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
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the transition period from to
------------ ------------
Commission file number 0-15649
-------
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3327914
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
---------------
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
----- -----
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,691,863 $ 1,972,846
Escrow deposits 274,906 274,906
Accounts and accrued interest receivable 7,690 12,962
Prepaid expenses 2,331
-------------- --------------
$ 1,976,790 $ 2,260,714
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 65,042 $ 52,096
Due to affiliates 30,193 28,175
-------------- --------------
Total liabilities 95,235 80,271
-------------- --------------
Commitments and contingencies
Limited Partners' capital
(59,791 Interests issued and
outstanding) 2,198,516 2,497,404
General Partner's deficit (316,961) (316,961)
-------------- --------------
Total partners' capital 1,881,555 2,180,443
-------------- --------------
$ 1,976,790 $ 2,260,714
============== ==============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental and service $ 30,002
Interest on short-term
investments $ 23,513 87,525
-------------- --------------
Total income 23,513 117,527
-------------- --------------
Expenses:
Interest on mortgage
notes payable 37,810
Depreciation 4,393
Amortization of deferred
expenses 260
Property operating 29,214
Real estate taxes 1,870
Property management fees 1,113
Administrative 68,686 94,620
-------------- --------------
Total expenses 68,686 169,280
-------------- --------------
Loss before gain on sale of
property and extraordinary
item (45,173) (51,753)
Gain on sale of property 828,751
-------------- --------------
(Loss) income before extraordinary item (45,173) 776,998
-------------- --------------
Extraordinary item:
Debt extinguishment expense None (161,761)
-------------- ------------
Net (loss) income $ (45,173) $ 615,237
============== ==============
Income before extraordinary item
allocated to General Partner None $ 10,904
============== ==============
(Loss) income before extraordinary item
allocated to Limited Partners $ (45,173) $ 766,094
============== ==============
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, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
(Loss) income before extraordinary item
per Limited Partnership
Interest (59,791 issued
and outstanding) - Basic and Diluted $ (0.76) $ 12.81
============== ==============
Extraordinary item allocated
to General Partner None $ (1,618)
============== ==============
Extraordinary item allocated
to Limited Partners None $ (160,143)
============== ==============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) None $ (2.68)
============== ==============
Net income allocated to
General Partner None $ 9,286
============== ==============
Net (loss) income allocated to
Limited Partners $ (45,173) $ 605,951
============== ==============
Net (loss) income per Limited
Partnership Interest (59,791
issued and outstanding) - Basic and
Diluted $ (0.76) $ 10.13
============== ==============
Distribution to Limited Partners $ 253,715 $ 9,865,515
============== ==============
Distribution per Limited Partnership
Interest (59,791 issued and
outstanding) $ 4.24 $ 165.00
============== ==============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net (loss) income $ (45,173) $ 615,237
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Gain on sale of property (828,751)
Debt extinguishment expense 35,539
Depreciation of properties 4,393
Amortization of deferred expenses 260
Net change in:
Escrow deposits 198,283
Accounts and accrued interest
receivable 5,272 20,800
Prepaid expenses (2,331) 14,178
Accounts payable 12,946 6,958
Due to affiliates 2,018 (5,456)
Accrued liabilities (35,921)
Security deposits (32,222)
-------------- --------------
Net cash used in operating
activities (27,268) (6,702)
-------------- --------------
Investing activities:
Proceeds from sales of property 5,400,000
Payment of selling costs (196,656)
------------
Net cash provided by investing
activities 5,203,344
------------
Financing activities:
Distribution to joint venture
partner - affiliate (1,064,860)
Distribution to Limited
Partners (253,715) (9,865,515)
Repayment of mortgage notes payable (4,210,138)
-------------- --------------
Cash used in financing activities (253,715) (15,140,513)
-------------- --------------
Net change in cash and cash equivalents (280,983) (9,943,871)
Cash and cash equivalents at beginning
of period 1,972,846 12,857,731
-------------- --------------
Cash and cash equivalents at end of
period $ 1,691,863 $ 2,913,860
============== ==============
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 Policies:
(a) The loss allocation between the Limited Partners and the General Partner
have been adjusted for financial statement purposes during 1998 in order that
the capital account balances more accurately reflect their remaining economic
interests as provided for in the Partnership Agreement.
(b) 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, 1998, and all such adjustments are of a normal and recurring
nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining property, Lake
Ridge Apartments. The Partnership has retained a portion of the cash from the
property sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in Note 5 of
Notes to Financial Statements. Due to this litigation, the Partnership will not
be dissolved and reserves will be held by the Partnership until the conclusion
of all contingencies. There can be no assurance as to the time frame for the
conclusion of these contingencies.
