Item 1. Business
General
Prudential Realty Acquisition Fund II, L.P. (the ``Registrant ''), a Delaware limited partnership, was formed on August 10, 1984 and will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the ``Partnership Agreement''). The Registrant was formed to acquire and manage income-producing commercial real estate with proceeds raised from the initial sale of 44,503 limited partnership units (``Units''). The Registrant's fiscal year for book and tax purposes ends on December 31.
The Registrant has invested in and operates a real estate investment portfolio consisting of four properties and a mortgage loan. These commercial real estate properties consist of an office building, a warehouse and two shopping centers. The shopping centers were acquired through a joint venture agreement with Prudential Acquisition Fund I, L.P., an affiliated limited partnership. The two shopping centers owned by the joint venture were sold on March 26, 1996 for a gross sales price of $15,500,000 less costs to sell. The Registrant is engaged solely in the business of real estate investment; therefore, presentation of industry segment information is not applicable. For more information regarding the Registrant's operations, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.
As the economy has improved in certain of the markets relating to the Registrant's properties, the market for commercial real estate has also generally improved. While property values continue to be below the levels reached in the mid-1980's, investment capital is more readily available and investor interest in acquiring certain types of real estate has increased. See Note C to the financial statements of the Registrant's Annual Report to Limited Partners for the year ended December 31, 1995 (``Registrant's Annual Report'') which is filed as an exhibit hereto for additional information.
In January 1996, the General Partners mailed to all limited partners a Consent Solicitation Statement (the ``Statement'') asking for their written consent to approve (i) a plan of sale of the remaining assets of the Registrant and (ii) the complete liquidation and dissolution of the Partnership, as more fully described in the Statement. On March 11, 1996, the limited partners holding a majority of the Units approved the plan of sale and complete liquidation and dissolution of the Registrant. Although no time schedule has been adopted for this plan, the Registrant does expect to begin to actively market all of its properties in 1996. It is not expected that the Registrant's eventual total distributions, including sales proceeds, will equal the partners' initial investments.
The mortgage loan is subject to an agreement effective March 6, 1996 by which a purchaser has agreed to purchase the mortgage loan for $400,000. See Notes D and J to the financial statements of the Registrant's Annual Report which is filed as an exhibit hereto.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc. (``PBP'') and Prudential Realty Partnerships, Inc. (``PRP'') (collectively, the ``General Partners'').
Competition
The General Partners and/or their affiliates have formed, and may continue to form, various entities to engage in businesses which may compete with the Registrant while it continues to operate its properties.
The real estate industry is highly competitive. The Registrant's properties are subject to competition in connection with both their operation and sale from similar properties located in the immediate vicinity of these properties. See Item 2
Item 2 Properties.
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. See Note H to the financial statements in the Registrant's Annual Report which is filed as an exhibit hereto.
Item 2. Properties
As of December 31, 1995 the Registrant owns the following properties:
- --------------- Square footage and average rental rates per square foot information reflects current data as obtained from third-party appraisals. Gross rental rates indicate the landlord pays the operating and fixed expenses and net rental rates indicate the tenant pays the operating and fixed expenses.
** 46% interest held by the Registrant. These properties were sold on March 26, 1996.
The Registrant's warehouse in Rancho Cucamonga, California was leased to TASH Distribution (``TASH''). In December 1995, the Registrant was notified that TASH had made a general assignment for the benefit of creditors and would vacate the building, which it did, in March 1996. The Registrant is presently seeking to re-lease the property. Revenues from this property represented 54%, 57% and 56% of the Registrant's rental income from directly-owned properties for the years ended December 31, 1995, 1994 and 1993, respectively.
The Eight Forge Park industrial office building located in Franklin (suburban Boston), Massachusetts is leased to Thermo Instrument Systems, Inc. under a lease expiring in June 1997. One of two subsidiaries of the tenant, representing 70% of the leased space, vacated its space in the third quarter of 1995. However, the tenant continues to honor its lease commitment. Revenues from Eight Forge Park represented 46%, 43% and 44% of the Registrant's rental income from directly-owned properties for the years ended December 31, 1995, 1994 and 1993, respectively.
