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, 1997
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)
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, 1997 and December 31, 1996
1997
(Unaudited) 1996
Assets
Cash and cash equivalents $ 2,521,430 4,187,645
Accounts receivable, net of allowance for doubtful
accounts of $13,980 at September 30, 1997 and $18,321
at December 31, 1996 151,673 122,698
Other 126,862 124,293
2,799,965 4,434,636
Mini-warehouse facilities:
Land 14,193,743 14,193,743
Buildings 47,930,613 47,634,567
Furniture, fixtures, and equipment 1,153,132 1,127,156
63,277,488 62,955,466
Less accumulated depreciation 22,758,821 21,300,132
Mini-warehouse facilities, net of accumulated
depreciation 40,518,667 41,655,334
$ 43,318,632 46,089,970
Liabilities and Partners' Capital
Due to affiliates $ 277,281 902,658
Accrued real estate taxes 507,420 302,408
Other accrued liabilities 49,964 48,932
Security deposits 37,750 43,333
Deferred income 368,042 340,078
Total liabilities 1,240,457 1,637,409
Partners' capital:
Limited Partners (276,918 Limited Partnership
Interests issued and outstanding) 41,780,306 44,118,058
General Partners 297,869 334,503
42,078,175 44,452,561
$ 43,318,632 46,089,970
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, 1997 and 1996
(Unaudited)
Three Months Nine months
1997 1996 1997 1996
Income:
Rental $ 2,650,081 2,694,941 7,818,087 7,915,259
Interest on short-term investments 23,372 26,717 72,210 87,680
Interest from mortgage
notes receivable - 37,574 - 115,826
2,673,453 2,759,232 7,890,297 8,118,765
Expenses:
Property operating 717,999 784,051 2,124,279 2,220,402
Depreciation 486,230 486,849 1,458,689 1,460,548
Property management fees 76,674 80,979 308,504 314,677
General and administrative 366,403 178,275 799,453 544,150
1,647,306 1,530,154 4,690,925 4,539,777
Net income $ 1,026,147 1,229,078 3,199,372 3,578,988
Limited Partners' share of net income
($3.67 and $4.39 per Interest for
the three months ended
September 30, 1997 and 1996,
respectively, and $11.44 and $12.80
for the nine months ended
September 30, 1997 and 1996,
respectively) $ 1,015,886 1,216,787 3,167,378 3,543,198
General Partners' share of net
income 10,261 12,291 31,994 35,790
$ 1,026,147 1,229,080 3,199,372 3,578,988
Distributions to Limited Partners
($5.57 and $6.25 per Interest
for the three months ended
September 30, 1997 and 1996,
respectively, and $19.88 and
$18.60 for the nine months ended
September 30, 1997 and 1996,
respectively) $ 1,542,433 1,730,738 5,505,130 5,150,676
Distribution to General
Partners $ - - 68,628 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, 1997 and 1996
(Unaudited)
1997 1996
Operating activities:
Net income $ 3,199,372 3,578,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,458,689 1,460,548
Net change in:
Net accounts receivable (28,975) 44,154
Other assets (2,569) (29,357)
Accounts payable - (1,503)
Due to affiliates (625,377) (668,702)
Accrued real estate taxes 205,012 51,747
Other accrued liabilities 1,032 (32,358)
Security deposits (5,583) (9,465)
Deferred income 27,964 68,355
Net cash provided by operating
activities 4,229,565 4,462,407
Investing activities:
Additions to mini-warehouse facilities, net (322,022) (166,884)
Collection of principal payments on mortgage
notes receivable - 1,649,953
Net cash (used in) provided by
investing activities (322,022) 1,483,069
Financing activities:
Distributions to Limited Partners (5,505,130) (5,150,673
Distribution to General Partners (68,628) (68,146)
Net cash used in financing activities (5,573,758) (5,218,822)
Net change in cash and cash equivalents (1,666,215) 726,654
Cash and cash equivalents at beginning of period 4,187,645 3,643,915
Cash and cash equivalents at end of period $ 2,521,430 4,370,569
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
nine months and quarter ended September 30, 1997, 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, 1997, property management fees of $2,145,546 were deferred.
Fees and expenses paid and payable by the Partnership to affiliates
for the nine months ended September 30, 1997 are:
Paid Payable
Property management fees (A) $ 542,142 26,317
General and administrative expenses 342,231 177,054
Incentive management fees (B) 480,398 -
Property sales commissions (C) - 73,910
(A) Includes payment of the subordinated 3% property management
fee since Limited Partners received distributions equal to
10% of Adjusted Original Capital for the twelve month period
ending March 31, 1997.
(B) Represents fees paid to the General Partners due to the
receipt by Limited Partners of the Special Distribution of
10% referred to above.
