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 0-16695
SUMMIT PREFERRED EQUITY L.P. AND RELATED BUC$ ASSOCIATES, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
13-3385956 and 13-3377612
------------------------------------
(I.R.S. Employer Identification No.)
625 Madison Avenue, New York, New York
----------------------------------------
(Address of principal executive offices)
10022
-----
(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 - FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
Cash and cash equivalents $ 301,799 $ 273,113
Investments in Operating Partnerships (Note 2) 7,392,810 7,447,538
Other assets 9,951 9,951
---------- ----------
Total Assets $7,704,560 $7,730,602
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 24,599 $ 22,289
Due to General Partners and affiliates (Note 4) 362,046 340,323
---------- ----------
Total Liabilities 386,645 362,612
---------- ----------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued and outstanding) 7,403,782 7,452,854
General Partners (85,867) (84,864)
---------- ----------
Total Partners' Capital 7,317,915 7,367,990
---------- ----------
Total Liabilities and Partners' Capital $7,704,560 $7,730,602
========== ==========
</TABLE>
See notes to financial statements
-2-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Income from equity investments $ 138,181 $ 117,379
Interest income 1,746 837
---------- ----------
Total revenues 139,927 118,216
---------- ----------
Expenses:
General and administrative 14,765 663
General and administrative-related parties (Note 4) 15,500 19,879
---------- -----------
Total expenses 30,265 20,542
---------- -----------
Net income $ 109,662 $ 97,674
========== ==========
Allocation of Net Income:
Limited Partners $ 101,406 $ 89,657
========== ==========
General Partners $ 2,069 $ 1,830
========== ==========
Special Distributions to General Partners $ 6,187 $ 6,187
========== ==========
Net income per BUC $ 0.15 $ 0.14
========== ==========
</TABLE>
See notes to financial statements
-3-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Total Limited Partners General Partners
----------- ---------------- ----------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1996 $ 7,367,990 $ 7,452,854 $ (84,864)
Net income 109,662 101,406 8,256
Distributions (159,737) (150,478) (9,259)
----------- ----------- ---------
Partners' capital (deficit) - March 31, 1996 $ 7,317,915 $ 7,403,782 $ (85,867)
=========== =========== ==========
</TABLE>
See notes to financial statements
-4-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 109,662 $ 97,674
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase (decrease) in accounts payable and other liabilities 2,310 (4,750)
Distributions from investments in operating partnerships in
excess of net income 54,728 75,030
Increase in due to General Partners and affiliates 15,536 1,503
--------- ---------
Net cash provided by operating activities 182,236 169,457
--------- ---------
Cash flows used in financing activities:
Distributions paid to partners (153,550) (153,550)
--------- ---------
Net increase in cash and cash equivalents 28,686 15,907
Cash and cash equivalents - beginning of period 273,113 217,719
--------- ---------
Cash and cash equivalents - end of period $ 301,799 $ 233,626
========= =========
Supplemental schedule of noncash financing activities:
Distributions to partners $(159,737) $(159,737)
Increase in distributions payable to General Partners 6,187 6,187
--------- ---------
Distributions paid to partners $(153,550) $(153,550)
========= =========
</TABLE>
See notes to financial statements
-5-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - General
Summit Preferred Equity L.P. (the "Partnership") is a limited partnership
which was formed under the laws of the State of Delaware on January 19, 1987,
but had no activity until March 24, 1987. The general partners of the
Partnership are Related Equity Funding Inc. (the "Related General Partner"),
Partnership Monitoring Corporation and Prudential-Bache Properties, Inc.
("PBP"), collectively the "General Partners".
The Partnership acquired on an all-cash basis equity interests (the
"Preferred Equity Investments") in two operating partnerships (the "Operating
Partnerships") each of which holds a multi-family residential garden apartment
property.
These financial statements have been prepared without an audit. In the
opinion of management, the financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position of the Partnership as of March 31, 1996 and the results
of its operations and 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 expected 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 be read in conjunction with the annual financial statements and notes
thereto included in the Partnership's Form 10- K for the year ended December 31,
1995.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which was adopted by the
Partnership on January 1, 1996. Under SFAS No. 121, impairment is determined to
exist when estimated amounts recoverable through future operations and sale of
an asset on an undiscounted basis are below that asset's net carrying value. If
an asset is determined to be impaired, it must be written down to its estimated
fair value. Because the Partnership's previous policy for reviewing its
investment in Operating Partnerships for possible impairment was equivalent to
SFAS No. 121, implementation of this new accounting standard has not had a
material impact on the Partnership's results of operations or financial
position.