In May 1985, the Prudential Acquisition Fund I, L.P. (``PAF''), an affiliated limited partnership, and The Prudential Insurance Company of America (``The Prudential''), through the Ridge Plaza Joint Venture (the ``Joint Venture''), acquired two shopping centers, Pine Island Ridge Plaza (``Pine Island'') and Ridge Plaza (collectively, the ``Joint Venture Properties''), located in Davie, Broward County, Florida. The Registrant purchased from The Prudential its 46% interest in the Joint Venture. The Registrant's share of the Joint Venture's net income (loss) is recorded as revenue (``Joint venture equity income (loss)'') in the Registrant's Statements of Operations. The carrying value of the Joint Venture's properties was reduced by $850,000 during the second quarter of 1995 to reflect an impairment in value resulting from lease defaults and market indications. In the fourth quarter of 1995, the Joint Venture recorded an additional provision for loss on impairment of assets of $1,500,000 to reflect the gross sales price less costs to sell from the sale of the two shopping centers on March 26, 1996. See Notes B and C to the Joint Venture's financial statements which
are filed as an exhibit hereto for further information. One tenant at Pine Island, Builders Square (whose lease expires in 2003), accounted for 16%, 16% and 13% of the revenues of the Joint Venture for the years ended December 31, 1995, 1994 and 1993, respectively.
The estimated fair value of the Registrant's properties, based on third-party appraisals as of December 31, 1995 and the Registrant's pro rata share of the estimated net proceeds from the sale of the Joint Venture's properties, was $16,700,000. Appraised values are only estimates of fair value and should not be relied on as a measure of immediately realizable value. Estimated values may fluctuate with changes in the real estate and financial markets, economic conditions and other factors including the anticipated performance of the properties, property type and geographic location.
The General Partners believe the Registrant's properties are adequately insured.
For additional information describing the Registrant's properties, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Schedule III-Real Estate and Accumulated Depreciation on page 13 in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3.
Item 3. Legal Proceedings
This information is incorporated by reference to Note I to the financial statements in the Registrant's Annual Report which is filed as an exhibit hereto.
Item 4.
Item 4. Submission of Matters to a Vote of Limited Partners
There were no matters which were submitted to limited partners during the quarter ended December 31, 1995. However, in January 1996, a Consent Solicitation Statement was sent to all limited partners. See Item 1 for further information.
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 1, 1996, there were 5,966 holders of record owning 44,503 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 the Partnership Agreement limiting the ability of a Limited Partner 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.
The following per Unit cash distributions were paid to Limited Partners, during the quarter indicated:
There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Registrant's Partnership Agreement. In December 1995, Tash Inc., the sole tenant of the warehouse facility in Rancho Cucamonga, became insolvent and closed its operations. As a result, the Registrant expects to have reduced cash flow in 1996 and unless a new tenant can be found in the near future, the Registrant may have to lower future distributions. Furthermore, as a result of the approval by the limited partners holding a majority of the Units of the plan of sale and liquidation of the Partnership and the sale of the two shopping center properties, future cash distributions may be significantly impacted. The distributions paid to limited partners during 1995 and 1994 represent a return of capital on a generally accepted accounting principles (GAAP) basis. (The return of capital on a GAAP basis is calculated as limited partner distributions less net income allocated to limited partners.) For a discussion of other factors that may affect future distributions, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 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 financial statements of the Registrant and the notes thereto contained on pages 2 through 11 in the Registrant's Annual Report which is filed as an exhibit hereto.
(a) Includes $1,081,000, $6,463,000 and $1,426,000 provisions for loss on impairment of assets in 1995, 1993 and 1992, respectively.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This information is incorporated by reference to pages 12 through 15 of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 11 of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
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 Form 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, if any, 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:
THOMAS F. LYNCH, III, age 37, 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 47, 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 50, 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 52, is a 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 53, 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, Inc., 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 45, 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 various capacities for other affiliated companies.