(C) These commissions payable to the General Partners have been
subordinated in accordance with the Partnership Agreement.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Notes to Financial Statements
3) Sale of Mini-Warehouse Facilities
On September 4, 1997, the Partnership entered into an agreement to sell
all of the 69 remaining mini-warehouse facilities of the Partnership to
Value Storage, Ltd. for $59,750,000. For financial statement purposes,
the Partnership will recognize a gain of approximately $16,300,000 to
$17,000,000 if the sale is consummated. The sale must be approved by a
majority of the partnership interests.
4) Subsequent Event
In October 1997, the Partnership paid $1,542,433 to the Limited Partners
representing the quarterly distribution for the third quarter of 1997.
<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 September30, 1997 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 1996 for a more complete
understanding of the Partnership's financial position.
Operations
Summary of Operations
Cessation of interest income from mortgage notes receivable, an increase in
administrative expenses and a decrease in rental revenues were partially offset
by a decrease in property operating expenses resulting in a decrease in net
income during the quarter and nine months ended September 30, 1997 as compared
to the same periods in 1996. No material events occurred during these periods
which significantly impacted the net income of the Partnership. Further
discussion of the Partnership's operations is summarized below.
1997 Compared to 1996
Rental revenues and property management fees decreased slightly during the
quarter and nine months ended September 30, 1997 as compared to the same
periods in 1996. Rental income increased slightly in the Western region (one
percent), decreased in the Carolina, Dallas/Fort Worth and Georgia regions
(one, four and four percent, respectively), and remained relatively unchanged
in the East Texas region.
Interest income on short term investments decreased during the quarter and nine
months ended September 30, 1997 as compared to the same periods in 1996 as a
result of a decrease in amounts available for investment.
The Partnership received a repayment of the mortgage notes receivable during
1996; consequently, interest income from mortgage notes receivable ceased
during the quarter and nine months ended September 30, 1997.
Higher payroll and professional fees resulted in an increase in general and
administrative expenses for the quarter and nine months ended September 30,
1997 as compared to the same periods in 1996.
A reduction in maintenance and supplies expenses resulted in a decrease in
property operating expenses for the quarter and nine months ended September 30,
1997 as compared to the same periods in 1996.
Liquidity and Capital Resources
The cash position of the Partnership decreased approximately $1,666,000 from
December 31, 1996, to September 30, 1997 primarily due to distributions of Net
Cash Proceeds to Limited Partners and the payment of additional property
management fees and Partnership incentive management fees as discussed below.
The Partnership's cash flow provided by operating activities of approximately
$4,229,000 was generated primarily by the operations of the mini-warehouse
properties and interest income received on the Partnership's short term
investments, which were partially offset by administrative expenses and the
payment of additional property management fees and Partnership incentive
management fees for 1996, as discussed below. Cash flow of approximately
$322,000 was used in investing activities to make capital improvements to the
properties, which included security and roofing expenditures. In addition, cash
of approximately $5,573,000 was used in financing activities to provide
distributions to the Limited and General Partners.
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. The General
Partners received $549,026 in January, 1997 ($480,398 as an incentive management
fee and $68,628 as their distributive share of Net Cash Receipts). From the
inception of the offering through September 30, 1997, the General Partners'
share of Net Cash Receipts totaled approximately $5,235,000 of which $4,141,000
is subordinated. The General Partners are entitled to receive subordinated
amounts only from distributed Net Cash Proceeds.
Accounts receivable net of the related allowance for doubtful accounts increased
from December 31, 1996 to September 30, 1997 due to the level and timing of
collection efforts. The timing of collection efforts are determined by
individual state law. There have been no changes in the credit terms extended
to the Partnership's customers nor in the method used to allow for doubtful
accounts.
In October 1997, the Partnership paid $1,542,433 ($5.57 per Interest) to the
Limited Partners representing the quarterly distribution for the third quarter
of 1997. Quarterly distributions remained stable for the third quarter of 1997
as compared to the second quarter of 1997. The General Partners intend to
retain on behalf of the Partnership cash reserves deemed adequate to meet
working capital requirements as they may arise. Including the October 1997
distribution, the Partnership has distributed $232.57 per $250 Interest.
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.
During the second half of 1996 and the first half of 1997, the Partnership
solicited and received bids from major institutional owners of mini-warehouse
facilities for a sale of all of the Partnership's properties. The General
Partners have accepted an offer from Value Storage, Ltd. for all 69 mini-
warehouse facilities for a sale price of $59.75 million. The offer was
presented to the Limited Partners for a vote by a consent solicitation dated
November 4, 1997. A majority of the Limited Partners will be required to approve
any sale of two-thirds or more of the Partnership's remaining real property
assets. The General Partners cannot presently predict whether any sale of the
Partnership's assets will be consummated in the foreseeable future.
