-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSh4jHxzKafJPi7VFhYhz6t4OAr0mxDjop9A4FX7SnMEkQyixEKqbMz48wWPtQ+7 TaZpcf9B8eOOzkisnZbrKA== 0000898733-97-000348.txt : 19970329 0000898733-97-000348.hdr.sgml : 19970329 ACCESSION NUMBER: 0000898733-97-000348 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE EQUITEC REAL ESTATE PARTNERSHIP CENTRAL INDEX KEY: 0000757191 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942949474 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14271 FILM NUMBER: 97565953 BUSINESS ADDRESS: STREET 1: ONE SEAPORT PLAZA CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122141016 10-K 1 P-B EQUITEC REAL ESTATE SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ______________________ Commission file number 0-14271 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) California 94-2949474 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Seaport Plaza, New York, N.Y. 10292-0116 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 214-1016 Securities registered pursuant to Section 12(b) of the Act: None - -------------------------------------------------------------------------------- (Title of class) Securities registered pursuant to section 12(g) of the Act: Depositary Units of Limited Partnership Interest - -------------------------------------------------------------------------------- (Title of class) 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 CK No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [CK] DOCUMENTS INCORPORATED BY REFERENCE Registrant's Annual Report to Unitholders for the year ended December 31, 1996 is incorporated by reference into Parts II and IV of this Annual Report on Form 10-K Amended and Restated Limited Partnership Agreement of Registrant, dated February 11, 1985, included as part of the Registration Statement filed with the Securities and Exchange Commission on February 14, 1985 pursuant to Rule 424(b) of the Securities Act of 1934 (the ``Prospectus'') is incorporated by reference into Part IV of this Annual Report on Form 10-K Index to exhibits can be found on pages 10 through 12. CAUTIONARY STATEMENT FOR PURPOSES OF THE ``SAFE HARBOR'' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 When used in this Annual Report on Form 10-K, the words ``Believes'' ``Anticipates,'' ``Expects'' and similar expressions are intended to identify forward-looking statements. Statements looking forward in time are included in this Annual Report on Form 10-K pursuant to the ``Safe Harbor'' provision of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially, including, but not limited to, those set forth in ``Management's Discussion and Analysis of Financial Condition and Results of Operations.'' Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Registrant undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. 2 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 4 Item 2 Properties....................................................................... 5 Item 3 Legal Proceedings................................................................ 6 Item 4 Submission of Matters to a Vote of Unitholders................................... 6 PART II Item 5 Market for Registrant's Units and Related Unitholder Matters..................... 6 Item 6 Selected Financial Data.......................................................... 7 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 7 Item 8 Financial Statements and Supplementary Data...................................... 7 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 7 PART III Item 10 Directors and Executive Officers of the Registrant............................... 7 Item 11 Executive Compensation........................................................... 10 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 10 Item 13 Certain Relationships and Related Transactions................................... 10 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K Consolidated Financial Statements and Consolidated Financial Statement Schedules...................................................................... 11 Exhibits......................................................................... 11 Reports on Form 8-K.............................................................. 13 SIGNATURES.................................................................................. 18
3 PART I Item 1. Business General Prudential-Bache/Equitec Real Estate Partnership, a California Limited Partnership (the ``Registrant''), was formed in June 1984 and will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Limited Partnership Agreement (the ``Partnership Agreement''). The Registrant was formed to invest in income-producing real estate with proceeds raised from the initial sale of 68,795 depositary units (``Units''). On November 21, 1994, the General Partners approved a change in the Registrant's fiscal year for financial reporting purposes from October 31 to December 31. A Form 10-Q for the two months ended December 31, 1994 was filed to cover the transition period resulting from this change. The Registrant's fiscal year for income tax purposes continues to be December 31. The Registrant is engaged solely in the business of real estate investment; therefore, presentation of industry segment information is not applicable. For information regarding the Registrant's properties (collectively, the ``Properties'' or individually, a ``Property''), see Item 2 Properties. For information regarding the Registrant's operations, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Registrant's Annual Report to Unitholders for the year ended December 31, 1996 (``Registrant's Annual Report'') which is filed as an exhibit hereto. For the years ended December 31, 1996, December 31, 1995 and October 31, 1994, respectively, the following Properties' rental revenues exceeded 15% of the Registrant's total revenue:
1996 1995 1994 ---- ---- ---- Montrose Office Park 40% 43% 46% Poplar Towers 19% -- --
For the year ended October 31, 1994, Intersolv, a tenant in the Montrose Office Park property accounted for approximately 10% of the Registrant's total revenue. Intersolv's lease expired in June 1995 and it vacated its space at that time. Technical Resources, Inc., another tenant in the Montrose Office Park property, on an annualized basis, would have accounted for approximately 10% of the Registrant's total revenue for the year ended December 31, 1995 and did account for approximately 10% of the Registrant's total revenue for the year ended December 31, 1996. General Partners The general partners of the Registrant are Prudential-Bache Properties, Inc. (``PBP''), and Glenborough Corporation (formerly Glenborough Realty Corporation) and Robert Batinovich (together, ``Glenborough'') (collectively, the ``General Partners''). Glenborough replaced Equitec Financial Group, Inc. (``EFG'') as co-General Partner of the Partnership on May 4, 1994 when EFG transferred its general partner interest to Glenborough and withdrew and retired as general partner. This substitution occurred as a result of the consent of a majority of interests of the limited partners approving the transaction which was detailed in a proxy statement dated December 1, 1993. PBP continues as co-General Partner. Glenborough Corporation continues to receive fees and expense reimbursements in the same amount that was provided in the property management agreement. See Note E to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto. Competition The General Partners and their affiliates have formed, and may continue to form, various entities to engage in businesses which may be competitive with the Registrant. The Registrant faces active competition in all aspects of its business and must compete with entities which own properties similar in type to those owned by the Registrant. The ability of the Registrant to compete with these entities depends on many factors, including the size, condition and specific location of its facilities, and is affected by the competitive conditions of the real estate market in general and the local 4 markets in particular. Since each of the Registrant's