UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
incorporation or organization) Identification No.)
Balcor Plaza
2355 Waukegan Road Suite A200 Bannockburn, Illinois 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 267-1600
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: Limited
Partnership Interests
Title of class
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
<PAGE>
PART I
Item 1. Business
Balcor/Colonial Storage Income Fund - 86 (the "Registrant") is a limited
partnership formed in May 1986 under the laws of the State of Illinois, which
raised $64,226,000 from sales of Limited Partnership Interests. The
Registrant's operations consist exclusively of investment in and operation of
income-producing mini-warehouse and office/warehouse facilities and all
financial information included in this report relates to that industry
segment.
The principal purpose of the Registrant is to acquire and 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 Registrant acquired four mini-warehouse properties in
1986 and seven mini-warehouse properties in 1987, from affiliates of one of the
General Partners. In addition, the Registrant acquired from non-affiliated
entities four mini-warehouse facilities in 1987 and nine mini-warehouse
facilities in 1988.
The Registrant received two unsolicited offers for the purchase of Limited
Partnership Interests ("tender offers") in January 1996. The tender offers
were made by Public Storage, Inc. ("Public Storage") and Everest Storage
Investors, LLC ("Everest"). Both stated that their primary motive in making
the offer was to make a profit from the purchase of the Interests. The
Registrant incurred administrative costs in responding to the tender offers and
may incur additional costs if additional tender offers are made in the future.
The General Partners cannot predict with any certainty what the impact of any
future tender offers will have on the operations or management of the
Registrant.
On March 6, 1996 the Registrant 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 sale of the Properties is contingent upon, among other things, the
completion of the purchaser's satisfactory review of survey, title and
environmental matters. Pursuant to the contract, the results of such review
may cause adjustments to the final purchase price or, in certain events, could
result in the termination of the purchase contract. Additionally, the
Partnership Agreement requires the approval of the holders of a majority of the
then outstanding Interests for any such sale. If such approval is obtained from
the Limited Partners, the Properties will be sold, all available proceeds will
be distributed to the Partners in accordance with the Partnership Agreement and
the Registrant will be dissolved.
The Partnership Agreement provides that the proceeds of any sale, financing, or
refinancing, will not be reinvested in new acquisitions, except that net
proceeds may be used to purchase or finance improvements or additions to the
Registrant's properties.
The Registrant, by virtue of its ownership of real estate, is subject to
federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
contamination as appropriate. The General Partners are not aware of any
potential liability due to environmental issues or conditions that would be
material to the Registrant.
The officers, directors, and employees of Balcor Storage Partners-86 and
Colonial Storage 86, Inc., the General Partners of the Registrant, and their
affiliates perform certain services for the Registrant. The Registrant
currently has 5 full time and 56 part-time employees engaged in its operations.
<PAGE>
Item 2. Properties
As of December 31, 1995, the Registrant owned the properties described below:
Net
Rentable
Land Area No. of
Area (Square Rentable
Location (Acres) Feet) Spaces
201 Cobb Parkway
Marietta, Georgia 3.1 47,980 431
6390 Winchester Road
Memphis, Tennessee 2.3 39,444 360
5675 Summer Avenue
Memphis, Tennessee (1) 2.4 46,010 377
2064 Briarcliff
Atlanta, Georgia (2) 2.8 45,700 174
4333 Jackson Drive
Garland, Texas 3.1 72,572 612
321 East Buckingham Road
Garland, Texas 2.1 40,701 299
3218 South Garnett Road
Tulsa, Oklahoma 3.7 57,540 464
5708 Fort Caroline Road
Jacksonville, Florida 3.7 67,925 768
3401 Avenue K
Plano, Texas (3) 4.7 87,654 897
4301 and 4324 Poplar Level Road
Louisville, Kentucky (4) 4.1 81,892 798
2719 Morse Road
Columbus, Ohio 4.3 62,190 518
5036 Cleveland Avenue
Fort Myers, Florida 5.0 65,086 583
3281 Western Branch Boulevard
Chesapeake, Virginia 5.5 75,201 747
2300 Kangaroo Drive
Durham, North Carolina 4.0 47,502 657
28 W 650 Roosevelt Road
Winfield, Illinois (5) 5.6 48,145 550
1131 Semoran Boulevard
Casselberry, Florida 3.9 67,159 641
36 Pine Knoll Road
Greenville, South Carolina (6) 4.2 50,325 446
750 East Third Street
Lexington, Kentucky 3.3 55,700 450
1900 U.S. Highway 19 South
Tarpon Springs, Florida 5.4 80,732 748
7415 West Dean Road
Milwaukee, Wisconsin (7) 11.7 205,190 1,107
W229 N590 Foster Court and
N5 W22966 Bluemound Road
Waukesha, Wisconsin (8) 3.0 49,632 219
3120 Breckenridge Lane
Louisville, Kentucky 2.1 34,490 329
2275 South Semoran Boulevard
Orlando, Florida 1.9 30,050 345
11195 Alpharetta Highway
Roswell, Georgia 9.1 113,310 680
(1) The property consists of 374 units of mini-warehouse space
and 3 units of office/warehouse space.
