<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, 1995
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: 0-14437
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3236335
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(State or other jurisdiction (I.R.S. Employer
of 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, 1995 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.
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PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
PART I
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........................................................................ 10
Reports on Form 8-K............................................................. 11
SIGNATURES................................................................................... 22
</TABLE>
2
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PART I
Item 1. Business
General
Prudential Realty Acquisition Fund II, L.P. (the ``Registrant ''), a Delaware
limited partnership, was formed on August 10, 1984 and will terminate on
December 31, 2009 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 44,503 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 four properties and a mortgage loan. These commercial
real estate properties consist of an office building, a warehouse and two
shopping centers. The shopping centers were acquired through a joint venture
agreement with Prudential Acquisition Fund I, L.P., an affiliated limited
partnership. The two shopping centers owned by the joint venture were sold on
March 26, 1996 for a gross sales price of $15,500,000 less costs to sell. 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. See
Note C to the financial statements of the Registrant's Annual Report to Limited
Partners for the year ended December 31, 1995 (``Registrant's Annual Report'')
which is filed as an exhibit hereto for additional information.
In January 1996, the General Partners mailed to all limited partners a
Consent Solicitation Statement (the ``Statement'') asking for their written
consent to approve (i) a plan of sale of the remaining assets of the Registrant
and (ii) the complete liquidation and dissolution of the Partnership, as more
fully described in the Statement. On March 11, 1996, the limited partners
holding a majority of the Units approved the plan of sale and complete
liquidation and dissolution of the Registrant. Although no time schedule has
been adopted for this plan, the Registrant does expect to begin to actively
market all of its properties in 1996. It is not expected that the Registrant's
eventual total distributions, including sales proceeds, will equal the partners'
initial investments.
The mortgage loan is subject to an agreement effective March 6, 1996 by which
a purchaser has agreed to purchase the mortgage loan for $400,000. See Notes D
and J to the financial statements of the Registrant's Annual Report which is
filed as an exhibit hereto.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
(``PBP'') and Prudential Realty Partnerships, Inc. (``PRP'') (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 compete with the
Registrant while it continues to operate its properties.
The real estate industry is highly competitive. The Registrant's properties
are subject to competition in connection with both their operation and sale from
similar properties located in the immediate vicinity of these properties. See
Item 2 Properties.
3
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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 H to the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto.
Item 2. Properties
As of December 31, 1995 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average
Annual
Rental Rates
Occupancy Square per Square
Rate at Footage Foot at
Property Property of Property Property
- -------------------------------------------- --------- ------------ ----------------
<S> <C> <C> <C>
Rancho Cucamonga Industrial Park
(Rancho Cucamonga, CA) 100 201,000 $3.48 net
Eight Forge Park
(Franklin, MA) 30% 102,000 $5.75 net
Joint Venture (Davie, FL)
Pine Island** 88 250,000 $8.84 gross
Ridge Plaza** 71 155,000 $7.18 gross
</TABLE>
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Square footage and average rental rates per square foot information reflects
current 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.
** 46% interest held by the Registrant. These properties were sold on March 26,
1996.
The Registrant's warehouse in Rancho Cucamonga, California was leased to TASH
Distribution (``TASH''). In December 1995, the Registrant was notified that TASH
had made a general assignment for the benefit of creditors and would vacate the
building, which it did, in March 1996. The Registrant is presently seeking to
re-lease the property. Revenues from this property represented 54%, 57% and 56%
of the Registrant's rental income from directly-owned properties for the years
ended December 31, 1995, 1994 and 1993, respectively.
The Eight Forge Park industrial office building located in Franklin (suburban
Boston), Massachusetts is leased to Thermo Instrument Systems, Inc. under a
lease expiring in June 1997. One of two subsidiaries of the tenant, representing
70% of the leased space, vacated its space in the third quarter of 1995.
However, the tenant continues to honor its lease commitment. Revenues from Eight
Forge Park represented 46%, 43% and 44% of the Registrant's rental income from
directly-owned properties for the years ended December 31, 1995, 1994 and 1993,
respectively.
In May 1985, the Prudential Acquisition Fund I, L.P. (``PAF''), an affiliated
limited partnership, 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,
Broward County, Florida. The Registrant purchased from The Prudential its 46%
interest in the Joint Venture. 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 carrying value of the Joint
Venture's properties was reduced by $850,000 during the second quarter of 1995
to reflect an impairment in value resulting from lease defaults and market
indications. In the fourth quarter of 1995, the Joint Venture recorded an
additional provision for loss on impairment of assets of $1,500,000 to reflect
the gross sales price less costs to sell from the sale of the two shopping
centers on March 26, 1996. See Notes B and C to the Joint Venture's financial
statements which
4
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are filed as an exhibit hereto for further information. One tenant at Pine
Island, Builders Square (whose lease expires in 2003), accounted for 16%, 16%
and 13% of the revenues of the Joint Venture for the years ended December 31,
1995, 1994 and 1993, respectively.
The estimated fair value of the Registrant's properties, based on third-party
appraisals as of December 31, 1995 and the Registrant's pro rata share of the
estimated net proceeds from the sale of the Joint Venture's properties, was
$16,700,000. 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 I 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
There were no matters which were submitted to limited partners during the
quarter ended December 31, 1995. However, in January 1996, a Consent
Solicitation Statement was sent to all limited partners. See Item 1 for further
information.
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 1, 1996, there were 5,966 holders of record owning 44,503 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 1995 1994
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<S> <C> <C>
March 31 $8.50 $8.50
June 30 $9.50 $8.50
September 30 $9.50 $8.50
December 31 $9.50 $8.50
</TABLE>
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Registrant's Partnership Agreement. In December 1995, Tash Inc., the sole tenant
of the warehouse facility in Rancho Cucamonga, became insolvent and closed its
operations. As a result, the Registrant expects to have reduced cash flow in
1996 and unless a new tenant can be found in the near future, the Registrant may
have to lower future distributions. Furthermore, as a result of the approval by
the limited partners holding a majority of the Units of the plan of sale and
liquidation of the Partnership and the sale of the two shopping center
properties, future cash distributions may be significantly impacted. The
distributions paid to limited partners during 1995 and 1994 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 a discussion of other
factors that may affect future distributions, see Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations.
5
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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 11 in the
Registrant's Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Rental income $ 1,339,531 $ 1,384,518 $ 1,340,207 $ 1,312,628 $ 1,192,441
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Joint venture equity income
(loss) (a) $ (609,162) $ 113,565 $(6,665,416) $(1,356,061) $ (103,149)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loan loss $ -- $ -- $ 884,852 $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on
impairment of assets $ 1,000,000 $ 1,400,000 $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net (loss) income $(1,149,484) $ (558,669) $(6,799,543) $ (488,508) $ 617,910
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net (loss) income per limited
partnership unit $ (29.94) $ (16.33) $ (156.57) $ (14.59) $ 10.44
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $18,331,682 $21,017,985 $23,266,408 $31,725,482 $33,857,474
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total limited partnership
distributions $ 1,646,613 $ 1,513,605 $ 1,512,631 $ 1,446,349 $ 1,379,594
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited Partner distributions
per Unit $ 37.00 $ 34.00 $ 34.00 $ 32.50 $ 31.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) Includes $1,081,000, $6,463,000 and $1,426,000 provisions for loss on
impairment of assets in 1995, 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 12 through 15 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 11
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 persons 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 Form 3, 4 and 5. Such executive officers, directors and persons
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
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partners'
6
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directors and executive officers and persons who own greater than ten percent of
the Registrant's Units, if any, or copies of the reports they have filed with
the Securities and Exchange Commission during and with respect to its 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:
<TABLE>
<CAPTION>
Name Position
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer,
Chairman of the Board of Directors and Director
Barbara J. Brooks Vice President--Finance and Chief Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 37, 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 (``PSI''), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 47, 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.
