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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-13357
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BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3274349
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 [ X ] 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. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $52,811,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income-producing real property, and all
financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire four real property
investments and a minority joint venture interest in one additional property.
The Registrant has since disposed of three of these properties and the property
in which the Registrant held a minority joint venture interest. As of December
31, 1996 the Registrant owned the Canyon Point Apartments described under "Item
2. Properties". The Partnership Agreement provides that the proceeds of any
sale or refinancing of the Registrant's properties will not be reinvested in
new acquisitions.
The Registrant's remaining property, Canyon Point Apartments, is subject to
competitive conditions in the market in which it is located. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information.
The Registrant's remaining property faces various levels of competition for
retention of its tenants from similar types of properties in the vicinity in
which it is located. The Registrant has no plans to change the current use of
or to renovate its remaining property.
Real estate values, especially for good quality, well located property,
increased significantly during 1996 due to a combination of readily available
capital, low interest rates, and decreased vacancy rates resulting from steady
demand and an acceptable level of new construction. While 1996 proved to be an
excellent year to sell real estate, projected yields by buyers on new
acquisitions have declined significantly due to competition and rising prices.
Although there will be variances by asset class and geographic area, the
investment climate is expected to remain strong for 1997. However, values
could begin to level off as they approach replacement cost, triggering new
construction and an increase in capitalization rates.
The investment market for apartments was excellent during 1996 due to a number
of factors. Investor interest was strong, driven primarily by institutions, as
Real Estate Investment Trusts aggressively expanded their portfolios and
pension funds viewed apartments as an attractive asset class due to their
perceived low volatility and the emergence of large professional property
management companies. Operationally, existing apartment properties registered
on a national basis occupancy in the mid 90's and rental rate increases of 3-4%
in 1996. While above the rate of inflation, the rate of rental growth in 1996
was below that of the previous two years suggesting that the apartment cycle
may have plateaued, especially as the impact of new construction in many areas
is being felt. While 1997 is projected to be another solid year, values should
begin to level off as capitalization rates move upward continuing a trend which
began during the second half of 1996.
<PAGE>
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
During February, July and October 1996, the Registrant sold the 101 Marietta
Tower office complex, the Mallard Cove Apartments and the Knollwood Village
Apartments, respectively. Additionally, the Registrant is actively marketing
the Canyon Point Apartments for sale. The timing of the termination of the
Registrant and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees stemming from litigation
involving the Registrant including, but not limited to, the lawsuits discussed
in "Item 3. Legal Proceedings". In the absence of any contingency, the
reserves will be paid within twelve months of the last property being sold. In
the event a contingency exists, reserves may be held by the Registrant for a
longer period of time.
During February, July and October 1996, the Registrant sold the 101 Marietta
Tower office complex, the Mallard Cove Apartments and the Knollwood Village
Apartments, for sales prices of $26,000,000, $7,850,000 and $22,250,000,
respectively. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for
additional information.
The Registrant, by virtue of its ownership of real estate, is subject to
Federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware of
any potential liability due to environmental issues or conditions that would be
material to the Registrant.
The officers and employees of Balcor Equity Partners-XVIII, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Item 2. Properties
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As of December 31, 1996, the Registrant owns the property described below in
fee simple:
Location Description of Property
- -------- -----------------------
San Antonio, Texas Canyon Point Apartments: a 214-unit apartment
complex located on approximately 9 acres.
This property is held subject to a mortgage loan as described in Note 5 of
Notes to the Financial Statements.
The average occupancy rates and effective average rent per unit for each of the
last five years for the property owned by the Registrant at December 31, 1996,
are described below.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Canyon Point
Occupancy rate 91% 94% 93% 93% 95%
Effective rent $584 $592 $597 $578 $512
Apartment units in this property are rented with leases of one year or less,
with no tenant occupying greater than ten percent of the property. Real estate
taxes incurred in 1996 for this property were $167,154.
The Federal tax basis of the Registrant's property was $9,079,213 as of
December 31, 1996. For Federal income tax purpose, the acquisition costs of the
property are depreciated over a life of 18 years, using the ACRS method. Other
minor assets are depreciated over their applicable recovery periods.
In the opinion of the General Partner, the Registrant has provided adequate
insurance coverage for its property.
See Notes to Financial Statements for other information regarding real property
investments.
<PAGE>
Item 3. Legal Proceedings
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Proposed class action
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On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The 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' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has 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
Registrant.
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 Registrant, 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 Registrant 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; general damages for
injuries arising from the defendants' alleged actions; 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 alleged actions relating to the Defendant Partnerships;
attorneys' fees and other costs.
<PAGE>
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has 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
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 4,995.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
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Total income $ 6,189,299 $16,743,567 $16,740,793 $15,328,981 $13,535,576
Provision for in-
vestment property
writedown None 1,016,987 None None None
Net income(loss) 15,908,429 1,240,270 885,014 (8,829) (1,754,481)
Net income(loss) per
Limited Partner-
ship Interest 298.22 23.25 16.59 (.16) (32.89)
Total assets 15,865,854 58,114,553 58,914,891 58,492,849 58,875,919
Mortgage notes
payable 5,101,842 39,475,209 40,078,625 39,289,424 39,415,967
Distributions per
Limited Partner-
ship Interest(A) 410.00 20.00 20.00 None None
(A) These amounts include a distribution of Original Capital of $240 per
Limited Partnership Interest for 1996.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Operations
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Summary of Operations
- ---------------------
Due to the sales of the 101 Marietta Tower office complex, Mallard Cove
Apartments and Knollwood Village Apartments, in February, July and October
1996, respectively, Balcor Equity Properties-XVIII A Real Estate Limited
Partnership (the "Partnership") recognized a gain on sale of real estate in
1996 which resulted in a higher net income in 1996 as compared to 1995.
