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, 1998
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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.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 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
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1998 and December 31, 1997
(UNAUDITED)
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,621,937 $ 1,972,846
Escrow deposits 274,906 274,906
Accounts and accrued interest receivable 7,098 12,962
-------------- --------------
$ 1,903,941 $ 2,260,714
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 34,440 $ 52,096
Due to affiliates 37,587 28,175
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Total liabilities 72,027 80,271
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Commitments and contingincies
Limited Partners' capital
(59,791 Interests issued
and outstanding) 2,148,875 2,497,404
General Partner's deficit (316,961) (316,961)
-------------- --------------
Total partners' capital 1,831,914 2,180,443
-------------- --------------
$ 1,903,941 $ 2,260,714
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1998 and 1997
(UNAUDITED)
1998 1997
-------------- --------------
Income:
Rental and service $ 30,002
Interest on short-term investments $ 67,420 132,354
Other income 11,697
-------------- --------------
Total income 67,420 174,053
-------------- --------------
Expenses:
Interest on mortgage notes payable 37,810
Depreciation 4,393
Amortization of deferred expenses 260
Property operating 8,473 141,409
Real estate taxes 1,870
Property management fees 1,113
Administrative 153,761 165,470
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Total expenses 162,234 352,325
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Loss before gain on sale of property
and extraordinary item (94,814) (178,272)
Gain on sale of property 828,751
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(Loss) income before extraordinary item (94,814) 650,479
Extraordinary item:
Debt extinguishment expense (161,761)
-------------- --------------
Net (loss) income $ (94,814) $ 488,718
============== ==============
Income before extraordinary item
allocated to General Partner None $ 10,904
============== ==============
(Loss) income before extraordinary item
allocated to Limited Partners $ (94,814) $ 639,575
============== ==============
(Loss) income before extraordinary item
per Limited Partnership Interest
(59,791 issued and outstanding) -
Basic and Diluted $ (1.59) $ 10.70
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1998 and 1997
(UNAUDITED)
(Continued)
1998 1997
-------------- --------------
Extraordinary item allocated
to General Partner None $ (1,618)
============== ==============
Extraordinary item allocated
to Limited Partners None $ (160,143)
============== ==============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted None $ (2.68)
============== ==============
Net income allocated to
General Partner None $ 9,286
============== ==============
Net (loss) income allocated to
Limited Partners $ (94,814) $ 479,432
============== ==============
Net (loss) income per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted $ (1.59) $ 8.02
============== ==============
Distributions to Limited Partners $ 253,715 $ 10,612,903
============== ==============
Distributions per Limited Partnership
Interest $ 4.24 $ 177.50
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1998 and 1997
(UNAUDITED)
1998 1997
-------------- --------------
Income:
Interest on short-term investments $ 21,347 $ 20,839
Other income 11,697
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Total income 21,347 32,536
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Expenses:
Administrative 40,339 30,929
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Total expenses 40,339 30,929
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Net (loss) income $ (18,992) $ 1,607
============== ==============
Net income allocated to General
Partner None None
============== ==============
Net (loss) income allocated to
Limited Partners $ (18,992) $ 1,607
============== ==============
Net (loss) income per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted $ (0.32) $ 0.03
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(UNAUDITED)
1998 1997
-------------- --------------
Operating activities:
Net (loss) income $ (94,814) $ 488,718
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Gain on sale of property (828,751)
Debt extinguishment expense 35,539
Depreciation of property 4,393
Amortization of deferred expenses 260
Net change in:
Escrow deposits 198,283
Accounts and accrued interest
receivable 5,864 164,035
Prepaid expenses 14,178
Accounts payable (17,656) (115,913)
Due to affiliates 9,412 (61,101)
Accrued liabilities (35,921)
Security deposits (32,222)
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Net cash used in operating activities (97,194) (168,502)
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Investing activities:
Proceeds from sale of property 5,400,000
Payment of selling costs (196,656)
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Net cash provided by investing
activities 5,203,344
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Financing activities:
Distributions to joint venture
partner - affiliate (1,064,860)
Distributions to Limited Partners (253,715) (10,612,903)
Repayment of mortgage notes payable (4,210,138)
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Net cash used in financing activities (253,715) (15,887,901)
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The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS - 86
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(UNAUDITED)
(Continued)
1998 1997
-------------- --------------
Net change in cash and cash equivalents (350,909) (10,853,059)
Cash and cash equivalents at beginning
of period 1,972,846 12,857,731
-------------- --------------
Cash and cash equivalents at end of
period $ 1,621,937 $ 2,004,672
============== ==============
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 Policies:
(a) The loss allocation between the Limited Partners and the General Partner
has been adjusted for financial statement purposes in order that the capital
account balances more accurately reflect their remaining economic interests as
provided for in the Partnership Agreement.
(b) 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, 1998, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining property. The
Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as to establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 5 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurance as to the time frame for the
conclusion of these contingencies.