(2) The property consists of 156 units of mini-warehouse space
and 18 units of office/warehouse space.
(3) The property consists of 855 units of mini-warehouse space
and 42 paved parking spaces.
(4) 4301 and 4324 Poplar Level Road were purchased as one unit
(5) The property consists of 455 units of mini-warehouse space
and 95 parking spaces.
(6) The property consists of 433 units of mini-warehouse space
and 13 units of office/warehouse space.
(7) The property consists of 694 units of mini-warehouse space
and 413 paved parking spaces.
(8) The property consists of 209 units of mini-warehouse space
and 10 units of office/warehouse space.
In the opinion of the General Partners, the Registrant has provided for
adequate insurance coverage for its real estate investment properties.
<PAGE>
Item 3. Legal Proceedings
The Registrant is not subject to any material pending legal proceedings, nor
were any such proceedings terminated during the fourth quarter of 1995.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Registrant during 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There has not been an established public market for Limited Partnership
Interests, and it is not anticipated that one will develop. For
information regarding previous distributions, see Statements of Partners'
Capital, page F-5, and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources, below.
As of December 31, 1995, the number of record holders of Limited
Partnership Interests of the Registrant was approximately 8,950.
<PAGE>
Item 6. Selected Financial Data
Year Ended December 31
1995 1994 1993 1992 1991
Rental income $ 8,821,564 8,385,428 7,703,850 7,174,918 6,837,782
Interest income $ 145,334 96,709 59,644 76,739 133,419
Net income $ 4,268,952 3,909,878 3,149,115 2,650,263 2,338,757
Net income per
Limited
Partnership
Interest $ 16.45 15.07 12.14 10.21 9.01
Taxable
income $ 4,627,553 4,243,760 3,483,158 3,019,741 2,737,570
Taxable
income per
Limited
Partnership
Interest $ 17.83 16.35 13.42 11.64 10.55
Cash and
cash
equivalents $ 3,595,948 3,242,344 2,648,551 2,611,021 2,391,363
Total mini-
warehouse
properties, net
of accumulated
depreciation $ 41,768,686 43,075,131 44,253,257 45,388,343 46,764,159
Total assets $ 45,544,330 46,504,585 47,121,971 48,385,013 49,914,775
Distributions
to Limited
Partners $ 5,114,958 4,596,013 4,385,352 4,236,355 4,141,081
Distributions
per Limited
Partnership
Interest $ 19.91 17.89 17.07 16.49 16.12
Properties
owned on
December 31 24 24 24 24 24
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summary of Operations
Improved market conditions in cities where many of Balcor/Colonial Storage
Income Fund-86's (the "Partnership") properties are located and increased rental
income resulting from ongoing capital improvement programs were primarily
responsible for the increases in net income generated by the Partnership in
1995, 1994 and 1993. No material events occurred during these periods which
significantly impacted the net income of the Partnership. Further discussion of
the Partnership's operations is summarized below.
Operations
1995 Compared to 1994
Rental income during 1995 increased when compared to 1994 primarily due to
increased rental rates in Georgia and Florida. Property management fees, which
are 6% of gross mini-warehouse rents and 5% of gross office warehouse rents,
increased correspondingly.
Interest income on short term investments increased from 1994 to 1995 due to an
increase in cash available for investment and higher interest rates.
1994 Compared to 1993
Rental income increased during 1994 as compared to 1993 due to increased
occupancies and rental rates, particularly in Kentucky, Tennessee, Georgia and
Florida. As a result of this increase, property management fees also increased
during this period.
