charges set forth in the complaint.
If, on the other hand, during the course of the three-year period, PSI violates
the terms of the Agreements, the U.S. Attorney can elect to pursue such charges.
Item 2. Properties
As of December 31, 1994 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average Square Average Rental Average Rental
Occupancy Occupancy Square Footage Rates per Rates per
Rate at Rate in Footage in Submarket Square Foot Square Foot
Property Property Area* of Property Area at Property in Area*
----------------------- --------- --------- ------------ ------------ -------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Norwest Center
(Rochester, MN) 87% 88% 96,785 496,000 $18.00 gross $17.50 to $19.50 gross
Norwalk Industrial
(Norwalk, CA) 100 90 180,000 76.6 million $ 3.27 net $ 3.12 to $ 3.36 net
One Executive Center
(Albuquerque, NM) 99 88 114,000 2.0 million $14.50 gross $13.00 to $15.00 gross
Joint Venture (Davie,
FL)
Pine Island** 93 85 250,000 10.0 million $10.15 gross $ 6.50 to $15.00 gross
Ridge Plaza** 80 85 155,000 10.0 million $ 6.64 gross $ 6.50 to $15.00 gross
----------------
Information reflects current market data as obtained from third party appraisals. Gross rental rates indicate the
landlord pays the operating and fixed expenses and net rental rates indicate the tenant pays the operating and fixed
expenses.
* The average rental rates for similar properties in the area depend on the age, condition and location of the specific
property; average occupancy rates in the area are estimated based on comparable space in the area.
** 54% interest held by the Registrant.
</TABLE>
Revenues from the Norwest Center in Rochester, Minnesota, a multi-tenant
office building, represented approximately 46%, 52% and 47% of the Registrant's
income from directly-owned properties for the years ended December 31, 1994,
1993 and 1992, respectively. One tenant at this property, Norwest Bank, N.A.,
whose lease expires in 2012, accounted for 28%, 21% and 14% of the revenues of
the Registrant for the years ended December 31, 1994, 1993 and 1992,
respectively.
The Rochester office market has been impacted by the construction of a new
County Government Center and the acquisition of the old County Government Center
by Mayo Clinic, the primary employer in its downtown market. Mayo Clinic,
currently occupies about 28% of the Class ``A'' office market in downtown
Rochester and approximately 12% of the Norwest Center. While Mayo Clinic has
consolidated into facilities it owns during the past few years, certain aspects
of its businesses are expanding. Plans to build a new office facility are on
hold indefinitely due to the uncertainty facing the health care industry.
The Registrant's industrial warehouse facility located in Norwalk, California
was vacant from September 1992 through February 1993; however, a ten year lease
for the entire building was signed March 1, 1993 with Weber Distribution.
Revenues from this property represented approximately 18%, 13% and 18% of the
Registrant's income from directly-owned properties for the years ended December
31, 1994, 1993 and 1992, respectively.
Revenues from One Executive Center, a five-story office building located in
Albuquerque, New Mexico represented approximately 36%, 35% and 35% of the
Registrant's income from directly-owned properties for the years ended December
31, 1994, 1993 and 1992, respectively.
In May 1985, the Registrant and The Prudential Insurance Company of America
(``The Prudential''), through the Ridge Plaza joint venture (the ``Joint
Venture''), acquired two shopping centers, Pine Island Ridge Plaza (``Pine
Island'') and Ridge Plaza (collectively, the ``Joint Venture Properties''),
located in Davie,
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Broward County, Florida. The Registrant has a 54% interest in the Joint Venture.
During 1986, The Prudential sold its 46% joint venture interest to Prudential
Realty Acquisition Fund II, L.P. (``PRAF II''), an affiliated limited
partnership. The Registrant's share of the Joint Venture's net income (loss) is
recorded as revenue (``Joint Venture Equity Income (Loss)'') in the Registrant's
Statements of Operations. The Joint Venture properties were written down to fair
value in 1993 to reflect a permanent impairment. See Notes B and C to the Ridge
Plaza Joint Venture's financial statements which are filed as an exhibit hereto
for further information. One tenant at Pine Island, Builders Square whose lease
expires in 2003, accounted for 16%, 13% and 11% of the revenues of the Joint
Venture for the years ended December 31, 1994, 1993 and 1992, respectively.
The estimated fair value of the Registrant's properties (including its pro
rata share of the fair value of the Joint Venture's properties) based on third
party appraisals as of September 30, 1994 was $31,700,000. Appraised values are
only estimates of fair value and should not be relied on as a measure of
immediately realizable value. Estimated values may fluctuate with changes in the
real estate and financial markets, economic conditions and other factors
including the anticipated performance of the properties, property type and
geographic location.
The General Partners believe the Registrant's properties are adequately
insured.
For additional information describing the Registrant's properties, see Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Schedule III--Real Estate and Accumulated Depreciation on page 13
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
This information is incorporated by reference to Note H to the financial
statements in the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 1, 1995, there were 7,869 holders of record owning 70,124 Units.
A significant secondary market for the Units has not developed, and it is not
expected that one will develop in the future. There are also certain
restrictions set forth in the Partnership Agreement limiting the ability of a
Limited Partner to transfer Units. Consequently, holders of Units may not be
able to liquidate their investments in the event of an emergency or for any
other reason.
The following per Unit cash distributions were paid to Limited Partners
during the quarter indicated:
<TABLE>
<CAPTION>
Quarter Ended 1994 1993
----------------------- ------ ------
<S> <C> <C>
March 31 $4.375 $4.375
June 30 $5.000 $4.375
September 30 $5.750 $4.375
December 31 $6.875 $4.375
</TABLE>
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. The Registrant currently expects that cash distributions
will continue to be paid in the foreseeable future from cash generated by
current operations and prior undistributed cash flow from operations. The
Registrant increased the distribution levels paid during 1994 as a result of an
increase in rental income from directly-owned properties and improved operations
of the joint venture. The distributions paid to limited partners during 1994 and
1993 represent a return of capital on a generally accepted accounting principles
(GAAP) basis. (The return of capital on a GAAP basis is calculated as limited
partner distributions less net income allocated to limited partners.) For
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discussion of other factors that may affect the amount of future distributions,
see Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto contained on pages 2 through 10 in the
Registrant's Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
Rental income $ 3,048,468 $ 2,801,858 $ 2,705,969 $ 2,841,684 $ 2,618,070
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Joint venture equity income (loss)(a) $ 193,516 $(7,764,418) $(1,531,697) $ (60,885) $ 496,726
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on impairment
of assets $ 770,000 $ -- $ 1,100,000 $ 2,000,000 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 22,610 $(7,805,498) $(3,009,138) $(2,157,118) $ 707,212
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per limited
partnership Unit $ (2.12) $ (113.25) $ (45.30) $ (33.03) $ 7.56
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $30,609,791 $32,175,924 $41,413,523 $46,133,461 $49,956,978
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total limited partnership
distributions $ 1,542,849 $ 1,226,992 $ 1,507,666 $ 1,430,530 $ 1,594,579
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner distributions per
Unit $ 22.00 $ 17.50 $ 21.50 $ 20.40 $ 22.74
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
---------------
(a) Includes $7,587,000 and $1,674,000 provisions for loss on impairment of
assets in 1993 and 1992, respectively
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 11 through 14 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10
of the Registrant's Annual Report which is filed as an exhibit hereto.
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
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partners.
The Registrant, the Registrant's General Partners and their directors and
executive officers, and any limited partners holding more than ten percent of
the Registrant's Units are required to report their initial ownership of such
Units and any subsequent changes in that ownership to the Securities and
Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors and
limited partners who own greater than ten percent of the Registrant's Units are
required by Securities and Exchange Commission regulations to furnish the
Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing
requirements were
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satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partners' directors and
executive officers and limited partners who own greater than ten percent of the
Registrant's Units or copies of the reports they have filed with the Securities
and Exchange Commission during and with respect to most recent fiscal year.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions with
regard to managing the Registrant are as follows:
Name Position
James M. Kelso President, Chief Executive Officer, Chairman
of the Board of Directors and Director
Barbara J. Brooks Vice President--Finance and Chief Financial
Officer
Robert J. Alexander Vice President and Chief Accounting Officer
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
JAMES M. KELSO, age 40, is the President, Chief Executive Officer, Chairman
of the Board of Directors and a Director of PBP. He is a Senior Vice President
of Prudential Securities Incorporated. Mr. Kelso also serves in various
capacities for other affiliated companies. Mr. Kelso joined PSI in July 1981.
