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, 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: 33-2294
PARTICIPATING DEVELOPMENT FUND 86
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Exact Name of Registrant as Specified in its Charter
Connecticut 06-1153833
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State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer 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
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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
At September 30, At December 31,
1996 1995
Assets
Land $ 8,387,590 $ 8,387,590
Buildings and personal property 11,460,068 11,460,068
Tenant improvements 1,234,416 1,234,416
21,082,074 21,082,074
Less accumulated depreciation (4,104,851) (3,683,523)
16,977,223 17,398,551
Real estate assets held for sale - 7,780,273
Cash and cash equivalents 1,094,994 1,480,034
Restricted cash 43,743 100,286
Accounts receivable 44,473 31,304
Prepaid expenses, net of accumulated
amortization of $164,657 in 1996 and
$111,997 in 1995 213,851 273,681
Incentives to lease, net of accumulated
amortization of $79,618 in 1996 and
$54,794 in 1995 163,869 188,693
Deferred rent receivable 203,551 193,634
Total Assets $ 18,741,704 $ 27,446,456
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 142,685 $ 133,022
Due to affiliates 23,429 48,744
Security deposits payable 42,373 100,286
Prepaid rent 71,594 79,555
Total Liabilities 280,081 361,607
Partners' Capital (Deficit):
General Partner (539,231) (436,797)
Limited Partners (1,124,000 units
outstanding) 19,000,854 27,521,646
Total Partners' Capital
18,461,623 27,084,849
Total Liabilities and Partners'
Capital $ 18,741,704 $ 27,446,456
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1996
General Limited
Partner Partners Total
Balance at December 31, 1995 $ (436,797) $ 27,521,646 $ 27,084,849
Cash distributions (152,589) (11,745,949) (11,898,538)
Net income 50,155 3,225,157 3,275,312
Balance at September 30, 1996 $ (539,231) $ 19,000,854 $ 18,461,623
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income
Rental $514,501 $1,097,732 $2,197,289 $3,483,023
Interest 101,369 20,848 190,007 36,990
Other 1,548 2,220 54,329 6,702
Total Income 617,418 1,120,800 2,441,625 3,526,715
Expenses
Property operating 198,950 401,053 907,891 1,049,909
Depreciation and amortization 165,374 370,821 498,812 1,118,144
General and administrative 45,712 40,048 164,819 177,943
Total Expenses 410,036 811,922 1,571,522 2,345,996
Income before gain on sale of
real estate 207,382 308,878 870,103 1,180,719
Gain on sale of real estate - 1,122,437 2,405,209 1,122,437
Net Income $207,382 $1,431,315 $3,275,312 $2,303,156
Net Income Allocated:
To the General Partner $ 6,221 $ 20,491 $ 50,155 $ 46,646
To the Limited Partners 201,161 1,410,824 3,225,157 2,256,510
$207,382 $1,431,315 $3,275,312 $2,303,156
Per limited partnership unit
(1,124,000 outstanding) $.18 $1.26 $2.87 $2.01
Statements of Cash Flows
For the nine months ended September 30, 1996 1995
Cash Flows From Operating Activities:
Net income $ 3,275,312 $ 2,303,156
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 498,812 1,118,144
Gain on sale of real estate (2,405,209) (1,122,437)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 56,543 51,314
Accounts receivable (13,169) (23,078)
Prepaid expenses 7,170 20,078
Incentives to lease - 58,956
Deferred rent receivable (9,917) 76,888
Accounts payable and accrued expenses 9,663 (74,104)
Due to affiliates (25,315) (12,083)
Security deposits payable (57,913) (51,314)
Prepaid rent (7,961) (4,085)
Net cash provided by operating activities 1,328,016 2,341,435
Cash Flows From Investing Activities:
Proceeds from sale of real estate assets 10,210,955 9,748,067
Additions to real estate (25,473) (164,547)
Net cash provided by investing activities 10,185,482 9,583,520
Cash Flows From Financing Activities:
Cash distributions (11,898,538) (1,042,632)
Net cash used for financing activities (11,898,538) (1,042,632)
Net increase (decrease) in cash and cash
equivalents (385,040) 10,882,323
Cash and cash equivalents, beginning of period 1,480,034 140,886
Cash and cash equivalents, end of period $ 1,094,994 $ 11,023,209
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of September 30, 1996 and the results of operations for the three-
and nine-month periods ended September 30, 1996 and 1995 and cash flows for the
nine-month period ended September 30, 1996 and 1995 and the statement of
partner's capital (deficit) for the nine-month period ended September 30, 1996.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
The following significant event has occurred subsequent to fiscal year 1995,
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Sale of Pebblebrook Apartments
Pebblebrook Apartments (the "Property") was sold on May 23, 1996 for a net
sales price of $10,210,955. The transaction resulted in a gain on sale of the
Property of $2,405,209. On August 30, 1996, a special cash distribution in the
amount of $10,116,000 from the sale of the Property was paid to the limited
partners.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
Pebblebrook Apartments was sold to an unaffiliated third party on May 23, 1996
for a net sales price of $10,210,955. The gain on disposition of the property
totaled $2,405,209. Proceeds from the sale were distributed to Limited
Partners on August 30, 1996.
