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 0-16873
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>
Item 1. Financial Statements
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
============ =============
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Property and equipment, net of accumulated
depreciation of $2,777,415 and $2,564,790,
respectively (Note 2) $ 18,610,954 $ 18,530,554
Cash and cash equivalents 1,051,810 1,517,177
Accounts receivable-tenants, net of allowance for
doubtful accounts of $114,000 and $8,000,
respectively 202,216 199,988
Deferred insurance costs, net of accumulated
amortization of $997,207 and $922,416,
respectively 498,604 573,395
Deferred loan costs, net of accumulated amortization
of $6,263 and $42,713, respectively 27,896 31,312
Deferred leasing commissions, net of accumulated
amortization of $89,453 and $68,525, respectively 201,283 178,766
Other assets 29,104 49,067
------------ ------------
Total Assets $ 20,621,867 $ 21,080,259
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable $ 1,341,052 $ 1,373,675
Accrued real estate taxes 183,063 143,186
Due to General Partners and affiliates 191,115 154,701
Accounts payable and other liabilities 169,270 166,258
------------ ------------
Total Liabilities 1,884,500 1,837,820
------------ ------------
Contingencies (Note 4)
Partners' Capital (Deficit):
Limited Partners (1,005,623 BUC$
issued and outstanding) 18,823,963 19,318,933
General Partners (86,596) (76,494)
------------ ------------
Total Partners' Capital 18,737,367 19,242,439
------------ ------------
Total Liabilities and Partners' Capital $ 20,621,867 $ 21,080,259
============ ============
</TABLE>
See notes to financial statements
2
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
========================= ==========================
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1997 1996 1997 1996
------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 440,050 $ 470,829 $ 898,623 $ 933,336
Recovery of common area
maintenance charges 60,864 49,726 121,728 99,453
Real estate tax reimbursements 69,644 73,728 139,288 147,456
Interest income 6,247 6,907 14,137 13,634
Other 2,606 1,938 3,391 3,189
----------- ----------- ----------- -----------
Total revenues 579,411 603,128 1,177,167 1,197,068
----------- ----------- ----------- -----------
Expenses:
General and administrative 55,106 40,097 86,973 52,080
General and administrative-
related parties (Note 3) 46,906 64,018 93,562 100,162
Operating 8,221 8,130 20,601 16,672
Repairs and maintenance 154,075 51,634 279,575 94,621
Real estate taxes 92,622 89,379 185,244 178,758
Insurance 10,710 11,821 21,421 23,642
Interest 23,666 31,185 47,619 60,674
Bad debt 88,440 9,016 105,956 56,974
Depreciation and amortization 162,205 144,213 311,760 285,786
----------- ----------- ----------- -----------
Total expenses 641,951 449,493 1,152,711 869,369
----------- ----------- ----------- -----------
Net Income (Loss) $ (62,540) $ 153,635 $ 24,456 $ 327,699
=========== =========== =========== ===========
Allocation of Net Income (Loss):
Limited Partners $ (88,256) $ 123,595 $ (29,968) $ 267,210
=========== =========== =========== ===========
General Partners $ (1,802) $ 2,522 $ (612) $ 5,453
=========== =========== =========== ===========
Special Distributions to
General Partners $ 27,518 $ 27,518 $ 55,036 $ 55,036
=========== =========== =========== ===========
Net Income (Loss) per BUC $ (.09) $ .12 $ (.03) $ .26
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
<TABLE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statement of Changes in Partners' Capital (Deficit)
(Unaudited)
<CAPTION>
====================================================
Limited General
Total Partners Partners
----------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) -
January 1, 1997 $19,242,439 $19,318,933 $ (76,494)
Net income (loss) 24,456 (29,968) 54,424
Distributions (529,528) (465,002) (64,526)
----------- ----------- ----------
Partners' capital (deficit) -
June 30, 1997 $18,737,367 $18,823,963 $ (86,596)
=========== =========== ==========
</TABLE>
See notes to financial statements
4
<PAGE>
<TABLE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Statements of Cash Flows
(Unaudited)
<CAPTION>
==========================
Six Months Ended
June 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24,456 $ 327,699
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 311,760 285,786
Increase in accounts receivable-tenants (108,228) (46,181)
Increase in allowance for doubtful accounts 106,000 54,000
Decrease (increase) in other assets 19,963 (23,642)
Increase in due to General Partners and affiliates 36,414 28,326
Increase in accrued real estate taxes 39,877 30,004
Increase in accounts payable and other liabilities 3,012 6,157
----------- -----------
Total adjustments 408,798 334,450
----------- -----------
Net cash provided by operating activities 433,254 662,149
----------- -----------
Cash flows from investing activities:
Improvements to property and equipment (293,025) (75,558)
Leasing commissions paid (43,445) (60,567)
----------- -----------
Net cash used in investing activities (336,470) (136,125)
----------- -----------
Cash flows from financing activities:
Increase in deferred loan costs 0 (39,247)
Principal repayments on note payable (32,623) (5,405)
Distributions paid (529,528) (529,426)
----------- -----------
Net cash used in financing activities (562,151) (574,078)
----------- -----------
Net decrease in cash and cash equivalents (465,367) (48,054)
Cash and cash equivalents at beginning of period 1,517,177 1,729,819
----------- -----------
Cash and cash equivalents at end of period $ 1,051,810 $ 1,681,765
=========== ===========
Supplemental information:
Interest paid $ 47,810 $ 60,674
=========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
June 30, 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 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 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 June 30, 1997.
