<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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.
- --------------------------------------------------------------------------------
(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, New York 10292-0116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK 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 __
<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $ 9,378,730 $ 9,093,268
Investment in joint venture, net 271,503 8,475,910
Cash and cash equivalents 539,189 164,475
Mortgage loan receivable, net -- 450,000
Other assets -- 148,029
------------- ------------
Total assets $10,189,422 $18,331,682
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL\
Liabilities
Accounts payable and accrued expenses $ 295,477 $ 412,851
Tenant security deposits -- 52,000
------------- ------------
Total liabilities 295,477 464,851
------------- ------------
Partners' capital
Limited partners (44,503 units issued and outstanding) 9,893,945 17,866,831
General partners -- --
------------- ------------
Total partners' capital 9,893,945 17,866,831
------------- ------------
Total liabilities and partners' capital $10,189,422 $18,331,682
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 422,822 $702,936 $ 159,361 $ 351,617
Recovery of expenses 50,952 75,823 13,960 31,307
Interest income 21,061 17,292 17,906 9,835
Joint venture equity loss (522,407) (181,176) (1,330) (296,443)
--------- -------- --------- ---------
(27,572) 614,875 189,897 96,316
--------- -------- --------- ---------
EXPENSES
Property operating 74,751 35,205 45,732 18,057
Real estate taxes 70,543 16,909 35,857 (23,150)
General and administrative 150,159 142,466 84,233 74,116
Provision for loan loss 89,000 -- -- --
Depreciation and amortization -- 189,763 -- 94,881
--------- -------- --------- ---------
384,453 384,343 165,822 163,904
--------- -------- --------- ---------
Net income (loss) $(412,025) $230,532 $ 24,075 $ (67,588)
--------- -------- --------- ---------
--------- -------- --------- ---------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(459,000) $141,526 $ 24,075 $(114,563)
--------- -------- --------- ---------
--------- -------- --------- ---------
General partners $ 46,975 $ 89,006 $ -- $ 46,975
--------- -------- --------- ---------
--------- -------- --------- ---------
Net income (loss) per limited partnership unit $ (10.31) $ 3.18 $ .54 $ (2.57)
--------- -------- --------- ---------
--------- -------- --------- ---------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995 $17,866,831 $ -- $17,866,831
Net income (loss) (459,000) 46,975 (412,025)
Distributions (7,513,886) (46,975 ) (7,560,861)
----------- -------- -----------
Partners' capital--June 30, 1996 $ 9,893,945 $ -- $ 9,893,945
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
<S> <C> <C>
1996 1995
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 510,191 $ 716,236
Recovery of expenses received 111,612 67,548
Interest received 21,061 17,292
Real estate taxes paid, net (115,477) (16,909)
Property operating expenses paid (30,142) (24,202)
General and administrative expenses paid (205,208) (144,185)
Security deposits paid (52,000) --
----------- -----------
Net cash provided by operating activities 240,037 615,780
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized property expenditures (347,462) --
Net proceeds from sale of mortgage loan 361,000 --
Distributions from joint venture in excess of income 7,682,000 460,000
----------- -----------
Net cash provided by investing activities 7,695,538 460,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (7,560,861) (890,061)
----------- -----------
Net increase in cash and cash equivalents 374,714 185,719
Cash and cash equivalents at beginning of period 164,475 378,129
----------- -----------
Cash and cash equivalents at end of period $ 539,189 $ 563,848
----------- -----------
----------- -----------
- ----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ (412,025) $ 230,532
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Joint venture equity loss 522,407 181,176
Provision for loan loss 89,000 --
Depreciation and amortization -- 189,763
Changes in:
Other assets 148,029 5,025
Accounts payable and accrued expenses (55,374) 9,284
Tenant security deposits (52,000) --
----------- -----------
Total adjustments 652,062 385,248
----------- -----------
Net cash provided by operating activities $ 240,037 $ 615,780
----------- -----------
----------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
A. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting of only
normal recurring adjustments as well as those adjustments relating to the sale
of the Ridge Plaza joint venture (``Joint Venture'') as reflected in Note C and
the mortgage loan receivable as stated in Note D) considered necessary for a
fair presentation of the financial position of Prudential Realty Acquisition
Fund II, L.P. (the ``Partnership'') as of June 30, 1996, the results of its
operations for the six and three months ended June 30, 1996 and 1995 and its
cash flows for the six months ended June 30, 1996 and 1995 have been included.
Operating results for the interim periods may not be indicative of the results
expected for the full year. It is suggested that these financial statements be
read in conjunction with the financial statements and footnotes thereto included
in the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1995.
B. Related Parties
Prudential-Bache Properties, Inc. (``PBP'') and Prudential Realty
Partnerships, Inc. (collectively, 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>
Six months ended Three months ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and affiliates $ 27,500 $ 20,100 $ 16,300 $ 10,800
Prudential-Bache Properties, Inc. and affiliates 62,200 42,600 34,000 23,900
-------- -------- -------- --------
$ 89,700 $ 62,700 $ 50,300 $ 34,700
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Expenses payable to the General Partners and their affiliates (which are
included in accounts payable and accrued expenses) as of June 30, 1996 and
December 31, 1995 are $106,100 and $59,600, respectively.
