SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-16873
SUMMIT INSURED EQUITY L.P. II
(Exact name of registrant as specified in its charter)
Delaware 13-3464704
--------------------------------- ------------------------------------
(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
Item 1. Financial Statements
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS
March 31, December 31,
1996 1995
----------- -----------
Property and equipment, net of accumulated
depreciation of $2,274,926 and
$2,180,124, respectively (Note 2) $18,718,645 $18,742,999
Cash and cash equivalents 1,723,959 1,729,819
Accounts receivable-tenants, net of
allowance for doubtful accounts
of $55,000 and $10,000, respectively 160,496 173,846
Deferred insurance costs, net of accumulated
amortization of $810,230 and
$772,835, respectively 685,581 722,976
Deferred loan costs, net of accumulated
amortization of $33,885 and
$31,892, respectively 34,981 7,974
Deferred leasing commissions, net of
accumulated amortization of $53,245
and $46,703, respectively 76,654 80,360
Other assets 42,006 6,544
----------- -----------
Total Assets $21,442,322 $21,464,518
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable $ 1,387,291 $ 1,389,944
Accrued real estate taxes 182,097 142,806
Due to General Partners and affiliates (Note 3) 154,085 149,425
Accounts payable and other liabilities 158,190 131,085
----------- -----------
Total Liabilities 1,881,663 1,813,260
=========== ===========
Contingencies (Note 4)
Partners' Capital (Deficit):
Limited Partners (1,005,623 BUC$
issued and outstanding) 19,630,788 19,719,573
General Partners (70,129) (68,315)
----------- -----------
Total Partners' Capital 19,560,659 19,651,258
----------- -----------
Total Liabilities and Partners' Capital $21,442,322 $21,464,518
=========== ===========
See notes to financial statements
-2-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------
1996 1995
-------- --------
Revenues:
Rental income $462,507 $474,119
Recovery of common area maintenance charges 49,727 53,982
Real estate tax reimbursements 73,728 76,604
Interest income 6,727 6,931
Other 1,251 1,182
-------- --------
Total revenues 593,940 612,818
-------- --------
Expenses:
General and administrative 11,983 16,786
General and administrative-related parties (Note 3) 36,144 40,374
Operating 8,542 9,321
Repairs and maintenance 42,987 44,740
Real estate taxes 89,379 88,436
Insurance 11,821 11,784
Interest expense 29,489 30,590
Bad debt 47,958 24,083
Depreciation and amortization 141,573 137,513
-------- --------
Total expenses 419,876 403,627
-------- --------
Net income $174,064 $209,191
======== ========
Allocation of Net Income:
Limited Partners $143,615 $178,040
======== ========
General Partners $ 2,931 $ 3,633
======== ========
Special Distributions to General Partners $ 27,518 $ 27,518
======== ========
Net income per BUC $ .14 $ .17
======== ========
See notes to financial statements
-3-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited General
Total Partners Partners
------------ ------------ --------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1996 $ 19,651,258 $ 19,719,573 $(68,315)
Net income 174,064 143,615 30,449
Distributions (264,663) (232,400) (32,263)
------------ ------------ --------
Partners' capital (deficit) - March 31, 1996 $ 19,560,659 $ 19,630,788 $(70,129)
============ ============ ========
</TABLE>
See notes to financial statements
-4-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 174,064 $ 209,191
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 141,573 137,513
Increase in accounts receivable-tenants (31,650) (58,309)
Increase in allowance for doubtful accounts 45,000 24,000
Increase in other assets (35,462) (35,349)
Increase in due to General Partners and affiliates 4,660 28,422
Increase in accrued real estate taxes 39,291 37,140
Increase in accounts payable and other liabilities 27,105 47
---------- ----------
Total adjustments 190,517 133,464
---------- ----------
Net cash provided by operating activities 364,581 342,655
---------- ----------
Cash flows from investing activities:
Improvements of property and equipment (70,448) 0
Leasing commissions paid (3,677) 0
---------- ----------
Net cash used in investing activities (74,125) 0
---------- ----------
Cash flows from financing activities:
Increase in deferred loan costs (29,000) 0
Principal repayments of Note (2,653) (2,432)
Distributions paid (264,663) (264,764)
---------- ----------
Net cash used in financing activities (296,316) (267,196)
---------- ----------
Net (decrease) increase in cash and cash equivalents (5,860) 75,459
Cash and cash equivalents at beginning of period 1,729,819 1,457,027
---------- ----------
Cash and cash equivalents at end of period $1,723,959 $1,532,486
========== ==========
Supplemental information:
Interest paid $ 29,489 $ 30,590
========== ==========
</TABLE>
See notes to financial statements
-5-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - General
Summit Insured Equity L.P. II (the "Partnership") is a limited partnership
which was formed under the laws of the State of Delaware on July 17, 1987. The
general partners of the Partnership (the "General Partners") are RIDC II, LP., a
Delaware limited partnership (the "Related General Partner"), and
Prudential-Bache Properties, Inc., a Delaware corporation ("PBP"). The General
Partners manage and control the affairs of the Partnership.