EUGENE D. BURAK, age 50, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 52, 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 53, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President 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 45, is a Director of PBP. She 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.
James M. Kelso ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director effective June 30, 1995.
Effective June 30, 1995, Thomas F. Lynch, III was elected President, Chief
Executive Officer, Chairman of the Board of Directors and Director. Robert J.
Alexander ceased to serve as Vice President effective August 25, 1995. Eugene D.
Burak was elected Vice President effective October 9, 1995.
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.
7
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Prudential Realty Partnerships, Inc.
The directors and executive officers of Prudential Realty Partnerships, Inc.
and their positions are as follows:
<TABLE>
<CAPTION>
Name Position
<S> <C>
Joel W. Stoesser Chairman of the Board of Directors
David Bradford President and Director
Kevin R. Smith Vice President and Director
Jose Gener Vice President and Comptroller
C. Edward Chaplin Treasurer
Roger S. Pratt Director
Joseph D. Margolis Secretary
</TABLE>
JOEL W. STOESSER, age 55, is a Managing Director of Prudential Real Estate
Investors. He is head of Investment Advisory Services, which includes
responsibility for portfolio management and asset management of separate
accounts and certain co-investment programs and commingled funds. Prior to his
current assignment, Mr. Stoesser served as a Senior Vice President of the
Prudential Realty Group. Prior to joining Prudential in 1988, he also 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.
DAVID BRADFORD, age 42, is a Managing Director of Prudential Real Estate
Investors. He is the portfolio manager of PRISA, a large commingled fund. Prior
to joining Prudential in 1995, Mr. Bradford was a Senior Vice President in
Portfolio Management at Equitable Real Estate. His 13-year tenure at Equitable
included positions in pension investment marketing across all asset classes,
real estate product management and portfolio operations and investment. Most
recently (1991-1995), Mr. Bradford was Assistant Portfolio Manager for
Equitable's $3.2 billion flagship equity real estate portfolio Prime Property
Fund.
KEVIN R. SMITH, age 38, is a Vice President of Prudential Real Estate
Investors. He is a portfolio manager for four separate accounts and two
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.
JOSE GENER, age 45, is a Vice President with The Prudential Asset Management
Group. In his present assignment, he is responsible for accounting policy and
reporting as well as the control structure for the institutional real estate
management arm of PAMG. Mr. Gener has been with the Prudential since 1977,
serving in a series of comptrollership assignments. Since 1986 he has worked
primarily with the investment management units of The Prudential.
C. EDWARD CHAPLIN, age 39, 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. Mr. Chaplin
joined Prudential in the Realty Group in August 1983. In May 1992, he
transferred to the Treasurer's Department as Vice President and Assistant
Treasurer, with responsibility for Banking and Cash Management. In October 1993,
he was promoted to Managing Director and Assistant Treasurer, with
responsibility for managing Prudential's debt issuance, its relationships with
the major credit rating agencies and financial counterparty credit analysis. In
November 1995, Mr. Chaplin was appointed to Vice President and Treasurer.
ROGER S. PRATT, age 43, is Managing Director 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 has served in a variety of positions
for the company. Prior to assuming his current position in February 1992, Mr.
Pratt was Vice President in charge of the New Jersey regional office.
8
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JOSEPH D. MARGOLIS, age 35, 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.
Claude J. Zinngrabe, Jr. ceased to serve as director effective December 8,
1995. Effective August 7, 1995, Jose Gener was elected Vice President and
Comptroller. Effective August 7, 1995, Steven B. Saperstein ceased to serve as
Vice President and Comptroller. John C. Hoffman ceased to serve as Director and
President and Martin Pfinsgraff ceased to serve as Treasurer effective December
11, 1995. Effective December 11, 1995, C. Edward Chaplin was elected Treasurer
and David Bradford was elected Director and President.
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, 1996, 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, 1996, 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, 1996, 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 and H 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 and notes thereto on pages 15 through 21 herein.
9
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PART IV
<TABLE>
<CAPTION>
Page
in Annual
Report
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<S> <C> <C> <C>
(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, 1995 and 1994 3
Statements of Operations--Three Years Ended December 31, 1995 4
Statements of Changes in Partners' Capital--Three Years Ended December 31,
1995 4
Statements of Cash Flows--Three Years Ended December 31, 1995 5
Notes to Financial Statements 6
2 Financial Statement Schedules and Independent Auditors' Report
Independent Auditors' Report on Schedules
Schedules:
III--Real Estate and Accumulated Depreciation--December 31, 1995
IV--Mortgage Loan on Real Estate--December 31, 1995
Ridge Plaza Joint Venture Financial Statements and Independent Auditors'
Report
Independent Auditors' Report
Financial Statements:
Statements of Financial Condition--December 31, 1995 and 1994
Statements of Operations--Three Years Ended December 31, 1995
Statements of Changes in Partners' Capital--Three Years Ended December 31,
1995
Statements of Cash Flows--Three Years Ended December 31, 1995
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.
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. Real Property and Mortgage Management and Supervisory Services Agreement
(3)
B. Joint Venture Agreement dated May 8, 1985 between The Prudential Insurance
Company of America (``Prudential'') and Prudential Acquisition Fund I, L.P.
(``PAF'') (4)
C. Purchase Agreement and First Amendment to Joint Venture Agreement dated
June 28, 1985 between PAF and Prudential (5)
D. Amended and Restated Joint Venture Interest Acquisition and Option
Agreement dated June 28, 1985 between Prudential and Registrant (5)
E. Amended and Restated Acquisition Fee Agreement dated June 28, 1985 among
Prudential Realty Partnerships, Inc., Prudential-Bache Properties, Inc.,
Registrant, PAF, Prudential, and Ridge Plaza Joint Venture (5)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
F. First Amendment to Amended and Restated Joint Venture Interest Acquisition
and Option Agreement dated October 25, 1985 between Prudential and
Registrant (6)
G. 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 PAF,
Prudential, and Registrant (7)
H. Third Amendment to Joint Venture Agreement of Ridge Plaza Joint Venture
dated as of May 15, 1986 among PAF, Prudential and Registrant (8)
I. Promissory Note Due May 15, 1993 dated May 6, 1988 (9)
J. Mortgage and Security Agreement Dated May 6, 1988 (9)
13 Registrant's 1995 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 1995 Annual Report is to be deemed filed as part of this
report.)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter
of the period covered by this report.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ---------------
(1) Incorporated by reference to Prospectus dated February 14, 1985, 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 10C to Amendment No. 1 to Registration Statement No.
2-93027 filed February 12, 1985
(4) Incorporated by reference to Exhibit 10(c) of Registrant's Current Report on Form 8-K dated May
23, 1985
(5) Incorporated by reference to Exhibit 10(d) of Post-Effective Amendment No. 1 to Registration
Statement No. 2-93027 filed July 5, 1985
(6) Incorporated by reference to Exhibit 10(a) of Post-Effective Amendment No. 2 to Registration
Statement No. 2-93027 filed December 19, 1985
(7) Incorporated by reference to Exhibit 10(a) of Registrant's Current Report on Form 8-K dated
January 14, 1986
(8) Incorporated by reference to Exhibit 10(a) of Registrant's Current Report on Form 8-K dated May
15, 1986
(9) Incorporated by reference to Exhibit 10 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988
</TABLE>
11
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Prudential Realty Acquisition Fund II, L.P.
