FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(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
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1996 Commission file number 0-15747
Brown-Flournoy Equity Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-1688140
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report.)
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>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets 1
Statements of Operations 2
Statements of Partners' Capital 3
Statements of Cash Flows 4
Notes to Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II. Other Information
Item 1. through Item 6. 9
Signatures 10
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
Assets
<S> <C> <C>
Investment in real estate $ 14,985,813 $ 15,200,825
Cash and cash equivalents 1,402,958 1,447,679
Other assets
Accounts receivable 20,379 22,624
Prepaid expenses 47,547 65,417
Loan fees, less accumulated amortization
of $488,483 and $469,856, respectively 30,912 49,459
Total other assets 98,838 137,500
Total assets $ 16,487,609 $ 16,786,004
Liabilities and Partners' Capital
Accounts payable and accrued expenses including
$31,229 and $27,523 due to affiliates, respectively$ 425,284 $ 453,493
Tenant security deposits 130,549 130,542
Mortgage loans payable 20,167,539 20,200,950
Total liabilities 20,723,372 20,784,985
Partners' Capital
General Partners (239,258) (234,522)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding (3,996,605) (3,764,559)
Class B 100 100
Total partners' capital (4,235,763) (3,998,981)
Total liabilities and partners' capital $ 16,487,609 $ 16,786,004
See accompanying notes to financial statements
-1-
</TABLE>
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Operations
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
Revenues
<S> <C> <C>
Rental income $1,150,058 $1,132,960
Interest income 13,935 16,763
1,163,993 1,149,723
Expenses
Compensation and related benefits 117,063 109,919
Utilities 67,197 59,083
Property taxes 90,498 89,913
Insurance 17,871 18,147
Advertising 29,673 15,555
Maintenance and repairs 99,663 99,076
Property management fee 57,503 56,648
Other 7,686 8,428
Administrative and professional fees 16,983 21,135
Interest expense 484,556 487,343
Depreciation of property and equipment 255,780 255,666
Amortization of loan fees 18,547 18,547
1,263,020 1,239,460
Net loss $ (99,027) $ (89,737)
Net loss per unit of Class A limited
partnership interest $ (3.59) $ (3.26)
See accompanying notes to financial statements
-2-
</TABLE>
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Partners' Capital
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partner Partners Total
<S> <C> <C> <C> <C>
Balance at December 31, 1995$ (234,522)$ (3,764,559)$ 100 $ (3,998,981)
Net loss (1,981) (97,046) - (99,027)
Distributions to partners (2,755) (135,000) - (137,755)
Balance at March 31, 1996 $ (239,258)$ (3,996,605)$ 100 $ (4,235,763)
Balance at December 31, 1994$ (215,657)$ (2,840,151)$ 100 $ (3,055,708)
Net loss (1,795) (87,942) - (89,737)
Distributions to partners (2,755) (135,000) - (137,755)
Balance at March 31, 1995 $ (220,207)$ (3,063,093)$ 100 $ (3,283,200)
See accompanying notes to financial statements
-3-
</TABLE>
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Cash Flows
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
Cash flow from operating activities
<S> <C> <C>
Net loss $ (99,027) $ (89,737)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation of property and equipment 255,780 255,666
Amortization of loan fees 18,547 18,547
Changes in assets and liabilities:
Decrease in accounts receivable 2,245 12,280
Decrease in prepaid expenses 17,870 18,147
Decrease in accounts payable and accrued expenses (28,209) (57,912)
Increase in tenant security deposits 7 1,674
Net cash provided by operating activities 167,213 158,665
Cash flows from investing activities-
additions to investment in real estate (40,768) (13,281)
Cash flows from financing activities
Decrease in mortgage loans payable (33,411) (30,382)
Distributions to investors (137,755) (137,755)
Net cash used in financing activities (171,166) (168,137)
Net decrease in cash and cash equivalents (44,721) (22,753)
Cash and cash equivalents
Beginning of period 1,447,679 1,738,073
End of period $1,402,958 $1,715,320
See accompanying notes to financial statements
-4-
</TABLE>
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
(1) The Fund and Basis of Preparation
The accompanying financial statements of Brown-Flournoy Equity Income
Fund Limited Partnership (the "Fund") do not include all of the
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. The unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature. The unaudited interim
financial information should be read in conjunction with the financial
statements contained in the 1995 Annual Report.
