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, 1997
{ } 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, 1997 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,
1997 1996
Assets
<S> <C> <C>
Investment in real estate $ 14,110,887 $ 14,355,212
Cash and cash equivalents 1,420,428 1,467,365
Other assets
Accounts receivable, including $5,460 due
affiliates as of March 31, 1997 26,333 19,744
Prepaid expenses 51,200 70,500
Loan fees, less accumulated amortization
of $140,732 and $73,434, respectively 77,463 93,761
Total other assets 154,996 184,005
Total assets $ 15,686,311 $ 16,006,582
Liabilities and Partners' Capital
Accounts payable and accrued expenses including
$32,170 and $28,941 due to affiliates, respect$ 419,618 $ 417,042
Tenant security deposits 99,425 110,890
Mortgage loans payable 20,400,000 20,400,000
Total liabilities 20,919,043 20,927,932
Partners' Capital
General Partners (259,197) (252,969)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding (4,973,635) (4,668,481)
Class B 100 100
Total partners' capital (5,232,732) (4,921,350)
Total liabilities and partners' capital $ 15,686,311 $ 16,006,582
</TABLE>
See accompanying notes to financial statements
- -1-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Statements of Operations
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
Revenues
<S> <C> <C>
Rental income $1,144,916 $1,150,058
Interest income 14,573 13,935
1,159,489 1,163,993
Expenses
Compensation and related benefits 142,806 117,063
Utilities 68,363 67,197
Property taxes 93,007 90,498
Insurance 19,300 17,871
Advertising 27,774 29,673
Maintenance and repairs 83,202 99,663
Property management fee 57,246 57,503
Other 7,851 7,686
Administrative and professional fees 29,998 16,983
Interest expense 471,750 484,556
Depreciation of property and equipment 264,521 255,780
Amortization of loan fees 67,298 18,547
1,333,116 1,263,020
Net loss $ (173,627) $ (99,027)
Net loss per unit of Class A limited
partnership interest $ (6.30) $ (3.59)
</TABLE>
See accompanying notes to financial statements
- -2-
<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, 1996 $ (252,969)$ (4,668,481)$ 100 $ (4,921,350)
Net loss (3,473) (170,154) - (173,627)
Distributions to partners (2,755) (135,000) - (137,755)
Balance at March 31, 1997 $ (259,197)$ (4,973,635)$ 100 $ (5,232,732)
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)
</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 March 31, (Unaudited)
<TABLE>
<CAPTION>
1997 1996
Cash flow from operating activities
<S> <C> <C>
Net loss $ (173,627) $ (99,027)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment 264,521 255,780
Amortization of loan fees 67,298 18,547
Changes in assets and liabilities
(Increase) decrease in accounts receivable (6,589) 2,245
Decrease in prepaid expenses 19,300 17,870
Increase in accounts payable and accrued expenses 2,576 (28,209)
(Decrease) increase in tenant security deposits (11,465) 7
Net cash provided by operating activities 162,014 167,213
Cash flows from investing activities-
additions to investment in real estate (20,196) (40,768)
Cash flows from financing activities
Decrease in mortgage loans payable - (33,411)
Financing costs (51,000) -
Distributions to investors (137,755) (137,755)
Net cash used in financing activities (188,755) (171,166)
Net increase (decrease) in cash and cash equivalents (46,937) (44,721)
Cash and cash equivalents
Beginning of period 1,467,365 1,447,679
End of period $ 1,420,428 $ 1,402,958
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1997
(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 1996 Annual Report.
(2) Investment in Real Estate
Investment in real estate is stated at the lower of fair value or cost,
net of accumulated depreciation, and is summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Land $ 1,205,950 $ 1,205,950
Buildings 20,417,743 20,417,743
Furniture, fixtures and equipment 2,423,862 2,403,666
24,047,555 24,027,359
Less: accumulated depreciation 9,936,668 9,672,147
Total $14,110,887 $14,355,212
</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>
March 31, 1997 December 31, 1996
<S> <C> <C>
Cash and money market $ 473,773 $ 532,655
Certificates of deposit with interest rates
of 5.2% 1997 and ranging from
5.5% to 5.6% in 1996 946,655 934,710
$1,420,428 $1,467,365
</TABLE>
(4) Related Party Transactions
Brown Equity Income Properties, Inc., the Administrative General
Partner, billed the Fund $14,078 and $12,780 in the quarters ended March
31, 1997 and 1996, 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 $57,246 and $57,503 representing 5% of gross monthly
operating revenues from the properties during the quarters ended March
31, 1997 and 1996, respectively.
