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 September 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 .
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Balance Sheets
September 30, 1996 and December 31, 1995
1996
(Unaudited) 1995
Assets
Cash and cash equivalents $ 4,370,569 3,643,915
Accounts receivable, net of allowance for doubtful
accounts of $13,365 at September 30, 1996 and $18,321
at December 31, 1995 104,146 148,300
Mortgage notes receivable - 1,649,953
Other 149,902 120,545
4,624,617 5,562,713
Mini-warehouse facilities:
Land 14,193,743 14,193,743
Buildings 47,567,701 47,445,774
Furniture, fixtures, and equipment 1,105,382 1,060,425
62,866,826 62,699,942
Less accumulated depreciation 20,731,798 19,271,250
Mini-warehouse facilities, net of accumulated
depreciation 42,135,028 43,428,692
$ 46,759,645 48,991,405
Liabilities and Partners' Capital
Accounts payable - 1,503
Due to affiliates 156,498 825,200
Accrued real estate taxes 424,274 372,527
Other accrued liabilities 48,932 81,290
Security deposits 45,276 54,741
Deferred income 364,823 296,468
Total liabilities 1,039,803 1,631,729
Partners' capital:
Limited Partners (276,918 Limited Partnership
Interests issued and outstanding) 45,321,841 46,997,465
General Partners 398,001 362,211
45,719,842 47,359,676
$ 46,759,645 48,991,405
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Income
For the Three Months and Nine Months ended September 30, 1996 and 1995
(Unaudited)
Three Months Nine Months
1996 1995 1996 1995
Income:
Rental $ 2,694,941 2,682,637 7,915,259 7,724,941
Interest on short-term
investments 26,717 42,025 87,680 131,042
Interest from mortgage
notes receivable 37,574 39,536 115,826 119,233
2,759,232 2,764,198 8,118,765 7,975,216
Expenses:
Property operating 784,051 756,785 2,220,402 2,223,861
Depreciation 486,849 489,271 1,460,548 1,467,812
Property management fees 80,979 76,943 314,677 228,780
General and administrative 178,275 166,184 544,150 481 445
1,530,154 1,489,183 4,539,777 4,401,898
Net income $ 1,229,078 1,275,015 3,578,988 3,573,318
Limited Partners' share of net
income ($4.39 and $4.56 per
Interest for the three months
ended September 30, 1996 and 1995,
respectively, and $12.80 and
$12.77 for the nine months ended
September 30, 1996 and 1995,
respectively) $ 1,216,787 1,262,265 3,543,198 3,537,585
General Partners' share of net
income 12,291 12,750 35,790 35,733
$ 1,229,078 1,161,398 3,578,988 3,573,318
Distributions to Limited Partners
($6.25 and $5.47 per Interest
for the three months ended
September 30, 1996 and 1995,
respectively, and $18.60 and
$18.05 for the nine months ended
September 30, 1996 and 1995,
respectively) $ 1,730,738 1,514,741 5,150,676 4,998,370
Distribution to General Partners $ - - 68,146 -
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Cash Flows
For the Nine Months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
Operating activities:
Net income $ 3,578,988 3,573,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,460,548 1,467,812
Net change in:
Net accounts receivable 44,154 (703)
Other assets (29,357) (14,829)
Accounts payable (1,503) 206
Due to affiliates (668,702) (71,016)
Accrued real estate taxes 51,747 185,910
Other accrued liabilities (32,358) -
Security deposits (9,465) (17,005)
Deferred income 68,355 39,677
Net cash provided by operating
activities 4,462,407 5,163,370
Investing activities:
Additions to mini-warehouse facilities, net (166,884) (518,252)
Collection of principal payments on mortgage
notes receivable 1,649,953 19,363
Net cash used in investing activities 1,483,069 (498,889)
Financing activities:
Distributions to Limited Partners (5,150,676) (4,998,370)
Distribution to General Partners (68,146) -
Net cash used in financing activities (5,218,822) (4,998,370)
Net change in cash and cash equivalents 726,654 (333,889)
Cash and cash equivalents at beginning of period 3,643,915 4,014,486
Cash and cash equivalents at end of period $ 4,370,569 3,680,597
See accompanying notes to financial statements.
<PAGE>
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 nine months ended September 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
September 30, 1996, property management fees of $2,066,869 were deferred.
Fees and expenses paid and payable by the Partnership to affiliates
for the nine months ended September 30, 1996 are:
Paid Payable
Property management fees (A) $ 539,044 $ 27,574
General and administrative expenses 277,970 55,014
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 amounts 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 October, 1996, the Partnership paid $1,730,738 to the Limited Partners
representing the quarterly distribution for the third quarter of 1996.
<PAGE>
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 September 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 nine months ended
September 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 nine 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 (five, five and
six percent, respectively) and decreased slightly in the West Texas region (two
percent).
Interest income from short term investments decreased during the quarter and
nine months ended September 30, 1996 as compared to the same periods in 1995 as
a result of a decrease in amounts available for investment primarily due to the
payment of the additional 3% property management fee and incentive management
fee during the first quarter of 1996.
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 six months ended September 30, 1996; however, this fee
may be recognized depending on Partnership operations over the next six months.
The recognition of the additional management fee for the three months ended
March 31, 1996 was the primary reason management fees increased for the nine
months ended September 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 nine
months ended September 30, 1996 as compared to the same periods in 1995.
Liquidity and Capital Resources
The cash position of the Partnership increased approximately $726,000 from
December 31, 1995, to September 30, 1996. The Partnership's cash flow
provided by operating activities of approximately $4,462,000 in the first
nine 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.
Repayment of the balance of mortgage notes receivable resulted in cash flow
provided from investing activities of approximately $1,650,000. Cash flow of
approximately $167,000 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 $5,219,000.
In September, 1996, the Partnership received $508,364, $797,114 and $323,172
in full satisfaction of the remaining mortgage notes receivable resulting from
the sale of mini-warehouse facilities in 1993, 1990 and 1989, respectively.
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 September 30, 1996, the General Partners'
share of Net Cash Receipts totaled approximately $4,595,000 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. In light
of improvements in the capital markets, the Partnership diseminated information
on its properties to several institutional investors that own mini-warehouse
facilities inviting them to submit bids by September 30, 1996. The Partnership
is currently evaluating the offers it received. 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 October 1996, the Partnership paid $1,730,738 ($6.25 per Interest) to the
Limited Partners representing the quarterly distribution for the third quarter
of 1996. Including the October 1996 distribution, the Partnership has
distributed $207.12 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,
second and third 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.
<PAGE>
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 September 30, 1992 (Commission File
No. 0-14340) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the
nine months ended September 30, 1996 is attached hereto.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended September 30, 1996.
<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/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/ Jayne Kosik
Jayne Kosik,
Chief Accounting and Financial Officer
(Principal Accounting 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: November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4371
<SECURITIES> 0
<RECEIVABLES> 104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4625
<PP&E> 62867
<DEPRECIATION> 20732
<TOTAL-ASSETS> 46760
<CURRENT-LIABILITIES> 1040
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 45720
<TOTAL-LIABILITY-AND-EQUITY> 46760
<SALES> 0
<TOTAL-REVENUES> 8119
<CGS> 0
<TOTAL-COSTS> 2535
<OTHER-EXPENSES> 2005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3579
<INCOME-TAX> 0
<INCOME-CONTINUING> 3579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3579
<EPS-PRIMARY> 12.80
<EPS-DILUTED> 12.80
</TABLE>