New York, New York
We have audited the financial statements of Prudential Realty Acquisition Fund
II, L.P. (a Delaware Limited Partnership) as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, and have
issued our report thereon dated March 26, 1996; such financial statements and
report thereon are included in your 1995 Annual Report to Limited Partners and
are incorporated herein by reference. Our audits also included the financial
statement schedules of Prudential Realty Acquisition Fund II, 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.
Deloitte & Touche LLP
March 26, 1996
12
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
Schedule III--Real Estate and Accumulated Depreciation
December 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Gross Amounts at which
Initial Cost (A) Costs Carried at Close of Period (C)
---------------------------- Capitalized --------------------------------------------
Buildings Subsequent Buildings
and to and
Description (B) Land Improvements Acquisition(F) Land Improvements Total (D)
- ---------------------- ---------- ------------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rancho Cucamonga, CA
Tash Distribution
Warehouse $2,119,710 $ 5,559,861 $ (454,264 ) $1,869,710 $ 5,355,597 $ 7,225,307
Franklin, MA
Thermo Instruments
Office/Research
Facility 626,746 5,650,632 (1,400,000 ) 360,746 4,516,632 4,877,378
---------- ------------- ------------ ---------- ------------- -----------
Total $2,746,456 $11,210,493 $(1,854,264 ) $2,230,456 $ 9,872,229 $12,102,685
---------- ------------- ------------ ---------- ------------- -----------
---------- ------------- ------------ ---------- ------------- -----------
<CAPTION>
Accumulated
Depreciation
Description (B) (E)
- ---------------------- ---------------
<S> <C>
Rancho Cucamonga, CA
Tash Distribution
Warehouse $ 1,672,888
Franklin, MA
Thermo Instruments
Office/Research
Facility 1,336,529
---------------
Total $ 3,009,417
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
Year of Date Depreciation
Construction Acquired Life
<S> <C> <C> <C>
------------ -------- ------------------
Rancho Cucamonga, CA 1985 3/30/87 5--31.5 years
Franklin, MA 1987 9/30/87 5--31.5 years
</TABLE>
(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 $14,280,868
(D) Reconciliation of Real Estate Owned:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year $12,800,501 $14,200,501 $14,058,914
Additions During Year 302,184 -- 141,587
Write-downs During Year (1,000,000) (1,400,000) --
----------- ----------- -----------
Balance at End of Year $12,102,685 $12,800,501 $14,200,501
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(E) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at Beginning of Year $ 2,629,911 $ 2,250,387 $ 1,874,081
Additions During Year 379,506 379,524 376,306
----------- ----------- -----------
Balance at End of Year $ 3,009,417 $ 2,629,911 $ 2,250,387
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(F) Costs Capitalized Subsequent to Acquisition includes noncash write-downs of
$2,400,000.
13
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
Schedule IV--Mortgage Loan on Real Estate
December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Periodic Face Carrying
Interest Final Payment Prior Amount of Amount
Description Rate Maturity Terms(a) Liens Mortgages 12/31/95(b)
- -------------------- -------- ---------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
First Mortgage:
Golden Valley,
Minnesota 9% May 1993 (a) None $1,450,000 $450,000
-------- ---------- --------- -------- ---------- ------------
-------- ---------- --------- -------- ---------- ------------
</TABLE>
The mortgage loan matured on May 15, 1993 with a balance due of $1,389,852.
The borrower remains in default. The Registrant recorded allowances for loan
losses of $884,852 in 1993 and $150,000 in the third quarter of 1995. The third
quarter 1995 provision was reversed as of December 31, 1995 to reflect the
estimated sales proceeds based upon an agreement effective March 6, 1996 by
which a purchaser has agreed to purchase the mortgage loan for $400,000. Subject
to the conditions in the agreement, the Partnership will assign the mortgage to
the purchaser at closing, presently scheduled for March 29, 1996 but in no event
later than April 4, 1996. The purchaser is accepting the assignment of the
mortgage and any responsibility it may incur from such assignment for any
further remediation costs at the underlying property. However, there is no
assurance that the sale will be consummated.
(a) Periodic Payment Terms--The mortgage loan plus interest was collected at
level amounts over its life to maturity, with a
balloon payment due and payable at maturity. The
balance due at maturity (May 1993) was $1,389,852.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C> <C>
(b) Balance at Beginning of Year $450,000 $505,000 $1,395,957
Deductions:
Collection of principal -- (55,000) (6,105)
Allowance for loan loss -- -- (884,852)
-------- -------- ----------
Balance at End of Year $450,000 $450,000 $ 505,000
-------- -------- ----------
-------- -------- ----------
</TABLE>
14
<PAGE>
<PAGE>
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, 1995 and 1994, 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, 1995. 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,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
March 26, 1996
15
<PAGE>
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Land $ 3,835,457 $ 4,422,957
Buildings and improvements 27,899,102 29,615,596
Less: accumulated depreciation (16,756,187) (15,627,896)
------------ ------------
Property 14,978,372 18,410,657
Accounts receivable, net of allowance for doubtful accounts of
$180,205 in 1995 and $97,105 in 1994 688,279 407,437
Cash and cash equivalents 1,427,420 2,054,578
------------ ------------
Total assets $ 17,094,071 $ 20,872,672
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Real estate taxes payable $ 17,086 $ 446,029
Accounts payable and accrued expenses 160,682 296,671
Tenant security deposits 148,931 158,373
------------ ------------
Total liabilities 326,699 901,073
------------ ------------
Partners' capital
Prudential Acquisition Fund I, L.P. 9,009,238 10,739,520
Prudential Realty Acquisition Fund II, L.P. 7,758,134 9,232,079
------------ ------------
Total partners' capital 16,767,372 19,971,599
------------ ------------
Total liabilities and partners' capital $ 17,094,071 $ 20,872,672
------------ ------------
------------ ------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
16
<PAGE>
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 2,843,407 $2,613,050 $ 2,514,661
Recovery of expenses 1,091,276 937,386 1,070,228
Interest income 102,664 62,641 48,230
----------- ---------- ------------
4,037,347 3,613,077 3,633,119
----------- ---------- ------------
EXPENSES
Depreciation and amortization 1,128,291 1,675,411 1,646,412
Property operating 1,101,079 1,034,603 1,266,862
Real estate taxes 518,388 427,759 924,126
General and administrative 143,816 108,385 115,717
Provision for loss on impairment of assets 2,350,000 -- 14,050,000
----------- ---------- ------------
5,241,574 3,246,158 18,003,117
----------- ---------- ------------
Net income (loss) $(1,204,227) $ 366,919 $(14,369,998)
----------- ---------- ------------
----------- ---------- ------------
ALLOCATION OF NET INCOME (LOSS)
Prudential Acquisition Fund I, L.P. $ (650,282) $ 198,136 $ (7,759,799)
----------- ---------- ------------
----------- ---------- ------------
Prudential Realty Acquisition Fund II, L.P. $ (553,945) $ 168,783 $ (6,610,199)
----------- ---------- ------------
----------- ---------- ------------
- -----------------------------------------------------------------------------------------------------
</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, 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
Net loss (650,282) (553,945) (1,204,227)
Distributions (1,080,000) (920,000) (2,000,000)
----------- ----------- ------------
Partners' capital--December 31, 1995 $ 9,009,238 $ 7,758,134 $ 16,767,372
----------- ----------- ------------
----------- ----------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
17
<PAGE>
<PAGE>
RIDGE PLAZA JOINT VENTURE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 2,812,586 $ 2,957,742 $ 2,213,511
Recovery of expenses received 818,542 787,585 1,444,018
Property operating expenses paid (1,202,024) (942,091) (1,155,524)
Real estate taxes paid (947,331) (7,086) (934,009)
General and administrative expenses paid (156,147) (125,005) (108,988)
Interest received 102,664 62,641 48,230
Tenant security deposits received (returned) (9,442) 27,874 (10,845)
----------- ------------ ------------
Net cash provided by operating activities 1,418,848 2,761,660 1,496,393
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized property expenditures (46,006) (328,509) (1,322,959)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (2,000,000) (950,000) (1,450,000)
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents (627,158) 1,483,151 (1,276,566)
Cash and cash equivalents at beginning of year 2,054,578 571,427 1,847,993
----------- ------------ ------------
Cash and cash equivalents at end of year $ 1,427,420 $ 2,054,578 $ 571,427
----------- ------------ ------------
----------- ------------ ------------
- -----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $(1,204,227) $ 366,919 $(14,369,998)
----------- ------------ ------------
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Provision for loss on impairment of assets 2,350,000 -- 14,050,000
Bad debt expense (recovery) 83,100 31,931 (282,982)
Depreciation and amortization 1,128,291 1,675,411 1,646,412
Changes in:
Accounts receivable (363,942) 152,656 355,622
Accounts payable and accrued expenses (135,989) 86,196 70,607
Real estate taxes payable (428,943) 420,673 (9,882)
Tenant security deposits (9,442) 27,874 36,614
----------- ------------ ------------
Total adjustments 2,623,075 2,394,741 15,866,391
----------- ------------ ------------
Net cash provided by operating activities $ 1,418,848 $ 2,761,660 $ 1,496,393
----------- ------------ ------------
----------- ------------ ------------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
18
<PAGE>
<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.