Due to higher interest rates and amounts available for investment, interest
income on short term investments increased during 1994 as compared to 1993.
Increased payroll and maintenance expenses resulted in an increase in property
operating expenses for 1994 as compared to 1993. Payroll expenses increased due
to an increase in incentive payments to property managers and an increase in
salary rates for new employees. Maintenance expenses increased due primarily to
snow removal in February and March at sites in Wisconsin, Illinois, Ohio,
Kentucky and Virginia.
The full amortization of non-compete agreements in 1993 resulted in a decrease
in depreciation and amortization expenses in 1994 as compared to 1993.
General and administrative expenses increased during 1994 as compared to 1993
primarily due to an increase in accounting and asset management costs.
<PAGE>
Liquidity and Capital Resources
The cash position of the Partnership increased from December 31, 1994 to
December 31, 1995. The Partnership's cash flow provided by operating activities
in 1995 was generated primarily by the operations of the mini-warehouse and
office-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 and in financing activities to provide distributions to the
Limited Partners.
Accounts receivable net of the related allowance for doubtful accounts
increased from December 31, 1994 to December 31, 1995 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 January 1996, the Partnership paid $1,446,370 ($5.63 per Interest) to the
Limited Partners, representing the distribution for the fourth quarter of 1995.
Quarterly distributions increased from $5.31 per Interest for the third quarter
of 1995 to $5.63 per Interest for the fourth quarter of 1995 due to improved
operating results at several of the Partnership's mini-warehouse facilities.
Including the January 1996 distribution, the Partnership has distributed
$147.19 per $250 Interest, of which $145.80 represents Net Cash Receipts and
$1.39 represents Net Cash Proceeds. It is anticipated that, in the event the
sale of the Partnership's mini-warehouse facilities as discussed in Item 1 is
consummated, Net Cash Proceeds and remaining Net Cash Receipts will be
distributed to the Limited and General Partners in accordance with the
Partnership Agreement and the Partnership will be dissolved. 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
subordinations in the periods following the termination of the offering. From
the inception of the offering through December 31, 1995, the General Partners'
share of Net Cash Receipts totaled approximately $4,040,000, of which $3,410,000
is subordinated. The General Partners are entitled to receive such subordinated
amounts only from distributed Net Cash Proceeds.
The General Partners intend to retain on behalf of the Partnership cash
reserves deemed adequate to meet working capital requirements as they may
arise.
In 1995 the Financial Accounting Standards Board issued Statement SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". SFAS No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Partnership periodically reevaluates the carrying amounts of
its long-lived assets and the related depreciation and amortization periods as
discussed in the notes to the Partnership's Financial Statements, and the
Partnership believes that the adoption of SFAS No. 121 will not have a material
effect on its financial statements.
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 revenue and real estate values.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements on Page F-1 of this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
information is summarized as follows:
December 31, 1995 December 31, 1994
Financial Tax Financial Tax
Statements Return Statements Return
Total assets $45,544,330 56,757,543 46,504,585 57,361,197
Partners' capital accounts:
General Partners $ 220,783 246,046 178,093 199,771
Limited Partners $44,451,350 55,641,300 45,340,046 56,174,980
Net income:
General Partners $ 42,690 46,276 39,099 42,438
Limited Partners $ 4,226,262 4,581,277 3,870,779 4,201,322
Per Limited Partnership
Interest $ 16.45 17.83 15.07 16.35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Neither the Registrant nor Balcor Storage Partners-86, one of the
General Partners, has a Board of Directors.
The other General Partner, Colonial Storage 86, Inc., has a Board of
Directors. The sole member is James R. Pruett (see b, c, e, & f
below) who has been a director since the formation of Colonial Storage
86, Inc.
(b,c,
&e) The names, ages, and business experience of the executive officers and
significant employees of the General Partners of the Registrant are as
follows:
Balcor Storage Partners-86
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is
Chairman, President and Chief Executive Officer and has responsibility
for all ongoing day-to-day activities at Balcor. He is a Director of
The Balcor Company. He is also Senior Vice President of American
Express Company and is responsible for its real estate operations
worldwide. Prior to joining Balcor, Mr. Meador was employed at the
Harris Trust and Savings Bank in the commercial real estate
division where he was involved in various lending activities. Mr.
