-----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, Hd5M5cvMEpiJw4Ued0V0UGz40MB0i+rjdL6nIDYkP4rVh07thKxgzJ+tUzS+jT0Y qiUCcisYJBIl8gTnSdJ2Ug== 0000898733-99-000245.txt : 19990406 0000898733-99-000245.hdr.sgml : 19990406 ACCESSION NUMBER: 0000898733-99-000245 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE EQUITEC REAL ESTATE PARTNERSHIP CENTRAL INDEX KEY: 0000757191 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 942949474 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14271 FILM NUMBER: 99583055 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 UNITED STATES 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, 1998 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 incorporation or organization) (I.R.S. Employer Identification No.) One Seaport Plaza, New York, N.Y. 10292-0128 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 214-3500 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, 1998 is incorporated by reference into Parts I, 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 11 through 13. PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 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 7A Quantitative and Qualitative Disclosures About Market Risk....................... 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
2 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'). The Registrant's fiscal year for financial reporting and income tax purposes ends on 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, 1998 ('Registrant's Annual Report') which is filed as an exhibit hereto. On October 13, 1997, the Registrant entered into a purchase agreement, as amended (the 'Purchase Agreement') with Glenborough Realty Trust Incorporated and a subsidiary partnership, Glenborough Properties, L.P., (together, the 'Purchaser'), which are affiliates of two of the Registrant's general partners, Glenborough Corporation and Robert Batinovich. Pursuant to the Purchase Agreement, the Registrant intends to sell to the Purchaser (the 'Sale') all of the Properties of the Registrant for cash. The Purchase Agreement provides for a purchase price equal to $47,145,000. The gross proceeds will be reduced by the mortgage debt as well as certain credits to the Purchaser, which, in addition to any credits for secured obligations which are assumed by the Purchaser, approximates $629,000 as of February 28, 1999, if certain items of deferred maintenance at the Properties are not completed prior to the closing of the Sale. On May 28, 1998, a consent solicitation statement was sent to Unitholders, who owned interests in the Registrant on April 1, 1998, seeking approval for the Sale ('Consent Solicitation'). As of the termination of the consent solicitation period on July 13, 1998, the requisite vote of Unitholders had consented to the Sale and the liquidation of the Registrant. On June 26, 1998, a purported class action entitled Arthur Unger v. Prudential-Bache Properties, Inc., Glenborough Corporation, et.al., was filed in the Supreme Court of the State of New York, County of New York (the 'Unger Action'). The Unger Action claims, among other things, that the General Partners of the Registrant breached their fiduciary duty to the Unitholders of the Registrant by, among other things, failing to act reasonably to maximize the distributions to be made to Unitholders pursuant to the proposed liquidation of the Registrant. In particular, the Unger Action claims that in considering the advisability of offers made for one or more of the Registrant's real properties (the 'Properties') and direct and indirect interests in a joint venture whose sole asset is one real property (the 'Interests,' and, together with the Properties, the 'Assets'), the General Partners failed to use their best efforts to obtain the highest possible bid. The Unger Action also claims that the consideration for which the General Partners have agreed to sell the Assets pursuant to the Purchase Agreement to the Purchaser is inadequate in that it is $2,000,000 less than the appraised fair market value of the Assets. Moreover, the Unger Action alleges that the Consent Solicitation disseminated by the General Partners in connection with the proposed liquidation of the Registrant, contains certain representations which are materially false and misleading. The Unger Action seeks declaratory and compensatory relief and attorneys' fees and experts' fees. Prior to the scheduled closing of the Sale on July 31, 1998, the Purchaser advised the Registrant that it had elected not to proceed with the closing because of the pendency of the Unger Action. Thereafter, on November 19, 1998, the parties to the Unger Action entered into a Stipulation of Settlement ('Settlement Stipulation'), which will allow the Sale pursuant to the Purchase Agreement to go 3 forward. Among other things, the Settlement Stipulation provides that the Purchaser will deposit $2,000,000 with plaintiffs' counsel on the date of the closing of the Sale (the 'Settlement Consideration'). The Settlement Consideration will be used to pay certain costs, expenses and attorneys' fees related to the Unger Action and the remainder will be distributed to all eligible Unitholders. As required by the Settlement Stipulation, on November 16, 1998, the Registrant and the Purchaser entered into a Third Amendment to Purchase Agreement, pursuant to which the parties agreed, among other things; (a) to extend the closing date to a date not more than thirty (30) days after (i) the expiration of the appeals period after the entry of a final judgment approving the Settlement Stipulation, and (ii) the satisfaction of any remaining conditions to closing, subject to the Purchaser's right to extend the closing date for a period of up to thirty (30) days for the purpose of facilitating a Section 1031 exchange; (b) that if the closing does not occur on or before September 1, 1999, the transaction shall be terminated and the Purchaser shall be entitled to a refund of its $1,000,000 earnest money deposit; and (c) that if the closing occurs after March 31, 1999, all prorations and adjustments to the purchase price shall nonetheless be made as of March 31, 1999 (the 'Effective Closing Date'), thereby shifting to the Purchaser the risks of loss and the prospects of gain with respect to the Assets as of the Effective Closing Date. The court preliminarily approved the Stipulation Settlement on November 24, 1998. On February 16, 1999, a settlement hearing was held at which there were no objectors. A final order to approve the Stipulation Settlement, among other matters, has been submitted to the court and is presently awaiting the court's signature. Mr. Robert Batinovich and the Glenborough Corporation, who played key roles in ensuring that mortgage financing was available to the Registrant under difficult conditions a few years ago by providing certain guarantees, have agreed to continue to provide their guarantees through November 1, 1999 to ensure the continuation of the Registrant's mortgage financing. If the closing does not occur by that date, the Registrant will be required to refinance the present mortgage on the five properties. In the event the Settlement Stipulation is not approved by the court, or the Sale is not otherwise achieved, the Registrant will review alternatives for a disposition of its Assets. It is anticipated that any alternative liquidation plan will entail additional costs that the Sale to the Purchaser would not have required. There can be no assurance that the Registrant will be able to sell all of its Assets, or that any sales will exceed the prices offered by the Purchaser pursuant to the Purchase Agreement. However, it is anticipated that subject to the closing of the Purchase Agreement, the Registrant intends to liquidate in 1999. For the years ended December 31, 1998, December 31, 1997 and December 31, 1996, respectively, the following Properties' rental revenues were 15% or greater of the Registrant's total operating revenue:
1998 1997 1996 ---- ---- ---- Montrose Office Park 45% 44% 40% Poplar Towers 16% 17% 19% Park Plaza 15% -- --
Technical Resources, Inc., a tenant in the Montrose Office Park property, accounted for approximately 10% of the Registrant's total operating revenue for the years ended December 31, 1997 and December 31, 1996. General Partners The general partners of the Registrant are Prudential-Bache Properties, Inc. ('PBP'), and Glenborough 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 4 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 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, 1998, the Registrant owns the following properties:
Effective Average Annual Occupancy Rate at Rental Rate December 31, Land Net Rentable Per Square Location and Type 1998 (in acres) Square Footage Foot - - -------------------------------------- ------------------ ---------- -------------- -------------- Poplar Tower Memphis, TN Office building 94% 3.95 100,901 $11.20 Montrose Office Park Rockville, MD Office building complex 99% 18.42 186,680 $17.80
5
Effective Average Annual Occupancy Rate at Rental Rate December 31, Land Net Rentable Per Square Location and Type 1998 (in acres) Square Footage Foot - - -------------------------------------- ------------------ ---------- -------------- -------------- Totem Valley Business Center Kirkland, WA Industrial park 93% 10.40 121,645 $ 6.68 Gateway Plaza Sacramento, CA Office building 94% .87 50,556 $16.03 Park Plaza Sacramento, CA Office building 67% 1.37 71,226 $15.03 ---------- -------------- 35.01 531,008 ---------- -------------- ---------- --------------
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 occupancy rate at Park Plaza decreased to 67% at December 31, 1998 primarily as a result of the loss in the fourth quarter of 1998 of a major tenant which represented 24% of the rentable square footage. 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 16 in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. Item 3. Legal Proceedings This information is incorporated by reference to Note A to the consolidated financial statements in the Registrant's Annual Report which is filed as an exhibit hereto. 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 4, 1999, there were 4,741 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 6 distributions from operations are anticipated in the foreseeable future. However, the Registrant has entered into a Purchase Agreement to sell all of its Properties for cash. If the Purchase Agreement is consummated, distributions of the net proceeds and the remaining assets will be made to Unitholders. Furthermore, it is unlikely that investors will be returned a significant portion of their original investment upon the Sale of the Registrant's Properties and ultimate dissolution of the Registrant. 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 10 of the Registrant's Annual Report which is filed as an exhibit hereto.