Improved operations at the 101 Marietta Tower office complex and the Knollwood
Village Apartments resulted in an increase in net income for the Partnership
for 1995 as compared to 1994. This increase was offset by a provision for
investment property write-down recognized in 1995 in connection with the sale
of the 101 Marietta Tower office complex in 1996. Further discussion of the
Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
The Partnership sold the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments in February, July and October
1996, respectively. As a result, the Partnership recognized lower rental
income during 1996 as compared to 1995.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower service income during 1996 as compared to 1995. In addition, a real
estate tax refund of $227,155 which was received in 1995 and recognized as
service income was subsequently refunded in 1996 to the General Service
Administration a tenant at the 101 Marietta Tower office complex, which further
reduced service income in 1996.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower interest expense on mortgage notes payable during 1996 as compared to
1995.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower depreciation expense during 1996 as compared to 1995.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower amortization expense during 1996 as compared to 1995.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower property operating expense during 1996 as compared to 1995.
<PAGE>
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower real estate tax expense during 1996 as compared to 1995.
Due to the sales of the 101 Marietta Tower office complex, the Mallard Cove
Apartments and the Knollwood Village Apartments, the Partnership recognized
lower property management fees during 1996 as compared to 1995.
The 101 Marietta Tower office complex was sold in February 1996. At December
31, 1995, for financial statement purposes, the property was written down to an
amount equal to the net sales proceeds received from the sale and the
Partnership recognized a provision for investment property writedown of
$1,016,987.
The Partnership recognized gains on sales of real estate of $16,267,970 in
connection with the sales of the Mallard Cove Apartments and Knollwood Village
Apartments in 1996.
The purchaser of the 101 Marietta Tower office complex acquired the property in
February 1996 subject to the existing first mortgage loan. The Partnership
recognized an extraordinary gain on extinguishment of debt of $787,767 in 1996
representing the difference between the contractual amount of the first
mortgage loan at the date of sale of $17,353,151 and the carrying amount of the
note for financial statement purposes of $16,565,384 which included $825,781 of
accrued interest and the write off of deferred fees of $38,014.
In connection with the sales of the Mallard Cove Apartments and Knollwood
Village Apartments, the Partnership wrote off the remaining unamortized deferred
expenses relating to the mortgage loans of $344,828 and paid a prepayment
penalty of $347,633. These items resulted in the recognition of debt
extinguishment expense in 1996.
1995 Compared to 1994
- ---------------------
Due to higher average cash balances and interest rates, interest income on
short-term investments increased during 1995 as compared to 1994.
Belmere Apartments, in which the Partnership held a minority joint venture
interest, was sold during 1994. As a result of the gain recognized in
connection with the sale, the Partnership recognized income from participation
in joint venture with an affiliate in 1994.
The refinancing of the Knollwood Village Apartments mortgage note payable in
1994 required the payment of deferred expenses which are being amortized over
the term of the mortgage note payable. As a result, amortization expense
increased for 1995 as compared to 1994.
Due to lower tenant-related repairs and maintenance expenses and leasing costs
at the 101 Marietta Tower office complex in 1995 and the exterior painting of
the Canyon Point and Knollwood Village apartment complexes completed in 1994,
property operating expense decreased in 1995 as compared to 1994.
The lower property assessment at the 101 Marietta Tower office complex and a
lower tax rate at the Knollwood Village Apartments resulted in a decrease in
real estate taxes during 1995 as compared to 1994.
<PAGE>
A recalculation of the recoverable expenses as required by the terms of the
General Service Administration ("GSA") lease at the 101 Marietta Tower office
complex was made in late 1993. Additional income related to this recalculation
was received in 1994, resulting in additional management fees. This caused a
decrease in property management fees during 1995 as compared to 1994.
Due to lower portfolio management fees, administrative expenses decreased
during 1995 as compared to 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $264,000 as of
December 31, 1996 as compared to December 31, 1995. Cash flow of approximately
$1,625,000 was provided by operating activities during 1996 consisting
primarily of cash provided by the operation of the Partnership's properties and
interest income received on short-term investments which was partially offset
by the payment of administrative expenses and the payment of prepayment
penalties relating to certain property sales. The Partnership's investing
activities generated cash of approximately $37,881,000 from the sales of three
properties net of closing costs. Cash of approximately $39,242,000 was used in
financing activities primarily consisting of approximately $21,653,000 of
distributions to Limited Partners and the repayment of two mortgage notes
payable of approximately $16,772,000. In addition, in January 1997, the
Partnership made a special distribution of $8,185,705 to the Limited Partners
primarily from the proceeds received in connection with the sale of the
Knollwood Village Apartments.