In addition, the General Partners and their affiliates performed 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 $10,200 and $16,400,
respectively, for the six months ended June 30, 1996 and 1995 and $2,700 and
$8,600, respectively, for the three months ended June 30, 1996 and 1995.
Prudential Securities Incorporated (``PSI''), an affiliate of the General
Partners, owns 1,117 limited partnership units at June 30, 1996.
5
<PAGE>
C. 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>
June 30, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Assets
Property held for sale $ -- $ 14,978,372
Accounts receivable, net 223,400 688,279
Cash and cash equivalents 376,273 1,427,420
------------- ------------
Total assets $ 599,673 $ 17,094,071
------------- ------------
------------- ------------
Liabilities and partners' capital
Total liabilities $ 107,587 $ 326,699
------------- ------------
Partners' capital:
Prudential Acquisition Fund I, L.P. 220,583 9,009,238
Prudential Realty Acquisition Fund II, L.P. 271,503 7,758,134
------------- ------------
Total partners' capital 492,086 16,767,372
------------- ------------
Total liabilities and partners' capital $ 599,673 $ 17,094,071
------------- ------------
------------- ------------
</TABLE>
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------------------------- -----------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 769,900 $1,374,733 $ -- $ 698,927
Recovery of expenses 250,341 515,782 -- 232,994
Interest income 46,632 49,253 25,744 23,768
---------- ---------- ------- ----------
1,066,873 1,939,768 25,744 955,689
---------- ---------- ------- ----------
Expenses
Property operating 430,759 529,255 -- 279,307
Real estate taxes 113,475 253,444 -- 91,537
General and administrative 41,387 60,511 28,637 31,054
Loss on sale of assets 56,540 -- -- --
Provision for loss on impairment of assets -- 850,000 -- 850,000
Depreciation and amortization -- 580,399 -- 318,223
---------- ---------- ------- ----------
642,161 2,273,609 28,637 1,570,121
---------- ---------- ------- ----------
Net income (loss) $ 424,712 $ (333,841) $(2,893) $ (614,432)
---------- ---------- ------- ----------
---------- ---------- ------- ----------
</TABLE>
The two shopping centers owned by the Joint Venture (``Shopping Centers'')
were sold on March 26, 1996 for a gross sales price of $15,500,000 less costs to
sell.
Joint venture equity loss includes a write-off of $718,000 during the six
months ended June 30, 1996 of the remaining Partnership costs incurred in the
acquisition of the Joint Venture investment that were in excess of its basis in
the Joint Venture. These excess costs were previously being amortized over a
twenty-year period and were written-off as a result of the sale of the Joint
Venture properties.
6
<PAGE>
D. Mortgage Loan Receivable
The first mortgage loan on property in Golden Valley, Minnesota was assigned
to Mendelssohn Industries Properties, L.L.C. in April 1996. A provision for loss
of $89,000 was recorded as of March 31, 1996 to reflect the net proceeds
received by the Partnership, after selling expenses, of approximately $361,000.
E. Subsequent Event
A sales contract was signed in July 1996 for the sale of Eight Forge Park, a
102,000 square foot single-story research and development building located in
Franklin, Massachusetts for an adjusted gross sales price of approximately
$5,000,000 less costs to sell. The sales price is in excess of the appraised
value, and closing is expected in the third quarter 1996. There can be no
assurance that this transaction will close or, if closed, that the terms of
the sale will not change.
7
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
ITEM 2. 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 and an equity interest in a joint venture (the ``Joint
Venture'') which owned two shopping centers (``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.
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 limited partners
holding a majority of the limited partnership units approved the plan of sale
and complete liquidation and dissolution of the Partnership. The General
Partners are attempting to sell the remaining properties and liquidate the
Partnership as soon as possible. It is not expected that the Partnership's
eventual total distributions, including sales proceeds, will equal the partners'
initial investments.
Cash distributions from the Joint Venture, rental revenue from the
Partnership's directly-owned properties and interest earned on short-term
investments have provided sufficient liquidity to meet expenses incurred by the
Partnership and its properties.
During the six months ended June 30, 1996, the Partnership's cash and cash
equivalents increased $375,000 because cash generated by operating activities,
sales proceeds and distributions from the Joint Venture exceeded capital
expenditures and distributions paid to the partners.
In connection with the capital improvements which are discussed below, the
amount of actual expenditures and their timing will depend on the success of
sales and leasing efforts, the nature and timing of new leases and lease
renewals, ongoing evaluation of the need for the planned improvements and
optimal timing of their implementation as well as general market conditions.
Cash Distributions
Cash distributions during the six months ended June 30, 1996 totalled
$7,561,000, of which the limited partners received $7,514,000 ($168.84 per unit)
and the General Partners received the remainder. These distributions consisted
of $135.00 and $16.22 per unit paid in April 1996 and May 1996, respectively,
from the sale of the Shopping Centers. In May 1996, a distribution of $8.12 per
unit was made from the sale of the Partnership's first mortgage loan, with the
remainder of the distributions being funded from current and prior undistributed
cash from operations of the directly-owned and Joint Venture properties.