The two shopping centers owned by the Joint Venture were sold on March 26,
1996 for a gross sales price of $15,500,000 less costs to sell.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the co-venturers to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property
Effective December 31, 1995, the Joint Venture adopted Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties'
carrying value. If a property is determined to be impaired, it should be
recorded at the lower of its carrying value or its estimated fair value. For
properties that are held for sale, SFAS No. 121 states that they should be
recorded at the lower of carrying amount or estimated fair value less costs to
sell. At December 31, 1995, the Joint Venture's properties are recorded at the
gross sales price less costs to sell, and the Joint Venture has ceased
depreciating the properties for financial statement purposes only.
Prior to December 31, 1995, the Joint Venture carried its property
investments at the lower of depreciated cost or estimated amounts recoverable
through future operations and ultimate disposition of the property. Property
investments were depreciated or amortized using the straight-line method over
their estimated economic lives which ranged from 5 to 35 years depending on
property type. A provision for loss on impairment of assets was recorded when
estimated amounts recoverable through future operations and ultimate disposition
of the property on a undiscounted basis were below depreciated cost. However,
property investments were reduced to estimated fair value when the property was
considered to be permanently impaired and the depreciated cost exceeded the
estimated fair value.
Buildings and improvements include furniture and fixtures, tenant
improvements and capitalized leasing costs. Tenant improvements and capitalized
leasing costs were amortized over the lives of their respective leases.
Capitalized leasing costs, net of accumulated amortization were $107,438 and
$130,733 at December 31, 1995 and 1994, respectively.
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
19
<PAGE>
<PAGE>
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.
C. Property
The Joint Venture's properties are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
<S> <C> <C>
-------------------------------------------------------------------------------
Pine Island Ridge Plaza Shopping Center--
Davie, Broward County, FL $11,653,399 $14,111,632
Ridge Plaza Shopping Center--
Davie, Broward County, FL 3,324,973 4,299,025
----------- -----------
$14,978,372 $18,410,657
----------- -----------
----------- -----------
</TABLE>
The carrying value of the Joint Venture's properties were reduced by $850,000
during the second quarter of 1995 to reflect an impairment in value resulting
from lease defaults and market indications. In the fourth quarter of 1995, the
Joint Venture recorded a provision for loss on impairment of assets of
$1,500,000 to reflect the estimated net proceeds received from the sale of the
two shopping centers on March 26, 1996.
The Joint Venture's properties were considered to be 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. Accordingly,
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. This 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.
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,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Net income (loss) per financial
statements $(1,204,227) $ 366,919 $(14,369,998)
Provision for loss on impairment of
assets 2,350,000 -- 14,050,000
Tax depreciation greater than
depreciation per financial
statements (694,203) (136,688) (130,660)
Bad debt expense (recovery) 83,100 31,931 (282,982)
Unearned rental income (22,713) 10,304 22,103
Other -- (37,416) --
----------- ------------ ------------
Tax basis net income (loss) $ 511,957 $ 235,050 $ (711,537)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
20
<PAGE>
<PAGE>
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%, 16% and 13% of the revenues of the Joint Venture for the years ended
December 31, 1995, 1994 and 1993, respectively. Future minimum base lease
receipts at December 31, 1995 due under these noncancellable leases are as
follows:
<TABLE>
<S> <C>
1996 $ 2,892,567
1997 2,853,529
1998 2,748,155
1999 2,211,534
2000 1,853,107
Thereafter 5,024,169
------------
$ 17,583,061
------------
------------
</TABLE>
In addition, certain of the leases require the lessees to reimburse the Joint
Venture for real estate taxes, insurance costs and other expenses.
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 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,
-----------------------------
1995 1994 1993
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and affiliates $45,800 $34,900 $40,100
Prudential-Bache Properties, Inc. and affiliates 25,400 22,400 23,700
------- ------- -------
$71,200 $57,300 $63,800
------- ------- -------
------- ------- -------
</TABLE>
Expenses payable to the general partners of the co-venturers and their
affiliates (which are included in accrued expenses) as of December 31, 1995 and
1994 were $22,400 and $19,900, 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.
G. Subsequent Event
The two shopping centers owned by the Joint Venture were sold on March 26,
1996 for a gross sales price of $15,500,000 less costs to sell.
21
<PAGE>
<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 REALTY ACQUISITION FUND II, L.P.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Eugene D. Burak Date: March 29, 1996
----------------------------------------
Eugene D. Burak
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/ Thomas F. Lynch, III Date: March 29, 1996
----------------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer,
Chairman of the Board of Directors and
Director
By: /s/ Barbara J. Brooks Date: March 29, 1996
----------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief
Financial Officer
By: /s/ Eugene D. Burak Date: March 29, 1996
----------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: March 29, 1996
----------------------------------------
Frank W. Giordano
Director
By: Nathalie P. Maio Date: March 29, 1996
----------------------------------------
Nathalie P. Maio
Director
22
<PAGE>
<PAGE>
By: Prudential Realty Partnerships, Inc.
A Delaware corporation, General Partner
By: /s/ Joel W. Stoesser Date: March 29, 1996
----------------------------------------
Joel W. Stoesser
Chairman of the Board of Directors
By: /s/ David Bradford Date: March 29, 1996
----------------------------------------
David Bradford
President and Director
By: /s/ Kevin R. Smith Date: March 29, 1996
----------------------------------------
Kevin R. Smith
Vice President and Director
By: /s/ Jose Gener Date: March 29, 1996
----------------------------------------
Jose Gener
Vice President and Comptroller
By: /s/ C. Edward Chaplin Date: March 29, 1996
----------------------------------------
C. Edward Chaplin
Treasurer
By: /s/ Roger S. Pratt Date: March 29, 1996
----------------------------------------
Roger S. Pratt
Director
By: /s/ Joseph D. Margolis Date: March 29, 1996
----------------------------------------
Joseph D. Margolis
Secretary
23
<PAGE>
1995
- --------------------------------------------------------------------------------
Prudential Realty Acquisition Annual
Fund II, L.P. Report
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
LETTER TO THE UNITHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Prudential Realty Acquisition Fund II, L.P.
