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 June 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 June 30, 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>
June 30, December 31,
1996 1995
Assets
<S> <C> <C>
Investment in real estate $ 14,750,166 $ 15,200,825
Cash and cash equivalents 1,504,502 1,447,679
Other assets
Accounts receivable 34,572 22,624
Prepaid expenses 29,839 65,417
Loan fees, less accumulated amortization
of $506,950 and $469,856, respectively 12,365 49,459
Total other assets 76,776 137,500
Total assets $ 16,331,444 $ 16,786,004
Liabilities and Partners' Capital
Accounts payable and accrued expenses including
$39,660 and $27,523 due to affiliates, respectively$ 554,497 $ 453,493
Tenant security deposits 132,909 130,542
Mortgage loans payable 20,133,321 20,200,950
Total liabilities 20,820,727 20,784,985
Partners' Capital
General Partners (244,328) (234,522)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding (4,245,055) (3,764,559)
Class B 100 100
Total partners' capital (4,489,283) (3,998,981)
Total liabilities and partners' capital $ 16,331,444 $ 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 Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
Revenues
<S> <C> <C> <C> <C>
Rental income $1,192,847 $ 1,134,524 $2,342,905 $ 2,267,484
Interest income 14,354 16,767 28,289 33,530
1,207,201 1,151,291 2,371,194 2,301,014
Expenses
Compensation and related benefits 134,181 106,939 251,244 216,858
Utilities 70,597 62,619 137,794 121,702
Property taxes 92,998 89,913 183,496 179,826
Insurance 17,977 18,147 35,848 36,294
Advertising 31,596 18,490 61,269 34,045
Maintenance and repairs 116,645 108,030 216,308 207,106
Property management fee 59,642 56,726 117,145 113,374
Other 9,003 8,120 16,689 16,548
Administrative and professional fees 22,314 21,332 39,297 42,467
Interest expense 483,209 488,319 967,765 975,662
Depreciation of property and equipment 266,257 255,666 522,037 511,332
Amortization of loan fees 18,547 18,547 37,094 37,094
1,322,966 1,252,848 2,585,986 2,492,308
Net loss $ (115,765) $ (101,557) $ (214,792) $ (191,294)
Net loss per unit of Class A limited
partnership interest $ (4.20) $ (3.69) $ (7.80) $ (6.94)
</TABLE>
See accompanying notes to financial statements
-2-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Partners' Capital
For the six months ended June 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 (4,296) (210,496) - (214,792)
Distributions to partners (5,510) (270,000) - (275,510)
Balance at June 30, 1996 $ (244,328)$ (4,245,055)$ 100 $ (4,489,283)
Balance at December 31, 1994$ (215,657)$ (2,840,151)$ 100 $ (3,055,708)
Net loss (3,826) (187,468) - (191,294)
Distributions to partners (11,020) (540,000) - (551,020)
Balance at June 30, 1995 $ (230,503)$ (3,567,619)$ 100 $ (3,798,022)
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Cash Flows
For the six months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
Cash flow from operating activities
<S> <C> <C>
Net loss $ (214,792) $ (191,294)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment 522,037 511,332
Amortization of loan fees 37,094 37,094
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (11,948) 34,871
Decrease in prepaid expenses 35,578 36,064
Increase in accounts payable and accrued expenses 101,004 118,260
Increase in tenant security deposits 2,367 11,303
Net cash provided by operating activities 471,340 557,630
Cash flows from investing activities-
additions to investment in real estate (71,378) (35,574)
Cash flows from financing activities
Decrease in mortgage loans payable (67,629) (60,030)
Distributions to investors (275,510) (551,020)
Net cash used in financing activities (343,139) (611,050)
Net increase (decrease) in cash and cash equivalents 56,823 (88,994)
Cash and cash equivalents
Beginning of period 1,447,679 1,738,073
End of period $1,504,502 $1,649,079
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
June 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>
June 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 2,273,650 2,202,272
-------------- --------------
23,897,343 23,825,965
Less: accumulated depreciation 9,147,177 8,625,140
-------------- --------------
Total $14,750,166 $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>
June 30, 1996December 31, 1995
<S> <C> <C>
Cash and money market $ 593,212 $ 428,716
Certificates of deposit with interest rates
ranging from 5.0% to 5.6% in 1996
and 4.25% to 5.75% in 1995 911,290 1,018,963
-------------- --------------
$1,504,502 $1,447,679
======== ========
</TABLE>
(4) Related Party Transactions
Brown Equity Income Properties, Inc., the Administrative General
Partner, billed the Fund $20,149 and $13,157 in the quarters ended June
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 $59,642 and $56,726 representing 5% of gross monthly
operating revenues from the properties during the quarters ended June
30, 1996 and 1995, respectively.