If Limited Partners approve the proposed sale of all of the Partnership's
properties and the transaction is consummated, an initial distribution of at
least $208 per Interest is expected to be made no later than 30 days after the
sale of the properties is completed. In addition, the Partnership intends
to establish a reserve for future contingencies of approximately $1.99 to $2.71
per Interest. In the absence of any such contingencies arising, the reserves
would be paid to Limited Partners, in one or more subsequent distributions. In
the event the proposed sale is rejected by the Limited Partners, the general
partners of Balcor Storage Partners-85 ("BSP"), a General Partner, have agreed
to transfer ownership of BSP to affiliates of Colonial Storage 85, Inc., the
other General Partner. In such event, the Colonial General Partners' strategy
would be 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, as well as to maximize the price at which the properties might
ultimately be sold.
<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:
(3) Second Amendment to Agreement of Sale detailing
amendments to the sale agreement between the General
Partners and Value Storage, Ltd. are attached as
exhibits hereto.
(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, 1997 is attached hereto.
(b) Reports on Form 8-K:
Report on Form 8-K was filed on September 19, 1997 detailing
the agreement between The Partnership and Value Storage,
Ltd. to sell all 69 of the remaining properties.
<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 A. Kosik
Jayne A. Kosik,
Managing Director and Chief Accounting
and Financial Officer (Principal Accounting
Officer) of Balcor Storage Partners-85, a
General Partner
By: /s/ James R. Pruett
James R. 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, 1997
PRIVATE
SECOND AMENDMENT TO AGREEMENT OF SALE
THIS SECOND AMENDMENT TO AGREEMENT OF SALE (this
"Amendment") is made and entered into on this ___ day of October, 1997 by and
between BALCOR/COLONIAL STORAGE INCOME FUND-85, an Illinois limited partnership
("Seller") and VALUE STORAGE, LTD, a Texas limited partnership ("Purchaser").
WHEREAS, Seller and Purchaser entered into that certain Agreement of
Sale dated September 3, 1997, (the "Original Agreement") and that certain First
Amendment to Agreement of Sale dated September 17th, 1997, (the "First
Amendment") (as amended by the First Amendment the Original Agreement is
hereinafter referred to as the "Agreement") pursuant to which Seller agreed to
sell and Purchaser agreed to purchase sixty-nine (69) separate self-storage
properties located in the states of North Carolina, South Carolina, Georgia,
Mississippi, Missouri, New Mexico, Arkansas, Texas and Oklahoma, which
properties are legally described in Exhibit B of the Agreement (collectively,
the "Real Properties" and individually a "Real Property");
WHEREAS, pursuant to the Original Agreement, Seller has provided, and
Purchaser has reviewed, the Environmental Reports;
WHEREAS, the Original Agreement contemplated the funding of an
Environmental Escrow;
WHEREAS, the First Amendment replaced the funding of the Environmental
Escrow with the concept of a deposit into Purchaser's Environmental Reserve
between Purchaser and Purchaser's lender; and
WHEREAS, Seller and Purchaser desire to enter into this Amendment to
further modify the resolution of the environmental issues presented by this
transaction.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
A. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to them in the Agreement.
2. Review of Environmental Reports. Purchaser acknowledges that it
has received all of the Environmental Reports and that it has completed its
review of the same.
3. Environmental Issues Credit. Seller and Purchaser hereby agree
that there will not be an Environmental Escrow pursuant to the terms of the
Original Agreement; nor will there be a deposit into Purchaser's Environmental
Reserve between Purchaser and Purchaser's lender at Closing as stated in the
First Amendment. Instead, Purchaser and Seller hereby agree that Seller shall
provide Purchaser with a credit at Closing in the amount of One Hundred
Thousand and No/100 Dollars ($100,000.00) (the "Environmental Issues Credit").
Prior to Closing Purchaser shall direct where the Environmental Issues Credit
is to be paid. This Environmental Issues Credit is being agreed upon after
Purchaser's review of the Environmental Reports and in lieu of the Environmental
Escrow or any other resolution of the Environmental Material Defects previously
contemplated by the parties. Purchaser and Seller each waive any right to
terminate this Agreement that either party may possess pursuant to Paragraph 7.4
of the Original Agreement.
4. Full Force and Effect and Counterparts. Except as amended
hereby, the Agreement shall be and remain unchanged and in full force and effect
in accordance with its terms. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which, when taken together
shall constitute one and the same instrument. To facilitate the execution of
this Amendment, Seller and Purchaser may execute and exchange by telephone
facsimile counterparts of the signature pages, with each facsimile being deemed
an "original" for all purposes.
[EXECUTION PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as
of the date first set forth above.
PURCHASER:
VALUE STORAGE, LTD., a Texas limited partnership
By: VALSTOR, Inc., a Texas corporation,
its general partner
By:
Name:
Its:
SELLER:
BALCOR/COLONIAL STORAGE INCOME
FUND - 85, an Illinois limited partnership
By: Balcor Storage Partners - 85,
an Illinois general partnership,
a general partner
By: The Balcor Company, a
Delaware corporation, its
general partner
By:
Name:
Its:
By: COLONIAL STORAGE 85, INC., a
Texas corporation,
a general partner
By:
Name:
Its:
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<PERIOD-END> SEP-30-1997
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0
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<OTHER-SE> 42078
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