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 Partnership's sole property owned at
December 31, 1996 generated positive cash flow in each of 1996 and 1995. The
101 Marietta Tower office complex, Mallard Cove Apartments and Knollwood
Village Apartments generated positive cash flow in 1995 and before they were
sold in February, July and October 1996, respectively. As of December 31,
1996, the occupancy rate at the Canyon Point Apartments was 93%.
Canyon Point Apartments is located in San Antonio, Texas, in the north central
sub-market. The apartment complexes in this area offer rental rates ranging
from moderate to upper end. Canyon Point's rents fall in the moderate
category. The 1996 average occupancy at the property was 91%; sub-market
occupancy for similar properties averaged 91%. The San Antonio multi-family
market is considered soft as a result of 6,000 new apartment units constructed
over the last three years with an additional 2,500 units anticipated for 1997.
Flat or declining rental rates are projected into the foreseeable future.
The Canyon Point Apartments is owned through the use of third-party mortgage
loan financing and, therefore, the Partnership is subject to the financial
obligations required by this loan. The Partnership is currently marketing this
property for sale. The Partnership anticipates selling the property before the
loan matures in 1998.
<PAGE>
During February, July and October 1996, the Partnership sold the 101 Marietta
Tower office complex, the Mallard Cove Apartments and the Knollwood Village
Apartments, respectively. Additionally, the Partnership is actively marketing
the Canyon Point Apartments for sale. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees stemming from litigation
involving the Partnership including, but not limited to, the lawsuits discussed
in "Item 3. Legal Proceedings". In the absence of any contingency, the
reserves will be paid within twelve months of the last property being sold. In
the event a contingency exists, reserves may be held by the Partnership for a
longer period of time.
In February 1996, the Partnership sold the 101 Marietta Tower office complex
for a sale price of $26,000,000. The purchaser of the 101 Marietta Tower office
complex took title subject to the existing first mortgage loan of $17,353,151.
From the proceeds of the sale, the Partnership paid $308,794 in selling costs.
The remainder of the proceeds were distributed to Limited Partners in April
1996. See Notes 10 and 11 of Notes to Financial Statements for additional
information.
In July 1996, the Partnership sold the Mallard Cove Apartments in an all cash
sale for $7,850,000. From the proceeds of the sale, the Partnership paid
$3,962,005 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $101,300 in selling costs. Pursuant to the terms of the
sale, the Partnership was required to hold back $500,000 of the sale proceeds
until October 1996. The full amount of the holdback was released in October
1996. The remainder of the proceeds were distributed to the Limited Partners in
October 1996. See Note 10 of Notes to Financial Statements for additional
information.
In October 1996, the Partnership sold the Knollwood Village Apartments in an
all cash sale for $22,250,000. From the proceeds of the sale, the Partnership
paid $12,810,259 to the third party mortgage holder in full satisfaction of the
first mortgage loan and paid $803,450 in selling costs and $347,632 of
prepayment penalties. The remainder of the proceeds were distributed to
Limited Partners in January 1997. See Note 10 of Notes to Financial Statements
for additional information.
The Partnership made four distributions totaling $410.00, $20.00 and $20.00 per
Interest in 1996, 1995 and 1994, respectively. See Statement of Partners'
Capital for additional information. Distributions were comprised of $170.00
of Net Cash Receipts and $240.00 of Net Cash Proceeds in 1996, and $20.00 of
Net Cash Receipts for both 1995 and 1994. Distributions increased in 1996 as
compared to 1995 primarily due to the property sales and the distribution of
cash reserves.
<PAGE>
In January 1997, the Partnership paid $8,317,733 ($157.50 per Interest)
representing the regular quarterly distribution of Net Cash Receipts of $2.50
per Interest for the fourth quarter of 1996 and a special Net Cash Proceeds
distribution of $155.00 per Interest from the Knollwood Village Apartments
sale. The Partnership has discontinued regular quarterly distributions due to
the minimum amount of cash flow that the Partnership receives from Canyon Point
Apartments. At such time as Canyon Point Apartments is sold, available Net
Cash Proceeds will be distributed to the Limited Partners. Including the
January 1997 distribution, Limited Partners have received distributions of Net
Cash Receipts of $288.00 and Net Cash Proceeds of $409.50, totaling $697.50 per
$1,000 Interest, as well as certain tax benefits. In light of results to date
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 sales 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.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedules in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1996 December 31, 1995
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $15,865,854 13,323,968 $58,114,553 $54,224,324
Partners' capital
(deficit):
General Partner (62,506) (70,009) (221,590) (219,628)
Limited Partners 10,501,057 15,093,324 16,881,697 13,719,433
Net income:
General Partner 159,084 149,619 12,403 17,674
Limited Partners 15,749,345 23,503,876 1,227,867 1,749,706
Per Limited Part-
nership Interest 298.22 445.06 23.25 33.13
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
On September 14, 1995 the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995. The General Partner of
the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
each of the two fiscal years ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Equity Partners-XVIII, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He
is also Senior Vice President of American Express Company and is responsible
for its real estate operations worldwide. Prior to joining Balcor, Mr.
Meador was employed at the Harris Trust and Savings Bank in the commercial
real estate division where he was involved in various lending activities.
