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 June 30, 1995
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
EXCHANGE ACT OF 1934.
For the transition period from to
------------ ------------
Commission file number 0-14350
-------
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.)
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
----- -----
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 2,683,936 $ 1,965,737
Accounts and accrued interest receivable 7,756
Prepaid expenses 285,208 227,783
Deferred expenses, net of accumulated
amortization of $291,716 in 1995 and
$221,054 in 1994 1,298,368 1,369,030
Other assets, principally escrow deposits 1,655,563 1,376,853
------------ ------------
5,930,831 4,939,403
------------ ------------
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 21,537,634 20,663,941
------------ ------------
Investment in real estate, net of
accumulated depreciation 41,883,159 42,756,852
------------ ------------
$47,813,990 $47,696,255
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 104,625 $ 129,946
Due to affiliates 6,789 64,125
Accrued liabilities, principally interest
and real estate taxes 199,245
Security deposits 325,659 295,948
Loss in excess of investment in
joint venture with an affiliate 1,184,796 1,124,922
Mortgage notes payable 50,669,697 50,987,329
------------ ------------
Total liabilities 52,490,811 52,602,270
Affiliates' participation in joint ventures (97,083) (58,326)
Partners' deficit (59,092 Limited
Partnership Interests issued and
outstanding) (4,579,738) (4,847,689)
------------ ------------
$47,813,990 $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 six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ------------
Income:
Rental and service income $ 5,876,545 $ 5,391,569
Interest on short-term investments 75,404 41,356
------------ ------------
Total income 5,951,949 5,432,925
------------ ------------
Expenses:
Interest on mortgage notes payable 2,133,630 2,055,040
Depreciation 873,693 873,692
Amortization of deferred expenses 70,662 112,144
Property operating 1,543,370 1,455,843
Real estate taxes 480,757 581,079
Property management fees 291,837 267,931
Administrative 216,166 234,421
Participation in loss of joint
venture with an affiliate 15,735 49,265
------------ ------------
Total expenses 5,625,850 5,629,415
------------ ------------
Income (loss) before affiliates' participation
in joint ventures and extraordinary items 326,099 (196,490)
Affiliates' participation in (income) loss from
joint ventures before extraordinary item (48,213) 217
------------ ------------
Income (loss) before extraordinary items 277,886 (196,273)
Extraordinary items:
Gain on forgiveness of debt 69,409
Affiliate's participation in gain on
forgiveness of debt (20,823)
Participation in debt extinguishment
expense (58,521)
------------
Total extraordinary items (9,935)
------------ ------------
Net income (loss) $ 267,951 $ (196,273)
============ ============
Net income (loss) before extraordinary items
allocated to General Partner $ 2,779 $ (1,963)
============ ============
Net income (loss) before extraordinary items
allocated to Limited Partners $ 275,107 $ (194,310)
============ ============
Net income (loss) before extraordinary items per
Limited Partnership Interest (59,092 issued
and outstanding) $ 4.66 $ (3.29)
============ ============
<PAGE>
Extraordinary items allocated to
General Partner $ (99) NONE
============ ============
Extraordinary items allocated to
Limited Partners $ (9,836) NONE
============ ============
Extraordinary items per Limited Partnership
Interest (59,092 issued and outstanding) $ (0.17) NONE
============ ============
Net income (loss) allocated to General Partner $ 2,680 $ (1,963)
============ ============
Net income (loss) allocated to Limited Partners $ 265,271 $ (194,310)
============ ============
Net income (loss) per Limited Partnership
Interest (59,092 issued and outstanding) $ 4.49 $ (3.29)
============ ============
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 June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ -----------
Income:
Rental and service income $ 2,966,095 $ 2,745,503
Interest on short-term investments 32,925 23,495
------------ ------------
Total income 2,999,020 2,768,998
------------ ------------
Expenses:
Interest on mortgage notes payable 1,065,382 1,051,360
Depreciation 436,846 436,846
Amortization of deferred expenses 35,332 56,072
Property operating 813,649 744,247
Real estate taxes 240,379 285,446
Property management fees 147,438 136,180
Administrative 123,042 121,356
Participation in loss of joint
venture with an affiliate 5,140 68,387
------------ ------------
Total expenses 2,867,208 2,899,894
------------ ------------
Income (loss) before affiliates' participation
in joint ventures and extraordinary item 131,812 (130,896)
Affiliates' participation in income from
joint ventures (15,457) (5,345)
------------ ------------
Income (loss) before extraordinary item 116,355 (136,241)
Extraordinary item:
Participation in debt extinguishment
expense (58,521)
------------
Net income (loss) $ 57,834 $ (136,241)
============ ============
Net income (loss) before extraordinary item
allocated to General Partner $ 1,164 $ (1,362)
============ ============
Net income (loss) before extraordinary item
allocated to Limited Partners $ 115,191 $ (134,879)
============ ============
Net income (loss) before extraordinary item
per Limited Partnership Interest (59,092
issued and outstanding) $ 1.95 $ (2.28)
============ ============
Extraordinary item allocated to
General Partner $ (585) NONE
============ ============
Extraordinary item allocated to
Limited Partners $ (57,936) NONE<PAGE>
============ ============
Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) $ (0.98) NONE
============ ============
Net income (loss) allocated to General Partner $ 579 $ (1,362)
============ ============
Net income (loss) allocated to Limited Partners $ 57,255 $ (134,879)
============ ============
Net income (loss) per Limited Partnership
Interest (59,092 issued and outstanding) $ 0.97 $ (2.28)
============ ============
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 six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ------------
Operating activities:
Net income (loss) $ 267,951 $ (196,273)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Gain on forgiveness of debt (69,409)
Affiliate's participation in gain
on forgiveness of debt 20,823
Participation in debt extinguishment
