UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
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 names 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)
=========== ===========
June 30, December 31,
1997 1996
----------- -----------
ASSETS
Cash and cash equivalents $ 302,500 $ 266,427
Investments in Operating Partnerships (Note 2) 7,182,148 7,241,379
Other assets 9,951 9,951
----------- -----------
Total Assets $ 7,494,599 $ 7,517,757
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 14,834 $ 27,826
Due to General Partners and affiliates 350,400 316,591
----------- -----------
Total Liabilities 365,234 344,417
----------- -----------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued
and outstanding) 7,219,007 7,262,101
General Partners (89,642) (88,761)
----------- -----------
Total Partners' Capital 7,129,365 7,173,340
----------- -----------
Total Liabilities and Partners' Capital $ 7,494,599 $ 7,517,757
=========== ===========
See Notes to Financial Statements
2
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Statements of Income
(Unaudited)
================== ===================
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
------------------- -------------------
Revenues:
Income from equity investments $153,541 $130,604 $327,088 $268,785
Interest income 1,661 1,748 3,249 3,494
-------- -------- -------- --------
Total revenues 155,202 132,352 330,337 272,279
======== ======== ======== ========
Expenses:
General and administrative 10,835 13,667 22,315 28,432
General and administrative-
related parties (Note 4) 20,042 25,266 32,522 40,766
-------- -------- -------- --------
Total expenses 30,877 38,933 54,837 69,198
-------- -------- -------- --------
Net Income $124,325 $ 93,419 $275,500 $203,081
======== ======== ======== ========
Allocation of Net Income:
Limited Partners $115,775 $ 85,487 $257,863 $186,893
======== ======== ======== ========
General Partners $ 2,363 $ 1,745 $ 5,263 $ 3,814
======== ======== ======== ========
Special Distributions to
General Partners $ 6,187 $ 6,187 $ 12,374 $ 12,374
======== ======== ======== ========
Net Income per BUC $ .18 $ .13 $ .39 $ .28
======== ======== ======== ========
See Notes to Financial Statements
3
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Statement of Changes in Partners' Capital (Deficit)
(Unaudited)
=========================================
Limited General
Total Partners Partners
-----------------------------------------
Partners' capital (deficit) -
January 1, 1997 $ 7,173,340 $ 7,262,101 $ (88,761)
Net income 275,500 257,863 17,637
Distributions (319,475) (300,957) (18,518)
----------- ----------- -----------
Partners' capital (deficit) -
June 30, 1997 $ 7,129,365 $ 7,219,007 $ (89,642)
=========== =========== ===========
See Notes to Financial Statements
4
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Statements of Cash Flows
(Unaudited)
======================
Six Months Ended
June 30,
1997 1996
----------------------
Cash flows from operating activities:
Net income $ 275,500 $ 203,081
Adjustments to reconcile net income to net
cash provided by operating activities:
(Decrease) increase in accounts payable and
other liabilities (12,992) 2,077
Distributions from investments in operating
partnerships in excess of net income 59,231 117,284
Increase (decrease) in due to General Partners
and affiliates 21,435 (39,587)
--------- ---------
Net cash provided by operating activities 343,174 282,855
--------- ---------
Cash flows used in financing activities:
Distributions paid to partners (307,101) (307,101)
--------- ---------
Net increase (decrease) in cash and cash equivalents 36,073 (24,246)
Cash and cash equivalents - beginning of period 266,427 273,113
--------- ---------
Cash and cash equivalents - end of period $ 302,500 $ 248,867
========= =========
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)
========= =========
See Notes to Financial Statements
5
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1997
(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 (the "Special General Partner" and an affiliate of the
Related General Partner) 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, 1997, the results of its operations
for the three and six months ended June 30, 1997 and 1996 and its cash flows for
the six months ended June 30, 1997 and 1996. 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/A-1 for the year ended December
31, 1996.
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
$1,380,714 and $1,304,103 at June 30, 1997 and December 31, 1996, 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. The
Special General Partner is the general partner of Pinehurst.
The carrying value of the Partnership's investment in Pinehurst is summarized
below:
Investment in Pinehurst, January 1, 1997 $ 4,084,228
Distributions (186,600)
Net Income 146,558
-----------
Investment in Pinehurst, June 30, 1997 $ 4,044,186
===========
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
6
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Investments in Operating Partnerhips (continued)
of June 30, 1997, 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, 1997 $ 3,157,151
Distributions (199,719)
Net Income 180,530
-----------
Investment in Dominion, June 30, 1997 $ 3,137,962
===========
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, 1997.
Note 3 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst:
Six Months Ended June 30,
--------------------------
OPERATIONS 1997 1996
----------- -----------
Revenues $ 481,504 $ 431,904
Operating Expenses (252,317) (236,526)
Depreciation (82,614) (82,614)
----------- -----------
Net Income $ 146,573 $ 112,764
=========== ===========
June 30, December 31,
FINANCIAL POSITION 1997 1996
----------- -----------
Total Assets $ 4,418,694 $ 4,389,980
=========== ===========
Total Liabilities $ 374,017 $ 305,276
=========== ===========
The following summarized financial information is for Dominion:
Six Months Ended June 30,
--------------------------
OPERATIONS 1997 1996
----------- -----------
Revenues $ 371,378 $ 363,070
Operating Expenses (130,452) (151,608)
Depreciation (60,396) (55,430)
----------- -----------
Net Income $ 180,530 $ 156,032
=========== ===========
June 30, December 31,
FINANCIAL POSITION 1997 1996
----------- -----------
Total Assets $ 3,179,275 $ 3,245,457
=========== ===========
Total Liabilities $ 41,313 $ 88,306
=========== ===========
7
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1997
(Unaudited)
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, 1997 and
1996 were $20,042 and $25,266, respectively, and for the six months ended June
30, 1997 and 1996 were $32,522 and $40,766, respectively.
