SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-14351
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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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
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BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
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Cash and cash equivalents $ 599,385 $ 600,949
Restricted investments 480,000 480,000
Escrow deposits 1,187,077 1,041,462
Accounts and accrued interest receivable 222,263 183,575
Deferred expenses, principally loan
financing fees, net of accumulated
amortization of $374,055 in 1995 and
$323,605 in 1994 1,019,621 1,070,071
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3,508,346 3,376,057
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Investment in real estate, at cost:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
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73,062,736 73,062,736
Less accumulated depreciation 24,723,494 24,251,998
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Investment in real estate, net of
accumulated depreciation 48,339,242 48,810,738
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$ 51,847,588 $ 52,186,795
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LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 12,320,605 $ 12,295,605
Accounts payable 114,395 243,758
Due to affiliates 450,119 216,455
Accrued liabilities, principally interest
and real estate taxes 356,133 423,967
Security deposits 235,270 228,573
Loss in excess of investment in joint
venture with an affiliate 1,093,139 1,101,982
Mortgage note payable - affiliate 1,673,215 1,673,215
Mortgage notes payable 51,573,960 51,673,688
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Total liabilities 67,816,836 67,857,243
Partners' deficit (83,936 Limited Partnership
Interests issued and outstanding) (15,969,248) (15,670,448)
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$ 51,847,588 $ 52,186,795
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1995 and 1994
(Unaudited)
1995 1994
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Income:
Rental and service $ 3,146,803 $ 3,096,701
Interest on short-term investments 16,840 13,493
Participation in income of joint
venture with an affiliate 22,483 8,647
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Total income 3,186,126 3,118,841
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Expenses:
Interest on mortgage notes payable 1,247,158 1,352,810
Interest on short-term loans from
affiliate 202,866 86,826
Depreciation 471,496 467,359
Amortization of deferred expenses 50,450 109,888
Property operating 974,756 1,005,751
Real estate taxes 261,842 249,908
Property management fees 154,918 153,746
Administrative 121,440 120,315
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Total expenses 3,484,926 3,546,603
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Net loss $ (298,800) $ (427,762)
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Net loss allocated to General Partner $ (2,988) $ (4,278)
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Net loss allocated to Limited Partners $ (295,812) $ (423,484)
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Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (3.52) $ (5.05)
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1995 and 1994
(Unaudited)
1995 1994
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Operating activities:
Net loss $ (298,800) $ (427,762)
Adjustments to reconcile net loss to
net cash provided by or used in
operating activities:
Participation in income of joint
venture with an affiliate (22,483) (8,647)
Depreciation of properties 471,496 467,359
Amortization of deferred expenses 50,450 109,888
Deferred interest expense 74,376 103,525
Payment of deferred
interest expense (10,477) (450,185)
Net change in:
Escrow deposits (145,615) 108,596
Accounts and accrued interest
receivable (38,688) 168,920
Accounts payable (129,363) (16,609)
Due to affiliates 233,664 56,050
Accrued liabilities (131,733) (156,129)
Security deposits 6,697 2,620
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Net cash provided by or used in
operating activities 59,524 (42,374)
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Investing activity:
Distribution from joint
venture with an affiliate 13,640 15,382
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Cash provided by investing
activity 13,640 15,382
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Financing activities:
Proceeds from issuance of mortgage note
payable 3,694,000
Repayment of loans payable - affiliate (220,640)
Proceeds from loans payable - affiliate 25,000
Repayment of mortgage notes
payable - affiliates (214,084)
Repayment of mortgage note payable (3,029,731)
Principal payments on mortgage notes
payable (99,728) (75,217)
Funding of repair escrow (18,600)
Payment of deferred expenses (89,666)
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Net cash used in or provided by financing
activities (74,728) 46,062
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Net change in cash and cash equivalents (1,564) 19,070
Cash and cash equivalents at beginning of
period 600,949 1,192,138
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Cash and cash equivalents at end of period $ 599,385 $ 1,211,208
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1995, and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the quarter ended March 31, 1995 and 1994, the Partnership incurred
interest expense on non-affiliated mortgage notes payable of $1,172,782 and
$1,162,984 and paid interest expense of $1,172,782 and $1,162,984,
respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1995 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost None $123,458
In July 1994, the Partnership repaid loans to Balcor Real Estate Holdings, Inc.
("BREHI"), an affiliate of the General Partner, on the Forest Ridge - Phase II
Apartments. In March 1994, the Partnership partially repaid and refinanced the
balance of the Chestnut Ridge - Phase I Apartments affiliated mortgage loans.
The Partnership incurred interest expense on the BREHI loans of $74,376 and
$189,826 and paid interest expense of $10,477 and $536,486 during the quarters
ended March 31, 1995 and 1994, respectively. Interest expense of $94,395 was
payable as of March 31, 1995 and is included in accrued liabilities on the
balance sheet.
As of March 31, 1995, the Partnership owes $12,320,605 to the General Partner
in connection with the funding of additional working capital and other
Partnership obligations, of which $25,000 was borrowed during the quarter ended
March 31, 1995. This amount included $480,000 which was borrowed to pledge as
collateral relating to the Country Oaks mortgage loan. The Partnership incurred
interest expense of $202,866 and $86,826, and paid interest expense of $7,682
and $92,853 during the quarters ended March 31, 1995 and 1994, respectively, in
connection with these loans. As of March 31, 1995, interest expense of $326,661
was payable. Interest expense was computed at the American Express Company cost
of funds rate plus a spread to cover administrative costs. As of March 31,
1995, this rate was 6.552%.