Properties is located in an area which contains numerous other properties which may be considered competitive, the Registrant must compete on, among other factors, rental rates, lease terms and amenities, including availability of parking and public transportation. Many of the factors affecting the ability of the Registrant to compete, and therefore affecting its revenues and expenses, are beyond the Registrant's control, such as oversupply of similar rental facilities as a result of overbuilding, increases in unemployment, population shifts, levels of corporate activity, reduced availability of permanent mortgage funds, changes in zoning laws or changes in tenants' needs. Expenses such as local real estate taxes and utilities are subject to change and, while the provisions of certain existing leases may mitigate the impact of any increases in such expenses, such changes may not be fully reflected in rental rate increases upon lease renewal or in connection with the execution of new leases if market conditions are not favorable. Alternatively, the lack of new construction, reduced unemployment and stable or reduced tax and utility expenses, all beyond the control of the Registrant, may have a favorable impact upon the operations of the Properties. The marketability of the Properties may also be affected (both positively and negatively) by these factors as well as by changes in general or local economic conditions including prevailing interest rates. Depending on market and economic conditions, the Registrant may be required to retain ownership of its Properties for periods longer than anticipated at acquisition or may need to sell or refinance a Property during periods or under terms and conditions that are less advantageous than would be the case if unfavorable economic or market conditions did not exist. Employees The Registrant has no employees. Management and administrative services for the Registrant are performed by the General Partners and their affiliates pursuant to the Partnership Agreement. The General Partners receive compensation and reimbursement of expenses in connection with such activities as described in Section X of the Partnership Agreement. See Note E to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto. Item 2. Properties As of December 31, 1996, the Registrant owns the following properties:
Effective Average Annual Occupancy Rate at Rental Rate December 31, Land Net Rentable Per Square Location and Type 1996 (in acres) Square Footage Foot - -------------------------------------- ------------------ ---------- -------------- -------------- Poplar Tower Memphis, TN Office building 93% 3.95 100,901 $11.15 Montrose Office Park Rockville, MD Office building complex 83% 18.42 187,131 $12.74 Totem Valley Business Center Kirkland, WA Industrial park 99% 10.40 121,645 $ 6.06 Gateway Plaza Sacramento, CA Office building 95% .87 49,700 $17.08 Park Plaza Sacramento, CA Office building 76% 1.37 70,113 $12.23 ---------- -------------- 35.01 529,490 ---------- -------------- ---------- --------------
5 The Registrant originally invested in seven properties. In May 1993, the Registrant and the first mortgage holder of the 399 Market Street property entered into an agreement related to a deed-in-lieu of foreclosure with regard to the property, and the Registrant delivered to the mortgage holder the title to the property. Ashby Industrial Center was sold on August 8, 1992 and one of the eight buildings comprising Totem Valley Business Center was sold on September 16, 1991. The General Partners believe the Registrant's Properties are adequately insured. For information regarding the Registrant's investment in Properties and the encumbrances to which the Properties are subject, see Note C to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto. For additional information describing the Registrant's Properties, see Supplementary Schedule III--Real Estate and Accumulated Depreciation on page 15 in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. Item 3. Legal Proceedings None Item 4. Submission of Matters to a Vote of Unitholders None PART II Item 5. Market for Registrant's Units and Related Unitholder Matters As of March 3, 1997, there were 5,173 holders of record owning 68,795 Units. A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in Section IV of the Partnership Agreement limiting the ability of a Unitholder to transfer Units. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement; however, the Registrant has paid no distributions from operations or otherwise since 1988. The amount, if any, to be distributed by the Registrant from cash generated by operations in future quarters will be based on the extent to which cash flow generated by the Properties, after tenant and capital improvement costs, is sufficient to support such distributions. No distributions from operations are anticipated in the foreseeable future. Furthermore, it is unlikely that investors will be returned a significant portion of their original investment upon the sale of the Registrant's remaining Properties and ultimate dissolution of the Registrant. For discussion of other factors that may affect future distributions, see Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 10 through 11 of the Registrant's Annual Report which is filed as an exhibit hereto. 6 Item 6. Selected Financial Data The following table presents selected financial data of the Registrant. This data should be read in conjunction with the consolidated financial statements of the Registrant and the notes thereto on pages 2 through 9 of the Registrant's Annual Report which is filed as an exhibit hereto.
Year ended November 1 December 31, through Year ended October 31, ----------------- December 31, --------------------------- 1996 1995 1994 1994 1993 1992 - ------------------------------------------------------------------------------------------------------- (in thousands except per unit amounts) Total revenue.......................... $ 6,414 $ 6,541 $ 1,125 $ 6,544 $ 6,841 $ 7,917 ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Provision for loss on impairment of assets............................... $ -- $ -- $ -- $ -- $ (250) $ (614) ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Gain (loss) on disposition of property............................. $ 33 $ -- $ -- $ -- $ 338 $ (97) ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Net loss............................... $(1,138) $(1,032) $ (122) $ (794) $(1,898) $(3,820) ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Net loss per Unit...................... $(16.38) $(14.86) $ (1.76) $(11.43) $(27.31) $(54.97) ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Total assets........................... $33,346 $34,388 $ 35,737 $36,110 $37,402 $45,046 ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Notes payable.......................... $26,650 $26,621 $ 26,862 $26,917 $27,328 $32,578 ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- ------- Total cash distributions............... $ -- $ -- $ -- $ -- $ -- $ -- ------- ------- ------------ ------- ------- ------- ------- ------- ------------ ------- ------- -------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 10 through 11 of the Registrant's Annual Report which is filed as an exhibit hereto. Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 9 of the Registrant's Annual Report which is filed as an exhibit hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant There are no directors or executive officers of the Registrant. The Registrant is managed by the General Partners. The Registrant, the Registrant's General Partners and their directors and executive officers, and any persons holding more than ten percent of the Registrant's Units are required to report their initial ownership of such Units and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors and persons who own greater than ten percent of the Registrant's Units are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing requirements were satisfied on a timely basis. In making these disclosures, the Registrant has relied solely on written representations of the General Partners' directors and executive officers and persons who own greater than ten percent of the Registrant's Units or copies of the reports they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. 7 Prudential-Bache Properties, Inc. The directors and executive officers of PBP and their positions with regard to managing the Registrant are as follows:
