FORM 10-Q
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 June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number: 0-14340
Balcor/Colonial Storage Income Fund - 85
(Exact name of registrant as specified in its charter)
Illinois 36-3338930
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Balcor Plaza
2355 Waukegan Road Suite A200
Bannockburn, Illinois 60015
(Address of principal executive (Zip Code)
offices)
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 .
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Balance Sheets
June 30, 1996 and December 31, 1995
1996
(Unaudited) 1995
Assets
Cash and cash equivalents $ 2,772,711 3,643,915
Accounts receivable, net of allowance for doubtful
accounts of $16,944 at June 30, 1996 and $18,321
at December 31, 1995 116,755 148,300
Mortgage notes receivable 1,635,921 1,649,953
Other 86,673 120,545
4,612,060 5,562,713
Mini-warehouse facilities:
Land 14,193,743 14,193,743
Buildings 47,514,938 47,445,774
Furniture, fixtures, and equipment 1,077,405 1,060,425
62,786,086 62,699,942
Less accumulated depreciation 20,244,949 19,271,250
Mini-warehouse facilities, net of accumulated
depreciation 42,541,137 43,428,692
$ 47,153,197 48,991,405
Liabilities and Partners' Capital
Accounts payable - 1,503
Due to affiliates 136,801 825,200
Accrued real estate taxes 366,070 372,527
Other accrued liabilities 48,932 81,290
Security deposits 47,761 54,741
Deferred income 332,131 296,468
Total liabilities 931,695 1,631,729
Partners' capital:
Limited Partners (276,918 Limited Partnership
Interests issued and outstanding) 45,835,792 46,997,465
General Partners 385,710 362,211
46,221,502 47,359,676
$ 47,153,197 48,991,405
See accompanying notes to financial statements.
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Income
For the Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
Three Months Six Months
1996 1995 1996 1995
Income:
Rental $ 2,656,224 2,568,310 5,220,318 5,042,304
Interest on short-term
investments 26,068 44,213 60,963 89,174
Interest from mortgage
notes receivable 39,042 39,693 78,252 79,540
2,721,334 2,652,216 5,359,533 5,211,018
Expenses:
Property operating 716,555 760,204 1,436,351 1,467,076
Depreciation 486,849 486,417 973,699 978,541
Property management fees 77,744 76,833 233,698 151,837
General and administrative 190,004 167,364 365,875 315 261
1,471,152 1,490,818 3,009,623 2,912,715
Net income $ 1,250,182 1,161,398 2,349,910 2,298,303
Limited Partners' share of net
income ($4.47 and $4.15 per
Interest for the three months
ended June 30, 1996 and 1995,
respectively, and $8.40 and
$8.22 for the six months ended
June 30, 1996 and 1995,
respectively) $ 1,237,680 1,149,784 2,326,411 2,275,320
General Partners' share of net
income 12,502 11,614 23,499 22,983
$ 1,250,182 1,161,398 2,349,910 2,298,303
Distributions to Limited Partners
($6.25 and $7.64 per Interest
for the three months ended
June 30, 1996 and 1995,
respectively, and $12.35 and
$12.58 for the six months ended
June 30, 1996 and 1995,
respectively) $ 1,730,738 2,115,654 3,419,938 3,483,631
Distribution to General Partners $ - 68,146 -
See accompanying notes to financial statements.
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
Operating activities:
Net income $ 2,349,910 2,298,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 973,699 978,541
Net change in:
Net accounts receivable 31,545 14,320
Other assets 33,872 30,607
Accounts payable (1,503) -
Due to affiliates (688,399) (84,084)
Accrued real estate taxes (6,457) 41,433
Other accrued liabilities (32,358) -
Security deposits (6,980) (11,912)
Deferred income 35,663 88,829
Net cash provided by operating
activities 2,688,992 3,356,037
Investing activities:
Additions to mini-warehouse facilities, net (86,144) (314,328)
Collection of principal payments on mortgage
notes receivable 14,032 12,754
Net cash used in investing activities (72,112) (301,574)
Financing activities:
Distributions to Limited Partners (3,419,938) (3,483,631)
Distribution to General Partners (68,146) -
Net cash used in financing activities (3,488,084) (3,483,631)
Net change in cash and cash equivalents (871,204) (429,168)
Cash and cash equivalents at beginning of period 3,643,915 4,014,486
Cash and cash equivalents at end of period $ 2,772,711 3,585,318
See accompanying notes to financial statements.
