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 0-14350
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BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3333344
- ------------------------------- -------------------
(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
----- -----
BALCOR REALTY INVESTORS 85-SERIES III
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 $ 2,540,851 $ 1,916,800
Prepaid expenses, principally real estate taxes 50,307 109,517
Deferred expenses, net of accumulated
amortization of $894,493 in 1994 and
$831,576 in 1993 568,549 736,766
Escrow deposits 1,572,054 900,839
------------ ------------
4,731,761 3,663,922
------------ ------------
Investment in real estate, at cost:
Land 6,536,422 6,536,422
Buildings and improvements 56,884,371 56,884,371
------------ ------------
63,420,793 63,420,793
Less accumulated depreciation 20,227,096 18,916,557
------------ ------------
Investment in real estate, net of
accumulated depreciation 43,193,697 44,504,236
------------ ------------
$47,925,458 $48,168,158
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 31,735 $ 55,921
Due to affiliates 107,360 57,977
Accrued liabilities, principally interest
and real estate taxes 179,943 11,687
Security deposits 298,265 298,425
Loss in excess of investment in
joint venture with an affiliate 1,139,593 935,788
Purchase price, promissory and
mortgage notes payable 51,621,367 51,850,501
------------ ------------
Total liabilities 53,378,263 53,210,299
Affiliates' participation in joint ventures (419,497) (264,591)
Partners' capital (59,092 Limited
Partnership Interests issued and
outstanding) (5,033,308) (4,777,550)
------------ ------------
$47,925,458 $48,168,158
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES III
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 income $ 8,212,370 $ 8,823,765
Interest on short-term investments 69,207 29,070
------------ ------------
Total income 8,281,577 8,852,835
------------ ------------
Expenses:
Interest on purchase price, promissory
and mortgage notes payable 3,098,938 3,638,799
Depreciation 1,310,539 1,472,099
Amortization of deferred expenses 168,217 188,274
Property operating 2,350,023 2,874,702
Real estate taxes 798,310 884,283
Property management fees 411,515 440,836
Administrative 288,950 237,871
Participation in loss of joint
venture with an affiliate 112,289 1,271
------------ ------------
Total expenses 8,538,781 9,738,135
------------ ------------
Loss before affiliates' participation
in losses from joint ventures (257,204) (885,300)
Affiliates' participation in losses
from joint ventures 1,446 106,152
------------ ------------
Net loss before extraordinary item (255,758) (779,148)
Extraordinary item:
Gain on foreclosure of property 3,101,599
------------ ------------
Net (loss) income $ (255,758) $ 2,322,451
============ ============
Loss before extraordinary item
allocated to General Partner $ (2,558) $ (7,791)
============ ============
Loss before extraordinary item
allocated to Limited Partners $ (253,200) $ (771,357)
============ ============
Loss before extraordinary item per Limited
Partnership Interest (59,092 issued and
outstanding) $ (4.28) $ (13.05)
============ ============
Extraordinary item allocated to
General Partner NONE $ 31,016
============ ============
Extraordinary item allocated to
Limited Partners NONE $ 3,070,583
============ ============
Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) NONE $ 51.96
============ ============
Net (loss) income allocated to General Partner $ (2,558) $ 23,225
============ ============
Net (loss) income allocated to Limited Partners $ (253,200) $ 2,299,226
============ ============
Net (loss) income per Limited Partnership
Interest (59,092 issued and outstanding) $ (4.28) $ 38.91
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES III
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 income $ 2,820,801 $ 2,587,680
Interest on short-term investments 27,851 9,943
------------ ------------
Total income 2,848,652 2,597,623
------------ ------------
Expenses:
Interest on purchase price, promissory
and mortgage notes payable 1,043,898 1,122,052
Depreciation 436,847 436,847
Amortization of deferred expenses 56,073 49,787
Property operating 894,180 795,607
Real estate taxes 217,231 301,697
Property management fees 143,584 129,076
Administrative 54,529 78,200
Participation in loss (income) of joint
venture with an affiliate 63,024 (22,211)
------------ ------------
Total expenses 2,909,366 2,891,055
------------ ------------
Loss before affiliates' participation
in losses from joint ventures (60,714) (293,432)
Affiliates' participation in losses
from joint ventures 1,229 38,275
------------ ------------
Net loss $ (59,485) $ (255,157)
============ ============
Net loss allocated to General Partner $ (595) $ (2,552)
============ ============
Net loss allocated to Limited Partners $ (58,890) $ (252,605)
============ ============
Net loss per Limited Partnership
Interest (59,092 issued and outstanding) $ (1.00) $ (4.27)
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES III
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) income $ (255,758) $ 2,322,451
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Gain on foreclosure of investment
property (3,101,599)
Affiliates' participation in
losses from joint ventures (1,446) (106,152)
Participation in loss of joint venture
with an affiliate 112,289 1,271
Depreciation of properties 1,310,539 1,472,099
Amortization of deferred expenses 168,217 188,274
Net change in:
Prepaid expenses 59,210 (76,539)
Escrow deposits (671,215) 63,328
Accounts payable (24,186) (97,640)
Due to affiliates 49,383 (19,852)
Accrued liabilities 168,256 199,085
Security deposits (160) 17,741
------------ ------------
Net cash provided by operating
activities 915,129 862,467
------------ ------------
Investing activities:
Distributions from joint venture with an
affiliate 91,516
Contribution to joint venture with an