Name Position Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the Board of Directors and Director Barbara J. Brooks Vice President--Finance and Chief Financial Officer Eugene D. Burak Vice President and Chief Accounting Officer Chester A. Piskorowski Senior Vice President Frank W. Giordano Director Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive Officer, Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice President of Prudential Securities Incorporated (``PSI''), an affiliate of PBP. Mr. Lynch also serves in various capacities for other affiliated companies. Mr. Lynch joined PSI in November 1989. BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in various capacities for other affiliated companies. She has held several positions within PSI since 1983. Ms. Brooks is a certified public accountant. EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice President of PSI. Prior to joining PSI in September 1995, he was a management consultant for three years and was with Equitable Capital Management Corporation from March 1990 to May 1992. Mr. Burak is a certified public accountant. CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He is a Senior Vice President of PSI and is the Senior Manager of the Specialty Finance Asset Management area. Mr. Piskorowski has held several positions within PSI since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars. FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice President of PSI and an Executive Vice President and General Counsel of Prudential Mutual Fund Management LLC, an affiliate of PSI. Mr. Giordano also serves in various capacities for other affiliated companies. He has been with PSI since July 1967. NATHALIE P. MAIO, age 46, is a Director of PBP. She is a Senior Vice President and Deputy General Counsel of PSI and supervises non-litigation legal work for PSI. She joined PSI's Law Department in 1983; presently, she also serves in numerous capacities for other affiliated companies. There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and/or executive officers have indefinite terms. Glenborough and Robert Batinovich Robert Batinovich, age 60, was the President, Chief Executive Officer and Chairman of Glenborough Corporation from its inception in 1978 until his resignation effective January 10, 1996. On August 31, 1994, Mr. Batinovich was elected Chairman, President and Chief Executive Officer of Glenborough Realty Trust Incorporated (``GLB''), a newly created Real Estate Investment Trust, which began trading on the New York Stock Exchange on January 31, 1996. He was a member of the Public Utilities Commission from 1975 to January 1979 and served as its President from January 1977 to January 1979. He is a member of the Board of Directors of Farr Company, a publicly held company that manufactures industrial filters. He has extensive real estate investment experience. Mr. Batinovich's business background includes managing and owning manufacturing, vending and service companies and a national bank. 8 The directors and executive officers of Glenborough Corporation and their positions with regard to managing the Registrant are as follows:
Name Position Andrew Batinovich Chief Executive Officer and Chairman of the Board Robert E. Bailey Secretary and Corporate Counsel Sandra L. Boyle President and Chief Operating Officer June Gardner Director Terri Garnick Chief Financial Officer Judy Henrich Vice President Wallace A. Krone, Jr. Director
ANDREW BATINOVICH, age 38, was elected Chairman of the Board and Chief Executive Officer of Glenborough Corporation on January 10, 1996. He has been employed by Glenborough Corporation since 1983, and had functioned since 1987 as Chief Operating Officer and Chief Financial Officer. Mr. Batinovich also serves as Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of GLB. He holds a California real estate broker's license and is a Member of the National Advisory Council of BOMA International. He received his B.A. in International Finance from the American University in Paris. Prior to joining Glenborough Corporation, Mr. Batinovich was a lending officer with the International Banking Group and the Corporate Real Estate Division of Security Pacific National Bank. He is the son of Robert Batinovich. ROBERT E. BAILEY, age 35, joined Glenborough Corporation in 1989 as Associate Counsel and was elected Secretary of Glenborough Corporation on May 15, 1995. He is responsible for all landlord/tenant documentation, tenant litigation, corporate and partnership matters and employment matters. In 1984, he received his Bachelor of Arts degree from the University of California at Santa Barbara and his Juris Doctor degree from Vermont Law School in 1987. From 1987 to 1989, Mr. Bailey was an associate with the law firm of Pedder, Stover, Hesseltine & Walker, where he specialized in business litigation. He is a member of the State Bar of California. SANDRA L. BOYLE, age 48, has been associated with Glenborough Corporation or its associated entities since 1984 and has served as President and Chief Operating Officer of Glenborough Corporation since January 10, 1996. She was originally responsible for residential marketing, and her responsibilities were gradually expanded to include residential leasing and management in 1985, and commercial leasing and management in 1987. She was elected Vice President in 1989, and continues to supervise marketing, leasing, property management operations and regional offices. Ms. Boyle also serves as a Senior Vice President of GLB. Ms. Boyle holds a California real estate broker's license and a CPM designation, and is a member of the National Advisory Council and Finance Committee of BOMA International; and is on the Board of Directors of BOMA San Francisco and BOMA California. JUNE GARDNER, age 45, was elected a director of Glenborough Corporation on January 10, 1996. She was associated with Glenborough Corporation from 1984 through 1995, as Senior Vice President and Corporate Controller with responsibilities in the areas of corporate financial planning, reporting, accounting and banking relationships. Before joining Glenborough Corporation, Ms. Gardner was Assistant Vice President of JMB Realty Corporation from 1977 to 1984, with responsibilities in the areas of financial management and reporting. TERRI GARNICK, age 36, has served as Chief Financial Officer of Glenborough Corporation since January 10, 1996. She is also Senior Vice President, Chief Accounting Officer and Treasurer of GLB. Ms. Garnick is responsible for property management accounting, financial statements, audits, Securities and Exchange Commission reporting, and tax returns. Prior to joining Glenborough Corporation in 1989, Ms. Garnick was a controller at August Financial Corporation from 1986 to 1989 and was a Senior Accountant at 9 Deloitte, Haskins and Sells from 1983 to 1986. She is a Certified Public Accountant and has a Bachelor of Science degree from San Diego State University. JUDY HENRICH, age 51, is a Vice President of Glenborough Corporation, effective January 10, 1996 and is responsible for the coordination of all broker-dealer and investor communications for partnerships managed by Glenborough Corporation. Prior to joining Glenborough Corporation, Ms. Henrich was associated with Rancon Financial Corporation from 1981 through early 1995, and as Senior Vice President since 1985, with responsibilities similar to those at Glenborough Corporation. Ms. Henrich also served as Executive Vice President of Rancon Securities Corporation from 1988 to 1991, and thereafter as its Chief Executive Officer. Prior to joining Rancon, Ms. Henrich was manager of public relations and advertising for Kaiser Development Company, a diversified real estate holding company. WALLACE A. KRONE, JR., age 65, has