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 March 31, 1995
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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 0-14350
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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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 REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 1,985,211 $ 1,965,737
Accounts and accrued interest receivable 96,736
Prepaid expenses, principally real estate
taxes and interest expense 274,252 227,783
Deferred expenses, net of accumulated
amortization of $256,384 in 1995 and
$221,054 in 1994 1,333,700 1,369,030
Other assets, principally escrow deposits 1,547,918 1,376,853
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5,237,817 4,939,403
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Investment in real estate, at cost:
Land 6,536,422 6,536,422
Buildings and improvements 56,884,371 56,884,371
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63,420,793 63,420,793
Less accumulated depreciation 21,100,788 20,663,941
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Investment in real estate, net of
accumulated depreciation 42,320,005 42,756,852
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$47,557,822 $47,696,255
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 82,004 $ 129,946
Due to affiliates 90,934 64,125
Accrued real estate taxes 166,878
Security deposits 309,603 295,948
Loss in excess of investment in
joint venture with an affiliate 792,757 1,124,922
Mortgage notes payable 50,787,479 50,987,329
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Total liabilities 52,229,655 52,602,270
Affiliates' participation in joint ventures (34,261) (58,326)
Partners' deficit (59,092 Limited
Partnership Interests issued and
outstanding) (4,637,572) (4,847,689)
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$47,557,822 $47,696,255
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1995 and 1994
(Unaudited)
1995 1994
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Income:
Rental and service income $ 2,910,450 $ 2,646,066
Interest on short-term investments 42,479 17,861
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Total income 2,952,929 2,663,927
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Expenses:
Interest on mortgage notes payable 1,068,248 1,003,680
Depreciation 436,847 436,846
Amortization of deferred expenses 35,330 56,072
Property operating 729,721 711,596
Real estate taxes 240,378 295,633
Property management fees 144,399 131,751
Administrative 93,124 113,065
Participation in loss (income) of joint
venture with an affiliate 10,595 (19,122)
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Total expenses 2,758,642 2,729,521
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Income (loss) before affiliates' participation
in joint ventures and extraordinary item 194,287 (65,594)
Affiliates' participation in (income)
losses from joint ventures before
extraordinary item (32,756) 5,562
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Income (loss) before extraordinary item 161,531 (60,032)
------------
Extraordinary item:
Gain on forgiveness of debt 69,409
Affiliate's participation in gain on
forgiveness of debt (20,823)
------------
Total extraordinary item 48,586
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Net income (loss) $ 210,117 $ (60,032)
============ ============
Income (loss) before extraordinary item
allocated to General Partner $ 1,615 $ (600)
============ ============
Income (loss) before extraordinary item
allocated to Limited Partners $ 159,916 $ (59,432)
============ ============
<PAGE>
Income (loss) before extraordinary item
per Limited Partnership Interest
(59,092 issued and outstanding) $ 2.71 $ (1.01)
============ ============
Extraordinary item allocated to General
Partner $ 486 None
============ ============
Extraordinary item allocated to Limited
Partners $ 48,100 None
============ ============
Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) $ 0.81 None
============ ============
Net income (loss) allocated to General Partner $ 2,101 $ (600)
============ ============
Net income (loss) allocated to Limited Partners $ 208,016 $ (59,432)
============ ============
Net income (loss) per Limited Partnership
Interest (59,092 issued and outstanding) $ 3.52 $ (1.01)
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1995 and 1994
(Unaudited)
1995 1994
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Operating activities:
Net income (loss) $ 210,117 $ (60,032)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Gain on forgiveness of debt (69,409)
Affiliates' participation in income
(losses) from joint ventures 32,756 (5,562)
Affiliate's participation in gain on
forgiveness of debt 20,823
Participation in loss (income) of joint
venture with an affiliate 10,595 (19,122)
Depreciation of properties 436,847 436,846
Amortization of deferred expenses 35,330 56,072
Net change in:
Accounts and accrued interest receivable (96,736)
Prepaid expenses (46,469) (55,249)
Other assets, principally escrow deposits (171,065) (204,675)
Accounts payable (47,942) (27,590)
Due to affiliates 26,809 58,806
Accrued liabilities, principally
real estate taxes 166,878 201,687
Security deposits 13,655 877
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Net cash provided by operating
activities 522,189 382,058
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Investing activities:
Contribution to joint venture with an
affiliate (342,760)
Distribution from joint venture with an
affiliate 82,806
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Net cash used in or provided by
investing activities (342,760) 82,806
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<PAGE>
Financing activities:
Principal payments on mortgage
notes payable (130,441) (74,782)
Distributions to joint venture
partners - affiliates (29,514) (28,393)
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Net cash used in financing activities (159,955) (103,175)
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Net change in cash and cash equivalents 19,474 361,689
Cash and cash equivalents at beginning
of period 1,965,737 1,916,800
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Cash and cash equivalents at end
of period $ 1,985,211 $ 2,278,489
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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 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 quarter ended March 31, 1995, and all such adjustments are of a normal
and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1995 and 1994, the Partnership incurred
interest expense on mortgage notes payable of $1,068,248 and $1,003,680 and
paid interest expense of $1,068,022 and $997,835, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1995 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost None $90,934
<PAGE>
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 $59,092,000 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 1994 for a more complete understanding of
the Partnership's financial position.