New York, New York
We have audited the accompanying statements of financial condition of Prudential
Realty Acquisition Fund II, L.P. (a Delaware Limited Partnership) as of December
31, 1995 and 1994, 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, 1995. 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 Realty Acquisition Fund II, L.P.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accounting principles.
Deloitte & Touche LLP
March 26, 1996
2
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Land $ 2,230,456 $ 2,480,456
Buildings and improvements 9,872,229 10,320,045
Less: accumulated depreciation (3,009,417 ) (2,629,911 )
Investment in joint venture, net 8,475,910 10,005,072
------------ ------------
Property 17,569,178 20,175,662
Cash and cash equivalents 164,475 378,129
Mortgage loan receivable, net 450,000 450,000
Other assets 148,029 14,194
------------ ------------
Total assets $18,331,682 $21,017,985
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 412,851 $ 120,100
Tenant security deposits 52,000 52,000
------------ ------------
Total liabilities 464,851 172,100
------------ ------------
Contingencies
Partners' capital
Limited partners (44,503 units issued and outstanding) 17,866,831 20,845,885
General partners -- --
------------ ------------
Total partners' capital 17,866,831 20,845,885
------------ ------------
Total liabilities and partners' capital $18,331,682 $21,017,985
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 1,286,758 $1,380,623 $ 1,335,741
Recovery of expenses 125,065 152,486 161,033
Other income 52,773 3,895 4,466
Interest income 27,608 17,368 58,486
Joint venture equity income (loss) (609,162) 113,565 (6,665,416)
----------- ---------- -----------
883,042 1,667,937 (5,105,690)
----------- ---------- -----------
EXPENSES
Depreciation and amortization 379,506 379,524 376,306
Real estate taxes 88,244 143,612 157,070
General and administrative 479,498 265,465 204,852
Property operating 85,278 38,005 70,773
Provision for loan loss -- -- 884,852
Provision for loss on impairment of assets 1,000,000 1,400,000 --
----------- ---------- -----------
2,032,526 2,226,606 1,693,853
----------- ---------- -----------
Net loss $(1,149,484) $ (558,669) $(6,799,543)
----------- ---------- -----------
----------- ---------- -----------
ALLOCATION OF NET LOSS
Limited partners $(1,332,441) $ (726,812) $(6,967,648)
----------- ---------- -----------
----------- ---------- -----------
General partners $ 182,957 $ 168,143 $ 168,105
----------- ---------- -----------
----------- ---------- -----------
Net loss per limited partnership unit $ (29.94) $ (16.33) $ (156.57)
----------- ---------- -----------
----------- ---------- -----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1992 $31,566,581 $ -- $31,566,581
Net income (loss) (6,967,648) 168,105 (6,799,543)
Distributions (1,512,631) (168,105 ) (1,680,736)
----------- --------- -----------
Partners' capital--December 31, 1993 23,086,302 -- 23,086,302
Net income (loss) (726,812) 168,143 (558,669)
Distributions (1,513,605) (168,143 ) (1,681,748)
----------- --------- -----------
Partners' capital--December 31, 1994 20,845,885 -- 20,845,885
Net income (loss) (1,332,441) 182,957 (1,149,484)
Distributions (1,646,613) (182,957 ) (1,829,570)
----------- --------- -----------
Partners' capital--December 31, 1995 $17,866,831 $ -- $17,866,831
----------- --------- -----------
----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 1,212,689 $ 1,472,176 $ 1,273,534
Recovery of expenses received 65,299 151,592 161,033
Other income received 52,773 3,895 4,466
Interest received 27,608 17,368 70,161
Property operating expenses paid (51,303) (29,517) (71,690)
General and administrative expenses paid (327,724) (281,959) (182,730)
Real estate taxes paid (43,242) (143,612) (157,070)
Distributions from joint venture income -- 113,565 --
----------- ----------- -----------
Net cash provided by operating activities 936,100 1,303,508 1,097,704
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments received on mortgage loan -- 55,000 6,105
Capitalized property expenditures (240,184) -- (141,587)
Distributions from joint venture in excess of income 920,000 323,435 667,000
----------- ----------- -----------
Net cash provided by investing activities 679,816 378,435 531,518
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,829,570) (1,681,748) (1,680,736)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (213,654) 195 (51,514)
Cash and cash equivalents at beginning of year 378,129 377,934 429,448
----------- ----------- -----------
Cash and cash equivalents at end of year $ 164,475 $ 378,129 $ 377,934
----------- ----------- -----------
----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net loss $(1,149,484) $ (558,669) $(6,799,543)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 379,506 379,524 376,306
Distributions from joint venture income -- 113,565 --
Joint venture equity (income) loss 609,162 (113,565) 6,665,416
Provision for loan loss -- -- 884,852
Provision for loss on impairment of assets 1,000,000 1,400,000 --
Changes in:
Other assets (133,835) 90,659 (50,532)
Accounts payable and accrued expenses 230,751 (8,006) 21,205
----------- ----------- -----------
Total adjustments 2,085,584 1,862,177 7,897,247
----------- ----------- -----------
Net cash provided by operating activities $ 936,100 $ 1,303,508 $ 1,097,704
----------- ----------- -----------
----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential Realty Acquisition Fund II, L.P. (the ``Partnership''), a Delaware
limited partnership, was formed on August 10, 1984 and will terminate on
December 31, 2009 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, 1995, the Partnership owns two
properties, holds a mortgage loan and has a 46% interest in a joint venture
which owns two shopping centers (the ``Joint Venture'').
The two shopping centers owned by the Joint Venture were sold on March 26,
1996 for a gross sales price of $15,500,000 less estimated costs to sell.
In January 1996, the General Partners mailed to all limited partners a
Consent Solicitation Statement (the ``Statement') asking for their written
consent to approve (i) a plan of sale of the remaining assets of the Partnership
and (ii) the complete liquidation and dissolution of the Partnership, as more
fully described in the Statement. On March 11, 1996, the limited partners
holding a majority of the Units approved the plan of sale and complete
liquidation and dissolution of the Partnership. Although no time schedule has
been adopted for this plan, the Partnership does expect to begin to actively
market all of its properties in 1996. It is not expected that the Partnership's
eventual total distributions, including sales proceeds, will equal the partners'
initial investments.
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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property
Effective December 31, 1995, the Partnership adopted Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its
estimated fair value. For properties that are held for sale, SFAS No. 121 states
that they should be recorded at the lower of carrying amount or estimated fair
value less costs to sell and that depreciation should cease. As of December 31,
1995, the properties are accounted for as assets held for sale. The
implementation of SFAS No. 121 did not have a significant impact on the
Partnership's financial position as of December 31, 1995.
The determination of estimated fair value is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in the future.
Prior to December 31, 1995, the Partnership carried its property investments
at the lower of depreciated cost or estimated amounts recoverable through future
operations and ultimate disposition of the property.
6
<PAGE>
<PAGE>
Property investments were depreciated or amortized using the straight-line
method over their estimated economic lives which ranged from 5 to 31.5 years
depending on property type. A provision for loss on impairment of assets was
recorded when estimated amounts recoverable through future operations and
ultimate disposition of the property on a undiscounted basis were below
depreciated cost. However, property investments were reduced to estimated fair
value when the property was considered to be permanently impaired and the
depreciated cost exceeded the estimated fair value.
Buildings and improvements include furniture and fixtures, tenant
improvements and capitalized leasing costs. Tenant improvements and capitalized
leasing costs were amortized over the lives of their respective leases.
Capitalized leasing costs, net of accumulated amortization, were $221,816 and $0
as of December 31, 1995 and 1994, respectively.
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 $1,100,000) that were in excess of the Partnership's basis in the
Joint Venture are being amortized over a twenty-year period and are included in
Joint Venture equity income (loss).