-5-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
June 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 $483,828 and $488,319 was paid during the
quarters ended June 30, 1996 and 1995, respectively.
The mortgage loans currently mature on September 1, 1996. The Fund has
obtained a commitment to refinance these loans from Columbus Bank &
Trust. The terms of the commitment provide for interest only payments of
prime plus 1% in monthly installments. The new loans will total
$20,400,000 and will provide proceeds sufficient to satisfy the
repayment of the existing 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 will be 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 June 30, 1996, the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,371,593 and accounts payable and
accrued expenses of $554,497. Restricted cash represents amounts retained from
tenants for security deposits and totaled $132,909 at June 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 $101,544 during the second quarter
of 1996. This increase represents the net effect of $304,127 in cash provided by
operating activities, $30,610 utilized for capital expenditures, paydown of
first mortgage balances of $34,218 and distributions to investors of $137,755.
In August, 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 second quarter.
The provisions of the mortgages for each of the Fund's four properties
require repayment by September 1, 1996 of the outstanding principal balances
totaling approximately $20 million. The Fund is currently considering several
financial options for the repayment of the loan balances. Until a permanent
financial solution is found, the Fund will rely on an interim one year, interest
only loan payable September 1997. The terms of the commitment provide for
interest only payments of prime plus 1% in monthly installments. The new loans
will total $20,400,000 and will provide 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 second quarter and first six months of
1996 were 5.1% and 3.3% 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 unit rentals. For the first
half of 1996, revenue from corporate rentals totaled approximately $20,000.
Total expenses during the second quarter and first six months of 1996
were up 5.6% and 3.7%, respectively, over the same periods in 1995. These rises
were largely attributed to increases in advertising and payroll. Advertising
increased as the result of management's implementation of comprehensive
marketing programs at High Ridge, Park Place and Southland Station. These
marketing programs were developed to combat the effects of increased competition
and have successfully contributed to increased occupancy at these properties.
The increase in payroll expense can be attributed to several factors, including
an increase in the leasing staff at two of the properties, the receipt of a
rebate in 1995 for workmen's compensation insurance, and certain adjustments to
some key employees' compensation to keep them in line with market rates.
Overall occupancy for the Fund's properties averaged 91% during the
second quarter of 1996. For the first six months of 1996, the Fund had a total
occupancy level of 90%. These percentages represent decreases of 4% and 5%,
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 87% during the first half of 1996, a 4% decrease over the
same period in 1995. Southland Station's occupancy averaged 86% for the first
half of 1996, a 7% decrease over the same period in 1995.
Occupancy during the second quarter of 1996 averaged 95% at the Hidden
Lake property, located in Union City, Georgia. This is a small decrease from the
96% occupancy recorded in the second quarter of 1995. This stabilized occupancy
rate has allowed management to increase rental rates for all unit types.
-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)
The High Ridge property, located in Athens, Georgia, achieved an
average occupancy during the second quarter of 91%, 5% lower than the same
period in 1995. This decrease is due largely to the increased desire of tenants
to buy or build homes. Rental rate increases have offset this lower occupancy
and led to a 5.6% increase in revenue for the first 6 months of 1996, as
compared to the same period in 1995. A recently implemented corporate rental
program has met great success and is expected to continue in the future.
Operations at the Park Place property, located in Spartanburg, South
Carolina, experienced a strong increase during the second quarter. Occupancy
averaged 92% for second quarter, a significant improvement from the 83% recorded
for the first quarter of 1996. Total revenues increased 8.5% for the first six
months of 1996, as compared to the same period in 1995. Competition from new
apartments continues to present leasing challenges, but the implementation of
the new marketing program should greatly improve the situation.
The Southland Station property, located in Warner Robins, Georgia, has
been continually challenged during the first half of 1996. A significant drop in
occupancy during the first six months of 1996 led to a decrease in revenues of
6.3%, 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. This trend appears to be reversing as June's occupancy level
increased to 91%. It is expected that the implementation of the comprehensive
marketing program, including an emphasis on corporate unit rentals, will return
the property to its historically strong, stabilized occupancy levels.
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: 8/8/96 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 8/8/96 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,504,502
<SECURITIES> 0
<RECEIVABLES> 34,572
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,568,913
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,331,444
<CURRENT-LIABILITIES> 554,497
<BONDS> 20,133,321
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,331,444
<SALES> 0
<TOTAL-REVENUES> 2,371,194
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,618,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 967,765
<INCOME-PRETAX> (214,792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,792)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