(2) New Accounting Pronouncements
In March 1995, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (Statement 121). Statement 121 provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and
assets to be disposed of. The Fund adopted Statement 121 during the
first quarter of 1996 and the adoption did not have any impact on its
financial statements.
(3) Investment in Real Estate
Investment in real estate is stated at the lower of net realizable value
or cost, net of accumulated depreciation, and is summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996December 31, 1995
<S> <C> <C>
Land $ 1,205,950 $ 1,205,950
Buildings 20,417,743 20,417,743
Furniture, fixtures and equipment 2,243,040 2,202,272
-------------- --------------
23,866,733 23,825,965
Less: accumulated depreciation 8,880,920 8,625,140
-------------- --------------
Total $14,985,813 $15,200,825
======== ========
</TABLE>
(4) Cash and Cash Equivalents
The Fund considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consist of the following, stated at cost, which approximates
market value.
<TABLE>
<CAPTION>
March 31, 1996December 31, 1995
<S> <C> <C>
Cash and money market $ 502,958 $ 428,716
Certificates of deposit with interest rates
ranging from 5.5% to 5.6% in 1996
and 4.25% to 5.9% in 1995 900,000 1,018,963
-------------- --------------
$1,402,958 $1,447,679
======== ========
-5-
</TABLE>
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
(5) Related Party Transactions
Brown Equity Income Properties, Inc., the Administrative General
Partner, billed the Fund $12,780 and $13,846 in the quarters ended March
31, 1996 and 1995, respectively, for reimbursement of the cost of
administrative services and expenses made on behalf of the Fund.
Flournoy Properties, Inc., an affiliate of the Development General
Partner, is the managing agent for the properties and earned a
management fee of $57,503 and $56,648 representing 5% of gross monthly
operating revenues from the properties during the quarters ended March
31, 1996 and 1995, respectively.
(6) Mortgage Loans Payable
The first mortgage loans are secured by the land, apartment units and
all other improvements on the four apartment properties. These loans are
for an original term of 7 years with interest only payments at 9.6%.
Beginning in October, 1994 and thereafter, monthly payments will be
based on a 30-year amortization schedule with a balloon payment due at
the end of the 7 year term. Interest expense of $484,556 and $487,343
was paid during the quarters ended March 31, 1996 and 1995,
respectively.
(7) Net Loss per Unit of Class A Limited Partnership Interest
Net loss per Class A Limited Partnership interest is disclosed on the
Statements of Operations and is based upon 27,000 units outstanding.
-6-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1996, the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,272,409 and accounts payable and
accrued expenses of $425,284. Restricted cash represents amounts retained from
tenants for security deposits and totaled $130,549 at March 31, 1996. The
working capital balance represents reserves for future contingencies that were
established from mortgage loan proceeds and are deemed sufficient to meet the
Fund's liquidity requirements even under very pessimistic operating scenarios.
Reserves may be distributed as the General Partners deem appropriate.
Cash and cash equivalents decreased $44,721 during the first quarter of
1996. This decrease represents the net effect of $167,213 in cash provided by
operating activities, $40,768 utilized for capital expenditures, paydown of
first mortgage balances of $33,411 and distributions to investors of $137,755.
In May, 1996 the Fund made a cash distribution to its investors of
$137,755. This distribution was derived from unrestricted cash available at the
end of the first quarter.
