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, 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 June 30, 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>
June 30, December 31,
1997 1996
Assets
<S> <C> <C>
Investment in real estate $ 13,895,264 $ 14,355,212
Cash and cash equivalents 1,477,739 1,467,365
Other assets
Accounts receivable 24,769 19,744
Prepaid expenses 32,302 70,500
Loan fees, less accumulated amortization
of $208,031 and $73,434, respectively 60,991 93,761
Total other assets 118,062 184,005
Total assets $ 15,491,065 $ 16,006,582
Liabilities and Partners' Capital
Accounts payable and accrued expenses including
$30,188 and $28,941 due to affiliates, respectively $ 543,503 $ 417,042
Tenant security deposits 102,450 110,890
Mortgage loans payable 20,400,000 20,400,000
Total liabilities 21,045,953 20,927,932
Partners' Capital
General Partners (265,640) (252,969)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding (5,289,348) (4,668,481)
Class B 100 100
Total partners' capital (5,554,888) (4,921,350)
Total liabilities and partners' capital $ 15,491,065 $ 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 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, 1996 $ (252,969)$ (4,668,481)$ 100 $ (4,921,350)
Net loss (7,161) (350,867) - (358,028)
Distributions to partners (5,510) (270,000) - (275,510)
Balance at June 30, 1997 $ (265,640)$ (5,289,348)$ 100 $ (5,554,888)
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)
</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>
1997 1996
Cash flow from operating activities
<S> <C> <C>
Net loss $ (358,028) $ (214,792)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment 527,121 522,037
Amortization of loan fees 134,597 37,094
Changes in assets and liabilities
Increase in accounts receivable (5,025) (11,948)
Decrease in prepaid expenses 38,198 35,578
Increase in accounts payable and accrued expenses 126,461 101,004
(Decrease) increase in tenant security deposits (8,440) 2,367
Net cash provided by operating activities 454,884 471,340
Cash flows from investing activities-
additions to investment in real estate (67,173) (71,378)
Cash flows from financing activities
Decrease in mortgage loans payable - (67,629)
Financing costs (101,827) -
Distributions to investors (275,510) (275,510)
Net cash used in financing activities (377,337) (343,139)
Net increase in cash and cash equivalents 10,374 56,823
Cash and cash equivalents
Beginning of period 1,467,365 1,447,679
End of period $ 1,477,739 $ 1,504,502
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 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>
June 30, 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 2,470,839 2,403,666
24,094,532 24,027,359
Less: accumulated depreciation 10,199,268 9,672,147
Total $13,895,264 $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>
June 30, 1997 December 31, 1996
<S> <C> <C>
Cash and money market $ 518,963 $ 532,655
Certificates of deposit with interest rates
ranging from 5.16 to 5.2% in 1997 and
5.0% to 5.6% in 1996 958,776 934,710
$1,477,739 $1,467,365
</TABLE>
(4) Related Party Transactions
Brown Equity Income Properties, Inc., the Administrative General
Partner, billed the Fund $10,917 and $20,149 in the quarters ended June
30, 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 $56,997 and $59,642 representing 5% of gross monthly
operating revenues from the properties during the quarters ended June
30, 1997 and 1996, respectively.
-5-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 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 for 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. Columbus Bank & Trust has agreed to extend these loans to
December 31, 1997 at no additional cost to the Fund. 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 June 30, 1997 the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,375,289 and accounts payable and
accrued expenses of $543,503. Restricted cash represents amounts retained from
tenants for security deposits and totaled $102,450 at June 30, 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 increased $57,311 during the second quarter
of 1997. This increase represents the net effect of $292,870 in cash provided by
operating activities, $46,977 utilized for capital expenditures, financing costs
of $50,827 and distributions to investors of $137,755.
In August 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 second quarter.
On August 27, 1996 the Fund closed on interim one year loans that
mature in September 1997. Columbus Bank and Trust, the lender, has agreed to
extend these loans to December 31, 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 June 30, 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
For the second quarter and first six months of 1997 rental revenues
declined 4% and 2%, respectively, from the same periods in 1996. The decline in
revenues is largely attributable to lower occupancy at the High Ridge property.
Excluding High Ridge, the Fund experienced modest increases in rental revenues
during these periods.
Total expenses increased 1% and 3% during the second quarter and first
six months of 1997, respectively, as compared to the same periods in 1996. The
higher expenses are attributable to additional loan fees and compensation costs.
The Fund experienced higher loan fees when it became obligated to pay Columbus
Bank & Trust a 1% origination fee (paid quarterly) on its new mortgage loans.
Compensation costs increased because certain landscaping functions, which had
previously been contracted out, are now being performed internally at the Park
Place property. Performing this work internally required the hiring of two
additional staff members.
Occupancy for the Fund's properties averaged 88% during the second
quarter of 1997, a 3% decline from the same period in 1996. During the first
half of the year the Fund achieved an average occupancy of 89%, a 1% decline
from the first half of 1996. These lower rates are directly attributable to
lower occupancy at the High Ridge property. Occupancy at High Ridge declined 13%
and 11% during the second quarter and first six months of 1997, respectively, as
compared to the same periods in 1996.
The Park Place property, located in Spartanburg, South Carolina,
experienced a 2% decline in occupancy during the second quarter of 1997 when
compared to the same period in 1996. In spite of the lower occupancy, revenues
increased 3% due to higher corporate rental income.
The operations at the High Ridge property, located in Athens, Georgia,
have been severely challenged over the past six months due to several recently
completed apartment communities. Occupancy averaged 78% during the second
quarter of 1997, a decline of 13% from the same period in 1996. This decrease is
due largely to the migration of tenants to newly constructed apartment
communities. In an effort to combat this situation, management performed an
extensive market survey of the competitive properties. Through this survey it
was determined that many of the new properties had lower rents. Management
adjusted rents to compete with the new properties and subsequent to the rental
adjustment, occupancy has increased to 93%.
-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 during the second quarter of 1997 averaged 91% at the Hidden
Lake property, located in Union City, Georgia, a decrease from the 95% recorded
in the second quarter of 1996. Management has recently implemented a new
corporate marketing campaign to reverse this decline.
The operations at the Southland Station property, located in Warner
Robins, Georgia, showed marked improvement during the first half of 1997.
Occupancy increased 5% during this period when compared to the same period in
1996. This higher occupancy level led to a 2% increase in total revenues.
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: 8/8/97 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 8/8/97 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
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,477,739
<SECURITIES> 0
<RECEIVABLES> 24,769
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,534,810
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,491,065
<CURRENT-LIABILITIES> 543,503
<BONDS> 20,400,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,491,065
<SALES> 0
<TOTAL-REVENUES> 2,315,638
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,711,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 962,483
<INCOME-PRETAX> (358,028)
<INCOME-TAX> 0
<INCOME-CONTINUING> (358,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (358,028)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
