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, 1995
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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.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 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 CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
-------------- --------------
Cash and cash equivalents $ 5,798,994 $ 2,872,521
Escrow deposits 1,066,953
Accounts and accrued interest receivable 278,838 215,118
Prepaid expenses 142,797
Deferred expenses, net of accumulated
amortization of $368,754 in 1994 654,726 177,764
-------------- --------------
7,942,308 3,265,403
-------------- --------------
Investment in real estate, at cost:
Land 10,567,930 10,567,930
Buildings and improvements 58,506,072 58,506,072
-------------- --------------
69,074,002 69,074,002
Less accumulated depreciation 23,203,200 21,891,020
-------------- --------------
Investment in real estate, net of
accumulated depreciation 45,870,802 47,182,982
-------------- --------------
$ 53,813,110 $ 50,448,385
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 71,031 $ 87,997
Due to affiliates 29,049 72,322
Accrued real estate taxes 242,682
Security deposits 304,005 303,114
Mortgage notes payable 33,900,000 29,854,081
-------------- --------------
Total liabilities 34,546,767 30,317,514
Partners' capital (57,074 Limited
Partnership Interests issued
and outstanding) 19,266,343 20,130,871
-------------- --------------
$ 53,813,110 $ 50,448,385
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Income:
Rental and service $ 7,337,047 $ 7,741,420
Interest on short-term investments 134,674 59,968
-------------- --------------
Total income 7,471,721 7,801,388
-------------- --------------
Expenses:
Interest on mortgage notes payable 2,225,698 2,256,079
Depreciation 1,312,180 1,511,305
Amortization of deferred expenses 129,040 136,630
Property operating 2,774,966 3,185,152
Real estate taxes 638,182 583,467
Property management fees 375,799 403,941
Administrative 340,913 288,453
-------------- --------------
Total expenses 7,796,778 8,365,027
-------------- --------------
Loss before extraordinary item (325,057) (563,639)
Extraordinary item:
Debt extinguishment expenses (539,471)
-------------- --------------
Net loss $ (864,528) $ (563,639)
============== ==============
Loss before extraordinary item
allocated to General Partner $ (3,251) $ (5,636)
============== ==============
Loss before extraordinary item
allocated to Limited Partners $ (321,806) $ (558,003)
============== ==============
Loss before extraordinary item
Per Limited Partnership Interest
(57,074 issued and outstanding) $ (5.64) $ (9.78)
============== ==============
Extraordinary item allocated
to General Partner $ (5,394) None
============== ==============
Extraordinary item allocated
to Limited Partners $ (534,077) None
============== ==============
Extraordinary item per Limited
Partnership Interest (57,074
issued and outstanding) $ (9.36) None
============== ==============
Net loss allocated to General Partner $ (8,645) $ (5,636)
============== ==============
Net loss allocated to Limited Partners $ (855,883) $ (558,003)
============== ==============
Net loss per Limited Partnership Interest
(57,074 issued and outstanding) $ (15.00) $ (9.78)
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Income:
Rental and service $ 2,398,831 $ 2,666,197
Interest on short-term investments 39,304 29,388
-------------- --------------
Total income 2,438,135 2,695,585
-------------- --------------
Expenses:
Interest on mortgage notes payable 728,421 762,934
Depreciation 437,393 503,767
Amortization of deferred expenses 39,875 45,542
Property operating 942,344 1,050,738
Real estate taxes 247,473 103,880
Property management fees 126,337 134,302
Administrative 149,887 72,718
-------------- --------------
Total expenses 2,671,730 2,673,881
-------------- --------------
(Loss) income before extraordinary item (233,595) 21,704
Extraordinary item:
Debt extinguishment expenses (539,471)
-------------- --------------
Net (loss) income $ (773,066) $ 21,704
============== ==============
(Loss) income before extraordinary
item allocated to General Partner $ (2,336) $ 217
============== ==============
(Loss) income before extraordinary
item allocated to Limited Partners $ (231,259) $ 21,487
============== ==============
(Loss) income before extraordinary
item Per Limited Partnership Interest
(57,074 issued and outstanding) $ (4.05) $ 0.38
============== ==============
Extraordinary item allocated
to General Partner $ (5,394) None
============== ==============
Extraordinary item allocated
to Limited Partners $ (534,077) None
============== ==============
Extraordinary item per Limited
Partnership Interest (57,074
issued and outstanding) $ (9.36) None
============== ==============
Net (loss) income allocated to
General Partner $ (7,730) $ 217
============== ==============
Net (loss) income allocated to
Limited Partners $ (765,336) $ 21,487
============== ==============
Net (loss) income per Limited
Partnership Interest (57,074
issued and outstanding) $ (13.41) $ 0.38