Year ended November 1 Year ended December 31, through October 31, ---------------------------------------------- December 31, ----------- 1998 1997 1996 1995 1994(1) 1994 - - ----------------------------------------------------------------------------------------------------------- (in thousands except per unit amounts) Total revenue............ $ 7,662 $ 7,171 $ 6,414 $ 6,541 $ 1,125 $ 6,544 ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Gain on disposition of investments............ $ -- $ 82 $ 33 $ -- $ -- $ -- ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Net loss................. $(1,201) $(1,144) $(1,138) $(1,032) $ (122) $ (794) ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Net loss per Unit........ $(17.28) $(16.47) $(16.38) $(14.86) $ (1.76) $(11.43) ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Total assets............. $31,679 $32,621 $33,346 $34,388 $ 35,737 $36,110 ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Notes payable............ $26,650 $26,650 $26,650 $26,621 $ 26,862 $26,917 ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ ----------- Total cash distributions.......... $ -- $ -- $ -- $ -- $ -- $ -- ------- ------- ------- ------- ------------ ----------- ------- ------- ------- ------- ------------ -----------
(1) In November 1994, the General Partners approved a change in the Registrant's fiscal year for financial reporting purposes from October 31 to December 31. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 11 through 12 of the Registrant's Annual Report which is filed as an exhibit hereto. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K. Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 10 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. 7 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. 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 Brian J. Martin 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 BRIAN J. MARTIN, age 48, 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. Martin also serves in various capacities for other affiliated companies. Mr. Martin joined PSI in 1980. Mr. Martin is a member of the Pennsylvania Bar. BARBARA J. BROOKS, age 50, 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 53, is a Vice President of PBP. He is a Senior Vice President of PSI and serves in various capacities for other affiliated companies. 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 55, 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 56, is a Director of PBP. He is a Senior Vice President 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 48, is a Director of PBP. She is a Senior Vice President and Deputy General Counsel of PSI and supervises nonlitigation 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. 8 Glenborough and Robert Batinovich ROBERT BATINOVICH, age 62, 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 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. 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 Terri Garnick Chief Financial Officer June Gardner Director Laurence N. Walker Director ANDREW BATINOVICH, age 40, 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. Mr. Batinovich also serves as President, Chief Operating 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 37, 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 50, 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 an Executive 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. TERRI GARNICK, age 38, 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 9 controller at August Financial Corporation from 1986 to 1989 and was a Senior Accountant at Deloitte, Haskins and Sells from 1983 to 1986. She has a Bachelor of Science degree from San Diego State University. JUNE GARDNER, age 47, 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. LAURENCE N. WALKER, age 66, was elected a director of Glenborough Inland Realty Corporation (merged into Glenborough Corporation on June 30, 1997) on January 10, 1996. He has been a member of the California State Bar since 1963, and is an attorney specializing in in real estate law. Mr. Walker has been a director of Glenborough Corporation related entities since 1985. 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, Frank Austin and Laurence N. Walker and all of the preferred stock is owned by Glenborough Realty Trust Incorporated. As of March 4, 1999, no director or executive officer of PBP owns directly or beneficially any interest in the voting securities of PBP. As of March 4, 1999, no director or executive officer of either of the General Partners owns directly or beneficially any of the Units issued by the Registrant. As of March 4, 1999, 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, 1998 and December 31, 1997 3 Consolidated Statements of Operations--Years ended December 31, 1998, 1997 and 1996 4 Consolidated Statements of Changes in Partners' Capital--Years ended December 31, 1998, 1997 and 1996 4 Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997 and 1996 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, 1998, 1997 and 1996 III--Real Estate and Accumulated Depreciation--At December 31, 1998 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: 2 Consent Solicitation Statement dated May 28, 1998 filed on the Registrant's Proxy Statement on Schedule 14A and incorporated by reference. 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) 10(k) Purchase Agreement, dated as of Effective Date, by and among Registrant and Glenborough Realty Trust Incorporated and Glenborough Properties, L.P. (2) 10(l) Amendment to Purchase Agreement dated December 19, 1997 by and among Registrant and Glenborough Realty Trust Incorporated and Glenborough Properties, L.P. (2)