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Notes to Financial Statements
1) Summary of Significant Accounting Policies
In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the
three months and six months ended June 30, 1996, and all such
adjustments are of a normal and recurring nature.
2) Transactions With Affiliates
The Partnership has an agreement with Colonial Storage Management 85,
Inc., an affiliate of Colonial Storage 85, Inc., a General Partner, to
supervise and direct the business and affairs associated with the
mini-warehouse facilities for a fee of 6% of the gross revenues of the
facilities. One-half of this property management fee is subordinated
to receipt by the Limited Partners of a Special Distribution of 8%
during the first twelve-month period after termination of the offering,
9% during the second twelve-month period, and 10% during each 12-month
period thereafter. Any deferred portion of the property management fee
will be paid only from distributed Net Cash Proceeds. As of
June 30, 1996, property management fees of $1,985,890 were deferred.
Fees and expenses paid and payable by the Partnership to affiliates
for the six months ended June 30, 1996 are:
Paid Payable
Property management fees (A) $ 463,694 $ 24,945
General and administrative expenses 186,676 37,946
Incentive management fees (B) 477,021 -
Property sales commissions (C) - 73,910
(A) Includes payment of the subordinated 3% management fee for
the three months ended March 31, 1996 since the Special
Distribution of 10% was paid to Limited Partners during the
twelve month period ending March 31, 1996.
(B) Represents fees paid to the General Partners due to the
receipt by Limited Partners of the Special Distribution of
10%.
(C) These commissions payable to the General
Partners have been subordinated in accordance
with the Partnership Agreement.
3) Subsequent Event
In July 1996, the Partnership paid $1,730,738 to the Limited Partners
representing the quarterly distribution for the second quarter of 1996.
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor/Colonial Storage Income Fund - 85 (the "Partnership") is a limited
partnership formed in September 1983. The principal purpose of the Partnership
is to acquire, own, maintain, operate, lease, and hold for capital appreciation
and current income existing mini-warehouse facilities offering storage space
for business and personal use. The Partnership raised $69,229,500 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
69 mini-warehouse facilities from affiliates in 1985 and 4 mini-warehouse
facilities from non-affiliated entities in 1986. The Partnership sold one
mini-warehouse facility in 1989, one facility in 1990 and two facilities in
1993. As of June 30, 1996 the Partnership continues to operate 69
mini-warehouse facilities.
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
Summary of Operations
No material events occurred during the quarter and six months ended June 30,
1996 and 1995 which significantly impacted the net income of the Partnership.
Further discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
Due to an overall increase in rental rates at the Partnership's mini-warehouse
facilities, rental income increased during the quarter and six months ended June
30, 1996 as compared to the same periods in 1995. Rental income increased
slightly in the Dallas/Fort Worth, Georgia and Carolina regions (four, five and
five percent, respectively) and decreased slightly in the East and West Texas
regions (two and three percent, respectively).
Interest income from short term investments decreased during the quarter and six
months ended June 30, 1996 as compared to the same period in 1995 as a result of
a decrease in amounts available for investment.
In accordance with the Partnership Agreement, the full 6% management fee was
recognized for the three months ended March 31, 1996 due to the Limited
Partners' receipt of distributions equal to 10% of Adjusted Original Capital
during the twelve month period ended March 31, 1996. The additional 3% fee was
not recognized during the three months ended June 30, 1996; however, this fee
may be recognized depending on Partnership operations over the next nine months.
