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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-15703
SUMMIT INSURED EQUITY L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-2641866
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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
--- ----
<PAGE>
PART I
Item 1. Financial Statements
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Property and equipment, net of accumulated depreciation of
$13,712,113 and $13,262,215, respectively (Note 2) $72,122,627 $72,538,235
Cash and cash equivalents 2,464,004 2,057,134
Accounts receivable-tenants, net of allowance for doubtful
accounts of $793,000 and $509,000, respectively 249,625 878,701
Deferred insurance costs, net of accumulated amortization
of $4,154,013 and $4,003,868, respectively 1,851,791 2,001,936
Deferred refinancing costs, net of accumulated amortization
of $112,083 and $110,764, respectively 21,559 22,878
Deferred leasing commissions, net of accumulated amortization
of $212,633 and $188,004, respectively 322,224 285,179
Other assets 65,268 77,982
----------- ------------
Total Assets $77,097,098 $77,862,045
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable $5,736,659 $ 5,792,615
Accounts payable and other liabilities 497,564 533,115
Real estate taxes payable 564,960 646,100
Due to General Partners and affiliates (Note 3) 216,277 149,780
----------- ------------
Total Liabilities 7,015,460 7,121,610
----------- ------------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited partners (4,000,000 BUC$ issued and outstanding) 70,328,539 70,980,748
General Partners (246,901) (240,313)
----------- ------------
Total Partners' Capital 70,081,638 70,740,435
----------- ------------
Total Liabilities and Partners' Capital $77,097,098 $77,862,045
=========== ============
See notes to financial statements
</TABLE>
2
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental income $1,872,529 $1,845,346
Recovery of common area
maintenance charges 185,181 205,442
Real estate tax reimbursements 217,161 235,667
Interest income 6,715 4,002
Other 42,161 48,010
---------- ----------
Total revenues 2,323,747 2,338,467
---------- ----------
Expenses:
General and administrative 107,811 60,612
General and administrative-related
parties (Note 3) 201,140 131,394
Operating 45,883 47,173
Repairs and maintenance 216,277 200,276
Real estate taxes 280,784 256,003
Insurance 63,867 47,706
Interest 135,041 139,464
Depreciation and amortization 629,568 622,735
Bad debt 284,263 0
---------- ----------
Total expenses 1,964,634 1,505,363
---------- ----------
Net Income $ 359,113 $ 833,104
========== ==========
Allocation of Net Income:
Limited partners $ 247,792 $ 717,043
========== ==========
General Partners $ 2,503 $ 7,243
========== ==========
Special distributions to
General Partners $ 108,818 $ 108,818
========== ==========
Net Income per BUC $ .06 $ .18
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Total Limited Partners General Partners
----------- ---------------- ----------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1996 $70,740,435 $70,980,748 $(240,313)
Net income 359,113 247,792 111,321
Distributions (1,017,910) (900,001) (117,909)
----------- ----------- ---------
Partners' capital (deficit) - March 31, 1996 $70,081,638 $70,328,539 $(246,901)
=========== =========== =========
</TABLE>
See notes to financial statements
4
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income $359,113 $833,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 629,568 622,735
Decrease (increase) in accounts receivable-tenants 345,076 (23,511)
Increase (decrease)in allowance for doubtful accounts 284,000 (4,000)
Decrease (increase) in other assets 12,714 (213,494)
Increase in due to General Partners and affiliates 66,497 123,231
(Decrease) increase in accounts payable and other liabilities (35,551) 87,663
(Decrease) increase in real estate tax payable (81,140) 43,181
---------- ---------
Total adjustments 1,221,164 635,805
---------- ---------
Net cash provided by operating activities 1,580,277 1,468,909
---------- ---------
Cash flows from investing activities:
Improvements to property and equipment (36,077) (43,930)
Leasing commissions paid (63,464) (5,597)
---------- ---------
Net cash used in investing activities (99,541) (49,527)
---------- ---------
Cash flows from financing activities:
Principal payment on notes payable (55,956) (44,720)
Distributions paid (1,017,910) (1,017,910)
---------- ----------
Net cash used in financing activities (1,073,866) (1,062,630)
---------- ----------
Net increase in cash and cash equivalents 406,870 356,752
