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 September 30, 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 September30, 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>
September 30, December 31,
1996 1995
Assets
<S> <C> <C>
Investment in real estate $ 14,515,244 $ 15,200,825
Cash and cash equivalents 1,830,412 1,447,679
Other assets
Accounts receivable, including $5,992 due
affiliates as of September 30, 1996 23,263 22,624
Prepaid expenses 12,203 65,417
Loan fees, less accumulated amortization
of $540,886 and $469,856, respectively 90,108 49,459
Total other assets 125,574 137,500
Total assets $ 16,471,230 $ 16,786,004
Liabilities and Partners' Capital
Accounts payable and accrued expenses including
$29,952 and $27,523 due to affiliates, respectively $ 636,164 $ 453,493
Tenant security deposits 124,072 130,542
Mortgage loans payable 20,400,000 20,200,950
Total liabilities 21,160,236 20,784,985
Partners' Capital
General Partners (248,323) (234,522)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding (4,440,783) (3,764,559)
Class B 100 100
Total partners' capital (4,689,006) (3,998,981)
Total liabilities and partners' capital $ 16,471,230 $ 16,786,004
</TABLE>
See accompanying notes to financial statements
- -1-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
Revenues
<S> <C> <C> <C> <C>
Rental income $ 1,242,376 $ 1,180,371 $ 3,585,281 $ 3,447,855
Interest income 16,019 18,101 44,308 51,631
1,258,395 1,198,472 3,629,589 3,499,486
Expenses
Compensation and related benefits 128,949 115,906 380,193 332,764
Utilities 75,295 69,969 213,089 191,671
Property taxes 90,084 87,007 273,580 266,833
Insurance 17,897 18,329 53,745 54,623
Advertising 19,885 25,934 81,154 59,979
Maintenance and repairs 120,271 210,704 336,579 417,810
Property management fee 62,119 59,019 179,264 172,393
Other 9,099 9,113 25,788 25,661
Administrative and professional fees 18,531 22,490 57,828 64,957
Interest expense 483,783 484,182 1,451,548 1,459,844
Depreciation of property and equipment 260,514 254,405 782,551 765,737
Amortization of loan fees 33,936 18,547 71,030 55,641
1,320,363 1,375,605 3,906,349 3,867,913
Net loss $ (61,968) $ (177,133) $ (276,760) $ (368,427)
Net loss per unit of Class A limited
partnership interest $ (2.25) $ (6.43) $ (10.05) $ (13.37)
</TABLE>
See accompanying notes to financial statements
- -2-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Partners' Capital
For the nine months ended September 30,
(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 (5,535) (271,225) - (276,760)
Distributions to partners (8,265) (405,000) - (413,265)
Balance at September 30, 1996$ (248,322)$ (4,440,784)$ 100 $ (4,689,006)
Balance at December 31, 1994 $ (215,657)$ (2,840,151)$ 100 $ (3,055,708)
Net loss (7,369) (361,058) - (368,427)
Distributions to partners (13,776) (675,000) - (688,776)
Balance at September 30, 1995$ (236,802)$ (3,876,209)$ 100 $ (4,112,911)
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Cash Flows For the nine months ended September 30, (Unaudited)
<TABLE>
<CAPTION>
1996 1995
Cash flow from operating activities
<S> <C> <C>
Net loss $ (276,760) $ (368,427)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment 782,551 765,737
Amortization of loan fees 71,030 55,641
Changes in assets and liabilities
(Increase) decrease in accounts receivable (639) (127,999)
Decrease in prepaid expenses 53,214 54,131
Increase in accounts payable and accrued expenses 182,671 170,750
(Decrease) increase in tenant security deposits (6,470) 14,636
Net cash provided by operating activities 805,597 564,469
Cash flows from investing activities-
additions to investment in real estate (96,970) (63,678)
Cash flows from financing activities
Decrease in mortgage loans payable (90,080) (93,313)
Proceeds from mortgage refinancing 20,400,000 -
Repayment of mortgage loans (20,110,870) -
Financing costs (111,679) -
Distributions to investors (413,265) (688,775)
Net cash used in financing activities (325,894) (782,088)
Net increase (decrease) in cash and cash equivalents 382,733 (281,297)
Cash and cash equivalents
Beginning of period 1,447,679 1,738,073
End of period $ 1,830,412 $ 1,456,776
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 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) 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>
September 30, 1996December 31, 1995
<S> <C> <C>
Land $ 1,205,950 $ 1,205,950
Buildings 20,417,743 20,417,743
Furniture, fixtures and equipment 2,299,242 2,202,272
-------------- --------------
23,922,935 23,825,965
Less: accumulated depreciation 9,407,691 8,625,140
-------------- --------------
Total $14,515,244 $15,200,825
======== ========
</TABLE>
(3) 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>
September 30, 1996December 31, 1995
<S> <C> <C>
Cash and money market $ 907,486 $ 428,716
Certificates of deposit with interest rates
ranging from 5.0% to 5.6% in 1996
and 4.25% to 5.9% in 1995 922,926 1,018,963
-------------- --------------
$1,830,412 $1,447,679
======== ========
</TABLE>
(4) Related Party Transactions
Brown Equity Income Properties, Inc., the Administrative General
Partner, billed the Fund $9,964 and $6,490 in the quarters ended
September 30, 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 $62,119 and $59,019 representing 5% of gross monthly
operating revenues from the properties during the quarters ended
September 30, 1996 and 1995, respectively.