expense 58,521
Affiliates' participation in income
(loss) from joint ventures before
extraordinary item 48,213 (217)
Participation in loss of joint venture
with an affiliate 15,735 49,265
Depreciation of properties 873,693 873,692
Amortization of deferred expenses 70,662 112,144
Net change in:
Accounts and accrued interest receivable (7,756)
Prepaid expenses (57,425) 44,473
Other assets, principally
escrow deposits (278,710) (418,846)
Accounts payable (25,321) (19,750)
Due to affiliates (57,336) 89,370
Accrued liabilities, principally
real estate taxes 199,245 225,561
Security deposits 29,711 2,933
------------ ------------
Net cash provided by operating
activities 1,088,597 762,352
------------ ------------
Investing activities:
Distributions from joint venture with an
affiliate 328,378 131,556
Contribution to joint venture with an
affiliate (342,760)
------------ ------------
Net cash used in or provided by investing
activities (14,382) 131,556
------------ ------------
Financing activities:
Principal payments on mortgage
notes payable (248,223) (151,149)
Distributions to joint venture<PAGE>
partners - affiliates (107,793) (87,592)
------------ ------------
Net cash used in financing activities (356,016) (238,741)
------------ ------------
Net change in cash and cash equivalents 718,199 655,167
Cash and cash equivalents at beginning
of period 1,965,737 1,916,800
------------ ------------
Cash and cash equivalents at end of period $ 2,683,936 $ 2,571,967
============ ============
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:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the six months and quarter
ended June 30, 1995, and all such adjustments are of a normal and recurring
nature.
2. Interest Expense:
During the six months ended June 30, 1995 and 1994, the Partnership incurred
interest expense on mortgage notes payable of $2,133,630 and $2,055,040 and
paid interest expense of $2,133,173 and $2,040,431, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1995 are:
Paid
--------------------
Six Months Quarter Payable
----------- -------- ---------
Reimbursement of expenses to
the General Partner, at cost $ 127,056 $ 127,056 $ 6,789
<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 six months ended June 30, 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 six months and quarter ended June 30, 1995 as compared to the same
periods 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 six months and
quarter ended June 30, 1995 as compared to the same periods 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
recognized. As a result, amortization expense decreased during the six months
and quarter ended June 30, 1995 as compared to the same periods in 1994.
Real estate tax expense decreased during the six months and quarter ended June
30, 1995 as compared to the same periods in 1994 as a result of decreases in
the tax rates at the Country Ridge and Park Place - Phase II apartment
complexes and a decrease in the assessed value at the North Hill Apartments.
The Partnership holds a minority interest in the Lakeville Resort Apartments.
The loss from joint venture with an affiliate decreased for the six months and
quarter ended June 30, 1995 as compared to the same periods in 1994 due to an
increase in average rental rates and a decrease in exterior painting costs,
which were partially offset by an increase in interest expense resulting from
an interest rate adjustment in accordance with the terms of the former mortgage
<PAGE>
loan. In June 1995, the mortgage note was refinanced with a new lender. In
connection with this transaction, the Partnership recognized an extraordinary
debt extinguishment expense of $58,521.
Improved operations at the North Hill and Shadowridge apartment complexes
resulted in affiliates' participation in income from joint ventures during the
six months ended June 30, 1995 as compared to a loss for the same period in
1994 and resulted in an increase in affiliates' participation in income from
joint ventures during the quarter ended June 30, 1995 as compared to the same
period 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 as of June 30, 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 net
capital contribution to a joint venture with an affiliate. 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 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 six months ended June 30, 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 six
months ended June 30, 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 June 30, 1995, the occupancy rates of the
Partnership's properties ranged from 95% 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.
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.
<PAGE>
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.
The Lakeville Resort Apartments is owned by a joint venture consisting of the
Partnership and an affiliate. In June 1995 the mortgage note was refinanced
with a new lender. The interest rate decreased from a variable rate of
approximately 10.4% to a fixed rate of 8.2%, the maturity date was extended
from April 1997 to July 2030 and the monthly payment of principal and interest
decreased from a variable payment of $208,555 to a fixed payment of $151,727.
A portion of the proceeds from the new $20,932,600 first mortgage loan was used
to repay the existing mortgage note of $18,728,280 as well as pay deferred loan
fees of $499,868 and fund an improvement escrow of $1,604,551.
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
-----------------------------------------
(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 six month period ending
June 30, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 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 D. Parker
---------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Partners-XVIII, the General
Partner
Date: August 14, 1995
-----------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2684
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4632
<PP&E> 63421
<DEPRECIATION> 21538
<TOTAL-ASSETS> 47814
<CURRENT-LIABILITIES> 636
<BONDS> 50670
<COMMON> 0
0
0
<OTHER-SE> (4580)
<TOTAL-LIABILITY-AND-EQUITY> 47814
<SALES> 0
<TOTAL-REVENUES> 5904
<CGS> 0
<TOTAL-COSTS> 2316
<OTHER-EXPENSES> 1161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2134
<INCOME-PRETAX> 278
<INCOME-TAX> 0
<INCOME-CONTINUING> 278
<DISCONTINUED> 0
<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> 268
<EPS-PRIMARY> 4.49
<EPS-DILUTED> 4.49
</TABLE>
