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 0-14350
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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.)
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
September 30, 1995 and December 31, 1994
(UNAUDITED)
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 3,023,158 $ 1,965,737
Escrow deposits 1,531,505 1,371,141
Accounts and accrued interest receivable 49,712 5,712
Prepaid expenses 369,724 227,783
Deferred expenses, net of accumulated
amortization of $327,043 in 1995 and
$221,054 in 1994 1,263,041 1,369,030
------------ ------------
6,237,140 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 21,974,482 20,663,941
------------ ------------
Investment in real estate, net of
accumulated depreciation 41,446,311 42,756,852
------------ ------------
$47,683,451 $47,696,255
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 88,613 $ 129,946
Due to affiliates 20,293 64,125
Accrued liabilities, principally
real estate taxes 170,038
Security deposits 326,462 295,948
Loss in excess of investment in joint venture
with an affiliate 1,168,714 1,124,922
Mortgage notes payable 50,550,369 50,987,329
------------ ------------
Total liabilities 52,324,489 52,602,270
Affiliates' participation in joint ventures (143,290) (58,326)
Partners' deficit (59,092 Limited
Partnership Interests issued
and outstanding) (4,497,748) (4,847,689)
------------ ------------
$47,683,451 $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 nine months ended September 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------ ------------
Income:
Rental and service $ 8,890,299 $ 8,212,370
Interest on short-term investments 124,022 69,207
------------ ------------
Total income 9,014,321 8,281,577
------------ ------------
Expenses:
Interest on mortgage notes payable 3,197,466 3,098,938
Depreciation 1,310,541 1,310,539
Amortization of deferred expenses 105,989 168,217
Property operating 2,497,121 2,350,023
Real estate taxes 731,378 798,310
Property management fees 443,549 411,515
Administrative 308,857 288,950
Participation in loss of joint venture with
an affiliate 18,067 112,289
------------ ------------
Total expenses 8,612,968 8,538,781
------------ ------------
Income (loss) before affiliates' participation
in joint ventures and extraordinary items 401,353 (257,204)
Affiliates' participation in (income) loss
from joint ventures (41,477) 1,446
------------ ------------
Income (loss) before extraordinary items 359,876 (255,758)
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) $ 349,941 $ (255,758)
============ ============
Net income (loss) before extraordinary items
allocated to General Partner $ 3,599 $ (2,558)
============ ============
Net income (loss) before extraordinary items
allocated to Limited Partners $ 356,277 $ (253,200)
============ ============
Net income (loss) before extraordinary items
per Limited Partnership Interest (59,092
issued and outstanding) $ 6.03 $ (4.28)
<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 $ 3,500 $ (2,558)
============ ============
Net income (loss) allocated to Limited Partners $ 346,441 $ (253,200)
============ ============
Net income (loss) per Limited Partnership
Interest (59,092 issued and outstanding) $ 5.86 $ (4.28)
============ ============
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 INCOME AND EXPENSES
for the quarters ended September 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------ ------------
Income:
Rental and service $ 3,013,754 $ 2,820,801
Interest on short-term investments 48,618 27,851
------------ ------------
Total income 3,062,372 2,848,652
------------ ------------
Expenses:
Interest on mortgage notes payable 1,063,836 1,043,898
Depreciation 436,848 436,846
Amortization of deferred expenses 35,327 56,073
Property operating 953,751 894,181
Real estate taxes 250,621 217,231
Property management fees 151,712 143,584
Administrative 92,691 54,529
Participation in loss of joint venture
with an affiliate 2,332 63,024
------------ ------------
Total expenses 2,987,118 2,909,366
------------ ------------
Income (loss) before affiliates' participation
in joint ventures 75,254 (60,714)
Affiliates' participation in loss from
joint ventures 6,736 1,229
------------ ------------
Net income (loss) $ 81,990 $ (59,485)
============ ============
Net income (loss) allocated
to General Partner $ 820 $ (595)
============ ============
Net income (loss) allocated
to Limited Partners $ 81,170 $ (58,890)
============ ============
Net income (loss) per Limited Partnership
Interest (59,092 issued and outstanding) $ 1.37 $ (1.00)
============ ============
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 nine months ended September 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------ ------------
Operating activities:
Net income (loss) $ 349,941 $ (255,758)
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 41,477 (1,446)
Participation in loss of joint venture
with an affiliate 18,067 112,289
Depreciation of properties 1,310,541 1,310,539
Amortization of deferred expenses 105,989 168,217
Net change in:
Escrow deposits (160,364) (671,215)
Accounts and accrued interest
receivable (44,000)
Prepaid expenses (141,941) 59,210
Accounts payable (41,333) (24,186)
Due to affiliates (43,832) 49,383
Accrued liabilities, principally
real estate taxes 170,038 168,256
Security deposits 30,514 (160)
------------ ------------
Net cash provided by operating activities 1,605,032 915,129
------------ ------------
Investing activities:
Distributions from joint venture with an
affiliate 328,378 91,516
Contributions to joint venture with an
affiliate (361,174)
------------ ------------
Net cash used in or provided by
investing activities (32,796) 91,516
------------ ------------
Financing activities:
Principal payments on mortgage notes
payable (367,551) (229,134)
Distributions to joint venture
partners - affiliates (147,264) (153,460)
------------ ------------
Net cash used in financing activities (514,815) (382,594)
------------ ------------
Net change in cash and cash equivalents 1,057,421 624,051
<PAGE>
Cash and cash equivalents at beginning
of period 1,965,737 1,916,800
------------ ------------
Cash and cash equivalents at end of period $ 3,023,158 $ 2,540,851
============ ============
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 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 $3,197,466 and
$3,098,938 and paid interest expense of $3,197,466 and $3,081,407,
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 $ 147,168 $ 20,112 $ 20,293
4. Subsequent Event:
In October 1995, the Partnership commenced quarterly distributions and paid
$443,190 ($7.50 per Interest) to the holders of Limited Partnership Interests
for the third quarter of 1995.