been an entrepreneur in the restaurant business since 1965, and owns a number of Burger King restaurants in the San Francisco area. Mr. Krone has been associated with Glenborough Corporation since 1982 as an investor in one or more partnerships, and has been a member of the board of directors of Glenborough Corporation since 1989. Except as noted above, there are no family relationships among the foregoing directors or executive officers. Item 11. Executive Compensation The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the General Partners for their services. Certain officers and directors of the General Partners receive compensation from the General Partners and their affiliates, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the Registrant; however, the General Partners believe that any compensation attributable to services performed for the Registrant is immaterial. See Item 13 Certain Relationships and Related Transactions for information regarding compensation to the General Partners. Item 12. Security Ownership of Certain Beneficial Owners and Management Glenborough Corporation's common stock is owned by Sandra L. Boyle, June Gardner and Wallace A. Krone, Jr., each owning a one-third interest and all of the preferred stock is owned by Glenborough Realty Trust Incorporated. As of March 3, 1997, no director or executive officer of PBP owns directly or beneficially any interest in the voting securities of PBP. As of March 3, 1997, no director or executive officer of any of the General Partners owns directly or beneficially any of the Units issued by the Registrant. As of March 3, 1997, no beneficial owner who is neither a director nor executive officer of either of the General Partners beneficially owns more than five percent (5%) of the outstanding Units issued by the Registrant. Item 13. Certain Relationships and Related Transactions The Registrant has and will continue to have certain relationships with the General Partners and their affiliates. However, there have been no direct financial transactions between the Registrant and the directors or officers of the General Partners. Reference is made to Note E to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto, which identifies the related parties and discusses the services provided by these parties and the amounts paid or payable for their services. 10 PART IV
Page in Annual Report ------------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Consolidated Financial Statements and Independent Auditors' Report--Incorporated by reference to the Registrant's Annual Report which is filed as an exhibit hereto Independent Auditors' Report 2 Consolidated Financial Statements: Consolidated Statements of Financial Condition--December 31, 1996 and December 31, 1995 3 Consolidated Statements of Operations--Years ended December 31, 1996 and 1995, November 1 through December 31, 1994, and the year ended October 31, 1994 4 Consolidated Statements of Changes in Partners' Capital--Years ended December 31, 1996 and 1995, November 1 through December 31, 1994, and the year ended October 31, 1994 4 Consolidated Statements of Cash Flows--Years ended December 31, 1996 and 1995, November 1 through December 31, 1994, and the year ended October 31, 1994 5 Notes to Consolidated Financial Statements 6 2. Consolidated Financial Statement Schedules and Independent Auditors' Report on Schedules Independent Auditors' Report on Schedules Schedules: II--Valuation and Qualifying Accounts and Reserves--Year ended December 31, 1996 and 1995 and the year ended October 31, 1994 III--Consolidated Real Estate and Accumulated Depreciation--At December 31, 1996 All other schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements and notes thereto. 3. Exhibits Description: 3 and 4 Amended and Restated Limited Partnership Agreement of Registrant dated February 11, 1985 (incorporated by reference to Amendment No. 1 to the Registrant's Form S-11 Registration Statement filed on February 14, 1985) and Amendment No. 1 thereto dated April 18, 1985 (incorporated by reference to Form 8-A filed on February 28, 1986), as amended on March 25, 1994 (incorporated by reference to the Registrant's 1994 Annual Report filed on Form 10-K) 3 and 4 Amended and Restated Agreement between General Partners dated December 28, 1990 (incorporated by reference to the Registrant's 1990 Annual Report filed on Form 10-K)
11 10(a) Note Modification Agreement between Montrose Office Park Joint Venture (a joint venture which is indirectly wholly-owned by the Registrant) and The Variable Annuity Life Insurance Company (incorporated by reference to the Registrant's 1991 Annual Report filed on Form 10-K) 10(b) Settlement Statement on Ashby Industrial Center dated August 6, 1992 (incorporated by reference to the Registrant's 1992 Annual Report filed on Form 10-K) 10(c) Escrow Instruction on Sale of Ashby Industrial Center dated August 6, 1992 (incorporated by reference to the Registrant's 1992 Annual Report filed on Form 10-K) 10(d) Agreement regarding Deed-in-Lieu of Foreclosure and Related Matters between the Registrant and Fidelity Bank N.A. dated May 11, 1993 (incorporated by reference to the Registrant's Quarterly Report for the period ended April 30, 1993 filed on Form 10-Q) 10(e) Loan Agreement by and among Registrant and Montrose Office Park Joint Venture (a joint venture which is indirectly wholly-owned by the Registrant), and Wells Fargo Bank, National Association, executed as of December 13, 1996. (1) 10(f) Amended, Restated and Consolidated Promissory Note dated December 13, 1996 in the amount of $26,650,000.00 by and among Registrant and Montrose Office Park Joint Venture and Wells Fargo Bank, National Association. (1) 10(g) Deed of Trust, With Absolute Assignment of Leases and Rents, Security Agreement, Assignment of Equipment Leases, Assignment of Permits and Fixture Filing dated December 13, 1996 by and among Registrant, American Securities Company, a corporation and Wells Fargo Bank, National Association relating to the property known as Park Plaza Professional Center, 1303 J Street, Sacramento, Sacramento County, California and to the property known as Gateway Executive Center, 801 12th Street, Sacramento, Sacramento County, California. (1) 10(h) Deed of Trust, With Absolute Assignment of Leases and Rents, Security Agreement, Assignment of Equipment Leases, Assignment of Permits and Fixture Filing dated December 13, 1996 by and among Registrant, Chicago Title Insurance Company, a Missouri corporation and Wells Fargo Bank, National Association relating to the property known as Totem Valley Business Center, 12800 N.E. 126th Place, Kirkland, King County, Washington. (1) 10(i) Amended and Restated Deed of Trust, With Absolute Assignment of Leases and Rents, Security Agreement, Assignment of Equipment Leases, Assignment of Permits and Fixture Filing dated December 13, 1996 by and among Montrose Office Park Joint Venture, Chicago Title Insurance Company,a Missouri corporation and Wells Fargo Bank, National Association relating to the property known as Montrose Office Park, 3200-3206 Tower Oaks Boulevard, Rockville, Montgomery County, Maryland. (1) 10(j) Deed of Trust, With Absolute Assignment of Leases and Rents, Security Agreement, Assignment of Equipment Leases, Assignment of Permits and Fixture Filing dated December 13, 1996 by and among Registrant, J. Richard Rossie, a resident of Shelby County, Tennessee and Wells Fargo Bank, National Association relating to the property known as Poplar Towers, 6263 Poplar Avenue, Memphis, Tennessee. (1) 13 Registrant's Annual Report to Unitholders for the year ended December 31, 1996 (with the exception of the information and data incorporated by reference in Items 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's Annual Report is to be deemed filed as part of this report) 27 Financial Data Schedule (filed herewith)
12 (b) Reports on Form 8-K Registrant's Current Report on Form 8-K dated December 20, 1996, as filed with the Securities and Exchange Commission on January 21, 1997 relating to Item 5 regarding the refinancing of the mortgage loans on the Registrant's properties.
