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
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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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
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(Exact name of registrant as specified in its charter)
Illinois 36-3344227
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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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
March 31, 1996 AND December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
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Cash and cash equivalents $ 3,231,648 $ 5,475,539
Escrow deposits 1,022,333 909,293
Prepaid expenses 9,540 35,463
Accounts and accrued interest receivable 110,404 157,490
Deferred expenses, net of accumulated
amortization of $46,766 in 1996 and
$23,383 in 1995 607,960 631,343
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4,981,885 7,209,128
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Investment in real estate:
Land 10,567,930 10,567,930
Buildings and improvements 58,506,072 58,506,072
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69,074,002 69,074,002
Less accumulated depreciation 24,077,988 23,640,594
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Investment in real estate, net of
accumulated depreciation 44,996,014 45,433,408
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$ 49,977,899 $ 52,642,536
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 85,688 $ 61,352
Due to affiliates 34,698 23,216
Other liabilities 150,663 23,314
Security deposits 252,483 257,824
Mortgage notes payable 33,747,578 33,824,504
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Total liabilities 34,271,110 34,190,210
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Limited Partners' capital (57,074
Interests issued and outstanding) 15,950,634 18,695,717
General Partner's deficit (243,845) (243,391)
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Total partners' capital 15,706,789 18,452,326
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$ 49,977,899 $ 52,642,536
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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 quarter ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Rental and service $ 2,373,653 $ 2,459,019
Interest on short-term investments 46,527 54,336
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Total income 2,420,180 2,513,355
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Expenses:
Interest on mortgage notes payable 636,266 746,522
Depreciation 437,394 437,394
Amortization of deferred expenses 23,383 44,582
Property operating 929,808 839,234
Real estate taxes 232,481 195,291
Property management fees 120,027 125,875
Administrative 86,187 84,192
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Total expenses 2,465,546 2,473,090
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Net (loss) income $ (45,366) $ 40,265
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Net (loss) income allocated to
General Partner $ (454) $ 403
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Net (loss) income allocated to
Limited Partners $ (44,912) $ 39,862
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Net (loss) income per Limited Partnership
Interest (57,074 issued and outstanding) $ (0.79) $ 0.70
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Distribution to Limited Partners $ 2,700,171 NONE
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Distribution per Limited Partnership
Interests (57,074 issued and outstanding) $ 47.31 NONE
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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 quarter ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
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Operating activities:
Net (loss) income $ (45,366) $ 40,265
Adjustments to reconcile net
(loss) income to net cash
provided by operating activities:
Depreciation of properties 437,394 437,394
Amortization of deferred expenses 23,383 44,582
Net change in:
Escrow deposits (113,040)
Accounts receivable 47,086 (338,946)
Prepaid expenses 25,923
Accounts payable 24,336 (7,396)
Due to affiliates 11,482 35,763
Accrued liabilities 127,349 139,627
Security deposits (5,341) (6,141)
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Net cash provided by operating activities 533,206 345,148
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Financing activities:
Principal payments on mortgage notes
payable (76,926) (159,101)
Distribution to Limited Partners (2,700,171)
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Net cash used in financing activities (2,777,097) (159,101)
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Net change in cash and cash equivalents (2,243,891) 186,047
Cash and cash equivalents at beginning
of period 5,475,539 2,872,521
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Cash and cash equivalents at end of period $ 3,231,648 $ 3,058,568
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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 1995 statements in
order to provide comparability with the 1996 statements. This reclassification
has not changed the 1995 results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying statements
for the quarter ended March 31, 1996, and all such adjustments are of a normal
and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1996 and 1995, the Partnership incurred and
paid interest expense on mortgage notes payable of $636,266 and $746,522,
respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost $17,919 $34,698
4. Subsequent Event:
In April 1996, the Partnership made a distribution of $1,569,535 ($27.50 per
Interest) to the holders of Limited Partnership Interests representing a
quarterly distribution of Net Cash Receipts of $2.50 per Interest for the first
quarter of 1996, and a special distribution of Net Cash Proceeds of $25.00 per
Interest from the remaining proceeds from the 1995 mortgage loan refinancings.<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 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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A decline in the property operations of American Way Mall and Providence Square
Apartments was partially offset by lower interest expense resulting from the
1995 mortgage loan refinancings and resulted in the Partnership recognizing a
net loss for the quarter ended March 31, 1996, as compared to net income for
the same period in 1995. Further discussion of the Partnership's operations is
summarized below.
1996 Compared to 1995
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Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to the quarters ended March 31, 1996 and 1995.
Rental and service income decreased during 1996 as compared to 1995 primarily
as a result of a decrease in occupancy at American Way Mall. The decrease in
rental and service income was partially offset by an increase in rental and
service income at the Willow Lawn Self-Storage facility due to increased
occupancy.
