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 0-16873
SUMMIT INSURED EQUITY L.P. II
-----------------------------
(Exact names of registrant as specified in its charter)
Delaware 13-3464704
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
=========== ===========
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Property and equipment, net of accumulated
depreciation of $2,665,984 and $2,564,790,
respectively (Note 2) $18,715,685 $18,530,554
Cash and cash equivalents 1,259,837 1,517,177
Accounts receivable-tenants, net of allowance for
doubtful accounts of $25,000 and $8,000,
respectively 217,959 199,988
Deferred insurance costs, net of accumulated
amortization of $959,812 and $922,416,
respectively 535,999 573,395
Deferred loan costs, net of accumulated amortization
of $4,555 and $42,713, respectively 29,604 31,312
Deferred leasing commissions, net of accumulated
amortization of $77,782 and $68,525, respectively 183,427 178,766
Other assets 39,765 49,067
----------- -----------
Total Assets $20,982,276 $21,080,259
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable $ 1,357,507 $ 1,373,675
Accrued real estate taxes 187,204 143,186
Due to General Partners and affiliates (Note 3) 199,468 154,701
Accounts payable and other liabilities 173,426 166,258
----------- -----------
Total Liabilities 1,917,605 1,837,820
----------- -----------
Contingencies (Note 4)
Partners' Capital (Deficit):
Limited Partners (1,005,623 BUC$
issued and outstanding) 19,144,720 19,318,933
General Partners (80,049) (76,494)
----------- -----------
Total Partners' Capital 19,064,671 19,242,439
----------- -----------
Total Liabilities And Partners' Capital $20,982,276 $21,080,259
=========== ===========
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,
---------------------
1997 1996
---------------------
Revenues:
Rental income $458,573 $462,507
Recovery of common area maintenance charges 60,864 49,727
Real estate tax reimbursements 69,644 73,728
Interest income 7,890 6,727
Other income 785 1,251
-------- --------
Total revenues 597,756 593,940
-------- --------
Expenses:
General and administrative 31,867 11,983
General and administrative-related parties (Note 3) 46,656 36,144
Operating 12,380 8,542
Repairs and maintenance 125,500 42,987
Real estate taxes 92,622 89,379
Insurance 10,711 11,821
Interest 23,953 29,489
Bad debt 17,516 47,958
Depreciation and amortization 149,555 141,573
-------- --------
Total expenses 510,760 419,876
-------- --------
Net Income $ 86,996 $174,064
======== ========
Allocation of Net
Income:
Limited Partners $ 58,288 $143,615
======== ========
General Partners $ 1,190 $ 2,931
======== ========
Special distributions to
General Partners $ 27,518 $ 27,518
======== ========
Net Income per BUC $ .06 $ .14
======== ========
See notes to financial statements
3
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statements of Changes in Partners' Capital (Deficit)
(Unaudited)
=============================================
Limited General
Total Partners Partners
---------------------------------------------
Partners' capital (deficit) -
January 1, 1997 $19,242,439 $19,318,933 $ (76,494)
Net income 86,996 58,288 28,708
Distributions (264,764) (232,501) (32,263)
----------- ----------- ----------
Partners' capital (deficit) -
March 31, 1997 $19,064,671 $19,144,720 $ (80,049)
=========== =========== ==========
See notes to financial statements
4
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statements of Cash Flows
(Unaudited)
=======================
Three Months Ended
March 31,
-----------------------
1997 1996
-----------------------
Cash flows from operating activities:
Net income $ 86,996 $ 174,064
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 149,555 141,573
Increase in accounts receivable-tenants (34,971) (31,650)
Increase in allowance for doubtful accounts 17,000 45,000
Decrease (increase) in other assets 9,302 (35,462)
Increase in due to General Partners and affiliates 44,767 4,660
Increase in accrued real estate taxes 44,018 39,291
Increase in accounts payable and other
liabilities 7,168 27,105
---------- ----------
Total adjustments 236,839 190,517
---------- ----------
Net cash provided by operating activities 323,835 364,581
---------- ----------
Cash flows from investing activities:
Improvements to property and equipment (286,325) (70,448)
Leasing commissions paid (13,918) (3,677)
---------- ----------
Net cash used in investing activities (300,243) (74,125)
---------- ----------
Cash flows from financing activities:
Increase in deferred loan costs 0 (29,000)
Principal repayments on note payable (16,168) (2,653)
Distributions paid (264,764) (264,663)
---------- ----------
Net cash used in financing activities (280,932) (296,316)
---------- ----------
Net decrease in cash and cash equivalents (257,340) (5,860)
Cash and cash equivalents at beginning of period 1,517,177 1,729,819
---------- ----------
Cash and cash equivalents at end of period $1,259,837 $1,723,959
========== ==========
Supplemental information:
Interest paid $ 24,048 $ 29,489
========== ==========
See notes to financial statements
5
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(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, 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
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,
1996.
