FORM 10-Q
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 March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number: 0-15639
Balcor/Colonial Storage Income Fund - 86
(Exact name of registrant as specified in its charter)
Illinois 36-3435425
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Balcor Plaza
2355 Waukegan Road Suite A200
Bannockburn, Illinois 60077
(Address of principal executive (Zip Code)
offices)
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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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Balance Sheets
March 31, 1996 and December 31, 1995
1996
(Unaudited) 1995
Assets
Cash and cash equivalents $ 3,480,205 3,595,948
Accounts receivable, net of allowance for doubtful
accounts of $13,053 at March 31, 1996 and
$12,079 at December 31, 1995 59,255 87,047
Other 119,220 92,649
3,658,680 3,775,644
Mini-warehouse facilities:
Land 16,925,647 16,925,647
Buildings 36,637,344 36,597,146
Furniture, fixtures, and equipment 937,575 903,419
54,500,566 54,426,212
Less accumulated depreciation 13,036,085 12,657,526
Mini-warehouse facilities, net of accumulated
depreciation 41,464,481 41,768,686
$ 45,123,161 45,544,330
Liabilities and Partners' Capital
Accounts payable $ 112,175 15,967
Due to affiliates 80,340 59,264
Accrued liabilities, principally real
estate taxes 376,648 361,829
Security deposits 73,235 72,678
Deferred income 390,637 362,459
Total liabilities 1,033,035 872,197
Partners' capital:
Limited Partners'(256,904 Limited Partnership
Interests issued and outstanding) 43,860,699 44,451,350
General Partners' 229,427 220,783
44,090,126 44,672,133
$ 45,123,161 45,544,330
See accompanying notes to financial statements.
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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Income
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
Income:
Rental $2,161,996 2,113,530
Interest on short term investments 36,378 32,399
2,198,374 2,145,929
Expenses:
Property operating 606,104 552,224
Depreciation and amortization 378,559 378,558
Property management fees 124,248 122,992
General and administrative 225,100 119,149
1,334,011 1,172,923
Net income $ 864,363 973,006
Limited Partners' share of net income ($3.33 and
$3.75 per Interest for the three months ended
March 31, 1996 and 1995, respectively) $ 855,719 963,276
General Partners' share of net income 8,644 9,730
$ 864,363 973,006
Distribution to Limited Partners ($5.63 and $4.66
per Interest for the three months ended
March 31, 1996 and 1995, respectively) $1,446,370 1,197,168
See accompanying notes to financial statements.
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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
Operating activities:
Net income $ 864,363 973,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 378,559 378,558
Net change in:
Net accounts receivable 27,792 13,254
Other assets (26,571) (17,210)
Accounts payable 96,208 (11,086)
Due to affiliates 21,076 (47,308)
Accrued liabilities 14,819 (52,480)
Security deposits 557 (6,801)
Deferred income 28,178 46,660
Net cash provided by operating
activities 1,404,981 1,276,593
Investing activities:
Additions to mini-warehouse facilities (74,354) (68,616)
Net cash used in investing activities (74,354) (68,616)
Financing activities:
Distribution to Limited Partners (1,446,370) (1,197,168)
Net cash used in financing activities (1,446,370) (1,197,168)
Net change in cash and cash equivalents (115,743) 10,809
Cash and cash equivalents at beginning of period 3,595,948 3,242,344
Cash and cash equivalents at end of period $ 3,480,205 3,253,153
See accompanying notes to financial statements.
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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
1) Summary of Significant Accounting Policies
In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the
three months ended March 31, 1996, and all such adjustments are of a
normal and recurring nature.
2) Agreement to Sell Partnership's Mini-Warehouse Facilities
On March 6, 1996 the Partnership entered into a purchase contract with
an unaffiliated third party to sell the assets and liabilities
related to all twenty four of its mini-warehouse facilities (the
"Properties"), subject to certain contingencies, for cash of
$67,100,000. The contract contemplates that the sale of the Properties
will be consummated on May 15, 1996, but may, under certain limited
circumstances, be extended to not later than July 15, 1996.
The Partnership Agreement requires the approval of the holders of a
majority of the outstanding Interests for any such sale. If such
approval is obtained from the Limited Partners, the Properties will be
sold and all available proceeds will be distributed to the Partners in
accordance with the Partnership Agreement.
3) Transactions With Affiliates
The Partnership has an agreement with an affiliate of Colonial
Storage 86, Inc. to supervise and direct the business and affairs
associated with the mini-warehouse and office/warehouse facilities for
fees of 6% and 5%, respectively, of the gross revenues of the
facilities.
Fees and expenses paid and payable by the Partnership to affiliates
for the quarter ended March 31, 1996 are:
Paid Payable
Property management fees $123,491 $41,376
General and administrative expenses 46,342 38,964
The General Partners are entitled to 10% of Net Cash Receipts
available for distribution, subject to certain subordination levels
following the termination of the offering, which from the inception of
the offering through March 31, 1996 totaled approximately $4,200,000
of which $3,863,000 is subordinated.
4) Subsequent Event
In April 1996, the Partnership paid $1,484,905 to the Limited Partners
representing the quarterly distribution for the first quarter of 1996.