The January 1996 a special distribution to Limited Partners caused a decrease
in cash available for short-term investments and resulted in a decrease in
interest income on short-term investments during 1996 as compared to 1995.
In September 1995, the Partnership refinanced the mortgage loan secured by the
El Dorado Hills Apartments and the mortgage loan secured by the Providence
Square Apartments, Storage USA of the Norcross and Willow Lawn self-storage
facilities. The Partnership obtained two new mortgage loans secured by El
Dorado Hills and Providence Square Apartments, respectively, which carry lower
interest rates than the prior financing. In addition, fees associated with the
new mortgage loans are being amortized over a longer term than the prior
mortgage loans. As a result, interest expense on mortgage notes payable and
amortization of deferred expenses decreased for 1996 as compared to 1995.
<PAGE>
Property operating expenses increased during 1996 due to roof repairs at El
Dorado Hills Apartments and carpet replacement and landscaping expenses at
Providence Square Apartments as compared to 1995.
Increased tax rates at American Way Mall and Providence Square Apartments
resulted in increased real estate tax expense for 1996 as compared to 1995.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $2,244,000 as
of March 31, 1996 as compared to December 31, 1995 due primarily to a special
distribution to Limited Partners in January 1996. The Partnership generated
cash flow of approximately $533,000 from its operating activities which
includes the cash flow from operations of the Partnership's properties and
interest income received on short-term investments, which was partially offset
by administrative costs. The Partnership's financing activities consisted
primarily of the payment of distributions of approximately $2,700,000 to
Limited Partners.
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. El Dorado Hills and Providence Square Apartments are
the only properties that have underlying debt. During the quarters ended March
31, 1996 and 1995, the Providence Square and El Dorado Hills apartment
complexes and the Storage USA of Norcross and Willow Lawn self-storage
facilities all generated positive cash flow after applicable debt service
payments. The American Way Mall, which does not have underlying debt,
generated a significant cash flow deficit during the quarter ended March 31,
1996 as compared to positive cash flow during the same period in 1995 due to
lower rental and service income resulting from lower occupancy. As of March 31,
1996, the occupancy rates of the Partnership's apartment complexes and storage
facilities ranged from 78% to 96%. The American Way Mall had an occupancy rate
of 33% at March 31, 1996. The Partnership has evaluated alternative strategies
to sell or redevelop this property and has decided to market this property for
sale.
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.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. Currently,
the Partnership is preparing to market its two residential properties for sale.
Additionally, the Partnership is currently marketing its two storage
facilities. If current market conditions remain favorable and the General
Partner can obtain appropriate sales prices, the Partnership's liquidation
strategy may be accelerated.
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
<PAGE>
financial obligations required by such loans. As a result of the General
Partner's efforts to obtain loan refinancings, the Partnership has no
third-party financing which matures before 2002.
In April 1996, the Partnership made a distribution of $1,569,535 ($27.50 per
Interest) to the holders of Limited Partnership Interests representing a
regular quarterly distribution of Net Cash Receipts of $2.50 per Interest for
the first quarter of 1996 and a special distribution of Net Cash Proceeds of
$25.00 per Interest from the remaining proceeds of the 1995 mortgage loan
refinancings. The level of the first quarter 1996 Net Cash Receipts
distribution was reduced from the prior quarter's distribution level due to the
declining operations at American Way Mall. Including the April 1996
distribution, Limited Partners have received distributions of Net Cash Receipts
of $162.12 and Net Cash Proceeds of $75.00, totaling $237.12 per $1,000
Interest. The General Partner expects to continue quarterly distributions to
Limited Partners. However, the level of future distributions will depend on
cash flow from the Partnership's properties, the status of the American Way
Mall and proceeds from future property sales, as to all of which there can be
no assurances. In light of results to date and current conditions, the General
Partner does not anticipate that investors will recover all of their original
investment.
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
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(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 quarter ending March 31,
1996 is attached hereto.
(b) Reports on form 8-K: There were no reports filed on Form 8-K during the
quarter ended March 31, 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 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: May 14, 1996
-----------------------------
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3232
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<CURRENT-ASSETS> 4374
<PP&E> 69074
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<TOTAL-ASSETS> 49978
<CURRENT-LIABILITIES> 523
<BONDS> 33748
0
0
<COMMON> 0
<OTHER-SE> 15707
<TOTAL-LIABILITY-AND-EQUITY> 49978
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<TOTAL-REVENUES> 2420
<CGS> 0
<TOTAL-COSTS> 1282
<OTHER-EXPENSES> 547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> (45)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45)
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<NET-INCOME> (45)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> (0.79)
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