The Partnership had cash and cash equivalents totaling $1,094,994 at September
30, 1996, compared with $1,480,034 at December 31, 1995. The decrease is
mainly due to cash distributions and real estate additions exceeding proceeds
from the sale of Pebblebrook Apartments and net cash provided by operating
activities. The cash and cash equivalents balance includes funds held as a
working capital reserve to fund tenant improvements and leasing commissions, in
addition to cash generated from operations. The Partnership also had
restricted cash, which consists of security deposits, of $43,743 at September
30, 1996, compared to $100,286 at December 31, 1995. The year-end 1995 balance
included security deposits held for tenants at Pebblebrook Apartments. This
change is also reflected in the decrease in security deposits payable.
At Powers Ferry Office Building, a tenant occupying 3,450 square feet pursuant
to a lease which was scheduled to expire in December 1996, executed a five-year
lease renewal and expanded its premises to 4,993 square feet. Offsetting this
minor gain, another tenant reduced its space from 3,891 square feet to 2,208
square feet and extended its lease for three years, to October 1999. As a
result, the property remained 88% leased at September 30, 1996. During the
remainder of 1996, five leases representing 7,169 square feet or 8% of the
property's space, are scheduled to expire.
Prepaid expenses totaled $213,851 at September 30, 1996, compared with $273,681
at December 31, 1995. The lower 1996 balance reflects the amortization of
prepaid insurance and leasing commissions. Incentives to lease decreased to
$163,869 at September 30, 1996 from $188,693 at December 31, 1995. The
decrease is largely the result of the amortization of a lease buyout at Powers
Ferry Office Building. Accounts payable and accrued expenses totaled $142,685
at September 30, 1996 compared with $133,022 at December 31, 1995. The
increase is primarily due to an increase in accrued real estate taxes caused by
a higher assessed property value of Powers Ferry Office Building for 1996. Due
to affiliates decreased to $23,429 at September 30, 1996 from $48,744 at
December 31, 1995, due to the write-off of certain accrued fees.
The Partnership will pay a distribution in the amount of $0.30 per Unit in
November 1996. The quarterly distribution will be funded from Partnership
operations and was declared after a review of the Partnership's 1996 third
quarter operations, anticipated future cash needs and current cash position.
Results of Operations
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As a result of the sale of Foothills Tech Plaza on September 29, 1995 and the
sale of Pebblebrook Apartments on May 23, 1996, the Partnership's results of
operations for the three and nine months ended September 30, 1996 are not
comparable to the corresponding periods in 1995. The Partnership's operations
resulted in net income of $207,382 and $3,275,312 for the three and nine months
ended September 30, 1996, respectively, compared with net income of $1,431,315
and $2,303,156 for the three and nine months ended September 30, 1995. The
changes for both the three and nine month periods are due to the timing of the
sales of Foothills Tech Plaza and Pebblebrook Apartments.
Rental income totaled $514,501 and $2,197,289 for the three and nine months
ended September 30, 1996, respectively, compared with $1,097,732 and $3,483,023
for the comparable periods a year earlier. The decrease is primarily
attributable to the sale of Foothills Tech Plaza and Pebblebrook Apartments.
Interest income totaled $101,369 and $190,007 for the three and nine months
ended September 30, 1996 compared with $20,848 and $36,990 for the comparable
periods in 1995. The increase is due to higher average cash balances during
the third quarter of 1996, resulting from the receipt of sales proceeds from
the sale of Pebblebrook Apartments. Other income totaled $1,548 and $54,329
for the three and nine months ended September 30, 1996, respectively, compared
with $2,220 and $6,702 for the comparable period in 1995. The increase for the
nine-month period is primarily due to the write-off of accrued management fees.
Property operating expenses totaled $198,950 and $907,891 for the three and
nine months ended September 30, 1996, respectively, compared with $401,053 and
$1,049,909 for the three and nine months ended September 30, 1995,
respectively. The decrease is primarily attributable to the sale of Foothills
Tech Plaza and Pebblebrook Apartments, partially offset by higher repair and
maintenance expenses associated with renovations at Powers Ferry Office
Building. Depreciation and amortization decreased to $165,374 and $498,812 for
the three and nine months ended September 30, 1996 from $370,821 and $1,118,144
a year earlier, primarily due to the sale of Foothills Tech Plaza and
Pebblebrook Apartments. General and administrative totaled $45,712 and $164,819
for the three and nine months ended September 30, 1996 compared with $40,048
and $177,943 for the three and nine months ended September 30, 1995,
respectively. The higher 1995 balance for the nine-month period is primarily
attributable to legal fees associated with the marketing of Foothills Tech
Plaza and Pebblebrook Apartments.
As of September 30, 1996, lease levels at each of the properties were as
follows: Sunnyvale R&D-100%; Powers Ferry Office Building-88%.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended September 30, 1996.
SIGNATURES
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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: PDF 86 Real Estate Services Inc.
General Partner
Date: November 13, 1996 BY: /s/ Kenneth L. Zakin
President
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 1,094,994
<SECURITIES> 000
<RECEIVABLES> 44,473
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 21,082,074
<DEPRECIATION> (4,104,851)
<TOTAL-ASSETS> 18,741,704
<CURRENT-LIABILITIES> 142,685
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 18,461,623
<TOTAL-LIABILITY-AND-EQUITY> 18,741,704
<SALES> 2,197,289
<TOTAL-REVENUES> 2,441,625
<CGS> 000
<TOTAL-COSTS> 907,891
<OTHER-EXPENSES> 663,631
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 870,103
<INCOME-TAX> 000
<INCOME-CONTINUING> 870,103
<DISCONTINUED> 000
<EXTRAORDINARY> 2,405,209
<CHANGES> 000
<NET-INCOME> 3,275,312
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
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