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Operating activities:
Net loss $ (864,528) $ (563,639)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Debt extinguishment expenses 48,724
Depreciation of properties 1,312,180 1,511,305
Amortization of deferred expenses 129,040 136,630
Net change in:
Escrow deposits (474,965)
Accounts receivable (63,720) (30,400)
Prepaid expenses (142,797)
Accounts payable (16,966) (15,876)
Due to affiliates (43,273) 56,818
Accrued liabilities 242,682 497,497
Security deposits 891 2,326
-------------- --------------
Net cash provided by operating activities 127,268 1,594,661
-------------- --------------
Financing activities:
Repayment of mortgage notes payable (29,427,232)
Proceeds from issuance of mortgage
notes payable 33,900,000 576,143
Principal payments on mortgage notes
payable (426,849) (393,704)
Payment of deferred expenses (654,726)
Funding of improvement escrows (591,988)
-------------- --------------
Net cash provided by financing activities 2,799,205 182,439
-------------- --------------
Net change in cash and cash equivalents 2,926,473 1,777,100
Cash and cash equivalents at beginning
of period 2,872,521 1,121,400
-------------- --------------
Cash and cash equivalents at end of period $ 5,798,994 $ 2,898,500
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR CURRENT INCOME FUND-85
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1994 statements in
order to provide comparability with the 1995 statements. This reclassification
has not changed the 1994 results. 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,
1995, and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1995 and 1994, the Partnership
incurred interest expense on mortgage notes payable of $2,225,698 and
$2,256,079 and paid interest expense of $2,225,698 and $2,007,722,
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, 1995 are:
Paid
-----------------------
Nine Months Quarter Payable
----------- --------- ---------
Reimbursement of expenses to
the General Partner, at cost $ 176,904 $24,556 $29,049
4. Loan Refinancings:
In September 1995, the Partnership refinanced the mortgage loan secured by the
El Dorado Hills Apartments and the mortgage loan secured by Providence Square
Apartments, Storage USA of Norcross and Willow Lawn Storage Facilities. The
Partnership obtained two new mortgage loans of $16,900,000 and $17,000,000
which are secured by El Dorado Hills and Providence Square Apartments,
respectively. The interest rates decreased from 10.02% to 7.53%, the maturity
dates were extended from December 1995 to October 2002 and the total monthly
payments decreased from $311,038 to $237,731. A portion of the proceeds from
the new El Dorado Hills and Providence Square loans were used to repay the
existing mortgage loans of $16,039,332 and $13,387,900, as well as prepayment
penalties of $490,747.
5. Subsequent Event:
In October 1995, the Partnership resumed quarterly distributions and paid
$702,581 ($12.31 per Interest) to the holders of Limited Partnership Interests
for the third quarter of 1995.
<PAGE>
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 1994 for a more complete understanding of
the Partnership's financial position.
Summary of Operations
- ---------------------
As a result of debt extinguishment expenses incurred in conjunction with the
refinancing of the Partnership's loans and lower rental income due to lower
occupancy at American Way Mall, the Partnership recognized a larger net loss
for the nine months ended September 30, 1995 as compared to the same period in
1994, and a net loss for the quarter ended September 30, 1995 as compared to
net income during the same period in 1994. Further discussion of the
Partnership's operations is summarized below.
1995 Compared to 1994
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1995 and 1994 refer
to both the quarter and nine months ended September 30, 1995 and 1994.
Rental and service income decreased during 1995 as compared to 1994 as a result
of a decrease in occupancy at American Way Mall. The decrease in rental and
service income was partially offset by increases in rental income at El Dorado
Hills and Providence Square Apartments due to increased average rental rates
and/or occupancy.
Increased cash available for short-term investment and higher average interest
rates were the primary reasons for an increase in interest income on short-term
investments during 1995 as compared to 1994.
During the latter part of 1994, the Partnership determined that the value of
the American Way Mall had been impaired. Accordingly, the Partnership
recognized a provision for investment property write-down in 1994 which
resulted in a decrease in depreciation expense for 1995 as compared to 1994.
Due to decreases in payroll costs, snow removal, and advertising programs at
the American Way Mall, decreases in real estate tax consultant and insurance
costs at El Dorado Hills Apartments, and the completion of the repair and
renovation program at the Providence Square Apartments, property operating
expense decreased in 1995 as compared to 1994.