12 10(m) Second Amendment to Purchase Agreement dated April 27, 1998 by and among Registrant and Glenborough Realty Trust Incorporated and Glenborough Properties L.P. (2) 10(n) Third Amendment to Purchase Agreement, dated November 16, 1998 by and among Registrant, Glenborough Realty Trust Incorporated and Glenborough Properties, L.P. (incorporated by reference to the Registrant's Quarterly Report for the period ended September 30, 1998 filed on Form 10-Q) 13 Registrant's Annual Report to Unitholders for the year ended December 31, 1998 (with the exception of the information and data incorporated by reference in Items 3, 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) (b) Reports on Form 8-K--None
- - --------------- (1) Incorporated by reference to applicable exhibit included in Registrant's Current Report on Form 8-K dated December 20, 1996 (2) Incorporated by reference to applicable exhibit included in Registrant's Proxy Statement on Schedule 14A dated May 28, 1998 13 Deloitte & Touche LLP (LOGO) 50 Fremont Street San Francisco, California 94105-2230 Telephone: (415) 247-4000 Facsimile: (415) 247-4329 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, 1998 and 1997, and for each of the three years in the period ended December 31, 1998 and have issued our report thereon dated February 16, 1999; such financial statements and report are included in your 1998 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(a)2. 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 consolidated 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 16, 1999 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
Deductions-Amounts Balance at Year ended Balance at Additions-Amounts written-off end of December 31, beginning of year reserved during year during year year - - ------------ ----------------- -------------------- ------------------ ---------- 1998 $ 500,000 $ -- $ -- $ 500,000 1997 500,000 -- -- 500,000 1996 500,000 -- -- 500,000
15 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998 (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 $ 1,756 $ 1,678 $ 6,684 $ 8,362 Montrose Office Park Rockville, MD Office building complex -- 5,918 15,766 3,072 5,918 18,838 24,756 Totem Valley Business Center Kirkland, WA Industrial park -- 2,666 5,265 (379) 2,083 5,469 7,552 Gateway and Park Plaza Sacramento, CA Office buildings -- 1,163 9,075 1,943 1,163 11,018 12,181 Note Payable 26,650 ------------ ------- ------------- ------------- ------- ------------ --------- Totals $ 26,650 $11,425 $35,034 $ 6,392 $10,842 $ 42,009 $ 52,851 ------------ ------- ------------- ------------- ------- ------------ --------- ------------ ------- ------------- ------------- ------- ------------ --------- 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 $ 4,772 1974 5/01/86 30 years Montrose Office Park Rockville, MD Office building 3 to complex 9,352 1980-83 8/11/86 30 years Totem Valley Business Center Kirkland, WA 3 to Industrial park 3,027 1983-86 3/13/87 30 years Gateway and Park Plaza Sacramento, CA 3 to Office buildings 6,436 1982 6/15/87 30 years Note Payable ----------- Totals $23,587 ----------- -----------
16 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership NOTES TO SCHEDULE III December 31, 1998 (in thousands) NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
Year ended December 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Balance at beginning of period $ 52,444 $ 51,387 $ 50,605 Additions during period 407 1,057 810 ------------ ------------ ------------ 52,851 52,444 51,415 Cost of land conveyed -- -- (28) ------------ ------------ ------------ Balance at end of period $ 52,851 $ 52,444 $ 51,387 ------------ ------------ ------------ ------------ ------------ ------------
The allowance for loss on impairment for the above assets is $500 at December 31, 1998. 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, 1998 was $51,440. NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended December 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Balance at beginning of period $ 21,629 $ 19,634 $ 17,905 Additions during period 1,958 1,995 1,729 ------------ ------------ ------------ Balance at end of period $ 23,587 $ 21,629 $ 19,634 ------------ ------------ ------------ ------------ ------------ ------------
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 31, 1999 ---------------------------------------- Eugene D. Burak Vice President and Chief Accounting Officer By: Glenborough Corporation General Partner By: /s/ Andrew Batinovich Date: March 31, 1999 ---------------------------------------- Andrew Batinovich Chief Executive Officer and Chairman of the Board of Directors By: Robert Batinovich General Partner By: /s/ Robert Batinovich Date: March 31, 1999 ---------------------------------------- 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/ Brian J. Martin Date: March 31, 1999 ---------------------------------------- Brian J. Martin President, Chief Executive Officer, Chairman of the Board of Directors and Director By: /s/ Barbara J. Brooks Date: March 31, 1999 ---------------------------------------- Barbara J. Brooks Vice President-Finance and Chief Financial Officer By: /s/ Eugene D. Burak Date: March 31, 1999 ---------------------------------------- Eugene D. Burak Vice President By: /s/ Frank W. Giordano Date: March 31, 1999 ---------------------------------------- Frank W. Giordano Director By: /s/ Nathalie P. Maio Date: March 31, 1999 ---------------------------------------- Nathalie P. Maio Director 18 By: Glenborough Corporation and Robert Batinovich General Partners By: /s/ Robert Batinovich Date: March 31, 1999 ---------------------------------------- Robert Batinovich Individually By: /s/ Andrew Batinovich Date: March 31, 1999 ---------------------------------------- Andrew Batinovich Chief Executive Officer and Chairman of the Board of Directors By: /s/ Terri Garnick Date: March 31, 1999 ---------------------------------------- Terri Garnick Chief Financial Officer By: /s/ June Gardner Date: March 31, 1999 ---------------------------------------- June Gardner Director By: /s/ Laurence N. Walker Date: March 31, 1999 ---------------------------------------- Laurence N. Walker Director 19 EX-13 2 ANNUAL REPORT 1998 ANNUAL REPORT PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership 1 Deloitte & Touche LLP (LOGO) 50 Fremont Street San Francisco, California 94105-2230 Telephone: (415) 247-4000 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, 1998 and 1997 and the related consolidated statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership'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 statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Prudential-Bache/Equitec Real Estate Partnership at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP San Francisco, California February 16, 1999 2 PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited Partnership CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31, 1998 1997 - - ---------------------------------------------------------------------------------------------------- (in thousands) ASSETS Investment in property: Land $ 10,842 $ 10,842 Buildings, improvements and equipment 42,009 41,602 Less: Accumulated depreciation (23,587) (21,629) Allowance for loss on impairment of assets (500) (500) ------------ ------------ Net investment in property 28,764 30,315 Cash and cash equivalents 1,896 1,106 Prepaid expenses and other assets, net 1,019 1,200 ------------ ------------ Total assets $ 31,679 $ 32,621 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Note payable $ 26,650 $ 26,650 Due to affiliates 635 715 Accounts payable and accrued liabilities 1,003 664 Security deposits and deferred revenue 335 346 Real estate taxes payable 68 57 ------------ ------------ Total liabilities 28,691 28,432 ------------ ------------ Partners' capital Unitholders (68,795 depositary units issued and outstanding) 3,265 4,454 General partners (277) (265) ------------ ------------ Total partners' capital 2,988 4,189 ------------ ------------ Total liabilities and partners' capital $ 31,679 $ 32,621 ------------ ------------ ------------ ------------ - - ---------------------------------------------------------------------------------------------------- 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 December 31, ------------------------------- 1998 1997 1996 - - ----------------------------------------------------------------------------------------------------- (in thousands, except per depositary unit amounts) REVENUES Operating $ 7,238 $ 6,719 $ 5,987 Recovery of expenses 424 370 394 Gain on disposition of investments -- 82 33 ------- ------- ------- 7,662 7,171 6,414 ------- ------- ------- EXPENSES Property operating 2,898 2,628 2,873 Interest 2,465 2,471 2,429 Depreciation and amortization 2,339 2,600 2,025 General and administrative 1,161 616 225 ------- ------- ------- 8,863 8,315 7,552 ------- ------- ------- Net loss $(1,201) $(1,144) $(1,138) ------- ------- ------- ------- ------- ------- ALLOCATION OF NET LOSS Unitholders $(1,189) $(1,133) $(1,127) ------- ------- ------- ------- ------- ------- General partners $ (12) $ (11) $ (11) ------- ------- ------- ------- ------- ------- Net loss per depositary unit $(17.28) $(16.47) $(16.38) ------- ------- ------- ------- ------- ------- - - -----------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
GENERAL UNITHOLDERS PARTNERS TOTAL - - --------------------------------------------------------------------------------------------------- (in thousands) 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 Net loss (1,133) (11) (1,144) ----------- -------- ------- Partners' capital (deficit)--December 31, 1997 4,454 (265) 4,189 Net loss (1,189) (12) (1,201) ----------- -------- ------- Partners' capital (deficit)--December 31, 1998 $ 3,265 $ (277) $ 2,988 ----------- -------- ------- ----------- -------- ------- - - --------------------------------------------------------------------------------------------------- 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 December 31, -------------------------------- 1998 1997 1996 - - ----------------------------------------------------------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,201) $ (1,144) $(1,138) ------- -------- ------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,339 2,600 2,025 Lease concessions-effective rents 65 18 72 Gain on disposition of investments -- (82) (33) Leasing commissions paid (64) (405) (271) Changes in: Prepaid expenses and other assets (91) 15 196 Due to affiliates (80) 10 5 Accounts payable and accrued liabilities 339 398 (25) Security deposits and deferred revenue (11) 11 103 Real estate taxes payable 11 -- (16) ------- -------- ------- Total adjustments 2,508 2,565 2,056 ------- -------- ------- Net cash provided by operating activities 1,307 1,421 918 ------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Building and tenant improvements (407) (1,057) (810) Proceeds from disposition of investments -- 140 61 ------- -------- ------- Net cash used in investing activities (407) (917) (749) ------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loan refinancing -- -- 26,650 Principal payments on notes -- -- (26,621) Loan fees (110) (95) (307) ------- -------- ------- Net cash