James M. Kelso ceased to serve as President, Chief Executive Officer, Chairman of the Board of Directors and Director effective June 30, 1995. Effective June 30, 1995, Thomas F. Lynch, III was elected President, Chief Executive Officer, Chairman of the Board of Directors and Director. Robert J. Alexander ceased to serve as Vice President effective August 25, 1995. Eugene D. Burak was elected Vice President effective October 9, 1995.
There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and executive officers have indefinite terms.
Prudential Realty Partnerships, Inc.
The directors and executive officers of Prudential Realty Partnerships, Inc. and their positions are as follows:
JOEL W. STOESSER, age 55, is a Managing Director of Prudential Real Estate Investors. He is head of Investment Advisory Services, which includes responsibility for portfolio management and asset management of separate accounts and certain co-investment programs and commingled funds. Prior to his current assignment, Mr. Stoesser served as a Senior Vice President of the Prudential Realty Group. Prior to joining Prudential in 1988, he also served as a Senior Vice President in Real Estate Investment Management at CIGNA Corporation and held assignments with Connecticut General Life Insurance Company as head of real estate operations and as Director of strategic planning for all investment operations.
DAVID BRADFORD, age 42, is a Managing Director of Prudential Real Estate Investors. He is the portfolio manager of PRISA, a large commingled fund. Prior to joining Prudential in 1995, Mr. Bradford was a Senior Vice President in Portfolio Management at Equitable Real Estate. His 13-year tenure at Equitable included positions in pension investment marketing across all asset classes, real estate product management and portfolio operations and investment. Most recently (1991-1995), Mr. Bradford was Assistant Portfolio Manager for Equitable's $3.2 billion flagship equity real estate portfolio Prime Property Fund.
KEVIN R. SMITH, age 38, is a Vice President of Prudential Real Estate Investors. He is a portfolio manager for four separate accounts and two commingled funds. Mr. Smith has been employed by The Prudential since 1981 and has experience in asset management, development, property acquisitions and sales, and mortgage loans as a result of field office assignments in Cleveland, Houston, and Northern New Jersey.
JOSE GENER, age 45, is a Vice President with The Prudential Asset Management Group. In his present assignment, he is responsible for accounting policy and reporting as well as the control structure for the institutional real estate management arm of PAMG. Mr. Gener has been with the Prudential since 1977, serving in a series of comptrollership assignments. Since 1986 he has worked primarily with the investment management units of The Prudential.
C. EDWARD CHAPLIN, age 39, is Vice President and Treasurer of the Prudential Insurance Company of America. He is responsible for all borrowings, cash management and securities custody activities of The Prudential. Mr. Chaplin joined Prudential in the Realty Group in August 1983. In May 1992, he transferred to the Treasurer's Department as Vice President and Assistant Treasurer, with responsibility for Banking and Cash Management. In October 1993, he was promoted to Managing Director and Assistant Treasurer, with responsibility for managing Prudential's debt issuance, its relationships with the major credit rating agencies and financial counterparty credit analysis. In November 1995, Mr. Chaplin was appointed to Vice President and Treasurer.
ROGER S. PRATT, age 43, is Managing Director of Prudential Real Estate Investors. He is the portfolio manager of PRISA II, a large commingled fund. Mr. Pratt joined the Prudential Realty Group in June 1982 as an asset manager in the Atlanta regional office and subsequently has served in a variety of positions for the company. Prior to assuming his current position in February 1992, Mr. Pratt was Vice President in charge of the New Jersey regional office.
JOSEPH D. MARGOLIS, age 35, is Assistant General Counsel responsible for the provision and coordination of legal services to Prudential Real Estate Investors as well as other Prudential Asset Management Group Real Estate entities. His assignments with Prudential have included counsel to The Prudential Mortgage Capital Company, Inc. and Associate Regional Counsel in the Boston Realty Group office. Prior to joining Prudential, Mr. Margolis was employed by Nutter, McClennen & Fish in Boston, Massachusetts.