Cash and cash equivalents - beginning of period 2,057,134 1,433,699
---------- ----------
Cash and cash equivalents - end of period $2,464,004 $1,790,451
========== ==========
Supplemental information:
Interest paid $ 135,041 $ 139,464
========== ==========
</TABLE>
See notes to financial statements
5
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - General
Summit Insured Equity L.P., a Delaware limited partnership (the
"Partnership"), was organized on December 12, 1985 and had no operations until
commencement on December 23, 1986 of the public offering of beneficial unit
certificates (BUC$) representing assignments of limited partnership interests in
the Partnership. The General Partners of the Partnership (the "General
Partners") are Related Insured Equity Associates, Inc. (the "Related General
Partner") and Prudential-Bache Properties, Inc. ("PBP"). The General Partners
manage and control the affairs of the Partnership. The Partnership's fiscal year
ends on December 31. The Partnership was formed to acquire, on an all-cash
basis, existing income producing shopping centers, and to improve, operate, and
hold such properties for investment.
These financial statements have been prepared without audit. In the
opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Partnership as of March 31, 1996 and the results
of its operations for the three months ended March 31, 1996 and 1995 and its
cash flows for the three months ended March 31, 1996 and 1995. However, the
operating results for the interim periods may not be indicative of the results
for the full year.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Partnership's Form 10-K for the year ended
December 31, 1995.
Certain balances for the prior period have been reclassified to
conform with the current financial statement information.
The Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in 1995. Under SFAS No. 121, impairment of
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
properties' carrying value. If a property is determined to be impaired, it
should be recorded at the lower of its carrying value or its estimated fair
value. Adoption of this accounting pronouncement had no impact on the
Partnership's results of operation or financial position.
The determination of impairment is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future periods.
6
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Property and Equipment
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Land $20,828,781 $20,828,781
Buildings and improvements 66,787,243 66,752,953
----------- -----------
87,616,024 87,581,734
Less: Amounts accrued or received from sellers'
rental guarantees (1,781,284) (1,781,284)
Accumulated depreciation (13,712,113) (13,262,215)
----------- -----------
$72,122,627 $72,538,235
=========== ===========
</TABLE>
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the real estate owned at
March 31, 1996 and December 31, 1995. However, the carrying value of certain of
its properties maybe in excess of their fair value as of such dates.
NOTE 3 - Related Party Transactions
The costs and expenses incurred to related parties for the three
months ended March 31, 1996 and 1995 were as follows:
Three Months Ended
March 31,
---------------------------
1996 1995
---------- ---------
Expense reimbursement (a) $ 69,593 $ 16,436
Property management fees (b) 122,625 108,219
Leasing commissions (c) 3,147 2,439
Insurance services (d) 5,775 4,300
---------- ---------
$201,140 $131,394
========== =========
(a) The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership agreement.
(b) The Partnership's eleven properties are being managed by RCC
Property Advisors, Inc. ("RCC"), an affiliate of the Related General Partner.
(c) Leasing commissions are paid to RCC in connection with the
lease-up of vacant space and lease renewals.
(d) Four of the officers of the Related General Partner have ownership
interests in Multi-Family Program Inc., a company which has provided insurance
services for the properties.
7
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 3 - Related Party Transactions (continued)
The distributions earned by the General Partners for the three months
ended March 31, 1996 and 1995 were as follows:
Three Months Ended
March 31,
---------------------------
1996 1995
---------- ---------
Special Distributions $108,818 $108,818
Regular Distributions
of Cash Flows from
Operations 9,091 9,091
---------- ---------
$117,909 $117,909
========== =========
As of March 31, 1996, Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, a General Partner, owns 33,760 BUC$.