used in financing activities (110) (95) (278) ------- -------- ------- Net increase (decrease) in cash and cash equivalents 790 409 (109) Cash and cash equivalents at beginning of period 1,106 697 806 ------- -------- ------- Cash and cash equivalents at end of period $ 1,896 $ 1,106 $ 697 ------- -------- ------- ------- -------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 2,470 $ 2,338 $ 2,409 ------- -------- ------- ------- -------- ------- - - ----------------------------------------------------------------------------------------------------- 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 and Robert Batinovich (together, 'Glenborough') (collectively, the 'General Partners'). At December 31, 1998, the Partnership owned five properties. On October 13, 1997, the Partnership entered into a purchase agreement, as amended (the 'Purchase Agreement') with Glenborough Realty Trust Incorporated and a subsidiary partnership, Glenborough Properties, L.P., (together, the 'Purchaser'), which are affiliates of two of the Partnership's general partners, Glenborough Corporation and Robert Batinovich. Pursuant to the Purchase Agreement, the Partnership intends to sell to the Purchaser (the 'Sale') all of the Properties of the Partnership for cash. The Purchase Agreement provides for a purchase price equal to $47,145,000. The gross proceeds will be reduced by the mortgage debt as well as certain credits to the Purchaser, which, in addition to any credits for secured obligations which are assumed by the Purchaser approximates $629,000 as of February 28, 1999, if certain items of deferred maintenance at the Properties are not completed prior to the closing of the Sale. On May 28, 1998, a consent solicitation statement was sent to Unitholders, who owned interests in the Partnership on April 1, 1998, seeking approval for the Sale ('Consent Solicitation'). As of the termination of the consent solicitation period on July 13, 1998, the requisite vote of Unitholders had consented to the Sale and the liquidation of the Partnership. On June 26, 1998, a purported class action entitled Arthur Unger v. Prudential-Bache Properties, Inc., Glenborough Corporation, et.al., was filed in the Supreme Court of the State of New York, County of New York (the 'Unger Action'). The Unger Action claims, among other things, that the General Partners of the Partnership breached their fiduciary duty to the Unitholders of the Partnership by, among other things, failing to act reasonably to maximize the distributions to be made to Unitholders pursuant to the proposed liquidation of the Partnership. In particular, the Unger Action claims that in considering the advisability of offers made for one or more of the Partnership's real properties (the 'Properties') and direct and indirect interests in a joint venture whose sole asset is one real property (the 'Interests,' and, together with the Properties, the 'Assets'), the General Partners failed to use their best efforts to obtain the highest possible bid. The Unger Action also claims that the consideration for which the General Partners have agreed to sell the Assets pursuant to the Purchase Agreement to the Purchaser is inadequate in that it is $2,000,000 less than the appraised fair market value of the Assets. Moreover, the Unger Action alleges that the Consent Solicitation disseminated by the General Partners in connection with the proposed liquidation of the Partnership, contains certain representations which are materially false and misleading. The Unger Action seeks declaratory and compensatory relief and attorneys' fees and experts' fees. Prior to the scheduled closing of the Sale on July 31, 1998, the Purchaser advised the Partnership that it had elected not to proceed with the closing because of the pendency of the Unger Action. Thereafter, on November 19, 1998, the parties to the Unger Action entered into a Stipulation of Settlement ('Settlement Stipulation'), which will allow the Sale pursuant to the Purchase Agreement to go forward. Among other things, the Settlement Stipulation provides that the Purchaser will deposit $2,000,000 with plaintiffs' counsel on the date of the closing of the Sale (the 'Settlement Consideration'). The Settlement Consideration will be used to pay certain costs, expenses and attorneys' fees related to the Unger Action and the remainder will be distributed to all eligible Unitholders. As required by the Settlement Stipulation, on November 16, 1998, the Partnership and the Purchaser entered into a Third Amendment to Purchase Agreement, pursuant to which the parties agreed, among other things; (a) to extend the closing date to a date not more than thirty (30) days after (i) the expiration of the appeals period after the entry of a final judgment approving the Settlement Stipulation, and (ii) the satisfaction of any remaining conditions to 6 closing, subject to the Purchaser's right to extend the closing date for a period of up to thirty (30) days for the purpose of facilitating a Section 1031 exchange; (b) that if the closing does not occur on or before September 1, 1999, the transaction shall be terminated and the Purchaser shall be entitled to a refund of its $1,000,000 earnest money deposit; and (c) that if the closing occurs after March 31, 1999, all prorations and adjustments to the purchase price shall nonetheless be made as of March 31, 1999 (the 'Effective Closing Date'), thereby shifting to the Purchaser the risks of loss and the prospects of gain with respect to the Assets as of the Effective Closing Date. The court preliminarily approved the Stipulation Settlement on November 24, 1998. On February 16, 1999, a settlement hearing was held at