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 0-15649
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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.)
2355 Waukegan Rd.
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
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<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
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 $ 998,373 $ 1,058,935
Escrow deposits 2,376,764 379,730
Accounts and accrued interest
receiveable 35,403 67,036
Prepaid expenses 484,054
Deferred expenses, net of accumulated
amortization of $596,044 in 1995
and $671,472 in 1994 640,323 382,247
-------------- ---------------
4,534,917 1,887,948
-------------- ---------------
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 33,588,894 31,495,152
-------------- --------------
Investment in real estate, net of
accumulated depreciation 60,735,496 62,829,238
-------------- ---------------
$ 65,270,413 $ 64,717,186
============== ===============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 180,595 $ 169,360
Due to affiliates 26,706 74,467
Accrued liabilities, principally
estate taxes 472,554 169,874
Security deposits 418,629 440,214
Mortgage notes payable 74,417,434 73,208,295
-------------- ---------------
Total liabilities 75,515,918 74,062,210
Affiliates' participation in joint
ventures (1,312,773) (1,271,542)
Partners' deficit (59,791 Limited
Partnership Interests issued and
outstanding) (8,932,732) (8,073,482)
-------------- ---------------
$ 65,270,413 $ 64,717,186
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- ---------------
Income:
Rental and service $ 12,241,703 $ 12,038,498
Interest on short-term investments 63,902 43,031
-------------- ---------------
Total income 12,305,605 12,081,529
-------------- ---------------
Expenses:
Interest on mortgage notes payable 4,946,323 4,783,563
Depreciation 2,093,742 2,093,740
Amortization of deferred expenses 96,399 112,654
Property operating 3,909,489 4,186,811
Real estate taxes 983,502 1,034,460
Property management fees 608,953 601,957
Administrative 455,084 289,078
-------------- ---------------
Total expenses 13,093,492 13,102,263
-------------- ---------------
Loss before affiliates' participation
in joint ventures and extraordinary
item (787,887) (1,020,734)
Affiliates' participation in losses
from joint ventures 15,509 109,070
-------------- ---------------
Loss before extraordinary item (772,378) (911,664)
Extraordinary item:
Debt extinguishment expense (145,393)
Affiliates' participation in debt
extinguishment expense 58,521
-------------- ---------------
Total extraordinary item (86,872)
-------------- ---------------
Net loss $ (859,250) $ (911,664)
============== ===============
Loss before extraordinary item
allocated to General Partner $ (7,724) $ (9,117)
============== ===============
Loss before extraordinary item
allocated to Limited Partners $ (764,654) $ (902,547)
============== ===============
Loss before extraordinary item per
Limited Partnership Interest
(59,791 issued and outstanding) $ (12.79) $ (15.10)
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
(Continued)
Extraordinary item allocated to
General Partner $ (869) None
============== ===============
Extraordinary item allocated to
Limited Partners $ (86,003) None
============== ===============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding $ (1.44) None
============== ===============
Net loss allocated to General Partner $ (8,593) $ (9,117)
============== ===============
Net loss allocated to Limited Partners $ (850,657) $ (902,547)
============== ===============
Net loss per Limited Partnership
Interest(59,791 issued and
outstanding) $ (14.23) $ (15.10)
============== ===============
The accompanying notes are an integral part of the financial statements
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- ---------------
Income:
Rental and service $ 4,126,592 $ 4,129,464
Interest on short-term investments 27,596 20,018
-------------- ---------------
Total income 4,154,188 4,149,482
-------------- ---------------
Expenses:
Interest on mortgage notes payable 1,591,943 1,624,176
Depreciation 697,914 697,913
Amortization of deferred expenses 21,296 37,551
Property operating 1,540,105 1,609,155
Real estate taxes 307,246 335,820
Property management fees 204,080 206,474
Administrative 133,237 83,351
-------------- ---------------
Total expenses 4,495,821 4,594,440
-------------- ---------------
Loss before affiliates' participation
in joint ventures (341,633) (444,958)
Affiliates' participation in losses
from joint ventures 2,484 63,756
-------------- ---------------
Net loss $ (339,149) $ (381,202)
============== ===============
Net loss allocated to General Partner $ (3,392) $ (3,813)
============== ===============
Net loss allocated to Limited Partners $ (335,757) $ (377,389)
============== ===============
Net loss per Limited Partnership
Interest (59,791 issued and
outstanding) $ (5.62) $ (6.32)
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, 1995 and 1994
(Unaudited)
1995 1994
-------------- ---------------
Operating activities:
Net loss $ (859,250) $ (911,664)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Debt extinguishment expense 145,393
Affiliates' participation in
debt extinguishment expense (58,521)
Affiliates' participation in
losses from joint ventures (15,509) (109,070)
Depreciation of properties 2,093,742 2,093,740
Amortization of deferred expenses 96,399 112,654
Collection of insurance proceeds 94,425
Net change in:
Escrow deposits (392,483) 64,379
Accounts and accrued interest
receiveable 31,633 (41,804)
Prepaid expenses (484,054)
Accounts payable 11,235
Due to affiliates (47,761) 73,146
Accrued liabilities 302,680 309,773
Security deposits (21,585) 21,135
-------------- ---------------
Net cash provided by operating
activities 801,919 1,706,714
-------------- ---------------
Financing activities:
Capital contributions by joint
venture partner - affiliate 361,175 40,040
Distributions to joint venture
partner - affiliate (328,376) (131,556)
Issuance of mortgage note payable 20,932,600
Repayment of mortgage note payable (18,728,280)
Principal payments on mortgage
notes payable (995,181) (920,698)
Payment of deferred expenses (499,868)
Funding of improvement escrow (1,604,551)
-------------- ---------------
Net cash used in financing activities (862,481) (1,012,214)
-------------- ---------------
Net change in cash and cash equivalents (60,562) 694,500
Cash and cash equivalents at beginning
of period 1,058,935 556,725
-------------- ---------------
Cash and cash equivalents at end of
period $ 998,373 $ 1,251,225
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
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 and paid interest expense on mortgage notes payable of $4,946,323 and
$4,783,563, 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 $ 181,582 $ 29,528 $ 26,706
In May 1995, the Partnership reimbursed the General Partner $110,315 for legal
fees previously advanced by the General Partner with respect to a lawsuit.
