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, 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
September 30, December 31,
Assets 1995 1994
Land $ 10,482,795 $ 12,419,476
Buildings and personal property 19,170,122 25,346,253
Tenant improvements 1,242,557 4,830,172
30,895,474 42,595,901
Less-accumulated depreciation (5,542,160) (7,744,521)
25,353,314 34,851,380
Restricted cash 100,848 152,162
Cash and cash equivalents 11,023,209 140,886
Accounts receivable 41,815 18,737
Prepaid expenses, net of accumulated
amortization of $95,757 in 1995 and
$47,360 in 1994 315,864 389,472
Incentives to lease, net of accumulated
amortization of $46,520 in 1995 and
$18,889 in 1994 196,968 283,555
Deferred rent receivable 192,813 269,701
Total Assets $ 37,224,831 $ 35,812,845
Liabilities and Partners' Capital (Deficit)
Liabilities:
Due to affiliates $ 52,726 $ 64,809
Accounts payable and accrued expenses 249,793 323,897
Security deposits payable 100,848 152,162
Prepaid rent - 4,085
Total Liabilities 403,367 544,953
Partners' Capital (Deficit)
General Partner (340,331) (355,690)
Limited Partners 37,161,795 35,916,630
Total Partners' Capital 36,821,464 35,560,940
Total Liabilities and Partners' Capital $ 37,224,831 $ 36,105,893
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
Income 1995 1994 1995 1994
Rental $ 1,097,732 $ 1,125,842 $ 3,483,023 $ 3,211,148
Interest 20,848 2,646 36,990 8,917
Other 2,220 3,580 6,702 138,997
Total Income 1,120,800 1,132,068 3,526,715 3,359,062
Expenses
Depreciation and
amortization 370,821 374,335 1,118,144 1,125,211
Property operating 401,053 342,095 1,049,909 999,652
General and
administrative 40,048 54,952 177,943 142,271
Bad debt expense - - - 9,021
Total Expenses 811,922 771,382 2,345,996 2,276,155
Income before gain on
sale of real estate 308,878 360,686 1,180,719 1,082,907
Gain on sale of real
estate 1,122,437 - 1,122,437 -
Net Income $ 1,431,315 $ 360,686 $ 2,303,156 $ 1,082,907
Net Income Allocated:
To the General Partner $ 20,491 $ 10,821 $ 46,646 $ 32,487
To the Limited Partners 1,410,824 349,865 2,256,510 1,050,420
$ 1,431,315 $ 360,686 $ 2,303,156 $ 1,082,907
Per limited partnership
unit (1,124,000
outstanding) $1.26 $.31 $2.01 $.93
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1995
General Limited
Partner Partners Total
Balance at December 31, 1994 $ (355,690) $ 35,916,630 $ 35,560,940
Net income 46,646 2,256,510 2,303,156
Cash distributions (31,287) (1,011,345) (1,042,632)
Balance at September 30, 1995 $ (340,331) $ 37,161,795 $ 36,821,464
Statements of Cash Flows
For the nine months ended September 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income $ 2,303,156 $ 1,082,907
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,118,144 1,125,211
Gain on sale of real estate (1,122,437) -
Increase (decrease) in cash arising from
changesin operating assets and liabilities:
Restricted cash 51,314 201,785
Accounts receivable (23,078) 36,853
Prepaid expenses 20,078 (298,538)
Incentives to lease 58,956 (300,264)
Deferred rent receivable 76,888 36,579
Due to affiliates (12,083) (6,642)
Accounts payable and accrued expenses (74,104) 185,899
Security deposits payable (51,314) 40,779
Prepaid rent (4,085) (242,564)
Net cash provided by operating activities 2,341,435 1,862,005
Cash Flows from Investing Activities:
Proceeds from sale of real estate assets 9,748,067 -
Additions - to real estate assets (164,547) (1,613,643)
Accounts payable - real estate assets - 95,485
Net cash provided by (used for) investing
activities 9,583,520 (1,518,158)
Cash Flows from Financing Activities:
Cash distributions (1,042,632) (1,042,887)
Net cash used for financing activities (1,042,632) (1,042,887)
Net increase (decrease) in cash and cash
equivalents 10,882,323 (699,040)
Cash and cash equivalents at beginning of
period 140,886 798,734
Cash and cash equivalents at end of period $ 11,023,209 $ 99,694
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 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 September 30, 1995 and the results of operations for the three
and nine months ended September 30, 1995 and 1994, cash flows for the nine
