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, 1997
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 Identification No.
Incorporation or Organization
World Financial Center, 29th Floor, 10285
New York, NY Attn: Andre Anderson Zip Code
Address of Principal Executive Offices
(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 September 30, At December 31,
1997 1996
Assets
Real estate, at cost:
Land $8,387,590 $8,387,590
Buildings and personal property 11,450,426 11,445,862
Tenant improvements 1,202,785 1,193,476
21,040,801 21,026,928
Less accumulated depreciation (4,542,943) (4,131,094)
16,497,858 16,895,834
Cash and cash equivalents 688,118 736,429
Restricted cash 46,175 44,329
Accounts and other receivables, net of allowance
for doubtful accounts of $0 in 1997
and $10,000 in 1996 5,003 30,188
Prepaid expenses, net of accumulated amortization
of $220,567 in 1997 and $175,007 in 1996 228,537 239,359
Incentives to lease, net of accumulated amortization
of $111,927 in 1997 and $87,892 in 1996 131,560 155,595
Deferred rent receivable 197,166 199,336
Total Assets $17,794,417 $18,301,070
Liabilities and Partners' Capital (Deficit)
Liabilities:
Distribution payable $347,628 $ _
Accounts payable and accrued expenses 63,507 85,080
Due to affiliates 6,955 3,658
Security deposits payable 37,997 40,070
Total Liabilities 456,087 128,808
Partners' Capital (Deficit):
General Partner (572,930) (547,912)
Limited Partners
(1,124,000 units outstanding) 17,911,260 18,720,174
Total Partners' Capital 17,338,330 18,172,262
Total Liabilities and Partners' Capital $17,794,417 $18,301,070
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1997
General Limited
Partner Partners Total
Balance at December 31, 1996 $(547,912) $18,720,174 $18,172,262
Distributions (41,715) (1,348,800) (1,390,515)
Net income 16,697 539,886 556,583
Balance at September 30, 1997 $(572,930) $17,911,260 $17,338,330
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Rental $520,477 $514,501 $1,528,217 $2,197,289
Interest 8,718 101,369 27,328 190,007
Other 20,660 1,548 24,480 54,329
Total Income 549,855 617,418 1,580,025 2,441,625
Expenses
Property operating 138,725 198,950 382,632 907,891
Depreciation and
amortization 160,890 165,374 481,444 498,812
General and
administrative 55,314 45,712 159,366 164,819
Total Expenses 354,929 410,036 1,023,442 1,571,522
Income before gain on sale
of real estate 194,926 207,382 556,583 870,103
Gain on sale of real estate _ _ _ 2,405,209
Net Income $194,926 $207,382 $556,583 $3,275,312
Net Income Allocated:
To the General Partner $5,847 $6,221 $16,697 $50,155
To the Limited Partners 189,079 201,161 539,886 3,225,157
$194,926 $207,382 $556,583 $3,275,312
Per limited partnership unit
(1,124,000 outstanding) $.17 $.18 $.48 $2.87
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities:
Net Income $556,583 $3,275,312
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 411,849 421,328
Amortization 69,595 77,484
Gain on sale of real estate _ (2,405,209)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (1,846) 56,543
Accounts receivable 25,185 (13,169)
Prepaid expenses (34,738) 7,170
Deferred rent receivable 2,170 (9,917)
Accounts payable and accrued expenses (21,573) 9,663
Due to affiliates 3,297 (25,315)
Security deposits payable (2,073) (57,913)
Prepaid rent _ (7,961)
Net cash provided by operating activities 1,008,449 1,328,016
Cash Flows From Investing Activities:
Proceeds from sale of real estate assets _ 10,210,955
Additions to real estate (13,873) (25,473)
Net cash provided by (used for)
investing activities (13,873) 10,185,482
Cash Flows From Financing Activities:
Cash distributions (1,042,887) (11,898,538)
Net cash used for financing activities (1,042,887) (11,898,538)
Net (decrease) in cash and cash equivalents (48,311) (385,040)
Cash and cash equivalents, beginning of period 736,429 1,480,034
Cash and cash equivalents, end of period $688,118 $1,094,994
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction
with the Partnership's annual 1996 audited financial statements
within Form 10-K.
The unaudited financial statements include all normal and
reoccurring accruals which are, in the opinion of management,
necessary to present a fair statement of financial position as of
September 30, 1997 and the results of operations for the three
and nine months ended September 30, 1997 and 1996; and cash flows
for the nine months ended September 30, 1997 and 1996 and the
statement of partners'capital (deficit) for the nine
months ended September 30, 1997. Results of operations for the
period are not necessarily indicative of the results to be
expected for the full year.
Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
No significant events have occurred subsequent to fiscal year
1996, and no material contingencies exist, which would 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
The Partnership had cash and cash equivalents totaling $688,118
at September 30, 1997, compared with $736,429 at
December 31, 1996. The decrease is due to cash distributions and
additions to real estate exceeding 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. The Partnership also had a restricted cash
balance of $46,175 at September 30, 1997, which consists of
security deposits.