The recognition of the additional management fee was for the three months ended
March 31, 1996 was the primary reason management fees increased for the six
months ended June 30, 1996 as compared to
the same period in 1995.
Higher payroll and supply expenses as well as professional fees, printing and
postage costs incurred in connection with the tender offers during 1996 resulted
in an
increase in general and administrative expenses for the quarter and six months
ended June 30, 1996 as compared to the same periods in 1995.
Liquidity and Capital Resources
The cash position of the Partnership decreased approximately $871,000 from
December 31, 1995, to June 30, 1996. The Partnership's cash flow provided by
operating activities of approximately $2,689,000 in the first six months of
1996 was generated primarily by the operations of the mini-warehouse properties,
interest income received on the Partnership's short term investments and on
mortgage notes receivable, which were partially offset by administrative
expenses and the payment of additional property management fees and Partnership
incentive management fees for 1995, as discussed below. Cash flow of
approximately $72,000 was used in investing activities to make capital
improvements to the properties, which included door and roofing expenditures,
and in financing activities to provide distributions to the Limited and General
Partners of approximately $3,488,000.
Pursuant to the Partnership Agreement, the General Partners are entitled to
8% of Net Cash Receipts available for distribution, which is subordinated to
the receipt by Limited Partners of specified distribution levels. From the
inception of the offering through June 30, 1996, the General Partner's share
of Net Cash Receipts totaled approximately $4,444,000 of which $545,167 was
paid to the General Partners in February, 1996 ($477,021 of incentive
management fees and $68,146 as its distributive share of Net Cash Receipts).
The General Partners are entitled to receive subordinated amounts only from
distributed Net Cash Proceeds.
The General Partners' current strategy is to continue to operate the
Partnership's properties in a manner to maximize cash flow and to provide the
Limited Partners with regular quarterly distributions. A further objective is
to maximize the price at which the properties may ultimately be sold.
Occasionally, the General Partners receive unsolicited inquiries to purchase the
Partnership's properties, and currently there has been strong interest from
institutional purchasers of mini-warehouse facilities. The General Partners
will continue to evaluate all offers and explore other alternatives in order to
achieve the objectives and maximize return to the Limited Partners.
In July 1996, the Partnership paid $1,730,738 ($6.25 per Interest) to the
Limited Partners representing the quarterly distribution for the second
quarter of 1996. Including the July 1996 distribution, the Partnership has
distributed $200.87 per $250 Interest. The General Partners believe the cash
flow generated from property operations should enable the Partnership to
continue making quarterly distributions to Limited Partners. However, the
level of future cash distributions to Limited Partners will be dependent upon
the amount of cash flow generated by the Partnership's properties, as to which
there can be no assurance. Quarterly distributions increased from $6.10 per
Interest for the fourth quarter of 1995 to $6.25 per Interest for the first and
second quarters of 1996 due to improved operating results at several of the
Partnership's mini-warehouse facilities. The General Partners intend to retain
on behalf of the Partnership cash reserves deemed adequate to meet working
capital requirements as they may arise.
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/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as
Exhibit 4.1 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 dated May 14, 1985
and to the Registrant's Registration Statement on Form
S-11 dated January 29, 1985 (Registration No. 2-95752,
and No. 33-2977, respectively) 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.
0-14340) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the
six months ended June 30, 1996 is attached hereto.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended June 30, 1996.
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/Colonial Storage Income Fund - 85
By: /s/ Thomas E. Meador
Thomas E. Meador,
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Storage Partners-85, a General Partner
By: /s/ Brian D. Parker
Brian D. Parker,
Senior Vice President and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Storage Partners-85,
a General Partner
By: /s/ James Pruett
James Pruett
President and Director of Colonial
Storage 85, Inc., a General Partner
By: /s/ James N. Danford
James N. Danford,
Secretary/Treasurer (Principal Financial
and Accounting Officer) of Colonial
Storage 85, Inc., a General Partner
Date: August 12, 1996
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