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, 1997
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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
- ------------------------------- -------------------
(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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(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 has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire four real property
investments and a minority joint venture interest in one additional property
and has since disposed of all of these investments. 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 Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Registrant sold three properties. During 1997,
the Registrant sold its remaining property, the Canyon Pointe Apartments. The
Registrant has retained a portion of the cash from the property sales to
satisfy obligations of the Registrant as well as establish a reserve for
contingencies. 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 and costs stemming from litigation involving the Registrant
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings". In the absence of any such contingencies, the reserves will be
paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Registrant for a longer period of time.
During July 1997, the Registrant sold the Canyon Pointe Apartments in an all
cash sale for $6,300,000. See "Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital
Resources" for additional information.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by 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.
Item 2. Properties
- ------------------
As of December 31, 1997, the Registrant did not own any properties.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Klein, et al. vs. Lehman Brothers, Inc., et al.
- ----------------------------------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors, and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third 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 Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
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 Affiliated Partnerships;
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.
Masri vs. Lehman Brothers, Inc., et al.
- ---------------------------------------
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, 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
<PAGE>
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.
Plaintiffs' counsel has indicated an intent to withdraw this complaint.
Raymond Masri has joined as an additional plaintiff in the Lenore Klein matter
discussed above.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1997.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
- -------
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, 1997, the number of record holders of Limited Partnership
Interests of the Registrant was 4,961.
Item 6. Selected Financial Data
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Year ended December 31,
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1997 1996 1995 1994 1993
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Total income $851,817 $6,007,299 $16,743,567 $16,740,793 $15,328,981
Provision for in-
vestment property
write-down None None 1,016,987 None None
(Loss) income before
gain on sales of
properties and
extraordinary
items (602,105) (454,847) 1,240,270 885,014 (8,829)
Net income(loss) 518,188 15,908,429 1,240,270 885,014 (8,829)
Net income(loss) per
Limited Partner-
ship Interest-Basic
and Diluted 9.81 298.22 23.25 16.59 (.16)
Total assets 1,691,997 15,865,854 58,114,553 58,914,891 58,492,849
Mortgage notes
payable None 5,101,842 39,475,209 40,078,625 39,289,424
Distributions per
Limited Partner-
ship Interest(A) 176.26 410.00 20.00 20.00 None
(A) These amounts include distributions of Original Capital of $173.76 and $240
per Limited Partnership Interest for 1997 and 1996, respectively.
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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<PAGE>
Summary of Operations
- ---------------------
Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the
"Partnership") sold three properties during 1996 and sold its remaining
property in 1997. The Partnership recognized gains in 1996 and 1997 in
connection with property sales. The gain recognized in connection with the 1997
sale was less than the aggregate gains recognized in connection with the 1996
sales. This was the primary reason for the decrease in net income in 1997 as
compared to 1996. As a result of the 1996 gains from property sales, the
Partnership recognized significantly higher net income during 1996 as compared
to 1995. In addition, the Partnership recognized a provision for investment
property write-down in 1995 related to the sale of the 101 Marietta Tower
office complex in February 1996. Further discussion of the Partnership's
operations is summarized below.
1997 Compared to 1996
- ---------------------
The Partnership sold the Canyon Pointe Apartments in July 1997 and recognized a
gain in connection with the sale of $1,141,112. The Partnership sold the 101
Marietta Tower office complex, Mallard Cove Apartments and Knollwood Village
Apartments in February, July and October 1996, respectively, and recognized
gains in connection with these sales of $16,267,970. The sales of these
properties resulted in decreases in rental and service income, interest expense
on mortgage notes payable, depreciation expense, property operating expenses,
amortization expense, real estate tax expense and property management fees
during 1997 as compared to 1996.
Due to the timing of the distribution of sale proceeds from the 1996 property
sales, average cash balances available for investment were higher during 1996
than in 1997 and interest income on short-term investments decreased during
1997 as compared to 1996.
The Partnership recognized other income during 1997 in connection with refunds
of prior years' insurance premiums relating to the Partnership's properties.
During 1997, the Partnership paid real estate tax consulting fees related to
the 101 Marietta Tower office complex, which was sold in 1996, and a state
income tax liability related to the gain on the 1996 sale of Knollwood Village
Apartments. For financial statement purposes, these items have been classified
as other expenses.