BARBARA J. BROOKS, age 46, is the Vice President-Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
ROBERT J. ALEXANDER, age 33, is a Vice President of PBP. He is a First Vice
President of PSI. Mr. Alexander also serves in various capacities for other
affiliated companies. Prior to joining PSI in July 1992, he was with Price
Waterhouse for nine years. Mr. Alexander is a certified public accountant.
CHESTER A. PISKOROWSKI, age 51, is a Vice President of PBP. He is a Senior
Vice President of PSI and is the Senior Manager of the Specialty Finance Asset
Management area. Mr. Piskorowski has held several positions within PSI since
April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 52, is a Director of PBP. He is a Senior Vice
President of PSI and General Counsel of Prudential Mutual Fund Management Inc.,
an affiliate of PSI. Mr. Giordano also serves in various capacities for other
affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 44, is a Director of PBP Ms. Maio is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in various capacities for other affiliated companies.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
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Prudential Realty Partnerships, Inc.
The directors and executive officers of Prudential Realty Partnerships, Inc.
and their positions are as follows:
Name Position
Joel W. Stoesser Chairman of the Board of Directors
John C. Hoffman President and Director
Kevin R. Smith Vice President and Director
Steven B. Saperstein Vice President and Comptroller
Martin Pfinsgraff Treasurer
Claude J. Zinngrabe, Jr. Director
Roger S. Pratt Director
Joseph D. Margolis Secretary
JOEL W. STOESSER, age 54, is a Managing Director of Prudential Real Estate
Investors. He is head of all client investment programs for real estate assets
with areas of responsibility including portfolio management of domestic and
international sources of funds. Prior to his current assignment, Mr. Stoesser
served as a Senior Vice President of the Prudential Realty Group. He also
previously served as a Senior Vice President in Real Estate Investment
Management at CIGNA Corporation and held assignments with Connecticut General
Life Insurance Company as head of real estate operations and as Director of
strategic planning for all investment operations.
JOHN C. HOFFMAN, age 49, is a Managing Director of Prudential Real Estate
Investors. He serves as Portfolio Manager for the PRISA portfolio, a $2.2
billion real estate fund. Prior to his current assignment, Mr. Hoffman was
Regional Managing Director for the Northeast region. Mr. Hoffman joined the
Prudential in 1974.
KEVIN R. SMITH, age 37, is Vice President, Prudential Real Estate Investors.
He is portfolio manager for four separate accounts and four commingled funds.
Mr. Smith has been employed by The Prudential since 1981 and has experience in
asset management, development, property acquisitions and sales, and mortgage
loans as a result of field office assignments in Cleveland, Houston, and
northern New Jersey.
STEVEN B. SAPERSTEIN, age 33, is Vice President and Comptroller of Prudential
Real Estate Investors as well as other Prudential Asset Management Group Real
Estate entities. He joined The Prudential Insurance Company of America's
Comptroller's Department in 1984 as an Accountant. In 1985, he transferred
within the Comptroller's Department to the Tax division.
MARTIN PFINSGRAFF, age 40, is Vice President and Treasurer of The Prudential
Insurance Company of America. He is responsible for all borrowings, cash
management and securities custody activities of The Prudential. Prior to joining
The Prudential in 1989 as Vice President, Corporate Finance Group, Mr.
Pfinsgraff was employed by Mellon Bank where he held various positions in
portfolio management, funds management, securities marketing and asset sales.
CLAUDE J. ZINNGRABE, JR., age 48, is Chairman and Chief Executive Officer of
Prudential Real Estate Investors. He also serves as Chairman of Prudential Home
Building Investors, Inc., a specialty real estate investment management firm.
Mr. Zinngrabe joined Prudential in 1972 and has worked in every area of
Prudential's real estate investment activity. From 1979-1981, Mr. Zinngrabe
directed a number of real estate development operations in the U.S. and Canada.
In 1981, he assumed responsibility for all the company's real estate investment
activities throughout New England and the Mid-Atlantic states. From 1984-1991,
Mr. Zinngrabe was Senior Vice President of Prudential Realty Group, responsible
for property acquisitions and sales on a national basis for all
Prudential-managed portfolios.
ROGER S. PRATT, age 42, is Vice President of Prudential Real Estate
Investors. He is the portfolio manager of PRISA II, a large commingled fund. Mr.
Pratt joined the Prudential Realty Group in June 1982 as an asset manager in the
Atlanta regional office and subsequently served in a variety of positions for
the
8
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company. Prior to assuming his current position in February 1992, Mr. Pratt was
Vice President in charge of the New Jersey regional office.
JOSEPH D. MARGOLIS, age 34, is Assistant General Counsel responsible for the
provision and coordination of legal services to Prudential Real Estate Investors
as well as other Prudential Asset Management Group Real Estate entities. His
assignments with Prudential have included counsel to The Prudential Mortgage
Capital Company, Inc. and Associate Regional Counsel in the Boston Realty Group
office. Prior to joining Prudential, Mr. Margolis was employed by Nutter,
McClennen & Fish in Boston, Massachusetts.
Charles R. Lightner and Mark R. Clarke ceased to serve as Directors effective
April 28, 1994. Claude J. Zinngrabe Jr. was elected Director as of July 22,
1994. Charles R. Lightner ceased to serve as Chairman of the Board effective
April 28, 1994 and Joel W. Stoesser ceased to serve as President effective July
22, 1994. Effective July 22, 1994, Joel W. Stoesser was elected Chairman of the
Board and John C. Hoffman was elected President. Effective April 28, 1994,
Claude J. Zinngrabe, Jr. was elected Director. Effective March 1, 1995, Steven
B. Saperstein was elected Vice President and Comptroller and Joseph D. Margolis
was elected Secretary. Effective March 1, 1995, Nicholas R. Sucic ceased to
serve as Vice President and Comptroller and S. Gilmer Towell ceased to serve as
Secretary.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing executive officers and directors have
indefinite terms.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partners for their
services. Certain executive officers and directors of the General Partners
receive compensation from affiliates of the General Partners, not from the
Registrant, for services performed for various affiliated entities, which may
include services performed for the Registrant; however, the General Partners
believe that any compensation attributable to services performed for the
Registrant is immaterial. See Item 13 Certain Relationships and Related
Transactions for information regarding compensation to the General Partners.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1995, no director or executive officer of either of the
General Partners owns directly or beneficially any interest in the voting
securities of the General Partners.
As of March 1, 1995, no director or executive officer of either of the
General Partners owns directly or beneficially any of the Units issued by the
Registrant.
As of March 1, 1995, no limited partner beneficially owns more than five
percent (5%) of the outstanding Units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the directors or executive
officers of the General Partners.
Reference is made to Notes A, B and G to the financial statements of the
Registrant's Annual Report which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services. The Joint Venture's relationship
with the General Partners is described in Notes A and F of the Joint Venture's
financial statements on pages 16 through 21 herein.
9
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PART IV
Page
in Annual
Report
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1 Financial Statements and Independent
Auditors' Report--Incorporated by
reference to the Registrant's Annual
Report which is filed as an exhibit
hereto
Independent Auditors' Report 2
Financial Statements:
Statements of Financial
Condition--December 31, 1994 and 1993 3
Statements of Operations--Three years
ended December 31, 1994 4
Statements of Changes in Partners'
Capital--Three years ended December
31, 1994 4
Statements of Cash Flows--Three years
ended December 31, 1994 5
Notes to Financial Statements 6
2 Financial Statement Schedules and
Independent Auditors' Report
Independent Auditors' Report on
Schedules
Schedules:
II--Valuation and Qualifying
Accounts and Reserves--Three years
ended December 31, 1994
III--Real Estate and Accumulated
Depreciation--December 31, 1994
Notes to Schedule III-Real Estate and
Accumulated Depreciation
Ridge Plaza Joint Venture Financial
Statements and Independent Auditors'
Report
Independent Auditors' Report
Financial Statements:
Statements of Financial
Condition--December 31, 1994 and 1993
Statements of Operations--Three years
ended December 31, 1994
Statements of Changes in Partners'
Capital--Three years ended December
31, 1994
Statements of Cash Flows--Three years
ended December 31, 1994
Notes to Financial Statements
All other schedules have been omitted
because they are not applicable or
the required information is included
in the financial statements and notes
thereto.
