<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 March 31, 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
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Seaport Plaza, New York, New York 10292-0116
- --------------------------------------------------------------------------------
(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>
March 31, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $16,598,563 $17,569,178
Cash and cash equivalents 236,053 164,475
Mortgage loan receivable, net 361,000 450,000
Other assets 17,526 148,029
------------- ------------
Total assets $17,213,142 $18,331,682
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL\
Liabilities
Accounts payable and accrued expenses $ 252,165 $ 412,851
Tenant security deposits -- 52,000
------------- ------------
Total liabilities 252,165 464,851
------------- ------------
Partners' capital
Limited partners (44,503 units issued and outstanding) 16,960,977 17,866,831
General partners -- --
------------- ------------
Total partners' capital 16,960,977 17,866,831
------------- ------------
Total liabilities and partners' capital $17,213,142 $18,331,682
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
2
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 263,461 $351,319
Recovery of expenses 36,992 44,516
Interest income 3,155 7,457
Joint venture equity income (loss) (521,077) 115,267
--------- --------
(217,469) 518,559
--------- --------
EXPENSES
Real estate taxes 34,686 40,059
General and administrative 65,926 68,350
Property operating 29,019 17,148
Provision for loan loss 89,000 --
Depreciation and amortization -- 94,882
--------- --------
218,631 220,439
--------- --------
Net income (loss) $(436,100) $298,120
--------- --------
--------- --------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(483,075) $256,089
--------- --------
--------- --------
General partners $ 46,975 $ 42,031
--------- --------
--------- --------
Net income (loss) per limited partnership unit $ (10.85) $ 5.75
--------- --------
--------- --------
- --------------------------------------------------------------------------------------------------
</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) (483,075) 46,975 (436,100)
Distributions (422,779) (46,975 ) (469,754)
----------- -------- -----------
Partners' capital--March 31, 1996 $16,960,977 $ -- $16,960,977
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
<S> <C> <C>
1996 1995
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income received $ 339,562 $ 352,269
Recovery of expenses received 97,652 40,921
Interest received 3,155 7,457
Real estate taxes paid (62,835) (40,059)
Property operating expenses paid (36,130) (16,424)
General and administrative expenses paid (135,610) (51,146)
Security deposits paid (52,000) --
Distributions from joint venture income -- 115,267
--------- -----------
Net cash provided by operating activities 153,794 408,285
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized property expenditures (72,462) --
Distributions from joint venture in excess of income 460,000 344,733
--------- -----------
Net cash provided by investing activities 387,538 344,733
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (469,754) (420,307)
--------- -----------
Net increase in cash and cash equivalents 71,578 332,711
Cash and cash equivalents at beginning of period 164,475 378,129
--------- -----------
Cash and cash equivalents at end of period $ 236,053 $ 710,840
--------- -----------
--------- -----------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $(436,100) $ 298,120
--------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization -- 94,882
Joint Venture equity loss 521,077 --
Provision for loan loss 89,000 --
Changes in:
Other assets 130,503 (2,645)
Accounts payable and accrued expenses (98,686) 17,928
Tenant security deposits (52,000) --
--------- -----------
Total adjustments 589,894 110,165
--------- -----------
Net cash provided by operating activities $ 153,794 $ 408,285
--------- -----------
--------- -----------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
<PAGE>
PRUDENTIAL REALTY ACQUISITION FUND II, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1996 and the results of its
operations and its cash flows for the three months ended March 31, 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.
Certain balances from prior years have been reclassified to conform with
current financial statement presentation.
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>
Three months ended
March 31,
--------------------
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------
Prudential Realty Partnerships, Inc. and affiliates $ 11,200 $ 9,300
Prudential-Bache Properties, Inc. and affiliates 28,200 18,700
-------- --------
$ 39,400 $ 28,000
-------- --------
-------- --------
</TABLE>
Expenses payable to the General Partners and their affiliates (which are
included in accrued expenses) as of March 31, 1996 and December 31, 1995 are
$68,300 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 $7,500 and $7,800 for the three
months ended March 31, 1996 and 1995, respectively.
