SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-9541
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BALCOR EQUITY PROPERTIES LTD.-VIII
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(Exact name of registrant as specified in its charter)
Illinois 36-3011615
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR EQUITY PROPERTIES, LTD. - VIII
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 5,972,755 $ 542,128
Escrow deposits - unrestricted 476,330 803,873
Escrow deposits - restricted 94,709
Prepaid expenses 113,708 64,199
Deferred expenses, net of accumulated
amortization of $167,805 in 1996 and
$127,867 in 1995 306,472 449,353
------------- -------------
6,869,265 1,954,262
------------- -------------
Investment in real estate
Land 929,151 1,325,898
Buildings and improvements 14,693,197 20,518,019
------------- -------------
15,622,348 21,843,917
Less accumulated depreciation 8,151,881 11,462,726
------------- -------------
Investment in real estate, net of
accumulated depreciation 7,470,467 10,381,191
------------- -------------
$ 14,339,732 $ 12,335,453
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 42,956 $ 45,964
Due to affiliates 34,809 19,344
Accrued real estate taxes 366,641 551,280
Security deposits 73,854 96,931
Mortgage notes payable 12,054,815 15,212,762
------------- -------------
Total liabilities 12,573,075 15,926,281
------------- -------------
Limited Partners' capital (deficit)
(30,005 Interests issued and outstanding) 1,934,876 (3,366,783)
General Partner's deficit (168,219) (224,045)
------------- -------------
Total partners' capital (deficit) 1,766,657 (3,590,828)
------------- -------------
$ 14,339,732 $ 12,335,453
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES, LTD. - VIII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
------------- -------------
Income:
Rental and service $ 3,989,560 $ 4,481,962
Interest on short-term investments 59,424 149,178
------------- -------------
Total income 4,048,984 4,631,140
------------- -------------
Expenses:
Interest on mortgage notes payable 1,053,147 1,088,233
Depreciation 473,640 482,569
Amortization of deferred expenses 39,938 40,377
Property operating 1,946,194 1,795,161
Real estate taxes 350,016 418,121
Property management fees 197,377 215,252
Administrative 249,206 231,933
------------- -------------
Total expenses 4,309,518 4,271,646
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(Loss) income before gain on sale
of property and extraordinary item (260,534) 359,494
Gain on sale of property 5,946,000
------------- -------------
Income before extraordinary item 5,685,466 359,494
Extraordinary item:
Debt extinguishment expense (102,943)
------------- -------------
Net income $ 5,582,523 $ 359,494
============= =============
Income before extraordinary item
allocated to General Partner $ 56,855 $ 3,595
============= =============
Income before extraordinary item
allocated to Limited Partners $ 5,628,611 $ 355,899
============= =============
Income before extraordinary item
per Limited Partnership Interest
(30,005 issued and outstanding) $ 187.59 $ 11.86
============= =============
Extraordinary item allocated to
General Partner $ (1,029) None
============= =============
<PAGE>
Extraordinary item allocated to
Limited Partners $ (101,914) None
============= =============
Extraordinary item per Limited
Partnership Interest (30,005
issued and outstanding) $ (3.40) None
============= =============
Net income allocated to
General Partner $ 55,826 $ 3,595
============= =============
Net income allocated to
Limited Partners $ 5,526,697 $ 355,899
============= =============
Net income per Limited
Partnership Interest (30,005
issued and outstanding) $ 184.19 $ 11.86
============= =============
Distribution to Limited Partners $ 225,038 None
============= =============
Distribution per Limited Partnership
Interest $ 7.50 None
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES, LTD. - VIII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1996 and 1995
(Unaudited)
1996 1995
------------- -------------
Income:
Rental and service $ 1,226,536 $ 1,495,746
Interest on short-term investments 45,047 49,691
------------- -------------
Total income 1,271,583 1,545,437
------------- -------------
Expenses:
Interest on mortgage notes payable 331,448 361,326
Depreciation 141,588 161,255
Amortization of deferred expenses 13,020 13,459
Property operating 776,786 645,332
Real estate taxes 125,613 139,297
Property management fees 60,048 70,500
Administrative 81,054 77,657
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Total expenses 1,529,557 1,468,826
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(Loss) income before gain on sale
of property and extraordinary item (257,974) 76,611
Gain on sale of property 5,946,000
