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, 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)
=========== ===========
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Cash and cash equivalents $ 298,759 $ 266,427
Investments in Operating Partnerships (Note 2) 7,221,767 7,241,379
Other assets 9,951 9,951
----------- -----------
Total Assets $ 7,530,477 $ 7,517,757
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 29,308 $ 27,826
Due to General Partners and affiliates (Note 4) 336,391 316,591
----------- -----------
Total Liabilities 365,699 344,417
----------- -----------
Contingencies (Note 5)
Partners' Capital (Deficit):
Limited Partners (657,389 BUC$ issued
and outstanding) 7,253,711 7,262,101
General Partners (88,933) (88,761)
----------- -----------
Total Partners' Capital 7,164,778 7,173,340
----------- -----------
Total Liabilities and Partners' Capital $ 7,530,477 $ 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
March 31,
-------------------
1997 1996
-------------------
Revenues:
Income from equity investments $173,547 $138,181
Interest income 1,588 1,746
-------- --------
Total revenues 175,135 139,927
-------- --------
Expenses:
General and administrative 11,480 14,765
General and administrative-related parties (Note 4) 12,480 15,500
-------- --------
Total expenses 23,960 30,265
-------- --------
Net Income $151,175 $109,662
======== ========
Allocation of Net Income:
Limited Partners $142,088 $101,406
======== ========
General Partners $ 2,900 $ 2,069
======== ========
Special Distributions to General Partners $ 6,187 $ 6,187
======== ========
Net Income per BUC $ .22 $ .15
======== ========
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 151,175 142,088 9,087
Distributions (159,737) (150,478) (9,259)
----------- ----------- -----------
Partners' capital (deficit) -
March 31, 1997 $ 7,164,778 $ 7,253,711 $ (88,933)
=========== =========== ===========
See Notes to Financial Statements
4
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Statements of Cash Flows
(Unaudited)
=======================
Three Months Ended
March 31,
-----------------------
1997 1996
-----------------------
Cash flows from operating activities:
Net income $ 151,175 $ 109,662
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accounts payable and
other liabilities 1,482 2,310
Distributions from investments in operating
partnerships in excess of net income 19,612 54,728
Increase in due to General Partners and
affiliates 13,613 15,536
--------- ---------
Net cash provided by operating activities 185,882 182,236
--------- ---------
Cash flows used in financing activities:
Distributions paid to partners (153,550) (153,550)
--------- ---------
Net increase in cash and cash equivalents 32,332 28,686
Cash and cash equivalents - beginning of period 266,427 273,113
--------- ---------
Cash and cash equivalents - end of period $ 298,759 $ 301,799
========= =========
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)
========= =========
See Notes to Financial Statements
5
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 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 March 31, 1997 and the results of its
operations and its cash flows for the three months ended March 31, 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
$1,342,409 and $1,304,103 at March 31, 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.
6
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(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, 1997 $ 4,084,228
Distributions (93,300)
Net Income 80,243
-----------
Investment in Pinehurst, March 31, 1997 $ 4,071,171
===========
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 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 (99,859)
Net Income 93,304
-----------
Investment in Dominion, March 31, 1997 $ 3,150,596
===========
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, 1997.
Note 3 - Supplementary Operating Partnership Financial Information
The following summarized financial information is for Pinehurst:
Three Months Ended March 31,
---------------------------------
OPERATIONS 1997 1996
- - ---------- ----------- -----------
Revenues $ 244,333 $ 211,923
Operating Expenses (122,775) (120,639)
Depreciation (41,307) (41,307)
----------- -----------
Net Income $ 80,251 $ 49,977
=========== ===========
March 31, December 31,
FINANCIAL POSITION 1997 1996
- - ------------------ ----------- -----------
Total Assets $ 4,405,967 $ 4,389,980
=========== ===========
Total Liabilities $ 334,312 $ 305,276
=========== ===========
7
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 3 - Supplementary Operating Partnership Financial Information
(continued)
The following summarized financial information is for Dominion:
Three Months Ended March 31,
---------------------------------
OPERATIONS 1997 1996
- - ---------- ----------- -----------
Revenues $ 183,761 $ 184,775
Operating Expenses (60,259) (68,851)
Depreciation (30,198) (27,715)
----------- -----------
Net Income $ 93,304 $ 88,209
=========== ===========
March 31, December 31,
FINANCIAL POSITION 1997 1996
- - ------------------ ----------- -----------
Total Assets $ 3,219,069 $ 3,245,457
=========== ===========
Total Liabilities $ 68,472 $ 88,306
=========== ===========
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 March 31, 1997 and
1996 were $12,480, and $15,500, respectively.
The distributions earned by the General Partners for the three months ended
March 31, 1997 and 1996 were as follows:
Three Months Ended
March 31,
-----------------------
1997 1996
------ ------
Special Distributions $6,187 $6,187
Regular Distributions of
Cash from Operations 3,072 3,072
------ ------
Total $9,259 $9,259
====== ======
Special Distributions earned by the General Partners have been accrued but
unpaid since the first quarter of 1992. Such amounts totaled $129,927 and
$123,740 at March 31, 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 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 $11,896, and $10,788 for the three months ended
March 31, 1997 and 1996, respectively.