The Partnership reviews each of its property investments for possible impairment
at least annually, and more frequently if circumstances warrant. If this review
indicates that the carrying amount of the property may not be recoverable, the
Partnership estimates the future cash flows expected to result from the
operations of the property and its eventual sale. If the sum of these expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the property, it is written down to its estimated fair value.
The expected future cash flows used in this process rely upon estimates and
assumptions, including expense growth, occupancy, rental rates, and market
capitalization rates. The General Partners believe that the estimates and
assumptions used are appropriate. However, changes in market conditions and
circumstances may occur which would cause these estimates and assumptions to
change, resulting in revised cash flow projections. This, in turn, could lead to
future write-downs, which could be material. No write-downs for impairment have
been recorded as of March 31, 1997.
6
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 2 - Property and Equipment
The components of property and equipment are as follows:
March 31, December 31,
1997 1996
----------- -----------
Land $ 6,445,794 $ 6,445,794
Buildings and improvements 14,935,875 14,649,550
----------- -----------
21,381,669 21,095,344
Less: Accumulated depreciation (2,665,984) (2,564,790)
----------- -----------
$18,715,685 $18,530,554
=========== ===========
Amounts estimated to be recoverable from future operations and ultimate sales
were greater than the carrying value of each property owned at March 31, 1997
and December 31, 1996. However, the carrying value of certain properties may be
in excess of their 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, 1997 and 1996 were as follows:
Three Months Ended
March 31,
---------------------
1997 1996
---------------------
Expense reimbursement (a) $ 18,141 $ 9,111
Property management fees (b) 25,709 25,255
Leasing costs (c) 592 348
Insurance services (d) 2,214 1,430
------- -------
$46,656 $36,144
======= =======
(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. (the "Property Manager"), an affiliate of the Related General
Partner.
(c) Leasing costs, representing travel and other reimbursable expenses incurred
are paid to the Property Manager in connection with the lease-up of vacant space
and lease renewals. In addition, capitalized leasing commissions paid to the
Property Manager for the three months ended March 31, 1997 and the year ended
December 31, 1996 were $7,000 and $141,000 respectively.
7
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 3 - Related Party Transactions (continued)
(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.
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 $ 27,518 $ 27,518
Regular Distributions of Adjusted Cash from Operations 4,745 4,745
-------- --------
$ 32,263 $ 32,263
======== ========
As of March 31, 1997, 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.
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.
8
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 4 - Contingencies (continued)
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$holders of the Partnership and
Summit Insured Equity L.P., Summit Preferred Equity L.P. and Eagle Insured L.P.
will receive shares in a newly formed real estate investment trust. It is
anticipated that the shares will be allocated proportionately among the
partnerships and their respective investors based upon appraisals and other
factors as supported by a third party fairness opinion. Detailed information
about the proposed Related Settlement and Reorganization will be sent to
BUC$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.
9
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 5 - Subsequent Event
In May 1997, 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 flow 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 continues to be the cash flow from
operations of three shopping centers.
During the three months ended March 31, 1997, cash and cash equivalents
decreased approximately $257,000 primarily due to capital expenditures
($286,000), leasing commissions ($14,000), principal repayments on notes payable
($16,000), and distributions to partners ($265,000), which exceeded cash flows
from operations ($324,000). Included in the adjustments to reconcile the net
income to cash flows from operations is depreciation and amortization in the
amount of approximately $150,000.