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3 Exhibits
Description:
3 and 4 Amended and Restated Agreement of
Limited Partnership (1)
Amendment to Limited Partnership
Agreement dated as of January 1,
1987(2)
10 Material Contracts:
A. Joint Venture Agreement dated May 8,
1985 between The Prudential
Insurance Company of America
(``Prudential'') and the
Registrant (3)
B. Purchase Agreement and First
Amendment to Joint Venture Agreement
dated June 28, 1985 between
Registrant and Prudential (4)
C. Amended and Restated Joint Venture
Interest Acquisition and Option
Agreement dated June 28, 1985 between
Prudential and Prudential Realty
Acquisition Fund II, L.P. (``PRAF
II'') (4)
D. Amended and Restated Acquisition Fee
Agreement dated June 28, 1985 among
Prudential Realty Partnerships, Inc.,
Prudential-Bache Properties, Inc.,
Registrant, PRAF II, Prudential, and
Ridge Plaza Joint Venture (4)
E. Second Amendment to Joint Venture
Agreement of Ridge Plaza Joint
Venture and Second Amendment to
Amended and Restated Joint Venture
Interest Acquisition and Option
Agreement and First Amendment to
Amended and Restated Acquisition Fee
Agreement dated January 14, 1986
among Registrant, Prudential and PRAF
II (5)
F. Third Amendment to Joint Venture
Agreement of Ridge Plaza Joint
Venture dated as of May 15, 1986
among Registrant, Prudential and PRAF
II (6)
13 Registrant's 1994 Annual Report to
Limited Partners (With the exception
of the information and data
incorporated by reference in Items 3,
7, and 8 of this Annual Report on
Form 10-K, no other information or
data appearing in the Registrant's
1994 Annual Report to Limited
Partners is to be deemed filed as
part of this report.)
25(i) Executed Power of Attorney of Martin
Pfinsgraff (7)
27 Financial Data Schedule (filed
herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed
during the last quarter of the period
covered by this report.
---------------
(1) Incorporated by reference to Prospectus
dated July 1, 1983 as filed with the
Commission pursuant to Rule 424(b) under
the Securities Act of 1933
(2) Incorporated by reference to Exhibits 3
and 4 of Registrant's Annual Report on
Form 10-K for the year ended December 31,
1988
(3) Incorporated by reference to Exhibit 10(c)
of Registrant's Current Report on Form 8-K
dated May 23, 1985
(4) Incorporated by reference to Exhibit 10(d)
of Amendment on Form 8 to Registrant's
Current Report on Form 8-K dated May 23,
1985
(5) Incorporated by reference to Exhibit 10(a)
of Registrant's Current Report on Form 8-K
dated January 14, 1986
(6) Incorporated by reference to Exhibit 10(a)
of Registrant's Current Report on Form 8-K
dated May 15, 1986
(7) Incorporated by reference to Exhibit 25(i)
of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991
11
<PAGE>
(LOGO)
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of Prudential Acquisition Fund I, L.P.
New York, New York
We have audited the financial statements of Prudential Acquisition Fund I,
L.P. (a Delaware Limited Partnership) as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, and
have issued our report thereon dated March 14, 1995; such financial statements
and report thereon are included in your 1994 Annual Report to Limited
Partners and are incorporated herein by reference. Our audits also included
the financial statement schedules of Prudential Acquisition Fund I, L.P.,
listed in Item 14. These financial statement schedules are the responsibility
of the General Partners. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
---------------------------
March 14, 1995
(LOGO)
12
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
Schedule II--Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
Deductions - Amounts
Year Ended Balance at Additions - Amounts Written-off During Balance at
December 31 Beginning of Year Reserved During Year Year End of Year
----------- ------------------- -------------------- -------------------- --------------
<S> <C> <C> <C> <C>
1994 $ -- $ -- $ -- $ --
1993 3,100,000 -- 3,100,000 --
1992 2,000,000 1,100,000 -- 3,100,000
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Schedule III--Real Estate and Accumulated Depreciation
December 31, 1994
------------------------------------------------------------------------------------------------------------------------
Gross Amounts at which
Initial Cost (A) Costs Carried at Close of Period (C)
------------------------------ Capitalized ---------------------------------------------
Buildings Subsequent Buildings
and to and Accumulated
Description (B) Land Improvements Acquisition(F) Land Improvements Total (D) Depreciation(E)
------------------ ----------- ---------------- ----------- ----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Norwest Center
Rochester, MN
Office Building $ 525,000 $ 8,027,899 $ 855,349 $ 525,000 $ 8,883,248 $ 9,408,248 $ 3,380,507
Norwalk Industrial
Norwalk, CA
Industrial
Warehouse 2,248,792 5,678,285 1,113,444 2,248,792 6,791,729 9,040,521 2,818,034
One Executive
Center
Albuquerque, NM
Office Building 2,085,729 15,228,676 (895,054) 1,234,329 15,185,022 16,419,351 10,015,475
----------- ---------------- ----------- ----------- ---------------- ------------ ----------------
Totals $ 4,859,521 $ 28,934,860 $1,073,739 $ 4,008,121 $ 30,859,999 $ 34,868,120 $ 16,214,016
----------- ---------------- ----------- ----------- ---------------- ------------ ----------------
----------- ---------------- ----------- ----------- ---------------- ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
Year of Date Depreciation
Construction Acquired Life
------------ -------- ----------------
<S> <C> <C> <C>
Rochester, MN 1982 8/29/83 5--35 years
Norwalk, CA 1976 2/24/84 5--30 years
Albuquerque, NM 1983 3/29/84 5--30 years
</TABLE>
--------------------------------------------------------------------------------
See notes to Schedule III on the following page
13
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
Notes to Schedule III -
Real Estate and Accumulated Depreciation
December 31, 1994
(A) Initial cost represents the initial purchase price of the properties
including acquisition fees.
(B) There are no encumbrances against any of the properties.
(C) The aggregate cost of the real estate owned for Federal income tax purposes
is $37,777,127.
(D) Reconciliation of Real Estate Owned:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year $35,293,581 $37,279,850 $37,100,699
Additions During Year 344,539 1,113,731 179,151
Write-downs During Year (770,000) (3,100,000) --
----------- ----------- -----------
Balance at End of Year $34,868,120 $35,293,581 $37,279,850
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(E) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year $14,877,560 $13,252,407 $11,338,400
Additions During Year 1,336,456 1,625,153 1,914,007
----------- ----------- -----------
Balance at End of Year $16,214,016 $14,877,560 $13,252,407
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(F) Costs Capitalized Subsequent to Acquisition include noncash write-downs of
$3,870,000.
14
<PAGE>
(LOGO)
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of Ridge Plaza Joint Venture
New York, New York
We have audited the accompanying statements of financial condition of
Ridge Plaza Joint Venture as of December 31, 1994 and 1993, and the related
statements of operations, changes in partners' capital and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Joint Venture Partners.