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Income before extraordinary item 5,688,026 76,611
Extraordinary item:
Debt extinguishment expense (102,943)
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Net income $ 5,585,083 $ 76,611
============= =============
Income before extraordinary item
allocated to General Partner $ 56,881 $ 766
============= =============
Income before extraordinary item
allocated to Limited Partners $ 5,631,145 $ 75,845
============= =============
Income before extraordinary item
per Limited Partnership Interest
(30,005 issued and outstanding) $ 187.67 $ 2.53
============= =============
Extraordinary item allocated to
General Partner $ (1,029) None
============= =============
<PAGE>
Extraordinary item allocated to
Limited Partners $ (101,914) None
============= =============
Extraordinary item per Limited
Partnership Interest (30,005
issued and outstanding) $ (3.40) None
============= =============
Net income allocated to
General Partner $ 55,852 $ 766
============= =============
Net income allocated to
Limited Partners $ 5,529,231 $ 75,845
============= =============
Net income per Limited
Partnership Interest (30,005
issued and outstanding) $ 184.27 $ 2.53
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES, LTD. - VIII
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
------------- -------------
Operating activities:
Net income $ 5,582,523 $ 359,494
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale of property (5,946,000)
Debt extinguishment expense 102,943
Depreciation of properties 473,640 482,569
Amortization of deferred expenses 39,938 40,377
Net change in:
Escrow deposits - unrestricted 327,543 115,352
Escrow deposits - restricted 94,709 (32,090)
Accounts and accrued interest
receivable 23,178
Prepaid expenses (49,509) (105,155)
Accounts payable (3,008) (23,162)
Due to affiliates 15,465 (27,881)
Accrued liabilities (184,639) (134,018)
Security deposits (23,077) 2,212
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Net cash provided by operating activities 430,528 700,876
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Investing activities:
Proceeds from sale of property 8,800,000
Payment of selling costs (416,916)
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Net cash provided by investing activities 8,383,084
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Financing activities:
Distribution to Limited Partners (225,038)
Repayment of mortgage note payable (3,073,129)
Principal payments on mortgage notes
payable (84,818) (80,016)
Releases of escrow deposits - restricted 24,900
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Net cash used in financing activities (3,382,985) (55,116)
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Net change in cash and cash equivalents 5,430,627 645,760
Cash and cash equivalents at beginning
of period 542,128 2,988,843
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Cash and cash equivalents at end of period $ 5,972,755 $ 3,634,603
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES LTD.-VIII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1995 statements in
order to provide comparability with the 1996 statements. This reclassification
has not changed the 1995 results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying statements
for the nine months and quarter ended September 30, 1996, and all such
adjustments are of a normal and recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1996 and 1995, the Partnership
incurred and paid interest expense on mortgage notes payable of $1,053,147 and
$1,088,233, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1996 are:
Paid
-----------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $54,443 $9,375 $34,809
4. Property Sale:
In August 1996, the Partnership sold the Greentree Village Apartments in an all
cash sale for $8,800,000. From the proceeds of the sale, the Partnership paid
$3,073,129 to the third party mortgage holder in full satisfaction of the first
mortgage loan and paid $416,916 in selling costs. The basis of the property
was $2,437,084, which is net of accumulated depreciation of $3,784,485. For
financial statement purposes, the Partnership recognized a gain of $5,946,000
from the sale of this property.
<PAGE>
5. Extraordinary Item:
In connection with the sale of Greentree Village Apartments in August 1996, the
Partnership fully amortized the remaining deferred financing fees of $102,943
which was recognized as an extraordinary item and classified as debt
extinguishment expense.
6. Subsequent Event:
In October 1996, the Partnership made a distribution of $4,200,700 ($140.00 per
Interest) to the holders of Limited Partnership Interests representing a
special distribution of Net Cash Proceeds from the August 1996 sale of
Greentree Village Apartments.
