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 June 30, 1995
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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 0-14351
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3327917
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 267-1600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
------------- -------------
Cash and cash equivalents $ 920,786 $ 600,949
Restricted investments 480,000
Escrow deposits 1,777,022 1,041,462
Accounts and accrued interest receivable 183,575
Prepaid expenses 94,091
Deferred expenses, principally loan
financing fees, net of accumulated
amortization of $324,265 in 1995 and
$323,605 in 1994 1,149,050 1,070,071
------------- -------------
3,940,949 3,376,057
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Investment in real estate, at cost:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
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73,062,736 73,062,736
Less accumulated depreciation 25,194,991 24,251,998
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Investment in real estate, net of
accumulated depreciation 47,867,745 48,810,738
------------- -------------
$ 51,808,694 $ 52,186,795
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1995 and December 31, 1994
(Unaudited)
(Continued)
LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 11,895,605 $ 12,295,605
Accounts payable 136,828 243,758
Due to affiliates 535,289 216,455
Accrued liabilities, principally interest
and real estate taxes 641,379 423,967
Security deposits 233,516 228,573
Loss in excess of investment in joint
venture with an affiliate 1,123,490 1,101,982
Mortgage note payable - affiliate 1,673,215 1,673,215
Mortgage notes payable 52,005,919 51,673,688
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Total liabilities 68,245,241 67,857,243
Partners' deficit (83,936 Limited Partnership
Interests issued and outstanding) (16,436,547) (15,670,448)
------------- -------------
$ 51,808,694 $ 52,186,795
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
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Income:
Rental and service $ 6,359,979 $ 6,328,594
Interest on short-term investments 33,051 29,380
Participation in income of joint venture
with an affiliate 33,246 19,531
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Total income 6,426,276 6,377,505
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Expenses:
Interest on mortgage notes payable 2,525,619 2,659,371
Interest on short-term loans from affiliate 409,009 180,910
Depreciation 942,993 942,993
Amortization of deferred expenses 103,911 160,337
Property operating 2,103,845 2,071,537
Real estate taxes 523,487 496,230
Property management fees 315,060 308,997
Administrative 268,451 313,847
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Total expenses 7,192,375 7,134,222
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Net loss $ (766,099) $ (756,717)
============= =============
Net loss allocated to General Partner $ (7,661) $ (7,567)
============= =============
Net loss allocated to Limited Partners $ (758,438) $ (749,150)
============= =============
Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (9.04) $ (8.93)
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------- -------------
Income:
Rental and service $ 3,213,176 $ 3,231,893
Interest on short-term investments 16,211 15,887
Participation in income of joint venture
with an affiliate 10,763 10,884
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Total income 3,240,150 3,258,664
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Expenses:
Interest on mortgage notes payable 1,278,461 1,306,561
Interest on short-term loans from affiliate 206,143 94,084
Depreciation 471,497 475,634
Amortization of deferred expenses 53,461 50,449
Property operating 1,129,089 1,065,786
Real estate taxes 261,645 246,322
Property management fees 160,142 155,251
Administrative 147,011 193,532
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Total expenses 3,707,449 3,587,619
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Net loss $ (467,299) $ (328,955)
============= =============
Net loss allocated to General Partner $ (4,673) $ (3,289)
============= =============
Net loss allocated to Limited Partners $ (462,626) $ (325,666)
============= =============
Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (5.52) $ (3.88)
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
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Operating activities:
Net loss $ (766,099) $ (756,717)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Participation in income of joint venture
with an affiliate (33,246) (19,531)
Depreciation of properties 942,993 942,993
Amortization of deferred expenses 103,911 160,337
Deferred interest expense 118,786 163,365
Payment of deferred interest expense (31,382) (450,185)
Net change in:
Escrow deposits (578,060) (225,496)
Accounts and accrued interest
receivable 183,575 197,889
Prepaid expenses (94,091)
Accounts payable (106,930) (21,759)
Due to affiliates 318,834 147,113
Accrued liabilities 130,008 91,599
Security deposits 4,943 (1,508)
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Net cash provided by operating activities 193,242 228,100
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Investing activities:
Distributions from joint venture with
an affiliate 54,754 50,508
Redemption of restricted investments 480,000
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Cash provided by investing activities: 534,754 50,508
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The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(Unaudited)
(Continued)
1995 1994
------------- -------------
Financing activities:
Proceeds from issuance of mortgage
notes payable 6,010,000 3,694,000
Repayment of loans payable - affiliate (480,000) (539,293)
Proceeds from loans payable - affiliate 80,000
Repayment of mortgage notes payable -
affiliates (214,084)
Repayment of mortgage notes payable (5,480,512) (3,029,731)
Principal payments on mortgage notes payable (197,257) (156,127)
Funding of repair escrows (157,500) (18,600)
Payment of deferred expenses (182,890) (89,666)
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Net cash used in financing activities (408,159) (353,501)
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Net change in cash and cash equivalents 319,837 (74,893)
Cash and cash equivalents at beginning
of period 600,949 1,192,138
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Cash and cash equivalents at end of period $ 920,786 $ 1,117,245
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the six months and quarter
ended June 30, 1995, and all such adjustments are of a normal and recurring
nature.