The Partnership incurred higher professional fees during 1996 in connection
with the valuation of the Partnership's assets. In addition, legal, portfolio
management, and accounting fees decreased during 1997 due to the sales of the
Partnership's properties. As a result, administrative expenses decreased during
1997 as compared to 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
<PAGE>
mortgage loan at the date of sale of $17,353,151 and the carrying amount of the
loan 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 sale of the Canyon Pointe Apartments in 1997, the
Partnership wrote off the remaining unamortized deferred expenses related to
the mortgage loan of $20,819. In addition, in connection with the sales of the
Mallard Cove Apartments and Knollwood Village Apartments in 1996, 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
amounts were recorded as extraordinary items and classified as debt
extinguishment expense for financial statement purposes.
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, interest expense on mortgage notes payable, depreciation expense,
amortization expense, property operating expense, real estate tax expense, and
property management fees decreased 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.
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 subsequently received from the sale and
the Partnership recognized a provision for investment property write-down of
$1,016,987.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership as of December 31, 1997 decreased by
approximately $8,589,000 as compared to December 31, 1996 primarily due to
distributions of available 1996 and 1997 sale proceeds made to Limited Partners
in 1997 which was partially offset by the net proceeds received from the sale
of the Canyon Pointe Apartments in 1997. Cash of approximately $324,000 was
used in operating activities during 1997, which consists primarily of the
funding of the deficit from operations of the Canyon Pointe Apartments,
expenses related to properties sold in 1996, administrative and other expenses
which were partially offset by interest income received on short-term
investments. Cash provided by investing activities of approximately $6,146,000
consisted of net proceeds received in connection with the sale of the Canyon
Pointe Apartments. Net cash used in financing activities consists of
approximately $9,308,000 in distributions to Limited Partners primarily from
<PAGE>
the available Knollwood Village and Canyon Pointe apartment complexes sale
proceeds, the repayment of the Canyon Pointe Apartments mortgage note payable
of approximately $5,072,000 and approximately $30,000 of principal payments on
the mortgage note payable.
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 three properties. During July
1997, the Partnership sold its remaining property, the Canyon Pointe
Apartments. The Partnership has retained a portion of the cash from the
property sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. 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 and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in "Item 3.
Legal Proceedings". In the absence of any such contingency, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
In July 1997, the Partnership sold the Canyon Pointe Apartments for an all cash
sale price of $6,300,000. From the proceeds of the sale, the Partnership paid
$5,071,928 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $154,363 in selling costs. The available proceeds were
distributed to the Limited Partners in October 1997. See Note 11 of Notes to
Financial Statements for additional information.
The Partnership paid three distributions totaling $176.26 per Interest to
Limited Partners in 1997. Distributions were comprised of $2.50 of Net Cash
Receipts and $173.76 of Net Cash Proceeds in 1997. During 1996 and 1995, the
Partnership paid four distributions totaling $410.00 and $20.00, respectively.
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 1995. No additional
distributions are anticipated to be made prior to termination of the
Partnership. However, after paying final partnership expenses, any remaining
cash reserves will be distributed. To date, Limited Partners have received
distributions of Net Cash Receipts of $288.00 and Net Cash Proceeds of $428.26,
totaling $716.26 per $1,000 Interest, as well as certain tax benefits. Limited
Partners will not recover all of their original investment.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements 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, 1997 December 31, 1996
----------------------- -------------------------
<PAGE>
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $1,691,997 $8,810,701 $15,865,854 13,323,968
Partners' capital
(deficit):
General Partner (62,506) (175,037) (62,506) (70,009)
Limited Partners 1,710,778 8,955,339 10,501,057 15,093,324
Net income (loss):
General Partner None (105,028) 159,084 149,619
Limited Partners 518,188 3,170,482 15,749,345 23,503,876
Per Limited Part-
nership Interest 9.81(A) 60.03 298.22(A) 445.06
(A) Amounts represent basic and diluted net income per Limited Partnership
Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<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 John K. Powell, Jr.
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 50) 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 member of the board of directors 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 43) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
John K. Powell Jr. (age 47) 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 is a member of the board of directors of The Balcor Company. 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 40) 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 Senior 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.
