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, 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 13-3385956 and 13-3377612
- - ------------------------------- ------------------------------------
(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 - FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 248,867 $ 273,113
Investments in Operating Partnerships (Note 2) 7,330,254 7,447,538
Other assets 9,951 9,951
----------- -----------
Total Assets $ 7,589,072 $ 7,730,602
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 24,366 $ 22,289
Due to General Partners and affiliates (Note 4) 313,110 340,323
----------- -----------
Total Liabilities 337,476 362,612
----------- -----------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued and outstanding) 7,338,790 7,452,854
General Partners (87,194) (84,864)
----------- -----------
Total Partners' Capital 7,251,596 7,367,990
----------- -----------
Total Liabilities and Partners' Capital $ 7,589,072 $ 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 Six Months Ended
June 30, June 30,
-------- -------- -------- --------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Income from equity investments $130,604 $173,631 $268,785 $291,010
Interest income 1,748 971 3,494 1,808
-------- -------- -------- --------
Total revenues 132,352 174,602 272,279 292,818
-------- -------- -------- --------
Expenses:
General and administrative 13,667 6,747 28,432 7,410
General and administrative - related
parties (Note 4) 25,266 10,408 40,766 30,287
-------- -------- -------- --------
Total expenses 38,933 17,155 69,198 37,697
-------- -------- -------- --------
Net Income $ 93,419 $157,447 $203,081 $255,121
======== ======== ======== ========
Allocation of Net Income:
Limited Partners $ 85,487 $148,235 $186,893 $237,892
======== ======== ======== ========
General Partners $ 1,745 $ 3,025 $ 3,814 $ 4,855
======== ======== ======== ========
Special Distributions to
General Partners $ 6,187 $ 6,187 $ 12,374 $ 12,374
======== ======== ======== ========
Net Income per BUC $ .13 $ .23 $ .28 $ .36
======== ======== ======== ========
</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 203,081 186,893 16,188
Distributions (319,475) (300,957) (18,518)
---------- ---------- --------
Partners' capital (deficit) - June 30, 1996 $7,251,596 $7,338,790 $(87,194)
========== ========== ========
</TABLE>
See notes to financial statements
-4-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
---------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 203,081 $ 255,121
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase (decrease) in accounts payable and other liabilities 2,077 (17,850)
Distributions from investments in operating partnerships in
excess of net income 117,284 93,809
Decrease in due to General Partners and affiliates (39,587) (5,889)
--------- ---------
Net cash provided by operating activities 282,855 325,191
--------- ---------
Cash flows used in financing activities:
Distributions paid to partners (307,101) (307,101)
--------- ---------
Net (decrease) increase in cash and cash equivalents (24,246) 18,090
Cash and cash equivalents - beginning of period 273,113 217,719
--------- ---------
Cash and cash equivalents - end of period $ 248,867 $ 235,809
========= =========
Supplemental schedule of noncash financing activities:
Distributions to partners $(319,475) $(319,475)
Increase in distributions payable to General Partners 12,374 12,374
--------- ---------
Distributions paid to partners $(307,101) $(307,101)
========= =========
</TABLE>
See notes to financial statements
-5-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1996, the results of
its operations for the three and six months ended June 30, 1996 and 1995 and its
cash flows for the six months ended June 30, 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.
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
$1,227,491 and $1,150,630 at June 30, 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
JUNE 30, 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 (186,350)
Net Operating Income 112,753
----------
Investment in Pinehurst, June 30, 1996 $4,107,652
==========
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 June 30 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 (199,719)
Net Operating Income 156,032
----------
Investment in Dominion, June 30, 1996 $3,222,602
==========
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the Investments in
Operating Partnerships at June 30, 1996.
NOTE 3 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst:
Six Months Ended June 30,
OPERATIONS 1996 1995
---------- ---------- ----------
Revenues $ 431,904 $ 483,745
Operating Expenses (236,526) (256,139)
Depreciation and Amortization (82,614) (101,459)
---------- ----------
Net Income $ 112,764 $ 126,147
========== ==========
June 30, December 31,
FINANCIAL POSITION 1996 1995
------------------ ---------- ----------
Total Assets $4,438,872 $4,473,484
========== ==========
Total Liabilities $ 330,723 $ 291,749
========== ==========
-7-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 3 - Supplementary Operating Partnership Financial Information
(continued)
The following summarized financial information is for Dominion:
Six Months Ended June 30,
OPERATIONS 1996 1995
---------- ---------- ----------
Revenues $ 363,070 $ 351,832
Operating Expenses (151,608) (127,742)
Depreciation (55,430) (59,214)
---------- ----------
Net Income $ 156,032 $ 164,876
========== ==========
June 30, December 31,
FINANCIAL POSITION 1996 1995
------------------ ---------- ----------
Total Assets $3,274,887 $3,357,643
========== ==========
Total Liabilities $ 52,284 $ 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 for the three months ended June 30, 1996 and
1995 were $25,266 and $10,408, respectively, and for the six months ended June
30, 1996 and 1995 were $40,766 and $30,287, respectively.