- --------------- (1) Incorporated by reference to applicable exhibit included in Registrant's Current Report on Form 8-K dated December 20, 1996 13 INDEPENDENT AUDITORS' REPORT Prudential-Bache/Equitec Real Estate Partnership (a California limited partnership): We have audited the consolidated financial statements of Prudential-Bache/Equitec Real Estate Partnership (a California limited partnership) as of December 31, 1996 and 1995, and for the years ended December 31, 1996 and 1995 and October 31, 1994, and the period November 1, 1994 through December 31, 1994, and have issued our report thereon dated February 18, 1997; such financial statements and report are included in your 1996 Annual Report and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Prudential-Bache/Equitec Real Estate Partnership, listed in Item 14. These financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP San Francisco, California February 18, 1997 14 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------- Allowance for Loss on Impairment of Assets
Deduc- tions-Amounts Balance at Year ended Year ended Balance at Additions-Amounts written-off during end of December 31, October 31, beginning of year reserved during year year year - ------------ ----------- ----------------- -------------------- ------------------ ---------- 1996 $ 500,000 $ -- $ -- $ 500,000 1995* 500,000 -- -- 500,000 1994 500,000 -- -- 500,000
* Includes the period November 1 through December 31, 1994. 15 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership SCHEDULE III--CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 (in thousands)
Initial cost to Registrant ------------------------- Buildings Gross amount at which carried and Net costs at close of period improve- capitalized -------------------------------------- ments, (disposed) Buildings, Encumbrances furniture subsequent to furniture Description (C) Land and fixtures acquisition Land and fixtures Total (A) - ---------------------- ------------ ------- ------------- ------------- ------- ------------ --------- Poplar Tower Memphis, TN Office building $ -- $ 1,678 $ 4,928 $ 1,348 $ 1,678 $ 6,276 $ 7,954 Montrose Office Park Rockville, MD Office building complex -- 5,918 15,766 2,416 5,918 18,182 24,100 Totem Valley Business Center Kirkland, WA Industrial park -- 2,666 5,265 (518) 2,083 5,330 7,413 Gateway and Park Plaza Sacramento, CA Office buildings -- 1,163 9,075 1,682 1,163 10,757 11,920 Note Payable 26,650 ------------ ------- ------------- ------------- ------- ------------ --------- Totals $ 26,650 $11,425 $35,034 $ 4,928 $10,842 $ 40,545 $ 51,387 ------------ ------- ------------- ------------- ------- ------------ --------- ------------ ------- ------------- ------------- ------- ------------ --------- See notes to Schedule III on the following page. Life on which depreciation in the latest Accumulated statement of depreciation Date of Date operations is Description (B) construction acquired computed - ---------------------- ----------- ------------ ---------- ------------- Poplar Tower Memphis, TN 3 to Office building $ 4,256 1974 5/01/86 30 years Montrose Office Park Rockville, MD Office building 3 to complex 7,559 1980-83 8/11/86 30 years Totem Valley Business Center Kirkland, WA 3 to Industrial park 2,522 1983-86 3/13/87 30 years Gateway and Park Plaza Sacramento, CA 3 to Office buildings 5,297 1982 6/15/87 30 years Note Payable ----------- Totals $19,634 ----------- -----------
16 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership NOTES TO SCHEDULE III (in thousands) December 31, 1996 NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
November 1 Year ended Year ended through Year ended December 31, December 31, December 31, October 31, 1996 1995 1994 1994 ------------ ------------ ------------ ----------- Balance at beginning of period $ 50,605 $ 50,013 $ 49,983 $49,647 Additions during period 810 592 30 336 ------------ ------------ ------------ ----------- 51,415 50,605 50,013 49,983 Cost of land conveyed (28) -- -- -- ------------ ------------ ------------ ----------- Balance at end of period $ 51,387 $ 50,605 $ 50,013 $49,983 ------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
The allowance for loss on impairment for the above assets is $500 at December 31, 1996. See Note C to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto. The aggregate cost of land, buildings, and furniture and fixtures for Federal income tax purposes for the tax year ended December 31, 1996 was $49,976. NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
November 1 Year ended Year ended through Year ended December 31, December 31, December 31, October 31, 1996 1995 1994 1994 ------------ ------------ ------------ ----------- Balance at beginning of period $ 17,905 $ 16,177 $ 15,889 $14,253 Additions during period 1,729 1,728 288 1,636 ------------ ------------ ------------ ----------- Balance at end of period $ 19,634 $ 17,905 $ 16,177 $15,889 ------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
NOTE C--ENCUMBRANCES The note payable is secured by Deeds of Trust on each of the respective properties and by security interests in the respective property's leases and rents, and equipment and fixtures contained therein. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Prudential-Bache/Equitec Real Estate Partnership, A California Limited Partnership By: Prudential-Bache Properties, Inc., A Delaware corporation, Managing General Partner By: /s/ Eugene D. Burak Date: March 27, 1997 ---------------------------------------- Eugene D. Burak Vice President and Chief Accounting Officer By: Glenborough Corporation General Partner By: /s/ Andrew Batinovich Date: March 27, 1997 ---------------------------------------- Andrew Batinovich Chief Executive Officer and Chairman of the Board of Directors By: Robert Batinovich General Partner By: /s/ Robert Batinovich Date: March 27, 1997 ---------------------------------------- Robert Batinovich General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with respect to the General Partners) and on the dates indicated. By: Prudential-Bache Properties, Inc., A Delaware corporation, Managing General Partner By: /s/ Thomas F. Lynch, III Date: March 27, 1997 ---------------------------------------- Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the Board of Directors and Director By: /s/ Barbara J. Brooks Date: March 27, 1997 ---------------------------------------- Barbara J. Brooks Vice President-Finance and Chief Financial Officer By: /s/ Eugene D. Burak Date: March 27, 1997 ---------------------------------------- Eugene D. Burak Vice President By: /s/ Frank W. Giordano Date: March 27, 1997 ---------------------------------------- Frank W. Giordano Director By: /s/ Nathalie P. Maio Date: March 27, 1997 ---------------------------------------- Nathalie P. Maio Director 18 By: Glenborough Corporation and Robert Batinovich General Partners By: /s/ Robert Batinovich Date: March 27, 1997 ---------------------------------------- Robert Batinovich Individually By: /s/ Andrew Batinovich Date: March 27, 1997 ---------------------------------------- Andrew Batinovich Chief Executive Officer and Chairman of the Board of Directors By: /s/ June Gardner Date: March 27, 1997 ---------------------------------------- June Gardner Director By: /s/ Terri Garnick Date: March 27, 1997 ---------------------------------------- Terri Garnick Chief Financial Officer 19 EX-13 2 ANNUAL REPORT 1996 ANNUAL REPORT 1996 - -------------------------------------------- Prudential-Bache/Equitec Annual Real Estate Partnership Report PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership Message to our Unitholders: 1 Deloitte & Touche LLP -------------------------------------------------------- 50 Fremont Street Telephone: (415) 247-4000 San Francisco, California 94105-2230 Facsimile: (415) 247-4329 INDEPENDENT AUDITORS' REPORT Prudential-Bache/Equitec Real Estate Partnership (a California limited partnership): We have audited the accompanying consolidated statements of financial condition of Prudential-Bache/Equitec Real Estate Partnership (a California limited partnership) as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in partners' capital and cash flows for the years ended December 31, 1996 and 1995 and October 31, 1994, and the period November 1, 1994 through December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Prudential-Bache/Equitec Real Estate Partnership at December 31, 1996 and 1995 and the results of its operations and its cash flows for the years ended December 31, 1996 and 1995 and October 31, 1994, and the period November 1, 1994 through December 31, 1994, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP San Francisco, California February 18, 1997 - ----------------- Deloitte Touche Tohmatsu International - ----------------- 2 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31, 1996 1995 - ---------------------------------------------------------------------------------------------------- (in thousands) ASSETS Investment in property: Land $ 10,842 $ 10,870 Buildings, improvements and equipment 40,545 39,735 Less: Accumulated depreciation (19,634) (17,905) Allowance for loss on impairment of assets (500) (500) ------------ ------------ Net investment in property 31,253 32,200 Cash and cash equivalents 697 806 Prepaid expenses and other assets, net 1,396 1,382 ------------ ------------ Total assets $ 33,346 $ 34,388 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Notes payable $ 26,650 $ 26,621 Due to affiliates 705 700 Accounts payable and accrued liabilities 266 291 Security deposits and deferred revenue 335 232 Real estate taxes payable 57 73 ------------ ------------ Total liabilities 28,013 27,917 ------------ ------------ Partners' capital Unitholders (68,795 depositary units issued and outstanding) 5,587 6,714 General partners (254) (243) ------------ ------------ Total partners' capital 5,333 6,471 ------------ ------------ Total liabilities and partners' capital $ 33,346 $ 34,388 ------------ ------------ ------------ ------------ - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 3 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended November 1 December 31, through Year ended ------------------- December 31, October 31, 1996 1995 1994 1994 - -------------------------------------------------------------------------------------------------------- (in thousands, except per depositary unit amounts) REVENUES Operating $ 5,987 $ 5,982 $1,039 $ 5,997 Recovery of expenses 394 559 86 547 Gain on land conveyance 33 -- -- -- ------- ------- ------------ ----------- 6,414 6,541 1,125 6,544 ------- ------- ------------ ----------- EXPENSES Property operating 2,873 2,813 472 2,711 Interest 2,429 2,411 391 2,364 Depreciation and amortization 2,025 1,965 328 1,883 General and administrative 225 384 56 380 ------- ------- ------------ ----------- 7,552 7,573 1,247 7,338 ------- ------- ------------ ----------- Net loss $(1,138) $(1,032) $ (122) $ (794) ------- ------- ------------ ----------- ------- ------- ------------ ----------- ALLOCATION OF NET LOSS Unitholders $(1,127) $(1,022) $ (121) $ (786) ------- ------- ------------ ----------- ------- ------- ------------ ----------- General partners $ (11) $ (10) $ (1) $ (8) ------- ------- ------------ ----------- ------- ------- ------------ ----------- Net loss per depositary unit $(16.38) $(14.86) $(1.76) $(11.43) ------- ------- ------------ ----------- ------- ------- ------------ ----------- - --------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
GENERAL UNITHOLDERS PARTNERS TOTAL - --------------------------------------------------------------------------------------------------- (in thousands) Partners' capital (deficit)--October 31, 1993 $ 8,643 $ (224) $ 8,419 Net loss (786) (8) (794) ----------- -------- ------- Partners' capital (deficit)--October 31, 1994 7,857 (232) 7,625 Net loss (121) (1) (122) ----------- -------- ------- Partners' capital (deficit)--December 31, 1994 7,736 (233) 7,503 Net loss (1,022) (10) (1,032) ----------- -------- ------- Partners' capital (deficit)--December 31, 1995 6,714 (243) 6,471 Net loss (1,127) (11) (1,138) ----------- -------- ------- Partners' capital (deficit)--December 31, 1996 $ 5,587 $ (254) $ 5,333 ----------- -------- ------- ----------- -------- ------- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 4 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended November 1 December 31, through Year ended -------------------- December 31, October 31, 1996 1995 1994 1994 - -------------------------------------------------------------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,138) $(1,032) $ (122) $ (794) -------- ------- ------------ ----------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,025 1,965 328 1,883 Lease concessions-effective rents 72 69 13 138 Bad debt expense 1 -- -- 18 Gain on land conveyance (33) -- -- -- Leasing commissions paid (271) (260) (18) (125) Changes in: Prepaid expenses and other assets 195 (145) (21) (122) Due to affiliates 5 (7) 10 42 Accounts payable and accrued liabilities (25) (2) (208) (16) Security deposits and deferred revenue 103 (30) 2 (21) Real estate taxes payable (16) (37) -- (92) -------- ------- ------------ ----------- Total adjustments 2,056 1,553 106 1,705 -------- ------- ------------ ----------- Net cash provided by (used in) operating activities 918 521 (16) 911 -------- ------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Building and tenant improvements (810) (592) (30) (336) Proceeds from land conveyance 61 -- -- -- -------- ------- ------------ ----------- Net cash used in investing activities (749) (592) (30) (336) -------- ------- ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loan refinancing 26,650 -- -- -- Principal payments on notes (26,621) (241) (55) (411) Loan fees (307) -- -- -- -------- ------- ------------ ----------- Net cash used in financing activities (278) (241) (55) (411) -------- ------- ------------ ----------- Net increase (decrease) in cash and cash equivalents (109) (312) (101) 164 Cash and cash equivalents at beginning of period 806 1,118 1,219 1,055 -------- ------- ------------ ----------- Cash and cash equivalents at end of period $ 697 $ 806 $1,118 $ 1,219 -------- ------- ------------ ----------- -------- ------- ------------ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 2,409 $ 2,546 $ 533 $ 2,369 -------- ------- ------------ ----------- -------- ------- ------------ ----------- - --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 5 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. General Prudential-Bache/Equitec Real Estate Partnership, A California Limited Partnership (the ``Partnership''), was formed on June 19, 1984 and will terminate on December 31, 2009 unless ended sooner under the provisions of the Amended and Restated Limited Partnership Agreement (the ``Partnership Agreement''). The Partnership was formed for the purpose of