Mr. Meador received his M.B.A. degree from the Indiana University Graduate
School of Business.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility
for Balcor's environmental matters. Mr. Darragh received masters' degrees in
Urban Geography from Queen's University and in Urban Planning from
Northwestern University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible
for Balcor's property sales activities. He also has supervisory
responsibility for Balcor's accounting, financial, treasury, investor
services and investment administration functions. From 1989 to 1995, Mr.
Mendelson was Vice President - Transaction Management and Vice President -
Senior Transaction Manager and had responsibility for various asset
management matters relating to real estate investments made by Balcor,
including negotiations for the restructuring of mortgage loan investments.
Mr. Mendelson received his M.B.A. degree from the University of Chicago.
<PAGE>
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's
risk management function. He received a Master of Planning degree from the
University of Virginia. Mr. Powell has been designated a Certified Real
Estate Financier by the National Society for Real Estate Finance and is a
full member of the Urban Land Institute.
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and
private partnerships. She is also Treasurer and a Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1996.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $1,425 in 1996 with respect to one of the executive
officers and directors of Balcor Equity Partners-XVIII, the General Partner.
The Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. Certain of
the remaining officers receive compensation from The Balcor Company (but not
from the Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the General
Partner believes that any such compensation attributable to services performed
for the Registrant is immaterial to the Registrant. See Note 9 of Notes to
Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Equity Partners-XVIII and its officers and partners own as a group
the following Limited Partnership Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 100 Interests Less than 1%
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 9 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 4 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
- -------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Schedule in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
set forth as Exhibit 3 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-11 dated September 17, 1984 (Registration No. 2-89380) is
hereby incorporated herein by reference.
(4) Form of Subscription Agreement, previously filed as Exhibit 4.1 to
Amendment No. 1 to Registrant's Registration Statement on Form S-11 dated May
15, 1984 (Registration No. 2-89380), 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 June 30, 1992 are incorporated herein by
reference.
(10) Material Contracts
(a) Agreement of Sale and attachment thereto relating to the sale of the 101
Marietta Tower office building previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated December 19, 1995 is incorporated herein
by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of the
Mallard Cove Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated April 23, 1996 is incorporated herein by
reference.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Mallard Cove Apartments, Greenville, South Carolina, previously filed as
Exhibit (10)(b)(ii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Mallard Cove Apartments, Greenville, South Carolina, previously filed as
Exhibit (10)(b)(iii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 is incorporated herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of the
Knollwood Village Apartments, Grand Blanc, Michigan, previously filed as
Exhibit (10)(d) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 is incorporated herein by reference.
(ii) First Amendment to the Agreement of Sale dated August 9, 1996 relating to
the sale of the Knollwood Village Apartments, Grand Blanc, Michigan, previously
filed as Exhibit (10)(d)(ii) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 is incorporated herein by reference.
<PAGE>
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 is incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule in this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
By:/s/Jayne A. Kosik
-----------------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Equity
Partners-XVIII, the General Partner
Date: March 24, 1997
-----------------------
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 and on the dates indicated.
Signature Title Date
- ---------------------- ----------------------------- -------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
Partners-XVIII, the General
/s/Thomas E. Meador Partner March 24, 1997
- ---------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer and
Financial Officer) of Balcor
Equity Partners-XVIII, the
/s/Jayne A. Kosik General Partner March 24, 1997
- ---------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1996
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Properties-XVIII
A Real Estate Limited Partnership:
We have audited the accompanying balance sheets of Balcor Equity
Properties-XVIII A Real Estate Limited Partnership (An Illinois Limited
Partnership) as of December 31, 1996 and 1995 and the related statements of
partners' capital, income and expenses and cash flows for each of the two years
in the period ended December 31, 1996. We have also audited the accompanying
financial statement schedule. These financial statements and the financial
statement schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Equity Properties-XVIII
A Real Estate Limited Partnership (An Illinois Limited Partnership) at December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As described in Note 2 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. The Partnership is presently marketing for sale its
remaining real estate assets. Upon disposition of its remaining real estate
assets and resolution of the litigation described in Note 13 to the financial
statements, the Partnership intends to cease operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 24, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Equity Properties-XVIII:
A Real Estate Limited Partnership:
We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Equity Properties-XVIII A Real Estate Limited
Partnership (An Illinois Limited Partnership) for the year ended December 31,
1994. 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 audit. We did not audit the financial statements of
Balcor Equity Properties - XIV, an affiliate, which is the majority joint
venturer of the partnership which owned the Belmere Apartments. The
Partnership's share of the operating income of this joint venture included in
the accompanying 1994 statement of income and expenses was approximately
$755,000 (principally due to the gain on sale of the property owned). The
financial statements of Balcor Equity Properties - XIV were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for the aforementioned investment in joint
venture, is based solely on the report of the other auditors.