The distributions earned by the General Partners for the three and
six months ended June 30, 1996 and 1995 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Special Distributions $ 6,187 $ 6,187 $12,374 $12,374
Regular Distributions of
Cash from Operations 3,072 3,072 6,144 6,144
------- ------- ------- -------
Total $ 9,259 $ 9,259 $18,518 $18,518
======= ======= ======= =======
Special Distributions earned by the General Partners have been
accrued but unpaid since the first quarter of 1992. Such amounts totaled
$111,366 and $98,992 at June 30, 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
JUNE 30, 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 $10,827 and $10,843 and $21,615 and
$21,443 for the three and six months ended June 30, 1996 and 1995, respectively.
As of June 30, 1996, Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, owns 11,250 BUC$.
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 consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
The Related General Partner has been engaged in settlement
negotiations with counsel for the plaintiffs. In the event a settlement can not
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.
NOTE 6 - Subsequent Event
In August 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 June 30, 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 six months ended June 30, 1996, Partnership cash and cash
equivalents decreased $24,246 primarily due to distributions paid to partners of
$307,101 which exceeded cash flow from operations of $282,855.
Preferred distributions from the Partnership's investment in the
Pinehurst Operating Partnership, paid from cash flow from operations, totaled
$186,350 for the six months ended June 30, 1996. As of June 30, 1996 the
cumulative, unrecorded and undistributed preferred distributions totaled
$1,227,491, of which $76,861 arose during the six months ended June 30, 1996.
For the first six months of 1996, the Partnership received preferred
distributions totaling $199,719 from its investment in Dominion based on a
9.625% preferred equity return on its initial cash contribution of $4,149,585.
As of June 30, 1996 the Partnership has received all of the preferred equity
returns due from Dominion.
In August 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 June 30, 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 and six months ended June 30,
1996 consisted primarily of net operating income from the Preferred Equity
Investments in Pinehurst and Dominion.
Income from equity investments decreased approximately $43,000 and
$22,000 for the three and six months ending June 30, 1996, respectively, as
compared to the same periods in 1995. This was primarily due to receipt of
insurance proceeds by Pinehurst during the second quarter of 1995 for damage to
shingles from a hail storm.
General and administrative expenses increased approximately $7,000
and $21,000 for the three and six months ended June 30, 1996, respectively, as
compared to the same periods in 1995 primarily due to an under-accrual of audit
and tax expenses in 1995.
General and administrative expenses-related parties increased
approximately $15,000 and $10,000 for three and six months ending June 30, 1996,
respectively, as compared to the same periods in 1995. This was primarily due to
a small over-accrual of expense reimbursements to the General Partners and their
affiliates at March 31, 1995, which was corrected in the second quarter, and a
small under-accrual of these expense reimbursements at December 31, 1995.
At July 21, 1996, the occupancies at Pinehurst and Chateau Creste
were 92% and 99%, respectively.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by
reference to Note 5 to the financial statements filed herewith in
Item 1 of Part I of the Registrant's Quarterly Report.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
-11-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SUMMIT PREFERRED EQUITY L.P.
By: RELATED EQUITY FUNDING INC.
General Partner
Date: August 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
Date: August 13, 1996 By: /s/ Lawrence J. Lipton
----------------------
Lawrence J. Lipton
Treasurer
(Principal Financial and Accounting Officer)
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: August 13, 1996 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
RELATED BUC$ ASSOCIATES, INC.
Assignor Limited Partner
Date: August 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 248,867
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,340,205
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,589,072
<CURRENT-LIABILITIES> 337,476
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,251,596
<TOTAL-LIABILITY-AND-EQUITY> 7,589,072
<SALES> 0
<TOTAL-REVENUES> 272,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 203,081
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,081
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