4. Restricted Investment:
As of March 31, 1995, the Partnership had cash of $480,000 pledged as
collateral relating to the Country Oaks mortgage loan. The amount pledged was
invested in short-term instruments pursuant to the terms of the pledge
agreement with the lending institution with interest earned on the investment
accumulating to the benefit of the Partnership. The pledged collateral was
released in April 1995.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property. The Partnership has since disposed of
five of these properties. The Partnership continues to own eight remaining
properties and a minority joint venture interest in one property.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1994 for a more complete understanding of
the Partnership's financial position.
Summary of Operations
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Improved property operations at several of the Partnership's properties caused
the net loss to decrease during the quarter ended March 31, 1995 as compared to
the same period in 1994. Further discussion of the Partnership's operations is
summarized below.
Operations
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1995 Compared to 1994
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In connection with the 1994 refinancings of the properties' mortgage loans, the
Partnership retired and replaced $4,215,546 of affiliated mortgage notes
payable related to the Chestnut Ridge - Phase I and Forest Ridge - Phase II
apartment complexes with proceeds from both third party mortgage loans and
loans from the General Partner. As a result, interest expense on mortgage notes
payable decreased and interest expense on short-term loans from affiliates
increased during the quarter ended March 31, 1995 as compared to the same
period in 1994.
Due to the refinancing of the mortgage loans collateralized by Chestnut Ridge -
Phase I during March 1994, deferred expenses related to the previous loan were
fully amortized. As a result, amortization of deferred expenses decreased
during the quarter ended March 31, 1995 as compared to the same period in 1994.
Rental income increased at the Rosehill Pointe Apartments due to higher rental
rates. As a result, participation in income of joint venture with an affiliate
increased during the quarter ended March 31, 1995 as compared to the same
period in 1994.
Liquidity and Capital Resources
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The cash position of the Partnership remained relatively unchanged as of March
31, 1995 when compared to December 31, 1994. The Partnership's operating
activities consisted primarily of cash flow generated from property operations,
which was partially offset by the payment of administrative expenses and short-
term interest expense. The Partnership's investing activity consists of a
distribution from the joint venture with an affiliate, while its financing
activities included additional borrowings from the General Partner and the
payment of principal on mortgage notes payable.
The Partnership owes approximately $12,321,000 to the General Partner at March
31, 1995 in connection with the funding of operating deficits and other working
capital requirements. These loans are expected to be repaid from available cash
flow from future property operations, or from proceeds received from the
disposition of the Partnership's real estate investments prior to any
distributions to Limited Partners.
Although affiliates of the General Partner have, in certain circumstances,
provided mortgage loans for certain properties of the Partnership, there can be
no assurance that loans of this type will be available from either affiliates
or the General Partner in the future. The General Partner may continue to
provide additional short-term loans to the Partnership to fund working capital
needs or property operating deficits, although there is no assurance that such
loans will be available. Should such short-term loans from the General Partner
not be available, the General Partner will seek alternative third party sources
of financing working capital. However, the current economic environment and its
impact on the real estate industry make it unlikely that the Partnership would
be able to secure financing from third parties to fund working capital needs or
operating deficits. Should additional borrowings be needed and not be available
through the General Partner, its affiliates or third parties, the Partnership
may be required to dispose of some of its properties in order to satisfy
Partnership obligations.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments. During the quarters ended March 31, 1995 and 1994, seven of the
Partnership's eight remaining properties generated positive cash flow. In
addition, the property in which the Partnership holds a minority joint venture
interest generated positive cash flow during these periods. The Country Oaks
Apartments generated positive cash flow during the quarter ended March 31, 1995
as compared to a marginal deficit during the same period in 1994 due to
decreased landscaping costs. The Marbrisa Apartments, which generated positive
cash flow during the quarter ended March 31, 1994, operated at a marginal
deficit during the same period in 1995 primarily due to higher repairs and
maintenance costs required by the terms of the 1993 mortgage loan refinancing.
While the cash flow of certain of the Partnership's properties has improved,
the General Partner continues to pursue a number of actions aimed at improving
the cash flow of the Partnership's properties including refinancing of mortgage
loans, improving property operating performance, and seeking rent increases
where market conditions allow. As of March 31, 1995, the occupancy rates of the
Partnership's properties ranged from 89% to 97%. Despite improvements in the
local economies and rental markets where certain of the Partnership's
properties are located, the General Partner believes that continued ownership
of many of the properties is in the best interests of the Partnership in order
to maximize potential returns to Limited Partners. As a result, the Partnership
will continue to own these properties for longer than the holding period for
the assets originally described in the prospectus.
The Partnership's properties are owned through the use of third-party and
affiliate mortgage loan financings and therefore, the Partnership is subject to
the financial obligations required by such loans. During 1995, the Country Oaks
Apartments mortgage loan of approximately $5,462,000 matures. The General
Partner expects to refinance this loan prior to maturity. In certain instances
it may be difficult for the Partnership to refinance a property in an amount
sufficient to retire in full the current third-party mortgage financing with
respect to the property. In the event negotiations with the existing lender for
a loan modification or with new lenders for a refinancing are unsuccessful, the
Partnership may sell the collateral property or other properties to satisfy an
obligation or may relinquish title to the collateral property in satisfaction
of the outstanding mortgage loan balance.
Although investors have received certain tax benefits, the Partnership has not
commenced distributions. Future distributions to investors will depend on
improved cash flow from the Partnership's remaining properties and proceeds
from future property sales, as to both of which there can be no assurances.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-14351) are incorporated
herein by reference.
(10) Agreement of Sale and attachments thereto relating to the sale of Playa
Palms Apartments, previously filed as Exhibit (2) to the Registrant's Report on
Form 8-K dated June 2, 1993, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the three month period
ending March 31, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 85-SERIES II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVII, the
General Partner
By: /s/Brian Parker
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Brian Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Partners-XVII, the General
Partner
Date: May 12, 1995
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