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, 1996
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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 (847) 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
March 31, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
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Cash and cash equivalents $ 1,500,854 $ 1,125,457
Escrow deposits 1,569,948 1,693,209
Accounts and accrued interest receivable 37,175 143,573
Prepaid expenses 33,295 137,929
Deferred expenses, net of accumulated
amortization of $481,995 in 1996, and
$429,418 in 1995 961,269 1,013,846
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4,102,541 4,114,014
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Investment in real estate:
Land 10,525,187 10,525,187
Buildings and improvements 62,537,549 62,537,549
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73,062,736 73,062,736
Less accumulated depreciation 26,609,478 26,137,982
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Investment in real estate, net of
accumulated depreciation 46,453,258 46,924,754
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$ 50,555,799 $ 51,038,768
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LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 11,900,605 $ 11,900,605
Accounts payable 138,994 142,159
Due to affiliates 665,277 756,004
Accrued liabilities, principally interest
and real estate taxes 278,041 480,390
Security deposits 234,298 233,034
Loss in excess of investment in joint
venture with an affiliate 1,213,239 1,207,069
Mortgage notes payable - affiliate 1,673,215 1,673,215
Mortgage notes payable 51,687,802 51,796,170
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Total liabilities 67,791,471 68,188,646
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Limited Partners' deficit (83,936
Interests issued and outstanding) (16,313,306) (16,228,370)
General Partner's deficit (922,366) (921,508)
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Total partners' deficit (17,235,672) (17,149,878)
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$ 50,555,799 $ 51,038,768
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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, 1996 and 1995
(Unaudited)
1996 1995
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Income:
Rental and service $ 3,395,521 $ 3,146,803
Interest on short-term investments 24,360 16,840
Participation in income of joint
venture with an affiliate 12,952 22,483
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Total income 3,432,833 3,186,126
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Expenses:
Interest on mortgage notes payable 1,180,772 1,247,158
Interest on short-term loans
from affiliate 192,031 202,866
Depreciation 471,496 471,496
Amortization of deferred expenses 52,577 50,450
Property operating 1,132,853 974,756
Real estate taxes 222,234 261,842
Property management fees 169,109 154,918
Administrative 97,555 121,440
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Total expenses 3,518,627 3,484,926
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Net loss $ (85,794) $ (298,800)
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Net loss allocated to General Partner $ (858) $ (2,988)
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Net loss allocated to Limited Partners $ (84,936) $ (295,812)
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Net loss per Limited Partnership Interest
(83,936 issued and outstanding) $ (1.01) $ (3.52)
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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, 1996 and 1995
(Unaudited)
1996 1995
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Operating activities:
Net loss $ (85,794) $ (298,800)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Participation in income of joint
venture with an affiliate (12,952) (22,483)
Depreciation 471,496 471,496
Amortization of deferred expenses 52,577 50,450
Net change in:
Escrow deposits 81,769 (145,615)
Accounts and accrued interest
receivable 106,398 (38,688)
Prepaid expenses 104,634
Accounts payable (3,165) (129,363)
Due to affiliates (90,727) 233,664
Accrued liabilities (202,349) (67,834)
Security deposits 1,264 6,697
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Net cash provided by operating activities 423,151 59,524
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Investing activity:
Distribution from joint venture with
an affiliate 19,122 13,640
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Cash provided by investing activity 19,122 13,640
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Financing activities:
Proceeds from loans payable - affiliate 25,000
Principal payments on mortgage notes
payable (108,368) (99,728)
Release from repair escrows 41,492
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Net cash used in financing activities (66,876) (74,728)
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Net change in cash and cash equivalents 375,397 (1,564)
Cash and cash equivalents at beginning
of period 1,125,457 600,949
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Cash and cash equivalents at end of period $ 1,500,854 $ 599,385
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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:
A reclassification has been made to the previously reported 1995 statements in
order to provide comparability with the 1996 statements. This reclassification
has not changed the 1995 results. 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, 1996, and all such adjustments are of a normal
and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1996 and 1995, the Partnership incurred and
paid interest expense on non-affiliated mortgage notes payable of $1,141,670
and $1,172,782, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost $17,255 $38,665
The Partnership incurred interest expense on mortgage notes payable-affiliate
of $39,102 and $74,376 and paid interest expense of $19,954 and $10,477 during
the quarters ended March 31, 1996 and 1995, respectively. Interest expense of
$31,240 was payable as of March 31, 1996 and is included in due to affiliates
on the balance sheet.