Claude J. Zinngrabe, Jr. ceased to serve as director effective December 8, 1995. Effective August 7, 1995, Jose Gener was elected Vice President and Comptroller. Effective August 7, 1995, Steven B. Saperstein ceased to serve as Vice President and Comptroller. John C. Hoffman ceased to serve as Director and President and Martin Pfinsgraff ceased to serve as Treasurer effective December 11, 1995. Effective December 11, 1995, C. Edward Chaplin was elected Treasurer and David Bradford was elected Director and President.
There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing executive officers and directors have indefinite terms.
Item 11.
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 executive officers and directors of the General Partners receive compensation from affiliates of the General Partners, 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1996, no director or executive officer of either of the General Partners owns directly or beneficially any interest in the voting securities of the General Partners.
As of March 1, 1996, 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 1, 1996, no limited partner beneficially owns more than five percent (5%) of the outstanding Units issued by the Registrant.
Item 13.
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 executive officers of the General Partners.
Reference is made to Notes A and H to the financial statements of the Registrant's Annual Report which is filed as an exhibit hereto, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services. The Joint Venture's relationship with the General Partners is described in Notes A and F of the Joint Venture's financial statements and notes thereto on pages 15 through 21 herein.
PART IV
INDEPENDENT AUDITORS' REPORT
To the Partners of Prudential Realty Acquisition Fund II, L.P. New York, New York
We have audited the financial statements of Prudential Realty Acquisition Fund II, L.P. (a Delaware Limited Partnership) as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated March 26, 1996; such financial statements and report thereon are included in your 1995 Annual Report to Limited Partners and are incorporated herein by reference. Our audits also included the financial statement schedules of Prudential Realty Acquisition Fund II, L.P., listed in Item 14.
Item 14. These financial statement schedules are the responsibility of the General Partners. 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.
Deloitte & Touche LLP
March 26, 1996
PRUDENTIAL REALTY ACQUISITION FUND II, L.P. (a limited partnership) Schedule III--Real Estate and Accumulated Depreciation December 31, 1995
(A) Initial cost represents the initial purchase price of the properties including acquisition fees.
(B) There are no encumbrances against any of the properties.
(C) The aggregate cost of the real estate owned for Federal income tax purposes is $14,280,868
(D) Reconciliation of Real Estate Owned:
(E) Reconciliation of Accumulated Depreciation:
(F) Costs Capitalized Subsequent to Acquisition includes noncash write-downs of $2,400,000.
PRUDENTIAL REALTY ACQUISITION FUND II, L.P. (a limited partnership) Schedule IV--Mortgage Loan on Real Estate December 31, 1995
The mortgage loan matured on May 15, 1993 with a balance due of $1,389,852. The borrower remains in default. The Registrant recorded allowances for loan losses of $884,852 in 1993 and $150,000 in the third quarter of 1995. The third quarter 1995 provision was reversed as of December 31, 1995 to reflect the estimated sales proceeds based upon an agreement effective March 6, 1996 by which a purchaser has agreed to purchase the mortgage loan for $400,000. Subject to the conditions in the agreement, the Partnership will assign the mortgage to the purchaser at closing, presently scheduled for March 29, 1996 but in no event later than April 4, 1996. The purchaser is accepting the assignment of the mortgage and any responsibility it may incur from such assignment for any further remediation costs at the underlying property. However, there is no assurance that the sale will be consummated.
(a) Periodic Payment Terms--The mortgage loan plus interest was collected at level amounts over its life to maturity, with a balloon payment due and payable at maturity. The balance due at maturity (May 1993) was $1,389,852.
