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, 1999
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or
Transition Report Pursuant to Section 13 or 15(d) of
- --------- the Securities Exchange Act of 1934
For the Transition period from to
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Commission File Number: 33-2294
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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 I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
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Address of Principal Executive Offices Zip Code
(212) 526-3183
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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
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2
PARTICIPATING DEVELOPMENT FUND 86
<TABLE>
<CAPTION>
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BALANCE SHEETS
At September 30, At December 31,
1999 1998
(unaudited) (audited)
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<S> <C> <C>
Assets
Real estate assets held for disposition $ 9,528,877 $16,848,012
Cash and cash equivalents 1,111,229 756,758
Restricted cash -- 44,980
Accounts receivable -- 4,173
Prepaid expenses 3,891 6,445
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Total Assets $10,643,997 $17,660,368
================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 92,148 $ 191,616
Due to General Partner 23,558 20,858
Security deposits payable -- 44,979
Prepaid rent -- 71,594
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Total Liabilities 115,706 329,047
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Partners' Capital (Deficit):
General Partner (634,313) (573,142)
Limited Partners (1,124,000 units outstanding) 11,162,604 17,904,463
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Total Partners' Capital 10,528,291 17,331,321
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Total Liabilities and Partners' Capital $10,643,997 $17,660,368
================================================================================
</TABLE>
<TABLE>
<CAPTION>
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STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the nine months ended September 30, 1999
General Limited
Partner Partners Total
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<S> <C> <C> <C>
Balance at December 31, 1998 $(573,142) $17,904,463 $17,331,321
Net income 10,289 332,693 342,982
Distributions (71,460) (7,074,552) (7,146,012)
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Balance at September 30, 1999 $(634,313) $11,162,604 $10,528,291
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
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PARTICIPATING DEVELOPMENT FUND 86
<TABLE>
<CAPTION>
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STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Income
Rental $ 4,745 $492,670 $ 510,424 $1,570,218
Interest 26,625 6,997 142,470 21,482
Other (160) 3,220 77,731 10,680
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Total income 31,210 502,887 730,625 1,602,380
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Expenses
Property operating 59,247 126,133 285,738 397,163
Depreciation and amortization -- -- -- 301,455
General and administrative 67,393 77,424 190,220 188,944
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Total expenses 126,640 203,557 475,958 887,562
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Income (loss) before gain on sale
of real estate (95,430) 299,330 254,667 714,818
Gain on sale of real estate 3,104 -- 88,315 --
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Net Income (Loss) $(92,326) $299,330 $ 342,982 $ 714,818
================================================================================
Net Income (Loss) Allocated:
To the General Partner $ (2,770) $ 8,980 $ 10,289 $ 21,445
To the Limited Partners (89,556) 290,350 332,693 693,373
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$(92,326) $299,330 $ 342,982 $ 714,818
================================================================================
Per limited partnership unit
(1,124,000 outstanding) $ (.08) $ .26 $ .30 $ .62
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</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
PARTICIPATING DEVELOPMENT FUND 86
<TABLE>
<CAPTION>
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STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 342,982 $ 714,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 301,455
Gain on sale of real estate (88,315) --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 44,980 (6,820)
Accounts receivable 4,173 (29,203)
Prepaid expenses 2,554 (4,306)
Deferred rent receivable -- 8,411
Accounts payable and accrued expenses (99,468) 63,311
Due to affiliates 2,700 10,429
Security deposits payable (44,979) 2,628
Prepaid rent (71,594) (71,594)
--------------------------
Net cash provided by operating activities 93,033 989,129
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Cash Flows From Investing Activities:
Proceeds from sale of real estate assets 7,674,187 --
Additions to real estate assets (266,737) (89,510)
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Net cash provided by (used for) investing activities 7,407,450 (89,510)
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Cash Flows From Financing Activities:
Cash distributions (7,146,012) (1,042,887)
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Net cash used for financing activities (7,146,012) (1,042,887)
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Net increase (decrease) in cash and cash equivalents 354,471 (143,268)
Cash and cash equivalents, beginning of period 756,758 739,170
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Cash and cash equivalents, end of period $ 1,111,229 $ 595,902
================================================================================
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated tenant improvements $ -- $ 175,961
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Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partner's intent to sell the Partnership's
properties, deferred rent receivable, deferred leasing costs and incentives to
lease in the amounts of $187,457, $182,634 and $108,123, respectively, were
reclassified to "Real estate assets held for disposition" in July of 1998.
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</TABLE>
See accompanying notes to the financial statements.
<PAGE>
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PARTICIPATING DEVELOPMENT FUND 86
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and recurring accruals
which are, in the opinion of management, necessary to present a fair statement
of financial position as of September 30, 1999 and the results of operations for
the three and nine months ended September 30, 1999 and 1998, and cash flows for
the nine months ended September 30, 1999 and 1998, and the statement of changes
in partners' capital (deficit) for the nine months ended September 30, 1999.
Results of operations for the periods 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 March 19, 1999, the Partnership closed on the sale of 1899 Powers Ferry
pursuant to a purchase offer executed in February 1999. The property was sold to
Devon Realty ("Devon"), an unaffiliated entity, for a selling price of
approximately $7,674,000, net of closing adjustments and resulted in a gain on
sale of approximately $88,000, which is reflected in the statements of
operations for the nine months ended September 30, 1999. The selling price was
determined by arm's length negotiations between the Partnership and Devon.
On July 14, 1999, the Partnership paid a special cash distribution to unit
holders in the amount $7,146,012, or approximately $6.29 per limited partnership
unit, representing the net proceeds from the sale of 1899 Powers Ferry.