which there were no objectors. A final order to approve the Stipulation Settlement, among other matters, has been submitted to the court and is presently awaiting the court's signature. Mr. Robert Batinovich and the Glenborough Corporation, who played key roles in ensuring that mortgage financing was available to the Partnership under difficult conditions a few years ago by providing certain guarantees, have agreed to continue to provide their guarantees through November 1, 1999 to ensure the continuation of the Partnership's mortgage financing. If the closing does not occur by that date, the Partnership will be required to refinance the present mortgage on the five properties. In the event the Settlement Stipulation is not approved by the court, or the Sale is not otherwise achieved, the Partnership will review alternatives for a disposition of its Assets. It is anticipated that any alternative liquidation plan will entail additional costs that the Sale to the Purchaser would not have required. There can be no assurance that the Partnership will be able to sell all of its Assets, or that any sales will exceed the prices offered by the Purchaser pursuant to the Purchase Agreement. However, it is anticipated that subject to the closing of the Purchase Agreement, the Partnership intends to liquidate in 1999. Certain expenses, relating to lease commissions, lease concessions and loan fees, have been deferred, although previously paid, and are amortized over the terms of the respective leases or loans (see Note B below). At the closing of the Sale, the remaining amount of these deferred items would be expensed. As of December 31, 1998, the amount of such deferred items approximates $800,000 which is reflected in 'Prepaid expenses and other assets, net' in the Consolidated Statements of Financial Position. 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 consolidated financial statements of the Partnership include the accounts of Montrose Office Park Limited Partnership, in which the Partnership owns a 99.992% general partnership interest. Investment in property The Partnership's investment in property is held for use and is recorded at depreciated cost absent any impairment loss. If a property is determined to be impaired, it is recorded at the lower of its carrying value or its estimated fair value. 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. Cash and cash equivalents Cash and cash equivalents include money market funds whose cost approximates market value. 7 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, ------------------------------- 1998 1997 1996 ------- ------- ------- (in thousands) Net loss, financial reporting basis $(1,201) $(1,144) $(1,138) Book depreciation in excess of tax depreciation 669 722 481 ------- ------- ------- Net loss, income tax basis $ (532) $ (422) $ (657) ------- ------- ------- ------- ------- -------
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 Note Payable The Partnership's properties, net of accumulated depreciation, and the related debt at December 31, 1998 and 1997 were:
Investment Note Payable ------------------- ------------------- Property 1998 1997 1998 1997 - - ---------------------------------------------------------------------------------------------------- (in thousands) Montrose Office Park, Rockville, MD $15,404 $16,270 $ -- $ -- Gateway and Park Plaza, Sacramento, CA 5,745 6,156 -- -- Totem Valley Business Center, Kirkland, WA 4,525 4,716 -- -- Poplar Tower, Memphis, TN 3,590 3,673 -- -- Less: allowance for loss on impairment of assets (500) (500) -- -- Note payable -- -- 26,650 26,650 ------- ------- ------- ------- $28,764 $30,315 $26,650 $26,650 ------- ------- ------- ------- ------- ------- ------- -------
The Note from Wells Fargo Bank ('WFB') is in the amount of $26,650,000 (which approximates the total amount of the individual notes on each of the five properties). The Note bears interest at LIBOR 3.5% (i.e., 9.13% at December 31, 1998) reset monthly and matured on December 9, 1997. On December 9, 1997, the Partnership entered into a modification agreement with WFB pursuant to which WFB agreed to extend the maturity date of the Note until March 9, 1998. The Partnership has since entered into additional modifications extending the maturity date of the Note until November 1, 1999. The Note 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. 8 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) - - ---------------- -------------- 1999 $ 6,785 2000 5,140 2001 3,589 2002 2,313 2003 1,338 Thereafter 9,011 -------------- Total $ 28,176 -------------- --------------
For the years ended December 31, 1998, December 31, 1997, December 31, 1996, respectively, the following properties' rental revenues were 15% or greater of the Partnership's total operating revenue:
1998 1997 1996 ---- ---- ---- Montrose Office Park 45% 44% 40% Poplar Towers 16 17 19 Park Plaza 15 -- --
During the years ended December 31, 1997 and December 31, 1996, Technical Resources, Inc., a tenant in the Montrose Office Park property, accounted for approximately 10% of the Partnership's total operating revenue. 9 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:
Year ended December 31, ------------------------- 1998 1997 1996 - - ---------------------------------------------------------------------------------------------------- (in thousands) PBP and affiliates General and administrative $138 $124 $ 60 ----- ----- ----- Glenborough Corporation and affiliates Property management fee and expenses 622 686 634 Leasing commissions 15 119 131 ----- ----- ----- 637 805 765 ----- ----- ----- $775 $929 $825 ----- ----- ----- ----- ----- -----
