SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-14353
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BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3244978
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 5,622,036 $ 2,369,231
Accounts and accrued interest receivable 124,916 19,630
Escrow deposits 1,615,998 1,652,919
Prepaid expenses 35,688 158,090
Deferred expenses, net of accumulated
amortization of $312,798 in 1996
and $302,544 in 1995 977,722 1,027,098
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8,376,360 5,226,968
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Investment in real estate:
Land 11,006,143 12,380,326
Buildings and improvements 59,583,891 65,940,832
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70,590,034 78,321,158
Less accumulated depreciation 26,818,084 28,951,829
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Investment in real estate, net of
accumulated depreciation 43,771,950 49,369,329
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$ 52,148,310 $ 54,596,297
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 122,534 $ 218,237
Due to affiliates 42,502 24,501
Accrued liabilities, principally
real estate taxes 250,976 330,103
Security deposits 228,985 262,183
Losses in excess of investments in joint
ventures with affiliates 402,075 449,476
Mortgage notes payable 49,875,371 56,466,198
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Total liabilities 50,922,443 57,750,698
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Limited Partners' capital (deficit) (82,697
Interests issued and outstanding) 1,870,620 (2,459,643)
General Partner's deficit (644,753) (694,758)
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Total partners' capital (deficit) 1,225,867 (3,154,401)
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$ 52,148,310 $ 54,596,297
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1996 and 1995
(Unaudited)
1996 1995
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Income:
Rental and service $ 3,948,816 $ 3,798,276
Interest on short-term investments 35,087 104,326
Participation in income of joint
ventures with affiliates 145,326 733,993
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Total income 4,129,229 4,636,595
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Expenses:
Interest on mortgage notes payable 1,112,417 1,241,669
Depreciation 480,025 481,269
Amortization of deferred expenses 42,084 34,632
Property operating 1,314,078 1,024,077
Real estate taxes 233,228 250,456
Property management fees 198,365 186,232
Administrative 124,663 133,529
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Total expenses 3,504,860 3,351,864
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Income before gain on sale of property
and extraordinary item 624,369 1,284,731
Gain on sale of property 4,627,131
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Income before extraordinary item 5,251,500 1,284,731
Extraordinary items:
Gain on forgiveness of debt 41,798
Debt extinguishment expense (251,004)
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Net income $ 5,000,496 $ 1,326,529
============= =============
Income before extraordinary item
allocated to General Partner $ 52,515 $ 12,847
============= =============
Income before extraordinary item
allocated to Limited Partners $ 5,198,985 $ 1,271,884
============= =============
Income before extraordinary item
per Limited Partnership Interest
(82,697 issued and outstanding) $ 62.87 $ 15.38
============= =============
Extraordinary item allocated to
General Partner $ (2,510) $ 418
============= =============
<PAGE>
Extraordinary item allocated to
Limited Partners $ (248,494) $ 41,380
============= =============
Extraordinary item per Limited
Partnership Interest (82,697
issued and outstanding) $ (3.00) $ 0.50
============= =============
Net income allocated to General Partner $ 50,005 $ 13,265
============= =============
Net income allocated to Limited Partners $ 4,950,491 $ 1,313,264
============= =============
Net income per Limited Partnership Interest
(82,697 issued and outstanding) $ 59.87 $ 15.88
============= =============
Distribution to Limited Partners $ 620,228 $ 413,485
============= =============
Distribution per Limited Partnership
Interests (82,697 issued and outstanding) $ 7.50 $ 5.00
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(Unaudited)
1996 1995
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Operating activities:
Net income $ 5,000,496 $ 1,326,529
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on forgiveness of debt (41,798)
Gain on sale of property (4,627,131)
Debt extinguishment expense 251,004
Participation in income of joint
ventures with affiliates (145,326) (733,993)
Depreciation of properties 480,025 481,269
Amortization of deferred expenses 42,084 34,632
Net change in:
Accounts and accrued interest
receivable (105,286) (885)
Escrow deposits (99,778) (60,572)
Prepaid expenses 122,402
Accounts payable (95,703) 92,600
Due to affiliates 18,001 48,685
Accrued liabilities (79,127) (77,287)
Security deposits (33,198) (14,872)
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Net cash provided by operating activities 728,463 1,054,308
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Investing activities:
Capital contributions to joint ventures
with affiliates (14,533) (11,464)
Distributions from joint ventures
with affiliates 112,458 54,277
Proceeds from sale of real estate 9,985,000
Payment of selling costs (240,515)
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Net cash provided by investing activities 9,842,410 42,813
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Financing activities:
Distribution to Limited Partners (620,228) (413,485)
Repayment of mortgage note payable (5,790,869)
Principal payments on mortgage
notes payable (799,958) (660,608)
Disbursements from improvement escrows 136,699 32,250
Payment of prepayment penalties (243,712)
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Net cash used in financing activities (7,318,068) (1,041,843)
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<PAGE>
Net change in cash and cash equivalents 3,252,805 55,278
Cash and cash equivalents at
beginning of period 2,369,231 6,475,393
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Cash and cash equivalents at end of period $ 5,622,036 $ 6,530,671
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1996, and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1996 and 1995, the Partnership incurred and
paid interest expense on mortgage notes payable to unaffiliated parties of
$1,112,417 and $1,241,669, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
three months ended March 31, 1996 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost $24,835 $42,502
4. Property Sales:
(a) In February 1996, the Partnership and an affiliate of the Partnership
(together the "Joint Venture") sold the Seabrook Apartments for $5,915,000. The
Partnership and the affiliate held effective ownership interests of 15.43% and
84.57%, respectively. From the proceeds of the sale, the Joint Venture paid
$5,081,898 in full satisfaction of the property's mortgage loan. The Joint
Venture recognized a gain of $1,363,431 from the sale of this property, of
which $167,739 was the Partnership's share. Total net proceeds received from
the sale of this property were $642,585, of which $103,770 was the
Partnership's share. The Partnership's share of the gain is included in
"Participation in income of joint ventures with affiliates".