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 31, 1996, the results of its operations
and its cash flows for the three months ended March 31, 1996 and 1995. However,
the operating results for the interim periods may not be indicative of the
results 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.
Certain balances for the prior period have been reclassified to conform with
the current financial statement information.
The Partnership adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets and to be Disposed Of" in 1995. Under SFAS No. 121, impairment of
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
properties' carrying value. If a property is determined to be impaired, it
should be recorded at the lower of its carrying value or its estimated fair
value. Adoption of this accounting pronouncement had no impact on the
Partnership's financial position or results of operations.
The determination of impairment value is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future periods. No write-downs for impairments have been recorded
as of March 31, 1996.
-6-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Property and Equipment
The components of property and equipment are as follows:
March 31, December 31,
1996 1995
----------- -----------
Land $ 6,902,652 $ 6,902,652
Buildings and improvements 15,248,830 15,178,382
----------- -----------
22,151,482 22,081,034
Less: Amounts accrued or received from sellers'
rental guarantees 1,157,911 1,157,911
Accumulated depreciation 2,274,926 2,180,124
----------- -----------
$18,718,645 $18,742,999
=========== ===========
Amounts estimated to be recoverable from future operations and
ultimate sales were greater than the carrying value of the real estate owned at
March 31, 1996 and December 31, 1995. However, the carrying value of certain of
its properties may be in excess of its appraised values as of such dates.
NOTE 3 - Related Party Transactions
The costs and expenses incurred to related parties for the three months ended
March 31, 1996 and 1995 were as follows:
Three Months Ended March 31,
----------------------------
1996 1995
------- -------
Expense reimbursement (a) $ 9,111 $13,120
Property management fees (b) 25,255 25,033
Leasing commissions (c) 348 796
Insurance services (d) 1,430 1,425
------- -------
$36,144 $40,374
======= =======
(a) 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.
(b) The Partnership's three properties are being managed by RCC Property
Advisors, Inc. ("RCC"), an affiliate of the Related General Partner.
(c) Leasing commissions are paid to RCC in connection with the lease-up of
vacant space and lease renewals.
(d) Four of the officers of the Related General Partner have ownership
interest in Multi-Family Program Inc., a company which has provided insurance
services for the properties.
-7-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 3 - Related Party Transactions (continued)
The distributions earned by the General Partners for the three months ended
March 31, 1996 and 1995 were as follows:
Three Months Ended March 31,
----------------------------
1996 1995
------- -------
Special Distributions $27,518 $27,518
Regular Distributions o
Cash from Operations 4,745 4,745
------- -------
$32,263 $32,263
======= =======
As of March 31, 1996, Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, owns 1,980 BUC$.
NOTE 4 - 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 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
proceeding 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 compliant 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.
-8-
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 5 - Subsequent Events
In May 1996, a distribution of $232,502 was paid to the BUC$holders and
$32,263 to the General Partners (in payment of their 2% interest and special
distributions) from cash from operations for the quarter ended March 31, 1996.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's primary source of funds continues to be the cash flow from
operations of three shopping centers.
During the three months ended March 31, 1996, cash and cash equivalents
decreased $5,860 primarily as a result of capital expenditures, debt payments,
an increase in deferred loan costs and distributions to partners, exceeding cash
flows from operations.
The Partnership had a loan with Principal Mutual Life Insurance Company
("Principal Mutual") which matured on December 1, 1995. The Partnership has
entered into a commitment to extend the loan with Principal Mutual and
anticipates closing in May 1996. The loan will have a five-year term in the
amount of $1,400,000 at 7.03% annualized fixed interest rate. Under the terms of
the commitment, interest will be payable in equal monthly installments of
$8,147, including principal and interest based on a fifteen-year amortization
schedule with the unpaid principal balance becoming fully due and payable at
maturity on May 15, 2001. Costs incurred in connection with this loan will be
amortized over the life of the loan. In the interim, Principal Mutual has agreed
that the Partnership will make the required payments pursuant to the terms of
the matured loan.
