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, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -----
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-14352
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BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3344227
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
- - ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
--------------
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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BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
-------------- ---------------
Cash and cash equivalents $ 2,898,500 $ 1,121,400
Accounts and accrued interest receivable 189,013 158,613
Deferred expenses, net of accumulated
amortization of $323,211 in 1994 and
$186,581 in 1993 223,307 359,937
-------------- ---------------
3,310,820 1,639,950
-------------- ---------------
Investment in real estate, at cost:
Land 11,426,930 11,426,930
Buildings and improvements 64,347,072 64,347,072
-------------- ---------------
75,774,002 75,774,002
Less accumulated depreciation 21,387,252 19,875,947
-------------- ---------------
Investment in real estate, net of
accumulated depreciation 54,386,750 55,898,055
-------------- ---------------
$ 57,697,570 $ 57,538,005
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 83,332 $ 99,208
Due to affiliates 110,103 53,285
Accrued liabilities, principally real
estate taxes and interest 497,497
Security deposits 306,943 304,617
Mortgage notes payable 29,743,403 29,560,964
-------------- ---------------
Total liabilities 30,741,278 30,018,074
Partners' capital (57,074 Limited
Partnership Interests issued and
outstanding) 26,956,292 27,519,931
-------------- ---------------
$ 57,697,570 $ 57,538,005
============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Rental and service $ 7,740,655 $ 7,401,618
Interest on short-term investments 59,968 16,103
-------------- --------------
Total income 7,800,623 7,417,721
-------------- --------------
Expenses:
Interest on mortgage notes payable 2,256,079 2,240,664
Depreciation 1,511,305 1,511,305
Amortization of deferred expenses 136,630 136,630
Property operating 3,185,152 3,052,981
Real estate taxes 583,467 623,529
Property management fees 403,941 383,313
Administrative 287,688 244,855
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Total expenses 8,364,262 8,193,277
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Net loss $ (563,639) $ (775,556)
============== ==============
Net loss allocated to General Partner $ (5,636) $ (7,756)
============== ==============
Net loss allocated to Limited Partners $ (558,003) $ (767,800)
============== ==============
Net loss per Limited Partnership Interest
(57,074 issued and outstanding) $ (9.78) $ (13.45)
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Rental and service $ 2,666,197 $ 2,378,321
Interest on short-term investments 29,388 7,344
-------------- --------------
Total income 2,695,585 2,385,665
-------------- --------------
Expenses:
Interest on mortgage notes payable 762,934 755,593
Depreciation 503,767 503,767
Amortization of deferred expenses 45,542 45,542
Property operating 1,050,738 1,110,583
Real estate taxes 103,880 225,304
Property management fees 134,302 133,126
Administrative 72,718 71,894
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Total expenses 2,673,881 2,845,809
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Net income (loss) $ 21,704 $ (460,144)
============== ==============
Net income (loss) allocated to General Partner $ 217 $ (4,602)
============== ==============
Net income (loss) allocated to Limited Partners $ 21,487 $ (455,542)
============== ==============
Net income (loss) per Limited Partnership
Interest (57,074 issued and outstanding) $ 0.38 $ (7.98)
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Operating activities:
Net loss $ (563,639) $ (775,556)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of properties 1,511,305 1,511,305
Amortization of deferred expenses 136,630 136,630
Net change in:
Escrow deposits 221,520
Accounts and accrued interest
receivable (30,400) 43,635
Accounts payable (15,876) (130,256)
Due to affiliates 56,818 8,710
Accrued liabilities 497,497 396,349
Security deposits 2,326 31,872
-------------- --------------
Net cash provided by operating activities 1,594,661 1,444,209
-------------- --------------
Financing activities:
Principal payments on mortgage notes
payable (393,704) (358,158)
Proceeds from issuance of mortgage
notes payable 576,143 160,446
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Net cash provided by or used in financing
activites 182,439 (197,712)
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Net change in cash and cash equivalents 1,777,100 1,246,497
Cash and cash equivalents at beginning
of period 1,121,400 128,454
-------------- --------------
Cash and cash equivalents at end of period $ 2,898,500 $ 1,374,951
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-85
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 nine months and quarter
ended September 30, 1994, and all such adjustments are of a normal and
recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1994 and 1993, the Partnership
incurred interest expense on mortgage notes payable of $2,256,079 and
$2,237,804 and paid interest expense of $2,007,722 and $2,066,107,
respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1994 are:
Paid
--------------------
Nine Months Quarter Payable
----------- -------- ---------
Property management fees $359,615 $120,045 $39,956
Reimbursement of expenses to
the General Partner, at cost:
Accounting 32,900 20,330 16,991
Data processing 15,459 6,839 16,316
Investor communication 16,626 10,275 5,639
Legal 7,265 4,490 5,611
Portfolio management 44,602 21,528 24,110
Other 15,031 9,289 1,480
BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Current Income Fund-85 A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1985 to invest in and operate
income-producing real property. The Partnership raised $57,074,000 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
five real property investments. The Partnership continues to operate these five
properties.
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 1993 for a more complete understanding of
the Partnership's financial position.
Operations
- - ----------
Summary of Operations
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As a result of increased rental and service income at four of the five
Partnership's properties, the Partnership recognized a decreased loss for the
nine months ended September 30, 1994 as compared to the same period in 1993 and
net income during the quarter ended September 30, 1994 as compared to a net
loss during the same period in 1993. Further discussion of the Partnership's
operations are summarized below.