Meador received his M.B.A. degree from the Indiana University Graduate
School of Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988
and is responsible for due diligence analysis and real estate advisory
services for Balcor and American Express Company. He also has
supervisory responsibility of Balcor's environmental matters. Mr.
Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has
primary responsibility for all human resources matters. In addition,
she has supervisory responsibility for Balcor's MIS functions. Ms.
Goldberg has been designated as a Senior Human Resources Professional
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is
responsible for the Balcor's property sales and capital markets
functions. Mr. Lieberman is a Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief
Financial Officer and Chief Accounting Officer, is responsible for
Balcor's financial, legal and treasury functions. He is a director of
The Balcor Company. Mr. Parker is a Certified Public Accountant and
holds an M.S. degree in Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to
Balcor's partnerships. Mr. Powell also has supervisory responsibility
for Balcor's risk management and investor services functions. He
received a Master of Planning degree from the University of Virginia.
Mr. Powell has been designated a Certified Real Estate Financier by
the National Society for Real Estate Finance and is a full member of
the Urban Land Institute.
Colonial Storage 86, Inc.
Name Title
James R. Pruett President, Vice President, Director
James N. Danford Secretary, Treasurer
James R. Pruett (September 1942) received his Bachelor of Science
degree from McMurry College in Abilene, Texas, in 1965. Mr. Pruett is
President and a Director of Colonial Storage 85, Inc., which serves as
a General Partner of Balcor/Colonial Storage Income Fund - 85
(BCSIF-85). Mr. Pruett developed the first Atlanta, Georgia, Colonial
Self Storage mini-warehouse facility in 1972. Since that time, he has
handled substantially all business aspects of mini-warehouse
development, construction, operation, and management. Mr. Pruett has
directed the site selection and development or acquisition of numerous
locations for mini-warehouses and office warehouses. Mr. Pruett is
President and a Director of Colonial Storage Management 85, Inc.
("CSM-85) and Colonial Storage Management 86, Inc.("CSM-86), which
manage the properties of BCSIF-85 and the Registrant, respectively.
James N. Danford (January 1959) received his Bachelor of Business
Administration degree from The University of Texas at Arlington.
Mr. Danford was a senior accountant with a public accounting firm
prior to joining Colonial Storage Centers in June of 1986.
Mr. Danford is a Certified Public Accountant, member of the Texas
Society of Certified Public Accountants, and is chief financial
officer of CSM-86, Registrant, BCSIF-85 and CSM-85.
The sole director of Colonial Storage 86, Inc. is not a director in
any company with a class of securities registered pursuant to Section
12 of the Securities Exchange Act of 1934 or subject to the
requirements of Section 15 (b) of the Act or any company registered as
an investment company under the Investment Company Act of 1940, but is
a director of one other corporation which acts as a general partner of
a limited partnership which has a class of securities registered
pursuant to Section 12 of the Act.
(d) There is no family relationship between any of the foregoing officers
or director.
(f) To the best of the Registrant's knowledge, there have been no events
under any bankruptcy act, no criminal proceedings, and no judgments
or injunctions material to the evaluation of the ability and integrity
of any current director or executive officer of Colonial Storage
Management 86, Inc., Colonial Storage 86, Inc., or any current
executive officer of Balcor Storage Partners-86, during the past five
years.
Item 11. Executive Compensation
(a,b,c,
d&e) The Registrant has not paid and does not propose to pay any
remuneration to the executive officers and directors of the General
Partners. Certain of these officers receive compensation from The
Balcor Company and Colonial Storage 86, Inc. (but not from the
Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the
General Partners believe that any such compensation attributable to
services performed for the Registrant is immaterial to the Registrant.
See Note 2 of Notes to Financial Statements for the information
relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of December 31, 1995 no person owns of record or is known by the
Registrant to own beneficially more than 5% of the outstanding Limited
Partnership Interests of the Registrant.
(b) Balcor Storage Partners-86 and Colonial Storage 86, Inc. and their
officers and director own no Limited Partnership Interests in the
Registrant.
Relatives and affiliates of the officers or director of the General
Partners own no Limited Partnership Interests in the Registrant.
(c) Registrant has executed a contract for the sale of all of the
Registrant's properties. The Registrant is currently in the process
of preparing the documents necessary to obtain the approval of the
Limited Partners for this transaction. If such approval is obtained
from the Limited Partners, the properties will be sold, all available
proceeds will be distributed to the Partners in accordance with the
Partnership Agreement and the Registrant will be dissolved.