We conducted our audit 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 audit and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Balcor Equity
Properties-XVIII A Real Estate Limited Partnership for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 1, 1995
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 10,272,801 $ 10,008,666
Escrow deposits 263,326 1,694,388
Accounts and accrued interest receivable 100,430 809,538
Notes receivable 31,878
Prepaid expenses 17,314 178,688
Deferred expenses, net of accumulated
amortization of $79,273 in 1996
and $233,092 in 1995 33,974 476,297
-------------- --------------
10,719,723 13,167,577
-------------- --------------
Investment in real estate:
Land 778,460 10,331,853
Buildings and improvements 8,051,683 69,865,669
-------------- --------------
8,830,143 80,197,522
Less accumulated depreciation 3,684,012 35,250,546
-------------- --------------
Investment in real estate, net of
accumulated depreciation 5,146,131 44,946,976
-------------- --------------
$ 15,865,854 $ 58,114,553
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 44,904 $ 204,221
Due to affiliates 98,947 33,430
Accrued liabilities, principaly interest
and real estate taxes 167,154 1,539,679
Security deposits 14,456 201,907
Mortgage notes payable 5,101,842 39,475,209
-------------- --------------
Total liabilities 5,427,303 41,454,446
-------------- --------------
Commitments and contingencies
Limited Partners' capital (52,811
Interests issued and outstanding) 10,501,057 16,881,697
General Partner's deficit (62,506) (221,590)
-------------- --------------
Total partners' capital 10,438,551 16,660,107
-------------- --------------
$ 15,865,854 $ 58,114,553
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
Partners' Capital (Deficit) Accounts
-------------- -----------------------------
General Limited
Total Partner Partners
-------------- -------------- --------------
Balance at December 31, 1993 $ 16,647,263 $ (242,843) $ 16,890,106
Cash distributions to
Limited Partners (A) (1,056,220) (1,056,220)
Net income for the year
ended December 31, 1994 885,014 8,850 876,164
-------------- -------------- --------------
Balance at December 31, 1994 16,476,057 (233,993) 16,710,050
Cash distributions to
Limited Partners (A) (1,056,220) (1,056,220)
Net income for the year
ended December 31, 1995 1,240,270 12,403 1,227,867
-------------- -------------- --------------
Balance at December 31, 1995 16,660,107 (221,590) 16,881,697
Cash distributions to
Limited Partners (A) (21,652,510) (21,652,510)
Deemed distribtution (B) (477,475) (477,475)
Net income for the year
ended December 31, 1996 15,908,429 159,084 15,749,345
-------------- -------------- --------------
Balance at December 31, 1996 $ 10,438,551 $ (62,506) $ 10,501,057
============== ============== ==============
(A) Summary of cash distributions per Interest:
1996 1995 1994
-------------- -------------- --------------
First Quarter $ 5.00 $ 5.00 $ 5.00
Second Quarter 310.00 5.00 5.00
Third Quarter 25.00 5.00 5.00
Fourth Quarter 70.00 5.00 5.00
(B) This amount represents a state withholding tax paid on behalf of
the Limited Partners relating to the gain on the sales of the
101 Marietta Tower office complex and the Mallard Cove Apartments.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- -------------- --------------
Income:
Rental $ 5,386,395 $ 12,939,827 $ 12,672,200
Service 106,759 3,331,061 3,090,448
Interest on short-term
investments 514,145 472,679 223,412
Participation in income
of joint venture
with an affiliate 754,733
-------------- -------------- --------------
Total income 6,007,299 16,743,567 16,740,793
-------------- -------------- --------------
Expenses:
Interest on mortgage
notes payable 1,585,566 3,647,305 3,785,223
Depreciation 1,182,379 2,956,956 2,935,846
Amortization of deferred
expenses 59,481 84,433 67,939
Property operating 2,354,671 5,438,275 6,270,831
Real estate taxes 514,169 1,157,793 1,400,303
Property management fees 339,238 800,165 930,617
Administrative 426,642 401,383 465,020
Provision for investment
property writedown 1,016,987
-------------- -------------- --------------
Total expenses 6,462,146 15,503,297 15,855,779
-------------- -------------- --------------
(Loss) income before gain on
sale of properties and
extraordinary items (454,847) 1,240,270 885,014
Gain on sale of properties 16,267,970
Income before extraordinary --------------
items 15,813,123
Extraordinary items:
Gain on extinguishment
of debt 787,767
Debt extinguishment expense (692,461)
-------------- -------------- --------------
Net income $ 15,908,429 $ 1,240,270 $ 885,014
============== ============== ==============
Income before extraordinary
items allocated to
General Partner $ 158,131 $ 12,403 $ 8,850
============== ============== ==============
Income before extraordinary
items allocated to
Limited Partners $ 15,654,992 $ 1,227,867 $ 876,164
============== ============== ==============
<PAGE>
Income before extraordinary
items per Limited
Partnership Interest(52,811
issued and outstanding) $ 296.43 $ 23.25 $ 16.59
============== ============== ==============
Extraordinary items allocated
to General Partner $ 953 None None
============== ============== ==============
Extraordinary items allocated
to Limited Partners $ 94,353 None None
============== ============== ==============
Extraordinary items per
Limited Partnership
Interest (52,811
issued and outstanding) $ 1.79 None None
============== ============== ==============
Net income allocated
to General Partner $ 159,084 $ 12,403 $ 8,850
============== ============== ==============
Net income allocated
to Limited Partners $ 15,749,345 $ 1,227,867 $ 876,164
============== ============== ==============
Net income per Limited
Partnership Interest(52,811
issued and outstanding) $ 298.22 $ 23.25 $ 16.59
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- -------------- --------------
Operating activities:
Net income $ 15,908,429 $ 1,240,270 $ 885,014