Our responsibility is to express an opinion on these financial statements
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 Joint Venture Partners, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ridge Plaza Joint Venture as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
---------------------------
March 14, 1995
(LOGO)
15
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1993
<S> <C> <C>
---------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 4,422,957 $ 4,422,957
Buildings and improvements 29,615,596 29,287,087
Less: accumulated depreciation (15,627,896) (13,952,485)
------------ ------------
Net investment in property 18,410,657 19,757,559
Accounts receivable, net of allowance for doubtful accounts of
$97,105
in 1994 and $65,174 in 1993 407,437 592,024
Cash and cash equivalents 2,054,578 571,427
------------ ------------
Total assets $ 20,872,672 $ 20,921,010
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Real estate taxes payable $ 446,029 $ 25,356
Accounts payable and accrued expenses 296,671 210,475
Tenant security deposits 158,373 130,499
------------ ------------
Total liabilities 901,073 366,330
------------ ------------
Partners' capital
Prudential Acquisition Fund I, L.P. 10,739,520 11,054,384
Prudential Realty Acquisition Fund II, L.P. 9,232,079 9,500,296
------------ ------------
Total partners' capital 19,971,599 20,554,680
------------ ------------
Total liabilities and partners' capital $ 20,872,672 $ 20,921,010
------------ ------------
------------ ------------
---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
16
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 2,613,050 $ 2,514,661 $ 2,831,315
Recovery of expenses 937,386 1,070,228 987,928
Interest income 62,641 48,230 50,027
------------ ------------ -----------
3,613,077 3,633,119 3,869,270
------------ ------------ -----------
EXPENSES
Depreciation and amortization 1,675,411 1,646,412 1,797,832
Property operating 1,034,603 1,266,862 998,339
Real estate taxes 427,759 924,126 691,650
General and administrative 108,385 115,717 109,369
Provision for loss on impairment of assets -- 14,050,000 3,100,000
------------ ------------ -----------
3,246,158 18,003,117 6,697,190
------------ ------------ -----------
Net income (loss) $ 366,919 $(14,369,998) $(2,827,920)
------------ ------------ -----------
------------ ------------ -----------
ALLOCATION OF NET INCOME (LOSS)
Prudential Acquisition Fund I, L.P. $ 198,136 $ (7,759,799) $(1,527,077)
------------ ------------ -----------
------------ ------------ -----------
Prudential Realty Acquisition Fund II, L.P. $ 168,783 $ (6,610,199) $(1,300,843)
------------ ------------ -----------
------------ ------------ -----------
-----------------------------------------------------------------------------------------------------
</TABLE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL REALTY
ACQUISITION ACQUISITION
FUND I, FUND II,
L.P. L.P. TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Partners' capital--December 31, 1991 $21,340,260 $18,262,338 $ 39,602,598
Net loss (1,527,077) (1,300,843) (2,827,920)
Distributions (216,000) (184,000) (400,000)
----------- ----------- ------------
Partners' capital--December 31, 1992 19,597,183 16,777,495 36,374,678
Net loss (7,759,799) (6,610,199) (14,369,998)
Distributions (783,000) (667,000) (1,450,000)
----------- ----------- ------------
Partners' capital--December 31, 1993 11,054,384 9,500,296 20,554,680
Net income 198,136 168,783 366,919
Distributions (513,000) (437,000) (950,000)
----------- ----------- ------------
Partners' capital--December 31, 1994 $10,739,520 $ 9,232,079 $ 19,971,599
----------- ----------- ------------
----------- ----------- ------------
----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
17
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 2,957,742 $ 2,213,511 $ 2,675,811
Recovery of expenses received 787,585 1,444,018 1,031,456
Operating expenses paid (942,091) (1,155,524) (1,011,121)
Real estate taxes paid (7,086) (934,009) (679,693)
General and administrative expenses paid (125,005) (108,988) (107,517)
Interest received 62,641 48,230 50,027
Tenant security deposits received (returned) 27,874 (10,845) 7,428
------------ ------------ -----------
Net cash provided by operating activities 2,761,660 1,496,393 1,966,391
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized property expenditures (328,509) (1,322,959) (101,031)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (950,000) (1,450,000) (400,000)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 1,483,151 (1,276,566) 1,465,360
Cash and cash equivalents at beginning of year 571,427 1,847,993 382,633
------------ ------------ -----------
Cash and cash equivalents at end of year $ 2,054,578 $ 571,427 $ 1,847,993
------------ ------------ -----------
------------ ------------ -----------
-----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 366,919 $(14,369,998) $(2,827,920)
------------ ------------ -----------
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Provision for loss on impairment of assets -- 14,050,000 3,100,000
Bad debt expense (recovery) 31,931 (282,982) 33,656
Depreciation and amortization 1,675,411 1,646,412 1,797,832
Changes in:
Accounts receivable 152,656 355,622 (145,630)
Accounts payable and accrued expenses 86,196 70,607 (10,932)
Real estate taxes payable 420,673 (9,882) 11,957
Ttenant security deposits 27,874 36,614 7,428
------------ ------------ -----------
Total adjustments 2,394,741 15,866,391 4,794,311
------------ ------------ -----------
Net cash provided by operating activities $ 2,761,660 $ 1,496,393 $ 1,966,391
------------ ------------ -----------
------------ ------------ -----------
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
18
<PAGE>
RIDGE PLAZA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
A. General
Ridge Plaza Joint Venture (the ``Joint Venture'') is a joint venture formed
on May 8, 1985 which will terminate on May 8, 2025 unless ended sooner under the
provisions of the joint venture agreement (the ``Joint Venture Agreement''). The
Joint Venture was formed to acquire and manage two shopping centers, Ridge Plaza
Shopping Center and Pine Island Ridge Plaza Shopping Center, located in Davie,
Broward County, Florida. The co-venturers are Prudential Acquisition Fund I,
L.P. (``PAF I'') and Prudential Realty Acquisition Fund II, L.P. (``PRAF II'').
PAF I and PRAF II are Delaware limited partnerships of which Prudential-Bache
Properties, Inc. (``PBP'') and Prudential Realty Partnerships, Inc. (``PRP'')
are the co-general partners.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Joint Venture are maintained on the accrual
basis of accounting in accordance with generally accepted accounting principles.
Certain reclassifications have been made to prior year balances to conform
with the current year's financial statement presentation.
Investment in property
Property investments are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and sale of the
property. Property investments are depreciated using the straight-line method
over their estimated economic lives which range from 5 to 35 years depending on
property type.
Buildings and improvements include furniture and fixtures, tenant
improvements and capitalized leasing costs. Tenant improvements and capitalized
leasing costs are amortized over the lives of the respective leases.
Ccapitalized leasing costs, net of accumulated amortization, were $130,733 and
$96,140 at December 31, 1994 and 1993, respectively.
A provision for loss on impairment of assets is recorded when estimated
amounts recoverable through future operations and sale of a property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the estimated
fair value. Property investments themselves are reduced to estimated fair value
(based on third party appraisals) when the property is considered to be
permanently impaired and the depreciated cost exceeds the estimated fair value.
Cash and cash equivalents
Cash and cash equivalents include money market funds.
Income taxes
The Joint Venture is not required to provide for, or pay, any Federal or
state income taxes. Income tax attributes that arise from its operations are
passed to the individual partners. The Joint Venture may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
For financial reporting purposes, net profits or losses are allocated 54% to
PAF I and 46% to PRAF II.
Distributions of cash are made in accordance with the Joint Venture Agreement
and are allocated 54% to PAF I and 46% to PRAF II.
19
<PAGE>
C. Investment in Property
The Joint Venture's net investment in property is comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------
Pine Island Ridge Plaza Shopping Center--
Davie, Broward County, FL $14,111,632 $14,653,647
Ridge Plaza Shopping Center--
Davie, Broward County, FL 4,299,025 5,103,912
----------- -----------
$18,410,657 $19,757,559
----------- -----------
----------- -----------
</TABLE>
The Joint Venture's properties were considered to be permanently impaired in
1993 because declines in net operating income had continued for an extended
period of time and the trend was not expected to change in the foreseeable
future. Based on low rental rates, which continued to decline in comparison to
the average rental rates charged by the competition, significant tenant
concessions and oversupply of retail space in the Joint Venture's submarket, a
write-down of $17,150,000 was recorded at December 31, 1993 to reduce the Joint
Venture's properties to estimated fair value based on third party appraisals.
D. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes with net income (loss) for tax reporting purposes.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1994 1993 1992
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Net income (loss) per financial
statements $ 366,919 $(14,369,998) $(2,827,920)
Provision for loss on impairment of
assets -- 14,050,000 3,100,000
Tax depreciation (greater) less than
depreciation per financial statements (136,687) (130,660) 34,484
Bad debt expense (recovery) 31,930 (282,982) 33,625
Unearned rental income 10,304 22,103 2,165
Other (37,416) -- --
--------- ------------ -----------
Tax basis net income (loss) $ 235,050 $ (711,537) $ 342,354
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book-to-tax income (loss)
adjustments.
E. Leases
The Joint Venture has noncancellable operating leases at its two shopping
centers. One tenant, Builders Square (whose lease expires in 2003) accounted for
16%, 13% and 11% of the revenues of the Joint Venture for the years ended
December 31, 1994, 1993 and 1992, respectively. Future minimum base lease
receipts at December 31, 1994 due under these noncancellable leases are as
follows:
<TABLE>
<S> <C>
1995 $ 2,495,775
1996 2,876,479
1997 2,814,701
1998 2,661,407
1999 2,028,779
Thereafter 6,892,804
------------
$ 19,769,945
------------
------------
</TABLE>
In addition, certain of the leases require the lessees to reimburse the Joint
Venture for real estate taxes, insurance costs and other expenses.
20
<PAGE>
F. Related Parties
The general partners of the co-venturers and their affiliates perform
services for the Joint Venture which include, but are not limited to; accounting
and financial management; asset management; and other administrative services.
The amount of reimbursement from the Joint Venture is limited by the provisions
of the Joint Venture Agreement. The approximate costs and expenses incurred on
behalf of the Joint Venture which are reimbursable to the general partners of
the co-venturers and their affiliates were:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and
affiliates $34,900 $40,100 $35,900
Prudential-Bache Properties, Inc. and affiliates 22,400 23,700 22,400
------- ------- -------
$57,300 $63,800 $58,300
------- ------- -------
------- ------- -------
</TABLE>
Expenses payable to the general partners of the co-venturers and their
affiliates (which are included in accrued expenses) as of December 31, 1994 and
1993 were approximately $19,900 and $21,600, respectively.