During the year ended December 31, 1998, PBP was reimbursed $300,000, which was applied to prior years' general and administrative expenses due. At December 31, 1998 and 1997, the total liability outstanding to PBP was $540,000 and $715,000, respectively. In February 1999, PBP was fully reimbursed for general and administrative expenses (except printing) due as of December 31, 1998. 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, 1998. 10 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, 1998. During the year ended December 31, 1998, the Partnership incurred $407,000 for building and tenant improvements primarily at the Park Plaza and Poplar Towers properties. In order to keep the Partnership's properties competitive, building and tenant improvements will continue to be required. Building and tenant improvements for 1999 are currently budgeted for approximately $600,000. The Partnership had cash of $1,896,000 at December 31, 1998. During the year ended December 31, 1998, PBP was reimbursed $300,000, which was applied to prior years' general and administrative expenses due. At December 31, 1998, the total liability outstanding (including printing) was $540,000. In February 1999, PBP was fully reimbursed for general and administrative expenses (except printing) due as of December 31, 1998. The Partnership in December 1996 consolidated and refinanced all of the existing notes on the five properties. The new Note in the amount of $26,650,000 is secured by all of the properties and matured in December 1997. The Partnership entered into a modification agreement with the lender in December 1997, pursuant to which the lender agreed to extend the maturity date of the Note until March 9, 1998. The Partnership has since entered into additional modifications extending the maturity date of the Note until November 1, 1999. The Partnership has entered into a Purchase Agreement to sell all of its Properties for cash. (See Note A to consolidated financial statements.) 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 1998 versus 1997 The Partnership's net loss increased $57,000 for the year ended December 31, 1998 as compared to 1997 for the reasons discussed below. Property operating revenue increased $519,000 for the year ended December 31, 1998 as compared to 1997 due to increases at the Montrose Office Park and Park Plaza properties. The increase at both properties was due to higher average occupancy during 1998 as compared to 1997. Property operating expenses increased $270,000 for the year ended December 31, 1998 as compared to 1997 due to increases at Montrose Office Park, Poplar Towers and Park Plaza. The increase at Montrose Office Park was mainly due to higher maintenance and janitorial salaries; at Poplar Towers mainly due to higher property taxes and utility costs and at Park Plaza mainly due to higher janitorial salaries. Depreciation and amortization decreased $261,000 for the year ended December 31, 1998 as compared to 1997 primarily due to the decrease in the amortization of loan fees during 1998. General and administrative expenses increased $545,000 for the year ended December 31, 1998 as compared to 1997 primarily due to higher professional fees incurred in connection with the Partnership's Consent Solicitation and legal fees associated with resolving the Unger Action described in Note A to the consolidated financial statements. 1997 versus 1996 The Partnership's net loss increased only $6,000 for the year ended December 31, 1997 as compared to 1996 for the reasons discussed below. Property operating revenue increased $732,000 for the year ended December 31, 1997 as compared to 1996 primarily due to an increase at Montrose Office Park in the amount of $587,000 as a result of increased occupancy in addition to moderate increases in revenues at the Partnership's other properties. 11 The Partnership recorded a gain of $82,000 from the disposition of an investment in a captive insurance company for the year ended December 31, 1997. Property operating expenses decreased $245,000 for the year ended December 31, 1997 as compared to 1996 due primarily to decreases at Montrose Office Park, Poplar Towers, and Park Plaza. Depreciation and amortization increased $575,000 for the year ended December 31, 1997 as compared to 1996 primarily due to the amortization of loan fees relating to the mortgage refinancing in addition to an increase in depreciation as a result of increased building and tenant improvement additions. General and administrative expenses increased $391,000 for the year ended December 31, 1997 as compared to 1996 primarily due to professional fees incurred in connection with the Partnership preparing a consent solicitation statement to the Unitholders in connection with the proposed sale of the Partnership's Properties. Year 2000 As the Partnership is expected to be liquidating in 1999 and will not have operations in the year 2000, the General Partners do not believe it is appropriate to include a discussion of the Year 2000. 12 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 13 1998 - - -------------------------------------------------------------------------------- Prudential-Bache/Equitec Annual Real Estate Partnership Report P.O. Box 2016 Peck Slip Station BULK RATE New York, NY 10272 U.S. POSTAGE PAID Automatic Mail PBEQ86/170368 EX-27 3 ART. 5 FDS FOR 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-31-1998 Jan-1-1998 Dec-31-1998 12-Mos 1,896,000 0 1,019,000 (500,000) 0 0 52,851,000 (23,587,000) 31,679,000 2,041,000 26,650,000 0 0 0 2,988,000 31,679,000 7,662,000 7,662,000 0 0 6,398,000 0 2,465,000 0 0 0 0 0 0 (1,201,000) (17.28) 0
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