As a result of the approval by the limited partners of the plan of sale and
liquidation of the Partnership and the sale of the Shopping Centers,
future cash distributions will be significantly impacted. The
Partnership expects to have significantly reduced cash flow in 1996 as a result
of the vacancy of the industrial warehouse in Rancho Cucamonga, California.
Furthermore, the pending sale of Eight Forge Park and the timing of the sale of
the Partnership's remaining assets has affected the Partnership's ability to
make future distributions from operations to the partners. Accordingly, the
Partnership has suspended recurring quarterly distributions from operations.
However, it is expected that as assets are sold, a significant portion of the
net sales proceeds will be distributed shortly after each closing.
Capital Improvements--Directly-Owned Properties
For the six months ended June 30, 1996, the Partnership expended $285,000 on
tenant improvements and leasing commissions at Eight Forge Park and the
warehouse facility in Rancho Cucamonga. Projected capital expenditures for the
directly-owned properties for the remainder of 1996 are estimated at $260,000
primarily for leasing commissions at the warehouse facility in Rancho Cucamonga.
These capital improvements will be funded from either undistributed cash
balances or cash derived from future operations.
8
<PAGE>
Results of Operations
The Partnership's net income for the six months ended June 30, 1996 decreased
$643,000 and increased $92,000 for the three months ended June 30, 1996, as
compared to 1995. The variances for the directly-owned properties and Joint
Venture properties are described below.
Directly-Owned Properties
As of June 30, 1996 and 1995, the Eight Forge Park office building in
Franklin, Massachusetts was 100% leased. In April 1996, the tenant signed a new
ten-year lease for the entire property effective February 1, 1996. Rental income
for the six and three months ended June 30, 1996 decreased $47,000 as compared
to 1995 primarily due to the lower rents being retroactive to February 1996.
Property operating expenses for the six and three months ended June 30, 1996 are
comparable to 1995. A sales contract was signed in July 1996 for the sale of
Eight Forge Park. See Note E to the financial statements for further
information.
Rental income for the six and three months ended June 30, 1996 decreased
$292,000 and $205,000, respectively, as compared to 1995 at the warehouse
facility in Rancho Cucamonga, California, due to its vacancy in March 1996. The
Partnership is presently seeking to re-lease the property. Property operating
expenses for the six and three months ended June 30, 1996 increased by $44,000
and $30,000, respectively, as compared to 1995 primarily due to increases in
repairs and maintenance, advertising and insurance expenses.
Real estate taxes for the six and three months ended June 30, 1996 increased
$54,000 and $59,000, respectively, as compared to 1995 primarily as a result of
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.
Depreciation expense for the six and three months ended June 30, 1996
decreased $190,000 and $95,000, respectively, as compared to 1995 due to the
reclassification of the Partnership's properties from held for use to held for
sale as of December 31, 1995. Under generally accepted accounting principles,
such properties are no longer depreciated and, therefore, no depreciation
expense has been recorded for the six months ended June 30, 1996.
Joint Venture Properties
The sale of the two shopping centers owned by the Joint Venture occurred on
March 26, 1996 at a gross sales price of $15,500,000 less costs to sell,
resulting in a $56,000 loss on the sale.
Joint venture equity loss includes a write-off of $718,000 during the six
months ended June 30, 1996 of the remaining Partnership costs incurred in the
acquisition of the Joint Venture investment that were in excess of its basis in
the Joint Venture. These excess costs were previously being amortized over a
twenty-year period and were written-off as a result of the sale of the Joint
Venture properties.
The Joint Venture recorded a provision for loss on impairment of assets of
$850,000 during the three months ended June 30, 1995 to reflect a diminution in
value resulting from lease defaults and market indications.
Mortgage Loan Receivable
The first mortgage loan on property in Golden Valley, Minnesota was assigned
to Mendelssohn Industries Properties, L.L.C. in April 1996. A provision for loan
loss of $89,000 was recorded as of March 31, 1996 to reflect the net proceeds
received by the Partnership, after selling expenses, of approximately $361,000.
9
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
a. 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)
27 Financial Data Schedule (filed herewith)
b. Reports on Form 8-K--None
</TABLE>
- ---------------
(1) Incorporated by reference to Prospectus dated February 14, 1985, 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
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Prudential Realty Acquisition Fund II, L.P.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Eugene D. Burak Date: August 14, 1996
-----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential Realty Acquisition
Fund II, L.P. and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000752292
<NAME> Prudential Realty Acquisition Fund II L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Jun-30-1996
<PERIOD-TYPE> 6-Mos
<CASH> 539,189
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,378,730
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,189,422
<CURRENT-LIABILITIES> 295,477
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,893,945
<TOTAL-LIABILITY-AND-EQUITY> 10,189,422
<SALES> (27,572)
<TOTAL-REVENUES> (27,572)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 295,453
<LOSS-PROVISION> 89,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,025)
<EPS-PRIMARY> (10.31)
<EPS-DILUTED> 0
</TABLE>
