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
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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
----- -----
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
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 $ 804,488 $ 1,058,935
Escrow deposits 2,164,167 379,730
Accounts and accrued interest receivable 4,759 67,036
Prepaid expenses 488,229
Deferred expenses, net of accumulated
amortization of $574,748 in 1995 and
$671,472 in 1994 661,619 382,247
-------------- --------------
4,123,262 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 32,890,980 31,495,152
-------------- --------------
Investment in real estate, net of
accumulated depreciation 61,433,410 62,829,238
-------------- --------------
$ 65,556,672 $ 64,717,186
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 173,086 $ 169,360
Due to affiliates 8,856 74,467
Accrued liabilities, principally real
estate taxes 244,636 169,874
Security deposits 418,930 440,214
Mortgage notes payable 74,633,451 73,208,295
-------------- --------------
Total liabilities 75,478,959 74,062,210
Affiliates' participation in joint ventures (1,328,704) (1,271,542)
Partners' deficit (59,791 Limited
Partnership Interests issued and
outstanding) (8,593,583) (8,073,482)
-------------- --------------
$ 65,556,672 $ 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 six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Income:
Rental and service $ 8,115,111 $ 7,909,034
Interest on short-term investments 36,306 23,013
-------------- --------------
Total income 8,151,417 7,932,047
-------------- --------------
Expenses:
Interest on mortgage notes payable 3,354,380 3,159,387
Depreciation 1,395,828 1,395,827
Amortization of deferred expenses 75,103 75,103
Property operating 2,369,384 2,577,656
Real estate taxes 676,256 698,640
Property management fees 404,873 395,483
Administrative 321,847 205,727
-------------- --------------
Total expenses 8,597,671 8,507,823
-------------- --------------
Loss before affiliates' participation in
joint ventures and extraordinary item (446,254) (575,776)
Affiliates' participation in losses
from joint ventures 13,025 45,314
------------- -------------
Loss before extraordinary item (433,229) (530,462)
Extraordinary item:
Debt extinguishment expense (145,393)
Affiliate's participation in debt
extinguishment expense 58,521
-------------- --------------
Total extraordinary item (86,872)
-------------- --------------
Net loss $ (520,101) $ (530,462)
============== ==============
Loss before extraordinary item allocated
to General Partner $ (4,332) $ (5,304)
============== ==============
Loss before extraordinary item allocated
to Limited Partners $ (428,897) $ (525,158)
============== ==============
Loss before extraordinary item per Limited
Partnership Interest
(59,791 issued and outstanding) $ (7.17) $ (8.78)
============== ==============
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 six months ended June 30, 1995 and 1994
(Unaudited)
(Continued)
1995 1994
-------------- --------------
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 $ (5,201) $ (5,304)
============== ==============
Net loss allocated to Limited Partners $ (514,900) $ (525,158)
============== ==============
Net loss per Limited Partnership Interest
(59,791 issued and outstanding) $ (8.61) $ (8.78)
============== ==============
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 June 30, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Income:
Rental and service $ 4,058,299 $ 3,986,586
Interest on short-term investments 12,450 13,186
-------------- --------------
Total income 4,070,749 3,999,772
-------------- --------------
Expenses:
Interest on mortgage notes payable 1,685,659 1,595,111
Depreciation 697,914 697,913
Amortization of deferred expenses 37,552 37,552
Property operating 1,163,082 1,413,599
Real estate taxes 334,936 349,320
Property management fees 203,285 199,329
Administrative 226,186 89,482
-------------- --------------
Total expenses 4,348,614 4,382,306
-------------- --------------
Loss before affiliates' participation in
joint ventures and extraordinary item (277,865) (382,534)
Affiliates' participation in losses
from joint ventures 3,696 67,210
------------- -------------
Loss before extraordinary item (274,169) (315,324)
Extraordinary item:
Debt extinguishment expense (145,393)
Affiliate's participation in debt
extinguishment expense 58,521
-------------- --------------
Total extraordinary item (86,872)
-------------- --------------
Net loss $ (361,041) $ (315,324)
============== ==============
Loss before extraordinary item allocated
to General Partner $ (2,741) $ (3,153)
============== ==============
Loss before extraordinary item allocated
to Limited Partners $ (271,428) $ (312,171)
============== ==============
Loss before extraordinary item per Limited
Partnership Interest
(59,791 issued and outstanding) $ (4.54) $ (5.22)
============== ==============
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 June 30, 1995 and 1994
(Unaudited)
(Continued)
1995 1994
-------------- --------------
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 $ (3,610) $ (3,153)
============== ==============
Net loss allocated to Limited Partners $ (357,431) $ (312,171)
============== ==============
Net loss per Limited Partnership Interest
(59,791 issued and outstanding) $ (5.98) $ (5.22)
============== ==============
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 six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
-------------- --------------
Operating activities:
Net loss $ (520,101) $ (530,462)
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 (13,025) (45,314)
Depreciation of properties 1,395,828 1,395,827
Amortization of deferred expenses 75,103 75,103
Collection of insurance proceeds 47,000
Net change in:
Escrow deposits (179,886) 97,576
Accounts and accrued interest
receivable 62,277 15,964
Prepaid expenses (488,229)
Accounts payable 3,726
Due to affiliates (65,611) 86,197
Accrued liabilities 74,762 69,287
Security deposits (21,284) 18,633
-------------- --------------
Net cash provided by operating activities 410,432 1,229,811
-------------- --------------
Financing activities:
Capital contribution by joint venture
partner - affiliate 342,760
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 (779,164) (636,318)
Payment of deferred expenses (499,868)
Funding of improvement escrow (1,604,551)
-------------- --------------
Net cash used in financing activities (664,879) (767,874)
-------------- --------------
Net change in cash and cash equivalents (254,447) 461,937
Cash and cash equivalents at beginning
of period 1,058,935 556,725
-------------- --------------
Cash and cash equivalents at end of period $ 804,488 $ 1,018,662
============== ==============
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 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
and paid interest expense on mortgage notes payable of $3,354,380 and
$3,159,387, 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 $152,000 $152,000 $8,856
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
affiliates' share.