-5-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1997
(Unaudited)
(5) Mortgage Loans Payable
The Fund's General Partners secured first mortgage loans aggregating
$20.8 million on August 30, 1989 which were secured by the land,
apartment units and all other improvements to the four apartment
properties. These loans were for an original term of 7 years with
interest only payments at 9.6%. Interest only was payable monthly
through September 1994, and thereafter monthly payments were based on a
30- year amortization schedule with a balloon payment due at the end of
the 7 year term.
The mortgage loans matured on September 1, 1996. The Fund refinanced
these loans with Columbus Bank & Trust. The terms of the new loans
provide for interest only payments of prime plus 1% in monthly
installments and a term of one year. The new loans total $20,400,000 and
provided proceeds sufficient to satisfy the repayment of the old
mortgage loans, and all costs of the refinancing. The Fund is required
to pay a commitment fee of one point payable in advance in quarterly
installments. The Fund intends to repay these balances with proceeds
from mortgage refinancing or other capital transactions.
(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 March 31, 1997, the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,321,003 and accounts payable and
accrued expenses of $419,618. Restricted cash represents amounts retained from
tenants for security deposits and totaled $99,425 at March 31, 1997. 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 $46,937 during the first quarter of
1997. This decrease represents the net effect of $162,014 in cash provided by
operating activities, $20,196 utilized for capital expenditures, loan fees paid
of $51,000 and distributions to investors of $137,755.
In May 1997 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.
On August 27, 1996, the Fund closed on interim one year, loans that
mature in September 1997. These loans 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
(8.50% at March 31, 1997) plus 1% in monthly installments. The new loans totaled
$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
The Fund experienced a slight decline in rental revenues during the
first quarter of 1997. Rental revenues totaled $1,144,916 during the first
quarter of 1997, a decline of $5,142 from the same period in 1996. This decline
is primarily attributable to the operations at the High Ridge property, which
experienced a 9.6% drop in rental revenue. All three of the Fund's remaining
properties experienced growth in rental revenues during this period.
Operating expenses increased 2.5% during the first quarter of 1997, as
compared to the same period in 1996. This increase is largely attributable to
additional payroll expenses at the Park Place property. In particular, certain
ground maintenance activities which had previously been contracted out, are now
performed in-house. Performing this work internally led to the hiring of two
additional employees.
Overall occupancy for the Fund's properties during the first quarter of
1997 remained consistent with the same period of 1996, averaging 88%.
Occupancy at the Hidden Lake property, located in Union City, Georgia,
averaged 91% during the first quarter of 1997, a decline of 4% from the same
period in 1996. In spite of the lower occupancy, total revenue remained
consistent with 1996 due to higher rental rates on most unit types.
The High Ridge property, located in Athens, Georgia, achieved an
average occupancy during the quarter of 79%, a 13% drop from the 92% recorded
during 1996. The Athens market has recently started to feel the effects of a
surge in apartment construction. As the supply of units has increased, the
demand has remained relatively flat, placing strong competitive forces on all
apartment communities. Many of the newer properties have implemented deep
concession packages to try and entice residents to move out of their existing
communities. In an effort to mitigate this situation, management has recently
implemented a comprehensive marketing package to retain tenants, while at the
same time attracting new ones. Management has also been soliciting local
companies in an effort to boost corporate rental income.
-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)
Located in Spartanburg, South Carolina, the Park Place property
achieved an average occupancy of 88% during the first quarter of 1997. An
increase of 5% from the 83% recorded during 1996. This strong gain in occupancy
led to a 7% increase in revenues. The Spartanburg apartment market continues to
be challenged by new competition and high turnover from tenants seeking short
term occupancy while they build or buy a house. Management is keenly aware of
these challenges and is actively reviewing various marketing plans to help meet
these challenges. In particular, management has responded by developing a strong
corporate rental 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. Operating expenses during the quarter were 7%
higher due to certain costs associated with performing ground maintenance which
had previously been outsourced.
The Southland Station property, located in Warner Robins, Georgia,
experienced a slight increase in occupancy during the first quarter of 1997,
contributing to a 2% increase in revenues as compared to the same period in
1996. While management is pleased with the property's improved operations during
the quarter, it is keenly aware of the challenges presented by the local
economy. The health of the region's economy is largely tied to the Warner Robins
Air Force Base, its largest employer.
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: 5/9/97 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 5/9/97 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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,420,428
<SECURITIES> 0
<RECEIVABLES> 26,333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,497,961
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,686,311
<CURRENT-LIABILITIES> 419,618
<BONDS> 20,400,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,686,311
<SALES> 0
<TOTAL-REVENUES> 1,159,489
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 861,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471,750
<INCOME-PRETAX> (173,627)
<INCOME-TAX> 0
<INCOME-CONTINUING> (173,627)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173,627)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