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Gain on sale
of properties (16,267,970)
Gain on extinguishment
of debt (787,767)
Debt extinguishment
expense (2,805)
Provision for investment
property writedown 1,016,987
Participation in loss
of joint venture with
an affiliate (754,733)
Depreciation 1,182,379 2,956,956 2,935,846
Amortization of deferred
expenses 59,482 84,433 67,939
Collection of
recoverable expenses 1,509,618
Net change in:
Escrow deposits 1,175,420 (87,700) (141,768)
Accounts and accrued
interest receivable 709,108 (190,143) (103,281)
Notes receivable (31,878)
Prepaid expenses 161,374 (120,290) 96,810
Accounts payable (159,317) (21,115) 65,145
Due to affiliates 65,517 (33,615) (9,012)
Accrued liabilities (546,744) (313,953) 35,732
Security deposits (187,451) (12,289) 6,314
-------------- -------------- --------------
Net cash provided by
operating activities 1,277,777 4,519,541 4,593,624
-------------- -------------- --------------
Investing activities:
Capital contributions to
joint venture with
an affiliate (21,628)
Distribution from joint
venture with an affiliate 482,229
Proceeds from sales of
real estate 39,094,483
Costs incurred in
connection with
sales of real estate (1,213,544)
<PAGE>
Improvements to properties (333,283)
-------------- -------------- --------------
Net cash provided by (used
in) investing activities 37,880,939 482,229 (354,911)
-------------- -------------- --------------
Financing activities:
Distributions to Limited
Partners (21,652,510) (1,056,220) (1,056,220)
Deemed distribution (477,475)
Repayment of mortgage notes
payable (16,772,264) (11,700,000)
Proceeds from refinancing of
mortgage note payable 13,000,000
Payment of deferred expenses (329,872)
Release of capital
improvement escrow 389,270 668,946 172,331
Funding of capital
improvement escrow (133,650) (193,385) (903,512)
Principal payments on
mortgage notes payable (247,952) (603,416) (510,799)
-------------- -------------- --------------
Net cash used in
financing activities (38,894,581) (1,184,075) (1,328,072)
-------------- -------------- --------------
Net change in cash and cash
equivalents 264,135 3,817,695 2,910,641
Cash and cash equivalents at
beginning of year 10,008,666 6,190,971 3,280,330
-------------- -------------- --------------
Cash and cash equivalents at
end of year $ 10,272,801 $ 10,008,666 $ 6,190,971
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the
"Partnership") is engaged principally in the operation of residential real
estate located in San Antonio, Texas.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold the 101 Marietta Tower office
complex, the Mallard Cove Apartments and the Knollwood Village Apartments,
respectively. Additionally, the Partnership is actively marketing the Canyon
Point Apartments for sale. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 13 of Notes to
the Financial Statements. In the absence of any contingency, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency exists, reserves may be held by the Partnership for a longer period
of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense is computed using the straight-line method. Rates used
in the determination of depreciation are based upon the following estimated
useful lives:
Years
-----
Buildings and improvements 18-30
Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
As properties are sold, the related costs and accumulated depreciation are
removed from the respective accounts. Any gain or loss on disposition is
recognized in accordance with generally accepted accounting principles.
<PAGE>
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership records its investments in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties based on the current estimated sales
price less closing costs. In the event the General Partner determines an
impairment in value has occurred, and the carrying amount of the real estate
asset will not be recovered, a provision is recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considers the method referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicate otherwise.
(d) Deferred expenses consist of mortgage refinancing fees which are amortized
over the terms of the respective agreements. Upon sale, any remaining balance
is recognized as debt extinguishment expense and classified as an extraordinary
item.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(f) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(g) Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less. Cash is held or invested in one
financial institution.
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership loss or income in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) A reclassification has been made to the previously reported 1994 and 1995
financial statements to conform with the classification used in 1995 and 1996.
This reclassification has not changed the 1994 or 1995 results.
4. Partnership Agreement:
The Partnership was organized in January 1984. The Partnership Agreement
provides for Balcor Equity Partners-XVIII to be the General Partner and for the
admission of Limited Partners through the sale of up to 100,000 Limited
Partnership Interests at $1,000 per Interest, 52,811 of which were sold on or
prior to July 31, 1985, the termination date of the offering.
<PAGE>
All profits and losses of the Partnership are allocated 99% to the capital
accounts of the Limited Partners and 1% to the capital account of the General
Partner.
When and as cash distributions are made, 100% of the Net Cash Receipts will be
distributed to holders of Interests. The General Partner will not receive any
portion of Net Cash Receipts; however, there will be accrued for the benefit of
the General Partner an amount equal to 1% of Net Cash Receipts distributed to
holders of Interests, which will be only paid out of Net Cash Proceeds as a
part of the General Partner's distributive share on sale or refinancing of
properties.