(b) In March 1996, the Partnership sold the Willowbend Apartments for
$9,985,000. From the proceeds of the sale, the Partnership paid $5,790,869 in
full satisfaction of the property's first mortgage loan. The basis of the
property was $5,117,354, net of accumulated depreciation of $2,613,770. The
Partnership recognized a gain of $4,627,131 from the sale of this property for
financial statement purposes and received net proceeds of $3,709,904. In
addition, the Partnership recognized extraordinary debt extinguishment expense
of $251,004 comprised of a prepayment penalty and the full amortization of
deferred expenses related to the repayment of the mortgage loan in connection
with the sale.
<PAGE>
5. Subsequent Event:
In April 1996, the Partnership made a distribution of $620,228 ($7.50 per
Interest) to the holders of Limited Partnership Interests for the first quarter
of 1996.
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85 - Series I A Real Estate Limited Partnership (the
"Partnership") was formed in 1983 to invest in and operate income-producing
real property. The Partnership raised $82,697,000 through the sale of Limited
Partnership Interests and utilized these proceeds to acquire ten real property
investments and minority joint venture interests in three additional
properties. During 1996, the Partnership sold one of its minority joint venture
interests and one property, and, in prior years, sold two properties and one of
its minority joint venture interests and relinquished an additional property
through foreclosure. The Partnership continues to operate the remaining six
real property investments and owns one minority joint venture interest.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
The Partnership recognized a gain related to the March 1996 sale of the
Willowbend Apartments which was the primary reason for the increase in net
income in 1996 as compared to 1995. The increase in net income was partially
offset by a decrease in participation in income of joint ventures with
affiliates in 1996 as compared to 1995 due to the gain recognized in connection
with the 1995 sale of the Pinebrook Apartments, which was owned by a joint
venture consisting of the Partnership and an affiliate. Further discussion of
the Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
Due to lower average cash balances, resulting primarily from distributions to
Limited Partners in the third quarter of 1995, as well as lower interest rates,
interest income on short-term investments decreased in 1996 as compared to
1995.
<PAGE>
Pinebrook Apartments, in which the Partnership held a minority joint venture
interest, was sold during February 1995. As a result of the gain recognized
during 1995 in connection with the sale, the Partnership recognized a decrease
in income from participation in joint ventures with affiliates in 1996 when
compared to 1995. The gain recognized in February 1996 from the sale of
Seabrook Apartments, in which the Partnership held a minority joint venture
interest, partially offset this decrease.
In May 1995, the Boulder Springs Apartments mortgage loan was refinanced and
the interest rate decreased. As a result, interest expense on mortgage notes
payable decreased in 1996 when compared to 1995.
In 1996, the Partnership incurred higher insurance costs and expenditures for
floor coverings at several of the Partnership's properties. As a result,
property operating expense increased in 1996 as compared to 1995.
In March 1996, the Partnership recognized a $4,627,131 gain related to the sale
of Willowbend Apartments. In addition, the Partnership recognized extraordinary
debt extinguishment expense of $251,004 comprised of a prepayment penalty and
the full amortization of deferred expenses related to the repayment of the
mortgage loan in connection with the sale.