Certain balances for the prior period have been reclassified to conform
with the current financial statement information.
NOTE 2 - Investments in Operating Partnerships
The Partnership holds a Preferred Equity Investment in the TCR-Pinehurst
Limited Partnership ("Pinehurst") which acquired and operates the Pinehurst
apartment complex located in Kansas City, Missouri. Under the original terms of
this investment, the Partnership is entitled to a preferred equity return of
8.8% per annum on its initial investment of $3,799,620 and 9.85% per annum on
its initial investment of $1,949,805 in Phase II of Pinehurst. These preferred
equity returns are cumulative and noninterest-bearing. The cumulative,
unrecorded and undistributed preferred equity returns to the Partnership totaled
$1,189,186 and $1,150,630 at March 31, 1996 and December 31, 1995, respectively.
These preferred equity returns are payable from excess cash flow from operations
or proceeds from a sale or refinancing of Pinehurst's rental property. An
affiliate of one of the General Partners is the general partner of Pinehurst.
-6-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Investments in Operating Partnerships (continued)
The carrying value of the Partnership's investment in Pinehurst is
summarized below:
Investment in Pinehurst, January 1, 1996 $4,181,249
Distributions (93,050)
Net Operating Income 49,972
----------
Investment in Pinehurst, March 31, 1996 $4,138,171
==========
The Partnership made a Preferred Equity Investment in the Dominion
Totem Park Limited Partnership ("Dominion"), which operates the Chateau Creste
apartment complex in Kirkland, Washington. Under the terms of this investment,
the Partnership is entitled to receive a preferred equity return of 9.625% per
annum on its initial cash contribution of $4,149,585. As of March 31, 1996, the
Partnership has received all of the preferred equity returns due from Dominion.
The carrying value of the Partnership's investment in Dominion is
summarized below:
Investment in Dominion, January 1, 1996 $3,266,289
Distributions (99,859)
Net Operating Income 88,209
----------
Investment in Dominion, March 31, 1996 $3,254,639
==========
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the Investments in
Operating Partnerships at March 31, 1996.
NOTE 3 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst.
Three Months Ended March 31,
-----------------------------
1996 1995
------------ -----------
OPERATIONS
----------
Revenues $ 211,923 $ 214,401
Operating Expenses (120,639) (128,803)
Depreciation and Amortization (41,307) (50,729)
----------- ----------
Net Income $ 49,977 $ 34,869
=========== ==========
March 31, December 31,
1996 1995
------------ -----------
FINANCIAL POSITION
------------------
Total Assets $ 4,450,327 $ 4,473,484
============ ===========
Total Liabilities $ 311,665 $ 291,749
============ ===========
-7-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 3 - Supplementary Operating Partnership Financial Information (continued)
The following summarized financial information is for Dominion.
Three Months Ended March 31,
----------------------------
1996 1995
---------- ---------
OPERATIONS
----------
Revenues $ 184,775 $ 172,764
Operating Expenses (68,851) (60,644)
Depreciation (27,715) (29,607)
---------- -----------
Net Income 88,209 $ 82,513
========== ==========
March 31, December 31,
1996 1995
---------- ----------
FINANCIAL POSITION
------------------
Total Assets $3,326,049 $3,357,643
========== ==========
Total Liabilities $ 71,410 $ 91,354
========== ==========
NOTE 4 - Related Party Transactions
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. An affiliate of one of the General Partners performs
asset monitoring for the Partnership. These services include site visits and
evaluations of the two properties in which the Partnership has an investment.
The costs and expenses incurred were $15,500 and $19,879 for the three months
ended March 31, 1996 and 1995, respectively.
The distributions earned by the General Partners for the three months
ended March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
--------- --------
<S> <C> <C>
Special Distributions $ 6,187 $ 6,187
Regular Distributions of Cash from Operations 3,072 3,072
--------- -------
Total $ 9,259 $ 9,259
========= =======
</TABLE>
Special Distributions earned by the General Partners have been
accrued but unpaid since the first quarter of 1992. Such amounts totaled
$105,179 and $98,992 at March 31, 1996 and December 31, 1995, respectively, and
are included in Due to General Partners and affiliates in the Statements of
Financial Condition.