purchasing, holding, operating, leasing and selling various real properties. The general partners of the Partnership are Prudential-Bache Properties, Inc. (``PBP'') and Glenborough Corporation (formerly Glenborough Realty Corporation) and Robert Batinovich (together, ``Glenborough'') (collectively, the ``General Partners''). At December 31, 1996, the Partnership owned five properties. Glenborough replaced Equitec Financial Group, Inc. (``EFG'') as co-General Partner of the Partnership on May 4, 1994 when EFG transferred its general partner interest to Glenborough and withdrew and retired as general partner. This substitution occurred as a result of the consent of a majority of interests of the limited partners approving the transaction which was detailed in a proxy statement dated December 1, 1993. PBP continues as co-General Partner. Glenborough Corporation, continues to receive fees and expense reimbursements in the same amount that was provided in the property management agreement (see Note E). B. Summary of Significant Accounting Policies Basis of accounting principles The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partners to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership's fiscal year for financial reporting purposes now ends on December 31. On November 21, 1994, the General Partners approved a change in the Partnership's fiscal year for financial reporting purposes from October 31 to December 31. The consolidated financial statements of the Partnership include the accounts of Montrose Office Park Limited Partnership, in which the Partnership owns a 100% interest. Investment in property 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,'' was adopted by the Partnership as of January 1, 1995. Under SFAS No. 121, impairment for 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. For properties that are held for sale, SFAS No. 121 states that they should be reported at the lower of carrying amount or estimated fair value less cost to sell. The implementation of SFAS No. 121 did not affect the Partnership's results of operations or financial position for the year ended December 31, 1995. Prior to 1995, property investments were carried at the lower of depreciated cost or estimated amounts recoverable through future operations and ultimate disposition of the property. A provision for loss on impairment of assets would be recorded when estimated amounts recoverable through future operations and ultimate disposition of the property on an undiscounted basis were below depreciated cost. Property investments are depreciated or amortized using the straight-line method over their estimated economic lives which range from 3 to 30 years depending on property type. 6 Cash and cash equivalents Cash and cash equivalents include money market funds whose cost approximates market value. Other assets Other assets consist primarily of loan fees, lease concessions, and lease commissions. Loan fees are capitalized and amortized on a straight-line basis over the terms of the respective loans. Lease concessions and lease commissions are deferred and amortized over the terms of the respective leases. Income taxes The Partnership is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the individual partners. The Partnership may be subject to other state and local taxes in jurisdictions in which it operates. The following is a reconciliation of net loss for financial reporting purposes with net loss for tax reporting purposes.
Year ended December 31, ----------------------------- 1996 1995 1994 ------- ------- ----- (in thousands) Net loss, financial statement basis $(1,138) $(1,032) $(819) Rental concessions recorded for books not tax -- (120) -- Book depreciation in excess of tax depreciation 481 475 338 ------- ------- ----- Net loss, tax basis $ (657) $ (677) $(481) ------- ------- ----- ------- ------- -----
Profit and loss allocations/distributions For financial and tax reporting purposes, net profits or losses are allocated 99% to the Unitholders and 1% to the General Partners. No distributions have been paid since 1988. C. Investment in Property and Notes Payable The Partnership's properties, net of accumulated depreciation, and the related debt at December 31, 1996 and 1995 were:
Investment Notes Payable ------------------- ------------------- Property 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------- (in thousands) Montrose Office Park, Rockville, MD $16,541 $16,786 $ -- $13,055 Gateway and Park Plaza, Sacramento, CA 6,623 7,104 -- 6,439 Totem Valley Business Center, Kirkland, WA 4,891 5,074 -- 3,645 Poplar Tower, Memphis, TN 3,698 3,736 -- 3,482 Less: allowance for loss on impairment of assets (500) (500) -- -- Note payable -- -- 26,650 -- ------- ------- ------- ------- $31,253 $32,200 $26,650 $26,621 ------- ------- ------- ------- ------- ------- ------- -------
During 1996, a small parcel of land was conveyed to a local jurisdiction to be used for a road project at the Totem Valley property for proceeds of approximately $61,000 resulting in a gain of approximately $33,000. Loans held on two of the Partnership's properties, Poplar Towers and Montrose Office Park matured on October 1, 1996 and December 31, 1996, respectively. As a result, the Partnership, on December 20, 1996, pursuant to a loan agreement dated December 13, 1996 with Wells Fargo Bank, N.A. (``WFB''), consolidated and refinanced all of the existing loans on the five properties owned by the Partnership (the ``Loan''). WFB held mortgages on the Partnership's three remaining properties Totem Valley, Gateway and Park Plaza. 7 The Loan from WFB is in the amount of $26,650,000 (which approximates the total amount of the individual loans on each of the five properties). The Loan will mature on December 9, 1997 and bears interest at LIBOR + 3.5% reset monthly. The Loan is secured by Deeds of Trust on each of the respective properties and by security interests in the respective property's leases and rents, and equipment and fixtures contained therein. The Partnership has the ability to refinance the loan at maturity based on the current appraised values on the underlying properties. D. Lease Agreements The provisions of the leases generally require tenants to pay for their proportionate share of increases in building operating costs and property tax increases. Future minimum rental receipts due under the noncancellable operating leases with tenants are as follows:
Year ending December 31, (in thousands) - ---------------- -------------- 1997 $ 6,169 1998 5,499 1999 4,187 2000 2,578 2001 1,551 Thereafter 4,178 -------------- Total $ 24,162 -------------- --------------
For the years ended December 31, 1996, December 31, 1995 and October 31, 1994, respectively, the following properties' rental revenues exceeded 15% of the Partnership's total revenue:
1996 1995 1994 ---- ---- ---- Montrose Office Park 40% 43% 46% Poplar Towers 19 -- --
During the year ended December 31, 1996, Technical Resources, Inc., a tenant in the Montrose Office Park property, did account for approximately 10% of the Partnership's total revenue and, on an annualized basis, had its new lease covered the entire year, would have accounted for approximately 10% of the Partnership's total revenue for the year ended December 31, 1995. During the year ended October 31, 1994, Intersolv, a tenant in the Montrose Office Park property, accounted for approximately 10% of the Partnership's total revenue. 8 E. Related Parties 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; property management; investor communications; printing and other administrative services. The General Partners and their affiliates receive reimbursements for costs incurred in connection with these services, the amount of which is limited by the provisions of the Partnership Agreement. The costs and expenses were:
