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, 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 June 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 8,451,521 756,758
Restricted cash - 44,980
Accounts receivable - 4,173
Prepaid expenses 10,248 6,445
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Total Assets $17,990,646 $17,660,368
===============================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 196,159 $ 191,616
Due to General Partner 27,858 20,858
Security deposits payable - 44,979
Prepaid rent - 71,594
Distribution payable 7,146,012 -
-----------------------------
Total Liabilities 7,370,029 329,047
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Partners' Capital (Deficit):
General Partner (631,543) (573,142)
Limited Partners (1,124,000 units outstanding) 11,252,160 17,904,463
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Total Partners' Capital 10,620,617 17,331,321
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Total Liabilities and Partners' Capital $17,990,646 $17,660,368
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
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STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
For the six months ended June 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 13,059 422,249 435,308
Distributions (71,460) (7,074,552) (7,146,012)
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Balance at June 30, 1999 $(631,543) $11,252,160 $10,620,617
===============================================================================
</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 June 30, Six months ended June 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Income
Rental $ 28,025 $540,355 $505,679 $1,077,548
Interest 98,114 8,121 115,845 14,485
Other 73,731 5,885 77,891 7,460
-------- -------- -------- ----------
Total income 199,870 554,361 699,415 1,099,493
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Expenses
Property operating 48,793 134,498 226,491 271,030
Depreciation and amortization -- 145,309 -- 301,455
General and administrative 59,095 66,872 122,827 111,520
-------- -------- -------- ----------
Total expenses 107,888 346,679 349,318 684,005
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Income before gain (loss) on sale
of real estate 91,982 207,682 350,097 415,488
Gain (Loss) on sale of real estate (25,616) -- 85,211 --
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Net Income $ 66,366 $207,682 $435,308 $ 415,488
=========================================================================================
Net Income Allocated:
To the General Partner $ 1,991 $ 6,231 $ 13,059 $ 12,465
To the Limited Partners 64,375 201,451 422,249 403,023
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$ 66,366 $207,682 $435,308 $ 415,488
=========================================================================================
Per limited partnership unit
(1,124,000 outstanding) $ .06 $ .18 $ .39 $ .37
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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 six months ended June 30,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 435,308 $ 415,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 301,455
Gain on sale of real estate (85,211) --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 44,980 (6,185)
Accounts receivable 4,173 (64,088)
Prepaid expenses (3,803) (8,101)
Deferred leasing costs -- (31,000)
Deferred rent receivable -- 8,411
Accounts payable and accrued expenses 4,543 51,182
Due to affiliates 7,000 6,952
Security deposits payable (44,979) 2,628
Prepaid rent (71,594) (71,594)
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Net cash provided by operating activities 290,417 605,148
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Cash Flows From Investing Activities:
Proceeds from sale of real estate assets 7,674,187 --
Additions to real estate assets (269,841) (26,088)
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Net cash provided by (used for) investing activities 7,404,346 (26,088)
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Cash Flows From Financing Activities:
Cash distributions -- (695,258)
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Net cash used for financing activities -- (695,258)
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Net increase (decrease) in cash and cash equivalents 7,694,763 (116,198)
Cash and cash equivalents, beginning of period 756,758 739,170
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Cash and cash equivalents, end of period $8,451,521 $ 622,972
===============================================================================
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated tenant improvements $ -- $ 175,961
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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 June 30, 1999 and the results of operations for the
three and six months ended June 30, 1999 and 1998, and cash flows for the six
months ended June 30, 1999 and 1998, and the statement of changes in partners'
capital (deficit) for the six months ended June 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 (the "Buyer"), an unaffiliated entity, for a selling price of
$7,674,187, net of closing adjustments and resulted in a gain on sale of
$85,211, which is reflected in the statements of operations for the six months
ended June 30, 1999. The selling price was determined by arm's length
negotiations between the Partnership and the Buyer.
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. Once the
remaining property is sold, the General Partner will distribute the net proceeds
and dissolve the Partnership.
On June 11, 1999, the Partnership executed a purchase and sale agreement with a
buyer to purchase Sunnyvale R&D. It is currently anticipated that the property
will be sold and the Partnership liquidated in 1999. However, there can be no
assurance that the property will be sold within this time frame, or that the
sale will result in a particular price.
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 $7,674,187, net of closing adjustments and resulted in a gain on
sale of approximately $85,211, which is reflected in the statements of
operations for the six months ended June 30, 1999. The selling price was
determined by arm's length negotiations between the Partnership and the Buyer.
The Partnership has executed a purchase and sale agreement with a buyer to
purchase Sunnyvale R&D. It is currently anticipated that the property will be
sold and the Partnership liquidated in 1999. However, there can be no assurance
that the property will be sold within this time frame, or that the sale will
result in a particular price.
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. Once the
remaining property is sold, the General Partner will distribute the net proceeds
and dissolve the Partnership.
At June 30, 1999, the Partnership had cash and cash equivalents of $8,451,521
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 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.
Results of Operations
- ---------------------
For the three and six months ended June 30, 1999, the Partnership's operations
resulted in net income of $66,366 and $435,308, compared to net income of
$207,682 and $415,488 for the corresponding periods in 1998. Net income for the
1999 three and six-month periods includes a gain (loss) on sale of real estate
in the amount of $(25,616) and $85,211, respectively, resulting from the sale of
1899 Powers Ferry. Excluding this gain (loss), Partnership operations resulted
in income before gain on sale of real estate of $91,982 and $350,097 for the
three and six months ended June 30, 1999. The decrease in net income for the
three and six month periods is primarily attributable to the sale of 1899 Powers
Ferry and the vacated property at Sunnyvale R&D after April 8, 1999.
<PAGE>
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PARTICIPATING DEVELOPMENT FUND 86
Rental income totaled $28,025 and $505,679 for the three and six months ended
June 30, 1999, compared with $540,355 and $1,077,548 for the comparable periods
a year earlier. The decrease for the three and six months ended June 30, 1999 is
primarily attributable to the sale of 1899 Powers Ferry and the vacated property
at Sunnyvale after April 8, 1999. Interest income increased to $98,114 and
$115,845 for the three and six months ended June 30, 1999, from $8,121 and
$14,485 for the comparable periods in 1998, largely due to the Partnership's
higher average cash balances in 1999. Other income totaled $73,731 and $77,891
for the three and six months ended June 30, 1999, compared with $5,885 and 7,460
for the comparable periods in 1998. The increase is largely due to restoration
costs reimbursement of $71,290 from the former tenant at Sunnyvale.
Property operating expenses totaled $48,793 and $226,491 for the three and six
months ended June 30, 1999, compared with $134,498 and $271,030 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 June 30, 1999.
General and administrative expenses were $59,095 and $122,827 for the three and
six months ended June 30, 1999, compared with $66,872 and $111,520 for the
comparable periods in 1998. The increase for the six-month period is primarily
due to higher partnership servicing costs.
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, 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: August 13, 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> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 8,451,521
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 8,461,769
<PP&E> 9,528,877
<DEPRECIATION> 000
<TOTAL-ASSETS> 17,990,646
<CURRENT-LIABILITIES> 7,370,029
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 10,620,617
<TOTAL-LIABILITY-AND-EQUITY> 17,990,646
<SALES> 000
<TOTAL-REVENUES> 699,415
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 349,318
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 350,097
<INCOME-TAX> 000
<INCOME-CONTINUING> 350,097
<DISCONTINUED> 000
<EXTRAORDINARY> 85,211
<CHANGES> 000
<NET-INCOME> 435,308
<EPS-BASIC> .39
<EPS-DILUTED> .39
</TABLE>
