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 September 30, 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.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 267-1600
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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
September 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
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Cash and cash equivalents $ 1,159,987 $ 600,949
Restricted investments 480,000
Escrow deposits 1,721,155 1,041,462
Accounts and accrued interest receivable 183,575
Prepaid expenses 227,243
Deferred expenses, principally loan
financing fees, net of accumulated
amortization of $376,841 in 1995 and
$323,605 in 1994 1,076,423 1,070,071
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4,184,808 3,376,057
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Investment in real estate, at cost:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
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73,062,736 73,062,736
Less accumulated depreciation 25,666,487 24,251,998
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Investment in real estate, net of
accumulated depreciation 47,396,249 48,810,738
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$ 51,581,057 $ 52,186,795
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LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 11,900,605 $ 12,295,605
Accounts payable 106,514 243,758
Due to affiliates 756,073 216,455
Accrued liabilities, principally interest
and real estate taxes 761,698 423,967
Security deposits 238,033 228,573
Loss in excess of investment in joint
venture with an affiliate 1,141,677 1,101,982
Mortgage note payable - affiliate 1,673,215 1,673,215
Mortgage notes payable 51,902,193 51,673,688
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Total liabilities 68,480,008 67,857,243
Partners' deficit (83,936 Limited Partnership
Interests issued and outstanding) (16,898,951) (15,670,448)
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$ 51,581,057 $ 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 nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
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Income:
Rental and service $ 9,659,722 $ 9,400,531
Interest on short-term investments 52,113 43,402
Participation in income (loss) of joint
venture with an affiliate 16,574 (109)
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Total income 9,728,409 9,443,824
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Expenses:
Interest on mortgage notes payable 3,710,260 3,923,809
Interest on short-term loans from affiliates 611,146 375,992
Depreciation 1,414,489 1,414,488
Amortization of deferred expenses 156,489 225,959
Property operating 3,386,151 3,171,378
Real estate taxes 785,764 732,550
Property management fees 478,700 470,127
Administrative 413,913 468,053
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Total expenses 10,956,912 10,782,356
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Net loss $ (1,228,503) $ (1,338,532)
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Net loss allocated to General Partner $ (12,285) $ (13,385)
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Net loss allocated to Limited Partners $ (1,216,218) $ (1,325,147)
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Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (14.49) $ (15.79)
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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)
STATEMENT OF INCOME AND EXPENSES
for the quarters ended September 30, 1995 and 1994
(Unaudited)
1995 1994
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Income:
Rental and service $ 3,299,743 $ 3,071,937
Interest on short-term investments 19,062 14,022
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Total income 3,318,805 3,085,959
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Expenses:
Interest on mortgage notes payable 1,184,641 1,264,438
Interest on short-term loans from affiliates 202,137 195,082
Depreciation 471,496 471,495
Amortization of deferred expenses 52,578 65,622
Property operating 1,282,306 1,099,841
Real estate taxes 262,277 236,320
Property management fees 163,640 161,130
Administrative 145,462 154,206
Participation in loss of joint venture
with an affiliate 16,672 19,640
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Total expenses 3,781,209 3,667,774
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Net loss $ (462,404) $ (581,815)
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Net loss allocated to General Partner $ (4,624) $ (5,818)
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Net loss allocated to Limited Partners $ (457,780) $ (575,997)
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Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (5.46) $ (6.86)
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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 nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
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Operating activities:
Net loss $ (1,228,503) $ (1,338,532)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Participation in (income) loss of joint
venture with an affiliate (16,574) 109
Depreciation of properties 1,414,489 1,414,488
Amortization of deferred expenses 156,489 225,959
Deferred interest expense 150,205 195,655
Payment of deferred interest expense (134,265) (681,731)
Net change in:
Escrow deposits (522,193) (356,202)
Accounts and accrued interest
receivable 183,575 183,358
Prepaid expenses (227,243)
Accounts payable (137,244) (40,084)
Due to affiliates 539,618 321,711
Accrued liabilities 321,791 249,370
Security deposits 9,460 (5,081)
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Net cash provided by operating activities 509,605 169,020
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Investing activities:
Distributions from joint venture with
an affiliate 56,269 87,535
Redemption of restricted investments 480,000
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Cash provided by investing activities: 536,269 87,535
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Financing activities:
Proceeds from issuance of mortgage
notes payable 6,010,000 11,664,000
Repayment of loans payable - affiliate (480,000) (539,293)
Proceeds from loans payable - affiliate 85,000 577,267
Repayment of mortgage notes payable -
affiliates (1,592,538)
Repayment of mortgage notes payable (5,480,512) (9,389,731)
Principal payments on mortgage notes payable (300,983) (247,290)
Funding of repair escrows (157,500) (212,150)
Payment of deferred expenses (162,841) (308,817)
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Net cash used in financing activities (486,836) (48,552)
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Net change in cash and cash equivalents 559,038 208,003
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 $ 1,159,987 $ 1,400,141
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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 nine months and quarter
ended September 30, 1995, and all such adjustments are of a normal and
recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1995 and 1994, the Partnership
incurred and paid interest expense on non-affiliated mortgage notes payable of
$3,560,056 and $3,505,125, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1995 are:
Paid
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Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $197,452 $27,327 $25,502
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 $150,205 and
$492,403 and paid interest expense of $134,265 and $904,707 during the nine
months ended September 30, 1995 and 1994, respectively. Interest expense of
$46,436 was payable as of September 30, 1995 and is included in accrued
liabilities on the balance sheet.