The two shopping centers owned by the Joint Venture were sold on March 26,
1996 for a gross sales price of $15,500,000 less costs to sell.
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 value.
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.
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 provided that depreciation for tax purposes is allocated
1% to the General Partners and 99% to the units which were not originally owned
by Tax Exempt Holders. To the extent that cash distributions to the General
Partners exceed the 10% allocation of income for tax reporting purposes
(creating deficit capital account balances in excess of their allowable deficit
capital account balances), the General Partners 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.
Proceeds from the sale of the properties and liquidation of the Partnership will
be distributed in accordance with the Partnership Agreement.
C. Property
The Partnership's directly-owned properties are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------
Rancho Cucamonga, CA - Tash
Distribution Warehouse $ 5,552,419 $ 6,468,295
Franklin, MA - Thermo Instruments
Office/Research facility 3,540,849 3,702,295
----------- -----------
$ 9,093,268 $10,170,590
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
<PAGE>
The properties' have been valued at the lower of the carrying amount or
estimated fair value less costs to sell based on third party appraisals. As a
result, provisions for loss on impairment of assets of $1,000,000 and $1,400,000
were recorded for the years ended December 31, 1995 and 1994, respectively.
The Partnership's warehouse in Rancho Cucamonga, California was leased to
TASH Distribution (``TASH''). In December 1995, TASH notified the Partnership
that it had become insolvent and would vacate the building, which it did, in
March 1996. The Partnership is presently seeking to re-lease the property.
Revenues from this property represented 54%, 57% and 56% of the Partnership's
rental income from directly-owned properties for the years ended December 31,
1995, 1994 and 1993, respectively.
The Eight Forge Park industrial office building located in Franklin (suburban
Boston), Massachusetts is leased to Thermo Instrument Systems, Inc. under a
lease expiring in June 1997. One of two subsidiaries of the tenant, representing
70% of the leased space, vacated its space in the third quarter of 1995.
However, the tenant continues to honor its lease commitment. Revenues from Eight
Forge Park represented 46%, 43% and 44% of the Partnership's rental income from
directly-owned properties for the years ended December 31, 1995, 1994 and 1993,
respectively.
D. Mortgage Loan Receivable
The mortgage loan receivable, secured by an office/warehouse building in
Golden Valley, Minnesota, matured on May 15, 1993 with a balance due of
$1,389,852. The borrower remains in default. A court appointed receiver is
collecting rent from the property which has been used to fund operating expenses
and taxes at the property. The Partnership received $55,000 in 1994 which was
recorded as a reduction of the mortgage loan receivable. The Partnership also
received $50,000 in 1995 which was recorded as other income in the financial
statements.
Environmental studies performed on the property have shown environmental
contamination. A ``No Association'' letter has been obtained from the Minnesota
Pollution Control Agency which states that the Partnership will not be
identified as a responsible party due to its investigative actions. The
Partnership is under no obligation to do any remediation work.
The Partnership recorded an allowance for loan loss of $884,852 in 1993 and
$150,000 in the third quarter of 1995. The third quarter 1995 provision was
reversed as of December 31, 1995 to reflect the estimated sales proceeds less
costs to sell based upon an agreement effective March 6, 1996 by which a
purchaser has agreed to purchase the mortgage loan for $400,000. Subject to the
conditions in the agreement, the Partnership will assign the mortgage to the
purchaser at closing, presently scheduled for March 29, 1996 but in no event
later than April 4, 1996. The purchaser is accepting the assignment of the
mortgage and any responsibility it may incur from such assignment for any
further remediation costs at the underlying property. However, there is no
assurance that the sale will be consummated.
E. Income Taxes
The following is a reconciliation of net loss reported for financial
reporting purposes with net income reported for tax reporting purposes.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------
Net loss per financial statements $(1,149,484) $ (558,669) $(6,799,543)
Joint Venture financial statement income less
(greater) than income for tax purposes 842,919 (7,186) 6,336,366
Provision for loan loss -- -- 884,852
Provision for loss on impairment of assets 1,000,000 1,400,000 --
Tax depreciation less than depreciation per
financial statements 11,137 15,858 12,827
----------- ---------- -----------
Tax basis net income $ 704,572 $ 850,003 $ 434,502
----------- ---------- -----------
----------- ---------- -----------
</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.
8
<PAGE>
<PAGE>
F. Leases
The Partnership has two single tenant noncancellable operating leases at its
industrial office building and warehouse which account for all of the
Partnership's rental income. However, at the warehouse property in Rancho
Cucamonga, California, the tenant notified the Partnership that it had become
insolvent and would vacate the building, which it did, in January 1996. Future
minimum base rents at December 31, 1995 due under the noncancellable lease at
the industrial office building property in Franklin, Massachusetts are $587,506
in 1996 and $293,753 in 1997. The lease requires the lessee to reimburse the
Partnership for real estate taxes, insurance costs and other expenses.
G. Investment in Joint Venture
The Partnership has a 46% interest in a Joint Venture with an affiliated
limited partnership. Presented below is summarized financial information for the
Joint Venture.
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
<S> <C> <C>
------------------------------------------------------------------------------------------
Assets
Land $ 3,835,457 $ 4,422,957
Buildings and improvements 27,899,102 29,615,596
Less: accumulated depreciation (16,756,187) (15,627,896)
------------ ------------
Property 14,978,372 18,410,657
Accounts receivable, net 688,279 407,437
Cash and cash equivalents 1,427,420 2,054,578
------------ ------------
Total assets $ 17,094,071 $ 20,872,672
------------ ------------
------------ ------------
Liabilities and partners' capital
Total liabilities $ 326,699 $ 901,073
------------ ------------
Partners' capital
Prudential Acquisition Fund I, L.P. 9,009,238 10,739,520
Prudential Realty Acquisition Fund II, L.P. 7,758,134 9,232,079
------------ ------------
Total partners' capital 16,767,372 19,971,599
------------ ------------
Total liabilities and partners' capital $ 17,094,071 $ 20,872,672
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------
Revenues
Rental income $ 2,843,407 $2,613,050 $ 2,514,661
Recovery of expenses 1,091,276 937,386 1,070,228
Interest income 102,664 62,641 48,230
----------- ---------- ------------
4,037,347 3,613,077 3,633,119
----------- ---------- ------------
Expenses
Depreciation and amortization 1,128,291 1,675,411 1,646,412
Property operating 1,101,079 1,034,603 1,266,862
Real estate taxes 518,388 427,759 924,126
General and administrative 143,816 108,385 115,717
Provisions for loss on impairment of assets 2,350,000 -- 14,050,000
----------- ---------- ------------
5,241,574 3,246,158 18,003,117
----------- ---------- ------------
Net income (loss) $(1,204,227) $ 366,919 $(14,369,998)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
9
<PAGE>
<PAGE>
Investment in joint venture and joint venture equity income (loss) include
amortization of $55,218 annually of the Partnership's acquisition costs that
were in excess of the asset basis. Accumulated amortization at December 31, 1995
was $386,526.
Effective December 31, 1995, the Joint Venture adopted Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its
estimated fair value. For properties that are held for sale, SFAS No. 121 states
that they should be recorded at the lower of carrying amount or estimated fair
value less costs to sell and depreciation should cease.
The carrying value of the Joint Venture's properties were reduced by $850,000
during the second quarter of 1995 to reflect an impairment in value resulting
from lease defaults and market indications. In the fourth quarter of 1995, the
Joint Venture recorded a provision for loss on impairment of assets of
$1,500,000 to reflect the estimated net proceeds received from the sale of the
two shopping centers on March 26, 1996.
The Joint Venture's properties were considered to be 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 $17,500,000
was recorded at December 31, 1993 to reduce the Joint Venture's properties to
estimated fair value based on third party appraisals.