NOTE 4 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al. v. Prudential Securities Group Inc. et al. (CV-93-654), was filed
in the United States District Court for the District of Arizona, purportedly on
behalf of investors in the Partnership, against the Partnership, PBP, PSI and a
number of other defendants. Plaintiffs alleged violations of the federal
Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes, breach of
fiduciary duty, fraud and deceit, negligence, and demanded an accounting.
Plaintiffs sought unspecified compensatory, punitive, and treble damages, as
well as rescission, plus costs and attorneys' fees from all defendants except
the Partnership, from which they sought only an accounting. The defendants filed
a motion to dismiss on December 22, 1993.
By order of the Judicial Panel on Multidistrict Litigation dated April
14, 1994, the Kinnes case, together with a number of other actions not involving
the Partnership, were transferred to a single judge of the United States
District Court for the Southern District of New York and consolidated for
pretrial proceedings under the caption In re Prudential Securities Incorporated
Limited Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs
in the transferred cases filed a complaint that consolidated the previously
filed complaints and named as defendants, among others, PSI, certain of its
present and former employees, and the General Partners. The Partnership was not
named a defendant in the consolidated complaint, but the name of the Partnership
was listed as being among the limited partnerships at issue in the case.
On August 9, 1995, PBP, PSI and other Prudential defendants entered
into a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
8
<PAGE>
SUMMIT INSURED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 4 - Contingencies (continued)
On August 9, 1994, House of Fabrics, Inc., a tenant at Winery Square
Shopping Center, closed on a $350,000 promissory note ("the Note") with High
Peak Corporation ("Lender") for tenant improvements at the tenant's location.
The Note is for $350,000, matures on August 1, 1999 and carries a fixed interest
rate of 12%. Monthly payments in the amount of $7,786 are payable on the first
day of every month until August 1, 1999. As required by the Lender, the
Partnership has guaranteed the payment of all principal, interest, additional
interest and other sums of any nature whatsoever, which may or shall become due
and payable pursuant to the provisions of the Note. As of March 31, 1996, House
of Fabrics is current on its required debt service payments.
NOTE 5 - Subsequent Event
In May 1996, distributions of $900,001 and $9,091 were paid to the
BUC$holders and General Partners, respectively, from cash from operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's current primary source of funds is cash flow from
operations of eleven shopping centers.
During the three months ended March 31, 1996, cash and cash
equivalents of the Partnership and its eleven consolidated subsidiary
partnerships increased by approximately $407,000. This increase is primarily
attributable to cash flow from operations of $1,580,000, which exceeded debt
payments of $56,000, distributions of $1,018,000, and capital expenditures
(including leasing commissions) of $99,000.
Future liquidity is expected to result from cash generated from the
operations of the properties and, ultimately, from the sale of the properties.
The Partnership anticipates that future tenant and capital improvements as
required in the normal course of business will be funded from cash generated
from operations.
In May 1996, distributions of $900,001 and $9,091 were paid to the
BUC$holders and General Partners, respectively, from cash from operations.
As more fully discussed below, two anchor tenants have vacated their
premises, however, both continue to meet the financial terms of their leases.
In November 1994, House of Fabrics, a tenant of Winery Square in
Fairfield, California, leasing 13,800 square feet filed for Chapter 11
bankruptcy. Since the petition they have continued to operate the store and have
made their scheduled rental payments. In March 1996, the court determined that
House of Fabrics would close the store and the lease is rejected effective March
31, 1996. Management is actively seeking replacement tenants for this space.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way.
Results of Operations
The Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in 1995. Under SFAS No. 121, impairment of
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
properties' carrying value. If a property is determined to be impaired, it
should be recorded at the lower of its carrying value or its estimated fair
value. Adoption of this accounting pronouncement had no impact on the
Partnership's results of operation or financial position.
The determination of impairment is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future years. No write-downs have been recorded as of March 31,
1996.
Net income decreased by $474,000 for the three months ended March 31,
1996 as compared to the corresponding period in 1995 for the reasons discussed
below.
