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 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327914
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 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 86 - SERIES I
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 $ 5,745,129 $ 1,093,098
Escrow deposits 2,719,724 2,246,696
Accounts and accrued interest receivable 17,032 5,857
Prepaid expenses 54,512 229,129
Deferred expenses, net of accumulated
amortization of $76,488 in 1996 and
$378,475 in 1995 595,015 619,028
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9,131,412 4,193,808
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Investment in real estate:
Land 7,849,735 11,137,023
Buildings and improvements 49,471,098 83,187,367
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57,320,833 94,324,390
Less accumulated depreciation 19,560,639 34,286,807
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Investment in real estate, net of
accumulated depreciation 37,760,194 60,037,583
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$ 46,891,606 $ 64,231,391
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 76,515 $ 119,006
Due to affiliates 40,842 28,823
Accrued liabilities, principally
real estate taxes and interest 293,166 330,070
Security deposits 350,657 420,724
Mortgage notes payable 47,166,874 74,196,579
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Total liabilities 47,928,054 75,095,202
Affiliates' participation in
joint ventures (1,382,134) (1,283,650)
Limited Partners' capital (deficit)
(59,791 Interests issued and
outstanding) 862,105 (8,962,989)
General Partner's deficit (516,419) (617,172)
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Total partners' capital (deficit) 345,686 (9,580,161)
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$ 46,891,606 $ 64,231,391
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
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 $ 3,850,096 $ 4,056,812
Interest on short-term
investments 27,882 23,856
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Total income 3,877,978 4,080,668
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Expenses:
Interest on mortgage
notes payable 1,943,897 1,668,721
Depreciation 591,285 697,914
Amortization of deferred
expenses 24,013 37,551
Property operating 1,409,358 1,206,302
Real estate taxes 293,563 341,320
Property management fees 196,780 201,588
Administrative 136,848 95,661
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Total expenses 4,595,744 4,249,057
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Loss before gain on sales of
properties and participation
in joint ventures (717,766) (168,389)
Gain on sales of properties 10,800,286
Affiliates' participation in
(income) loss from joint
ventures (7,195) 9,329
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Net income (loss) $ 10,075,325 $ (159,060)
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Net income (loss) allocated to
General Partner $ 100,753 $ (1,591)
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Net income (loss) allocated to
Limited Partners $ 9,974,572 $ (157,469)
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Net income (loss) per Limited
Partnership Interest (59,791
issued and outstanding) $ 166.82 $ (2.63)
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Distribution to Limited Partners $ 149,478 None
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Distribution per Limited Partnership
Interest $ 2.50 None
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
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 income (loss) $ 10,075,325 $ (159,060)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Gain on sales of properties (10,800,286)
Affiliates' participation
in income (loss) from
joint ventures 7,195 (9,329)
Depreciation of properties 591,285 697,914
Amortization of deferred expenses 24,013 37,551
Net change in:
Escrow deposits (138,028) 1,031
Accounts and accrued interest
receivable (11,175) (142,250)
Prepaid expenses 174,617
Accounts payable (42,491) 1,072
Due to affiliates 12,019 32,577
Accrued liabilities (36,904) 170,223
Security deposits (70,067) (3,427)
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Net cash (used in) provided by
operating activities (214,497) 626,302
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Investing activities:
Proceeds from sales of properties 33,074,000
Payment of selling costs (587,610)
Funding of escrow required in
connection with the sale
of property (335,000)
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Net cash provided by investing
activities 32,151,390
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Financing activities:
Capital contribution by joint venture
partner - affiliate 342,760
Distribution to joint venture
partner - affiliate (105,679)
Distribution to Limited
Partners (149,478)
Principal payments on mortgage notes
payable (394,666) (446,610)
Repayment of mortgage notes payable (26,635,039)
Deposit for mortgage loan refinancing (851,580)
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Net cash used in financing
activities (27,284,862) (955,430)
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Net change in cash and cash equivalents 4,652,031 (329,128)
Cash and cash equivalents at beginning
of period 1,093,098 1,058,935
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Cash and cash equivalents at end of
period $ 5,745,129 $ 729,807
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
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,
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
interest expense on mortgage notes payable of $1,943,897 and $1,668,721 and
paid interest expense of $1,908,419 and $1,668,721, 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 $27,704 $40,842
4. Property Sales:
(a) In March 1996, the Partnership sold the Pines of Cloverlane apartment
complex in an all cash sale for $18,974,000. From the proceeds of the sale, the
Partnership paid $14,208,240 to the third party mortgage holder in full
satisfaction of the first mortgage loan, as well as brokerage commissions and
other closing costs totaling $288,460. The Partnership also funded an escrow of
$335,000 required in connection with the sale and received the remaining
$4,142,300 of net sale proceeds. The basis of the property was $12,369,952, net
of accumulated depreciation of $10,441,365. The Partnership recognized a gain
of $6,315,588 related to this sale.
