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 September 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)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 259,342 $ 273,113
Investments in Operating Partnerships (Note 2) 7,263,914 7,447,538
Other assets 9,951 9,951
---------- ----------
Total Assets $7,533,207 $7,730,602
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 23,940 $ 22,289
Due to General Partners and affiliates (Note 4) 323,106 340,323
---------- ----------
Total Liabilities 347,046 362,612
---------- ----------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued and outstanding) 7,274,665 7,452,854
General Partners (88,504) (84,864)
---------- ----------
Total Partners' Capital 7,186,161 7,367,990
---------- ----------
Total Liabilities and Partners' Capital $7,533,207 $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 Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
Revenues:
<S> <C> <C> <C> <C>
Income from equity investments $ 126,819 $ 77,672 $ 395,604 $ 368,682
Interest income 1,503 1,475 4,997 3,283
--------- ---------- ---------- ----------
Total revenues 128,322 79,147 400,601 371,965
--------- ---------- ---------- ----------
Expenses:
General and administrative 12,957 22,313 41,389 29,723
General and administrative - related
parties (Note 4) 21,063 14,577 61,829 44,864
--------- ---------- ---------- ----------
Total expenses 34,020 36,890 103,218 74,587
--------- ---------- ---------- ----------
Net Income $ 94,302 $ 42,257 $ 297,383 $ 297,378
========= ========== ========== ==========
Allocation of Net Income:
Limited Partners $ 86,353 $ 35,349 $ 273,246 $ 273,241
========= ========== ========== ==========
General Partners $ 1,762 $ 721 $ 5,576 $ 5,576
========= ========== ========== ==========
Special Distributions to
General Partners $ 6,187 $ 6,187 $ 18,561 $ 18,561
========= ========== ========== ==========
Net Income per BUC $ .14 $ .05 $ .42 $ .42
========= ========== ========== ==========
</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 297,383 273,246 24,137
Distributions (479,212) (451,435) (27,777)
---------- ---------- ----------
Partners' capital (deficit) - September 30, 1996 $7,186,161 $7,274,665 $ (88,504)
========== ========== ==========
</TABLE>
See notes to financial statements
-4-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 297,383 $ 297,378
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase (decrease) in accounts payable and other liabilities 1,651 (10,375)
Distributions from investments in operating partnerships in
excess of net income 183,624 208,546
Decrease in due to General Partners and affiliates (35,778) (4,693)
---------- ----------
Net cash provided by operating activities 446,880 490,856
---------- ----------
Cash flows used in financing activities:
Distributions paid to partners (460,651) (460,651)
---------- ----------
Net (decrease) increase in cash and cash equivalents (13,771) 30,205
Cash and cash equivalents - beginning of period 273,113 217,719
---------- ----------
Cash and cash equivalents - end of period $ 259,342 $ 247,924
========== ==========
Reconciliation of distributions paid to partners:
Distributions to partners $ (479,212) $ (479,212)
Increase in distributions payable to General Partners 18,561 18,561
---------- ----------
Distributions paid to partners $ (460,651) $ (460,651)
========== ==========
</TABLE>
See notes to financial statements
-5-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1996, the results
of its operations for the three and nine months ended September 30, 1996 and
1995 and its cash flows for the nine months ended September 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 accounts for its investments in Operating
Partnerships using the equity method. 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 $1,265,797 and $1,150,630 at September
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
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Investments in Operating Partnerships (continued)
The carrying value of the Partnership's investment in Pinehurst is
summarized below:
<TABLE>
<S> <C>
Investment in Pinehurst, January 1, 1996 $4,181,249
Distributions (279,650)
Net Operating Income 151,001
----------
Investment in Pinehurst, September 30, 1996 $4,052,600
==========
</TABLE>
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 September 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:
<TABLE>
<S> <C>
Investment in Dominion, January 1, 1996 $3,266,289
Distributions (299,578)
Net Operating Income 244,603
----------
Investment in Dominion, September 30, 1996 $3,211,314
==========
</TABLE>
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the Investments in
Operating Partnerships at September 30, 1996.