During May 1997, the Partnership paid a distribution from adjusted cash flow
from operations of $232,502 to the BUC$holders of record for the quarter ended
March 31, 1997. Also during May 1997, the General Partners received $32,263 in
payment of their regular and special distributions from cash flow from
operations for the quarter ended March 31, 1997.
In July 1994, A&P closed its store in the Mountain Park Plaza Shopping Center
due to reduced sales and increased competition. The Partnership continues to
receive rental revenue from the vacated tenant pursuant to the terms of the
lease and both the tenant and the Partnership are actively pursuing potential
sub-tenants or replacement tenants. As of May 7, 1997, this space has not been
re-leased.
The Partnership's investment in the shopping centers is subject to the risks
arising from ownership of commercial properties. The Partnership has invested in
shopping centers with substantial anchor tenants. Anchor tenants usually provide
stability to a shopping center and a steady source of rental payments. A
shopping center's revenues from all of its tenants can be adversely affected by
the loss of its anchor tenant. If the rental income from the shopping centers
decreases, it could adversely affect distributions to BUC$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 cash generated from operations will be
sufficient to fund in future years the Partnership's operating expenditures,
debt service, future tenant and capital improvements and distributions.
For a discussion of the proposed settlement of the Class Action relating to the
Partnership, see Note 4 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. 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.
However, the geographic diversification of the portfolio may not protect against
a general downturn in the national economy.
Results of Operations
Net income decreased by approximately $87,000 for the three months ended March
31, 1997 as compared to the corresponding period in 1996 for the reasons
described below.
11
<PAGE>
Revenues for the three months ended March 31, 1997 consisted primarily of the
results of the Partnership's investment in the three shopping centers. Rental
income decreased approximately 1% or $4,000 for the three months ended March 31,
1997 as compared to the corresponding period in 1996 primarily due to decreases
in occupancy at Applewood Centre and Mountain Park Plaza.
Recovery of common area maintenance charges increased approximately $11,000 for
the three months ended March 31, 1997 as compared to the corresponding period in
1996 primarily due to underaccrual of such charges in 1996.
General and administrative expenses increased approximately $20,000 for the
three months ended March 31, 1997 as compared to the corresponding period in
1996 primarily due to an increase in legal expenses.
General and administrative-related parties expenses increased approximately
$11,000 for the three months ended March 31, 1997 as compared to the
corresponding period in 1996 primarily due to an underaccrual of expense
reimbursements to the General Partners and their affiliates in 1996.
Operating expenses increased approximately $4,000 for the three months ended
March 31, 1997 as compared to the corresponding period in 1996 primarily due to
an increase in utilities at Rolling Hills Square and Mountain Park.
Repairs and maintenance increased approximately $83,000 for the three months
ended March 31, 1997 as compared to the corresponding period in 1996 primarily
due to parking lot repairs at Rolling Hills Square, a portion of which is
expected to be recovered through common area maintenance charges in subsequent
quarters.
Interest expense decreased approximately $6,000 for the three months ended March
31, 1997 as compared to the corresponding period in 1996 primarily due to an
interest rate reduction which resulted from the refinancing of a loan in July
1996.
Bad debt expense decreased approximately $30,000 for the three months ended
March 31, 1997 as compared to the corresponding period in 1996 primarily due to
a decrease in reserves at Applewood Centre and Mountain Park Plaza.
12
<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
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) Report 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 current class action litigation.
13
<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, 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)
By: PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
Date: May 14, 1997 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
15
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,259,837
<SECURITIES> 0
<RECEIVABLES> 242,959
<ALLOWANCES> 25,000
<INVENTORY> 0
<CURRENT-ASSETS> 39,765
<PP&E> 21,381,669
<DEPRECIATION> 2,665,984
<TOTAL-ASSETS> 20,982,276
<CURRENT-LIABILITIES> 560,098
<BONDS> 1,357,507
0
0
<COMMON> 0
<OTHER-SE> 19,064,671
<TOTAL-LIABILITY-AND-EQUITY> 20,982,276
<SALES> 0
<TOTAL-REVENUES> 597,756
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 486,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,953
<INCOME-PRETAX> 86,996
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,996
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
