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, 1998
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 I.R.S. Employer Identification No.
of Incorporation or Organization
3 World Financial Center,
29th Floor,
New York, NY
Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
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,
1998 1997
(unaudited) (audited)
Assets
Real estate, at cost:
Land $ 8,387,590 $ 8,387,590
Buildings and personal property 11,476,514 11,450,426
Tenant improvements 739,062 915,023
20,603,166 20,753,039
Less accumulated depreciation (4,454,055) (4,372,698)
16,149,111 16,380,341
Cash and cash equivalents 622,972 739,170
Restricted cash 45,566 39,381
Accounts receivable 108,179 44,091
Deferred leasing costs, net of
accumulated amortization of
$188,009 in 1998 and $159,401 in 1997 182,634 180,242
Incentives to lease, net of
accumulated amortization of $129,135
in 1998 and $113,606 in 1997 108,123 123,652
Prepaid expenses 13,917 5,816
Deferred rent receivable 187,457 195,868
Total Assets $17,417,959 $17,708,561
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $145,088 $93,906
Due to affiliates 13,905 6,953
Security deposits payable 42,009 39,381
Prepaid rent _ 71,594
Total Liabilities 201,002 211,834
Partners' Capital (Deficit):
General Partner (576,572) (568,179)
Limited Partners (1,124,000
units outstanding) 17,793,529 18,064,906
Total Partners' Capital 17,216,957 17,496,727
Total Liabilities and
Partners' Capital $17,417,959 $17,708,561
Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1998 General Limited
Partner Partners Total
Balance at December 31, 1997 $(568,179) $18,064,906 $17,496,727
Cash distributions (20,858) (674,400) (695,258)
Net income 12,465 403,023 415,488
Balance at June 30, 1998 $(576,572) $17,793,529 $17,216,957
Statements of Operations (UNAUDITED)
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
Income
Rental $ 540,355 $508,344 $1,077,548 $ 1,007,740
Interest 8,121 9,392 14,485 18,610
Other 5,885 1,315 7,460 3,820
Total income 554,361 519,051 1,099,493 1,030,170
Expenses
Property operating 134,498 135,358 271,030 243,907
Depreciation and
amortization 145,309 161,056 301,455 320,553
General and administrative 66,872 53,200 111,520 104,051
Total expenses 346,679 349,614 684,005 668,511
Net Income $ 207,682 $169,437 $ 415,488 $ 361,659
Net Income Allocated:
To the General Partner $ 6,231 $ 5,083 $ 12,465 $ 10,850
To the Limited Partners 201,451 164,354 403,023 350,809
$ 207,682 $169,437 $ 415,488 $ 361,659
Per limited partnership unit
(1,124,000 outstanding) $ .18 $ .15 $ .36 $ .31
Statements of Cash Flows (UNAUDITED)
For the six months ended June 30, 1998 1997
Cash Flows From Operating Activities:
Net income $ 415,488 $ 361,659
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 301,455 320,553
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (6,185) (1,201)
Accounts receivable (64,088) 29,383
Prepaid expenses (8,101) (2,357)
Deferred leasing costs (31,000) _
Deferred rent receivable 8,411 (653)
Accounts payable and accrued expenses 51,182 23,175
Due to affiliates 6,952 1,525
Security deposits payable 2,628 (2,073)
Prepaid rent (71,594) 71,593
Net cash provided by operating activities 605,148 801,604
Cash Flows From Investing Activities:
Additions to real estate (26,088) (13,873)
Net cash used for investing activities (26,088) (13,873)
Cash Flows From Financing Activities:
Cash distributions (695,258) (695,258)
Net cash used for financing activities (695,258) (695,258)
Net increase (decrease) in cash
and cash equivalents (116,198) 92,473
Cash and cash equivalents, beginning of period 739,170 736,429
Cash and cash equivalents, end of period $ 622,972 $ 828,902
Supplemental Schedule of Non-Cash Activities:
Write-off of fully depreciated
tenant improvements $ 175,961 $ _
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1997 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 June 30, 1998 and the results of operations for the
three and six months ended June 30, 1998 and 1997; and cash flows for the six
months ended June 30, 1998 and 1997, and the statement of changes in partner's
capital (deficit) for the six months ended June 30, 1998. 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.
On July 1, 1998, the Partnership's real estate assets, were reclassified on the
balance sheet to "Real estate assets held for disposition." Accordingly, the
Partnership will suspend depreciation and amortization in accordance with the
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
No other significant events have occurred subsequent to fiscal year 1997, 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 General Partner has decided to begin marketing Sunnyvale R&D and 1899
Powers Ferry for sale. While it is anticipated that the properties will be sold
during 1998, there can be no assurance that the sales will occur within this
time frame. On July 1, 1998, the Partnership's real estate assets, will be
reclassified on the balance sheet to "Real estate assets held for disposition."
Accordingly, the Partnership will suspend depreciation and amortization in
accordance with the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of."
