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 September 30, 1994
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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 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3327914
- ------------------------------- -------------------
(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
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BALCOR REALTY INVESTORS 86-SERIES I
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 $ 1,251,225 $ 556,725
Escrow deposits 442,380 506,759
Accounts and accrued interest receivable 118,152 170,773
Deferred expenses, net of accumulated
amortization of $633,920 in 1994 and
$521,266 in 1993 419,799 532,453
-------------- --------------
2,231,556 1,766,710
-------------- --------------
Investment in real estate:
Land 11,137,023 11,137,023
Buildings and improvements 83,187,367 83,187,367
-------------- --------------
94,324,390 94,324,390
Less accumulated depreciation 30,797,238 28,703,498
-------------- --------------
Investment in real estate, net of
accumulated depreciation 63,527,152 65,620,892
-------------- --------------
$ 65,758,708 $ 67,387,602
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 202,883 $ 202,883
Due to affiliates 153,287 80,141
Accrued liabilities, principally interest
and real estate taxes 436,425 126,652
Security deposits 440,624 419,489
Purchase price, promissory and mortgage
notes payable 73,508,859 74,429,557
-------------- --------------
Total liabilities 74,742,078 75,258,722
Affiliates' participation in joint ventures (1,282,828) (1,082,242)
Partners' capital (59,791 Limited
Partnership Interests issued and
outstanding) (7,700,542) (6,788,878)
-------------- --------------
$ 65,758,708 $ 67,387,602
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ 12,038,498 $ 11,664,015
Interest on short-term investments 43,031 23,472
-------------- --------------
Total income 12,081,529 11,687,487
-------------- --------------
Expenses:
Interest on purchase price, promissory
and mortgage notes payable 4,783,563 5,161,885
Depreciation 2,093,740 2,093,740
Amortization of deferred expenses 112,654 119,369
Property operating 4,186,811 3,601,778
Real estate taxes 1,034,460 1,063,111
Property management fees 601,957 584,739
Administrative 289,078 290,876
-------------- --------------
Total expenses 13,102,263 12,915,498
-------------- --------------
Loss before affiliates' participation in
joint ventures and extraordinary item (1,020,734) (1,228,011)
Affiliates' participation in losses
from joint ventures 109,070 5,387
-------------- --------------
Loss before extraordinary item (911,664) (1,222,624)
Extraordinary item:
Gain on forgiveness of debt 1,281,439
-------------- --------------
Net (loss) income $ (911,664) $ 58,815
============== ==============
Net loss before extraordinary item
allocated to General Partner $ (9,117) $ (12,226)
============== ==============
Net loss before extraordinary item
allocated to Limited Partners $ (902,547) $ (1,210,398)
============== ==============
Net loss before extraordinary item
per Limited Partnership Interest
(59,791 issued and outstanding) $ (15.10) $ (20.25)
============== ==============
Extraordinary item allocated to
General Partner None $ 12,814
============== ==============
Extraordinary item allocated to
Limited Partners None $ 1,268,625
============== ==============
Extraordinary item per Limited Partnership
Interest (59,791 issued and outstanding) None $ 21.22
============== ==============
Net (loss) income allocated to General
Partner $ (9,117) $ 588
============== ==============
Net (loss) income allocated to Limited
Partners $ (902,547) $ 58,227
============== ==============
Net (loss) income per Limited Partnership
Interest (59,791 issued and outstanding) $ (15.10) $ 0.97
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ 4,129,464 $ 3,938,065
Interest on short-term investments 20,018 8,529
-------------- --------------
Total income 4,149,482 3,946,594
-------------- --------------
Expenses:
Interest on purchase price, promissory
and mortgage notes payable 1,624,176 1,576,626
Depreciation 697,913 697,913
Amortization of deferred expenses 37,551 37,551
Property operating 1,609,155 1,233,714
Real estate taxes 335,820 357,016
Property management fees 206,474 196,919
Administrative 83,351 99,176
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Total expenses 4,594,440 4,198,915
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Loss before affiliates' participation in
joint ventures (444,958) (252,321)
Affiliates' participation in losses
(income) from joint ventures 63,756 (21,724)
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Net loss $ (381,202) $ (274,045)
============== ==============
Net loss allocated to General Partner $ (3,813) $ (2,740)
============== ==============
Net loss allocated to Limited Partners $ (377,389) $ (271,305)
============== ==============
Net loss per Limited Partnership Interest
(59,791 issued and outstanding) $ (6.32) $ (4.54)
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 $ (911,664) $ 58,815
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Extraordinary gain on forgiveness of
debt (1,281,439)
Affiliates' participation in losses
from joint ventures (109,070) (5,387)
Depreciation of properties 2,093,740 2,093,740
Amortization of deferred expenses 112,654 119,369
Collection of insurance proceeds 94,425 513,927
Net change in:
Escrow deposits 1,120 (418,406)
Accounts and accrued interest
receivable (41,804) (23,807)
Accounts payable (151,966)
Due to affiliates 73,146 (3,541)
Accrued liabilities 309,773 112,392
Security deposits 21,135 26,629
-------------- --------------
Net cash provided by operating activities 1,643,455 1,040,326
-------------- --------------
Investing activities:
Release of capital improvement escrow 63,259
--------------
Net cash provided by investing activities 63,259
--------------
Financing activities:
Contributions by joint venture partners -
affiliates 40,040 123,638
Distributions to joint venture partners -
affiliates (131,556)
Issuance of purchase price, promissory and
mortgage notes payable 24,010,000
Repayment of purchase price, promissory and
mortgage notes payable (24,950,147)
Principal payments on purchase price,
promissory and mortgage notes payable (920,698) (646,218)
Payment of deferred expenses (392,399)
-------------- --------------
Net cash used in financing activities (1,012,214) (1,855,126)
-------------- --------------
Net change in cash and cash equivalents 694,500 (814,800)
Cash and cash equivalents at beginning
of period 556,725 1,092,300
-------------- --------------
Cash and cash equivalents at end of period $ 1,251,225 $ 277,500
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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 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 $4,783,563 and $5,161,885 and paid interest expense of $4,783,563
and $5,144,151, 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
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Property management fees $599,067 $204,607 $68,686
Reimbursement of expenses to
the General Partner, at cost:
Accounting 37,148 23,831 20,215
Data processing 18,549 9,684 23,953
Investor communication 8,465 5,430 4,176
Legal 12,509 8,025 12,589
Portfolio management 28,258 18,128 20,561
Other 8,065 5,174 3,107
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to invest in and operate
income-producing real property. The Partnership raised $59,791,000 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
eight real property investments and a minority joint venture interest in one
additional real property. Prior to 1994, title to two of these properties and
the property in which the Partnership held a minority joint venture interest
were relinquished through foreclosure. The Partnership continues to operate its
six remaining properties.