-5-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1996
(Unaudited)
(5) 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%.
Since October, 1994, monthly payments have been based on a 30-year
amortization schedule with a balloon payment due at the end of the 7
year term. Interest expense of $461,390 and $484,685 was paid during the
quarters ended September 30, 1996 and 1995, respectively.
The mortgage loans matured on September 1, 1996. The Fund refinanced
these loans with Columbus Bank & Trust. The terms of the commitment
provide for interest only payments of prime plus 1% in monthly
installments. The new loans total $20,400,000 and provided proceeds
sufficient to satisfy the repayment of the old mortgage loans, as well
as all costs of the refinancing. The commitment provides for repayment
of the new loans at the end of 12 months. The Fund is required to pay a
commitment fee of one point payable in advance in quarterly
installments.
(6) 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 September 30, 1996, the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,706,340 and accounts payable and
accrued expenses of $636,164. Restricted cash represents amounts retained from
tenants for security deposits and totaled $124,072 at September 30, 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 increased $325,910 during the third quarter
of 1996. This increase represents the net effect of $334,257 in cash provided by
operating activities, $25,592 utilized for capital expenditures, pay down of
first mortgage balances of $22,451, proceeds of $177,451 from the refinancing of
the existing debt and distributions to investors of $137,755.
In November 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 third quarter.
On August 27, 1996, the Fund closed on interim one year, interest only
loans payable in September 1997. This loan will serve the financial needs of the
Fund until it selects a permanent financial solution for the repayment of its
debt. The terms of the interim financing provide for interest only payments of
prime (8.25% at September 30, 1996) plus 1% in monthly installments. The new
loans total $20,400,000 and provided proceeds sufficient to satisfy the
repayment of the existing mortgage loans, as well as all costs of the
refinancing.
Results of Operations
Rental revenues for both the third quarter and first nine months of
1996 were 5% and 4% higher, respectively, than the same periods in 1995. These
increases were the result of rental rate increases implemented at the properties
over the last twelve months. Additional revenue increases were related to
management's increased focus on corporate rental units. For the first nine
months of 1996, revenue from corporate rental units totaled approximately
$28,000.
Total expenses during the third quarter of 1996 were down 4% as
compared to the same period in 1995. This decrease was largely due to a
reduction in maintenance and repairs needed at the properties. The 1995
maintenance and repairs expenditures reflected exterior painting on two of the
Fund's four properties. For the first nine months of 1996 expenses were
marginally higher than during the same period in 1995.
Overall occupancy for the Fund's properties averaged 93% during the
third quarter of 1996. For the first nine months of 1996, the Fund had a total
occupancy level of 91%. These percentages represent decreases of 1% and 2%,
respectively, from the same periods in 1995 and are primarily the result of
lower occupancies at the Southland Station and Park Place properties. Occupancy
at Park Place averaged 89% during the first nine months of 1996, a 7% decrease
over the same period in 1995. Southland Station's occupancy averaged 87% for the
first nine months of 1996, a 1% decrease over the same period in 1995.
The Hidden Lake property, located in Union City, Georgia, had an
average occupancy rate of 96% during the third quarter of 1996. This occupancy
was equal to the rate recorded during the same period of 1995. This stabilized
occupancy rate has allowed management to increase rental rates for all unit
types.
During the third quarter of 1996, the High Ridge property, located in
Athens, Georgia, achieved an average occupancy of 92%, a 4% decrease from the
same period in 1995. The propensity of renters to purchase or build houses has
been a major factor in this decreased occupancy. Over the past few months,
rental rates have increased and led to a 6% increase in revenue for the first
nine months of 1996, as compared to the same period in 1995. A recently
implemented corporate rental program has met great success and has increased
revenue by approximately $15,000 during the first nine months of 1996.
-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)
Occupancy at Park Place averaged 93% for third quarter of 1996, a 3%
drop from the 96% occupancy attained during the third quarter of 1995. Total
revenues increased 7% during the first nine months of 1996, as compared to the
same period in 1995. This increase is attributed to rental rate increases that
have been implemented during the first nine months of the year.
During the third quarter of 1996, Southland Station had an average
occupancy rate of 91%, a 3% increase over the same period in 1995. For the first
nine months of 1996, occupancy averaged 87%, a slight decrease from the same
period of 1995. Total revenues during the first nine months of 1996 decreased 3%
when compared to the same period in 1995. The decision by would-be renters to
purchase or build a house has challenged the property's operations. A
comprehensive marketing program that includes an emphasis on corporate rental
units was recently implemented, and should return the property to its
historically strong, stabilized occupancy levels.
Flournoy Development Company
Flournoy Development Company, an affiliate of the Fund's Development
General Partner, John F. Flournoy, has been evaluating the feasibility of
reorganizing its operations into a Real Estate Investment Trust. It appears that
the REIT could be formed as early as the first quarter of 1997, at which time
Flournoy Development Company would hope to acquire the four properties owned by
the Fund. If this process continues to advance, Flournoy Development Company's
proposal, along with a consent form, will be distributed to each of the Fund's
investors.
-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>
<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: 11/11/96 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 11/11/96 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,830,412
<SECURITIES> 0
<RECEIVABLES> 23,263
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,865,878
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,471,230
<CURRENT-LIABILITIES> 636,164
<BONDS> 20,400,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,471,230
<SALES> 0
<TOTAL-REVENUES> 3,629,589
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,454,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,451,548
<INCOME-PRETAX> (276,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276,760)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