NOTE 3 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
OPERATIONS 1996 1995
---------- ----------------- -------------
<S> <C> <C>
Revenues $ 664,219 $ 706,285
Operating Expenses (389,283) (460,727)
Depreciation and Amortization (123,921) (131,488)
---------- ----------
Net Income $ 151,015 $ 114,070
========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
FINANCIAL POSITION 1996 1995
------------------ ------------- ------------
<S> <C> <C>
Total Assets $4,370,124 $4,473,484
========== ==========
Total Liabilities $ 371,023 $ 291,749
========== ==========
</TABLE>
-7-
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 3 - Supplementary Operating Partnership Financial Information (continued)
The following summarized financial information is for Dominion:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
OPERATIONS 1996 1995
---------- -------------- ------------
<S> <C> <C>
Revenues $ 547,065 $ 528,932
Operating Expenses (219,318) (185,487)
Depreciation (83,144) (88,822)
------------ -----------
Net Income $ 244,603 $ 254,623
============ ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
FINANCIAL POSITION 1996 1995
------------------ ------------- ------------
<S> <C> <C>
Total Assets $ 3,270,176 $ 3,357,643
============ ===========
Total Liabilities $ 58,862 $ 91,354
============ ===========
</TABLE>
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 September 30, 1996
and 1995 were $21,063 and $14,577, respectively, and for the nine months ended
September 30, 1996 and 1995 were $61,829 and $44,864, respectively.
The distributions earned by the General Partners for the three and
nine months ended September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Special Distributions $ 6,187 $ 6,187 $ 18,561 $ 18,561
Regular Distributions of
Cash from Operations 3,072 3,072 9,216 9,216
-------- -------- -------- --------
Total $ 9,259 $ 9,259 $ 27,777 $ 27,777
======= ======= ======== ========
</TABLE>
Special Distributions earned by the General Partners have been
accrued but unpaid since the first quarter of 1992. Such amounts totaled
$117,553 and $98,992 at September 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
SEPTEMBER 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 $11,397 and $10,913 and $33,012 and
$32,356 for the three and nine months ended September 30, 1996 and 1995,
respectively.
As of September 30, 1996, Prudential Securities Incorporated ("PSI"),
an affiliate of PBP, owns 11,250 BUC$.
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 November 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 September 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 nine months ended September 30, 1996, Partnership cash and
cash equivalents decreased $13,771 primarily due to distributions paid to
partners of $460,651 which exceeded cash flow from operations of $446,880.
Preferred distributions from the Partnership's investment in the
Pinehurst Operating Partnership, paid from cash flow from operations, totaled
$279,650 for the nine months ended September 30, 1996. As of September 30, 1996,
the cumulative, unrecorded and undistributed preferred distributions totaled
$1,265,797, of which $115,167 arose during the nine months ended September 30,
1996.
For the first nine months of 1996, the Partnership received preferred
distributions totaling $299,578 from its investment in Dominion based on a
9.625% preferred equity return on its initial cash contribution of $4,149,585.
As of September 30, 1996 the Partnership has received all of the preferred
equity returns due from Dominion.
In November 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 September 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 nine months ended September
30, 1996 consisted primarily of net operating income from the Preferred Equity
Investments in Pinehurst and Dominion.
Income from equity investments increased approximately $49,000 for
the three months ending September 30, 1996 as compared to the same period in
1995 primarily due to repair work that was done at Pinehurst in the third
quarter of 1995 relating to damage from a hail storm for which insurance
proceeds were received in the second quarter of 1995.
General and administrative expenses decreased approximately $9,000
and increased approximately $12,000 for the three and nine months ended
September 30, 1996, respectively, as compared to the same periods in 1995. The
decrease for the three months ending September 30, 1996 was primarily due to an
underaccrual of audit and tax return preparation fees at June 30, 1995. The
increase for the nine months ending September 30, 1996 was primarily due to an
underaccrual of tax return preparation fees at December 31, 1995 and an
increase in legal expenses in 1996.
General and administrative expenses-related parties increased
approximately $6,000 and $17,000 for three and nine months ending September 30,
1996, respectively, as compared to the same periods in 1995 primarily due to
higher expense reimbursements to the General Partners and their affiliates for
services performed for the Partnership.
At November 3, 1996, the occupancy at Pinehurst and Chateau Creste
was 95% and 97%, respectively.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by
reference to Note 5 to the financial statements filed herewith in
Item 1 of Part I of the Registrant's Quarterly Report.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT PREFERRED EQUITY L.P.
By: RELATED EQUITY FUNDING INC.
General Partner
Date: November 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
(Principal Financial Officer)
Date: November 13, 1996 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: November 13, 1996 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
RELATED BUC$ ASSOCIATES, INC.
Assignor Limited Partner
Date: November 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
-12-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 259,342
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,273,865
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,533,207
<CURRENT-LIABILITIES> 347,046
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,186,161
<TOTAL-LIABILITY-AND-EQUITY> 7,533,207
<SALES> 0
<TOTAL-REVENUES> 400,601
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 103,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 297,383
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,383
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
</TABLE>