H. 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 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,
----------------------------------
<S> <C> <C> <C>
1995 1994 1993
- --------------------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and
affiliates $ 45,100 $ 30,400 $ 32,700
Prudential-Bache Properties, Inc. and affiliates 104,900 74,700 88,400
-------- -------- --------
$150,000 $105,100 $121,100
-------- -------- --------
-------- -------- --------
</TABLE>
Expenses payable to the General Partners and their affiliates (which are
included in accrued expenses) as of December 31, 1995 and 1994 are $59,600 and
$47,100, respectively.
In addition, the General Partners and their affiliates perform similar
services for the Joint Venture. The Partnership's allocable share of the costs
and expenses incurred on behalf of the Joint Venture which are reimbursable to
the General Partners and their affiliates were $32,800, $26,400 and $29,400 for
the years ended December 31, 1995, 1994 and 1993, respectively.
Prudential Securities Incorporated (``PSI''), an affiliate of the General
Partners, owns 1,117 limited partnership units at December 31, 1995.
I. 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, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, PSI, and a number
of other defendants. Plaintiffs alleged violation of the federal Racketeer
Influenced and Corrupt Organizations Act (``RICO'') statutes, breach of
fiduciary duty, fraud and deceit, negligence, and demanded an accounting.
10
<PAGE>
<PAGE>
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. The Prudential defendants filed a
motion to dismiss on December 22, 1993.
On or about November 16, 1993, a putative class action captioned Connelly et
al. v. Prudential-Bache Securities Inc. et al. (CIV-93-713), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnerships against the Partnership, PBP, PSI, and a number
of other defendants. An amended complaint was filed on December 6, 1993.
Plaintiffs alleged fraud, breach of fiduciary duty, negligent misrepresentation,
malpractice, and violation of federal securities laws and RICO statutes.
Plaintiffs sought unspecified compensatory, punitive and treble damages,
disgorgement and restitution of all earnings, profits, compensation and benefits
received by defendants, rescission, costs and attorneys' fees. Plaintiffs
subsequently filed a motion to consolidate the Connelly case with the Kinnes
action.
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, and by order dated June 8, 1994, the Connelly case, were
transferred to a single judge of the United States District Court for the
Southern District of New York and consolidated for pretrial proceedings under
the caption In re Prudential Securities Incorporated Limited Partnerships
Litigation (MDL Docket No. 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, PRP and PBP. The Partnership was not named as a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995, PRP, PBP, PSI and other Prudential defendants entered into
a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI.
J. Subsequent Events
In February 1996, a distribution of $470,000 was paid to the partners for the
quarter ended December 31, 1995. Limited partners received a total of $423,000,
which represents $9.50 per unit, and the General Partners received the
remainder.
The two shopping centers owned by the Joint Venture were sold on March 26,
1996 for a gross sales price of $15,500,000 less costs to sell.
The mortgage loan is subject to an agreement effective March 6, 1996 by which
a purchaser has agreed to purchase the mortgage loan for $400,000. Subject to
the conditions in the agreement, the Partnership will assign the mortgage to the
purchaser at closing, presently scheduled for March 29, 1996 but in no event
later than April 4, 1996. The purchaser is accepting the assignment of the
mortgage and any responsibility it may incur from such assignment for any
further remediation costs at the underlying property. However, there is no
assurance that the sale will be consummated.
11
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, 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
commercial properties, a mortgage loan and an equity interest in a joint venture
(the ``Joint Venture'') which owned two shopping centers. The two shopping
centers owned by the Joint Venture were sold on March 26, 1996 for a gross sales
price of $15,500,000 less costs to sell. The sale of the property is expected to
result in a significant distribution during the second quarter of 1996.
In January 1996, the General Partners mailed to all limited partners a
Consent Solicitation Statement (the ``Statement'') asking for their written
consent to approve (i) a plan of sale of the remaining assets of the Partnership
and (ii) the complete liquidation and dissolution of the Partnership, as more
fully described in the Statement. As of March 11, 1996, the majority of the
limited partners approved the plan of sale and complete liquidation and
dissolution of the Partnership. There is no specific time schedule for the sale
of the remaining properties or for the liquidation of the Partnership. However,
the Partnership expects to begin to actively market all of its remaining
properties in 1996. It is not expected that the Partnership's eventual total
distributions, including sales proceeds, will equal the partners' initial
investments.
During the year ended December 31, 1995, the Partnership's cash and cash
equivalents decreased $214,000 primarily as a result of decreased rental
revenues and recovery of expenses from the directly-owned properties, an
increase in capitalized property expenditures and an increase in distributions
to partners partially offset by an increase in distributions from the Joint
Venture. The Joint Venture, in which the Partnership has a 46% interest, has
cash and cash equivalents of $1,427,000 at December 31, 1995 as compared to
$2,055,000 at December 31, 1994. This amount is anticipated to be sufficient to
pay outstanding liabilities, fund capital expenditures (including leasing
commissions and tenant improvements) and provide additional cash distributions
to the Partnership. Cash distributions to the Partnership from the Joint Venture
totalled $920,000 and $437,000 for the years ended December 31, 1995 and 1994,
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 expended $46,000 for capital
improvements during 1995.
In connection with the capital improvements which are discussed in further
detail below, the amount of actual capital 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 the timing of the sale of
the properties.
Cash Distributions
Cash distributions paid to the limited partners and General Partners totalled
$1,830,000 and $1,682,000 for the years ended December 31, 1995 and 1994,
respectively, of which the limited partners received $1,647,000 and $1,514,000,
($37.00 and $34.00 per unit), respectively, and the General Partners received
the remainder. These amounts represent payments from current and prior
undistributed cash flow from operations of the directly-owned and Joint Venture
properties discussed below in Results of Operations.
In February 1996, cash distributions of cash flow from operations of $470,000
were paid to the limited partners and General Partners. Limited partners
received $423,000 ($9.50 per unit) and the General Partners received the
remainder.
The Partnership expects to have reduced cash flow in early 1996 as a result
of the vacancy from the industrial warehouse in Rancho Cucamonga, California of
its sole tenant in March 1996. Unless a new tenant can be found in the near
future, the Partnership may have to lower future distributions. Furthermore, the
amount of cash generated by the Partnership from operations of the
directly-owned properties, the amount expended for capital improvements, and the
amount of reserves set aside for anticipated capital improvements as well as the
timing of the sale of the Partnership's properties could affect the
Partnership's ability to make future distributions to the partners and the
amount of the distributions that may be made.
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Capital Improvements--Directly-Owned Properties
For the year ended December 31, 1995, the Partnership capitalized $302,000
for tenant improvements and leasing commissions. Projected capital expenditures
for the directly-owned properties for 1996 are estimated at $276,000 for tenant
improvements and leasing commissions at Eight Forge Park. These capital
improvements will be funded from either undistributed cash balances or cash
derived from future operations.
Capital Improvements--Joint Venture
During 1995, the Joint Venture, in which the Partnership has a 46% interest,
expended $46,000 for capital improvements of which $16,000 represented building
and land improvements and $30,000 represented leasing commissions. Projected
capital expenditures for the Joint Venture for 1996 are estimated at $40,000 for
anticipated tenant improvements and leasing commissions.
Results of Operations
The Partnership recorded net losses of $1,149,000, $559,000 and $6,800,000
for the years ended December 31, 1995, 1994 and 1993, respectively. As discussed
in further detail below, these losses were primarily the result of provisions
for loss on impairment of assets recorded for the Partnership and Joint Venture
properties. Provisions for losses on impairment of assets of $1,000,000 and
$1,400,000 were recorded in 1995 and 1994, respectively, to reflect the
directly-owned properties' estimated fair value. The Partnership's pro rata
share of provisions for loss on impairment of assets recorded for the Joint
Venture properties was $1,081,000 and $6,463,000 in 1995 and 1993, respectively.