months ended September 30, 1995 and 1994 and the statement of changes in
partners' capital (deficit) for the nine months ended September 30, 1995.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
The following significant events have occurred, subsequent to fiscal year 1994,
or the following material contingencies exist, and require disclosure in this
interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Sale of Foothills Tech Plaza Foothills Tech Plaza was sold on September 29,
1995 for $10,011,512 net of $226,000 in contracted roof repairs. The gain on
disposition of the property totaled $1,122,437. Write-offs related to the sale
of the property consisted of deferred rent receivable and leasing costs in the
amounts of $129,846 and $30,058, respectively.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Foothills Tech Plaza was sold to an unaffiliated third party on September 29,
1995 for $10,011,512, net of $226,000 in contracted roof repairs. The gain on
disposition of the property totaled $1,122,437. Land, buildings and
improvements, net of accumulated depreciation, decreased by $11,700,427 from
December 31, 1994 to September 30, 1995 primarily as a result of the Foothills
Tech Plaza sale. The General Partner is reviewing the Partnership's current
cash position and anticipated future cash needs before determining the amount
of net proceeds to distribute to the limited partners. However, it is expected
that most if not all of the net proceeds will be distributed in late November.
On May 11, 1995, the General Partner executed a letter of intent with an
unaffiliated third party to sell Pebblebrook Apartments. During the 1995 third
quarter, the prospective buyer rescinded its offer. The General Partner has
agreed to a letter of intent and is currently negotiating a purchase and sale
agreement with another unaffiliated third party to sell Pebblebrook Apartments
for a sales price of $10,570,000, net of commissions. The sale is expected to
close in early January 1996. However, the agreement is subject to a due
diligence period. As is customary, the buyer can rescind the offer with no
further obligation during this period. If the sale is not consummated, 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, five-year
lease totaling 1,192 square feet during the third quarter of 1995. No leases
are scheduled to expire at the property until April 1996.
At September 30, 1995, the Partnership had unrestricted cash and cash
equivalents of $11,023,209 compared with $140,886 at December 31, 1994. The
increase of $10,882,323 primarily reflects proceeds from the sale of Foothills
Tech Plaza. The Partnership's restricted cash balance is comprised of security
deposits held by the Partnership's properties, and totaled $100,848 at
September 30, 1995, compared with $152,162 at December 31, 1994. The decrease
primarily reflects the sale of the Foothills property.
Accounts receivable totaled $41,815 at September 30, 1995, compared with
$18,737 at December 31, 1994. The increase is largely due to past due rents
and reimbursements from tenants at Foothills Tech Plaza. Prepaid expenses
totaled $315,864 at September 30, 1995, compared to $389,472 at December 31,
1994. The decrease is mainly the result of the amortization of leasing
commissions and prepaid insurance. Incentives to lease totaled $196,968 at
September 30, 1995, compared with $283,555 at December 31, 1994. The decrease
is primarily attributable to the amortization of a lease buyout at Powers Ferry
Office Building. Deferred rent receivable totaled $192,813 at September 30,
1995, compared to $269,701 at December 31, 1994. The decrease is largely due
to the sale of Foothills Tech Plaza.
Accounts payable and accrued expenses totaled $249,793 at September 30, 1995,
compared with $323,897 at December 31, 1994. The decrease is primarily 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. Security deposits
totaled $100,848 at September 30, 1995, compared to $152,162 at December 31,
1994. The decrease is primarily attributable to the sale of Foothills Tech
Plaza.
