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 June 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
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at June 30, 1994 and
December 31, 1993 3
Statements of Operations for the three and
six months ended June 30, 1994 and 1993 4
Statement of Partners' Capital (Deficit) for
the six months ended June 30, 1994 5
Statements of Cash Flows for the six months ended
June 30, 1994 and 1993 6
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Items 1-6 10
Signatures 11
Balance Sheets
June 30, December 31,
Assets 1994 1993
Land $ 12,419,476 $ 12,419,476
Buildings and personal property 26,472,164 26,280,194
Tenant improvements 7,892,747 7,680,893
46,784,387 46,380,563
Less-accumulated depreciation (11,497,212) (11,772,231)
35,287,175 34,608,332
Restricted cash 183,316 364,360
Cash 236,360 798,734
419,676 1,163,094
Accounts receivable, net of allowance
of $24,773 in 1993 105,678 66,665
Prepaid expenses, net of accumulated
amortization of $14,831 in
1994 and $6,029 in 1993 156,372 76,535
Deferred rent receivable 207,435 276,773
Total Assets $ 36,176,336 $ 36,191,399
Liabilities and Partners' Capital (Deficit)
Liabilities:
Due to affiliates $ 108,805 $ 110,786
Accounts payable and
accrued expenses 355,344 214,345
Security deposits payable 162,900 121,796
Prepaid rent 20,416 242,564
Total Liabilities 647,465 689,491
Partners' Capital (Deficit)
General Partner (356,651) (357,460)
Limited Partners 35,885,522 35,859,368
Total Partners' Capital 35,528,871 35,501,908
Total Liabilities and Partners'
Capital $ 36,176,336 $ 36,191,399
Statements of Operations
Three months ended Six months ended
June 30, June 30,
Income 1994 1993 1994 1993
Rental $ 1,085,317 $ 1,016,157 $ 2,085,306 $ 2,009,492
Other 133,662 18,253 135,417 61,843
Interest 2,771 12,289 6,271 24,311
Total Income 1,221,750 1,046,699 2,226,994 2,095,646
Expenses
Depreciation and amortization 324,276 421,804 750,876 825,055
Property operating 360,423 284,796 657,557 513,965
General and administrative 37,545 62,831 87,319 123,164
Bad debt expense -- 12,505 9,021 12,505
Total Expenses 722,244 781,936 1,504,773 1,474,689
Net Income $ 499,506 $ 264,763 $ 722,221 $ 620,957
Net Income Allocated:
To the General Partner $ 14,985 $ 7,942 $ 21,667 $ 18,628
To the Limited Partners 484,521 256,821 700,554 602,329
$ 499,506 $ 264,763 $ 722,221 $ 620,957
Per limited partnership unit
(1,124,000 outstanding) $.43 $.23 $.62 $.54
Statement of Partners' Capital (Deficit)
For the six months ended June 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 21,667 700,554 722,221
Cash distributions (20,858) (674,400) (695,258)
Balance at June 30, 1994 $ (356,651) $ 35,885,522 $ 35,528,871
Statements of Cash Flows
For the six months ended June 30, 1994 and 1993
Cash Flows from Operating Activities: 1994 1993
Net income $ 722,221 $ 620,957
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 750,876 825,055
Provision for losses on rent receivable -- 12,505
Increase(decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash 181,044 5,275
Accounts receivable (39,013) 27,953
Prepaid expenses (89,837) 18,404
Deferred rent receivable 69,338 187,324
Due to affiliates (1,981) 9,216
Accounts payable and accrued expenses 140,999 11,712
Security deposits payable 41,104 (18,992)
Prepaid rent (222,148) (77,559)
Net cash provided by operating activities 1,552,603 1,621,850
Cash Flows from Investing Activities:
Additions to real estate assets (1,419,719) (67,938)
Net cash used for investing activities (1,419,719) (67,938)
Cash Flows from Financing Activities:
Cash distributions (695,258) (1,854,020)
Net cash used for financing activities (695,258) (1,854,020)
Net decrease in cash and cash equivalents (562,374) (300,108)
Cash and cash equivalents at beginning
of period 798,734 2,004,707
Cash and cash equivalents at end of period $ 236,360 $ 1,704,599
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 June 30, 1994 and the
results of operations, changes in partners' capital (deficit), and cash flows
for the six 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 June 30, 1994, the Partnership had unrestricted cash of $236,360, compared
with $798,734 at December 31, 1993. The decrease of $562,374 reflects the
payment of cash distributions and capital and tenant improvement costs in
excess of cash flow generated from property operations. It is anticipated that
a significant portion of the cash balance will be used to re-lease vacant space
at Powers Ferry Office Building ("Powers Ferry"). The Partnership also
maintains a restricted cash balance which is comprised of security deposits and
prepaid rent. Restricted cash totaled $183,316 at June 30, 1994, compared with
$364,360 at December 31, 1993. The $181,044 decrease reflects the application
of Acoustic Imaging Technologies' prepaid rent.
Tenant improvements increased to $7,892,747 at June 30, 1994 from $7,680,893 at
year-end 1993. The $211,854 increase is primarily comprised of improvements of
approximately $780,000 at Foothills Tech Plaza, associated with the execution
of the POS Systems lease, and tenant improvements at Powers Ferry of
approximately $437,000 associated with increased leasing activity at the
property. These increases were largely offset by a write-off of approximately
$1 million of fully depreciated assets at Powers Ferry.