Item 13. Certain Relationships and Related Transactions
(a &
b) See Note 1 of Notes to Financial Statements for information relating
to the Partnership Agreement and the allocation of distributions and
profits and losses.
See Note 2 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1&2) See Index to Financial Statements on page F-1 of this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of
Limited Partnership set forth as Exhibit 3 to Amendment No.
1 to the Registrant's Registration Statement on Form S-11
dated October 10, 1986, (Registration No. 33-6669) is
incorporated herein by reference.
(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, 1993 (Commission File No. 0-15639) are
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the year
ended December 31, 1995 is attached hereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1995.
(c) Exhibits: See Item 14 (a)(3) above.
(d) Financial Statement Schedules: See Index to Financial Statements on
Page F-1 of this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ James N. Danford
James N. Danford
Secretary/Treasurer (Principal
Financial and Accounting
Officer) of Colonial Storage 86,
Inc., a General Partner
Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
/s/ Thomas E. Meador Storage Partners-86, a General Partner March 19, 1996
Thomas E. Meador
Senior Vice President, Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Storage Partners-86,
/s/ Brian D. Parker a General Partner March 19, 1996
Brian D. Parker
President and Director of Colonial
/s/ James Pruett Storage 86 Inc., a General Partner March 19, 1996
James Pruett
Secretary/Treasurer (Principal Financial
and Accounting Officer) of Colonial
/s/ James N. Danford Storage 86, Inc., a General Partner March 19, 1996
James N. Danford
<PAGE>
Index to Financial Statements
Pages
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994 F-3
Statements of Income, years ended December 31, 1995, 1994
and 1993 F-4
Statements of Partners' Capital, years ended December 31, 1995,
1994 and 1993 F-5
Statements of Cash Flows, years ended December 31, 1995, 1994
and 1993 F-6
Notes to Financial Statements F-7 to F-10
Schedules are omitted for the reason that they are inapplicable or equivalent
information has been included elsewhere herein.
<PAGE>
Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Partners
Balcor/Colonial Storage Income Fund - 86:
We have audited the financial statements of Balcor/Colonial Storage Income
Fund - 86 (an Illinois Limited Partnership) as listed in the accompanying
index. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor/Colonial Storage Income
Fund - 86 as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
February 9, 1996, except as to
Note 3 which is as of March 6, 1996
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
1995 1994
Assets (note 3)
Cash and cash equivalents $ 3,595,948 3,242,344
Accounts receivable, net of allowance for
doubtful accounts of $12,079 and $20,781 in
1995 and 1994, respectively 87,047 72,413
Other 92,649 114,697
3,775,644 3,429,454
Mini-warehouse facilities:
Land 16,925,647 16,925,647
Buildings 36,597,146 36,456,425
Furniture, fixtures and equipment 903,419 815,712
54,426,212 54,197,784
Less accumulated depreciation 12,657,526 11,122,653
Mini-warehouse facilities, net of
accumulated depreciation 41,768,686 43,075,131
$ 45,544,330 46,504,585
Liabilities and Partners' Capital (note 3)
Accounts payable $ 15,967 11,086
Due to affiliates (note 2) 59,264 154,794
Accrued liabilities, principally real estate taxes 361,829 382,684
Security deposits 72,678 93,321
Deferred income 362,459 344,561
Total liabilities 872,197 986,446
Partners' capital (256,904 Limited Partnership
Interests issued and outstanding) 44,672,133 45,518,139
$ 45,544,330 46,504,585
See accompanying notes to financial statements
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Income:
Rental $ 8,821,564 8,385,428 7,703,850
Interest 145,334 96,709 59,644
8,966,898 8,482,137 7,763,494
Expenses:
Property operating 2,262,621 2,207,178 2,118,600
Depreciation and amortization 1,534,873 1,508,081 1,704,614
Property management fees (note 2) 495,531 477,153 447,627
General and administrative (note 2) 404,921 379,847 343,538
4,697,946 4,572,259 4,614,379
Net income $ 4,268,952 3,909,878 3,149,115
Limited Partners' share of net income
($16.45, $15.07 and $12.14 per
Interest for 1995, 1994 and 1993,
respectively) $ 4,226,262 3,870,779 3,117,624
General Partners' share of net income 42,690 39,099 31,491
$ 4,268,952 3,909,878 3,149,115
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partners Total
Balance at December 31, 1992 $ 47,333,008 107,503 47,440,511