November 1, Year ended through Year ended December 31, December 31, October 31, 1996 1995 1994 1994 - ----------------------------------------------------------------------------------------------------- (in thousands) PBP and affiliates General and administrative $ 60 $112 $ 10 $ 136 ----- ----- ------ ----------- Glenborough Corporation and affiliates Property management fee and expenses 634 663 103 212 Leasing commissions 131 136 18 31 ----- ----- ------ ----------- 765 799 121 243 ----- ----- ------ ----------- $825 $911 $131 $ 379 ----- ----- ------ ----------- ----- ----- ------ -----------
- --------------- PBP is not being paid on a current basis for general and administrative expenses other than printing costs. During the year ended December 31, 1996, PBP was reimbursed approximately $48,000, which was applied to prior years' general and administrative expenses due. At December 31, 1996 and 1995, the total liability outstanding to PBP was approximately $705,000 and $700,000, respectively. The Partnership maintains an investment account with the Prudential Institutional Liquidity Portfolio Fund, an affiliate of PBP, for investment of its available cash in short-term instruments pursuant to the guidelines established by the Partnership Agreement. Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180 depositary units at December 31, 1996. 9 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources All of the Partnership's properties generated cash flow from operations after debt service during the year ended December 31, 1996. During the year ended December 31, 1996, the Partnership incurred approximately $810,000 for building and tenant improvements primarily at the Montrose Office Park, Totem Valley, Park Plaza, and Poplar Towers properties. Of this amount, approximately $525,000 was expended at Montrose Office Park primarily for build out of space for new tenants. In order to keep the Partnership's properties competitive, building and tenant improvements will continue to be required. Building and tenant improvements for 1997 are currently budgeted for approximately the same amount as 1996. The Partnership had cash of approximately $697,000 at December 31, 1996. PBP is not being reimbursed for its general and administrative expenses (other than printing) on a current basis. During the year ended December 31, 1996, PBP was reimbursed approximately $48,000, which was applied to prior years' general and administrative expenses due. At December 31, 1996, the total liability outstanding (including printing) was approximately $705,000. Cash on hand plus any cash generated from operations may not be sufficient to fund building and tenant improvements and to pay deferred general and administrative expenses. The Partnership in December 1996 consolidated and refinanced all of the existing loans on the five properties. The new loan in the amount of $26,650,000 will mature in December 1997 and is secured by all of the properties. The General Partners continue to evaluate all of the properties' prospects for eventual sale. It is unlikely that investors will be returned a significant portion of their original investment upon the sale of the properties and ultimate dissolution of the Partnership. Results of Operations 1996 versus 1995 The Partnership's net loss increased by approximately $106,000 for the year ended December 31, 1996 as compared to 1995 for the reasons discussed below. Property operating revenue increased by approximately $5,000 for the year ended December 31, 1996 as compared to 1995 as increases at the Totem Valley, Gateway, Park Plaza and Poplar Tower properties were more than offset by a decrease at Montrose Office Park due to a major tenant's lease expiring in May 1996. The increase and decreases in operating revenue were primarily the result of corresponding changes in average occupancies. Recovery of expenses decreased by approximately $165,000 for the year ended December 31, 1996 as compared to 1995 primarily due to lower tenant recoveries at the Montrose property as a result of a major tenant's lease expiring in May 1996, partially offset by increases in expense recoveries at the Totem Valley property. Property operating expenses increased by approximately $60,000 for the year ended December 31, 1996 as compared to 1995 due primarily to increased utility expenses, building management fees and salaries at Poplar Towers. Depreciation and amortization increased by approximately $60,000 for the year ended December 31, 1996 as compared to 1995 due to increased building and tenant improvement additions. General and administrative expenses decreased by approximately $159,000 for the year ended December 31, 1996 as compared to 1995 primarily due to appraisal fees recorded in 1995. 1995 versus 1994 The Partnership's net loss increased by approximately $238,000 for the year ended December 31, 1995 as compared to the year ended October 31, 1994 (``fiscal 1994'') for the reasons discussed below. Operating revenues decreased by approximately $15,000 for the year ended December 31, 1995 as compared to fiscal year 1994 as increases at the Totem Valley, Gateway, and Poplar Tower properties were 10 more than offset by decreases at the Park Plaza and Montrose properties. The increases and decreases in operating revenue were primarily the result of corresponding changes in average occupancies. Recovery of expenses increased by approximately $12,000 for the year ended December 31, 1995 as compared to fiscal 1994 primarily due to greater tenant work order recoveries at the Montrose property offset by decreases in various other expense recoveries at all of the properties. Property operating expenses increased by approximately $102,000 during the year ended December 31, 1995 as compared to fiscal 1994 due primarily to increased tenant work order costs and increased utilities expenses. Depreciation and amortization increased by approximately $82,000 during the year ended December 31, 1995 as compared to fiscal 1994 due to increased building and tenant improvement additions. Interest expense increased by approximately $47,000 during the year ended December 31, 1995 as compared to fiscal 1994 because of increases in interest rates on variable rate notes. 11 OTHER INFORMATION The Partnership's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available to limited partners without charge upon written request to: Prudential-Bache/Equitec Real Estate Partnership P.O. Box 2016 Peck Slip Station New York, N.Y. 10272-2016 12 P.O. Box 2016 BULK RATE Peck Slip Station U.S. POSTAGE New York, NY 10272 PAID Automatic Mail PBEQ86/170368 EX-27 3 ART. 5 FDS FOR 4TH QUARTER 10-K
5 The Schedule contains summary financial information extracted from the financial statements for P-B Equitec Real Estate and is qualified in its entirety by reference to such financial statements 0000757191 P-B Equitec Real Estate 1 Dec-31-1996 Jan-1-1996 Dec-31-1996 12-Mos 697,000 0 1,396,000 500,000 0 0 0 51,387,000 19,634,000 33,346,000 1,363,000 0 0 0 5,333,000 33,346,000 0 6,414,000 0 5,123,000 0 0 2,429,000 0 0 0 0 0 0 (1,138,000) (16.38) 0
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