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
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
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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
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR REALTY INVESTORS - 85 SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,997,253 $ 2,418,169
Accounts and accrued interest receivable 9,077 16,834
-------------- --------------
$ 2,006,330 2,435,003
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 35,664 $ 20,861
Due to affiliates 38,546 34,682
-------------- --------------
Total liabilities 74,210 55,543
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Commitments and contingencies
Limited Partners' capital (83,936
Interests issued and outstanding) 1,932,120 2,379,460
General Partner's capital None None
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Total partners' capital 1,932,120 2,379,460
-------------- --------------
$ 2,006,330 $ 2,435,003
============== ==============
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 March 31, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental and service $ 441,199
Interest on short-term investments $ 31,186 55,903
-------------- --------------
Total income 31,186 497,102
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Expenses:
Interest on mortgage note payable 167,177
Depreciation 51,564
Amortization of deferred expenses 7,943
Property operating 211,874
Real estate taxes (19,829)
Property management fees 24,335
Administrative 75,064 113,372
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Total expenses 75,064 556,436
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Loss before gain on sale of
property and extraordinary item (43,878) (59,334)
Gain on sale of property 4,992,080
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(Loss) income before extraordinary item (43,878) 4,932,746
Extraordinary item:
Debt extinguishment expense (421,908)
-------------- --------------
Net (loss) income $ (43,878) $ 4,510,838
============== ==============
Income before extraordinary item
allocated to General Partner None $ 703,170
============== ==============
(Loss) income before extraordinary item
allocated to Limited Partners $ (43,878) $ 4,229,576
============== ==============
(Loss) income before extraordinary item
per Limited Partnership Interest (83,936
Interests issued and outstanding) -
Basic and Diluted $ (0.52) $ 50.39
============== ==============
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 March 31, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Extraordinary item allocated to General
Partner None $ (60,144)
============== ==============
Extraordinary item allocated to Limited
Partners None $ (361,764)
============== ==============
Extraordinary item per Limited
Partnership Interest (83,936 Interests
issued and outstanding)- Basic and Diluted None $ (4.31)
============== ==============
Net income allocated to General Partner None $ 643,026
============== ==============
Net (loss) income allocated to Limited
Partners $ (43,878) $ 3,867,812
============== ==============
Net (loss) income per Limited Partnership
Interest (83,936 Interests issued and
outstanding) - Basic and Diluted $ (0.52) $ 46.08
============== ==============
Distribution to Limited Partners $ 403,462 $ 9,232,960
============== ==============
Distribution per Limited Partnership
Interest (83,936 Interests issued and
outstanding) $ 4.81 $ 110.00
============== ==============
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 quarters ended March 31, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net (loss) income $ (43,878) $ 4,510,838
Adjustments to reconcile net (loss)
income to net cash used in
operating activities:
Gain on sale of property (4,992,080)
Debt extinguishment expense 132,371
Depreciation of property 51,564
Amortization of deferred expenses 7,943
Net change in:
Escrow deposits 82,469
Accounts and accrued interest
receivable 7,757 30,000
Prepaid expenses 19,833
Accounts payable 14,803 (552,811)
Due to affiliates 3,864 (5,832)
Security deposits (30,759)
-------------- --------------
Net cash used in operating
activities (17,454) (746,464)
-------------- --------------
Investing activities:
Proceeds from sale of property 10,400,000
Payment of selling costs (184,415)
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Net cash provided by investing activities 10,215,585
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Financing activities:
Distribution to Limited Partners (403,462) (9,232,960)
Repayment of mortgage note payable (7,238,418)
Principal payments on mortgage note
payable (11,015)
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Cash used in financing activities (403,462) (16,482,393)
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Net change in cash and cash equivalents (420,916) (7,013,272)
Cash and cash equivalents at beginning
of period 2,418,169 12,457,760
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Cash and cash equivalents at end of period $ 1,997,253 $ 5,444,488
============== ==============
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 Policies:
(a) For financial statement purposes, the capital accounts of the General
Partner and Limited Partners have been adjusted to appropriately reflect their
remaining economic interests as provided for in the Partnership Agreement.
(b) 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, 1998, and all such adjustments are of a normal and recurring
nature.
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 1997, the Partnership sold its remaining property, the
Steeplechase Apartments. The Partnership has retained a portion of the cash
from 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 5 of Notes to the Financial Statements. Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of all contingencies. There can be no
assurances as to the time frame for conclusion of these contingencies.