INDEPENDENT AUDITORS' REPORT
To the Partners of Ridge Plaza Joint Venture New York, New York
We have audited the accompanying statements of financial condition of Ridge Plaza Joint Venture as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Joint Venture Partners. 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 the Joint Venture Partners, 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 financial statements present fairly, in all material respects, the financial position of Ridge Plaza Joint Venture as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 26, 1996
RIDGE PLAZA JOINT VENTURE STATEMENTS OF FINANCIAL CONDITION
RIDGE PLAZA JOINT VENTURE STATEMENTS OF OPERATIONS
RIDGE PLAZA JOINT VENTURE STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
RIDGE PLAZA JOINT VENTURE STATEMENTS OF CASH FLOWS
RIDGE PLAZA JOINT VENTURE NOTES TO FINANCIAL STATEMENTS
A. General
Ridge Plaza Joint Venture (the ``Joint Venture'') is a joint venture formed on May 8, 1985 which will terminate on May 8, 2025 unless ended sooner under the provisions of the joint venture agreement (the ``Joint Venture Agreement''). The Joint Venture was formed to acquire and manage two shopping centers, Ridge Plaza Shopping Center and Pine Island Ridge Plaza Shopping Center, located in Davie, Broward County, Florida. The co-venturers are Prudential Acquisition Fund I, L.P. (``PAF I'') and Prudential Realty Acquisition Fund II, L.P. (``PRAF II''). PAF I and PRAF II are Delaware limited partnerships of which Prudential-Bache Properties, Inc. (``PBP'') and Prudential Realty Partnerships, Inc. (``PRP'') are the co-general partners.
The two shopping centers owned by the Joint Venture were sold on March 26, 1996 for a gross sales price of $15,500,000 less costs to sell.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Joint Venture 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 co-venturers 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.
Property
Effective December 31, 1995, the Joint Venture adopted Statement of Financial Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No. 121, impairment of properties to be held and used is determined to exist when estimated amounts recoverable through future operations on an undiscounted basis are below the properties' carrying value. If a property is determined to be impaired, it should be recorded at the lower of its carrying value or its estimated fair value. For properties that are held for sale, SFAS No. 121 states that they should be recorded at the lower of carrying amount or estimated fair value less costs to sell. At December 31, 1995, the Joint Venture's properties are recorded at the gross sales price less costs to sell, and the Joint Venture has ceased depreciating the properties for financial statement purposes only.
Prior to December 31, 1995, the Joint Venture carried its property investments at the lower of depreciated cost or estimated amounts recoverable through future operations and ultimate disposition of the property. Property investments were depreciated or amortized using the straight-line method over their estimated economic lives which ranged from 5 to 35 years depending on property type. A provision for loss on impairment of assets was recorded when estimated amounts recoverable through future operations and ultimate disposition of the property on a undiscounted basis were below depreciated cost. However, property investments were reduced to estimated fair value when the property was considered to be permanently impaired and the depreciated cost exceeded the estimated fair value.
Buildings and improvements include furniture and fixtures, tenant improvements and capitalized leasing costs. Tenant improvements and capitalized leasing costs were amortized over the lives of their respective leases. Capitalized leasing costs, net of accumulated amortization were $107,438 and $130,733 at December 31, 1995 and 1994, respectively.
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates market value.
Income taxes
The Joint Venture is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed to the individual partners. The Joint Venture may be subject to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
For financial reporting purposes, net profits or losses are allocated 54% to PAF I and 46% to PRAF II.
Distributions of cash are made in accordance with the Joint Venture Agreement and are allocated 54% to PAF I and 46% to PRAF II.
C. Property
The Joint Venture's properties are comprised of the following:
The carrying value of the Joint Venture's properties were reduced by $850,000 during the second quarter of 1995 to reflect an impairment in value resulting from lease defaults and market indications. In the fourth quarter of 1995, the Joint Venture recorded a provision for loss on impairment of assets of $1,500,000 to reflect the estimated net proceeds received from the sale of the two shopping centers on March 26, 1996.