Summary of Operations
- - ---------------------
Improved operations at four of the Partnership's five properties resulted in
the Partnership recognizing net income for the quarter ended March 31, 1995 as
compared to a net loss for the same period in 1994. Further discussion of the
Partnership's operations are summarized below.
1995 Compared to 1994
- - ---------------------
Rental and service income and, consequently, property management fees increased
during the quarter ended March 31, 1995 as compared to the same period in 1994
as a result of higher average rental rates and stable occupancy at each of the
Partnership's five remaining properties.
Interest income on short-term investments increased during the quarter ended
March 31, 1995 as compared to the same period in 1994 due to an increase in
short-term interest rates.
During December 1994, the North Hill Apartments mortgage loan was refinanced
and the remaining deferred expenses relating to the previous mortgage loan were
written-off. As a result, amortization expense decreased during the quarter
ended March 31, 1995 as compared to the same period in 1994.
Real estate tax expense decreased during the quarter ended March 31, 1995 as
compared to the same period in 1994 as a result of decreases in the tax rates
at the Country Ridge and Park Place - Phase II Apartments and a decrease in the
assessed value at the North Hill Apartments.
Administrative expense decreased during the quarter ended March 31, 1995 as
compared to 1994 as a result of decreases in printing and portfolio management
costs, which was partially offset by an increase in legal fees.
<PAGE>
The Partnership holds a minority interest in the Lakeville Resort Apartments.
The Partnership recognized a net loss from joint venture with an affiliate for
the quarter ended March 31, 1995 as compared to net income for the same period
in 1994 due to an increase in interest expense resulting from an interest rate
adjustment in accordance with the terms of the mortgage loan.
Improved operations at the North Hill and Shadowridge apartment complexes
resulted in affiliates' participation in income from joint ventures during the
quarter ended March 31, 1995 as compared to a loss in 1994.
Shadowridge Apartments is owned by a joint venture consisting of the
Partnership and an affiliate. In connection with a settlement reached with the
seller of the Shadowridge Apartments, the Partnership recognized an
extraordinary gain on forgiveness of debt in 1995 of $69,409, of which $20,823
represents the affiliate's share.
Liquidity and Capital Resources
- - -------------------------------
The cash position of the Partnership increased slightly as of March 31, 1995 as
compared to December 31, 1994. The Partnership's cash flow provided by
operating activities was generated primarily from the Partnership's properties
and interest earned on short-term investments, and was partially offset by the
payment of administrative expenses. A portion of the net cash flow from
operating activities was used to fund investing activities consisting of a
capital contribution to a joint venture with an affiliate. This represents the
Partnership's share of a deposit required in connection with the potential
refinancing of the Lakeville Resort Apartment mortgage loan. In addition, a
portion of the cash flow from operating activities was used for financing
activities consisting of distributions to joint venture partners-affiliates and
principal payments on the Partnership's 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 to be 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. For the quarters ended March 31, 1995 and 1994, all of the
Partnership's properties generated positive cash flow. In addition, Lakeville
Resort Apartments, in which the Partnership holds a minority joint venture
interest, also generated positive cash flow for the quarters ended March 31,
1995 and 1994.
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. As of March 31, 1995, the occupancy rates of the
Partnership's properties ranged from 97% to 99%. 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.
<PAGE>
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. In certain instances, it may be
difficult for the Partnership to refinance a property in an amount sufficient
to retire in full the current mortgage financing with respect to the property.
In the event negotiations with the existing lender for a loan modification or
with new lenders for a refinancing are unsuccessful, the Partnership may sell
the collateral property or other properties to satisfy an obligation, or may
relinquish title to the collateral property in satisfaction of the outstanding
mortgage loan balance. As a result of the General Partner's successful efforts
to obtain loan modifications, as well as refinancings of many existing loans
with new lenders, the Partnership has no third-party financing which matures
prior to 1996. However, the joint venture that owns the Lakeville Resort
Apartments, of which the Partnership is a minority joint venture partner, is
currently evaluating options to refinance the $18,900,000 mortgage note which
carries an interest rate based on a market index. The Partnership has remitted
$342,760 as its share of a refundable good faith deposit to a potential lender.
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, successful mortgage loan refinancings and sufficient Partnership
reserves, 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 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
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(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 three month period
ending March 31, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1995.
<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 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/Brian Parker
---------------------------------
Brian Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Partners-XVIII, the General
Partner
Date: May 12, 1995
-----------------------
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1985
<SECURITIES> 0
<RECEIVABLES> 97
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3904
<PP&E> 63421
<DEPRECIATION> 21101
<TOTAL-ASSETS> 47558
<CURRENT-LIABILITIES> 649
<BONDS> 50787
<COMMON> 0
0
0
<OTHER-SE> (4638)
<TOTAL-LIABILITY-AND-EQUITY> 47558
<SALES> 0
<TOTAL-REVENUES> 2920
<CGS> 0
<TOTAL-COSTS> 1115
<OTHER-EXPENSES> 565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1068
<INCOME-PRETAX> 162
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