UNITED STATES 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 September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-2294
PARTICIPATING DEVELOPMENT FUND 86
(Exact name of registrant as specified in its charter)
Connecticut 06-1153833
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) identification No.)
3 World Financial Center, 29th Floor, New York, NY 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(Registrant's telephone number, including area code)
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 X No
Balance Sheets
September 30, December 31,
Assets 1994 1993
Land $ 12,419,476 $ 12,419,476
Buildings and personal property 25,301,317 26,280,194
Tenant improvements 8,007,198 7,680,893
45,727,991 46,380,563
Less-accumulated depreciation (10,598,259) (11,772,231)
35,129,732 34,608,332
Restricted cash 162,575 364,360
Cash and cash equivalents 99,694 798,734
262,269 1,163,094
Accounts receivable, net of allowance of
$24,773 in 1993 29,812 66,665
Prepaid expenses, net of accumulated
amortization of $30,468 in 1994
and $6,029 in 1993 349,436 76,535
Incentives to lease,net of accumulated
amortization of $7,331 in 1994 292,933 --
Deferred rent receivable 240,194 276,773
Total Assets $ 36,304,376 $ 36,191,399
Liabilities and Partners' Capital (Deficit)
Liabilities:
Due to affiliates $ 104,144 $ 110,786
Accounts payable and
accrued expenses 495,729 214,345
Security deposits payable 162,575 121,796
Prepaid rent -- 242,564
Total Liabilities 762,448 689,491
Partners' Capital (Deficit)
General Partner (356,260) (357,460)
Limited Partners 35,898,188 35,859,368
Total Partners' Capital 35,541,928 35,501,908
Total Liabilities and
Partners' Capital $ 36,304,376 $ 36,191,399
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
Income 1994 1993 1994 1993
Rental $ 1,125,842 $ 1,031,596 $ 3,211,148 $ 3,041,088
Other 3,580 1,790 138,997 63,633
Interest 2,646 11,204 8,917 35,515
Total Income 1,132,068 1,044,590 3,359,062 3,140,236
Expenses
Depreciation and amortization 374,335 414,058 1,125,211 1,239,113
Property operating 342,095 327,016 999,652 840,981
General and administrative 54,952 88,686 142,271 211,850
Bad Debt -- 11,390 9,021 23,895
Total Expenses 771,382 841,150 2,276,155 2,315,839
Net Income $ 360,686 $ 203,440 $ 1,082,907 $ 824,397
Net Income Allocated:
To the General Partner $ 10,821 $ 6,103 $ 32,487 $ 24,732
To the Limited Partners 349,865 197,337 1,050,420 799,665
$ 360,686 $ 203,440 $ 1,082,907 $ 824,397
Per limited partnership unit
(1,124,000 outstanding) $.31 $.17 $.93 $.71
Statement of Partners' Capital (Deficit) For the nine months ended
September 30, 1994
General Limited Total
Partner's Partners' Partners'
Deficit Capital Capital
Balance at December 31, 1993 $ (357,460) $ 35,859,368 $35,501,908
Net income 32,487 1,050,420 1,082,907
Cash distributions (31,287) (1,011,600) (1,042,887)
Balance at September 30, 1994 $ (356,260) $ 35,898,188 $35,541,928
Statements of Cash Flows
For the nine months ended September 30, 1994 and 1993
Cash Flows from Operating Activities: 1994 1993
Net income $ 1,082,907 $ 824,397
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,125,211 1,239,113
Provision for losses on rent receivable -- 23,895
Increase (decrease) in cash arising from
changes in operating assets and
liabilities:
Restricted cash 201,785 (6,380)
Accounts receivable 36,853 (51,260)
Prepaid expenses (298,538) (60,092)
Incentives to lease (300,264) --
Deferred rent receivable 36,579 280,986
Due to affiliates (6,642) (10,137)
Accounts payable and accrued expenses 185,899 106,600
Security deposits payable 40,779 (10,409)
Prepaid rent (242,564) (74,795)
Net cash provided by operating activities 1,862,005 2,261,918
Cash Flows from Investing Activities:
Additions - to real estate assets (1,613,643) (285,790)
Accounts payable - real estate assets 95,485 --
Net cash used for investing activities (1,518,158) (285,790)
Cash Flows from Financing Activities:
Cash distributions (1,042,887) (2,781,030)
Net cash used for financing activities (1,042,887) (2,781,030)
Net decrease in cash and cash equivalents (699,040) (804,902)
Cash and cash equivalents at
beginning of period 798,734 2,004,707
Cash and cash equivalents at
end of period $ 99,694 $ 1,199,805
Supplemental Schedule of Non-Cash Investing Activity:
Write-off of fully depreciated
real estate assets $ 2,266,215 $ --
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1993 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1994 and the
results of operations, changes in partners' capital (deficit), and cash flows
for the nine months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1993, and no
material contingencies exist which require disclosure in this interim report
per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
At September 30, 1994, the Partnership had unrestricted cash of $99,694,
compared with $798,734 at December 31, 1993. The decrease of $699,040 reflects
the payment of cash distributions and capital and tenant improvement costs in
excess of cash flow generated from property operations. The Partnership also
maintains a restricted cash balance which is comprised of security deposits.