The Joint Venture maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of the co-venturers, for investment of
its available cash in short-term instruments pursuant to the guidelines
established by the Joint Venture Agreement.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PRUDENTIAL ACQUISITION FUND I, L.P.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Robert J. Alexander Date: March 30, 1995
---------------------------------------------
Robert J. Alexander
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ James M. Kelso Date: March 30, 1995
---------------------------------------------
James M. Kelso
President, Chief Executive Officer, Chairman
of the Board of Directors and Director
By: /s/ Barbara J. Brooks Date: March 30, 1995
---------------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief Financial
Officer
By: /s/ Robert J. Alexander Date: March 30, 1995
---------------------------------------------
Robert J. Alexander
Vice President
By: /s/ Frank W. Giordano Date: March 30, 1995
---------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: March 30, 1995
---------------------------------------------
Nathalie P. Maio
Director
22
<PAGE>
Prudential Realty Partnerships, Inc.
A Delaware corporation, General Partner
By: /s/ Joel W. Stoesser Date: March 30, 1995
---------------------------------------------
Joel W. Stoesser
Chairman of the Board of Directors
By: /s/ John C. Hoffman Date: March 30, 1995
---------------------------------------------
John C. Hoffman
President and Director
By: /s/ Kevin R. Smith Date: March 30, 1995
---------------------------------------------
Kevin R. Smith
Vice President and Director
By: /s/ Steven B. Saperstein Date: March 30, 1995
---------------------------------------------
Steven B. Saperstein
Vice President and Comptroller
By: * Date: March 30, 1995
---------------------------------------------
Martin Pfinsgraff
Treasurer
By: /s/ Claude J. Zinngrabe, Jr. Date: March 30, 1995
---------------------------------------------
Claude J. Zinngrabe, Jr.
Director
By: /s/ Roger S. Pratt Date: March 30, 1995
---------------------------------------------
Roger S. Pratt
Director
By: /s/ Joseph D. Margolis Date: March 30, 1995
---------------------------------------------
Joseph D. Margolis
Secretary
By: * /s/ Kevin R. Smith
---------------------------------------------
Kevin R. Smith
(Attorney-in-fact)
23
<PAGE>
1994
------------------------------------------------------------------------
Prudential Acquisition Fund I, L.P. Annual
Report
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
LETTER TO THE UNITHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1994
1
<PAGE>
(LOGO)
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of Prudential Acquisition Fund I, L.P.
New York, New York
We have audited the accompanying statements of financial condition of
Prudential Acquisition Fund I, L.P. (a Delaware Limited Partnership) as of
December 31, 1994 and 1993, and the related statements of operations,
changes in partners' capital and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are
the responsibility of the General Partners. Our responsibility is to
express an opinion on these financial statements 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 General Partners, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential Acquisition Fund I, L.P. as
of December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
---------------------------
March 14, 1995
(LOGO)
2
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 4,008,121 $ 4,177,521
Buildings and improvements 30,859,999 31,116,060
Less: accumulated depreciation (16,214,016) (14,877,560)
Investment in joint venture, net 10,792,867 11,112,351
------------ ------------
Net investment in property and joint venture 29,446,971 31,528,372
Cash and cash equivalents 646,346 72,733
Deferred rent 499,599 533,669
Other assets 16,875 41,150
------------ ------------
Total assets $30,609,791 $32,175,924
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 415,871 $ 288,011
Tenant security deposits 16,192 18,523
------------ ------------
Total liabilities 432,063 306,534
------------ ------------
Contingencies
Partners' capital
Limited partners (70,124 units issued and outstanding) 30,177,728 31,869,390
General partners -- --
------------ ------------
Total partners' capital 30,177,728 31,869,390
------------ ------------
Total liabilities and partners' capital $30,609,791 $32,175,924
------------ ------------
------------ ------------
----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 3,048,468 $ 2,801,858 $ 2,705,969
Recovery of expenses 944,412 1,026,098 925,876
Interest income 18,702 6,881 24,907
Joint venture equity income (loss) 193,516 (7,764,418) (1,531,697)
----------- ----------- -----------
4,205,098 (3,929,581) 2,125,055
----------- ----------- -----------
EXPENSES
Depreciation and amortization 1,336,456 1,625,153 1,914,007
Property operating 1,294,770 1,380,059 1,312,098
Real estate taxes 524,807 630,672 570,121
General and administrative 256,455 240,033 237,967
Provision for loss on impairment of assets 770,000 -- 1,100,000
----------- ----------- -----------
4,182,488 3,875,917 5,134,193
----------- ----------- -----------
Net income (loss) $ 22,610 $(7,805,498) $(3,009,138)
----------- ----------- -----------
----------- ----------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (148,813) $(7,941,836) $(3,176,656)
----------- ----------- -----------
----------- ----------- -----------
General partners $ 171,423 $ 136,338 $ 167,518
----------- ----------- -----------
----------- ----------- -----------
Net loss per limited partnership unit $ (2.12) $ (113.25) $ (45.30)
----------- ----------- -----------
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1991 $45,722,540 $ -- $45,722,540
Net income (loss) (3,176,656) 167,518 (3,009,138)
Distributions (1,507,666) (167,518) (1,675,184)
----------- --------- -----------
Partners' capital--December 31, 1992 41,038,218 -- 41,038,218
Net income (loss) (7,941,836) 136,338 (7,805,498)
Distributions (1,226,992) (136,338) (1,363,330)
----------- --------- -----------
Partners' capital--December 31, 1993 31,869,390 -- 31,869,390
Net income (loss) (148,813) 171,423 22,610
Distributions (1,542,849) (171,423) (1,714,272)
----------- --------- -----------
Partners' capital--December 31, 1994 $30,177,728 $ -- $30,177,728
----------- --------- -----------
----------- --------- -----------
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 3,095,522 $ 2,513,760 $ 2,760,525
Recovery of expenses received 963,285 994,157 947,567
Interest received 18,702 6,881 24,907
Tenant security deposits returned (2,331) (16,389) (49,950)
Real estate taxes paid (524,648) (626,099) (582,931)
Operating expenses paid (1,165,577) (1,452,020) (1,254,864)
General and administrative expenses paid (265,529) (225,027) (268,057)
Distributions from joint venture income 193,516 -- --
----------- ----------- -----------
Net cash provided by operating activities 2,312,940 1,195,263 1,577,197
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized property expenditures (344,539) (1,113,731) (179,151)
Distributions from joint venture in excess of income 319,484 783,000 216,000
----------- ----------- -----------
Net cash provided by (used in) investing activities (25,055) (330,731) 36,849
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,714,272) (1,363,330) (1,675,184)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 573,613 (498,798) (61,138)
Cash and cash equivalents at beginning of year 72,733 571,531 632,669
----------- ----------- -----------
Cash and cash equivalents at end of year $ 646,346 $ 72,733 $ 571,531
----------- ----------- -----------
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss) $ 22,610 $(7,805,498) $(3,009,138)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loss on impairment of assets 770,000 -- 1,100,000
Depreciation and amortization 1,336,456 1,625,153 1,914,007
Distributions from joint venture income 193,516 -- --
Joint venture equity (income) loss (193,516) 7,764,418 1,531,697
Changes in:
Deferred rent 34,070 (299,856) 13,362
Other assets 24,275 (20,183) 62,885
Accounts payable and accrued expenses 127,860 (46,910) 4,322
Tenant security deposits (2,331) (21,861) (39,938)
----------- ----------- -----------
Total adjustments 2,290,330 9,000,761 4,586,335
----------- ----------- -----------
Net cash provided by operating activities $ 2,312,940 $ 1,195,263 $ 1,577,197
----------- ----------- -----------
----------- ----------- -----------
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential Acquisition Fund I, L.P. (the ``Partnership''), a Delaware limited
partnership, was formed on February 16, 1983 and will terminate on December 31,
2007 unless ended sooner under the provisions of the Amended and Restated
Partnership Agreement (the ``Partnership Agreement''). The Partnership was
formed to acquire and manage income-producing commercial real estate. The
general partners of the Partnership are Prudential Realty Partnerships, Inc.
(``PRP'') and Prudential-Bache Properties, Inc. (``PBP'') (collectively, the
``General Partners''). At December 31, 1994, the Partnership owns three
properties and has a 54% interest in a joint venture which owns two shopping
centers (the ``Joint Venture'').
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
Revenue from tenant operating leases which provide for rental concessions and
scheduled rental increases is recognized on a straight-line basis over the terms
of the leases, which expire over the next 18 years.
Certain reclassifications have been made to prior year balances to conform
with the current year's financial statement presentation.