Fluctuations between periods in other operating results are discussed below.
Directly-Owned Properties
As of December 31, 1995 and 1994, the Eight Forge Park office building in
Franklin, Massachusetts was 100% leased by two subsidiaries of one company whose
lease expires in June 1997. One of the subsidiaries, representing 70% of the
leased space, vacated its space in the third quarter of 1995. However, the
tenant continues to honor its obligations under the lease. The Partnership is
currently discussing possible lease extensions and/or restructurings with the
remaining tenant. Rental income and operating expenses for the years ended
December 31, 1995 and 1994 were comparable to 1994 and 1993, respectively. A
$1,400,000 provision for loss on impairment of assets was recorded in 1994 to
reduce the Eight Forge Park property to its estimated fair value.
In December 1995, TASH, the sole tenant of the warehouse facility in Rancho
Cucamonga, California, became insolvent and closed down its operations. Rental
income for the year ended December 31, 1995 decreased $94,000 as compared to
1994 due to rent concessions provided in 1995. Operating expenses for the year
ended December 31, 1995 increased $30,000 mainly due to increased professional
fees. Rental income increased $45,000 in 1994 as compared to 1993 due to a
scheduled rent increase. Operating expenses for the year ended December 31, 1994
were comparable to 1993. A $1,000,000 provision for loss on impairment of assets
was recorded for the year ended December 31, 1995 to reduce the Rancho Cucamonga
property to its estimated fair value.
Other income for the year ended December 31, 1995 increased $49,000 as
compared to 1994 due to the receipt of $50,000 from the mortgage loan. See Note
D in the financial statements.
Real estate taxes for the year ended December 31, 1995 decreased $55,000 as
compared to 1994 due to a refund received in the second quarter of 1995 from a
successful appeal of the 1992 and 1993 taxes at the Rancho Cucamonga warehouse
facility. Real estate taxes for the year ended December 31, 1994 were comparable
to 1993.
General and administrative expenses for the year ended December 31, 1995
increased $214,000 as compared to 1994 primarily due to costs relating to the
preparation and review of the Consent Solicitation Statement and increased costs
to administer the Partnership. During 1994, general and administrative expenses
increased $61,000 as compared to 1993 primarily due to professional fees
associated with the mortgage loan receivable.
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Interest income for the year ended December 31, 1995 increased by $10,000 as
compared to 1994 due to higher average cash balances during 1995. Interest
income decreased $41,000 for the year ended December 31, 1994, as compared to
1993 as a result of the mortgage loan receivable defaulting in the second
quarter of 1993.
Joint Venture Properties
As of December 31, 1995, Pine Island and Ridge Plaza were 94% and 81% leased
(88% and 71% occupied), respectively, as compared to 93% and 90% leased (93% and
80% occupied) as of December 31, 1994. Over the next twelve months, five leases
representing 7% of the rentable space are scheduled to expire at Pine Island. In
the third quarter of 1994, a new tenant who had signed a ten-year lease notified
the Joint Venture it would not occupy its space (approximately 10% of the leased
space of Ridge Plaza). The tenant is not making payments as required by its
lease. Negotiations continue with the tenant relating to a buy-out of the lease.
Occupancy further dropped at Ridge Plaza by 10% in April 1995 when a tenant was
evicted due to the non-compliance of an operating covenant. There are no
significant leases scheduled to expire in the next twelve months at Ridge Plaza.
A drug store which occupies 5% of the total space in Pine Island was acquired by
another chain in June 1995. The new owner closed the store during the third
quarter; however, it is required under its lease obligations to continue making
payments until expiration of the lease in 2003.
Rental income for the year ended December 31, 1995 increased $230,000
compared to 1994 due to increased occupancy at Pine Island and the expiration of
free rent periods for several tenants during 1994 at Ridge Plaza. Rental income
for the year ended December 31, 1994 increased $98,000 as compared to 1993
mainly due to the increased average rental and occupancy rates at Pine Island.
Property operating expenses for the year ended December 31, 1995 increased
$66,000 as compared to 1994 primarily due to an increase in provisions for
doubtful accounts. Property operating expenses for the year ended December 31,
1994 decreased $232,000 as compared to 1993 primarily due to provisions for
doubtful accounts recorded in 1993.
Real estate taxes for the year ended December 31, 1995 increased $91,000 as
compared to 1994 and decreased $496,000 for the year ended December 31, 1994 as
compared to 1993 due to refunds received for prior periods at both Pine Island
and Ridge Plaza in the fourth quarter of 1994 as a result of a lower assessment
on the properties.
Depreciation and amortization expense for the year ended December 31, 1995
decreased $547,000 as compared to 1994 because a vacated outparcel and related
tenant improvements at Ridge Plaza were demolished to provide additional parking
at the Joint Venture's properties in 1994. Additionally, in the third quarter of
1994, a tenant with a new ten-year lease notified the Joint Venture it would not
occupy its space. Negotiations are ongoing with the tenant relating to a buy-out
of the lease. As a result, depreciation and amortization expense in 1994
includes the write-off of related tenant improvements and leasing commissions of
$108,000. Furthermore, a tenant vacated its space at Pine Island in the third
quarter of 1994, resulting in a write-off of tenant improvements of $154,000.
Depreciation and amortization expense for the year ended December 31, 1994
increased $29,000 as compared to 1993 primarily due to the reasons mentioned
above, offset by the effect of a lower depreciable basis resulting from the
write-down of the Joint Venture properties in 1993.
General and administrative expenses for the year ended December 31, 1995
increased $35,000 as compared to 1994 primarily due to costs relating to the
preparation and review of the Consent Solicitation Statement and increased costs
to administer the Joint Venture.
The carrying value of the Joint Venture's properties were reduced by $850,000
during the second quarter of 1995 to reflect an impairment in value resulting
from lease defaults and market indications. In the fourth quarter of 1995, the
Joint Venture recorded a provision for loss on impairment of assets of
$1,500,000 to reflect the estimated net proceeds received from the sale of the
two shopping centers on March 26, 1996.
The Joint Venture's properties were considered to be 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,
14
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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.
Mortgage Loan Receivable
The mortgage loan receivable, secured by an office/warehouse building in
Golden Valley, Minnesota, matured on May 15, 1993 with a balance due of
$1,389,852. The borrower remains in default. See Note D to the financial
statements for further discussion.
15
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OTHER INFORMATION
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 Realty Acquisition Fund II, L.P.
c/o Prudential-Bache Properties, Inc.
Client Services Department
P.O. Box 2016
New York, New York 10272-2016
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<PAGE>
Peck Slip Station
BULK RATE
P.O. Box 2016
U.S. POSTAGE
New York, NY 10272-2016
PAID
Automatic Mail
PRAF/170244
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential Realty Acquisition
Fund II, LP and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000752292
<NAME> Prudential Realty Acquisition Fund II, LP
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> 12-Mos
<CASH> 164,475
<SECURITIES> 0
<RECEIVABLES> 598,029
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 762,504
<PP&E> 20,578,595
<DEPRECIATION> 3,009,417
<TOTAL-ASSETS> 18,331,682
<CURRENT-LIABILITIES> 464,851
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,866,831
<TOTAL-LIABILITY-AND-EQUITY> 18,331,682
<SALES> 883,042
<TOTAL-REVENUES> 883,042
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,032,526
<LOSS-PROVISION> 1,000,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,149,484)
<EPS-PRIMARY> (29.94)
<EPS-DILUTED> 0
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