<PAGE>
(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 1997.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $1,997 in 1997 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. The other
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 10 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:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 100 Interests Less than 1%
Relatives of the officers and affiliates of the 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 10 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 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)(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.
(b)(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.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of the
Canyon Pointe Apartments, San Antonio, Texas previously filed as Exhibit (2) to
the Registrant's Current Report on Form 8-K dated June 11, 1997, is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
<PAGE>
sale of the Canyon Pointe Apartments, San Antonio, Texas, previously filed as
Exhibit (10)(d)(ii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 is incorporated herein by reference.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Canyon Pointe Apartments, San Antonio, Texas, previously filed
as Exhibit (10)(d)(iii) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1997 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended December 31, 1997.
(c) Exhibits: See Item 14(a)(3)above.
<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
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Equity
Partners-XVIII, the General Partner
Date: March 23, 1998
-----------------------
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
Partner
/s/Thomas E. Meador March 23, 1998
- ---------------------- -------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer and
Financial Officer) of Balcor
Equity Partners-XVIII, the
General Partner
/s/Jayne A. Kosik March 23. 1998
- ---------------------- -------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1997 and 1996
Statements of Partners' Capital for the years ended December 31, 1997, 1996 and
1995
Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995
Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
Financial Statement Schedules 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 financial statements of Balcor Equity Properties-XVIII A
Real Estate Limited Partnership (An Illinois Limited Partnership) as listed in
the Index of this Form 10-K. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
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. As of December 31, 1997, the Partnership has
disposed of all of its real estate interests. Upon resolution of the litigation
described in Note 15 to the financial statements, the Partnership intends to
cease operations and dissolve.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 18, 1998
<PAGE>
BALCOR EQUITY PROPERTIES-XVIII
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------------- --------------
Cash and cash equivalents $ 1,684,046 $ 10,272,801
Escrow deposits 263,326
Accounts and accrued interest receivable 7,951 100,430
Note receivable 31,878
Prepaid expenses 17,314
Deferred expenses, net of accumulated
amortization of $79,273 in 1996 33,974
-------------- --------------
1,691,997 10,719,723
-------------- --------------
Investment in real estate:
Land 778,460
Buildings and improvements 8,051,683
--------------
8,830,143
Less accumulated depreciation 3,684,012
--------------
Investment in real estate, net of
accumulated depreciation 5,146,131
-------------- --------------
$ 1,691,997 $ 15,865,854
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 15,410 $ 44,904
Due to affiliates 28,315 98,947
Accrued liabilities, principally
real estate taxes 167,154
Security deposits 14,456
Mortgage note payable 5,101,842
-------------- --------------
Total liabilities 43,725 5,427,303
-------------- --------------
Commitments and contingencies
Limited Partners' capital (52,811
Interests issued and outstanding) 1,710,778 10,501,057
General Partner's deficit (62,506) (62,506)
-------------- --------------
Total partners' capital 1,648,272 10,438,551
-------------- --------------
$ 1,691,997 $ 15,865,854
============== ==============
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, 1997, 1996 and 1995
Partners' Capital (Deficit) Accounts
-------------- -----------------------------
General Limited
Total Partner Partners
-------------- -------------- --------------
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
Cash distributions to
Limited Partners (A) (9,308,467) (9,308,467)
Net income for the year
ended December 31, 1997 518,188 518,188
-------------- -------------- --------------
Balance at December 31, 1997 $ 1,648,272 $ (62,506) $ 1,710,778
============== ============== ==============
(A) Summary of cash distributions per Limited Partnership Interest:
1997 1996 1995
-------------- -------------- --------------
First Quarter $ 157.50 $ 5.00 $ 5.00
Second Quarter 2.76 310.00 5.00
Third Quarter None 25.00 5.00
Fourth Quarter 16.00 70.00 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, 1997, 1996 and 1995
1997 1996 1995
-------------- -------------- --------------
Income:
Rental $ 692,173 $ 5,386,395 $ 12,939,827
Service 14,592 106,759 3,331,061
Interest on short-term
investments 122,907 514,145 472,679
