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 March 31, 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 March 31, 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 8,340,872 756,758
Restricted cash -- 44,980
Accounts receivable -- 4,173
Prepaid expenses 2,650 6,445
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Total Assets $17,872,399 $17,660,368
================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 147,780 $ 191,616
Due to General Partner 24,356 20,858
Security deposits payable -- 44,979
Prepaid rent -- 71,594
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Total Liabilities 172,136 329,047
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Partners' Capital (Deficit):
General Partner (562,111) (573,142)
Limited Partners (1,124,000 units outstanding) 18,262,374 17,904,463
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Total Partners' Capital 17,700,263 17,331,321
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Total Liabilities and Partners' Capital $17,872,399 $17,660,368
================================================================================
</TABLE>
<TABLE>
<CAPTION>
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STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the three months ended March 31, 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 11,031 357,911 368,942
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Balance at March 31, 1999 $ (562,111) $18,262,374 $17,700,263
================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
3
PARTICIPATING DEVELOPMENT FUND 86
<TABLE>
<CAPTION>
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STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31,
1999 1998
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<S> <C> <C>
Income
Rental $ 477,654 $ 537,193
Interest 17,731 6,364
Other 4,160 1,575
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Total income 499,545 545,132
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Expenses
Property operating 177,698 136,532
Depreciation and amortization -- 156,146
General and administrative 63,732 44,648
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Total expenses 241,430 337,326
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Income before gain on sale of real estate 258,115 207,806
Gain on sale of real estate 110,827 --
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Net Income $ 368,942 $ 207,806
================================================================================
Net Income Allocated:
To the General Partner $ 11,031 $ 6,234
To the Limited Partners 357,911 201,572
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$ 368,942 $ 207,806
================================================================================
Per limited partnership unit
(1,124,000 outstanding) $ .32 $ .18
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</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 CASH FLOWS (UNAUDITED)
For the three months ended March 31,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 368,942 $ 207,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 156,146
Gain on sale of real estate (110,827) --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 44,980 (5,564)
Accounts receivable 4,173 (8,276)
Prepaid expenses 3,795 3,489
Deferred rent receivable -- 7,499
Accounts payable and accrued expenses (43,836) 8,145
Due to affiliates 3,498 --
Security deposits payable (44,979) --
Prepaid rent (71,594) (71,594)
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Net cash provided by operating activities 154,152 297,651
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Cash Flows From Investing Activities:
Proceeds from sale of real estate assets 7,674,187 --
Additions to real estate assets (244,225) --
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Net cash provided by investing activities 7,429,962 --
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Cash Flows From Financing Activities:
Cash distributions -- (347,629)
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Net cash used for financing activities -- (347,629)
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Net increase (decrease) in cash
and cash equivalents 7,584,114 (49,978)
Cash and cash equivalents, beginning of period 756,758 739,170
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Cash and cash equivalents, end of period $ 8,340,872 $ 689,192
================================================================================
Supplemental Disclosure of Non-Cash
Investing Activities:
Write-off of fully depreciated
tenant improvements $ -- $ 26,610
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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 March 31, 1999 and the results of operations for the
three months ended March 31, 1999 and 1998, and cash flows for the three months
ended March 31, 1999 and 1998, and the statement of changes in partners' capital
(deficit) for the three months ended March 31, 1999. 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 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 (the "Buyer"), an unaffiliated entity, for a selling price of
approximately $7,674,000, net of closing adjustments and resulted in a gain on
sale of $110,827, which is reflected in the statements of operations for the
three months ended March 31, 1999. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer.
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).
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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
- -------------------------------
The Partnership engaged real estate brokers in 1998 to assist in selling the
Partnership's two remaining Properties, Sunnyvale R&D and 1899 Powers Ferry.
Accordingly, 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 Realty (the "Buyer"), an unaffiliated entity, for a selling price of
approximately $7,674,000, net of closing adjustments and resulted in a gain on
sale of $110,827, which is reflected in the statements of operations for the
three months ended March 31, 1999. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer.
The Partnership has executed a letter of intent with a buyer to purchase
Sunnyvale R&D and is currently negotiating a purchase and sale agreement. It is
currently anticipated that the Property will be sold and the Partnership
liquidated in 1999. However, there can be no assurance that Sunnyvale R&D will
be sold within this time frame, or that the sale will result in a particular
price.
In consideration of the Partnership's marketing efforts, quarterly cash
distributions from operations were suspended commencing with the 1998 third
quarter distribution which would have been paid in November 1998. The General
Partner intends to pay a cash distribution from the net proceeds of the sale of
1899 Powers Ferry in the second quarter of 1999. Once the remaining property is
sold, the General Partner will distribute the net proceeds.
At March 31, 1999, the Partnership had cash and cash equivalents of $8,340,872,
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 leases 100% of the Sunnyvale property,
continued to sublease the entire space to a computer networking company through
the expiration of its lease on 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.
Results of Operations
- ---------------------
For the three months ended March 31, 1999, the Partnership's operations resulted
in net income of $368,942, compared to net income of $207,806 for the
corresponding period in 1998. Net income for the 1999 three month period
includes a gain on sale of real estate in the amount of $110,827, resulting from
the sale of 1899 Powers Ferry. Excluding this gain, Partnership operations
resulted in income before gain on sale of real estate of $258,115 for the three
months ended March 31, 1999, compared with income before gain on sale of real
estate of $207,806 for the corresponding period in 1998.
<PAGE>
7
PARTICIPATING DEVELOPMENT FUND 86
Rental income totaled $477,654 for the three months ended March 31, 1999,
compared with $537,193 for the comparable period a year earlier. The decrease
for the three months ended March 31, 1999 is primarily attributable to the sale
of 1899 Powers Ferry. Interest income increased to $17,731 for the three months
ended March 31, 1999, from $6,364 for the comparable period in 1998, largely due
to the Partnership's higher average cash balances in 1999. Other income totaled
$4,160 for the three months ended March 31, 1999, compared with $1,575 for the
comparable period in 1998.
Property operating expenses totaled $177,698 for the three months ended March
31, 1999, compared with $136,532 for the comparable period a year earlier. The
increase reflects repair and maintenance costs incurred in connection with 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 March 31, 1999.
General and administrative expenses were $63,732 for the three months ended
March 31, 1999, compared with $44,648 for the comparable period in 1998. The
increase is primarily due to higher administrative fees.
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
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No reports on Form 8-K were filed during the quarter ended
March 31, 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: May 14, 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> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 8,340,872
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 8,343,522
<PP&E> 9,528,877
<DEPRECIATION> 000
<TOTAL-ASSETS> 17,872,399
<CURRENT-LIABILITIES> 172,136
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 17,700,263
<TOTAL-LIABILITY-AND-EQUITY> 17,872,399
<SALES> 477,654
<TOTAL-REVENUES> 499,545
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 241,430
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 258,115
<INCOME-TAX> 000
<INCOME-CONTINUING> 258,115
<DISCONTINUED> 000
<EXTRAORDINARY> 110,827
<CHANGES> 000
<NET-INCOME> 368,942
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