As of September 30, 1995, the Partnership owes $11,900,605 to the General
Partner in connection with the funding of additional working capital and other
Partnership obligations. The Partnership made a net repayment of $395,000 to
the General Partner during the nine months ended September 30, 1995. The
Partnership incurred interest expense of $611,146 and $302,373, and paid
interest expense of $14,764 and $182,057 during the nine months ended September
30, 1995 and 1994, respectively, in connection with these loans. As of
September 30, 1995, interest expense of $730,571 was payable. Interest expense
was computed at the American Express Company cost of funds rate plus a spread
to cover administrative costs. As of September 30, 1995, this rate was 6.307%.
4. Loan Refinancing:
In June 1995, the Country Oaks Apartments first mortgage loan was refinanced.
The interest rate decreased from 10.0% to 7.655%, the maturity date was
extended from October 1995 to July 2002 and the monthly payments decreased
from $50,153 to $42,663. A portion of the proceeds from the new $6,010,000
first mortgage loan were used to repay the existing first mortgage loan
of $5,480,512.
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.
Operations
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Summary of Operations
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No material events occurred which significantly impacted the net loss of the
Partnership during the nine months ended September 30, 1995. Further discussion
of the Partnership's operations is summarized below.
1995 Compared to 1994
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Unless otherwise noted, discussions of fluctuations between 1995 and 1994 refer
to both the quarter and nine months ended September 30, 1995 and 1994.
In connection with the 1994 refinancings of the properties' mortgage loans, the
Partnership retired and replaced $4,215,546 of affiliate 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 1995 as compared to 1994. The Partnership paid a prepayment penalty in
connection with the Country Oaks Apartments refinancing in June 1995 which
partially offset the decrease in interest expense on mortgage notes payable.
Due to the refinancing of the mortgage loans collateralized by Chestnut Ridge -
Phase I in March 1994, deferred expenses related to the previous loan were
fully amortized. As a result, amortization of deferred expenses decreased
during 1995 as compared to 1994.
Property operating expense increased during 1995 when compared to 1994 due to
expenditures for structural repairs at the Forest Ridge - Phase II apartment
complex and for floor coverings at the Willow Bend Lake apartment complex. In
addition, the Partnership incurred higher insurance premiums at the Willow Bend
Lake apartment complex.
Real estate tax expense increased during 1995 when compared to 1994 due to an
increase in the assessed values of the Marbrisa and Park Crossing apartment
complexes.
Professional fees incurred in 1994 related to refinancings resulted in a
decrease in administrative expenses during 1995 as compared to 1994.
Rental income increased at the Rosehill Pointe Apartments due to higher rental
rates, resulting in, participation in income of joint venture with an affiliate
during the nine months ended September 30, 1995 as compared to a loss for the
same period in 1994.
Liquidity and Capital Resources
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The cash position of the Partnership increased as of September 30, 1995 when
compared to December 31, 1994 primarily from increased cash flow from
operations of the Partnership's properties.
The Partnership owes approximately $11,900,000 to the General Partner at
September 30, 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. The Partnership made a net repayment of
$395,000 to the General Partner during the nine months ended September 30,
1995.
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 1995 and 1994, six of the Partnership's eight remaining
properties generated positive cash flow. The Chestnut Ridge - Phase I
Apartments generated a marginal cash flow deficit in both 1995 and 1994. The
Marbrisa Apartments generated positive cash flow during 1995 as compared to a
marginal deficit during 1994 due to lower repair and maintenance costs. The
Forest Ridge - Phase II Apartments generated a marginal deficit during 1995 as
compared to positive cash flow during 1994 due to increased expenditures for
structural repairs. In addition, the property in which the Partnership holds a
minority joint venture interest generated positive cash flow in both 1995 and
1994.
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 September 30, 1995, the occupancy rates of
the Partnership's properties ranged from 93% to 100%. Despite improvements
during 1994 and 1995 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 loans and therefore, the Partnership is subject to the
financial obligations required by such loans. As a result of the General
Partner's efforts to obtain loan refinancings, the Partnership has no third
party financing which matures prior to 1998.
In June 1995, the Country Oaks Apartments first mortgage loan was refinanced.
See Note 4 of Notes to Financial Statements for additional information.
A restricted deposit in the amount of $480,000 was pledged as additional
collateral related to the mortgage loan on the Country Oaks Apartments. The
amount pledged as collateral was invested in short-term instruments pursuant to
the terms of the pledge agreement with the lending institution. Interest
earned on this amount accumulated to the benefit of the Partnership. In April
1995, this restricted deposit was released and the accumulated interest was
paid to the Partnership.
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, the repayment
of loans to the General Partner and proceeds from future property sales, as to
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.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 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 D. Parker
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Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Partners-XVII, the General
Partner
Date: November 14, 1995
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