3. Interest Expense:
During the quarter ended March 31, 1997, the Partnership incurred and paid
interest expense on the mortgage note payable of $167,177.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1998 are:
Paid Payable
------------ ---------
Reimbursement of expenses to
the General Partner, at cost $ 6,470 $ 38,546
5. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
<PAGE>
similar claims involving certain state securities and common law violations
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 or liquidity of
the Partnership. The Partnership believes that it has meritorious defenses to
contest the claims.
<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. As of March 31, 1998, the
Partnership had no properties remaining in its portfolio.
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 1997 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
Administrative expenses were higher than interest income earned on short-term
investments during the quarter ended March 31, 1998. As a result, the
Partnership recognized a net loss during the quarter ended March 31, 1998.
During 1997, the Partnership recognized a gain on the sale of Steeplechase
Apartments, which was the primary reason the Partnership recognized net income
for the quarter ended March 31, 1997. Further discussion of the Partnership's
operations are summarized below.
1998 Compared to 1997
- ---------------------
Discussions of fluctuations between 1998 and 1997 refer to the quarters ended
March 31, 1998 and 1997.
The Partnership sold the Steeplechase Apartments in March 1997 and recognized a
gain of $4,992,080. As a result of the sale, rental and service income,
interest expense on mortgage note payable, depreciation, amortization of
deferred expenses, property operating expenses and property management fees
ceased during 1997.
Higher average cash balances were available for investment during 1997 due to
proceeds received in connection with the sales of the Partnership's properties
during the latter part of 1996 prior to distribution to Limited Partners in
January and April 1997. This resulted in a decrease in interest income on
short-term investments during 1998 as compared to 1997.
As a result of the sale of Steeplechase Apartments in March 1997, real estate
tax expense ceased in 1997. However, the estimate of 1996 real estate taxes at
the Steeplechase Apartments was higher than the actual expense, resulting in
the Partnership recognizing income during 1997.
<PAGE>
During 1997, the Partnership incurred higher accounting and professional fees
which was the primary reason administrative expenses decreased during 1998 as
compared to 1997.
In connection with the March 1997 sale of the Steeplechase Apartments, the
Partnership paid $289,537 in prepayment penalties and wrote off the remaining
unamortized deferred expenses related to the property of $132,371. These
amounts were recognized as an extraordinary item and classified as debt
extinguishment expense.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $421,000 as of
March 31, 1998 when compared to December 31, 1997 primarily due to the
distribution of remaining available Net Cash Proceeds to Limited Partners in
January 1998. The Partnership used cash of approximately $17,000 in its
operating activities to pay administrative expenses, which was partially offset
by interest income earned on short-term investments. The Partnership used cash
of approximately $403,000 in its financing activities to pay a distribution to
Limited Partners.
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 1997, the Partnership sold its remaining property, the
Steeplechase 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 5 of Notes to the Financial Statements. Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of all contingencies. There can be no
assurances as to the time frame for conclusion of these contingencies.
To date, Limited Partners have received cumulative distributions of Net Cash
Proceeds of $154.81 per $1,000 Interest, as well as certain tax benefits. No
additional distributions are anticipated to be made prior to the termination of
the Partnership. However, after paying final partnership expenses, any
remaining cash reserves will be distributed. Limited Partners will not recover
a substantial portion of their original investment.
<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
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(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 are incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
Forest Ridge - Phase II apartment complex, Arlington, Texas 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 relating to the sales of the Forest Ridge -
Phase II, apartment complex, Arlington, Texas and Rosehill Pointe apartment
complex, Lenexa, Kansas previously filed as Exhibit 2(b)(i) to the Registrant's
Current Report on Form 8-K dated May 31, 1996 is incorporated herein by
reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the
sales of the Forest Ridge - Phase II, apartment complex, Arlington, Texas and
Rosehill Pointe apartment complex, Lenexa, Kansas previously filed as Exhibit
2(b)(ii) to the Registrant's Current Report on Form 8-K dated May 31, 1996 is
incorporated herein by reference.
(b)(i) Agreement of Sale relating to the sale of the Hunter's Glen Apartments,
St. Louis County, Missouri previously filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated June 28, 1996 is incorporated herein by
reference.
(ii) Letter Agreement dated June 28, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri, previously filed as Exhibit
99 to the Registrant's Current Report on Form 8-K dated July 15, 1996 is
incorporated herein by reference.
(iii) Letter Agreement dated August 2, 1996, relating to the sale of Hunter's
Glen apartment complex, St. Louis County, Missouri 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.
(iv) Letter Agreement dated August 16, 1996 relating to the sale of Hunter's
Glen Apartments previously filed as Exhibit (99)(d) to the Registrant's Current
Report on Form 8-K dated August 16, 1996 is incorporated herein by reference.