When the Partnership sells or refinances its properties, the Net Cash Proceeds
resulting therefrom which are available for distribution will be distributed
only to holders of Limited Partnership Interests until such time as they have
received an amount equal to their Original Capital plus a 6% per annum
non-compounded return. The remaining Net Cash Proceeds available for
distribution will be distributed 85% to holders of Limited Partnership
Interests and 15% to the General Partner, provided that the General Partner's
distributive share shall be further subordinated to the prior receipt by
Limited Partners of a Preferential Cumulative Distribution of their Original
Capital in the amount of 100% for Interests purchased prior to January 1, 1985
and 80% for Interests purchased thereafter.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1996 and 1995 consisted of the
following:
Carrying Carrying Current Final
Property Amount of Amount of Inter- Matur- Periodic Estimated
Pledged as Notes at Notes at est ity Payment Balloon
Collateral 12/31/96 12/31/95 Rate Date Terms Payment
- -------------- ---------- ---------- ------ ------ ------- ----------
Apartment Complexes:
Canyon Point $ 5,101,842 $ 5,149,774 8.59% 1998 $ 40,703 $ 5,022,000
Mallard Cove(A) None 3,976,029
Knollwood
Village (B) None 12,878,068
Office Building:
101 Marietta
Tower (C) None 17,471,338
----------- -----------
$ 5,101,842 $39,475,209
=========== ===========
(A) The property collateralizing this loan was sold in July 1996. See Note 10
of Notes to Financial Statements for additional information.
(B) The property collateralizing this loan was sold in October 1996. See Note
10 of Notes to Financial Statements for additional information.
(C) In February 1996, the property collateralizing this loan was sold. See Note
10 of Notes to Financial Statements for additional information.
<PAGE>
During 1996, 1995 and 1994 the Partnership incurred interest expense on
mortgage notes payable of $ 1,585,566, $3,647,305 and $3,785,223 and paid
interest expense of $1,983,150, $3,804,468 and $3,968,746, respectively.
The Partnership's loan described above requires current monthly payments of
principal and interest.
Real estate with an aggregate net carrying value of $5,146,131 at December 31,
1996 was pledged as collateral for repayment of the mortgage note.
Maturity of the above mortgage note payable during each of the next five years
are approximately as follows:
1997 $ 52,000
1998 5,050,000
6. Management Agreements:
As of December 31, 1996, the property owned by the Partnership is under a
management agreement with a third-party management company. This management
agreement provides for an annual fee of 5% of gross operating receipts for the
property.
7. Investment in Joint Venture with an Affiliate:
The Partnership owned a 25.6% joint venture interest in Belmere Apartments and
accounted for it under the equity method. In December 1994, the joint venture
sold the property for a sale price of $8,500,000. From the sale proceeds, the
joint venture repaid the first mortgage loan and other selling costs and
received approximately $1,755,000. In February 1995, the Partnership received a
distribution of $482,229 which represented its share of sale proceeds and
fourth quarter 1994 property operations. This amount was included in accounts
receivable in the financial statements at December 31,1994. The Partnership's
share of the gain on the sale was $949,032 and was included in "Participation
in income of joint venture with an affiliate" in 1994 and was partially offset
by the Partnership's share of operating losses through the sale date. During
1994 the Partnership made capital contributions of $21,628 to the joint
venture.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1996 in the financial statements is $7,745,066 less than the
tax income of the Partnership for the same period.
<PAGE>
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
For the For the For the
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees None None None None $842,028 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $11,263 $15,167 $46,607 $4,326 61,056 $22,549
Data processing 1,838 2,476 12,337 525 30,712 5,868
Investor communica-
tions None None 6,127 None 18,801 5,524
Legal 11,036 14,863 24,805 3,699 12,405 6,419
Portfolio management 34,924 47,033 90,767 14,122 93,124 9,612
Other None None 10,317 1,502 12,405 17,073
Property sales 14,282 19,408 10,741 9,256 None None
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $8,804, $97,729 and $118,333 for 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
10. Property Sales:
(a) In February 1996, the Partnership sold the 101 Marietta Tower office
complex for $26,000,000. The purchaser of the 101 Marietta Tower office
complex acquired the property subject to the existing $17,353,151 first
mortgage loan and the Partnership paid $308,794 in selling costs. In addition,
the Partnership paid a state withholding tax of $156,949 on behalf of the
Limited Partners relating to the gain on sale of the property which has been
recorded as a deemed distribution for financial statements purposes. The basis
of the property was written down at December 31, 1995 to an amount equal to the
sale price less closing costs. As a result, the Partnership recognized a
$1,016,987 provision for investment property writedown in 1995. Due to the
classification of the state withholding tax as a deemed distribution, the
Partnership recognized a gain of $156,949 on the property sale in 1996.
<PAGE>
(b) In July 1996, the Partnership sold the Mallard Cove Apartments in an all
cash sale for $7,850,000. From the proceeds of the sale, the Partnership paid
$3,962,005 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $101,300 in selling costs. In addition, the Partnership
paid a state withholding tax of $320,526 on behalf of the Limited Partners
relating to the gain on sale of the property which has been recorded as a
deemed distribution for financial statements purposes. The basis of the
property was $5,148,349, which is net of accumulated depreciation of
$3,432,919. For financial statement purposes, the Partnership recognized a
gain of $2,600,351 from the sale of this property.
(c) In October 1996, the Partnership sold the Knollwood Village Apartments in
an all cash sale for $22,250,000. From the proceeds of the sale, the
Partnership paid $12,810,259 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $803,450 in selling costs and
$347,633 of prepayment penalties. The basis of the property was $7,935,880,
which is net of accumulated depreciation of $13,201,999. For financial
statement purposes, the Partnership recognized a gain of $13,510,670 from the
sale of this property.