<PAGE>
Real estate tax expense increased during 1995 as compared to 1994 due to
refunds of 1992 and 1993 real estate taxes received in the third quarter of
1994 which resulted from a reduction in the assessed value of the El Dorado
Hills apartment complex.
Administrative expense increased during 1995 as compared to 1994 due to
increases in accounting, legal and other third-party professional fees.
In September 1995, the first mortgages collateralized by El Dorado Hills and
Providence Square apartment complexes and Storage USA at Norcross and Willow
Lawn self-storage facilities were refinanced, and prepayment penalties of
$490,747 were incurred. In conjunction with the refinancing of the
Partnership's mortgage loans the remaining deferred expenses of $48,724
relating to the previous loans were recognized. For financial statement
purposes, these two amounts have been classified as debt extinguishment
expenses.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased as of September 30, 1995 as
compared to December 31, 1994. The increase resulted primarily from proceeds
received in connection with the refinancing of the Partnership's mortgage loans
which were partially used to repay the previous mortgage loans, pay the costs
of the refinancing, and fund improvement escrows.
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. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments where applicable. During the nine months ended September 30, 1995 and
1994, the Storage USA of Norcross and Willow Lawn self-storage facilities
generated positive cash flow after applicable debt service payments. The El
Dorado Hills and Providence Square Apartments generated positive cash flow
during the nine months ended September 30, 1995 as compared to marginal cash
flow deficits in 1994 due to an increase in rental income and a decrease in
real estate consultant and insurance costs at the El Dorado Hills Apartments
and an increase in rental income and a decrease in expenditures incurred in
connection with the repair and renovation program at the Providence Square
Apartments. The American Way Mall, which does not have underlying debt,
operated at a marginal deficit during the nine months ended September 30, 1995
as compared to positive cash flow in 1994 due to lower rental income due to
lower occupancy.
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.
As of September 30, 1995, the occupancy rates of the Partnership's apartment
complexes and storage facilities ranged from 92% to 97%. The American Way Mall
had an occupancy rate of 55% at September 30, 1995. The Partnership is
evaluating alternative strategies to sell or redevelop this property. Despite
improvements in the local economies and rental markets where certain of the
Partnership's properties are located, the General Partner believes that
<PAGE>
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.
In September 1995, the Partnership refinanced both of its mortgage loans.
Proceeds from the new loans of $33,900,000 were used to repay the existing
loans of $29,427,232. See Note 4 of Notes to Financial Statements for
additional information.
Two 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. As a result of the General
Partner's successful efforts to obtain loan refinancings, the Partnership has
no third-party financing which matures before 2002.
In October 1991, quarterly distributions to Limited Partners were suspended in
order to resolve financing issues and complete a repair and renovation program
at Providence Square Apartments. With the completion of the repair and
renovation program and the refinancing of the Partnership's mortgage loans in
September 1995, the Partnership resumed quarterly distributions in October 1995
and paid $702,581 ($12.31 per Interest) to the holders of Limited Partnership
Interests representing a distribution of Net Cash Receipts for the third
quarter of 1995. To date, including the October 1995 distribution, Limited
Partners have received distributions of Net Cash Receipts of $147.31 and Net
Cash Proceeds of $15.00, totaling $162.31 per $1,000 Interest. The General
Partner expects to continue quarterly distributions to Limited Partners.
However, the level of future distributions, if available, will depend on cash
flow from the Partnership's properties, the situation at American Way Mall and
proceeds from future property sales, as to all of which there can be no
assurances.
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 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, 1995 is attached hereto.
(b) Reports on form 8-K: A Current Report on Form 8-K dated September 14,
1995, as amended by Form 8-K/A dated October 27, 1995, was filed reporting a
change in the Registrant's certifying public accountants.
<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 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/Brian D. Parker
------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Current Income
Partners-85, the General Partner
Date: November 10, 1995
-----------------------------
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 5799
<SECURITIES> 0
<RECEIVABLES> 279
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7288
<PP&E> 69074
<DEPRECIATION> 23203
<TOTAL-ASSETS> 53813
<CURRENT-LIABILITIES> 647
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 19266
<TOTAL-LIABILITY-AND-EQUITY> 53813
<SALES> 0
<TOTAL-REVENUES> 7472
<CGS> 0
<TOTAL-COSTS> 3789
<OTHER-EXPENSES> 1782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2226
<INCOME-PRETAX> (325)
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<NET-INCOME> (864)
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