At June 30, 1998, the Partnership had cash and cash equivalents of $622,972,
compared with $739,170 at December 31, 1997. The decrease is primarily due to
cash distributions exceeding net cash provided by operating activities for the
period. The Partnership also maintains a restricted cash balance, which is
comprised of tenant security deposits. Restricted cash totaled $45,566 at June
30, 1998, compared with $39,381 at December 31, 1997.
Accounts receivable totaled $108,179 at June 30, 1998, compared to $44,091 at
December 31, 1997. The increase is primarily due to the collection of payments
from a former Powers Ferry tenant. Prepaid expenses totaled $13,917 at June 30,
1998, compared to $5,816 at December 31, 1997. The increase is primarily due
to the timing of payments for insurance fees.
Accounts payable and accrued expenses totaled $145,088 at June 30, 1998,
compared to $93,906 at December 31, 1997. The increase is primarily due to the
timing of payments for real estate taxes, administrative costs, audit fees,
legal fees, appraisal fees and printing and postage costs. Prepaid rent
totaled $0 at June 30, 1998, compared to $71,594 at December 31, 1997. The
decrease is due to the timing of the collection of rental receipts.
Cobb County, Georgia notified the Partnership of its intent, under the powers
of eminent domain, to condemn a portion of the land at 1899 Powers Ferry for
the widening of Powers Ferry Road. On May 17, 1998, the Partnership received a
formal notice of condemnation from Cobb County, along with an offer from the
Department of Transportation, to reimburse the Partnership for damages to the
property not taken. The Partnership has retained legal counsel and an
appraisal firm to assist in submitting a counter offer to the Department of
Transportation. After consultation with the real estate brokerage firm
selected to market the Partnership's properties, it appears that the
condemnation will not have as material an impact on the value of the property
as originally anticipated.
The Partnership will pay a cash distribution to the Limited Partners of $.30
per Unit for the three months ended June 30, 1998 on or about August 21, 1998.
Since inception, the Partnership has paid total cash distributions of $43.06
per original $50 Unit, including $23.66 per Unit in return of capital payments
which have reduced the Unit size from $50 per Unit to $26.34 per Unit. The
timing and amount of future cash distributions will be determined quarterly and
will depend on the adequacy of the Partnership's cash flow and cash reserve
requirements.
As of June 30, 1998, lease levels at each of the Properties were as follows:
Sunnyvale R&D - 100%; 1899 Powers Ferry - 80%.
Results of Operations
The Partnership's operations resulted in net income of $207,682 and $415,488
for the three and six months ended June 30, 1998, respectively, compared to
$169,437 and $361,659 for the comparable periods in 1997. The improvement in
operations is primarily due to an increase in rental income and the containment
of expenses.
Rental income totaled $540,355 and $1,077,548 for the three and six months
ended June 30, 1998, respectively, compared with $508,344 and $1,007,740 for
the comparable periods a year earlier. The increases are primarily
attributable to higher income at Powers Ferry, reflecting an increase in
average occupancy for the 1998 periods. Interest income declined to $8,121 and
$14,485 for the three and six months ended June 30, 1998, respectively, from
$9,392 and $18,610 for the comparable periods in 1997, largely due to the
Partnership's lower average cash balances in 1998. Other income totaled $5,885
and $7,460 for the three and six months ended June 30, 1998, respectively,
compared with $1,315 and $3,820 for the comparable periods in 1997. The
increases are primarily due to increases in transfer agent receipts.
Property operating expenses totaled $134,498 and $271,030 for the three and six
months ended June 30, 1998, respectively, compared with $135,358 and $243,907
for the comparable periods a year earlier. The increase for the six-month
period is primarily due to higher real estate taxes and administrative expenses
at Powers Ferry, which were partially offset by lower repairs and maintenance
expenses. Depreciation and amortization totaled $145,309 and 301,455 for the
three and six months ended June 30, 1998, respectively, compared with $161,056
and $320,553 for the comparable periods a year earlier. The decreases are due
to certain tenant improvements being fully depreciated.
General and administrative expenses were $66,872 and $111,520 for the three and
six months ended June 30, 1998, respectively, compared with $53,200 and
$104,051 for the comparable periods in 1997. The increases are primarily due to
higher legal, administrative and audit fees, partially offset by lower expenses
in all other areas.
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 June 30, 1998.
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 14, 1998 BY: /s/Michael Marron
Director, President and Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 668,538
<SECURITIES> 000
<RECEIVABLES> 108,179
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 1,268,848
<PP&E> 20,603,166
<DEPRECIATION> (4,454,055)
<TOTAL-ASSETS> 17,417,959
<CURRENT-LIABILITIES> 201,002
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 17,216,957
<TOTAL-LIABILITY-AND-EQUITY> 17,417,959
<SALES> 1,077,548
<TOTAL-REVENUES> 1,099,493
<CGS> 000
<TOTAL-COSTS> 271,030
<OTHER-EXPENSES> 412,975
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 415,488
<INCOME-TAX> 000
<INCOME-CONTINUING> 415,488
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 415,488
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
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