Other income 22,145
-------------- -------------- --------------
Total income 851,817 6,007,299 16,743,567
-------------- -------------- --------------
Expenses:
Interest on mortgage
notes payable 256,219 1,585,566 3,647,305
Depreciation 141,606 1,182,379 2,956,956
Amortization of deferred
expenses 13,155 59,481 84,433
Property operating 459,772 2,354,671 5,438,275
Real estate taxes 107,537 514,169 1,157,793
Property management fees 35,575 339,238 800,165
Other expenses 219,839
Administrative 220,219 426,642 401,383
Provision for investment
property writedown 1,016,987
-------------- -------------- --------------
Total expenses 1,453,922 6,462,146 15,503,297
-------------- -------------- --------------
(Loss) income before gain on
sale of properties and
extraordinary items (602,105) (454,847) 1,240,270
Gain on sale of properties 1,141,112 16,267,970
-------------- --------------
Income before extraordinary
items 539,007 15,813,123
Extraordinary items:
Gain on extinguishment
of debt 787,767
Debt extinguishment expense (20,819) (692,461)
-------------- -------------- --------------
Net income $ 518,188 $ 15,908,429 $ 1,240,270
============== ============== ==============
Income before extraordinary
items allocated to
General Partner None $ 158,131 $ 12,403
============== ============== ==============
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, 1997, 1996 and 1995
(Continued)
1997 1996 1995
-------------- -------------- --------------
Income before extraordinary
items allocated to
Limited Partners $ 539,007 $ 15,654,992 $ 1,227,867
============== ============== ==============
Income before extraordinary
items per Limited
Partnership Interest(52,811
issued and outstanding) -
Basic and Diluted $ 10.20 $ 296.43 $ 23.25
============== ============== ==============
Extraordinary items allocated
to General Partner None $ 953 None
============== ============== ==============
Extraordinary items allocated
to Limited Partners $ (20,819) $ 94,353 None
============== ============== ==============
Extraordinary items per
Limited Partnership
Interest (52,811 issued
and outstanding) - Basic
and Diluted $ (0.39) $ 1.79 $ None
============== ============== ==============
Net income allocated
to General Partner None $ 159,084 $ 12,403
============== ============== ==============
Net income allocated
to Limited Partners $ 518,188 $ 15,749,345 $ 1,227,867
============== ============== ==============
Net income per Limited
Partnership Interest(52,811
issued and outstanding) -
Basic and Diluted $ 9.81 $ 298.22 $ 23.25
============== ============== ==============
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, 1997, 1996 and 1995
1997 1996 1995
-------------- -------------- --------------
Operating activities:
Net income $ 518,188 $ 15,908,429 $ 1,240,270
Adjustments to reconcile
net income to net cash
(used in) or provided by
operating activities:
Gain on sale
of properties (1,141,112) (16,267,970)
Gain on extinguishment
of debt (787,767)
Debt extinguishment
expense 20,819 (2,805)
Provision for investment
property writedown 1,016,987
Depreciation 141,606 1,182,379 2,956,956
Amortization of deferred
expenses 13,155 59,482 84,433
Net change in:
Escrow deposits 263,326 1,175,420 (87,700)
Accounts and accrued
interest receivable 92,479 709,108 (190,143)
Note receivable 31,878 (31,878)
Prepaid expenses 17,314 161,374 (120,290)
Accounts payable (29,494) (159,317) (21,115)
Due to affiliates (70,632) 65,517 (33,615)
Accrued liabilities (167,154) (546,744) (313,953)
Security deposits (14,456) (187,451) (12,289)
-------------- -------------- --------------
Net cash (used in) or
provided by
operating activities (324,083) 1,277,777 4,519,541
-------------- -------------- --------------
Investing activities:
Distribution from joint
venture with an affiliate 482,229
Proceeds from sales of
real estate 6,300,000 39,094,483
Costs incurred in
connection with
sales of real estate (154,363) (1,213,544)
-------------- -------------- --------------
Net cash provided by
investing activities 6,145,637 37,880,939 482,229
-------------- -------------- --------------
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, 1997, 1996 and 1995
(Continued)
1997 1996 1995
-------------- -------------- --------------
Financing activities:
Distributions to Limited
Partners (9,308,467) (21,652,510) (1,056,220)
Deemed distribution (477,475)
Repayment of mortgage notes
payable (5,071,928) (16,772,264)
Release of capital
improvement escrow 389,270 668,946
Funding of capital
improvement escrow (133,650) (193,385)
Principal payments on
mortgage notes payable (29,914) (247,952) (603,416)
-------------- -------------- --------------
Net cash used in
financing activities (14,410,309) (38,894,581) (1,184,075)
-------------- -------------- --------------
Net change in cash and cash
equivalents (8,588,755) 264,135 3,817,695
Cash and cash equivalents at
beginning of year 10,272,801 10,008,666 6,190,971
-------------- -------------- --------------
Cash and cash equivalents at
end of year $ 1,684,046 $ 10,272,801 $ 10,008,666
============== ============== ==============
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") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
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 three properties. During 1997,
the Partnership sold its remaining property, the Canyon Pointe Apartments. The
Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as establish a reserve for
contingencies. 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 and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 15 of Notes to
the Financial Statements. In the absence of any such contingency, the reserves
will be paid within twelve months of the last property being sold. In the event
a contingency continues to exist or arises, 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 was computed using the straight-line method. Rates
used in the determination of depreciation were based upon the following
estimated useful lives:
Years
-----
Buildings and improvements 18-30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
As properties were sold, the related costs and accumulated depreciation were
<PAGE>
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(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 recorded its investments in real estate at the lower of cost or
fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current estimated sales
price less closing costs. In the event the General Partner determined an
impairment in value has occurred, and the carrying amount of the real estate
asset would not be recovered, a provision was recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considered 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 consisted of mortgage refinancing fees which were
amortized over the terms of the respective agreements. Upon sale, any remaining
balance was recognized as debt extinguishment expense and classified as an
extraordinary item.
(e) 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 were not available for the Partnership's
financial instruments, fair values were based on estimates using present value
techniques. These techniques were significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates could not be substantiated by
comparison to independent markets and, in many cases, may not have been
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.
(f) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their remaining economic
interests as provided for in the Partnership Agreement, income allocations
between the partners have been adjusted for financial statement purposes in
1997.
(g) Cash and cash equivalents include all unrestricted, 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 income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
<PAGE>
(i) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership for the year ended December 31, 1997 and has
been applied to all prior earnings periods presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
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.
The Partnership Agreement provides that the General Partner will be allocated
1% of the profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. For financial purposes, in previous years partners were
allocated income and loss in accordance with the provisions in the Partnership
Agreement. In order for the capital accounts of the General Partner and Limited
Partners to appropriately reflect their remaining economic interests as
provided for in the Partnership Agreement, income allocations between the
partners have been adjusted for financial statement purposes in 1997.
In accordance with the Partnership Agreement, 100% of the Net Cash Receipts
were distributed to holders of Limited Partnership Interests. The General
Partner did not receive any portion of Net Cash Receipts; however, there was
accrued for the benefit of the General Partner an amount equal to 1% of Net
Cash Receipts distributed to holders of Interests, which would be only paid out
of Net Cash Proceeds as a part of the General Partner's distributive share on
sale or refinancing of properties. The General Partner did not receive any
distributions over the lifetime of the Partnership under this provision.
The Partnership has sold all of its properties. In accordance with the
Partnership Agreement the Net Cash Proceeds resulting therefrom which were
available for distribution were to be distributed only to holders of Limited
Partnership Interests until such time as they would have received an amount
equal to their Original Capital plus a 6% per annum non-compounded return. The
Partnership Agreement provided for any remaining Net Cash Proceeds available
for distribution to be distributed 85% to holders of Limited Partnership
Interests and 15% to the General Partner, provided that the General Partner's
distributive share would 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. The General Partner will not
receive any distributions of Net Cash Proceeds in accordance with this
provision.
5. Note Receivable:
In connection with the sale of the 101 Marietta Tower office complex, the
<PAGE>
Partnership received a $54,558 promissory note for delinquent rent due from a
tenant at the complex. The note bore interest at a rate of 12.25% and was
payable in monthly installments of principal and interest through maturity in
December 1996. The note was repaid in full during 1997.
6. Mortgage Notes Payable:
As of December 31, 1996, the Partnership had a mortgage note payable
outstanding of $5,101,842 related to the Canyon Pointe Apartments. This
mortgage was repaid in connection with the sale of this property during 1997 as
further described in Note 11 of Notes to the Financial Statements.