2. Interest Expense:
During the six months ended June 30, 1995 and 1994, the Partnership incurred
and paid interest expense on non-affiliated mortgage notes payable of
$2,406,832 and $2,302,451, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1995 are:
Paid
-----------------------
Six Months Quarter Payable
----------- --------- ----------
Reimbursement of expenses to
the General Partner, at cost $170,125 $170,125 $7,474
In July 1994, the Partnership repaid loans to Balcor Real Estate Holdings, Inc.
("BREHI"), an affiliate of the General Partner, on the Forest Ridge - Phase II
Apartments. In March 1994, the Partnership partially repaid and refinanced the
balance of the Chestnut Ridge - Phase I Apartments affiliated mortgage loans.
The Partnership incurred interest expense on the BREHI loans of $118,786 and
$356,920 and paid interest expense of $31,382 and $643,738 during the six
months ended June 30, 1995 and 1994, respectively. Interest expense of $117,900
was payable as of June 30, 1995 and is included in accrued liabilities on the
balance sheet.
As of June 30, 1995, the Partnership owes $11,895,605 to the General Partner in
connection with the funding of additional working capital and other Partnership
obligations. The Partnership made a net repayment of $400,000 to the General
Partner during the six months ended June 30, 1995.
The Partnership incurred interest expense of $409,009 and $180,910, and paid
interest expense of $17,040 and $129,548 during the six months ended June 30,
1995 and 1994, respectively, in connection with these loans. As of June 30,
1995, interest expense of $527,815 was payable. Interest expense was computed
at the American Express Company cost of funds rate plus a spread to cover
administrative costs. As of June 30, 1995, this rate was 6.542%.
<PAGE>
4. Loan Refinancing:
In June 1995, the Country Oaks Apartments first mortgage loan was refinanced.
The interest rate decreased from 10.0% to 7.655%, the maturity date was
extended from October 1995 to July 2002 and the monthly payments decreased
from $50,153 to $42,663. A portion of the proceeds from the new $6,010,000
first mortgage loan were used to repay the existing first mortgage loan
of $5,480,512.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property. The Partnership has since disposed of
five of these properties. The Partnership continues to own eight remaining
properties and a minority joint venture interest in one property.
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 1994 for a more complete understanding of
the Partnership's financial position.
Operations
----------
Summary of Operations
---------------------
No material events occurred that affected the Partnership's operations during
the six months ended June 30, 1995. Further discussion of the Partnership's
operations is summarized below.
1995 Compared to 1994
---------------------
In connection with the 1994 refinancings of the properties' mortgage loans, the
Partnership retired and replaced $4,215,546 of affiliated mortgage notes
payable related to the Chestnut Ridge - Phase I and Forest Ridge - Phase II
apartment complexes with proceeds from both third party mortgage loans and
loans from the General Partner. As a result, interest expense on mortgage notes
payable decreased and interest expense on short-term loans from affiliates
increased during the six months and quarter ended June 30, 1995 as compared to
the same periods in 1994. The Partnership paid a prepayment penalty in
connection with the Country Oaks Apartments refinancing in June 1995 which
partially offset the decrease in interest expense on mortgage notes payable.
Due to the refinancing of the mortgage loans collateralized by Chestnut Ridge -
Phase I in March 1994, deferred expenses related to the previous loan were
fully amortized. As a result, amortization of deferred expenses decreased
during the six months ended June 30, 1995 as compared to the same period in
1994.
Decreased accounting and consulting fees resulted in a decrease in
administrative expenses during the six months and quarter ended June 30, 1995
as compared to the same periods in 1994.
Rental income increased at the Rosehill Pointe Apartments due to higher rental
rates. As a result, participation in income of joint venture with an affiliate
<PAGE>
increased during the six months ended June 30, 1995 as compared to the same
period in 1994.