<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
- ---------------------
Due primarily to improved property operations, which were partially offset by
increased mortgage loan interest and administrative expenses, the loss before
extraordinary item decreased for the six months and quarter ended June 30, 1995
as compared to the same periods in 1994. The Partnership also recognized an
extraordinary debt extinguishment expense during June 1995. Further discussion
of the Partnership's operations is summarized below.
1995 Compared to 1994
- ---------------------
Higher rental rates at the Lakeville Resort and Brighton Townhomes apartment
complexes resulted in an increase in rental and service income for the six
months and quarter ended June 30, 1995 as compared to the same periods in 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments during the six months ended June 30, 1995 as compared to the same
period in 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 prior increases in this
index had caused an increase in interest expense on mortgage notes payable
during the six months and quarter ended June 30, 1995 as compared to the same
periods in 1994.
<PAGE>
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 the six months and quarter ended June 30,
1995 as compared to the same periods in 1994.
Reimbursement to the General Partner of legal fees previously advanced by the
General Partner with respect to a lawsuit resulted in an increase in
administrative expenses during the six months and quarter ended June 30, 1995
as compared to the same periods in 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 the six
months and quarter ended June 30, 1995 as compared to the same periods in 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased at June 30, 1995 as compared to
December 31, 1994. The Partnership's operating activities consisted primarily
of Cash Flow generated from the operation of the Partnership's properties which
was partially offset by the payment of administrative expenses. The Partnership
used the net, proceeds received in connection with the Lakeville Resort
Apartments' mortgage note refinancing to repay the former mortgage note, fund
capital improvement escrows and pay deferred expenses incurred in connection
with the refinancing. Other financing activity included the payment of
principal on the properties' mortgage loans and a net capital contribution by
the 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. 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 six
months ended June 30, 1995 and 1994, the Brighton Townhomes, Cedar Crest,
Lakeville, and Pines of Cloverlane apartment complexes generated positive cash
flow. The Lake Ridge Apartments generated positive cash flow during 1995 as
compared to a marginal deficit during 1994 due to 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 upgades 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 property operating performance, and seeking rent increases
where market conditions allow. As of June 30, 1995, the occupancy rates of five
of the Partnership's properties ranged from 94% to 100%. The sixth property,
Pines of Cloverlane Apartments, had an occupancy rate of 89% at June 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 and, therefore,
<PAGE>
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 efforts to obtain loan modifications as well as refinancing of many
existing loans with new lenders, the Partnership has no third-party financing
which matures prior to 1996. During June 1995, the Lakeville Resort
Apartments' mortgage note was refinanced. See Note 4 of Notes to Financial
Statements for additional information.
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, the retention of adequate
cash reserves for financing and operating needs, and proceeds from future
property sales and mortgage loan refinancings, 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 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 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: August 10, 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> 804
<SECURITIES> 0
<RECEIVABLES> 5
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3462
<PP&E> 94324
<DEPRECIATION> 32891
<TOTAL-ASSETS> 65557
<CURRENT-LIABILITIES> 846
<BONDS> 74633
<COMMON> 0
0
0
<OTHER-SE> (8594)
<TOTAL-LIABILITY-AND-EQUITY> 65557
<SALES> 0
<TOTAL-REVENUES> 8151
<CGS> 0
<TOTAL-COSTS> 3464
<OTHER-EXPENSES> 1793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3354
<INCOME-PRETAX> (433)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433)
<DISCONTINUED> 0
<EXTRAORDINARY> (87)
<CHANGES> 0
<NET-INCOME> (520)
<EPS-PRIMARY> (7.17)
<EPS-DILUTED> (7.17)
</TABLE>
