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, 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
-------------------------------------
Exact Name of Registrant as Specified in its Charter
Connecticut 06-1153833
-------------- --------------
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
----------------
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 June 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 (3,965,421) (3,683,523)
17,116,653 17,398,551
Real estate assets held for sale - 7,780,273
Cash and cash equivalents 11,275,874 1,480,034
Restricted cash 43,168 100,286
11,319,042 1,580,320
Accounts receivable 42,095 31,304
Prepaid expenses, net of accumulated
amortization of $146,989 in 1996 and
$111,997 in 1995 231,510 273,681
Incentives to lease, net of accumulated
amortization of $71,342 in 1996 and
$54,794 in 1995 172,145 188,693
Deferred rent receivable 199,507 193,634
Total Assets $ 29,080,952 $ 27,446,456
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 123,358 $ 133,022
Due to affiliates 23,575 48,744
Security deposits payable 42,373 100,286
Prepaid rent 71,594 79,555
Total Liabilities 260,900 361,607
Partners' Capital (Deficit):
General Partner (432,841) (436,797)
Limited Partners (1,124,000 units
outstanding) 29,252,893 27,521,646
Total Partners' Capital 28,820,052 27,084,849
Total Liabilities and Partners' Capital $ 29,080,952 $ 27,446,456
Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1996
General Limited
Partner Partners Total
Balance at December 31, 1995 $ (436,797) $27,521,646 $27,084,849
Cash distributions (39,978) (1,292,749) (1,332,727)
Net income 43,934 3,023,996 3,067,930
Balance at June 30, 1996 $ (432,841) $29,252,893 $28,820,052
Statements of Operations
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
Income
Rental $ 741,457 $1,209,971 $1,682,788 $2,385,291
Interest 68,671 11,312 88,638 16,142
Other 3,371 2,897 52,781 4,482
Total income 813,499 1,224,180 1,824,207 2,405,915
Expenses
Property operating 410,537 358,530 708,941 648,856
Depreciation and
amortization 165,775 386,156 333,438 747,323
General and administrative 64,286 91,022 119,107 137,895
Total expenses 640,598 835,708 1,161,486 1,534,074
Income before gain on sale
of real estate 172,901 388,472 662,721 871,841
Gain on sale of real
estate 2,405,209 - 2,405,209 -
Net Income $2,578,110 $ 388,472 $3,067,930 $ 871,841
Net Income Allocated:
To the General Partner $ 29,239 $ 11,654 $ 43,934 $ 26,155
To the Limited Partners 2,548,871 376,818 3,023,996 845,686
$2,578,110 $ 388,472 $3,067,930 $ 871,841
Per limited partnership
unit (1,124,000
outstanding) $2.27 $.33 $2.69 $.75
Statements of Cash Flows
For the six months ended June 30, 1996 1995
Cash Flows From Operating Activities
Net income $ 3,067,930 $ 871,841
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 333,438 747,323
Gain on sale of real estate (2,405,209) -
Increase (decrease) in cash arising from
changes in operating assets and liabilities
Restricted cash 57,118 (3,773)
Accounts receivable (10,791) (22,988)
Prepaid expenses 7,179 (18,777)
Incentives to lease - 58,956
Deferred rent receivable (5,873) (23,168)
Accounts payable and accrued expenses (9,664) (111,153)
Due to affiliates (25,169) (9,607)
Security deposits payable (57,913) 3,773
Prepaid rent (7,961) (4,085)
Net cash provided by operating activities 943,085 1,488,342
Cash Flows From Investing Activities
Proceeds from sale of real estate assets 10,210,955 -
Additions to real estate (25,473) (126,812)
Net cash provided by (used for) investing
activities 10,185,482 (126,812)
Cash Flows From Financing Activities
Cash distributions (1,332,727) (695,442)
Net cash used for financing activities (1,332,727) (695,442)
Net increase in cash and cash equivalents 9,795,840 666,088
Cash and cash equivalents, beginning of period 1,480,034 140,886
Cash and cash equivalents, end of period $ 11,275,874 $ 806,974
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 June 30, 1996 and the results of operations for the three and
six months ended June 30, 1996 and 1995; and cash flows for the six months
ended June 30, 1996 and 1995 and the statement of changes in partner's capital
(deficit) for the six months ended June 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. The General Partner intends to distribute most or all
of the net sale proceeds in the third quarter of 1996.
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. As previously reported, the General Partner executed a
purchase and sale agreement in January 1996 with an unaffiliated third party to
sell Pebblebrook for $10,570,000, net of commissions. The sale was originally
expected to close in late January 1996, but was subsequently postponed when the
buyer raised concerns regarding the physical condition of certain areas of the
property. After negotiations with the buyer, the General Partner agreed to
lower the sales price in lieu of making the repairs. Proceeds from the sale
will be distributed to Limited Partners in conjunction with the Partnership's
second quarter cash distribution, as detailed below.