Certain reclassifications have been made to prior year amounts to conform with
current year's presentation.
6
<PAGE>
SUMMIT INSURED EQUITY L.P. II
(a limited partnership)
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Property and Equipment
The components of property and equipment are as follows:
June 30, December 31,
1997 1996
------------ ------------
Land $ 6,445,794 $ 6,445,794
Buildings and improvements 14,942,575 14,649,550
------------ ------------
21,388,369 21,095,344
Less: Accumulated depreciation (2,777,415) (2,564,790)
------------ ------------
$ 18,610,954 $ 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 June 30, 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 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
------------------- -------------------
Expense reimbursement (a) $ 21,318 $ 35,296 $ 39,459 $ 44,407
Property management fees (b) 22,885 26,473 48,594 51,728
Leasing costs (c) 489 819 1,081 1,167
Insurance services (d) 2,214 1,430 4,428 2,860
-------- -------- -------- --------
$ 46,906 $ 64,018 $ 93,562 $100,162
======== ======== ======== ========
(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 six months ended June 30, 1997 and the year ended
December 31, 1996 were $22,000 and $141,000, respectively.
(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
June 30, 1997
(Unaudited)
Note 3 - Related Party Transactions (continued)
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 $27,518 $27,518 $55,036 $55,036
Regular Distributions of Adjusted
Cash from Operations 4,745 4,745 9,490 9,490
------- ------- ------- -------
$32,263 $32,263 $64,526 $64,526
======= ======= ======= =======
As of June 30, 1997, Prudential Securities Incorporated ("PSI"), an affiliate of
PBP, owns 1,980 BUC$.
Note 4 - 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").
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 5 - Subsequent Event
In August 1997, a distribution of $232,501 and $32,263 was paid to the
BUC$holders and General Partners, respectively, for the quarter ended June 30,
1997.
8
<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 six months ended June 30, 1997, cash and cash equivalents decreased
approximately $465,000 due to improvements to property and equipment ($293,000),
leasing commissions paid ($43,000), principal repayments on note payable
($33,000) and distributions to partners ($529,000) which exceeded cash flow from
operations ($433,000). Included in the adjustments to reconcile the net income
to cash flow from operations is depreciation and amortization in the amount of
approximately $312,000.
During August 1997, the Partnership paid a distribution from adjusted cash flow
from operations and previously undistributed cash of $232,501 to the BUC$holders
of record for the quarter ended June 30, 1997. Also during August 1997, the
General Partners received $32,263 in payment of their regular and special
distributions from cash flow from operations and previously undistributed cash
for the quarter ended June 30, 1997.
In July 1994, A&P closed its store in the Mountain Park Plaza Shopping Center
due to reduced sales and increased competition. The Partnership continues to
receive rental revenue from the vacated tenant pursuant to the terms of the
lease and both the tenant and the Partnership are actively pursuing potential
sub-tenants or replacement tenants. As of August 7, 1997, this space has not
been re-leased.