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
- ---------------------
The extraordinary gain on forgiveness of debt associated with the refinancing
of the Lake Ridge Apartments mortgage during the second quarter of 1993 is the
primary reason for a net loss during the nine months ended September 30, 1994
as compared to net income during the same period in 1993. Higher property
operating expenses were partially offset by higher rental revenues, resulting
in an increase in the net loss for the quarter ended September 30, 1994 as
compared to the same period in 1993. Further discussion of the Partnership's
operations are summarized below.
1994 Compared to 1993
- ---------------------
Higher rental rates at the Lakeside, Pines of Cloverlane, Cedar Crest, and
Brighton Townhomes apartment complexes in 1994 resulted in an increase in
rental income for the nine months and quarter ended September 30, 1994 as
compared to same periods in 1993.
Higher average cash balances in addition to increased interest rates resulted
in an increase in interest income on short-term investments during the nine
months and quarter ended September 30, 1994 as compared to the same periods in
1993.
The refinancings of the Lake Ridge and Lakeville Resort apartment complexes in
April 1993 reduced the interest expense incurred on mortgage notes payable.
Additionally, the interest rate on the Cedar Crest Apartments mortgage note was
adjusted from 9.75 percent to 7.875 percent effective July 1993 in accordance
with the loan agreement. The combination of these transactions caused interest
expense on purchase price, promissory and mortgage notes payable to decrease
for the nine months ended September 30, 1994 as compared to the same period in
1993. The Lake Ridge Apartment refinancing resulted in a gain on forgiveness of
debt during the second quarter of 1993 due to a discounted prepayment of the
original loan.
Higher expenditures for exterior painting, carpeting, utilities and insurance
at the Lakeville Resort Apartments; payroll, insurance, carpeting and leasing
costs at the Pines of Cloverlane Apartments; and landscaping, utilities,
insurance, carpeting and payroll at the Cedar Crest Apartments resulted in an
increase in property operating expense during the nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993.
An affiliate of the General Partner holds a minority joint venture interest in
the Lakeville Resort Apartments. Higher property operating expense in 1994
resulted in an increase in affiliates' participation in losses from joint
ventures during the nine months ended September 30, 1994 as compared to the
same period in 1993. The higher property operating expense in 1994 also
resulted in affiliates' participation in losses for the quarter ended September
30, 1994 as compared to income for the same period in 1993.
Liquidity and Capital Resources
- -------------------------------
The Partnership's cash flow provided by operating activities during the nine
months ended September 30, 1994 was generated primarily from the operation of
the Partnership's properties which was partially offset by the payment of
administrative expenses. The Partnership used the net cash provided by its
operating activities and investing activities (release of a capital improvement
escrow on Lake Ridge Apartments), to fund its financing activities which
consisted primarily of the payment of principal on the properties' mortgage
notes and a net distribution to a joint venture partner-affiliate.
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 significant if it exceeds $250,000 annually or 20% of the property's
rental and service income. During the first nine months of 1994 and 1993, the
Cedar Crest and Pines of Cloverlane apartment complexes generated positive cash
flow. The Lakeside, Lake Ridge and Brighton Townhomes apartment complexes
generated positive cash flow during the first nine months of 1994 as compared
to marginal deficits for the same period in 1993. The improvement at the
Lakeside Apartments was due to lower property operating expense as a result of
roof repair work completed in 1993 and higher rental revenues in 1994 due to
increased rental rates. The improvement at the Lake Ridge Apartments was due to
the refinancing of the mortgage note payable and the improvement at the
Brighton Townhomes Apartments was the result of higher rental revenues also due
to an increase in rental rates. The Lakeville Resort Apartments generated a
marginal deficit during the first nine months of 1994 as compared to positive
cash flow for the same period in 1993 due to higher expenditures for exterior
painting, carpeting, utilities and insurance.
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 refinancing of mortgage
loans, improving property operating performance, and seeking rent increases
where market conditions allow. 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 of the properties is
in the best interests of the Partnership in order to maximize returns to
Limited Partners and, therefore, 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. 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.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions will depend on the level of cash
flow from the Partnership's remaining properties and proceeds from future
property sales, as to both of which there can be no assurances. Operations have
improved and to the extent this trend continues, the Partnership may be able to
commence distributions to partners in the near future.
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 86-SERIES I
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
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), 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. 0-15649) 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 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
--------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XIX, 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-XIX, the
General Partner
Date: November 10, 1994
------------------------
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