Net income 3,117,624 31,491 3,149,115
Cash distributions
($17.07 per Interest) (4,385,352) - (4,385,352)
Balance at December 31, 1993 46,065,280 138,994 46,204,274
Net income 3,870,779 39,099 3,909,878
Cash distributions
($17.89 per Interest) (4,596,013) - (4,596,013)
Balance at December 31, 1994 45,340,046 178,093 45,518,139
Net income 4,226,262 42,690 4,268,952
Cash distributions
($19.91 per Interest) (5,114,958) - (5,114,958)
Balance at December 31, 1995 $ 44,451,350 220,783 44,672,133
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Operating activities:
Net income $ 4,268,952 3,909,878 3,149,115
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 1,534,873 1,508,081 1,704,614
Net change in:
Net accounts receivable (14,634) 10,490 12,330
Other assets 22,048 22,563 (50,844)
Accounts payable 4,881 (7,063) 7,442
Due to affiliates (95,530) 102,881 10,402
Accrued liabilities (20,855) (11,587) (63,197)
Security deposits (20,643) (37,415) (27,874)
Deferred income 17,898 21,933 46,422
Net cash provided
by operating activities 5,696,990 5,519,761 4,788,410
Investing activities:
Additions to mini-warehouse facilities (228,428) (329,955) (365,528)
Net cash used in
investing activities (228,428) (329,955) (365,528)
Financing activities:
Distributions to Limited Partners (5,114,958) (4,596,013) (4,385,352)
Net cash used in financing
activities (5,114,958) (4,596,013) (4,385,352)
Net change in cash and cash equivalents 353,604 593,793 37,530
Cash and cash equivalents at
beginning of year 3,242,344 2,648,551 2,611,021
Cash and cash equivalents at
end of year $ 3,595,948 3,242,344 2,648,551
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
(a) Description of Partnership
Balcor/Colonial Storage Income Fund - 86 (the
"Partnership"), is a limited partnership formed in May 1986.
The Partnership Agreement provides that Balcor Storage
Partners-86 (an Illinois general partnership) and Colonial
Storage 86, Inc. (a Texas corporation) are the General
Partners of the Partnership and provides for the admission
of Limited Partners through the sale of up to 400,000
Limited Partnership Interests at $250 per Interest, of which
256,904 ($64,226,000) Limited Partnership Interests were
sold prior to the termination of the offering.
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 acquired
from affiliates four mini-warehouse facilities in 1986 and
seven mini-warehouse facilities in 1987. Additionally, the
Partnership acquired from nonaffiliated parties four mini-
warehouse facilities in 1987 and nine mini-warehouse
facilities in 1988. These properties are located in various
markets within the United States
(b) Allocation of Net Income and Profits
The Partnership Agreement provides that net income (after
a deduction for any incentive management fees) from
operations shall be allocated 99% and 1% to the Limited
Partners and General Partners, respectively.
Additionally, when a property is sold or otherwise disposed
of, the General Partners will be allocated profits equal to
the greater of 1% of total profits or the amount of Net
Cash Proceeds distributable to the General Partners from
the sale (in excess of subordinated Net Cash Receipts,
note 1(c)).
The remainder of the profits will be allocated to the Limited
Partners.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
(c) Cash Distributions
Net Cash Receipts available for distribution from operations
shall be distributed 90% to the Limited Partners and 10% to
the General Partners, 9% as a partnership incentive
management fee and 1% as their distributable share from
operations. Distributions from operations to the General
Partners are subordinated to receipt by the Limited Partners
of a Cumulative Distribution of 6% of Adjusted Original
Capital ($63,868,903 at December 31, 1995) during the first
twelve month period following the termination of the
offering of Interests, 8% during the second twelve month
period following the termination of the offering of Interests,
and 10% during each twelve month period thereafter.
Net Cash Proceeds from sales or refinancings shall be
distributed first to the Limited Partners until they have
received an amount equal to their Original Capital plus any
deferred portion of the Cumulative Distribution. If the
receipt of any portion of the General Partners' 10% share of
Net Cash Receipts from operations has been deferred
(approximately $3,410,000 has been deferred as of
December 31, 1995), then available Net Cash Proceeds shall
thereafter be distributed to the General Partners to the
extent of such deferred amounts. Thereafter, remaining Net
Cash Proceeds shall be distributed 85% to the Limited
Partners and 15% to the General Partners.