During 1997, 1996 and 1995 the Partnership incurred interest expense on
mortgage notes payable of $256,219, $1,585,566 and $3,647,305 and paid interest
expense of $256,219, $1,983,150 and $3,804,468, respectively.
7. Management Agreements:
The Partnership's properties were under management agreements with a third
party management company prior to the sale of the properties. These management
agreements provided for annual fees of 5% of gross operating receipts.
8. 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. In February 1995, the Partnership received a distribution of
$482,229 which represented its share of sale proceeds and fourth quarter 1994
property operations.
9. 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 1997 in the financial statements is $2,547,266 less than the
tax income of the Partnership for the same period.
10. 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
12/31/97 12/31/96 12/31/95
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of expenses
to the General Partner,
at cost:
<PAGE>
Accounting $15,172 $6,974 $11,263 $15,167 $46,607 $4,326
Data processing 2,702 1,352 1,838 2,476 12,337 525
Investor communica-
tions None None None None 6,127 None
Legal 16,199 4,302 11,036 14,863 24,805 3,699
Portfolio management 47,674 12,627 34,924 47,033 90,767 14,122
Other 4,829 1,370 None None 10,317 1,502
Property sales 19,408 1,690 14,282 19,408 10,741 9,256
The Partnership participated in an insurance deductible program with other
affiliated partnerships in which the program paid claims up to the amount of
the deductible under the master insurance policies for its properties. The
program was administered by an affiliate of the General Partner who received no
fee for administering the program; however, the General Partner was reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $8,804 and $97,729 for 1996 and 1995, respectively.
11. Property Sales:
(a) In July 1997, the Partnership sold the Canyon Pointe Apartments in an all
cash sale for $6,300,000. From the proceeds of the sale, the Partnership paid
$5,071,928 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $154,363 in selling costs. The basis of the property
was $5,004,525, which is net of accumulated depreciation of $3,825,618. For
financial statement purposes, the Partnership recognized a gain of $1,141,112
from the sale of this property.
(b) In February 1996, the Partnership sold the 101 Marietta Tower office
complex for $26,000,000. The purchaser of the property took title subject to
the existing $17,353,151 first mortgage loan, which represents a non cash
transaction to the Partnership. Accordingly, the non cash aspect of this
transaction is not presented in the Partnership's statements of Cash Flows. 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 write-down in 1995. Due to the classification of the
state withholding tax as a deemed distribution, the Partnership recognized a
gain of $156,949 from the property sale in 1996.
(c) 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.
(d) In October 1996, the Partnership sold the Knollwood Village Apartments in
<PAGE>
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.
12. 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 connection with the sale of the Canyon Pointe Apartments in 1997, the
Partnership wrote off the remaining unamortized deferred expenses related to
the mortgage loan of $20,819. In addition, in connection with the sales of the
Mallard Cove Apartments and Knollwood Village Apartments in 1996, 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
amounts were recorded as extraordinary items and classified as debt
extinguishment expense for financial statement purposes.
13. Other Expenses:
The Partnership paid $118,596 in 1997 for real estate tax consulting fees
related to the 101 Marietta Tower office complex, which was sold in 1996. In
connection with the 1996 sale of the Knollwood Village Apartments, the
Partnership paid $101,243 in 1997 for a state income tax liability related to
the gain on the sale of the property. These items have been recorded as other
expenses for financial statement purposes.
14. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 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 for
mortgage loans with similar terms and maturities, the fair value of the
mortgage note payable approximated the carrying value.
15. Contingencies:
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 state securities and common law violations
<PAGE>
with regard to the property acquisition process of the Partnership, and 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.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1684
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1692
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1692
<CURRENT-LIABILITIES> 44
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1648
<TOTAL-LIABILITY-AND-EQUITY> 1692
<SALES> 0
<TOTAL-REVENUES> 1993
<CGS> 0
<TOTAL-COSTS> 823
<OTHER-EXPENSES> 375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256
<INCOME-PRETAX> 539
<INCOME-TAX> 0
<INCOME-CONTINUING> 539
<DISCONTINUED> 0
<EXTRAORDINARY> (21)
<CHANGES> 0
<NET-INCOME> 518
<EPS-PRIMARY> 9.81
<EPS-DILUTED> 9.81
</TABLE>