Prudential Securities Incorporated (``PSI''), an affiliate of the General
Partners, owns 1,117 limited partnership units at March 31, 1996.
5
<PAGE>
<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>
March 31, December 31,
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Assets
Property held for sale $ -- $ 14,978,372
Accounts receivable, net 412,907 688,279
Cash and cash equivalents 15,889,184 1,427,420
------------- ------------
Total assets $16,302,091 $ 17,094,071
------------- ------------
------------- ------------
Liabilities and partners' capital
Total liabilities $ 107,114 $ 326,699
------------- ------------
Partners' capital:
Prudential Acquisition Fund I, L.P. 8,700,144 9,009,238
Prudential Realty Acquisition Fund II, L.P. 7,494,833 7,758,134
------------- ------------
Total partners' capital 16,194,977 16,767,372
------------- ------------
Total liabilities and partners' capital $16,302,091 $ 17,094,071
------------- ------------
------------- ------------
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Revenues
Rental income $ 769,900 $675,806
Recovery of expenses 250,341 282,788
Interest income 20,888 25,485
---------- --------
1,041,129 984,079
---------- --------
Expenses
Depreciation and amortization -- 262,176
Property operating 418,246 249,948
Real estate taxes 113,475 161,907
General and administrative 25,263 29,457
Loss on sale of assets 56,540 --
---------- --------
613,524 703,488
---------- --------
Net income $ 427,605 $280,591
---------- --------
---------- --------
</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 three
months ended March 31, 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 are being written-off as a result of the sale of the
Joint Venture properties.
D. Subsequent Events
The first mortgage loan on property in Golden Valley, Minnesota was assigned
to Mendelssohn Industries Properties, L.L.C. on April 3, 1996 pursuant to an
agreement dated March 6, 1996 for $400,000. The purchaser accepted the
assignment of the mortgage and any responsibility it may incur from such
assignment for any further environmental remediation costs at the underlying
property. A provision for loan loss of
6
<PAGE>
$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.
In April 1996, the sole tenant at Eight Forge Park, Thermo Instruments
Systems, signed a new ten-year lease for the entire property effective February
1, 1996.
A distribution was made in April 1996 in the amount of $135.00 per $1,000
unit representing partial proceeds from the sale of the Shopping Centers by the
Joint Venture. In May 1996, an additional distribution was made from the
remaining net proceeds from the sale of the Shopping Centers ($16.22 per unit)
and the net proceeds from the sale of the mortgage loan receivable ($8.12 per
unit).
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, a mortgage loan 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. 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 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.
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 three months ended March 31, 1996, the Partnership's cash and cash
equivalents increased $72,000 because cash generated by operating activities and
distributions from the Joint Venture exceeded capital expenditures and
distributions paid to the partners. The Joint Venture, in which the Partnership
has a 46% interest, has cash and cash equivalents of approximately $15,889,000
at March 31, 1996 as compared to approximately $1,427,000 at December 31, 1995.
The high level of cash and cash equivalents at March 31, 1996 was due to the net
proceeds received from the sale of the Shopping Centers by the Joint Venture. In
April 1996, substantially all of the Partnership's interest in the net proceeds
from the sale were distributed to the limited 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 three months ended March 31, 1996 totalled
$470,000, of which the limited partners received $423,000 ($9.50 per unit) and
the General Partners received the remainder. These distributions were funded
with current and prior undistributed cash flow 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 two shopping center
properties, future cash distributions may be significantly impacted. However, it
is expected that as assets are sold, a portion of the net sales proceeds will be
distributed in the quarter following the closing of each sale and the balance
will be distributed within one year of the final sale.
Additionally, the Partnership expects to have reduced cash flow in 1996 as a
result of the vacancy of the industrial warehouse in Rancho Cucamonga,
California. Until a new tenant can be found, the Partnership will have to lower
future distributions from property operations. 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 assets could affect the Partnership's ability to make future
distributions to the partners and the amount of the distributions that may be
made.