<PAGE>
BALCOR EQUITY PROPERTIES LTD.-VIII
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Properties Ltd.-VIII (the "Partnership") was formed in 1979 to
invest in and operate income-producing real property. The Partnership raised
$30,005,000 through the sale of Limited Partnership Interests and utilized
these proceeds to acquire thirteen real property investments. Nine of these
properties have been sold or relinquished through foreclosure. The Partnership
continues to operate the four remaining properties.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
---------------------
The Partnership sold the Greentree Village Apartments in August 1996 and
recognized a gain on the sale of this property. As a result of this gain, the
Partnership generated higher net income during the nine months and quarter
ended September 30, 1996, as compared to the same periods in 1995. Further
discussion of the Partnership's operations are summarized below.
1996 Compared to 1995
---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the nine months and quarters ended September 30, 1996 and 1995.
In August 1996, the Partnership sold the Greentree Village Apartments and
recognized a gain on sale of $5,946,000 and debt extinguishment expense of
$102,943. This sale also resulted in decreases in rental and service income,
interest expense on mortgage notes payable, depreciation, property operating
expense, real estate taxes and property management fees during 1996 as compared
to 1995.
Average occupancy levels decreased at all of the Partnership's remaining
properties, which further contributed to the decrease in rental and service
income during 1996 when compared to 1995. All of these properties are located
in the San Antonio, Texas market. The properties are experiencing increased
competition from new construction of single and multifamily housing. The phase
out of the corporate suite rental program at Cedar Creek Apartments - Phases I
and II also contributed to the decrease in rental and service income.
<PAGE>
Interest income on short-term investments decreased during 1996 when compared
to 1995 due to lower average cash balances resulting from a special
distribution made to the Limited Partners in October 1995 primarily from the
Sherwood Lakes note receivable repayment.
As a result of increased expenditures for payroll and carpet replacement at
Cedar Creek Apartments - Phases I and II, property operating expense increased
during 1996 when compared to 1995. The decrease in property operating expense
resulting from the sale of Greentree Village Apartments, as described above,
partially offset this increase.
Real estate tax expense decreased during 1996 when compared to 1995 due to
decreases in the assessed values of the Partnership's properties located in the
San Antonio, Texas market, in particular, Walnut Hills Apartments - Phase II.
Liquidity and Capital Resources
-------------------------------
The cash position of the Partnership increased by approximately $5,431,000 as
of September 30, 1996, when compared to December 31, 1995, primarily as a
result of the net proceeds received from the sale of Greentree Village
Apartments in August 1996. Cash flow of approximately $431,000 was provided by
operating activities consisting of cash flow from the operations of the
Partnership's properties and interest income on short-term investments, which
were partially offset by the payment of administrative expenses. Cash provided
by investing activities of approximately $8,383,000 consisted of proceeds from
the sale of Greentree Village Apartments, less selling costs. Cash used in
financing activities of approximately $3,383,000 consisted of a distribution to
the Limited Partners, the repayment of the mortgage note payable on Greentree
Village Apartments and principal payments on mortgage notes payable.
Additionally, the Partnership made a special distribution to the Limited
Partners in October 1996 from proceeds received from the August 1996 sale of
Greentree Village Apartments.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit, or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered significant if it exceeds $250,000 annually or 20% of the property's
rental and service income. The Partnership defines cash flow generated from its
properties as an amount equal to the property's revenue receipts less property
related expenditures, which include debt service payments. The Greentree
Village Apartments was sold in August 1996 and generated positive cash flow
during each of 1996 and 1995. The Walnut Hills Apartments - Phase II generated
positive cash flow during each of 1996 and 1995. The Walnut Hills Apartments -
Phase I generated a marginal cash flow deficit during each of 1996 and 1995;
however, the combined property operations of Walnut Hills Apartments - Phases I
and II generated positive cash flow during each of 1996 and 1995. The Cedar
Creek Apartments - Phases I and II generated marginal cash flow deficits
during
<PAGE>
1996 as compared to positive cash flow during 1995. The decrease is due to
decreased occupancy and rental rates at these apartment complexes. The San
Antonio market has experienced an increase in construction of new single and
multifamily housing that has increased competition for tenants. As of September
30, 1996, the occupancy rates of the Partnership's remaining properties ranged
from 94% to 98%.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties including improving operating
performance and seeking rent increases where market conditions allow.
In August 1996, the Partnership sold the Greentree Village Apartments in an all
cash sale for $8,800,000. From the proceeds of the sale, the Partnership paid
$3,073,129 to the third party mortgage holder in full satisfaction of the first
mortgage loan and paid $416,916 in selling costs. After retaining an
appropriate amount of working capital, the Partnership distributed the
remaining proceeds to the Limited Partners in October 1996. See Note 4 of
Notes to Financial Statements for additional information.