As of March 31, 1996, 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 incurred interest expense of $192,031
and $202,866, and paid interest expense of $300,000 and $7,682 on this loan
during the quarters ended March 31, 1996 and 1995, respectively. As of March
31, 1996, interest expense of $626,612 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, 1996, this rate was 5.85%.
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 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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Increased rental income at seven of the eight remaining properties due to
higher rental rates resulted in a decrease in the net loss for the Partnership
during the quarter ended March 31, 1996 as compared to the same period in 1995.
This improvement was partially offset by higher property operating expenses
during 1996. Further discussion of the Partnership's operations is summarized
below.
1996 Compared to 1995
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Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
As a result of higher rental rates at all of the Partnership's properties
except Willow Bend Lake Apartments, rental income and property management fees
increased for 1996 when compared to 1995.
As a result of higher average cash balances, interest income on short-term
investments increased for 1996 when compared to 1995.
Property operating expense increased during 1996 when compared to 1995 due to
higher consulting, utilities, payroll and repair and maintenance expenditures
at seven of the Partnership's properties. This increase was partially offset by
lower repair and maintenance expenditures at Marbrisa Apartments.
Real estate tax expense decreased during 1996 when compared to 1995 as a result
of a decrease in the tax rate at the Hunter's Glen Apartments and the receipt
of a refund of a portion of a prior year's real estate taxes for the Marbrisa
Apartments.
Primarily as a result of decreased accounting fees, administrative expenses
decreased during 1996 when compared to 1995.
Real estate taxes increased at the Rosehill Pointe Apartments due to an
increase in the property's assessed value. As a result, participation in income
of joint venture with an affiliate decreased during 1996 when compared to 1995.
Liquidity and Capital Resources
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The cash position of the Partnership increased by approximately $375,000 as of
March 31, 1996 when compared to December 31, 1995. The Partnership generated
cash flow totaling approximately $423,000 from its operating activities which
primarily represented the operations of its properties, net of administrative
expenses and payment of interest on short-term loans from an affiliate. The
Partnership's investing activity consisted of a distribution from the joint
venture with an affiliate of approximately $19,000. The Partnership's financing
activities consisted of principal payments on mortgage notes payable of
approximately $108,000 and proceeds from the release of repair escrows of
approximately $41,000.
The Partnership owes approximately $11,900,000 to the General Partner at March
31, 1996 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 can be no assurances that
such loans will be available. 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 1996 and 1995, seven of the Partnership's eight remaining
properties generated positive cash flow. The Chestnut Ridge - Phase I
Apartments generated a marginal deficit during 1996 as compared to positive
cash flow during 1995 due to plumbing repairs. The Marbrisa Apartments, which
generated positive cash flow during 1996, operated at a marginal deficit in
1995 primarily due to repairs and maintenance required by the terms of the
mortgage loan. In addition, the property in which the Partnership holds a
minority joint venture interest generated positive cash flow in both 1996 and
1995. As of March 31, 1996, the occupancy rates at the Partnership's properties
ranged from 93% to 97%.
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 improving operating
performance and seeking rent increases where market conditions allow.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. The
Partnership has entered into negotiations for a contract to sell Park Crossing
Apartments and has entered into a contract to sell the Forest Ridge Apartments
- - Phase II for a sales price of $11,100,000. Also, the Partnership and the
affiliated partnership which own the Rosehill Pointe Apartments through a joint
venture have entered into a contract to sell the property for a sales price of
$20,700,000. The Partnership is preparing to market one property for sale and
is actively marketing five additional properties. If current market conditions
remain favorable, and the General Partner can obtain appropriate sales prices,
the Partnership's liquidation strategy may be accelerated.
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.
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. In light of results to date and current
market conditions, the General Partner does not anticipate that investors will
recover a substantial portion of their original investment.
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) Material Contracts
Agreement of Sale relating to the sale of Forest Ridge Apartments - Phase II,
Arlington, Texas, previously filed as Exhibit 2 to the Registrant's Report on
Form 8-K dated April 23, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1996 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated April 23, 1996 was
filed reporting contracts to sell Forest Ridge Apartments - Phase II located in
Arlington, Texas and Rosehill Pointe Apartments located in Lenexa, Kansas.
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: May 15, 1996
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