affiliate (123,637)
------------ ------------
Net cash provided by or used in investing
activities 91,516 (123,637)
------------ ------------
Financing activities:
Principal payments on purchase price,
promissory and mortgage notes payable (229,134) (208,988)
Distributions to joint venture
partners - affiliates (153,460) (35,364)
Repayment of mortgage note payable (8,550,472)
Proceeds from issuance of mortgage
note payable 9,170,400
Funding of capital improvement escrows (328,856)
Payment of deferred expenses (323,552)
------------ ------------
Net cash used in financing activities (382,594) (276,832)
------------ ------------
Net change in cash and cash equivalents 624,051 461,998
Cash and cash equivalents at beginning
of period 1,916,800 1,043,750
------------ ------------
Cash and cash equivalents at end of period $ 2,540,851 $ 1,505,748
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
A reclassification has been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. This reclassification
has not changed the 1993 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, 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 purchase price, promissory and mortgage notes
payable of $3,098,938 and $3,638,799 and paid interest expense of $3,081,407
and $3,638,799, 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 $408,694 $142,098 $47,131
Reimbursement of expenses to
the General Partner, at cost:
Accounting 42,147 26,217 15,427
Data processing 15,640 7,605 16,809
Investor communications 9,611 5,978 3,211
Legal 4,971 3,092 3,183
Portfolio management 42,902 26,342 20,010
Other 6,216 3,866 1,589
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series III A Real Estate Limited Partnership (the
"Partnership") was formed in 1984 to invest in and operate income-producing
real property. The Partnership raised $59,087,000 through the sale of Limited
Partnership Interests to the public and utilized these proceeds to acquire
eight real properties and a minority joint venture interest in one additional
real property. During prior years, titles to three of these properties were
relinquished through foreclosure. The Partnership continues to operate its five
remaining properties and its minority joint venture interest.
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
- ---------------------
During June 1993, title to the Oakland Hills Apartments was relinquished to the
lender through foreclosure. In connection with this event, the Partnership
recognized an extraordinary gain on foreclosure of property which is the
primary reason the Partnership recognized income during the nine months ended
September 30, 1993 as compared to a loss for the same period in 1994. Increased
rental and service income at all of the Partnership's remaining properties was
the primary reason for the decrease in the Partnership's net loss for the
quarter ended September 30, 1994 as compared to the same period in 1993.
Further discussion of the Partnership's operations is set forth below.
1994 Compared to 1993
- ---------------------
Due to the foreclosure of Oakland Hills Apartments in June 1993, rental and
service income, interest on purchase price, promissory and mortgage notes
payable, depreciation expense, amortization expense, property operating expense
and property management fees decreased for the nine months ended September 30,
1994 as compared to the same period in 1993.
Increased rents and/or occupancy at all of the Partnership's remaining
properties partially offset the decrease in rental and service income for the
nine months ended September 30, 1994 due to the Oakland Hills Apartments
foreclosure, and caused rental and service income, and consequently property
management fees, to increase for the quarter ended September 30, 1994 as
compared to the same period in 1993.
Interest income on short-term investments increased during the nine months and
quarter ended September 30, 1994 as compared to the same periods in 1993 due to
higher average cash balances in 1994 as a result of cash flow from property
operations, as well as an increase in short term interest rates.
During December 1993, the mortgage loan collateralized by the Howell Station
Apartments was refinanced. The new loan bears interest at a rate of 7.94% per
annum whereas the previous loan had a rate of 10%. The Howell Station loan
refinancing, the Oakland Hills Apartments foreclosure, an interest rate
adjustment in accordance with the mortgage loan agreement on Shadowridge
Apartments, and discontinued payment of the guaranty fee on North Hill
Apartments (see Liquidity and Capital Resources for additional information),
all contributed to the decrease in interest expense on purchase price,
promissory and mortgage notes payable for the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993.
During March 1993, the mortgage loan collateralized by Park Place - Phase II
Apartments was refinanced and the remaining deferred expenses related to the
previous mortgage loan were written-off. This, along with the decrease due to
the foreclosure of Oakland Hills Apartments, resulted in a decrease in the
amortization of deferred expenses for the nine months ended September 30, 1994
as compared to the same period in 1993. An increase in the amortization of
deferred expenses relating to the December 1993 refinancing of the mortgage
loan collateralized by Howell Station Apartments partially offset the decrease
in amortization expenses for the nine months ended September 30, 1994 and
resulted in increased amortization expense for the quarter ended September 30,
1994 as compared to the same period in 1993.
Increased insurance expense at all of the properties, as well as increases in
contract services at Park Place - Phase II and Country Ridge Apartments, and
roof repairs at North Hill Apartments resulted in an increase in property
operating expense for the quarter ended September 30, 1994 as compared to the
same period in 1993.