The Partnership had cash and cash equivalents totaling $11,275,874 at June 30,
1996, compared with $1,480,034 at December 31, 1995. The increase is due to
proceeds from the sale of Pebblebrook Apartments and net cash provided by
operating activities exceeding cash distributions, real estate additions and
mortgage principal payments. 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 $43,168 at
June 30, 1996, compared to $100,286 at December 31, 1996. The year-end 1995
balance includes 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 2,324 square feet pursuant
to a lease which expired in June, 1996 renewed its lease for three years.
Another tenant, leasing 3,870 square feet, vacated its space upon the
expiration of its lease in April, 1996. As a result, the property was 88%
leased at June 30, 1996. During the remainder of 1996, seven leases
representing 14,515 square feet or 16% of the property's space, are scheduled
to expire.
Prepaid expenses totaled $231,510 at June 30, 1996, compared with $273,681 at
December 31, 1995. The lower 1996 balance reflects the amortization of prepaid
insurance and leasing commissions. Accounts payable and accrued expenses
totaled $123,358 at June 30, 1996 compared with $133,022 at December 31, 1995.
The decrease is primarily due to the timing of invoice payments and lower real
estate tax payments resulting from the sale of Pebblebrook Apartments. Due to
affiliates decreased to $23,575 at June 30, 1996 from $48,744 at December 31,
1996, due to the write-off of certain accrued fees.
The Partnership will pay a distribution in the amount of $9.30 per Unit on
August 30, 1996. This amount consists of a special cash distribution in the
amount of $9.00 per Unit which represents proceeds received from the sale of
Pebblebrook Apartments, in addition to the Partnership 1996 second quarter cash
distribution in the amount of $.30 per Unit. The quarterly distribution was
funded from Partnership operations and was declared after a review of the
Partnership's 1996 second quarter operations, anticipated future cash needs and
current cash position.
Results of Operations
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 six months ended June 30, 1996 are not comparable
to the corresponding periods in 1995. The Partnership's operations resulted in
net income of $2,578,110 and $3,067,930 for the three and six months ended June
30, 1996, respectively, compared with net income of $388,472 and $871,841 for
the three and six months ended June 30, 1995. The increase in 1996 is
primarily attributable to the gain on sale of Pebblebrook Apartments.
Rental income totaled $741,457 and $1,682,788 for the three and six months
ended June 30, 1996, respectively, compared with $1,209,971 and $2,385,291 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 $68,671 and $88,638 for the three and six months ended June 30,
1996 compared with $11,312 and $16,142 for the comparable periods in 1995. The
increase is due to higher average cash balances in 1996.
Other income totaled $3,371 and $52,781 for the three and six months ended June
30, 1996, respectively, compared with $2,897 and $4,482 for the comparable
period in 1995. The increase is primarily due to the write-off of accrued
management fees.
Property operating expenses totaled $410,537 and $708,941 for the three and six
months ended June 30, 1996, respectively, compared with $358,530 and $648,856
for the three and six months ended June 30, 1995, respectively. The increase
is primarily attributable to higher repair and maintenance expenses associated
with renovations at Powers Ferry Office Building. Depreciation and amortization
decreased to $165,775 and $333,438 for the three and six months ended June 30,
1996 from $386,156 and $747,323 a year earlier, primarily due to the sale of
Foothills Tech Plaza and Pebblebrook Apartments.
As of June 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 - On May 23, 1996 Participating
Development Fund 86, A Real Estate Limited Partnership (the
"Partnership"), closed on the sale of Pebblebrook Apartments
(the "Property"). The Property sold for $10,269,000 to an
institutional buyer (the "Buyer"), which is unaffiliated with
the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer and
resulted in a gain on sale for the Partnership of approximately
$2,400,000. The General Partner intends to distribute most or
all of the net sale proceeds in the third quarter of 1996.
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: PDF 86 Real Estate Services Inc.
General Partner
Date: August 13, 1996 BY: /s/ Kenneth L. Zakin
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 11,275,874
<SECURITIES> 0
<RECEIVABLES> 42,095
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,082,072
<DEPRECIATION> (3,965,421)
<TOTAL-ASSETS> 29,080,952
<CURRENT-LIABILITIES> 123,358
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28,820,052
<TOTAL-LIABILITY-AND-EQUITY> 29,080,952
<SALES> 1,682,788
<TOTAL-REVENUES> 1,824,207
<CGS> 0
<TOTAL-COSTS> 708,941
<OTHER-EXPENSES> 452,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 662,721
<INCOME-TAX> 0
<INCOME-CONTINUING> 662,721
<DISCONTINUED> 0
<EXTRAORDINARY> 2,405,209
<CHANGES> 0
<NET-INCOME> 3,067,930
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.69
</TABLE>