3. Interest Expense:
During the nine months ended September 30, 1997, the Partnership incurred and
paid interest expense on mortgage notes payable of $37,810.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1998 are:
Paid
-------------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 14,932 $ 5,608 $ 37,587
<PAGE>
5. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain state securities and common law violations
with regard to the property acquisition process of the Partnership, and to the
adequacy and accuracy of disclosures of information concerning, as well as
marketing efforts related to, the offering of the Limited Partnership Interests
of the Partnership. The defendants continue to vigorously contest these
actions. A plaintiff class has not been certified in either action. No
determination of the merits has been made in one action. The other action was
dismissed without prejudice by the trial court on September 24, 1998 for
failure to state a cause of action. It is not determinable at this time whether
or not an unfavorable decision in either action would have a material adverse
impact on the financial position of the Partnership. The Partnership believes
it has meritorious defenses to contest the claims.
<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. The Partnership has no properties remaining in its
portfolio at September 30, 1998.
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 1997 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
Administrative expenses were higher than interest earned on short-term
investments, which resulted in a net loss during the nine months and quarter
ended September 30, 1998. During January 1997, the Partnership sold the Lake
Ridge Apartments and recognized a gain for financial statement purposes. The
gain was partially offset by debt extinguishment expense recognized on the sale
of the property. As a result, the Partnership recognized net income during the
nine months ended September 30, 1997. Income received related to certain of the
properties sold during the third quarter of 1997 was the primary reason the
Partnership generated net income during the quarter ended September 30, 1997.
Further discussion of the Partnership's operations is summarized below.
1998 Compared to 1997
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the nine months and quarters ended September 30, 1998 and 1997.
The Partnership sold the Lake Ridge Apartments during January 1997 and
recognized a gain of $828,751 in connection with the property sale. As a result
of the sale, rental and service income, interest expense on mortgage notes
payable, depreciation, amortization, real estate taxes and property management
fees ceased during 1997.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the sale of the Lake Ridge Apartments
<PAGE>
prior to distribution to Limited Partners in April 1997. This resulted in a
decrease in interest income on short-term investments during the nine months
ended September 30, 1998 as compared to the same period in 1997.
The Partnership recognized other income during 1997 in connection with a refund
of a prior year's insurance premium for $11,697 relating to the Partnership's
properties.
Property operating expense decreased in 1997 due to the sale of the
Partnership's remaining property. The Partnership paid additional expenditures
during 1997 and the nine months ended September 30, 1998 relating to certain of
the properties sold in prior years.
Primarily due to a change in an accounting estimate for legal fees during the
quarter ended September 30, 1997, administrative expenses increased during the
quarter ended September 30, 1998 as compared to the same period in 1997.
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as an extraordinary item for
financial statement purposes.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership as of September 30, 1998 decreased by
approximately $351,000 as compared to December 31, 1997 primarily due to the
payment of a distribution to Limited Partners in January 1998 of remaining
available Net Cash Proceeds. The Partnership used cash of approximately $97,000
for its operating activities to pay administrative and operating expenses which
was partially offset by interest income earned on short-term investments. The
Partnership used cash to fund its financing activities which consisted of a
distribution of approximately $254,000 to Limited Partners.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining property. The
Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 5 of Notes to the
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurance as to the time frame for the
conclusion of these contingencies.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account of $335,000 to provide for certain
<PAGE>
costs the purchaser might incur related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 to date out of the escrow funds to cover such costs. The
term of the escrow is six years, although a settlement is expected to be
negotiated in 1999. It is not determinable at this time if the Partnership will
receive the remaining amounts in the escrow account.
To date, Limited Partners have received distributions of Net Cash Receipts of
$12.50 and Net Cash Proceeds of $290.74, totaling $303.24 per $1,000 Interest,
as well as certain tax benefits. No additional distributions are anticipated to
be made prior to the termination of the Partnership. However, after paying
final partnership expenses, any remaining cash reserves will be distributed.
Limited Partners will not recover a substantial portion of their original
investment.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Klein, et al. vs. Lehman Brothers, Inc., et al.
- -----------------------------------------------
With regard to the proposed class action complaint, Klein, et al. vs. Lehman
Brothers, Inc., et al. (Superior Court of New Jersey, Law Division, Union
County, Docket No. Unn-L-5162-96), on June 9, 1998 the defendants filed a
motion to dismiss the complaint for failure to state a cause of action. The
motion was briefed by all parties and an oral argument was heard by the court
on August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendant's motion to dismiss the complaint, and on October 23,
1998, the judge announced that he would enter an order dismissing the complaint
without prejudice.
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 months ending
September 30, 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed in Form 8-K during the quarter
ended September 30, 1998.
<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/ Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of Balcor
Partners - XIX, the General Partner
Date: November 5, 1998
------------------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1622
<SECURITIES> 0
<RECEIVABLES> 282
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1904
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1904
<CURRENT-LIABILITIES> 72
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1832
<TOTAL-LIABILITY-AND-EQUITY> 1904
<SALES> 0
<TOTAL-REVENUES> 67
<CGS> 0
<TOTAL-COSTS> 8
<OTHER-EXPENSES> 154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (95)
<INCOME-PRETAX> (95)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95)
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