1994 Compared to 1993
- - ---------------------
Increases in occupancy and rental rates at the Providence Square Apartments,
Storage USA of Norcross and Willow Lawn self-storage facilities and American
Way Mall resulted in an increase in rental and service income during the nine
months and quarter ended September 30, 1994 as compared to the same periods in
1993.
Increased cash available for short-term investment and higher interest rates
were the primary reasons for an increase in interest income on short-term
investments during the nine months and quarter ended September 30, 1994 as
compared to the same periods in 1993.
Due to increased roof repair, carpet replacement and insurance expenses at the
El Dorado Hills Apartments, the Partnership recognized an increase in property
operating expenses during the nine months ended September 30, 1994. This
increase was partially offset by decreased advertising expenses at the American
Way Mall and decreased repair and maintenance expense at Storage USA of
Norcross self storage facility.
Decreased repair and renovation expenses incurred in connection with the repair
and renovation program at Providence Square Apartments combined with decreased
advertising expenses at the American Way Mall and decreased repair and
maintenance expenses at Storage USA of Norcross self storage facility resulted
in a decrease in property operating expenses during the quarter ended September
30, 1994 as compared to the same period in 1993. This decrease was partially
offset by increased expenditures for roof repairs, carpet replacement and
insurance expense at the El Dorado Hills Apartments.
Real estate tax expense decreased during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993, as the Partnership
received a refund in the third quarter of 1994 relating to 1992 and 1993 due to
a reduction in the assessed value of El Dorado Hills apartment complex. This
decrease was partially offset by an increase in real estate tax expense at
Providence Square Apartments due to a 1992 real estate tax refund received
during the second quarter of 1993.
The Partnership incurred higher accounting and portfolio management fees which
resulted in an increase in administrative expenses during the nine months and
quarter ended September 30, 1994 as compared to the same periods in 1993. This
increase was partially offset by a decrease in legal and other professional
fees.
Liquidity and Capital Resources
- - -------------------------------
The cash or near cash position of the Partnership increased by approximately
$1,777,000 as of September 30, 1994 as compared to December 31, 1993, which is
being retained by the Partnership for working capital reserves. The
Partnership's cash flow provided by operating activities was generated
primarily from the Partnership's properties, and was partially offset by the
payment of administrative costs. The Partnership's cash flow provided by
financing activities consisted of additional proceeds received from the lender
of the Providence Square Apartments loan to fund repair and renovation costs in
accordance with the terms of the December 1992 refinancing, and the payment of
principal on its mortgage notes payable.
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 significant if it exceeds $250,000 annually or 20% of the property's
rental and service income. During the nine months ended September 30, 1994 and
1993, the American Way Mall and the Storage USA of Norcross and Willow Lawn
self-storage facilities generated positive cash flow. The American Way Mall
does not have underlying debt. The Eldorado Hills Apartments operated at a
marginal deficit during the nine months ended September 30, 1994 as compared to
positive cash flow for the same period in 1993 due to increased costs for roof
repairs, carpet replacement, and insurance expenses. The Providence Square
Apartments operated at a marginal deficit during the nine months ended
September 30, 1994 and 1993 due to expenditures incurred in connection with the
ongoing repair and renovation program at the property.
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 improving property
operating performance and seeking rent increases where market conditions allow.
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 interest of the
Partnership in order to maximize potential returns to Limited Partners.
Consequently, the Partnership will continue to own these properties for longer
than the holding period for the assets originally described in the Prospectus.
Four of the Partnership's properties are owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. The Partnership's third-party
mortgage loan financing doesn't mature until December 1995, and may be extended
for two successive one year periods.
Pursuant to the terms of the 1992 refinancing agreement, the Partnership may
receive additional proceeds of up to $1,342,777 to fund approved improvements
and repairs at the properties. Cumulatively through September 30, 1994, the
Partnership has received $1,025,775 of such proceeds from the lender for
improvements and repairs made at the Providence Square Apartments. The
Partnership began a major repair and renovation program in 1991 at the property
aimed at increasing rental rates and occupancy levels, which is expected to be
completed in 1995.
The Partnership suspended quarterly distributions to Limited Partners during
the third quarter of 1991 primarily due to the financing issue regarding the
Providence Square Apartments. Pursuant to the terms of the 1992 financing and
refinancing agreements on four of the Partnership's properties, distributions
of Net Cash Receipts will not be made to the General Partner or Limited
Partners until certain conditions in the loan agreements are met, including
achievement of specified working capital levels by the Partnership and required
ratios between total net income at all the collateral properties to total debt
service. All of these conditions have now been met. Future distributions will
depend upon 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.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
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 CURRENT INCOME FUND-85
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) Amended and Restated Form of Subscription Agreement set forth as
Exhibit 4.1 to Amendment No. 5 to the Registrant's Registration Statement on
Form S-11 dated August 16, 1985 (Registration No. 2-95910), and Form of
Confirmation regarding Interests in the Partnership 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. 0-14352) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended September 30, 1994.
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 CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Current Income Partners-85, the General
Partner
By: /s/Allan Wood
------------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Current Income Partners-85, the General
Partner
Date: November 10, 1994
-----------------------------
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