(b) In March 1996, the Partnership sold the Lakeside apartment complex in an
all cash sale for $14,100,000. From the proceeds of the sale, the Partnership
paid $12,894,356 to the third party mortgage holder in full satisfaction of the
first mortgage loan, as well as brokerage commissions and other closing costs
totaling $299,150 and received $906,494 of net sale proceeds. The amount paid
to the mortgage holder includes the outstanding principal balance of the loan
and additional interest expense of $467,557, as required by the loan documents,
which is equal to 50% of the net sale proceeds in excess of $12,654,000. The
basis of the property was $9,316,152, net of accumulated depreciation of
$4,876,088. The Partnership recognized a gain of $4,484,698 related to this
sale.
5. Subsequent Event:
In April 1996, the Partnership paid $4,424,534 to the holders of Limited
Partnership Interests representing the regular quarterly distribution of Net
Cash Receipts of $2.50 per Interest for the first quarter of 1996 and $71.50
per Interest representing Net Cash Proceeds from the sales of the Lakeside and
Pines of Cloverlane apartment complexes.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to invest in and operate
income-producing real property. The Partnership raised $59,791,000 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
eight real property investments and a minority joint venture interest in one
additional real property. Prior to 1996, title to two of these properties and
the property in which the Partnership held a minority joint venture interest
were relinquished through foreclosure. During 1996, the Partnership sold two
additional properties. The Partnership continues to operate its four remaining
properties.
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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The Partnership sold two properties in March 1996. As a result of the gains
recognized on these sales, the Partnership generated net income during the
quarter ended March 31, 1996 as compared to a net loss for the same period in
1995. These gains were partially offset by additional interest expense on
mortgage notes payable paid to the lender on Lakeside Apartments. 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.
In March 1996, the Partnership sold the Pines of Cloverlane and Lakeside
apartment complexes. As a result, the Partnership recognized gains totaling
$10,800,286 during 1996. These sales also resulted in decreases in rental and
service income, depreciation, real estate taxes and property management fees
during 1996 as compared to 1995.
Increased rental income due to higher rental rates at certain of the
Partnership's remaining properties during 1996 as compared to 1995 partially
offset the decrease in rental and service income due to the property sales.
Interest expense on mortgage notes payable increased during 1996 as compared to
1995 due to a $467,557 payment made to the lender in connection with the sale
of the Lakeside Apartments, as required by the loan documents. This increase
was partially offset by lower interest expense at the Lakeville Apartments due
to the 1995 loan refinancing at a lower interest rate and the sales of the
Lakeside and the Pines of Cloverlane apartment complexes during March 1996.
The amortization of deferred loan fees on the current Lakeville Resort
Apartments mortgage note is lower than the amortization related to the former
mortgage note, resulting in a decrease in amortization expense for 1996 as
compared to 1995.
Increases in sewer and water expenses, structural repairs, landscaping
expenses, and interior upgrades at the Pines of Cloverlane Apartments prior to
its sale and increases in sewer and water expenses and interior upgrades at the
Lake Ridge Apartments, resulted in higher property operating expenses during
1996 as compared to 1995.
The Partnership incurred increased legal, portfolio management, printing and
postage costs in connection with a tender offer during the first quarter of
1996. This resulted in an increase in administrative expenses during 1996 as
compared to 1995.
Lower interest expense and amortization expense at the Lakeville Resort
Apartments due to the June 1995 refinancing, resulted in affiliates'
participation in income from joint ventures during 1996 as compared to
affiliates participation in loss from joint venture during 1995.
Liquidity and Capital Resources
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The Partnership's cash position increased by approximately $4,652,000 as of
March 31, 1996 when compared to December 31, 1995 primarily as a result of the
sales of the Lakeside and Pines of Cloverlane apartment complexes in March
1996. The Partnership used cash of approximately $214,000 for its operating
activities which consisted primarily of operating cash flow from the properties
which was offset by the payment of additional interest expense relating to the
sale of the Lakeside Apartments as well as administrative expenses. Investing
activities consisted of proceeds received from the sales of properties of
$33,074,000, the payment of closing costs of approximately $588,000 and the
funding of an escrow relating to the Pines of Cloverlane sale of $335,000.
Financing activities consisted of the repayment of mortgage notes payable
relating to the Pines of Cloverlane and Lakeside apartment complexes of
approximately $26,635,000, principal payments on mortgage notes payable of
approximately $395,000 and distributions to Limited Partners and the Lakeville
joint venture partner of approximately $149,000 and $106,000, respectively. The
Partnership made a special distribution to the Limited Partners from sales
proceeds in April 1996.
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 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, 1996 and 1995, the Partnership's four remaining properties
generated positive cash flow. The Lakeside Apartments generated a marginal cash
flow deficit prior to its sale in March 1996 and during the first quarter of
1995. The Pines of Cloverlane Apartments generated a significant cash flow
deficit prior to its sale in March 1996 as compared to positive cash flow
during the first quarter of 1995 due to expenses incurred to enhance the
property's sale value. As of March 31, 1996, the occupancy rates of the
Partnership's properties ranged from 95% to 100%.