As described above, the Partnership sold the Greentree Village Apartments in
August 1996, but currently is not actively marketing the remaining properties
in its portfolio as a result of weaknesses in the San Antonio market.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. As a result of the General
Partner's efforts to obtain refinancing of existing loans with new lenders, the
Partnership has no third-party financing which matures prior to 2002.
In October 1996, the Partnership made a distribution of $4,200,700 ($140.00 per
Interest) to the holders of Limited Partnership Interests representing a
special distribution of available Net Cash Proceeds from the August 1996 sale
of Greentree Village Apartments. Regular quarterly distributions were
suspended for the first quarter of 1996 due to costs associated with the three
unsolicited tender offers to Limited Partners and the decrease in rental and
service income experienced at the San Antonio properties. Quarterly
distributions will commence when the Partnership has appropriate cash reserves
to meet cash or liquidity requirements which may occur. To date, including the
October 1996 distribution, investors have received cumulative distributions of
Net Cash Receipts of $173.33 and Net Cash Proceeds of $282.24, totaling $455.57
per $1,000 Interest, as well as certain tax benefits. In light of results to
date and current market conditions, the General Partner does not anticipate
that investors will recover all of their original investment.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sale prices
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
BALCOR EQUITY PROPERTIES LTD.-VIII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
Proposed class action
---------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Partnership, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Partnership and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended complaint
seeks judgment for compensatory damages equal to the amount invested in the
Defendant Partnerships by the proposed class plus interest accrued thereon;
general damages for injuries arising from the defendants' actions; punitive
damage; equitable relief, including rescission, on certain counts; punitive
damages; treble damages on certain counts; recovery from the defendants of all
profits received by them as a result of their actions relating to the Defendant
Partnerships; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the defendants believes they
have meritorious defenses to contest the claims. It is not determinable at this
time whether or not an unfavorable decision in this action would have a
material adverse impact on the Partnership.
Item 5. Other Information
--------------------------
Greentree Village Apartments
----------------------------
As previously reported, on May 6, 1996, the Partnership contracted to sell
Greentree Village Apartments, Colorado Springs, Colorado, to an unaffiliated
party, Griffis/Blessing, Inc., a Colorado corporation, for a sale price of
<PAGE>
$8,800,000. Griffis/Blessing, Inc. assigned its rights under the agreement of
sale to an affiliate, Greentree Apartments, LLP , and the sale closed on August
15, 1996. From the proceeds of the sale, the Partnership repaid the outstanding
balance of the first mortgage loan of $3,073,129 and paid $220,000 to an
unaffiliated party as a brokerage commission and $196,916 in closing costs.
The Partnership received the remaining $5,309,955 of sale proceeds.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits:
(4) Certificate of Limited Partnership set forth as Exhibit 4 to Amendment
No. 2 to the Registrant's Registration Statement on Form S-11 dated
February 26, 1980 (Registration No. 2-63821) and Form of Confirmation regarding
Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1992 (Commission File No.
0-9541) are incorporated herein by reference.
(10) Agreement of Sale and attachment thereto relating to the sale of Greentree
Village Apartments, Colorado Springs, Colorado, previously filed as Exhibit
(10) to the Registrant's Current Report on Form 10-Q dated March 31, 1996, is
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1996 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR EQUITY PROPERTIES LTD.-VIII
By: /s/ Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of
BRI Partners-79, the General Partner
By: /s/ Jayne A. Kosik
-----------------------------
Jayne A. Kosik
Vice President, and Chief Financial Officer
(Principal Accounting Officer) of BRI
Partners-79, the General Partner
Date: November 13, 1996
--------------------
<PAGE>
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5973
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6563
<PP&E> 15622
<DEPRECIATION> 8152
<TOTAL-ASSETS> 14340
<CURRENT-LIABILITIES> 518
<BONDS> 12055
0
0
<COMMON> 0
<OTHER-SE> 1767
<TOTAL-LIABILITY-AND-EQUITY> 14340
<SALES> 0
<TOTAL-REVENUES> 4049
<CGS> 0
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<OTHER-EXPENSES> 763
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</TABLE>