Investment in property
Property investments are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Property investments are depreciated using the straight-line
method over estimated economic lives which range from 5 to 35 years depending on
property type.
Buildings and improvements include furniture and fixtures, tenant
improvements and capitalized leasing costs. Tenant improvements and capitalized
leasing costs are amortized over the lives of the respective leases. The balance
of capitalized leasing costs, net of accumulated amortization, was $404,520 and
$481,489 at December 31, 1994 and 1993, respectively.
A provision for loss on impairment of assets is recorded when estimated
amounts recoverable through future operations and sale of a property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
permanently impaired and the depreciated cost exceeds the estimated fair value.
Investment in Joint Venture
The Partnership accounts for its investment in the Joint Venture using the
equity method. Costs incurred in the acquisition of the investment
(approximately $83,000) that were in excess of the Partnership's basis in the
Joint Venture are being amortized over an eighteen-year period and are included
in Joint Venture equity income (loss).
Cash and cash equivalents
Cash and cash equivalents include short-term investments with original
maturities of three months or less. They are carried at cost plus accrued
interest, which approximates market.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
6
<PAGE>
Profit and loss allocations and distributions
Pursuant to Section 11 of the Amended Partnership Agreement (effective
January 1, 1987), the General Partners have the right to specially allocate
gross or net income, in certain circumstances, in an amount sufficient to
restore the deficit balances in their capital accounts. Allocations of income
(loss) are 90% to the limited partners and 10% to the General Partners for
financial and tax reporting purposes. To the extent that cash distributions to
the General Partners exceed the 10% allocation of income for tax reporting
purposes (creating an increase in their existing deficit capital balances), the
General Partners will receive a special allocation of additional income for the
difference.
Distributions of cash are made in accordance with the Partnership Agreement
and are allocated 90% to the limited partners and 10% to the General Partners.
C. Investment in Property
The Partnership's net investment in property is comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
<S> <C> <C>
--------------------------------------------------------------------------------
Norwest Center Office Building--
Rochester, MN $ 6,027,741 $ 6,181,469
Norwalk Industrial Warehouse--
Norwalk, CA 6,222,487 6,477,449
One Executive Center Office Building--
Albuquerque, NM 6,403,876 7,757,103
------------ -----------
$ 18,654,104 $20,416,021
------------ -----------
------------ -----------
</TABLE>
The General Partners intend to list the Partnership's properties for sale
in 1995. As a result, the properties' carrying value has been reduced to the
lower of depreciated cost or estimated fair value based on third party
appraisals. A provision for loss on impairment of assets of $770,000 was
recorded for the year ended December 31, 1994.
D. Income Taxes
The following is a reconciliation of net income (loss) reported for financial
reporting purposes with net income (loss) reported for tax reporting purposes.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
<S> <C> <C> <C>
1994 1993 1992
-----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $ 22,610 $(7,805,498) $(3,009,138)
Tax depreciation (greater) less than financial
statement
depreciation (330,406) (206,387) 124,729
Joint Venture financial statement income (less)
greater than income for tax purposes (64,845) 7,381,933 1,718,126
Bad debt expense (recovery) 485 (2,995) (13,731)
Lease concessions 34,070 (299,856) 13,362
Provision for loss on impairment of assets 770,000 -- 1,100,000
----------- ----------- -----------
Total adjustments 409,304 6,872,695 2,942,486
----------- ----------- -----------
Tax basis net income (loss) $ 431,914 $ (932,803) $ (66,652)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book-to-tax income (loss)
adjustments and the recording of distributions to partners.
7
<PAGE>
E. Leases
The Partnership has noncancellable operating leases at its two office
buildings and a warehouse. Future minimum lease receipts at December 31, 1994
due under these noncancellable leases are as follows:
<TABLE>
<S> <C>
1995 $ 2,611,380
1996 2,363,127
1997 1,729,033
1998 1,477,201
1999 1,281,420
Thereafter 9,294,504
------------
$ 18,756,665
------------
------------
</TABLE>
In addition, certain of the leases require the tenants to reimburse the
Partnership for real estate taxes, insurance costs and other expenses.
Two of the tenants in the Partnership's directly-owned properties accounted
for 10% or more of the Partnership's total revenue for each of the three years
in the period ended December 31, 1994. Norwest Bank, N.A., a tenant at the
Norwest Center, accounted for approximately 28%, 21% and 14% and Weber
Distribution, the sole tenant at Norwalk Industrial, accounted for approximately
18%, 13% and 18%, in 1994, 1993 and 1992, respectively.
F. Investment in Joint Venture
The Partnership has a 54% interest in a Joint Venture with an affiliated
limited partnership. Presented below is summarized financial information for the
Joint Venture.
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1994 1993
<S> <C> <C>
---------------------------------------------------------------------------------------------
Assets
Investment in property:
Land $ 4,422,957 $ 4,422,957
Buildings and improvements 29,615,596 29,287,087
Less: accumulated depreciation (15,627,896) (13,952,485)
----------------- -----------------
Net investment in property 18,410,657 19,757,559
Accounts receivable, net 407,437 592,024
Cash and cash equivalents 2,054,578 571,427
----------------- -----------------
Total assets $ 20,872,672 $ 20,921,010
----------------- -----------------
----------------- -----------------
Liabilities and partners' capital
Total liabilities $ 901,073 $ 366,330
----------------- -----------------
Partners' capital
Prudential Acquisition Fund I, L.P. 10,739,520 11,054,384
Prudential Realty Acquisition Fund II, L.P. 9,232,079 9,500,296
----------------- -----------------
Total partners' capital 19,971,599 20,554,680
----------------- -----------------
Total liabilities and partners' capital $ 20,872,672 $ 20,921,010
----------------- -----------------
----------------- -----------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------
Revenues
Rental income $2,613,050 $ 2,514,661 $ 2,831,315
Recovery of expenses 937,386 1,070,228 987,928
Interest income 62,641 48,230 50,027
---------- ------------ -----------
3,613,077 3,633,119 3,869,270
---------- ------------ -----------
Expenses
Depreciation and amortization 1,675,411 1,646,412 1,797,832
Property operating 1,034,603 1,266,862 998,339
Real estate taxes 427,759 924,126 691,650
General and administrative 108,385 115,717 109,369
Provision for loss on impairment of assets -- 14,050,000 3,100,000
---------- ------------ -----------
3,246,158 18,003,117 6,697,190
---------- ------------ -----------
Net income (loss) $ 366,919 $(14,369,998) $(2,827,920)
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
Investment in joint venture and joint venture equity income (loss) include
amortization of $4,620 annually of the Partnership's acquisition costs that were
in excess of the asset basis. Accumulated amortization was $27,718 at December
31, 1994.
The Joint Venture's properties were considered to be permanently impaired in
1993 because declines in net operating income had continued for an extended
period of time and the trend was not expected to change in the foreseeable
future. Based on low rental rates, which continued to decline in comparison to
the average rental rates charged by the competition, significant tenant
concessions and oversupply of retail space in the Joint Venture's submarket, a
write-down of $17,150,000 was recorded at December 31, 1993 to reduce the Joint
Venture's properties to estimated fair value based on third party appraisals..
G. Related Parties
The general partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management, registrar, transfer and assignment functions, asset management,
investor communications, printing and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The approximate costs and expenses incurred on behalf of
the Partnership which are reimbursable to the general partners and their
affiliates are:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1993 1992
<S> <C> <C> <C>
------------------------------------------------------------------------
Prudential Realty Partnership, Inc.
and affiliates $ 41,500 $ 38,900 $ 39,200
Prudential-Bache Properties, Inc.
and affiliates 89,400 92,300 99,100
-------- -------- --------
$130,900 $131,200 $138,300
-------- -------- --------
-------- -------- --------
</TABLE>
Expenses payable to the General Partners and their affiliates (which are
included in accrued expenses) as of December 31, 1994 and 1993 are approximately
$41,100 and $66,700, respectively.
Prudential Securities Incorporated, an affiliate of the General Partners,
owns 125 limited partnership units at December 31, 1994.
H. Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes, et
al. v. Prudential Securities Group Inc. et al. (CV-93-654), was filed in the
United States District Court for the District of Arizona,
9
<PAGE>
<PAGE>
purportedly on behalf of investors in the Partnership and against the
Partnership, PBP, PSI and a number of other defendants. Plaintiffs alleged
violation of Racketeer Influenced and Corrupt Organizations Act (``RICO'')
statutes, breach of fiduciary duty, fraud and deceit, negligence, and demanded
an accounting. Plaintiffs sought unspecified compensatory, punitive and treble
damages, and rescission, including costs and attorneys' fees, but the only
relief sought against the Partnership was an accounting. Defendants filed a
motion to dismiss on December 22, 1993.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, the Kinnes case, together with a number of other actions not involving the
Partnership, was transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceeding under the caption In re Prudential Securities Incorporated Limited
Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees, and PBP. The Partnership is not named as a defendant in
the consolidated complaint, but the name of the Partnership is listed as being
among the limited partnerships at issue in the case. The consolidated complaint
alleges violations of the federal and New Jersey RICO statutes, fraud, negligent
misrepresentation, breach of fiduciary duties, breach of third-party beneficiary
contracts and breach of implied covenants in connection with the marketing and
sales of limited partnership interests. Plaintiffs request relief in the nature
of rescission of the purchase of securities and recovery of all consideration
and expenses in connection therewith, as well as compensation for lost use of
money invested less cash distributions; compensatory damages; consequential
damages; treble damages for defendants' RICO violations (both federal and New
Jersey); general damages for all injuries resulting from negligence, fraud,
breaches of contract, and breaches of duty in an amount to be determined at
trial; disgorgement and restitution of all earnings, profits, benefits and
compensation received by defendants as a result of their unlawful acts; cost and
disbursements of the action; reasonable attorneys' fees; and such other and
further relief as the court deems just and proper.
On November 28, 1994 the transferee court deemed each of the complaints in
the constituent actions (including Kinnes) amended to conform to the allegations
of the consolidated complaint.
PSI and PBP, along with various other defendants, filed a motion to dismiss
the consolidated complaint on December 20, 1994. That motion is pending.
PBP and PSI believe they have meritorious defenses to the complaint and
intend to vigorously defend themselves against this action.
I. Subsequent Event
In February 1995, a distribution of approximately $536,000 was paid to the
partners for the quarter ended December 31, 1994. Limited partners received a
total of approximately $482,000, which represents $6.875 per unit, and the
General Partners received the remainder.
10
<PAGE>
PRUDENTIAL ACQUISITION FUND I, L.P.
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership has a real estate investment portfolio consisting of two
office buildings, a warehouse and an equity interest in a joint venture (the
``Joint Venture'') which owns two shopping centers.
The General Partners intend to list the Partnership properties for sale in
1995 due to improved availability of capital and investor interest in acquiring
certain types of real estate. As a result, the properties' carrying value has
been reduced to the lower of depreciated cost or estimated fair value based on
third party appraisals. There is no assurance that these marketing efforts will
be successful. It is not expected that the Partnership's eventual total
distributions will equal the partners' initial investments. A provision for loss
on impairment of assets of $770,000 was recorded for the year ended December 31,
1994; however, distributions of the Partnership were not affected.
The estimated fair value of the Partnership's properties (including its pro
rata share of the fair value of the Joint Venture's properties) based on third
party appraisals as of September 30, 1994 was $31,700,000. Appraised values are
only estimates of fair value and should not be relied on as a measure of
immediately realizable value. Estimated values may fluctuate with changes in the
real estate and financial markets, economic conditions and other factors
including the anticipated performance of the properties, property type and
geographic location.
Cash distributions from the Joint Venture, rental revenue from the
Partnership's directly-owned properties and interest earned on short-term
investments have provided, and are anticipated to continue to provide,
sufficient liquidity to meet expenses incurred by the Partnership and its
properties.
During the year ended December 31, 1994, the Partnership's cash and cash
equivalents increased by approximately $574,000 primarily as a result of
increased rent receipts and a decrease in capital expenditures as well as the
timing of accrued expense payments as compared to the prior year. The Joint
Venture, in which the Partnership has a 54% interest, has cash and cash
equivalents of approximately $2,055,000 at December 31, 1994 as compared to
approximately $571,000 at December 31, 1993. This amount is anticipated to be
sufficient to pay outstanding liabilities, fund capital expenditures (including
leasing commissions and tenant improvements) at the Joint Venture properties and
provide additional cash distributions to the Partnership. Cash distributions to
the Partnership from the Joint Venture totalled $513,000 and $783,000 for the
years ended December 31, 1994 and 1993, respectively. The level of distributions
of cash from the Joint Venture is impacted by the operating results of its
properties as well as the levels of cash reserves it maintains. The Joint
Venture used approximately $329,000 for capital expenditures during 1994.
In connection with the capital improvements which are discussed in further
detail below, the amount of actual expenditures and their timing will depend on
the success of leasing efforts, the nature and timing of new leases and lease
renewals, ongoing evaluation of the need for the planned improvements and
optimal timing of their implementation as well as general market conditions.
Cash Distributions
Cash distributions paid to the limited and General Partners totalled
approximately $1,714,000 for the year ended December 31, 1994, of which the
limited partners received approximately $1,543,000 ($22.00 per unit) and the
General Partners received the remainder. These amounts represent payments from
cash flow from operations. Cash distributed to the limited and General Partners
totalled approximately $1,363,000 during the year ended December 31, 1993, of
which the limited partners received approximately $1,227,000 ($17.50 per unit)
and the General Partners received the remainder. The increase in the
distribution levels paid during 1994 was primarily due to the impact of the 1993
vacancy at Norwalk Industrial as more fully discussed below in Results of
Operations.
In February 1995, cash distributions of cash flow from operations of
approximately $536,000 were paid to the limited and General Partners. Limited
partners received approximately $482,000 ($6.875 per unit) and the General
Partners received the remainder.
11
<PAGE>
The amount of cash generated by the Partnership from operations of the
directly-owned and Joint Venture properties, the amount expended for capital
improvements, and the amount of reserves set aside for anticipated capital
improvements could affect the Partnership's ability to make future distributions
to the partners and the amount of the distributions that may be made.
Capital Improvements--Directly-Owned Properties
During 1994 the Partnership expended approximately $345,000 on capital
improvements ($216,000 at One Executive Center and $129,000 at Norwest Center)
for tenant improvements, leasing commissions and building improvements necessary
to maintain the properties. For the year ended December 31, 1993 the Partnership
expended approximately $1,114,000 on capital improvements, of which
approximately $742,000 was for tenant improvements and leasing commissions
associated with securing a ten year lease with a new tenant for the total
rentable space of Norwalk Industrial. Also in 1993, the Partnership expended
approximately $180,000 and $192,000 on capital improvements at One Executive
Center and Norwest Center, respectively, for tenant improvements, leasing
commissions and building improvements necessary to maintain the properties.
Projected capital expenditures for the directly-owned properties for 1995 are
estimated at $368,000. This includes $264,000 in anticipated tenant improvements
and leasing commissions and $104,000 for improvements necessary to maintain the
properties. These capital improvements will be funded from either undistributed
cash balances or cash derived from future operations.
Capital Improvements--Joint Venture
During 1994, the Joint Venture, in which the Partnership has a 54% interest,
expended approximately $329,000 for capital improvements of which $266,000
represented building and land improvements and $103,000 represented leasing
commissions. Projected capital expenditures for the Joint Venture for 1995 are
estimated at $215,000 which includes $161,000 in anticipated tenant improvements
and leasing commissions and $54,000 for improvements necessary to maintain the
properties.
Results of Operations
The Partnership recorded net income of approximately $23,000 and net losses
of approximately $7,805,000 and $3,009,000 for the years ended December 31,
1994, 1993 and 1992, respectively. As discussed in further detail below, these
amounts were primarily the result of provisions for loss on impairment of assets
recorded for the Partnership and Joint Venture properties. A $770,000 provision
for loss on impairment of assets was recorded in 1994 in connection with the
General Partners' intention to list the Partnership's properties for sale in
1995. The Partnership's pro rata share of provisions for loss on impairment of
assets recorded for the Joint Venture properties was $7,587,000 and $1,674,000
in 1993 and 1992, respectively. Additionally, a $1,100,000 provision for loss on
impairment of assets was recorded in 1992 to reflect the amount then estimated
not to be recoverable from the future operations and sale of the Partnership's
properties on an undiscounted basis. Fluctuations between periods in other
operating results are discussed below.
Directly-Owned Properties
As of December 31, 1994 and 1993, the Norwalk Industrial property in Norwalk,
California was 100% occupied. Rental income for 1994 increased by approximately
$227,000 as compared to 1993 which decreased by approximately $68,000 as
compared to 1992. On March 1, 1993 a single tenant, Weber Distribution, signed a
ten year lease for the entire building. Rent receipts began in September 1993
after a six month free rent period. Operating expenses for 1994 decreased by
approximately $53,000 as compared to 1993. The vacancy at the Norwalk property
caused property expenses such as utilities and repairs and maintenance, usually
charged to the tenant, to be charged to the Partnership for the first nine
months of 1993. Operating expenses for 1993 decreased by approximately $24,000
as compared to 1992 due primarily to higher repairs and maintenance costs
incurred in 1992 in connection with marketing the space to new tenants.