Restricted cash totaled $162,575 at September 30, 1994, compared with $364,360
at December 31, 1993. The $201,785 decrease reflects the application of
Acoustic Imaging Technologies' prepaid rent, previously held in restricted
cash.
Tenant improvements increased to $8,007,198 at September 30, 1994 from
$7,680,893 at year-end 1993. The $326,305 increase is primarily comprised of
improvements of approximately $750,000 at Foothills Tech Plaza, associated with
the execution of the POS Systems lease, and tenant improvements of
approximately $580,000 primarily associated with new leasing activity at Powers
Ferry Office Building ("Powers Ferry"). These increases were largely offset by
a write-off of approximately $1 million of fully depreciated assets at Powers
Ferry.
As previously reported, Tandem, a Fortune 500 company that occupies 100% of the
Sunnyvale R&D ("Sunnyvale") property's leasable area, notified the General
Partner of its intent to prematurely vacate the premises in early 1995 in order
to consolidate its operations into one facility. The lease is scheduled to
expire on March 31, 1999, although Tandem has an option to terminate the lease
anytime after March 31, 1997 with a penalty. Tandem is currently considering
subleasing its space and has indicated that it will continue making full rental
payments according to the terms of its lease agreement.
Accounts receivable totaled $29,812 at September 30, 1994, compared with
$66,665 at December 31, 1993. The decrease is due to a decline in outstanding
rent at Pebblebrook Apartments ("Pebblebrook") and Powers Ferry.
Prepaid expenses increased to $349,436 at September 30, 1994 from $76,535 at
December 31, 1993. The increase reflects leasing commissions incurred at the
Powers Ferry property. Incentives to lease was $292,933 at September 30, 1994
as a result of leasing incentives at the Powers Ferry property.
Accounts payable and accrued expenses totaled $495,729 at September 30, 1994,
compared with $214,345 at December 31, 1993. The $281,384 increase is due to
an accrual for leasing costs at Powers Ferry and amounts accrued for Powers
Ferry's and Pebblebrook's 1994 property tax liability. These increases were
partially offset by payments made during the first quarter of 1994 for
Partnership administrative expenses.
The General Partner declared a cash distribution to Limited Partners in the
amount of $.30 per Unit for the quarter ended September 30, 1994. This
distribution will be sent to Limited Partners on November 29, 1994. The timing
and amount of future cash distributions will be determined quarterly by the
General Partner, and will depend on the adequacy of cash flow and the
Partnership's cash reserve requirements.
Results of Operations
Partnership operations resulted in net income of $360,686 and $1,082,907 for
the three and nine months ended September 30, 1994, compared with net income of
$203,440 and $824,397, respectively, for the corresponding periods in 1993.
The increases are primarily attributable to higher rental and other income, and
lower depreciation and general and administrative expenses.
Rental income totaled $1,125,842 and $3,211,148 for the three and nine months
ended September 30, 1994, respectively, compared with $1,031,596 and $3,041,088
for the corresponding periods in 1993. The increases in 1994 are attributable
to a higher rental rate at Sunnyvale and scheduled rental rate increases at
Pebblebrook. The Partnership recognized other income of $3,580 and $138,997
for the three and nine months ended September 30, 1994, respectively, compared
with $1,790 and $63,633 for the corresponding periods in 1993. The increase in
other income for the nine-month period is due to the receipt of a tenant's
cancellation fee at Powers Ferry. Interest income totaled $2,646 and $8,917
for the three and nine months ended September 30, 1994, down from $11,204 and
$35,515 for the corresponding periods in 1993, reflecting lower average cash
balances.
Depreciation and amortization expense totaled $374,335 and $1,125,211 for the
three and nine months ended September 30, 1994, compared with $414,058 and
$1,239,113, respectively, for the corresponding periods in 1993. The decreases
are largely a result of assets becoming fully depreciated during the second and
third quarters of 1994, slightly off-set by a higher depreciable asset base
associated with property improvements completed during the year. Property
operating expenses totaled $342,095 and $999,652 for the three and nine months
ended September 30, 1994, compared to $327,016 and $840,981 for the
corresponding periods in 1993. The increases are primarily due to higher
repairs and maintenance, administrative, and utility expenses at the Powers
Ferry and Pebblebrook properties. General and administrative expense totaled
$54,952 and $142,271 for the three and nine months ended September 30, 1994,
compared with $88,686 and $211,850 for the corresponding periods a year
earlier. The decreases in 1994 are primarily attributable to lower
administrative and professional fees, and reduced printing and postage costs.
At September 30, 1994, the lease levels at each of the properties were as
follows: Foothills Tech Plaza - 100%; Powers Ferry Office Building - 91%;
Sunnyvale R&D - 100%; and Pebblebrook Apartments - 94%.<PAGE>
PART II OTHER INFORMATION
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended
September 30, 1994.
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.
PARTICIPATING DEVELOPMENT FUND 86
BY: PDF86 REAL ESTATE SERVICES INC.
General Partner
Date: November 14, 1994 BY: /s/ Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: November 14, 1994 BY: /s/ William Caulfield
Name: William Caulfield
Title: Vice President and Chief
Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 99,694
<SECURITIES> 000
<RECEIVABLES> 29,812
<ALLOWANCES> 000
<INVENTORY> 000
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<PP&E> 45,727,991
<DEPRECIATION> 10,598,259
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<OTHER-SE> 35,541,928
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