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.
Each of the Partnership's properties is owned through the use of third-party
mortgage loan financing and, therefore, the Partnership is subject to the
financial obligations required by such loans. The third party financing of
approximately $6,900,000 on the Brighton Townhomes Apartments matures in 1996
and the Partnership has entered into a contract to sell this property. The
Partnership does not own any other properties with third party financing which
matures prior to 1998.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. During March
1996, the Partnership sold the Lakeside and Pines of Cloverlane apartment
complexes. The Partnership has also entered into contracts to sell the
Lakeville Resort Apartments and the Brighton Townhomes for sales prices of
$27,200,00 and $11,500,000, respectively. See Item 5. Other Information for
further details concerning the sale contract on Brighton Townhomes. Currently,
the Partnership is preparing to market the two remaining properties. If current
market conditions remain favorable and the General Partner can obtain
appropriate sales prices, the Partnership's liquidation strategy may be
accelerated.
During March 1996, the Partnership sold the Pines of Cloverlane and Lakeside
apartment complexes in all cash sales for $18,974,000 and $14,100,000,
respectively. From the proceeds, the Partnership paid $14,208,240 and
$12,894,356, respectively, to the third party mortgage holders in full
satisfaction of the first mortgage loans on the properties. After payment of
related closing costs, escrows and additional interest expense, the sales
generated proceeds of approximately $5,049,000. See Note 4 of Notes to
Financial Statements for additional information.
During April 1996, the Partnership paid $4,424,534 ($74.00 Per Interest) to the
holders of Limited Partnership Interests for the first quarter of 1996. The
regular quarterly distribution level of $2.50 per Interest remained unchanged
from the amount distributed for the fourth quarter of 1995. In addition, Net
Cash Proceeds of $71.50 per Interest from the sales of the Pines of Cloverlane
and Lakeside apartment complexes were distributed to holders of Limited
Partnership Interests. To date, including the April 1996 distribution,
investors have received cumulative distributions of Net Cash Receipts of $7.50
per $1,000 Interest and Net Cash Proceeds of $71.50 per $1,000 Interest,
totaling $79.00 per $1,000 Interest, as well as certain tax benefits. The
General Partner expects to continue quarterly distributions to Limited Partners
based on the current performance of the Partnership's properties. However, the
level of future distributions, if available, will depend on cash flow from the
Partnership's remaining properties and proceeds from future property sales, as
to all of 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
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 5. Other Information
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Brighton Townhomes
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In 1986, the Partnership acquired Brighton Townhomes, Washington County,
Oregon, utilizing approximately $2,640,000 of offering proceeds. The
Partnership acquired the property subject to first mortgage financing in the
amount of $7,402,000.
On May 6, 1996, the Partnership contracted to sell the property for a sale
price of $11,500,000 to an unaffiliated party, Security Capital Pacific Trust,
a Maryland real estate investment trust. The purchaser has deposited $300,000
into an escrow account as earnest money. The remaining $11,200,000 of the sale
price will be paid in cash by the purchaser at closing, scheduled to be held on
June 17, 1996. The purchaser has two thirty-day options to extend the closing
which may be exercised upon 5 days written notice to the Partnership and a
deposit into escrow of an additional $25,000 in earnest money for each
extension. From the proceeds of the sale, the Partnership will pay the
outstanding balance of the first mortgage loan, which is expected to be
$6,858,644 at closing, $172,500 to an unaffiliated party as a brokerage
commission and closing costs. Neither the General Partner nor any of its
affiliates will receive a brokerage commission in connection with the sale. The
General Partner will be reimbursed by the Partnership for its actual expenses
incurred in connection with the sale.
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible that the sale of the property may not
occur.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), and Form of Confirmation regarding Interests in the
Partnership 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. 0-15649) are
incorporated herein by reference.
(10) Material Contracts:
(i) The Agreement of Sale and attachment thereto relating to the sale of Pines
of Cloverlane Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated January 25, 1996 is incorporated herein by
reference.
(ii) First, Second and Third Amendments to Agreement of Sale relating to the
sale of Pines of Cloverlane Apartments previously filed as Exhibits (10) (ii),
(10)(iii) and (10)(iv), respectively, to the Registrant's Report on Form 10-K
for the year ended December 31, 1995 is incorporated herein by reference.
(iii) The Agreement of Sale and attachment thereto relating to the sale of the
Lakeside Apartments previously filed as Exhibit 2 to the Registrant's Current
Report on Form 8-K dated February 21, 1996 is incorporated herein by reference.
(iv) The Agreement of Sale and attachment thereto relating to the sale of
Lakeville Resort Apartments previously filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated April 23, 1996 is incorporated herein by
reference.
(v) The Agreement of Sale relating to the sale of Brighton Townhomes is
attached hereto.
(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 the contract to sell the Lakeville Resort Apartments in
Petaluma, California.
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 86-SERIES I
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-XIX, 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-XIX,
the General Partner
Date: May 15, 1996
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