The Partnership's investment in the shopping centers is subject to the risks
arising from ownership of commercial properties. The Partnership has invested in
shopping centers with substantial anchor tenants. Anchor tenants usually provide
stability to a shopping center and a steady source of rental payments. A
shopping center's revenues from all of its tenants can be adversely affected by
the loss of its anchor tenant. If the rental income from the shopping centers
decreases, it could adversely affect distributions to BUC$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 $216,000 and $303,000, respectively, for
the three and six months ended June 30, 1997 as compared to 1996 for the reasons
described below.
9
<PAGE>
Revenues for the three and six months ended June 30, 1997 consisted primarily of
the results of the Partnership's investment in the three shopping centers.
Rental income decreased approximately 7% and 4%, or $31,000 and $35,000,
respectively, for the three and six months ended June 30, 1997 as compared to
1996 primarily due to decreases in rental rates relating to certain tenants at
Applewood Centre and Mountain Park Plaza.
Recovery of common area maintenance charges increased approximately $11,000 and
$22,000, respectively, for the three and six months ended June 30, 1997 as
compared to 1996 primarily due to the underaccrual of such charges in 1996.
General and administrative expenses increased approximately $15,000 and $35,000,
respectively, for the three and six months ended June 30, 1997 as compared to
1996 primarily due to an increase in legal expenses.
General and administrative-related parties expenses decreased approximately
$17,000 for the three months ended June 30, 1997 as compared to 1996 primarily
due to an underaccrual of expense reimbursements to the General Partners and
their affiliates at March 31, 1996 which was adjusted in the second quarter of
1996.
Operating expenses increased approximately $4,000 for the six months ended June
30, 1997 as compared to 1996 primarily due to small increases in utilities at
Rolling Hills Square and Mountain Park Plaza.
Repairs and maintenance increased approximately $102,000 and $185,000,
respectively, for the three and six months ended June 30, 1997 as compared to
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 and roof repairs and painting at Mountain Park Plaza.
Interest expense decreased approximately $8,000 and $13,000, respectively, for
the three and six months ended June 30, 1997 as compared to 1996 primarily due
to an interest rate reduction which resulted from the refinancing of a loan in
July 1996.
Bad debt expense increased approximately $79,000 and $49,000, respectively, for
the three and six months ended June 30, 1997 as compared to 1996 primarily due
to an increase in reserves at Rolling Hills Square and Mountain Park Plaza. The
increase for the three months was partially offset by a decrease in reserves in
the first quarter of 1997 at Applewood Centre and Mountain Park Plaza.
Depreciation and amortization increased approximately $18,000 and $26,000,
respectively, for the three and six months ended June 30, 1997 as compared to
1996 primarily due to additional capital improvements to property and equipment
and leasing commissions in 1997 and 1996.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by reference to
Note 4 to the financial statements filed herewith in Item 1 of Part I of the
Registrant's Quarterly Report.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Thomas F. Lynch, III ceased to serve as President, Chief Executive
Officer, Chairman of the Board of Directors and Director of Prudential-Bache
Properties, Inc., effective May 2, 1997. Effective May 2, 1997, Brian J. Martin
was elected President, Chief Executive Officer, Chairman of the Board of
Directors and Director of Prudential-Bache Properties, Inc.
Solicitation information was mailed to BUC$holders in connection with
the proposed Related Settlement (see Note 4 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) Report on Form 8-K
No reports on Form 8-K were filed during the quarter.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT INSURED EQUITY L.P. II
By: RIDC II, L.P.
------------------------------------------
General Partner
By: RELATED INSURED EQUITY ASSOCIATES II, 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)
By: PRUDENTIAL-BACHE PROPERTIES, INC.
------------------------------------------
General Partner
Date: August 13, 1997 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,051,810
<SECURITIES> 0
<RECEIVABLES> 316,216
<ALLOWANCES> 114,000
<INVENTORY> 0
<CURRENT-ASSETS> 29,104
<PP&E> 21,388,369
<DEPRECIATION> 2,777,415
<TOTAL-ASSETS> 20,621,867
<CURRENT-LIABILITIES> 543,448
<BONDS> 1,341,052
0
0
<COMMON> 0
<OTHER-SE> 18,737,367
<TOTAL-LIABILITY-AND-EQUITY> 20,621,867
<SALES> 0
<TOTAL-REVENUES> 1,177,167
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 999,136
<LOSS-PROVISION> 105,956
<INTEREST-EXPENSE> 47,619
<INCOME-PRETAX> 24,456
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,456
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