During 1995, the Partnership recognized an extraordinary gain on forgiveness of
debt of $41,798 in connection with a settlement reached with the seller of
Templeton Park Apartments.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $3,253,000 as
of March 31, 1996 when compared to December 31, 1995 due primarily to the net
proceeds received in connection with the sale of the Willowbend Apartments. The
Partnership's cash flow provided by operating activities of approximately
$728,000, was generated primarily from the Partnership's properties, and was
partially offset by the payment of administrative expenses. The Partnership's
net cash provided by investing activities of approximately $9,842,000,
primarily consisted of the net proceeds received from the sale of the
Willowbend Apartments. Cash of approximately $7,318,000 was used in the
Partnership's financing activities primarily for the repayment of the
Willowbend Apartments mortgage loan, principal payments on mortgage notes
payable, and distributions to Limited Partners.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. 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. During 1996 and 1995, all six of the
Partnership's remaining properties generated positive cash flow. The Willowbend
Apartments was sold in March 1996 and generated positive cash flow in 1996 and
1995. For the remaining property in which the Partnership holds a minority
joint venture interest, North Hill Apartments generated positive cash flow
during 1996 and 1995. Seabrook Apartments, in which the Partnership held a
minority joint venture interest, was sold in February 1996 and generated
marginal cash flow deficits in 1996 and 1995. Pinebrook Apartments, in which
the Partnership held a minority joint venture interest, was sold in February
1995 and generated a significant cash flow deficit in 1995. As of March 31,
<PAGE>
1996, the occupancy rates of the Partnership's properties ranged from 93% to
99%.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties including improving operating
performance and seeking rent increases where market conditions allow.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. During
February and March 1996, the Partnership sold Seabrook Apartments, in which it
held a minority joint venture interest, and Willowbend Apartments,
respectively. Currently, the Partnership has a contract to sell Forest Ridge
Apartments for a sales price of $11,600,000, is preparing to market three
properties for sale and is marketing two additional properties. In addition,
the General Partner has entered into negotiations for a contract to sell the
North Hill Apartments in which the Partnership holds a minority joint venture
interest. If current market conditions remain favorable and the General Partner
can obtain appropriate sales prices, the Partnership's liquidation strategy may
be accelerated.
During February 1996, Seabrook Apartments, which was owned by a joint venture
consisting of the Partnership and two affiliates, was sold in an all cash sale
for $5,915,000. From the proceeds, $5,081,898 was paid in full satisfaction of
the first mortgage loan. Net proceeds received from this transaction were
$642,585, of which $103,770 was the Partnership's share. See Note 4 of Notes to
Financial Statements for additional information.
In March 1996, the Partnership sold the Willowbend Apartments in a cash sale
for $9,985,000. From the sales proceeds, the Partnership paid $5,790,869 to the
third party mortgage holder in full satisfaction of the first mortgage loan, as
well as other closing costs. The Partnership received $3,709,904 of net
proceeds. See Note 4 of Notes to Financial Statements for additional
information.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. As a result of the General
Partner's efforts to obtain loan refinancings, the Partnership has no
third-party financing which matures before 2001.
In April 1996, the Partnership made a distribution of $620,228 ($7.50 per
Interest) to the holders of Limited Partnership Interests representing the
quarterly distribution for the first quarter of 1996. The quarterly
distribution remained constant compared to the fourth quarter of 1995.
Including the April 1996 distribution, Limited Partners have received
cumulative cash distributions of $97.50 per $1,000 Interest as well as certain
tax benefits. Of this amount, $68.50 has been from Net Cash Receipts and $29.00
has been from Net Cash Proceeds. The General Partner expects to continue
quarterly distributions to Limited Partners. However, the level of future
distributions, if available, will depend on cash flow from the Partnership's
remaining properties and proceeds from future property sales, as to both of
which there can be no assurances. In light of results to date and current
market conditions, the General Partner does not anticipate that investors will
recover all of their original investment.
<PAGE>
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.
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) The Subscription Agreement as set forth as Exhibit 4.1 to Amendment No. 1
to Registrant's Registration Statement on Form S-11 dated November 29, 1984
(Registration No. 2-92777) and Form of Confirmation regarding Interests in the
Partnership as set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1995 (Commission File No. 0-14353) are
incorporated herein by reference.
(10) Agreement of sale relating to Forest Ridge Apartments-Phase I, Arlington,
Texas previously filed as Exhibit (2) to the Partnership's Current Report on
Form 8-K dated April 23, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1996 is attached hereto.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated April 23, 1996 was filed reporting the
execution of a contract for the sale of Forest Ridge Apartments-Phase I,
Arlington, Texas and a Current Report on Form 8-K dated March 8, 1996 was
filed reporting the sale of Seabrook Apartments, Orange County, Florida and
the execution of a contract for the sale of Willow Bend Apartments, St.
Louis, Missouri.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
--------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Equity Partners-I,
the General Partner
By: /s/Brian D. Parker
--------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Equity Partners-I, the
General Partner
Date: May 15, 1996
-------------------------
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5622
<SECURITIES> 0
<RECEIVABLES> 125
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7399
<PP&E> 70590
<DEPRECIATION> 26818
<TOTAL-ASSETS> 52148
<CURRENT-LIABILITIES> 645
<BONDS> 49875
0
0
<COMMON> 0
<OTHER-SE> 1226
<TOTAL-LIABILITY-AND-EQUITY> 52148
<SALES> 0
<TOTAL-REVENUES> 8756
<CGS> 0
<TOTAL-COSTS> 1746
<OTHER-EXPENSES> 647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1112
<INCOME-PRETAX> 5251
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<INCOME-CONTINUING> 5251
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