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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor/Colonial Storage Income Fund - 86 (the "Partnership") is a limited
partnership formed in May 1986. The principal purpose of the Partnership is to
acquire, develop, own, maintain, operate, lease, and hold for capital
appreciation and current income mini-warehouse facilities offering storage
space for business and personal use and office/warehouses offering a
combination of office and commercial warehouse space. The Partnership raised
$64,226,000 through the sale of Limited Partnership Interests and utilized
these proceeds to acquire from affiliates 4 mini-warehouse facilities in
December 1986 and 7 mini-warehouse facilities in March 1987. Additionally, the
Partnership acquired from non-affiliated parties 4 mini-warehouse facilities in
1987 and 9 mini-warehouse facilities in 1988. The Partnership continues to own
and operate these 24 mini-warehouse facilities.
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.
Operations
Summary of Operations
Net income decreased for the first quarter of 1996 as compared to the first
quarter of 1995. No material events occurred in 1995 or 1996 which
signficantly impacted the net income of the Partnership. Further discussion of
the Partnership's operations is summarized below.
1996 Compared to 1995
Rental income increased for the first quarter of 1996 as compared to the same
period in 1995 due to an increase in rental rates in all regions of the
Partnership's mini-warehouse facilities. The regions with the most significant
rate increases were Florida with 6.8% and the Carolinas with 9.2%.
As a result of an increase in funds available for investment, interest income
on short-term investments increased during the three months ended March 31,
1996 as compared to the same period in 1995.
Property operating expenses increased for the first quarter of 1996 as compared
to the first quarter of 1995 due to a forty one percent increase in insurance
expenses and a four percent increase in real estate taxes. Insurance expenses
increased due to an adjustment of the 1995 workmans compensation premiums
during the first quarter of 1996. Real estate taxes increased due to an
overall increase in the estimated property values and rates for 1996.
As a result of legal fees incurred in connection with the tender offers and the
sale contract, administrative expneses increased during the three months ended
March 31, 1996 as compared to the same period in 1995.
Liquidity and Capital Resources
The cash or near cash position of the Partnership decreased by approximately
$116,000 from December 31, 1995 to March 31, 1996. The Partnership's cash flow
provided by operating activities in the first quarter of 1996 of $1,405,000 was
generated primarily by the operations of the mini-warehouse properties and
interest income earned on the Partnership's short-term investments, which was
partially offset by administrative expenses. This cash flow was used in
investing activities to make capital improvements to the properties totaling
approximately $74,000 and in financing activities to make distributions to the
Limited Partners of approximately $1,446,000.
Accounts receivable net of the related allowance for doubtful accounts
decreased from December 31, 1995 to March 31, 1996 due to the level and timing
of collection efforts. The timing of collection efforts are determined by
individual state law. There have been no changes in the credit terms extended
to the Partnership's customers nor in the method used to allow for doubtful
accounts.
In April 1996, the Partnership paid $1,484,905 ($5.78 per Interest) to the
Limited Partners, representing the distribution for the first quarter of
1996. Quarterly distributions increased from $5.63 per Interest for the
fourth quarter of 1995 to $5.78 per Interest for the first quarter of 1996 due
to improved operating results at several of the Partnership's mini-warehouse
facilities. Including the April distribution the Partnership has distributed
$152.96 per $250 Interest. It is anticipated that, in the event the sale of the
Partnership's mini-warehouse facilities as discussed in Note 2 of Notes to
Financial Statements is consummated, Net Cash Proceeds and remaining Net Cash
Receipts from operations prior to closing will be distributed to the Limited
and General Partners in accordance with the Partnership Agreement. Should the
sale not be consummated, the General Partners believe the cash generated from
property operations should enable the Partnership to continue making quarterly
distributions to Limited Partners. However, the level of future cash
distributions to Limited Partners will be dependent upon the amount of cash
flow generated by the Partnership's properties as to which there can be no
assurance. Pursuant to the Partnership Agreement, the General Partners are
entitled to 10% of Net Cash Receipts available for distribution, subject to
certain subordination levels following the termination of the offering. From
the inception of the offering through March 31, 1996, the General Partners'
share of Net Cash Receipts totaled approximately $4,200,000 of which $3,683,000
is subordinated. The General Partners are entitled to receive such
subordinated amounts only from distributed Net Cash Proceeds after
subordination levels are met. The General Partners intend to retain on behalf
of the Partnership cash reserves deemed adequate to meet working capital
requirements as they may arise.
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.
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Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as
Exhibit 4.1 included in the Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, dated
October 10, 1986, (Registration No. 33-6669) and Form
of Confirmation regarding Interests in the Registrant
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. 0-15639) are incorporated herein
by reference.
(10) Material Contracts:
Agreement of Sale between Storage Trust Properties L.P.
and Balcor/Colonial Storage Income Fund-86, dated as of
March 5, 1996, as amended, previously filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated
March 5, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the
quarter ended March 31, 1996 is attached hereto.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated March 5, 1996 was filed
reporting the contract to sell all 24 mini-warehouse
facilities owned by the Registrant.
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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/Colonial Storage Income Fund - 86
By: /s/ Thomas E. Meador
Thomas E. Meador,
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Storage Partners-86, a General Partner
By: /s/ Brian D. Parker
Brian D. Parker,
Senior Vice President and Chief Accounting
and Financial Officer (Principal Accounting
and Financial Officer) of Balcor Storage
Partners-86, a General Partner
By: /s/ James Pruett
James Pruett,
President and Director of Colonial
Storage 86, Inc., a General Partner
By: /s/ James N. Danford
James N. Danford,
Secretary/Treasurer (Principal Financial
and Accounting Officer) of Colonial
Storage 86, Inc., a General Partner
May 15, 1996
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