<PAGE>
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Willow
Bend Lake Apartments, East Baton Rouge Parish, Louisiana previously filed as
Exhibit 2 to the Registrant's Current Report on Form 8-K dated September 30,
1996 is incorporated herein by reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana,
previously filed as Exhibit (10)(c)(ii) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 is incorporated herein by
reference.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of Willow Bend Lake Apartments, East Baton Rouge Parish, Louisiana,
previously filed as Exhibit (10)(c)(iii) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 is incorporated herein by
reference.
(d)(i) Agreement of Sale and letter agreements thereto relating to the sale of
Marbrisa apartment complex, Hillsborough County, Florida previously filed as
Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated July 15, 1996
is incorporated herein by reference.
(ii) First Amendment to Agreement of Sale dated August 16, 1996 relating to the
sale of Marbrisa Apartments, Hillsborough County, Florida, previously filed as
Exhibit (99)(a)(i) to the Registrant's Current Report on Form 8-K dated August
16, 1996 is incorporated herein by reference.
(iii) Letter Agreement dated August 20, 1996 relating to the sale of Marbrisa
Apartments, Hillsborough County, Florida, previously filed as Exhibit
(99)(a)(ii) to the Registrant's Current Report on Form 8-K dated August 16,
1996 is incorporated herein by reference.
(iv) Letter Agreements relating to the sale of Marbrisa Apartments,
Hillsborough County, Florida, previously filed as Exhibit (99)(b) to the
Registrant's Current Report on Form 8-K dated September 30, 1996 is
incorporated herein by reference.
(e)(i) Agreement of Sale dated September 3, 1996 relating to the sale of
Chestnut Ridge - Phase I Apartments, Fort Worth, Texas previously filed as
Exhibit 2 to the Registrant's Current Report on Form 8-K dated August 16, 1996
is incorporated herein by reference.
(ii) Letter Agreement relating to the sale of Chestnut Ridge - Phase I
Apartments, Fort Worth, Texas, previously filed as Exhibit (99)(a) to the
Registrant's Current Report on Form 8-K dated September 30, 1996 is
incorporated herein by reference.
(f)(i) Agreement of Sale and attachment thereto relating to the sale of Park
Crossing Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(a)
to the Registrant's Current Report on Form 8-K dated September 16, 1996 is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the Sale of Park Crossing
Apartments, Gwinnett County, Georgia previously filed as Exhibit 2(b) to the
<PAGE>
Registrant's Current Report on Form 8-K dated September 16, 1996 is
incorporated herein by reference.
(iii) Letter relating to the sale of Park Crossing Apartments, Gwinnett County,
Georgia previously filed as Exhibit 2(c) to the Registrant's Current Report on
Form 8-K dated September 16, 1996 is incorporated herein by reference.
(g)(i) Agreement of Sale and attachment thereto relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky previously filed as
Exhibit (2)(i) to the Registrant's Current Report on Form 8-K dated December
20, 1996, is incorporated herein by reference.
(ii) Due Diligence Termination Notice relating to the sale of Steeplechase
Apartments, Lexington-Fayette, Kentucky previously filed as Exhibit (2)(ii) to
the Registrant's Current Report on Form 8-K dated December 20, 1996, is
incorporated herein by reference.
(iii) Reinstatement of, and First Amendment to, Agreement of Sale, relating to
the sale of Steeplechase Apartments, Lexington-Fayette, Kentucky previously
filed as Exhibit (2)(iii) to the Registrant's Current Report on Form 8-K dated
December 20, 1996, is incorporated herein by reference.
(iv) Letter Agreement dated December 20, 1996, relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky previously filed as
Exhibit (2)(iv) to the Registrant's Current Report on Form 8-K dated December
20, 1996, is incorporated herein by reference.
(v) Letter Agreement dated January 22, 1997 relating to the sale of
Steeplechase Apartments, Lexington-Fayette, Kentucky, previously filed as
Exhibit (10)(g)(v) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1998 is attached hereto.
(b) Reports on Form 8-K: No Reports were filed on Form 8-K during the quarter
ended March 31, 1998.
<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/Jayne A. Kosik
----------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of
Balcor Partners - XVII, the General Partner
Date: May 8, 1998
-------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1997
<SECURITIES> 0
<RECEIVABLES> 9
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2006
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2006
<CURRENT-LIABILITIES> 74
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1932
<TOTAL-LIABILITY-AND-EQUITY> 2006
<SALES> 0
<TOTAL-REVENUES> 31
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 75
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (44)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