8
<PAGE>
<PAGE>
Capital Improvements--Directly-Owned Properties
For the three months ended March 31, 1996, the Partnership expended $10,000
on tenant improvements at the warehouse facility in Rancho Cucamonga. Projected
capital expenditures for the directly-owned properties for the remainder of 1996
are estimated at $535,000 for tenant improvements and leasing commissions at
Eight Forge Park and at the warehouse facility in Rancho Cucamonga. These
capital improvements will be funded from either undistributed cash balances or
cash derived from future operations.
Capital Improvements--Joint Venture
There were no capital expenditures at the Joint Venture for the period from
January 1, 1996 through March 26, 1996, the date of sale of the two shopping
centers owned by the Joint Venture.
Results of Operations
The Partnership's net income decreased $734,000, for the three months ended
March 31, 1996 as compared to the corresponding period in 1995. The variances
for the directly-owned properties and Joint Venture properties are described
below.
Directly-Owned Properties
As of March 31, 1996 and 1995, the Eight Forge Park office building in
Franklin, Massachusetts was 100% leased by one company whose original lease
expired in June 1997. In April 1996, the tenant signed a new ten-year lease for
the entire property effective February 1, 1996. For the three months ended March
31, 1996, rental income and operating expenses are comparable to 1995.
Rental income decreased $87,000 for the three months ended March 31, 1996 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. Operating expenses increased by $14,000 for the three months ended
March 31, 1996 as compared to 1995 mainly due to an increase in the provision
for bad debts.
Depreciation expense decreased $95,000 for the three months ended March 31,
1996 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
three months ended March 31, 1996.
Joint Venture Properties
The Partnership's joint venture equity income decreased $636,000 for the
three months ended March 31, 1996 as compared to 1995. The major components of
this variance are discussed below.
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 three
months ended March 31, 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 are being written-off as a result of the sale of the
Joint Venture properties.
Total revenues increased $57,000 for the period from January 1, 1996 to March
26, 1996 as compared to the three months ended March 31, 1995 primarily as a
result of an increase in rental income at Ridge Plaza and Pine Island due to an
increase in rental rates at both properties.
Property operating expenses increased $168,000 for the period from January 1,
1996 to March 26, 1996 as compared to the three months ended March 31, 1995
primarily as a result of an increase in provision for bad debts, property
management fees and payroll.
Real estate taxes decreased $48,000 for the period from January 1, 1996 to
March 26, 1996 as compared to the three months ended March 31, 1995 due to lower
assessments at both properties.
Depreciation and amortization expense decreased $262,000 due to the reason
noted above for directly-owned properties.
9
<PAGE>
<PAGE>
Mortgage Loan Receivable
The first mortgage loan 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.
See Note D of the financial statements for further information.
10
<PAGE>
PART II. OTHER INFORMATION
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
Description required by Item 4 is contained in the Registrant's
Current Report on Form 8-K dated March 26, 1996 as previously filed
with the Securities and Exchange Commission, which report is herein
incorporated by reference.
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--
Current Report on Form 8-K dated March 26, 1996, as filed with the
Securities and Exchange Commission on April 9, 1996, relating to
(i) Item 2 regarding the sale of two shopping centers owned by a
joint venture in which the Registrant has an interest, (ii) Item 5
regarding the results of the voting on a consent solicitation
statement sent to the limited partners and (iii) Item 7 containing
summarized pro forma information regarding the sale of the
shopping centers note above.
- ---------------
(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
11
<PAGE>
<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: May 15, 1996
-----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
12
<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> Mar-31-1996
<PERIOD-TYPE> 3-Mos
<CASH> 236,053
<SECURITIES> 0
<RECEIVABLES> 378,526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 614,579
<PP&E> 16,598,563
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,213,142
<CURRENT-LIABILITIES> 252,165
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,960,977
<TOTAL-LIABILITY-AND-EQUITY> 17,213,142
<SALES> (217,469)
<TOTAL-REVENUES> (217,469)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 129,631
<LOSS-PROVISION> 89,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (436,100)
<EPS-PRIMARY> (10.85)
<EPS-DILUTED> 0
</TABLE>