The provisions of the mortgages for each of the Fund's four properties
require repayment by September 30, 1996 of the outstanding principal balances
totaling approximately $20 million. The Fund intends to repay these balances
with proceeds from mortgage refinancings and/or property sales. Currently, there
are no material commitments for capital expenditures or other uses of cash,
other than ongoing debt service and the September 30, 1996 mortgage repayments.
Results of Operations
Rental revenues for the first quarter of 1996 were approximately 2%
higher than the same period in 1995. This increase is the result of rental rate
increases implemented at the properties over the last twelve months. The revenue
gains from these increases were partly offset by the impact of lower occupancy
at the Southland Station property, the result of an unusually large number of
move-outs associated with home purchases.
Total expenses during the first quarter of 1996 were generally
consistent with same period in 1995. The only notable change was represented by
an increase in advertising of approximately $14,000. This increase is primarily
associated with a comprehensive marketing program implemented at the Park Place
property that has contributed substantially to operating improvements at the
community.
Overall occupancy for the Fund's properties averaged 88% during the
first quarter of 1996, a 4% decrease from the first quarter of 1995's average of
92%. This decrease is primarily the result of lower occupancy at the Southland
Station property. Occupancy at this property averaged 84% during the quarter, as
compared to 93% during the same period in 1995.
Occupancy averaged 95% at the Hidden Lake property located in Union
City, Georgia. This small increase over 1995 contributed to a 6% increase in
total revenues as compared to the prior year. Occupancy remains strong at this
property and management is currently examining opportunities to increase rental
rates.
The High Ridge property, located in Athens, Georgia, achieved an
average occupancy during the quarter of 92%, 4% lower than same period in 1995.
However, rental rate increases implemented during the third quarter of 1995
resulted in a 5% increase in total revenues as compared to the prior year. The
property continues to compete well with a newly constructed property nearby.
-7-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations (continued)
Operations at the Park Place property, located in Spartanburg, South
Carolina, continued to be challenged by new competition and high turnover from
tenants seeking short term occupancy while they build or buy a house. Occupancy
was 83% for the quarter, 2% lower than the prior year. However, long term
prospects for the area remain strong as the region continues to attract new
residents associated with new or relocating industries. Management has responded
to the market conditions by developing a strong corporate unit program. This
program includes direct marketing to nearby corporate employers to seek out six
to twelve months stays by personnel on temporary assignment to the area. By the
end of the first quarter, this program began to produce meaningful results and
as the second quarter began, occupancy was beginning to return to the mid 90%
levels.
The Southland Station property, located in Warner Robins, Georgia,
experienced a significant drop in occupancy during the first quarter of 1996,
contributing to a 7% decline in revenues as compared to the same period in 1995.
Operations have been challenged in recent months by an unusually large number of
move-outs associated with home purchasing. Area economics are highly impacted by
activities at the nearby Warner Robins Air Force Base, the region's largest
employer. Concerns over possible losses due to ongoing military base closures
were mitigated by the announcement in late 1995 that the base would not be
closed, but would instead be the recipient of assignments from certain closing
bases, as well as additional new programs. Home purchasing had dropped off in
anticipation of this news and resumed briskly with the favorable report. It is
expected that the property will return to normal, stabilized operations in
future months and subsequent to the end of the quarter occupancy had returned to
the low 90% range.
All four properties remain in excellent condition.
-8-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Inapplicable
Item 2. Changes in Securities
Inapplicable
Item 3. Defaults upon Senior Securities
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None.
b) Reports on Form 8-K: None.
-9-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
DATE: 5/9/96 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 5/9/96 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown Equity Income Properties, Inc.
Administrative General Partner
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000796333
<NAME> Brown Flournoy Equity Income Fund
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,402,958
<SECURITIES> 0
<RECEIVABLES> 20,379
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,470,884
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,487,609
<CURRENT-LIABILITIES> 425,284
<BONDS> 20,167,539
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,487,609
<SALES> 0
<TOTAL-REVENUES> 1,163,993
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 778,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 484,556
<INCOME-PRETAX> (99,027)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,027)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