11. Extraordinary Items:
(a) The purchaser of the 101 Marietta Tower office complex acquired the
property in February 1996 subject to the existing first mortgage loan. The
Partnership recognized an extraordinary gain on extinguishment of debt of
$787,767 in 1996 representing the difference between the contractual amount of
the first mortgage loan at the time of sale of $17,353,151 and the carrying
amount of the note for financial statement purposes of $16,565,384 which
included $825,781 of accrued interest and the write-off of unamortized deferred
fees of $38,014.
(b) In July and October of 1996, the Partnership sold the Mallard Cove
Apartments and Knollwood Village Apartments, respectively. In connection with
the sales, the Partnership paid $347,633 of prepayment penalties and wrote off
the remaining unamortized deferred expenses in the amount of $344,829. These
amounts were recognized as extraordinary items and classified as debt
extinguishment expenses.
12. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
Based on borrowing rates available to the Partnership at the end of 1996 and
1995 for mortgage loans with similar terms and maturities, the fair value of
the mortgage note payable approximates the carrying value.
<PAGE>
13. Contingency:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain federal securities law violations with regard
to the adequacy and accuracy of disclosures of information concerning, as well
as marketing efforts related to, the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
these actions. A plaintiff class has not been certified in either action and,
no determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
14. Subsequent Event:
In January 1997, the Partnership paid a distribution of $8,317,733 ($157.50 per
Interest) to holders of Limited Partnership Interests representing a quarterly
distribution of Net Cash Receipts of $2.50 per Interest for the fourth quarter
of 1996 and a special Net Cash Proceeds distribution of $155.00 per Interest
from the Knollwood Village Apartments sale.
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1996
<CAPTION>
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
-------------------- ---------------------------------
Buildings Carrying Reduction
Encum- and Im- Improve- Costs of Basis
Description brances Land provements ments (b) (c)
- --------------------- ------- -------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Canyon Point Apts.,
214-units in
San Antonio, TX (a) $ 800,000 $ 8,134,000 $ 135,362 $ 9,850 $(249,068)
----------- ----------- ---------- -------- ---------
Total $ 800,000 $ 8,134,000 $ 135,362 $ 9,850 $(249,068)
=========== =========== ========== ======== =========
</TABLE>
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1996
(Continued)
<CAPTION>
Col. A Col. E Col. F Col. G Col. H Col. I
- ------------------- -------------------------------- -------- -------- ------ --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (c)(d) tion(e) struction uired is Computed
- ------------------- -------- ---------- ---------- --------- --------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Canyon Point Apts.,
214-units in
San Antonio, TX $ 778,460 $ 8,051,684 $ 8,830,144 $ 3,684,012 1984 1984 (f)
----------- ----------- ----------- -----------
Total $ 778,460 $ 8,051,684 $ 8,830,144 $ 3,684,012
=========== =========== =========== ===========
</TABLE>
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) See description of Mortgage Notes Payable in Note 5 of Notes to Financial
Statements.
(b) Consists of legal fees, appraisal fees, title costs and other related
professional fees.
(c)Guaranteed income earned on properties under the terms of certain management
and guarantee agreements was recorded by the Partnership as a reduction of the
basis of the property to which the guaranteed income related.
(d) The aggregate cost of land for Federal income tax purposes is $800,877 and
the aggregate cost of buildings and improvements for Federal income tax
purposes is $8,278,336. The total of these is $9,079,213.
(e)Reconciliation of Real Estate
--------------------------------
1996 1995 1994
---------- ---------- ----------
Balance at beginning
of year $80,197,522 $81,214,509 $80,881,226
Additions during the year:
Improvements 333,283
Reductions during the year:
Investment property writedown (1,016,987)
Cost of real estate sold (71,367,379)
----------- ----------- -----------
Balance at end of year $8,830,143 $80,197,522 $81,214,509
=========== =========== ===========
Reconciliation of Accumulated Depreciation
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance at beginning of year $35,250,546 $32,293,590 $29,357,744
Accumulated depreciation of
property sold (32,748,913)
Depreciation expense for
the year 1,182,379 2,956,956 2,935,846
------------ ----------- -----------
Balance at end of year $3,684,012 $35,250,546 $32,293,590
============ =========== ===========
<PAGE>
(f) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10273
<SECURITIES> 0
<RECEIVABLES> 132
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10686
<PP&E> 8830
<DEPRECIATION> 3684
<TOTAL-ASSETS> 15866
<CURRENT-LIABILITIES> 325
<BONDS> 5102
0
0
<COMMON> 0
<OTHER-SE> 10439
<TOTAL-LIABILITY-AND-EQUITY> 10866
<SALES> 0
<TOTAL-REVENUES> 22275
<CGS> 0
<TOTAL-COSTS> 3208
<OTHER-EXPENSES> 1668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1586
<INCOME-PRETAX> 15813
<INCOME-TAX> 0
<INCOME-CONTINUING> 15813
<DISCONTINUED> 0
<EXTRAORDINARY> 95
<CHANGES> 0
<NET-INCOME> 15908
<EPS-PRIMARY> 298.22
<EPS-DILUTED> 298.22
</TABLE>