The distributions earned by the General Partners for the three and six months
ended June 30, 1997 and 1996 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
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 $136,114 and
$123,740 at June 30, 1997 and December 31, 1996, respectively, and are included
in Due to General Partners and affiliates in the Statements of Financial
Condition.
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. Management fees equal to 5% of gross
revenue are paid monthly and amounted to $11,741 and $10,827 and $23,637 and
$21,615 for the three and six months ended June 30, 1997 and 1996, respectively.
As of June 30, 1997, Prudential Securities Incorporated ("PSI"), an affiliate of
PBP, owns 13,750 BUC$.
Note 5 - Contingencies
Previous quarterly and annual reports by the Partnership have disclosed the
commencement and status of the putative class action captioned Kinnes et al. v.
Prudential Securities Group, Inc. et al. , (CV-93-654) (D.Az.). This putative
class action was transferred, along with certain other cases, by the Judicial
Panel on Multidistrict Litigation to a single judge of the United States
District Court for the Southern District of New York (the "Court") for
consolidated and coordinated pre-trial proceedings under the caption In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
1005 (the "Class Action"). As previously disclosed in the last quarterly report,
the Related General Partner and certain of its affiliates entered, in December
1996, into a stipulation of settlement with counsel for plaintiffs to settle the
Class Action against the Related General Partner and certain of its affiliates
(the "Related Settlement").
8
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 5 - Contingencies (continued)
On June 11, 1997, the Court issued orders that, inter alia, approved the
solicitation statement describing in detail the transactions contemplated
pursuant to the proposed Related Settlement, directed that it be mailed along
with the class notice to the members of the class and rescheduled the settlement
fairness hearing to consider the final approval of the Related Settlement for
August 28, 1997. In accordance with the Court's orders, the solicitation
statement and class notice were mailed to BUC$holders of the Partnership.
There can be no assurance that the conditions to the closing of the proposed
Related Settlement and the reorganization of the Partnership (as disclosed in
previous quarterly and annual reports and in the solicitation statement and
class notice) will be satisfied nor as to the time frame as to which the closing
may occur. In the event that the Related Settlement is not consummated, the
Related General Partner believes it has meritorious defenses to the Class Action
and intends to defend this action vigorously .
Note 6 - Subsequent Event
In August 1997, 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, 1997.
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, 1997, cash and cash equivalents of the
Partnership increased $36,073 due to cash flow from operations of $343,174 which
exceeded distributions paid to partners of $307,101.
Preferred distributions from the Partnership's investment in the Pinehurst
Operating Partnership, paid from cash flow from operations, totaled $186,600 for
the six months ended June 30, 1997. As of June 30, 1997, the cumulative,
unrecorded and undistributed preferred distributions totaled $1,380,714, of
which $76,611 arose during the six months ended June 30, 1997.
During the first six months of 1997, 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, 1997, the Partnership has received all of the preferred equity
returns due from Dominion.
In August 1997, 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, 1997. The Special Distribution of
$6,187 due to the General Partners was accrued but not paid. Accrued and unpaid
Special Distributions totaled $136,114 and $123,740 at June 30, 1997 and
December 31, 1996, respectively.
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.
For a discussion of the proposed settlement of the Class Action relating to the
Partnership, see Note 5 to the financial statements.
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, 1997 consisted
primarily of net income from the Preferred Equity Investments in Pinehurst and
Dominion.
Income from equity investments increased approximately $23,000 and $58,000 for
the three and six months ending June 30, 1997, respectively, as compared to 1996
primarily due to rental rate increases, an increase in occupancy and a decrease
in rent concessions and bad debts at Pinehurst.
General and administrative expenses decreased approximately $3,000 and $6,000
for the three and six months ended June 30, 1997, respectively, as compared to
1996 primarily due to a decrease in legal expenses in 1997 and an under-accrual
of tax return preparation fees at December 31, 1995 which was adjusted in the
first quarter of 1996.
General and administrative expenses-related parties decreased approximately
$5,000 and $8,000 for the three and six months ending June 30, 1997,
respectively, as compared to 1996 primarily due to lower expense reimbursements
to the General Partners and their affiliates for services performed for the
Partnership.
At July 13, 1997, the occupancy at Pinehurst and Dominion was 95% and 98%,
respectively.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to Note 5 to the financial
statements filed herewith in Item 1 of Part I of the Registrant's Quarterly
Report.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of Prudential-Bache Properties,
Inc., effective May 2, 1997. Effective May 2, 1997, Brian J. Martin was elected
President, Chief Executive Officer, Chairman of the Board of Directors and
Director of Prudential-Bache Properties, Inc.
Solicitation information was mailed to BUC$holders in connection with the
proposed Related Settlement (see Note 5 to the financial statements filed
herewith in Item 1 of Part I of the Registrant's Quarterly Report).
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 on 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, 1997 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
(Principal Financial Officer)
Date: August 13, 1997 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: August 13, 1997 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
RELATED BUC$ ASSOCIATES, INC.
Assignor Limited Partner
Date: August 13, 1997 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 302,500
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,951
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,494,599
<CURRENT-LIABILITIES> 365,234
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,129,365
<TOTAL-LIABILITY-AND-EQUITY> 7,494,599
<SALES> 0
<TOTAL-REVENUES> 330,337
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 54,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 275,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275,500
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