<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 recognition of net income for the nine months and quarter ended September
30, 1995 as compared to a net loss for the same periods in 1994. Further
discussion of the Partnership's operations are summarized below.
1995 Compared to 1994
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1994 and 1995 refer
to both the quarter and nine months ended September 30, 1995 and 1994.
Rental and service income and, consequently, property management fees increased
during 1995 as compared to 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 1995 as compared to
1994 due to an increase in short-term interest rates and higher average cash
balances available for investment.
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 1995 as compared
to 1994.
Real estate tax expense decreased during the nine months ended September 30,
1995 as compared to the same period in 1994 as a result of lower tax rates at
the Country Ridge and Park Place - Phase II apartment complexes. An increase
in the assessed value at the North Hill Apartments partially offset the
decrease for the nine months ended September 30, 1995 and resulted in an
increase in real estate tax expense for the quarter ended September 30, 1995.
Increased legal and accounting fees resulted in higher administrative expenses
during 1995 as compared to 1994.
<PAGE>
The Partnership holds a minority interest in the Lakeville Resort Apartments.
The loss from joint venture with an affiliate decreased during 1995 as compared
to 1994 due to an increase in average rental rates and a decrease in exterior
painting costs. 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.
The Shadowridge and North Hill apartment complexes are both owned by joint
ventures consisting of the Partnership and an affiliate. Improved operations
at these properties resulted in affiliates' participation in income from joint
ventures during the nine months ended September 30, 1995 as compared to a loss
for the same period in 1994.
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 September 30, 1995 when
compared to December 31, 1994 due to increased cash flow from property
operations. The Partnership commenced quarterly distributions to Limited
Partners in October 1995 as discussed below.
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 properties' revenue
receipts less property related expenditures, which include debt service
payments. For the nine months ended September 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 nine months ended September
30, 1995 as compared to a marginal deficit for the same period in 1994. The
improvement in cash flow was primarily due to exterior painting expenditures
incurred during 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 operating performance, and seeking rent increases where market
conditions allow. As of September 30, 1995, the occupancy rates of the
Partnership's properties ranged from 95% to 99%. Despite 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 properties is in the best interest of the Partnership in order to
maximize returns to Limited Partners. As a result, the Partnership may 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
<PAGE>
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. The third-party financing of approximately $8,765,000 on
the Country Ridge apartments matures in 1996 and the General Partner expects to
refinance the mortgage loan.
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 which was $208,555 at the time of the
refinancing 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.
During October 1995, the Partnership commenced distributions and paid $443,190
($7.50 per Interest) to the holders of Limited Partnership Interests for the
third quarter of 1995. The General Partner expects to continue quarterly
distributions to Limited Partners based on the current performance of the
Partnership's properties. However, the level of future distributions, if
available, will depend on cash flow from the Partnership's remaining
properties, successful refinancing of certain mortgage loans 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 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 September 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, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 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: November 14, 1995
-----------------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3023
<SECURITIES> 0
<RECEIVABLES> 50
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4974
<PP&E> 63421
<DEPRECIATION> 21975
<TOTAL-ASSETS> 47683
<CURRENT-LIABILITIES> 605
<BONDS> 50550
<COMMON> 0
0
0
<OTHER-SE> (4498)
<TOTAL-LIABILITY-AND-EQUITY> 47683
<SALES> 0
<TOTAL-REVENUES> 8973
<CGS> 0
<TOTAL-COSTS> 3690
<OTHER-EXPENSES> 1726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3197
<INCOME-PRETAX> 360
<INCOME-TAX> 0
<INCOME-CONTINUING> 360
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<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> 350
<EPS-PRIMARY> 5.86
<EPS-DILUTED> 5.86
</TABLE>