The Joint Venture's properties were considered to be impaired in 1993 because declines in net operating income had continued for an extended period of time and the trend was not expected to change in the foreseeable future. Accordingly, a write-down of $17,150,000 was recorded at December 31, 1993 to reduce the Joint Venture's properties to estimated fair value based on third party appraisals. This consisted of a provision for loss on impairment of $14,050,000 and the utilization of a $3,100,000 valuation allowance recorded in 1992.
D. Income Taxes
The following is a reconciliation of net income (loss) for financial reporting purposes with net income (loss) for tax reporting purposes.
The differences between the tax basis and book basis of partners' capital are primarily attributable to the cumulative effect of the book-to-tax income (loss) adjustments.
E. Leases
The Joint Venture has noncancellable operating leases at its two shopping centers. One tenant, Builders Square (whose lease expires in 2003) accounted for 16%, 16% and 13% of the revenues of the Joint Venture for the years ended December 31, 1995, 1994 and 1993, respectively. Future minimum base lease receipts at December 31, 1995 due under these noncancellable leases are as follows:
In addition, certain of the leases require the lessees to reimburse the Joint Venture for real estate taxes, insurance costs and other expenses.
F. Related Parties
The general partners of the co-venturers and their affiliates perform services for the Joint Venture which include, but are not limited to: accounting and financial management, asset management and other administrative services. The amount of reimbursement from the Joint Venture is limited by the provisions of the Joint Venture Agreement. The costs and expenses incurred on behalf of the Joint Venture which are reimbursable to the general partners of the co-venturers and their affiliates were:
Expenses payable to the general partners of the co-venturers and their affiliates (which are included in accrued expenses) as of December 31, 1995 and 1994 were $22,400 and $19,900, respectively.
The Joint Venture maintains an account with the Prudential Institutional Liquidity Portfolio Fund, an affiliate of the co-venturers, for investment of its available cash in short-term instruments pursuant to the guidelines established by the Joint Venture Agreement.
G. Subsequent Event
The two shopping centers owned by the Joint Venture were sold on March 26, 1996 for a gross sales price of $15,500,000 less costs to sell.
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 REALTY ACQUISITION FUND II, L.P.
By: Prudential-Bache Properties, Inc. A Delaware corporation, General Partner By: /s/ Eugene D. Burak Date: March 29, 1996 ---------------------------------------- Eugene D. Burak Vice President and Chief Accounting Officer
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, General Partner By: /s/ Thomas F. Lynch, III Date: March 29, 1996 ---------------------------------------- Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the Board of Directors and Director By: /s/ Barbara J. Brooks Date: March 29, 1996 ---------------------------------------- Barbara J. Brooks Vice President-Finance and Chief Financial Officer By: /s/ Eugene D. Burak Date: March 29, 1996 ---------------------------------------- Eugene D. Burak Vice President By: /s/ Frank W. Giordano Date: March 29, 1996 ---------------------------------------- Frank W. Giordano Director By: Nathalie P. Maio Date: March 29, 1996 ---------------------------------------- Nathalie P. Maio Director
By: Prudential Realty Partnerships, Inc. A Delaware corporation, General Partner By: /s/ Joel W. Stoesser Date: March 29, 1996 ---------------------------------------- Joel W. Stoesser Chairman of the Board of Directors By: /s/ David Bradford Date: March 29, 1996 ---------------------------------------- David Bradford President and Director By: /s/ Kevin R. Smith Date: March 29, 1996 ---------------------------------------- Kevin R. Smith Vice President and Director By: /s/ Jose Gener Date: March 29, 1996 ---------------------------------------- Jose Gener Vice President and Comptroller By: /s/ C. Edward Chaplin Date: March 29, 1996 ---------------------------------------- C. Edward Chaplin Treasurer By: /s/ Roger S. Pratt Date: March 29, 1996 ---------------------------------------- Roger S. Pratt Director By: /s/ Joseph D. Margolis Date: March 29, 1996 ---------------------------------------- Joseph D. Margolis Secretary