-8-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 4 - Related Party Transactions (continued)
A minority shareholder of the Related General Partner has a minority
ownership interest in a management company which provides property management
services to the Pinehurst Operating Partnership under the terms of a one year
management agreement that automatically renews. The agreement may be canceled
with thirty days notice by either party. Management fees equal to 5% of gross
revenue are paid monthly and amounted to $10,788 and $10,600 for the three
months ended March 31, 1996 and 1995, respectively.
As of March 31, 1996, Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, owns 11,250 BUC$.
NOTE 5 - 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 case against the
Related General Partner is still pending.
NOTE 6 - Subsequent Event
In May 1996, a distribution of $150,478 and $3,072 was paid to the
BUC$holders and General Partners, respectively, from operations for the quarter
ended March 31, 1996.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's primary source of funds is the preferred
distributions from the investments in the Operating Partnerships.
During the three months ended March 31, 1996, Partnership cash and
cash equivalents increased $28,686 as a result of cash flow from operations of
$182,236 offset by distributions paid to partners of $153,550.
Preferred distributions from the Partnership's investment in the
Pinehurst Operating Partnership totaled $93,050 for the three months ended March
31, 1996, paid from cash flow from operations. As of March 31, 1996 the
cumulative, unrecorded and undistributed preferred distributions totaled
$1,189,186, of which $38,556 arose during the three months ended March 31, 1996.
For the first three months of 1996, the Partnership received
preferred distributions totaling $99,859 from its investment in Dominion based
on a 9.625% preferred equity return on its initial cash contribution of
$4,149,585. As of March 31, 1996 the Partnership has received all of the
preferred equity returns due from Dominion.
In May 1996, the Partnership paid a distribution of $150,478 and
$3,072 to the BUC$holders and General Partners, respectively, from cash
generated by operations for the quarter ended March 31, 1996. The Special
Distribution of $6,187 due to the General Partners was accrued but not paid.
Future liquidity is expected to result from the cash generated from
the properties and ultimately through the sale of the properties by the
Operating Partnerships.
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
Results of operations for the three months ended March 31, 1996
consisted primarily of net operating income from the Preferred Equity
Investments in Pinehurst and Dominion.
Income from equity investments increased approximately $21,000 for
the three months ended March 31, 1996 as compared to the same period in 1995.
This was primarily due to an increase in the net income from both properties.
The increase at Pinehurst was primarily due to a decrease in repairs and
maintenance and amortization expenses. The increase at Dominion was primarily
due to normal rent increases.
General and administrative expenses increased approximately $14,000
for the three months ended March 31, 1996 as compared to the same period in 1995
primarily due to an under-accrual of audit and tax expenses in 1995.
General and administrative expenses-related parties decreased
approximately $4,000 for three months ended March 31, 1996 as compared to the
same period in 1995 primarily due to lower expense reimbursements to the General
Partners and their affiliates for services performed for the Partnership.
At April 21, 1996, the occupancy at Pinehurst and Chateau Creste
was 92% and 97%, respectively.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -- This information is incorporated by reference
to Note 5 to the financial statements filed herewith in Item 1 of
Part I of the Registrant's Quarterly Report.
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K -- No reports on Form 8-K were filed
during the quarter.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT PREFERRED EQUITY L.P.
By: RELATED EQUITY FUNDING INC.
General Partner
Date: May 14, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
Date: May 14, 1996 By: /s/ Lawrence J. Lipton
----------------------
Lawrence J. Lipton
Treasurer
(Principal Financial and Accounting
Officer)
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: May 14, 1996 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
RELATED BUC$ ASSOCIATES, INC.
Assignor Limited Partner
Date: May 14, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial financial information extracted from the
financial statements for Summit Preferred Equity L.P. and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000812052
<NAME> Summit Preferred Equity L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 301,799
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,402,761
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,704,560
<CURRENT-LIABILITIES> 386,645
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,317,915
<TOTAL-LIABILITY-AND-EQUITY> 7,704,560
<SALES> 0
<TOTAL-REVENUES> 139,927
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 109,662
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,662
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