A decrease in the tax rate at the Country Ridge and Park Place -Phase II
Apartment complexes as well as a decrease in the assessed value at the North
Hill Apartment complex caused real estate tax expense to decrease for the nine
months and quarter ended September 30, 1994 as compared to the same periods in
1993. A decrease in the assessed value at the Howell Station and Shadowridge
apartment complexes also contributed to the decrease in real estate tax expense
for the quarter ended September 30, 1994.
Administrative expense increased for the nine months ended September 30, 1994
as compared to the same period in 1993 primarily due to an increase in
accounting, portfolio management, and data processing expenses. A decrease in
legal fees partially offset the increase in administrative expense for the nine
months ended September 30, 1994 and resulted in a decrease in administrative
expense for the quarter ended September 30, 1994 as compared to the same period
in 1993.
The Partnership holds a minority interest in the Lakeville Resort Apartments.
Increased exterior painting and insurance expenses resulted in an increase in
the participation in loss from joint venture with an affiliate during the nine
months ended September 30, 1994 as compared to the same period in 1993. This
increase was partially offset by a decrease in interest expense due to the
April 1993 refinancing of the underlying mortgage loan. Increased exterior
painting was also the primary reason for the loss from joint venture with an
affiliate during the quarter ended September 30, 1994 as compared to income
during the same period in 1993.
Decreased interest expense and increased rental income at the North Hill and
Shadowridge Apartments resulted in a decrease in affiliates' participation in
losses from joint ventures during the nine months and quarter ended September
30, 1994 as compared to the same periods in 1993.
Liquidity and Capital Resources
- -------------------------------
The cash or near cash position of the Partnership increased by approximately
$624,000 as of September 30, 1994 as compared to December 31, 1993. 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 expenses. A portion of the net cash provided by
operating activities and investing activities, which consisted of distributions
representing the Partnership's share of operations from a joint venture with an
affiliate, was used to fund financing activities which consisted of principal
payments on purchase price, promissory and mortgage notes payable as well as
distributions to joint venture partners - affiliates.
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 to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. For the nine months ended September 30,
1994 and 1993, the Country Ridge, Howell Station, North Hill, Park Place -
Phase II and Shadowridge apartment complexes generated positive cash flow. The
Lakeville Resort Apartments, in which the Partnership holds a minority joint
venture interest, generated a marginal deficit for the nine months ended
September 30, 1994 as compared to positive cash flow for the same period in
1993, primarily due to increased exterior painting and insurance expenses.
While the cash flow of the Partnership's properties has improved, the General
Partner continues to pursue a number of actions aimed at further improving the
cash flow of the Partnership's properties including refinancing mortgage loans,
improving property operating performance, and seeking rent increases where
market conditions allow. Despite recent 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 returns to Limited
Partners. As a result, the Partnership will continue to own these properties
for longer than the holding period for the assets originally described in the
prospectus.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. During 1994, the $18,700,000
mortgage loan collateralized by the North Hill apartment complex matures. North
Hill Apartments is owned by a joint venture ("Joint Venture") consisting of the
Partnership and an affiliate. Mutual Benefit Life Insurance Company ("Mutual
Benefit") was the guarantor of the $18,700,000 tax-exempt revenue bonds which
funded the first mortgage financing ("Senior Loan") collateralized by the
property. In July 1991, the New Jersey Commissioner of Insurance assumed
control of Mutual Benefit due to its insolvency and, as a result, the bonds
were in technical default. In October 1993, the Joint Venture and the trustee
for the bondholders (the "Trustee") released Mutual Benefit from its
obligations as guarantor under the bonds. The Senior Loan remains in technical
default. The Trustee and the Joint Venture have entered into an agreement (the
"Agreement") in which the Trustee agreed to forebear from commencing
foreclosure proceedings until December 1, 1994. Under the Agreement, the Joint
Venture will continue to make interest only debt service payments on the Senior
Loan at the contract interest rate of 6.75% per annum. Effective with the
February 1, 1994 payment, in lieu of the 1% fee to the Trustee, the Joint
Venture is paying the Trustee 50% of the monthly net cash flow from the
property after payment of operating expenses, including debt service, which is
being held in an escrow account to be applied to amounts due under the Senior
Loan upon a sale of the property or refinancing of the Senior Loan. The Joint
Venture is currently pursuing a refinancing of the Senior Loan and has received
a loan commitment. The transaction is expected to be completed in 1994. In the
event the refinancing is not completed by December 1, 1994, the Joint Venture
will seek an extension of the forbearance agreement. If the proposed
refinancing is unsuccessful, the Joint Venture may negotiate with new lenders
for a refinancing or sell the collateral property to satisfy the outstanding
mortgage amount.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions will depend on improved cash flow
from the Partnership's remaining properties, proceeds from future property
sales, and successful mortgage loan refinancings, as to all 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 REALTY INVESTORS 85-SERIES III
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) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
to the Registrant's Registration Statement on Form S-11 dated August 2, 1985
(Registration No. 2-97249), 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. 0-14350) 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: No reports were 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 REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVIII, 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 Partners-XVIII, the
General Partner
Date: November 10, 1994
-----------------------
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