Accounts and other receivables decreased to $5,003 at September
30, 1997 from $30,188 at December 31, 1996 mainly due to the
timing of payments and the write-off of past due rents.
Incentives to lease decreased to $131,560 at September 30, 1997
from $155,595 at December 31, 1996 largely due the amortization
of lease buyout costs incurred at 1899 Powers Ferry.
Accounts payable and accrued expenses decreased to $63,507 at
September 30, 1997 from $85,080 at December 31, 1996 mainly due
to the timing of payments for real estate taxes.
Cobb County, Georgia, has notified the Partnership of its intent
to condemn a portion of the property located at 1899 Powers Ferry
Road, Cobb County, Georgia, for the widening of Powers Ferry Road
under its powers of eminent domain. It is expected that the
condemnation will occur in 1998. The condemnation will have a
substantial impact on the property since the road will be moved
much closer to the building, the driveway will be relocated and
reduced in size and the vast majority of the landscaping in front
of the building will be removed. Cobb County will be required,
as a part of the process, to compensate for the portion of the
property actually taken and any consequential damages (damages
occurring to the portion of the property not taken). It is
expected that the consequential damages of this condemnation may
be substantial in light of the proximity of the building to the
newly widened roadway and relocation of the driveway and loss of
landscaping. If the amount of damages is not settled with Cobb
County, a jury trial will ensue to finally determine this sum.
The Partnership has retained legal counsel to ensure that the
property is sufficiently compensated for any damages as a result
of the condemnation.
The Partnership will pay its third quarter cash distribution in
the amount of $.30 per Unit, representing cash flow from
Partnership operations, on or about November 30, 1997. To date,
limited partners have received cash distributions totaling $42.06
per original $50 Unit, including $23.66 per Unit in return of
capital payments. As a result of improving local market
conditions, the General Partner has decided to begin marketing
Sunnyvale R&D and 1899 Powers Ferry for sale. In light of this
decision, the Partnership may need to make capital improvements
to better position the properties for sale. In order to fund
these improvements and maintain adequate cash reserves, cash
distributions may be reduced or suspended in the future. The
timing and amount of future cash distributions will be determined
quarterly and will depend on the adequacy of the Partnership's
cash flow from operations and cash reserve requirements.
As of September 30, 1997, lease levels at each of the Properties
were as follows: Sunnyvale R&D - 100%; 1899 Powers Ferry - 84%.
Results of Operations
As a result of the sale of Pebblebrook Apartments on
May 23, 1996, the Partnership's results of operations for the three and
nine months ended September 30, 1997 are not comparable to the
corresponding period in 1996. The Partnership's operations
resulted in net income of $194,926 and $556,583 for the three and
nine months ended September 30, 1997, respectively, compared to
$207,382 and $3,275,312 for the three and nine months ended
September 30, 1996.
Rental income totaled $520,477 and $1,528,217 for the three and
nine months ended September 30, 1997, respectively, compared with
$514,501 and $2,197,289 for the comparable periods a year
earlier. The decrease is primarily attributable to the sale of
Pebblebrook Apartments and, to a lesser extent, lower average
occupancy at 1899 Powers Ferry. Interest income declined to
$8,718 and $27,328 for the three and nine months ended
September 30, 1997, respectively, from $101,369 and $190,007 for the
comparable periods in 1996, largely due to the Partnership's
lower average cash balances in 1997. Other income totaled
$20,660 and $24,480 for the three and nine months ended September
30, 1997, respectively, compared with $1,548 and $54,329 for the
comparable periods in 1996. The decrease for the nine month
period is primarily due to the write-off in 1996 of accrued
management fees. The increase for the three month period is due
to the refund of 1996 real estate taxes.
Property operating expenses totaled $138,725 and $382,632 for the
three and nine months ended September 30, 1997, respectively,
compared to $198,950 and $907,891 for the comparable periods a
year earlier. The decreases are primarily a result of the sale
of Pebblebrook Apartments, and lower repairs and maintenance,
utilities and administrative expenses at 1899 Powers Ferry.
Depreciation and amortization totaled $160,890 and $481,444 for
the three and nine months ended September 30, 1997, respectively,
largely unchanged from $165,374 and $498,812 for the comparable
periods a year earlier.
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, 1997.
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: November 14, 1997 BY: /s/Jeffrey C. Carter
Director and President
Date: November 14, 1997 BY: /s/Michael T. Marron
Vice President and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sept-30-1997
<CASH> 688,118
<SECURITIES> 000
<RECEIVABLES> 5,003
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 21,040,801
<DEPRECIATION> (4,542,943)
<TOTAL-ASSETS> 17,794,417
<CURRENT-LIABILITIES> 456,087
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 000
<TOTAL-LIABILITY-AND-EQUITY> 17,794,417
<SALES> 1,528,217
<TOTAL-REVENUES> 1,580,025
<CGS> 000
<TOTAL-COSTS> 382,632
<OTHER-EXPENSES> 640,810
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 556,583
<INCOME-TAX> 000
<INCOME-CONTINUING> 556,583
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 556,583
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
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