During May 1996, the Partnership paid a distribution, from adjusted cash from
operations of $232,502 to the BUC$holders of record for the quarter ended March
31, 1996. Also during May 1996, the General Partners received $32,263 in payment
of their regular and special distributions from cash from operations for the
quarter ended March 31, 1996.
The Partnership's investment in the shopping centers is subject to the risks
arising from ownership of commercial properties. The Partnership has invested in
shopping centers with substantial anchor tenants. Anchor tenants usually provide
stability to a shopping center and a steady source of rental payments. A
shopping center's revenues from all of its tenants can be adversely affected by
the loss of its anchor tenant. If the rental income from the shopping centers
decreases, it could adversely affect distributions to BUC$holders and could
affect the price the Partnership is able to receive upon sale of the properties.
Future liquidity is expected to result from cash generated from the
operations of the properties, interest earned on funds invested in short-term
money market instruments and ultimately through the sale or refinancing of the
properties. The Partnership anticipates that future tenant and capital
improvements will be funded from cash on hand and cash generated from
operations.
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. The Partnership's investments in
properties are diversified by location so that if one area of the country is
experiencing downturns in the economy, the remaining properties may be
experiencing upswings.
Results of Operations
The Partnership adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" in 1995. Under SFAS No. 121, impairment of properties
to be held and used is determined to exist when estimated amounts recoverable
through future operations on an undiscounted basis are below the properties'
carrying value. If a property is determined to be impaired, it should be
recorded at the lower of its carrying value or its estimated fair value.
Adoption of this accounting pronouncement had no impact on the Partnership's
financial position or results of operations.
The determination of impairment value is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
-10-
<PAGE>
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future years. No write-downs for impairments have been recorded
as of March 31, 1996.
Net income decreased by approximately $35,000 for the month ended March 31,
1996 as compared to the corresponding period in 1995 for the reasons described
below.
Revenues for the three months ended March 31, 1996 consisted primarily of the
results of the Partnership's investment in the three shopping centers. Rental
income decreased approximately 2.5% or $12,000 for the three months ended March
31, 1996 as compared to 1995 primarily due to a decrease in occupancy at
Applewood Centre from 97% as of December 31, 1995 to 94% as of March 31, 1996.
Rolling Hills Square and Mountain Park Plaza, with occupancy rates of 89% and
97% at March 31, 1996, respectively, had increases in rental income due to a
decrease in rental concessions in 1996.
Total expenses excluding general and administrative, general and
administrative-related parties and bad debts remained fairly constant with less
than a 1% increase for the three months ended March 31, 1996 as compared to
1995.
General and administrative expenses decreased approximately $5,000 for the
three months ended March 31, 1996 as compared to 1995 primarily due to the
timing of certain expenses recorded in 1995.
General and administrative-related parties expenses decreased approximately
$4,000 for the three months ended March 31, 1996 as compared to 1995, due to a
decrease in expense reimbursements to the General Partners and their affiliates.
Bad debt expense increased approximately $24,000 for the three months ended
March 31, 1996 as compared to 1995 primarily due to an increase in reserves at
Mountain Park Plaza and Applewood Centre during the three months ended March 31,
1996.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- This information is incorporated by
reference to Note 4 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 -- No reports on Form 8-K were
filed during the quarter.
(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.
-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 INSURED EQUITY L.P. II
By: RIDC II, L.P.
General Partner
By: RELATED INSURED EQUITY ASSOCIATES II, INC.
General Partner
Date: May 14, 1996 By: /s/Alan P. Hirmes
-----------------
Alan P. Hirmes
Vice President
Date: May 14, 1996 By: /s/Lawrence J. Lipton
---------------------
Lawrence J. Lipton
Treasurer (Principal Financial and
Accounting Officer)
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: May 14, 1996 By: /s/Eugene D. Burak
------------------
Eugene D. Burak
Vice President
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Summit Insured Equity L.P. II and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000820590
<NAME> Summit Insured Equity L.P. II.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,723,959
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 999,718
<PP&E> 20,993,571
<DEPRECIATION> 2,274,926
<TOTAL-ASSETS> 21,442,322
<CURRENT-LIABILITIES> 494,372
<BONDS> 1,387,291
0
0
<COMMON> 0
<OTHER-SE> 19,560,659
<TOTAL-LIABILITY-AND-EQUITY> 21,442,322
<SALES> 0
<TOTAL-REVENUES> 593,940
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 390,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,489
<INCOME-PRETAX> 174,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,064
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