Liquidity and Capital Resources
-------------------------------
The cash position of the Partnership increased as of June 30, 1995 when
compared to December 31, 1994. The Partnership's operating activities consisted
primarily of cash flow generated from property operations, which was partially
offset by the payment of administrative expenses and short-term interest
expense. The Partnership's investing activities consisted of distributions from
the joint venture with an affiliate and the release of the cash collateral
related to the Country Oaks Apartments mortgage loan in April 1995, which was
used in the Partnership's financing activities to repay a portion of the loans
owed to the General Partner. Financing activities also included additional
borrowings from the General Partner, the payment of principal on mortgage notes
payable and the net proceeds from the Country Oaks Apartments mortgage loan
refinancing, which were partially used to fund repair escrows and financing
fees.
The Partnership owes approximately $11,896,000 to the General Partner at June
30, 1995 in connection with the funding of operating deficits and other working
capital requirements. These loans are expected to be repaid from available cash
flow from future property operations, or from proceeds received from the
disposition of the Partnership's real estate investments prior to any
distributions to Limited Partners.
Although affiliates of the General Partner have, in certain circumstances,
provided mortgage loans for certain properties of the Partnership, there can be
no assurance that loans of this type will be available from either affiliates
or the General Partner in the future. The General Partner may continue to
provide additional short-term loans to the Partnership to fund working capital
needs or property operating deficits, although there is no assurance that such
loans will be available. Should such short-term loans from the General Partner
not be available, the General Partner will seek alternative third party sources
of financing working capital. However, the current economic environment and its
impact on the real estate industry make it unlikely that the Partnership would
be able to secure financing from third parties to fund working capital needs or
operating deficits. Should additional borrowings be needed and not be available
through the General Partner, its affiliates or third parties, the Partnership
may be required to dispose of some of its properties in order to satisfy
Partnership obligations.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments. During the six months ended June 30, 1995 and 1994, seven of the
Partnership's eight remaining properties generated positive cash flow. In
addition, the property in which the Partnership holds a minority joint venture
interest generated positive cash flow during these periods. The Marbrisa
Apartments generated positive cash flow during the six months ended June 30,
<PAGE>
1995 as compared to a marginal deficit during the same period in 1994 due to
lower repair and maintenance expenditures.
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 refinancing of mortgage
loans, improving property operating performance, and seeking rent increases
where market conditions allow. As of June 30, 1995, the occupancy rates of the
Partnership's properties ranged from 94% to 100%, except for the Forest Ridge -
Phase II Apartments which had an occupancy rate of 89%. Despite improvements in
the local economies and rental markets where certain of the Partnership's
properties are located, the General Partner believes that continued ownership
of many of the properties is in the best interests of the Partnership in order
to maximize potential returns to Limited Partners. As a result, the Partnership
will continue to own these properties for longer than the holding period for
the assets originally described in the prospectus.
The Partnership's properties are owned through the use of third-party and
affiliate mortgage loan financings 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 prior to 1998.
In June 1995, the Country Oaks Apartments first mortgage loan was refinanced.
See Note 4 of Notes to Financial Statements for additional information.
A restricted deposit in the amount of $480,000 was pledged as additional
collateral related to the mortgage loan on the Country Oaks Apartments. The
amount pledged as collateral was invested in short-term instruments pursuant to
the terms of the pledge agreement with the lending institution and interest
earned on this amount accumulated to the benefit of the Partnership. In April
1995, this restricted deposit was released and the accumulated interest was
paid to the Partnership.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions to investors will depend on
improved cash flow from the Partnership's remaining properties and proceeds
from future property sales, as to both of which there can be no assurances.
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.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES II
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) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) 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 (Commission File No. 0-14351) are incorporated
herein by reference.
(10) Agreement of Sale and attachments thereto relating to the sale of Playa
Palms Apartments, previously filed as Exhibit (2) to the Registrant's Report on
Form 8-K dated June 2, 1993, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the six month period ending
June 30, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 1995.
<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 II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVII, 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 Partners-XVII, the General
Partner
Date: August 11, 1995
-------------------------
<PAGE>
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<PERIOD-END> JUN-30-1995
<CASH> 921
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<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2792
<PP&E> 73063
<DEPRECIATION> 25195
<TOTAL-ASSETS> 51809
<CURRENT-LIABILITIES> 13443
<BONDS> 53679
<COMMON> 0
0
0
<OTHER-SE> (16437)
<TOTAL-LIABILITY-AND-EQUITY> 51809
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<TOTAL-REVENUES> 6426
<CGS> 0
<TOTAL-COSTS> 2942
<OTHER-EXPENSES> 1315
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (766)
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<NET-INCOME> (766)
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