On October 1, 1999, the Partnership closed on the sale of Sunnyvale R&D pursuant
to a purchase and sale agreement executed in June 1999. The property was sold to
Kifer Road LLC ("Kifer"), an unaffiliated entity, for a selling price of
approximately $13,159,000, net of closing adjustments. The selling price was
determined by arm's length negotiations between the Partnership and Kifer.
As a result of the sale of Sunnyvale R&D, the General Partner intends to
distribute the net proceeds therefrom (after payment of or provision for the
Partnership's liabilities and expenses, and establishment of a reserve for
contingencies, if any) during the fourth quarter of 1999 and dissolve the
Partnership in 2000.
No other significant events have occurred subsequent to fiscal year 1998, and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
6
PARTICIPATING DEVELOPMENT FUND 86
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
On July 1, 1998, the Partnership's real estate assets were reclassified on the
balance sheet to "Real estate assets held for disposition" and the Partnership
suspended depreciation and amortization in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
On March 19, 1999, the Partnership closed on the sale of 1899 Powers Ferry
pursuant to a purchase offer executed in February 1999. The property was sold to
Devon, an unaffiliated entity, for a selling price of approximately $7,674,000,
net of closing adjustments and resulted in a gain on sale of approximately
$88,000, which is reflected in the statements of operations for the nine months
ended September 30, 1999. The selling price was determined by arm's length
negotiations between the Partnership and Devon.
On July 14, 1999 the Partnership paid a special cash distribution to unit
holders in the amount $7,146,012, or approximately $6.29 per limited partnership
unit, representing the net proceeds from the sale of 1899 Powers Ferry.
On October 1, 1999, the Partnership closed on the sale of Sunnyvale R&D pursuant
to a purchase and sale agreement executed in June 1999. The property was sold to
Kifer, an unaffiliated entity, for a selling price of approximately $13,159,000,
net of closing adjustments. The selling price was determined by arm's length
negotiations between the Partnership and Kifer.
As a result of the sale of Sunnyvale R&D, the General Partner intends to
distribute the net proceeds therefrom (after payment of or provision for the
Partnership's liabilities and expenses, and establishment of a reserve for
contingencies, if any) during the fourth quarter of 1999 and dissolve the
Partnership in 2000.
At September 30, 1999, the Partnership had cash and cash equivalents of
$1,111,229 compared with $756,758 at December 31, 1998. The increase is
primarily due to the proceeds received from the sale of 1899 Powers Ferry.
The decreases in restricted cash, accounts receivable and security deposits
payable are due to the sale of 1899 Powers Ferry in March 1999.
Tandem Computers Inc. ("Tandem"), which leased 100% of the Sunnyvale R&D
property, continued to sublease the entire space to a computer networking
company through March 31, 1999. Tandem elected not to exercise its option to
renew its lease for an additional five years, and vacated the property on April
8, 1999. The decrease in prepaid rent is due to the timing of the Tandem rental
payments.
<PAGE>
7
PARTICIPATING DEVELOPMENT FUND 86
Results of Operations
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For the three and nine months ended September 30, 1999, the Partnership's
operations resulted in net income (loss) of $(92,326) and $342,982, compared to
net income of $299,330 and $714,818 for the corresponding periods in 1998. Net
income (loss) for the 1999 three and nine-month periods includes a gain on sale
of real estate in the amount of $3,104 and $88,315, respectively, resulting from
the sale of 1899 Powers Ferry. Excluding this gain, Partnership operations
resulted in income (loss) before gain on sale of real estate of $(95,430) and
$254,667 for the three and nine months ended September 30, 1999. The decrease in
net income (loss) for the three and nine-month periods in 1999 is primarily
attributable to the sale of 1899 Powers Ferry and the loss of rental income at
Sunnyvale R&D after April 8, 1999.
Rental income totaled $4,745 and $510,424 for the three and nine months ended
September 30, 1999, compared with $492,670 and $1,570,218 for the comparable
periods a year earlier. The decrease in 1999 is primarily attributable to the
sale of 1899 Powers Ferry and the loss of rental income at Sunnyvale R&D after
April 8, 1999. Interest income increased to $26,625 and $142,470 for the three
and nine months ended September 30, 1999, from $6,997 and $21,482 for the
comparable periods in 1998, largely due to the Partnership's higher average cash
balances in 1999. Other income totaled $(160) and $77,731 for the three and nine
months ended September 30, 1999, compared with $3,220 and $10,680 for the
comparable periods in 1998. The increase is largely due to restoration costs
reimbursement of $71,290 from the former tenant at Sunnyvale R&D.
Property operating expenses totaled $59,247 and $285,738 for the three and nine
months ended September 30, 1999, compared with $126,133 and $397,163 for the
comparable periods a year earlier. The decrease is primarily attributable to the
sale of 1899 Powers Ferry.
The Partnership suspended depreciation and amortization on July 1, 1998 in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Accordingly, there was no depreciation for the period ended September 30,
1999.
General and administrative expenses were $67,393 and $190,220 for the three and
nine months ended September 30, 1999, compared with $77,424 and $188,944 for the
comparable periods in 1998.
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, 1999.
<PAGE>
8
PARTICIPATING DEVELOPMENT FUND 86
SIGNATURE
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 12, 1999 BY: /s/Michael T. Marron
-------------------------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 1,111,229
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 1,115,120
<PP&E> 9,528,877
<DEPRECIATION> 000
<TOTAL-ASSETS> 10,643,997
<CURRENT-LIABILITIES> 115,706
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 10,528,291
<TOTAL-LIABILITY-AND-EQUITY> 10,643,997
<SALES> 000
<TOTAL-REVENUES> 730,625
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 475,958
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 254,667
<INCOME-TAX> 000
<INCOME-CONTINUING> 254,667
<DISCONTINUED> 000
<EXTRAORDINARY> 88,315
<CHANGES> 000
<NET-INCOME> 342,982
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
