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, 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: 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
ATTN: Andre Anderson 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
June 30, December 31,
Assets 1995 1994
---------- ----------
Land $12,419,476 $12,419,476
Buildings and personal property 25,463,833 25,346,253
Tenant improvements 4,839,404 4,830,172
---------- ----------
42,722,713 42,595,901
Less-accumulated depreciation (8,436,802) (7,744,521)
---------- ----------
34,285,911 34,851,380
Restricted cash 155,935 152,162
Cash and cash equivalents 806,974 140,886
Accounts receivable 41,725 18,737
Prepaid expenses, net of accumulated
amortization of $83,046 in 1995
and $47,360 in 1994 372,563 389,472
Incentives to lease, net of accumulated
amortization of $38,245 in 1995
and $18,889 in 1994 205,243 283,555
Deferred rent receivable 292,869 269,701
---------- ----------
Total Assets $36,161,220 $36,105,893
========== ==========
Liabilities and Partners' Capital (Deficit)
Liabilities:
Due to affiliates $ 55,202 $ 64,809
Accounts payable and accrued expenses 212,744 323,897
Security deposits payable 155,935 152,162
Prepaid rent -- 4,085
--------- ---------
Total Liabilities 423,881 544,953
Partners' Capital (Deficit)
General Partners (350,393) (355,690)
Limited Partners 36,087,732 35,916,630
---------- ----------
Total Partners' Capital 35,737,339 35,560,940
---------- ----------
Total Liabilities and Partners' Capital $36,161,220 $36,105,893
========== ==========
Statements of Operations
Three months ended Six months ended
June 30, June 30,
Income 1995 1994 1995 1994
--------- --------- --------- ---------
Rental $1,209,971 $1,085,317 $2,385,291 $2,085,306
Interest 11,312 2,771 16,142 6,271
Other 2,897 133,662 4,482 135,417
--------- --------- --------- ---------
Total Income 1,224,180 1,221,750 2,405,915 2,226,994
Expenses
Depreciation
and amortization 386,156 324,276 747,323 750,876
Property Operating 358,530 360,423 648,856 657,557
General and administrative 91,022 37,545 137,895 87,319
Bad Debt Expense -- -- -- 9,021
--------- --------- --------- ---------
Total Expenses 835,708 722,244 1,534,074 1,504,773
--------- --------- --------- ---------
Net Income $ 388,472 $ 499,506 $ 871,841 $ 722,221
========= ========= ========= =========
Net Income Allocated:
To the General Partners $ 11,654 $ 14,985 $ 26,155 $ 21,667
To the Limited Partners 376,818 484,521 845,686 700,554
--------- --------- --------- ---------
$ 388,472 $ 499,506 $ 871,841 $ 722,221
========= ========= ========= =========
Per limited
partnership unit
(1,124,000 outstanding) $.33 $.43 $.75 $.62
========= ========= ========= =========
Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1995
Limited General
Partners Partner Total
---------- -------- ----------
Balance at December 31, 1994 $35,916,630 $(355,690) $35,560,940
Net income 845,686 26,155 871,841
Cash distributions (674,584) (20,858) (695,442)
---------- -------- ----------
Balance at June 30, 1995 $36,087,732 $(350,393) $35,737,339
========== ======== ==========
Statements of Cash Flows
For the six months ended June 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
--------- ---------
Net income $ 871,841 $ 722,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 747,323 750,876
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (3,773) 181,044
Accounts receivable (22,988) (39,013)
Prepaid expenses (18,777) (89,837)
Incentives to lease 58,956 --
Deferred rent receivable (23,168) 69,338
Due to affiliates (9,607) (1,981)
Accounts payable and accrued expenses (111,153) 140,999
Security deposits payable 3,773 41,104
Prepaid rent (4,085) (222,148)
--------- ---------
Net cash provided by operating activities 1,488,342 1,552,603
Cash Flows from Investing Activities:
Additions to real estate (126,812) (1,419,719)
--------- ---------
Net cash used for investing activities (126,812) (1,419,719)
Cash Flows from Financing Activities:
Cash distributions (695,442) (695,258)
--------- ---------
Net cash used for financing activities (695,442) (695,258)
Net increase (decrease)
in cash and cash equivalents 666,088 (562,374)
Cash and cash equivalents
at beginning of period 140,886 798,734
--------- ---------
Cash and cash equivalents at end of period $ 806,974 $ 236,360
========= =========
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1994 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to fairly present the statement of financial
position as of June 30, 1995 and the results of operations for the three and
six months ended June 30, 1995 and 1994, cash flows for the six months ended
June 30, 1995 and 1994 and the statement of changes in partners' capital
(deficit) for the six months ended June 30, 1995. 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 1994 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, 1995, the Partnership had unrestricted cash and cash equivalents of
$806,974, compared with $140,886 at December 31, 1994. The cash and cash
equivalents balance includes amounts reserved for capital and tenant
improvements, leasing costs, the Working Capital Reserve and cash flow
generated from property operations. The increase of $666,088 reflects cash
flow generated from property operations in excess of the payment of cash
distributions totaling $695,442 and additions to real estate of $126,812. The
Partnership's restricted cash balance is comprised of security deposits held by
the Partnership's properties and totaled $155,935 at June 30, 1995, compared
with $152,162 at December 31, 1994.