4. Loan Refinancing:
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. In connection
with this transaction, the Partnership recognized an extraordinary debt
extinguishment expense of $145,393 relating to the full amortization of
deferred loan fees on the former mortgage note, of which $58,521 represents the
affiliate's share.
5. Subsequent Event:
In October 1995, the Partnership commenced distributions and paid $149,478
($2.50 per Interest) to the holders of Limited Partnership Interests for the
third quarter of 1995.
<PAGE>
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 1995, 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 1994 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
No material events occurred during the nine months ended September 30, 1995
which significantly impacted the net loss of the Partnership. Further
discussion of the Partnership's operations is 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.
Higher rental rates at the Lakeville Resort and Brighton Townhomes apartment
complexes resulted in an increase in rental and service income during the nine
months ended September 30, 1995 as compared to the same period in 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments during 1995 as compared to 1994.
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. In connection with this transaction, the Partnership
recognized an extraordinary debt extinguishment expense of $145,393 relating to
the full amortization of deferred loan fees on the former mortgage note, of
which $58,521 represents the affiliate's share. The former mortgage note
carried an interest rate based on a market index and increases in this index
had caused an increase in interest expense on mortgage notes payable during the
nine months ended September 30, 1995 as compared to the same period in 1994.
The lower fixed rate on the new mortgage resulted in a decrease in interest
expense during the quarter ended September 30, 1995 as compared to the same
period in 1994.
<PAGE>
The amortization of deferred loan fees on the current Lakeville mortgage note
is lower than the amortization related to the former mortgage note, resulting
in a decrease of amortization expense for 1995 as compared to 1994.
Higher expenditures in 1994 at the Lakeville Resort and Lake Ridge apartment
complexes related to exterior painting expenses, resulted in a decrease in
property operating expense during 1995 as compared to 1994.
The reimbursement to the General Partner of legal fees previously advanced by
the General Partner with respect to a lawsuit and higher professional fees
resulted in an increase in administrative expenses during 1995 as compared to
1994.
Improved operations at the Lakeville Resort Apartments, which was partially
offset by higher interest expense on the mortgage note, resulted in a decrease
in affiliates' participation in losses from joint ventures during 1995 as
compared to 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased slightly at September 30, 1995
as compared to December 31, 1994. The proceeds received in connection with the
Lakeville Resort Apartments' mortgage note refinancing were used to repay the
former mortgage note, fund capital improvement escrows and pay deferred
expenses incurred in connection with the refinancing. The Partnership
commenced quarterly distributions to Limited Partners in October 1995 as
described 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 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. During the nine
months ended September 30, 1995 and 1994, the Brighton Townhomes, Cedar Crest,
Lake Ridge, and Pines of Cloverlane apartment complexes generated positive cash
flow. The Lakeville Resort Apartments generated positive cash flow during 1995
as compared to a marginal deficit during 1994 due to higher rental income in
1995 and exterior painting expenses incurred in 1994. The Lakeside Apartments
generated a marginal deficit during 1995 as compared to positive cash flow
during 1994 due to higher expenditures related to floor and wall covering
upgrades and slightly lower rental collections in 1995.
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 operating performance, and seeking rent increases
where market conditions allow. As of September 30, 1995, the occupancy rates of
five of the Partnership's properties ranged from 97% to 100%. The sixth
property, Lake Ridge Apartments, had an occupancy rate of 90% at September 30,
1995. 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.
<PAGE>
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. The Partnership has three
properties with third-party financing which matures in 1996. The General
Partner is currently evaluating its strategy for each of these properties,
which may include refinancing the mortgage loan or the sale of the property.
During June 1995, the Lakeville Resort Apartments' mortgage note was
refinanced. See Note 4 of Notes to Financial Statements for additional
information.
During October 1995, the Partnership commenced distributions and paid $149,478
($2.50 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, the 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 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
- -----------------------------------------
(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, 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 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/Brian D. Parker
---------------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal Accounting and
Financial Officer) of Balcor Partners-XIX,
the General Partner
Date: November 13, 1995
------------------------
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 998
<SECURITIES> 0
<RECEIVABLES> 35
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3895
<PP&E> 94324
<DEPRECIATION> 33589
<TOTAL-ASSETS> 65270
<CURRENT-LIABILITIES> 1098
<BONDS> 74417
<COMMON> 0
0
0
<OTHER-SE> (8933)
<TOTAL-LIABILITY-AND-EQUITY> 65270
<SALES> 0
<TOTAL-REVENUES> 12306
<CGS> 0
<TOTAL-COSTS> 5487
<OTHER-EXPENSES> 2645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4946
<INCOME-PRETAX> (772)
<INCOME-TAX> 0
<INCOME-CONTINUING> (772)
<DISCONTINUED> 0
<EXTRAORDINARY> (87)
<CHANGES> 0
<NET-INCOME> (859)
<EPS-PRIMARY> (12.79)
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