3. Interest Expense:
During the quarter ended March 31, 1997, the Partnership incurred and paid
interest expense on mortgage notes payable of $37,810.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1998 are:
Paid Payable
------------ ---------
Reimbursement of expenses to
the General Partner, at cost $ 6,123 $ 30,193
5. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain state securities and common law violations
with regard to the property acquisition process of the Partnership, and to the
adequacy and accuracy of disclosures of information concerning, as well as
marketing efforts related to, the offering of the Limited Partnership Interests
of the Partnership. The defendants continue to vigorously contest these
actions. A plaintiff class has not been certified in either action and, no
determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations or liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
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. The Partnership has no properties remaining in its
portfolio at March 31, 1998.
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 1997 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
Administrative expenses were higher than interest earned on short-term
investments, which resulted in a net loss during the quarter ended March 31,
1998. During January 1997, the Partnership sold the Lake Ridge Apartments and
recognized a gain for financial statement purposes. The gain was partially
offset by debt extinguishment expense recognized on the sale of the property.
As a result, the Partnership recognized net income during the quarter ended
March 31, 1997. Further discussion of the Partnership's operations is
summarized below.
1998 Compared to 1997
- ---------------------
Discussions of fluctuations between 1998 and 1997 refer to the quarters ended
March 31, 1998 and 1997.
The Partnership sold the Lake Ridge Apartments during January 1997 and
recognized a gain of $828,751 in connection with the property sale. As a result
of the sale, rental and service income, interest expense on mortgage notes
payable, depreciation, amortization, property operating expense, real estate
taxes and property management fees ceased during 1997.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the sale of the Lake Ridge Apartments
prior to distribution to Limited Partners. This resulted in a decrease in
interest income on short-term investments during 1998 as compared to 1997.
Due primarily to lower accounting and legal fees, administrative expenses
decreased during 1998 as compared to 1997.
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as an extraordinary item for
financial statement purposes.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership as of March 31, 1998 decreased by
approximately $281,000 as compared to December 31, 1997 primarily due to the
payment of a distribution to Limited Partners of remaining available Net Cash
Proceeds. The Partnership used cash of approximately $27,000 from its operating
activities to pay administrative expenses which were partially offset by
interest income earned on short-term investments. The Partnership used cash to
fund its financing activities which consisted of a distribution of
approximately $254,000 to Limited Partners.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining property, the Lake
Ridge Apartments. The Partnership has retained a portion of the cash from the
property sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in Note 5 of
Notes to the Financial Statements. Due to this litigation, the Partnership will
not be dissolved and reserves will be held by the Partnership until the
conclusion of all contingencies. There can be no assurance as to the time frame
for the conclusion of these contingencies.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account of $335,000 to provide for certain
costs the purchaser may incur related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 out of the escrow funds to cover such costs. The term of the
escrow is six years, although a settlement is expected to be negotiated by
1999. It is not determinable at this time if the Partnership will receive the
remaining amounts in the escrow account.
To date, Limited Partners have received distributions of Net Cash Receipts of
$12.50 and Net Cash Proceeds of $290.74, totaling $303.24 per $1,000 Interest,
as well as certain tax benefits. No additional distributions are anticipated to
be made prior to the termination of the Partnership. However, after paying
final partnership expenses, any remaining cash reserves will be distributed.
Limited Partners will not recover a substantial portion of their original
investment.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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:
(a)(i) The Agreement of Sale and attachment thereto relating to the sale of the
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.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Lakeville Resort Apartments, Petaluma, California, previously filed as Exhibit
(10)(c)(ii) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 is incorporated herein by reference.
(iv) Letter Agreements dated May 22, 1996 and July 8, 1996 relating to the sale
of Lakeville Resort Apartments, Petaluma, California, previously filed as
Exhibit (10)(c)(iv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 is incorporated herein by reference.
(v) Letter Agreements dated August 20, 1996, September 19, 1996 and September
30, 1996 relating to the sale of Lakeville Resort Apartments, Petaluma,
California, previously filed as Exhibit (99)(a) to the Registrant's Current
Report on Form 8-K dated August 16, 1996 are incorporated herein by reference.
(b) The Agreement of Sale and attachment thereto relating to the sale of Cedar
Crest Apartments, Overland Park, Kansas, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated August 16, 1996 incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed in Form 8-K during the quarter
ended March 31, 1998.
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
--------------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Partners - XIX, the General Partner
By:/s/Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of
Balcor Partners - XIX, the General Partner
Date: May 5, 1998
------------------------