Revenues for the three months ended March 31, 1996 consist primarily
of the results of the operations of the eleven shopping centers in which the
Partnership has invested. Rental income from these properties during the three
months ended March 31, 1996 increased approximately 1% as compared to the
corresponding period in 1995 primarily due to normal rent increases. Total
expenses, excluding general and administrative, general and
10
<PAGE>
administrative-related parties, insurance and bad debt, increased 3% for the
three months ended March 31, 1996 as compared to the corresponding period in
1995. The excluded items are more fully described below.
Other income decreased approximately $6,000 for the three months ended
March 31, 1996 as compared to the corresponding period in 1995. This decrease is
primarily due to the excess of recoveries of bad debts written off in prior
years over bad debt expense for the quarter ended March 31, 1995.
General and administrative expense increased approximately $47,000 for
the three months ended March 31, 1996 as compared to the corresponding period in
1995. This increase is primarily due to an increase in legal fees relating to
the collection of delinquent common area maintenance charges for 1990 and 1991
from two tenants and an underaccrual of auditing fees at December 31, 1995.
General and administrative expense-related parties increased
approximately $70,000 for the three months ended March 31, 996 as compared to
the corresponding period in 1995. This increase is primarily due to an
underaccrual of expense reimbursements to PSI for the three months ended March
31, 1995 and increases in property management fees at three of the Partnership's
properties in 1996.
Insurance expense increased approximately $16,000 for the three months
ended March 31, 1996 as compared to the corresponding period in 1995. This
increase is primarily due to an overstatement of prepaid insurance at March 31,
1995.
Bad debt expense increased approximately $284,000 for the three months
ended March 31, 1996 as compared to the corresponding period in 1995. This
increase is primarily due to an increase in reserves in 1996. In 1995,
recoveries of bad debts written off in prior years exceeded current write offs,
creating a credit balance of approximately $4,000 which was included in other
income.
Safeway, the anchor tenant of Cactus Village Shopping Center closed
its facility in December 1991 due to poor sales. However, the tenant continues
to fully abide by all aspects of its lease which will expire in September 2006.
There have been several proposals received for leasing this space, but as of May
14, 1996, this space has not been re-leased.
In November 1995, Publix, the anchor tenant of Pablo Plaza Shopping
Center in Jacksonville, Florida, moved out of its space to a newer, larger space
approximately one mile away. Their lease expires in November 1998, and Publix
has informed Pablo that it intends to continue to abide by the terms of its
lease until expiration. As of May 14, 1996, this space has not been re-leased.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings--This information is incorporated by
reference to Note 5 to the financial statements filed herewith in
Item 1 of Part I of the Registrant's Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K--No reports of Form 8-K were filed during
the quarter.
12
<PAGE>
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.
SUMMIT INSURED EQUITY L.P.
By: RELATED INSURED EQUITY ASSOCIATES, INC.
General Partner
Date: May 14, 1996 By: /s/Alan P. Hirmes
-----------------
Alan P. Hirmes
Vice President
Date: May 14, 1996 By: /s/Lawerence J. Lipton
----------------------
Lawrence J. Lipton
Treasurer
(Principal Financial and
Accounting Officer)
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: May 14, 1996 By: /s/Eugene D. Burak
------------------
Eugene D. Burak
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Summit Insured Equity, L.P. and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000801440
<NAME> Summit Equity L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,464,004
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,510,467
<PP&E> 85,834,740
<DEPRECIATION> 13,712,113
<TOTAL-ASSETS> 77,097,098
<CURRENT-LIABILITIES> 1,278,801
<BONDS> 5,736,659
0
0
<COMMON> 0
<OTHER-SE> 70,081,638
<TOTAL-LIABILITY-AND-EQUITY> 77,097,098
<SALES> 0
<TOTAL-REVENUES> 2,323,747
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,829,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,041
<INCOME-PRETAX> 359,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,113
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
