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 0-14350
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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
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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 REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
------------ ------------
Cash and cash equivalents $ 2,364,670 $ 2,310,596
Escrow deposits 1,677,788 1,400,287
Accounts and accrued interest receivable 84,135 89,717
Prepaid expenses 317,502 361,640
Deferred expenses, net of accumulated
amortization of $397,706 in 1996 and
$362,375 in 1995 1,192,378 1,227,709
------------ ------------
5,636,473 5,389,949
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Investment in real estate:
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 22,848,173 22,411,326
------------ ------------
Investment in real estate, net of
accumulated depreciation 40,572,620 41,009,467
------------ ------------
$ 46,209,093 $ 46,399,416
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 77,477 $ 96,080
Due to affiliates 34,776 19,310
Accrued real estate taxes 181,773
Security deposits 332,338 334,467
Loss in excess of investment in joint
venture with an affiliate 1,241,698 1,139,760
Mortgage notes payable 50,303,205 50,428,070
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Total liabilities 52,171,267 52,017,687
Affiliates' participation in joint ventures (253,453) (299,981)
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51,917,814 51,717,706
Limited Partners' deficit (59,092
Interests issued and outstanding) (5,134,724) (4,743,765)
General Partner's deficit (573,997) (574,525)
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Total partners' deficit (5,708,721) (5,318,290)
------------ ------------
<PAGE>
$ 46,209,093 $ 46,399,416
============ ============
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, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Income:
Rental and service $ 3,000,574 $ 2,910,450
Interest on short-term investments 33,251 42,479
Participation in income (loss) of joint
venture with an affiliate 3,741 (10,595)
------------ ------------
Total income 3,037,566 2,942,334
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Expenses:
Interest on mortgage notes payable 1,059,188 1,068,248
Depreciation 436,847 436,847
Amortization of deferred expenses 35,331 35,330
Property operating 950,265 729,721
Real estate taxes 268,150 240,378
Property management fees 148,247 144,399
Administrative 94,962 93,124
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Total expenses 2,992,990 2,748,047
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Income before affilates' participation
in joint ventures and extraordinary item 44,576 194,287
Affiliates' participation in losses (income)
from joint ventures before extraordinary
item 8,183 (32,756)
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Income before extraordinary item 52,759 161,531
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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 $ 52,759 $ 210,117
============ ============
Income before extraordinary item allocated
to General Partner $ 528 $ 1,615
============ ============
Income before extraordinary item allocated
to Limited Partners $ 52,231 $ 159,916
============ ============
Income before extraordinary item per
Limited Partnership Interest (59,092
issued and outstanding) $ 0.88 $ 2.71
============ ============
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, 1996 and 1995
(Unaudited)
(Continued)
1996 1995
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Extraordinary item allocated to General
Partner None $ 486
============ ============
Extraordinary item allcated to Limited
Partners None $ 48,100
============ ============
Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) None $ 0.81
============ ============
Net income allocated to General Partner $ 528 $ 2,101
============ ============
Net income allocated to Limited Partners $ 52,231 $ 208,016
============ ============
Net income per Limited Partnership Interest
(59,092 issued and outstanding) $ 0.88 $ 3.52
============ ============
Distribution to Limited Partners $ 443,190 None
============ ============
Distribution per Limited Partnership
Interest (59,092 issued and outstanding) $ 7.50 None
============ ============
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, 1996 and 1995
(Unaudited)
1996 1995
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Operating activities:
Net income $ 52,759 $ 210,117
Adjustments to reconcile net income 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
Affiliates' participation in (losses)
income from joint ventures (8,183) 32,756
Participation in (income) loss of
joint venture with an affiliate (3,741) 10,595
Depreciation of properties 436,847 436,847
Amortization of deferred expenses 35,331 35,330
Net change in:
Escrow deposits (277,501) (171,065)
Accounts and accrued interest
receivable 5,582 (96,736)
Prepaid expenses 44,138 (46,469)
Accounts payable (18,603) (47,942)
Due to affiliates 15,466 26,809
Accrued real estate taxes 181,773 166,878
Security deposits (2,129) 13,655
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Net cash provided by operating activities 461,739 522,189
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Investing activities:
Contribution to joint venture with an
affiliate (342,760)
Distribution from joint venture with
an affiliate 105,679
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Net cash provided by or used in investing
activities 105,679 (342,760)
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Financing activities:
Distribution to Limited Partners (443,190)
Principal payments on mortgage notes
payable (124,865) (130,441)
Distributions to joint venture partners -
affiliates (29,514)
Contributions from joint venture partners
- affiliates 54,711
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<PAGE>
Net cash used in financing activities (513,344) (159,955)
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Net change in cash and cash equivalents 54,074 19,474
Cash and cash equivalents at beginning
of period 2,310,596 1,965,737
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Cash and cash equivalents at end of period $ 2,364,670 $ 1,985,211
============ ============
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 Policy:
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
interest expense on mortgage notes payable of $1,059,188 and $1,068,248 and
paid interest expense of $1,059,188 and $1,068,022, 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 $19,221 $34,776
4. Subsequent Event:
In April 1996, the Partnership made a quarterly distribution of $443,190 ($7.50
per Interest) to the holders of Limited Partnership Interests from Net Cash
Receipts for the first quarter of 1996.
<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 from the sale of Limited
Partnership Interests and utilized these proceeds to acquire eight real
properties and a minority joint venture interest in one additional real
property. To date, three of these properties have been relinquished through
foreclosure. The Partnership continues to operate its five remaining properties
and holds a minority interest in a joint venture.
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.