After reviewing the Partnership's operations for the third quarter ended
September 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. On or about November 30, 1995, the Partnership will pay
a regular quarterly cash distribution to the Limited Partners in the amount of
$0.30 per Unit for the quarter ended September 30, 1995. 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 $1,431,315 and $2,303,156 for
the three and nine months ended September 30, 1995, respectively, compared with
net income of $360,686 and $1,082,907 for the corresponding periods in 1994.
The increase in net income for both periods is primarily attributable to the
gain on sale of Foothills Tech Plaza of $1,122,437.
Rental income for the three and nine months ended September 30, 1995 totaled
$1,097,732 and $3,483,023, respectively, compared with $1,125,842 and
$3,211,148 for the respective periods a year earlier. The increase for the
nine-month period 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 $2,220 and $6,702 for the three
and nine months ended September 30, 1995, respectively, compared with $3,580
and $138,997 for the comparable periods in 1994. The decrease for the
nine-month period is largely attributable to the receipt of a lease
cancellation fee at Powers Ferry Office Building in 1994.
Property operating expenses totaled $401,053 and $1,049,909 for the three and
nine months ended September 30, 1995, respectively, compared with $342,095 and
$999,652 for the three- and nine-month periods a year earlier. The increases
are primarily attributable to the write-off of deferred rent receivable and
unamortized leasing commissions as they relate to Foothills Tech Plaza and, for
the nine-month period, to repairs and maintenance completed in 1995 at
Pebblebrook Apartments. General and administrative expenses totaled $40,048
and $177,943 for the three and nine months ended September 30, 1995,
respectively, compared with $54,952 and $142,271 for the respective periods in
1994. The decrease in the three-month period is primarily due to lower
Partnership servicing fees for accounting, investor relations and tax
preparation. The increase in the nine-month period is largely the result of
legal expenses associated with the marketing of Foothills Tech Plaza and
Pebblebrook Apartment s. The bad debt expense for the nine months ended
September 30, 1994 totaled $9,021, reflecting the write-off of a former
tenant's receivable balance.
At September 30, 1995, the lease levels at each of the properties were as
follows: Powers Ferry Office Building - 94%; Sunnyvale R&D - 100%; and
Pebblebrook Apartments - 97%.
PART II OTHER INFORMATION
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits
(10) Closing summary documents relating to the sale
of Foothills Tech Plaza on September 29, 1995.
(27) Financial Data Schedule
(b) Reports on Form 8-K
On October 12, 1995, a Form 8-K was filed reporting the
consummation of the sale of Foothills Tech Plaza for
$10,011,512, net of $226,000 in contracted roof
repairs.
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, 1995
BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: November 14, 1995
BY: /s/William Caulfield
Name: William Caulfield
Title: Vice President and Chief
Financial Officer
SETTLEMENT STATEMENT
(Seller/Purchaser)
Re: 10007 and 10027 South 51st Street
Foothills Tech Plaza
Phoenix, AZ
Seller: Participating Development Fund 86
Purchaser: FTP Realty, Inc.
Date: September 29, 1995
Purchase Price: $10,237,512.00
Credits Due Purchaser:
Roof Contract - 10007 $56,500.00
Roof Contract - 10027 $169,500.00
Rents:
Acoustic Imaging
($1,743.20 per diem) $3,486.40
Fireman's Fund
($602.48 per diem) $1,204.95
POS Systems
($583.93 per diem) $1,167.87
Engineering/Maintainance Adjustment $727.78
Total Rent Adjustment $5,859.22
Security Deposits $54,925.00
Total Credits Due Purchaser $287,512.00
Credits Due Seller: None
Net Payment Due Seller: $9,950,000.00
If any rents are received by Seller after the date of closing, they shall be
deposited by Seller in its account and when available as usable funds shall be
immediately wired as instructed by Purchaser in instructions to be provided at
a later date.
Any errors or other appropriate adjustments are subject to the provisions of
the Sale-Purchase Agreement dated September 8, 1995 regarding the Property.
Seller:
Participating Development Fund 86
By: PDF Real Estate Services, Inc.
General Partner
By: /s/William Caulfield
Its Vice-President
Purchaser:
By: FTP Realty, Inc.
By: /s/David S. Hart
Its Vice-President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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