8
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 4 - Related Party Transactions (continued)
As of March 31, 1997, Prudential Securities Incorporated ("PSI"), an affiliate
of PBP, owns 13,750 BUC$.
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.
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 (the "Court") and consolidated for
pretrial proceedings under the caption In re Prudential Securities Incorporated
Limited Partnerships Litigation (MDL Docket 1005) (the "Class Action"). 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.
On December 31, 1996, the Court issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the Class
Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
three other partnerships co-sponsored by affiliates of the Related General
Partner and PBP.
The proposed Related Settlement and Reorganization are subject to objections by
the BUC$holders and limited partners of the Partnership as well as each of the
other concerned partnerships and final approval of the Court after review of the
proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the Partnership and
Summit Insured Equity L.P., Summit Insured Equity L.P. II and Eagle Insured L.P.
will receive shares in a newly formed real estate investment trust. It is
anticipated that the shares will be allocated proportionately among the
partnerships and their respective investors based upon appraisals and other
factors as supported by a third-party fairness opinion. Detailed information
about
9
<PAGE>
SUMMIT PREFERRED EQUITY L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 5 - Contingencies (continued)
the proposed Related Settlement and Reorganization will be sent to BUC$holders
in the near future. The terms of the Reorganization include, among other
matters, the acquisition by affiliates of the Related Capital Company ("RCC") of
PBP's general partner interest (the "PBP Interest"), transfer to the BUC$holders
of one-half of the PBP Interest, reduction of the sum of the aggregate annual
fees currently payable to both General Partners by 25%, filing an application to
list the new company's shares on an exchange and the creation of an infinite, as
opposed to finite, life-operating business.
In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Partnership by the Court.
Pending final approval of the Related Settlement, the Court's Order prohibits
class members (including the BUC$holders) from, among other matters, (i)
transferring their BUC$ unless the transferee agrees to be bound by the Related
Settlement; (ii) granting a proxy to object to the Reorganization; or (iii)
commencing a tender offer for the BUC$. In addition, the General Partners are
enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of the proposed
Related Settlement and Reorganization will be satisfied nor as to the time frame
in which a closing may occur. In the event a settlement cannot 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 May 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 March
31, 1997.
10
<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, 1997, cash and cash equivalents of the
Partnership increased $32,332 due to cash flow from operations of $185,882 which
exceeded distributions paid to partners of $153,550.
Preferred distributions from the Partnership's investment in the Pinehurst
Operating Partnership, paid from cash flow from operations, totaled $93,300 for
the three months ended March 31, 1997. As of March 31, 1997, the cumulative,
unrecorded and undistributed preferred distributions totaled $1,342,409, of
which $38,306 arose during the three months ended March 31, 1997.
During the first three months of 1997, 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, 1997, the Partnership has received all of the preferred equity returns
due from Dominion.
In May 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 March 31, 1997. 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.
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 months ended March 31, 1997 consisted
primarily of net income from the Preferred Equity Investments in Pinehurst and
Dominion.
Income from equity investments increased approximately $35,000 for the three
months ending March 31, 1997 as compared to the same period in 1996 primarily
due to rental rate increases and a decrease in rent concessions and bad debts at
Pinehurst in the first quarter of 1997.
General and administrative expenses decreased approximately $3,000 for the three
months ended March 31, 1997 as compared to the same period in 1996 primarily due
to an under-accrual of tax return preparation fees at December 31, 1995 which
was corrected in the first quarter of 1996.
General and administrative expenses-related parties decreased approximately
$3,000 for the three months ending March 31, 1997 as compared to the same period
in 1996 primarily due to lower expense reimbursements to the General Partners
and their affiliates for services performed for the Partnership.
At April 20, 1997, the occupancy at Pinehurst and Dominion was 95% and 99%,
respectively.
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
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K:
Current Report on Form 8-K dated December 31, 1996 was filed on January 10,
1997 relating to a preliminary approval order with respect to the settlement of
class action litigation.
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 PREFERRED EQUITY L.P.
By: RELATED EQUITY FUNDING INC.
General Partner
Date: May 14, 1997 By: /s/ Alan P. Hirmes
------------------------------
Alan P. Hirmes
Vice President
(Principal Financial Officer)
Date: May 14, 1997 By: /s/ Richard A. Palermo
------------------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: May 14, 1997 By: /s/ Eugene D. Burak
------------------------------
Eugene D. Burak
Vice President
RELATED BUC$ ASSOCIATES, INC.
Assignor Limited Partner
Date: May 14, 1997 By: /s/ Alan P. Hirmes
------------------------------
Alan P. Hirmes
Vice President
14
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 298,759
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,951
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,530,477
<CURRENT-LIABILITIES> 365,699
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,164,778
<TOTAL-LIABILITY-AND-EQUITY> 7,530,477
<SALES> 0
<TOTAL-REVENUES> 175,135
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 151,175
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,175
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