During the second quarter of 1995, the General Partner reached an agreement in
principle with an unaffiliated third party to sell Foothills Tech Plaza on an
all-cash basis. However, the prospective purchaser, during its due diligence
period, has raised certain issues which may affect the sale or the selling
price of the property. These issues are currently being negotiated, however,
the outcome is uncertain. If the issues can be resolved, we anticipate that
the sale will close in late September 1995. If these issues cannot be
resolved, the General Partner will continue to market the property for sale to
other prospective buyers.
On May 11, 1995, the General Partner executed a letter of intent with an
unaffiliated third party to sell Pebblebrook Apartments on an all-cash basis.
However, during its due diligence process, the prospective buyer has raised
issues regarding certain conditions of the property. If these issues cannot be
resolved, the General Partner will continue to market the property for sale to
other prospective buyers.
At Powers Ferry Office Building, the General Partner executed a new lease
totaling 1,191 square feet during the 1995 second quarter, replacing a tenant
which vacated the premises in April 1995. Another tenant, whose lease is
scheduled to expire in October 1996, relocated within the building and expanded
its lease by 2,091 square feet during the quarter. The tenant now occupies
4,101 square feet. No further leases are scheduled to expire until April 1996.
Accounts receivable totaled $41,725 at June 30, 1995, compared with $18,737 at
December 31, 1994. The increase is largely the result of higher receivable
balances at Foothills Tech Plaza.
Incentives to lease totaled $205,243 at June 30, 1995, compared with $283,555
at December 31, 1994. The decrease is due to a payment made relating to a
lease buyout at Powers Ferry Office Building.
Accounts payable and accrued expenses totaled $212,744 at June 30, 1995,
compared with $323,897 at December 31, 1994. The decrease is due to a
reduction in accrued lease incentives relating to a lease buyout at Powers
Ferry Office Building. The decrease is partially offset by an increase in
accrued real estate taxes and legal fees associated with the marketing of
Pebblebrook Apartments and Foothills Tech Plaza for sale.
On or about August 22, 1995, the Partnership will pay a cash distribution to
the Limited Partners in the amount of $.30 per Unit for the quarter ended June
30, 1995. After reviewing the Partnership's operations for the quarter ended
June 30, 1995, the General Partner determined that adequate cash reserves exist
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 $388,472 and $871,841 for the
three and six months ended June 30, 1995, respectively, compared with net
income of $499,506 and $722,221 for the corresponding periods in 1994. The
decrease in net income for the three-month period is primarily attributable to
higher general and administrative, and depreciation and amortization expenses
and lower other income. The increase in net income for the six-month period is
primarily attributable to an increase in rental income.
Rental income for the three and six months ended June 30, 1995 increased to
$1,209,971 and $2,385,291, respectively, compared with $1,085,317 and
$2,085,306 for the respective periods a year earlier. The increase is
primarily due to higher average occupancy at Powers Ferry Office Building and
rental rate increases at Foothills Tech Plaza and Powers Ferry Office Building.
Other income totaled $2,897 and $4,482 for the three and six months ended June
30, 1995, respectively, compared with $133,662 and $135,417 for the comparable
periods in 1994. The decrease is largely attributable to the receipt of a
lease cancellation fee at Powers Ferry Office Building in 1994.
Depreciation and amortization expense totaled $386,156 and $747,323 for the
three and six months ended June 30, 1995, respectively, compared with $324,276
and $750,876 for the respective periods in 1994. Bad debt expense for the six
months ended June 30, 1994 totaled $9,021. The 1994 expense reflects the
write-off of a former tenant's receivable balance.
At June 30, 1995, the lease levels at each of the properties were as follows:
Foothills Tech Plaza - 100%; Powers Ferry Office Building - 93%; Sunnyvale R&D
- 100%; and Pebblebrook Apartments - 100%.
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 June 30, 1995.
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 11, 1995
BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: August 11, 1995
BY: /s/William Caulfield
Name: William Caulfield
Title: Vice President and Chief
Financial Officer
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
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<SECURITIES> 000
<RECEIVABLES> 41,725
<ALLOWANCES> 000
<INVENTORY> 000
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<PP&E> 42,722,713
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<BONDS> 000
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<OTHER-SE> 35,737,339
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<TOTAL-REVENUES> 2,405,915
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