The Norwest Center property in Rochester, Minnesota was 92% and 96% occupied
as of December 31, 1994 and 1993, respectively. During the coming 12 months, no
significant leases are scheduled to expire. Rental income for 1994 decreased by
approximately $72,000 as compared to 1993 due primarily because of lower
occupancy rates while operating expenses increased by approximately $26,000 due
to an increase in repairs and maintenance and cleaning expenses. Rental income
for 1993 increased by approximately
12
<PAGE>
$56,000 over 1992 due primarily to an increase in rental rates, and operating
expenses decreased by approximately $55,000 due to a decrease in repairs and
maintenance and utilities expenses.
The One Executive Center office property in Albuquerque, New Mexico was 100%
leased as of December 31, 1994 and 1993, respectively. During the coming 12
months, nine leases representing 25% of the rentable space are scheduled to
expire. Discussions are underway with existing tenants regarding the renewal of
the affected leases. Rental income for the year ended December 31, 1994
increased by approximately $94,000 as compared to 1993 due to increased rental
rates, and operating expenses decreased by approximately $16,000 due to lower
repairs and maintenance expenses. Rental income for the year ended December 31,
1993 increased by approximately $108,000 as compared to 1992 due to increased
occupancy, but operating expenses increased by approximately $47,000 due to
higher repairs and maintenance expenses.
Depreciation and amortization for the year ended December 31, 1994 decreased
by approximately $289,000 as compared to 1993 as several tenant improvements at
One Executive Center became fully depreciated during 1993. Depreciation and
amortization for the year ended December 31, 1993 decreased by approximately
$289,000 as compared to 1992 due to the write-off of unamortized tenant
improvements of vacated tenants, primarily at Norwalk Industrial in 1992.
Real estate taxes for the year ended December 31, 1994 decreased by
approximately $106,000 as compared to 1993 due to the effect of a successful
appeal of the assessed property value at the Norwalk and Norwest Properties
which resulted in tax refunds in the fourth quarter of 1994. Real estate taxes
for the year ended December 31, 1993 increased by approximately $61,000 as
compared to December 31, 1992 due to a tax refund received in 1992 at One
Executive Center.
General and administrative expenses for the year ended December 31, 1994
increased by approximately $16,000 as compared to 1993 due to the timing of
certain expense accruals recorded in the respective years.
Joint Venture Properties
As of December 31, 1994, Pine Island and Ridge Plaza are 93% and 80%
occupied, respectively, as compared to 85% and 80% as of December 31, 1993. Over
the next 12 months, four leases representing 3% of the rentable space are
scheduled to expire at Pine Island. There are no leases scheduled to expire in
the next twelve months at Ridge Plaza.
Rental income for the year ended December 31, 1994 increased by approximately
$98,000 as compared to 1993 mainly due to the increased average rental and
average occupancy rates at Pine Island. Rental income for the year ended
December 31, 1993 decreased by approximately $317,000 as compared to 1992
primarily as a result of decreased average occupancy throughout the year and a
nonrecurring $250,000 settlement recovery of a bad debt received in 1992.
Operating expenses for the year ended December 31, 1994 decreased by
approximately $232,000 as compared to 1993, which increased by approximately
$269,000 as compared to 1992, due to provisions for doubtful accounts recorded
in 1993.
Real estate taxes for the year ended December 31, 1994 decreased
approximately $496,000 as compared to 1993 due to past due taxes paid for a
vacated tenant in 1993 and refunds received at both Pine Island and Ridge Plaza
in the fourth quarter of 1994 as a result of a lower assessment on the
properties. Real estate taxes for the year ended December 31, 1993 increased by
approximately $232,000 as compared to 1992 primarily due to the 1993 payment of
past due taxes for a vacated tenant. In addition, 1992 tax expense was decreased
by a tax refund from the successful appeal of the assessed property values at
Pine Island and Ridge Plaza.
Depreciation and amortization expense increased by approximately $29,000 in
1994 because a vacated outparcel and related tenant improvements at Ridge Plaza
were demolished to provide additional parking at the Joint Venture's properties.
Additionally, a tenant with a new ten-year lease notified the Joint Venture it
would not occupy its space. Negotiations have commenced with the tenant relating
to a buy-out of the lease. As a result, depreciation and amortization expense
includes the write-off of related tenant improvements and leasing commissions of
approximately $108,000. These increases were offset by the effect of a
write-down of the Joint Venture properties in 1993 which lowered depreciation
expense. Depreciation and
13
<PAGE>
<PAGE>
amortization expense decreased by approximately $152,000 for the year ended
December 31, 1993 as compared to 1992 due to the write-off of building
improvements in 1992 resulting from vacated tenants.
Efforts continue to market Ridge Plaza as an entertainment center in an
effort to improve occupancy. Leasing efforts remain targeted toward tenants that
provide indoor sports-related and other leisure-time activities and supporting
services; however, rental rates generated by these tenants are lower than those
expected. The leasing of entertainment space also involves a substantial
marketing effort which has and will continue to involve significant tenant
concessions. The Joint Venture's properties were considered to be permanently
impaired in 1993 because declines in net operating income had continued for an
extended period of time and the trend was not expected to change in the
foreseeable future. Based on low rental rates, which continued to decline in
comparison to the average rental rates charged by the competition, significant
tenant concessions and oversupply of retail space in the Joint Venture's
submarket, the General Partners considered this impairment to be permanent. As a
result, the depreciated cost basis of the properties was reduced to estimated
fair value based on third party appraisals through a write-down of $17,150,000
in 1993. This amount consisted of a provision for loss on impairment of
$14,050,000 and the utilization of a $3,100,000 valuation allowance recorded in
1992 based on undiscounted amounts. As a result, the Joint Venture's net loss
for 1993 increased by $14,050,000; however, distributions of the Joint Venture
were not affected.
Inflation
Inflation has had no material impact on operations or on the financial
condition of the Partnership from inception through December 31, 1994.
14
<PAGE>
OTHER INFORMATION
On October 27, 1994, an affiliate of PBP, Prudential Securities Incorporated
(``PSI''), entered into cooperation and deferred prosecution agreements (the
``Agreements'') with the Office of the United States Attorney for the Southern
District of New York (the ``U.S. Attorney''). The Agreements resolved a grand
jury investigation that had been conducted by the U.S. Attorney into PSI's sale
during the 1980's of the Prudential-Bache Energy Income Fund oil and gas limited
partnerships (the ``Income Funds''). In connection with the Agreements, the U.S.
Attorney filed a complaint charging PSI with a criminal violation of the
securities laws. In its request for a deferred prosecution, PSI acknowledged to
having made certain misstatements in connection with the sale of the Income
Funds. Pursuant to the Agreements, the U.S. Attorney will defer any prosecution
of the charge in the complaint for a period of three years, provided that PSI
complies with certain conditions during the three year period. These include
conditions that PSI not violate any criminal laws; that PSI contribute an
additional $330 million to a pre-existing settlement fund; that PSI cooperate
with the government in any future inquiries; and that PSI comply with various
compliance-related provisions. If, at the end of the three-year period, PSI has
complied with the terms of the Agreements, the U.S. Attorney will be barred from
prosecuting PSI on the charges set forth in the complaint. If, on the other
hand, during the course of the three-year period, PSI violates the terms of the
Agreements, the U.S. Attorney can elect to pursue such charges.
The Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
Prudential Acquisition Fund I, L.P.
c/o Prudential-Bache Properties, Inc.
Client Services Department
P.O. Box 2016
New York, New York 10272-2016
15
<PAGE>
Prudential Securities Incorporated BULK RATE
Peck Slip Station U.S. POSTAGE
P.O. Box 2016 PAID
New York, NY 10272 Automatic Mail
PAF/17003
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential Acquisition Fund I, L.P.
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000717319
<NAME> Prudential Acquisition Fund I, L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-1-1994
<PERIOD-END> Dec-31-1994
<PERIOD-TYPE> 12-Mos
<CASH> 646,346
<SECURITIES> 0
<RECEIVABLES> 516,474
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,660,987
<DEPRECIATION> 16,214,016
<TOTAL-ASSETS> 30,609,791
<CURRENT-LIABILITIES> 432,063
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,177,728
<TOTAL-LIABILITY-AND-EQUITY> 30,609,791
<SALES> 4,205,098
<TOTAL-REVENUES> 4,205,098
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,182,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,610
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