(d) Cash and Cash Equivalents
The Partnership considers all highly liquid investments with
maturities at date of purchase of three months or less to be
cash equivalents.
(e) Mini-Warehouse Facilities
Costs associated with the appraisal and acquisition of mini-
warehouse facilities are capitalized.
The buildings, furniture, fixtures and equipment are
depreciated using the straight-line method over their
estimated useful lives ranging from 5 to 25 years.
Maintenance and repairs are charged to expense when
incurred. Expenditures for improvements are charged to the
related asset account.
The Partnership records its investments in real estate at cost,
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
and periodically reevaluates the propriety of the carrying
amounts of its properties as well as the amortization period to
determine whether current events and circumstances warrant
adjustments to the carrying amounts or a revised estimate of the
useful life. The Partnership compares the undiscounted future
net cash flows expected to result from the use of each of its
properties to the carrying amount of that property to determine
whether the Partnership shall recognize an impairment loss. The
Partnership believes that no impairment has occurred and that no
reduction of the estimated useful lives is warranted.
When properties are disposed of, the related costs and
accumulated depreciation will be removed from the
respective accounts, and any gain or loss on disposition will
be recognized in accordance with generally accepted
accounting principles.
(f) Income Taxes
Taxable income or loss of the Partnership is includable in
the income tax returns of the individual partners; therefore,
no provision for income taxes has been made in the
accompanying financial statements.
The tax bases of the Partnership's assets and liabilities
exceeded the amounts recorded in the Financial Statements
at December 31, 1995 and 1994, by $11,213,213 and
$10,856,612, respectively.
(g) Use of Estimates
Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of Assets and
Liabilities to prepare these financial statements in conformity
with Generally Accepted Accounting Principles. Actual results
could differ from those estimates.
(h) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement on
Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," the Partnership calculates the
fair value of its financial instruments and includes this
additional information in the notes to the financial statements
when the fair value is different than the carrying value of
those financial instruments. When the fair value reasonably
approximates the carrying value, no additional disclosure is
made.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
(2) Transactions With Affiliates
The Partnership has an agreement with Colonial Storage Management 86,
Inc., an affiliate of Colonial Storage 86, Inc., a General Partner, to
supervise and direct the business and affairs associated with the mini-
warehouse and office/warehouse facilities for a fee of 6% and 5%,
respectively, of the gross revenues of the facilities.
Certain general and administrative expenses are reimbursed to
affiliates of the General Partners to cover administrative requirements
of the Partnership.
Fees and expenses paid and payable by the Partnership to affiliates for
the years ended December 31, 1995, 1994 and 1993, are:
1995 1994 1993
Paid Payable Paid Payable Paid Payable
Property
management
fees $ 573,655 40,619 396,555 118,743 444,086 38,145
General and
administrative
expenses $ 122,269 18,645 226,199 36,051 218,301 13,768
(3) Subsequent Events
On March 6, 1996 the Partnership entered into a purchase contract with
an unaffiliated third party to purchase 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 sale of the Properties is contingent upon, among other things, the
completion of purchaser's satisfactory review of survey, title and
environmental matters. Pursuant to the contract, the results of such
review may cause adjustments to the final purchase price or, in certain
events, could result in the termination of the purchase contract.
Additionally, the Partnership Agreement requires the approval of the
holders of a majority of the then outstanding Interests for any such
sale. If such approval is obtained from the Limited Partners, the
Properties will be sold, all available proceeds will be distributed to
the Partners in accordance with the Partnership Agreement and the
Partnership will be dissolved.
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3596
<SECURITIES> 0
<RECEIVABLES> 87
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3776
<PP&E> 54426
<DEPRECIATION> 12658
<TOTAL-ASSETS> 45544
<CURRENT-LIABILITIES> 872
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 44672
<TOTAL-LIABILITY-AND-EQUITY> 45544
<SALES> 0
<TOTAL-REVENUES> 8967
<CGS> 0
<TOTAL-COSTS> 2758
<OTHER-EXPENSES> 1940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4269
<INCOME-TAX> 0
<INCOME-CONTINUING> 4269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4269
<EPS-PRIMARY> 16.45
<EPS-DILUTED> 16.45
</TABLE>