At Powers Ferry Office Building, the General Partner executed four new leases,
totaling 30,096 square feet or approximately 32% of the property's leasable
area, and one lease expansion totaling 1,687 square feet during the quarter.
The largest of these new leases is for seven years and represents 15,572 square
feet, or approximately 17% of the property's leasable area. Partially
offsetting this activity, one tenant, which occupied 6,590 square feet or
approximately 7% of the property's leasable area, prematurely vacated the
premises on May 31, 1994. This tenant paid approximately $130,000 to the
Partnership as an early termination penalty. As a result, the property was 90%
leased at June 30, 1994.
Fireman's Fund, which occupies the smaller of the two buildings at Foothills
Tech Plaza pursuant to a lease originally scheduled to expire in 1999, extended
its lease to 2004. The extension of this lease, which does not contain a
cancellation clause, further enhances the overall stability of the property.
The remainder of the property is leased to two tenants pursuant to long term
leases.
During the 1994 second quarter, Tandem Computers, Inc. ("Tandem"), which
occupies 100% of Sunnyvale R&D's leasable area pursuant to a lease scheduled to
expire March 31, 1999, notified the General Partner of its intent to
prematurely vacate the premises by year end 1994. Tandem has indicated that it
will continue making full rent payments according to the terms of its lease,
however, the General Partner is engaged in discussions with the tenant
regarding a possible subleasing or buyout of the lease. Should the General
Partner allow Tandem to buy out its lease, the Partnership would apply the
funds toward re-leasing the vacant space.
Accounts receivable totaled $105,678 at June 30, 1994, compared with $66,665 at
December 31, 1993. The increase is due to an increase in outstanding rent.
Prepaid expenses increased to $156,372 at June 30, 1994 from $76,535 at
December 31, 1993. The $79,837 increase is the result of leasing commissions
incurred at the Powers Ferry property, partially offset by the continued
amortization of insurance policies and leasing commission balances.
Accounts payable and accrued expenses totaled $355,344 at June 30, 1994,
compared with $214,345 at December 31, 1993. The $140,999 increase is due to
an accrual for building enhancements and tenant improvements at Powers Ferry
and amounts accrued for Powers Ferry's 1994 property tax liability. These
increases were partially offset by payments made during the first quarter of
1994 for Partnership administrative expenses.
On or about August 29, 1994, the Partnership will pay a cash distribution to
the Limited Partners in the amount of $.30 per Unit for the quarter ended
June 30, 1994. After reviewing the Partnership's operations for the second
quarter ended June 30, 1994, the General Partner determined that an adequate
cash reserve exists to fund anticipated tenant improvements and leasing
commission costs associated with leasing efforts at the Properties, and a cash
distribution to the Limited Partners. 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 $499,506 and $722,221 for the
three and six months ended June 30, 1994, compared with net income of $264,763
and $620,957, respectively, for the corresponding periods in 1993. The
increases are primarily attributable to higher rental and other income and
lower depreciation, partially offset by an increase in property operating
expenses.
Rental income totaled $1,085,317 and $2,085,306 for the three and six months
ended June 30, 1994, respectively, compared with $1,016,157 and $2,009,492 for
the corresponding periods in 1993. The increases in 1994 are attributable to
POS Systems occupancy of the Foothill Tech Plaza and scheduled rental rate
increases at Sunnyvale and Pebblebrook. The Partnership recognized other
income of $133,662 and $135,417 for the three and six months ended
June 30,1994, respectively, compared with $18,253 and $61,843 for the
corresponding periods in 1993. The 1994 other income reflects the receipt of a
tenant's cancellation fee at Powers Ferry, while the 1993 amount reflects
settlements received by the Partnership during the first quarter of 1993.
Interest income totaled $2,771 and $6,271 for the three and six months in
1994, down from $12,289 and $24,311 for the corresponding periods in 1993,
reflecting lower average cash balances.
Depreciation and amortization expense totaled $324,276 and $750,876 for the
three and six months ended June 30, 1994, compared with $421,804 and $825,055,
respectively, for the corresponding periods a year earlier. The decreases are
largely a result of assets becoming fully depreciated during the second
quarter, slightly off-set by a higher depreciable asset base associated with
property improvements completed during the year. Property operating expenses
totaled $360,423 and $657,557 for the three and six months ended June 30, 1994,
compared to $284,796 and $513,965 for the corresponding periods in 1993. The
increase is primarily due to higher administrative, repairs and maintenance,
and utilities expenses at each of the properties during 1994. General and
administrative expense totaled $37,545 and $87,319 for the three and six months
ended June 30, 1994, compared with $62,831 and $123,164 for the corresponding
periods a year earlier. The decreases in 1994 are primarily attributable to
lower administrative fees and reduced printing and postage costs.
At June 30, 1994, the lease levels at each of the properties were as follows:
Foothills Tech Plaza - 100%; Powers Ferry Office Building - 90%; Sunnyvale R&D
- - - 100%; and Pebblebrook Apartments - 98%.
PART II OTHER INFORMATION
Items 1-4 Not applicable.
Item 5 Other Information.
Effective May 20, 1994, American Express Company ("American Express")
distributed to holders of record of American Express, shares of Lehman
Brothers Holdings Inc. ("Lehman Brothers") common stock. As a result
of this transaction, the Partnership's General Partner is no longer an
affiliate of American Express. This change is not expected to have any
impact on the Partnership.
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 June 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: August 12, 1994 BY: /s/ Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and
President
Date: August 12, 1994 BY: /s/ William Caulfield
Name: William Caulfield
Title: Vice President and Chief
Financial Officer