Summary of Operations
- ---------------------
Primarily due to increased property operating expenses at all of the
Partnership's properties, net income decreased for the quarter ended March 31,
1996 as compared to the same period in 1995. Further discussion of the
Partnership's operations are summarized below.
1996 Compared to 1995
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Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
Due to lower interest rates, interest income on short-term investments
decreased during 1996 as compared to 1995.
Property operating expense increased due to higher insurance expense at all of
the Partnership's properties. In addition, the Partnership incurred higher
utility and payroll expenses at North Hill Apartments and carpet replacement
expenditures at the Country Ridge and Shadowridge apartment complexes. As a
result, property operating expense increased during 1996 as compared to 1995.
Real estate tax expense increased during 1996 as compared to 1995 as a result
of increases in the assessed values at the North Hill and Howell Station
apartment complexes.
The Partnership holds a minority interest in the Lakeville Resort Apartments.
The Partnership recognized income from participation in joint venture with an
affiliate during 1996 as compared to a loss in 1995 due to a decrease in the
amortization of deferred expenses and interest expense related to the
property's mortgage loan as a result of the June 1995 refinancing.
The Shadowridge and North Hill apartment complexes are both owned by joint
ventures consisting of the Partnership and an affiliate. Increases in
insurance, utility, payroll and real estate tax expense at North Hill
<PAGE>
Apartments and increases in insurance expense and carpet replacement
expenditures at Shadowridge Apartments resulted in affiliates' participation in
losses from joint ventures during 1996 as compared to participation in income
in 1995.
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 by approximately $54,000 as of
March 31, 1996 when compared to December 31, 1995. Cash flow of approximately
$462,000 was provided by operating activities during 1996 consisting of cash
flow from the operations of the Partnership's properties and interest income on
short-term investments, which were partially offset by the payment of
administrative expenses. The Partnership's investing activity consisted of a
distribution received from the joint venture with an affiliate of approximately
$105,000. Cash used in financing activities of approximately $513,000 consisted
of a distribution to the Limited Partners and principal payments on mortgage
notes payable, which were partially offset by contributions received from the
joint venture partners.
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. During 1996 and 1995, all of the
Partnership's properties, including Lakeville Resort Apartments, in which the
Partnership holds a minority joint venture interest, generated positive cash
flow. As of March 31, 1996, the occupancy rates of the Partnership's properties
ranged from 95% to 99%, except for the Shadowridge Apartments which had an
occupancy of 91%.
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 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 has entered into contracts to sell the Country Ridge and Park
Place - Phase II apartment complexes for sale prices of $15,950,000 and
$12,125,000, respectively, has entered into negotiations for a contract to sell
the North Hill Apartments and is actively marketing the remaining properties in
its portfolio. In addition, the General Partner has entered into a contract to
sell the Lakeville Resort Apartments, in which the Partnership holds a minority
joint venture interest, for a sale price of $27,200,000. If current market
conditions remain favorable and the General Partner can obtain appropriate sale
prices, the Partnership's liquidation strategy may be accelerated.
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. The third-party financing of
approximately $8,765,000 on Country Ridge Apartments matures in 1996. The
General Partner has entered into a contract to sell this property as described
above. The Partnership does not own any other properties with third-party
financing which matures prior to 1998.
<PAGE>
In April 1996, the Partnership paid $443,190 ($7.50 per Interest) to holders of
Limited Partnership Interests representing the quarterly distribution of Net
Cash Receipts for the first quarter of 1996. The level of this regular
quarterly distribution is consistent with the amount distributed for the fourth
quarter of 1995. To date, including the April 1996 distribution, investors have
received cumulative distributions of Net Cash Receipts of $22.50 per $1,000
Interest. There has been no distribution of Net Cash Proceeds. 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 will depend on cash flow from the Partnership's
remaining properties and proceeds from future property sales, as to all of
which there can be no assurances. In light of results to date and current
market 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.
<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 September 30, 1992 (Commission File No. 0-14350) are
incorporated herein by reference.
(10) Material Contracts:
(i) Agreement of Sale and attachment thereto relating to the sale of Country
Ridge Apartments previously filed as Exhibit (2)(a) to the Registrant's Current
Report on Form 8-K dated April 23, 1996, is incorporated herein by reference.
(ii) Agreement of Sale and attachment thereto relating to the sale of Park
Place Apartments - Phase II previously filed as Exhibit (2)(b) to the
Registrant's Current Report on Form 8-K dated April 23, 1996, is incorporated
herein by reference.
(iii) Agreement of Sale and attachment thereto relating to the sale of
Lakeville Resort Apartments previously filed as Exhibit (2)(c) to the
Registrant's Current Report on Form 8-K dated April 23, 1996 is 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: A Current Report on Form 8-K dated April 23, 1996 was
filed reporting the contracts to sell the Country Ridge Apartments in
Farmington Hills, Michigan, the Park Place Apartments - Phase II in Plymouth,
Minnesota and the Lakeville Resort Apartments in Petaluma, California.
<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: May 15, 1996
-----------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2365
<SECURITIES> 0
<RECEIVABLES> 84
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4444
<PP&E> 63421
<DEPRECIATION> 22848
<TOTAL-ASSETS> 46209
<CURRENT-LIABILITIES> 626
<BONDS> 50303
0
0
<COMMON> 0
<OTHER-SE> 5709
<TOTAL-LIABILITY-AND-EQUITY> 46209
<SALES> 0
<TOTAL-REVENUES> 3038
<CGS> 0
<TOTAL-COSTS> 1358
<OTHER-EXPENSES> 567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1059
<INCOME-PRETAX> 53
<INCOME-TAX> 0
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
</TABLE>
