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 June 30, 1998
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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 0-14350
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BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3333344
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
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 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
June 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
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Cash and cash equivalents $ 1,664,616 $ 2,414,280
Accounts and accrued interest receivable 7,300 58,673
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$ 1,671,916 $ 2,472,953
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 21,139 $ 33,961
Due to affiliates 39,756 29,373
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Total liabilities 60,895 63,334
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Commitments and contingencies
Limited Partners' capital (59,092 Interests
issued and outstanding) 1,919,538 2,718,136
General Partner's deficit (308,517) (308,517)
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Total partners' capital 1,611,021 2,409,619
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$ 1,671,916 $ 2,472,953
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
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Income:
Rental and service $ 2,359,598
Interest on short-term investments $ 42,424 95,349
Other income 7,972
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Total income 50,396 2,454,947
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Expenses:
Interest on mortgage notes payable 884,242
Depreciation 398,991
Amortization of deferred expenses 53,538
Property operating 19,830 793,312
Real estate taxes 212,311
Property management fees 116,640
Administrative 109,386 215,826
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Total expenses 129,216 2,674,860
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(Loss) before gain on sale of property,
affiliate's participation in joint venture
and extraordinary item (78,820) (219,913)
Gain on sale of property 4,846,446
Affiliate's participation in loss from
joint venture 11,792
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(Loss) income before extraordinary item (78,820) 4,638,325
Extraordinary item:
Debt extinguishment expense (379,280)
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Net (loss) income $ (78,820) $ 4,259,045
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Income before extraordinary item
allocated to General Partner None $ 46,383
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(Loss) income before extraordinary item
allocated to Limited Partners $ (78,820) $ 4,591,942
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
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(Loss) income before extraordinary item per
Limited Partnership Interest (59,092 issued
and outstanding) - Basic and Diluted $ (1.33) $ 77.71
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Extraordinary item allocated to
General Partner None $ (3,793)
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Extraordinary item allocated to
Limited Partners None $ (375,487)
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Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) -
Basic and Diluted None $ (6.36)
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Net income allocated to General Partner None $ 42,590
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Net (loss) income allocated to
Limited Partners $ (78,820) $ 4,216,455
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Net (loss) income per Limited Partnership
Interest (59,092 issued and outstanding) -
Basic and Diluted $ (1.33) $ 71.35
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Distributions to Limited Partners $ 719,778 $ 5,083,094
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Distributions per Limited Partnership
Interest (59,092 issued and outstanding) $ 12.18 $ 86.02
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1998 and 1997
(Unaudited)
1998 1997
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Income:
Rental and service $ 1,035,313
Interest on short-term investments $ 22,256 58,651
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Total income 22,256 1,093,964
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Expenses:
Interest on mortgage notes payable 420,955
Depreciation 182,988
Amortization of deferred expenses 25,628
Property operating 410,499
Real estate taxes 95,976
Property management fees 52,154
Administrative 43,763 129,788
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Total expenses 43,763 1,317,988
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(Loss) before gain on sale of property,
affiliate's participation in joint venture
and extraordinary item (21,507) (224,024)
Gain on sale of property 4,846,446
Affiliate's participation in loss from
joint venture 11,265
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(Loss) income before extraordinary item (21,507) 4,633,687
Extraordinary item:
Debt extinguishment expense (379,280)
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Net (loss) income $ (21,507) $ 4,254,407
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Income before extraordinary item
allocated to General Partner None $ 46,337
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(Loss) income before extraordinary item
allocated to Limited Partners $ (21,507) $ 4,587,350
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
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(Loss) income before extraordinary item per
Limited Partnership Interest (59,092 issued
and outstanding) - Basic and Diluted $ (0.36) $ 77.63
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Extraordinary item allocated to
General Partner None $ (3,793)
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Extraordinary item allocated to
Limited Partners None $ (375,487)
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Extraordinary item per Limited Partnership
Interest (59,092 issued and outstanding) -
Basic and Diluted None $ (6.36)
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Net income allocated to General Partner None $ 42,544
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Net (loss) income allocated to
Limited Partners $ (21,507) $ 4,211,863
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Net (loss) income per Limited Partnership
Interest (59,092 issued and outstanding) -
Basic and Diluted $ (0.36) $ 71.27
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Distribution to Limited Partners None $ 680,740
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Distribution per Limited Partnership
Interest (59,092 issued and outstanding) None $ 11.52
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
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Operating activities:
Net (loss) income $ (78,820) $ 4,259,045
Adjustments to reconcile net (loss) income
to net cash (used in) or provided by
operating activities:
Gain on sale of property (4,846,446)
Debt extinguishment expense 95,822
Affiliate's participation in loss from
joint venture (11,792)
Depreciation of properties 398,991
Amortization of deferred expenses 53,538
Net change in:
Escrow deposits 131,497
Accounts and accrued interest receivable 51,373 57,872
Prepaid expenses 59,888
Accounts payable (12,822) 85,353
Due to affiliates 10,383 4,513
Accrued real estate taxes 153,702
Security deposits (39,485)
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Net cash (used in) or provided by
operating activities (29,886) 402,498
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Investing activities:
Proceeds from sale of property 10,000,000
Payment of selling costs (272,478)
Distributions from joint venture with
an affiliate 1,046,660
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Net cash provided by investing activities 10,774,182
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Financing activities:
Distributions to Limited Partners (719,778) (5,083,094)
Deemed distribution to Limited Partners (214,203)
Principal payments on mortgage note payable (103,407)
Repayment of mortgage note payable (6,443,945)
Distribution to joint venture
partner - affiliate (31,085)
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Cash used in financing activities (719,778) (11,875,734)
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85 - SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
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Net change in cash and cash equivalents (749,664) (699,054)
Cash and cash equivalents at beginning
of period 2,414,280 5,888,040
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Cash and cash equivalents at end of period $ 1,664,616 $ 5,188,986
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The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) For financial statement purposes, the capital accounts of the General
Partner and the Limited Partners have been adjusted to appropriately 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 six months
and quarter ended June 30, 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 two remaining properties.
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 6 of Notes to
Financial Statements. In the absence of any such contingency, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
3. Other Income:
The Partnership recognized other income during 1998 in connection with a refund
of state income taxes relating to the gain on the sale of the Country Ridge
Apartments during 1996.
4. Interest Expense:
During the six months ended June 30, 1997, the Partnership incurred and paid
interest expense on mortgage notes payable of $884,242.
5. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1998 are:
Paid
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Six Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 9,137 $ 3,183 $ 39,756
6. 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 of the Partnership. The
Partnership believes it has meritorious defenses to contest the claims.
BALCOR REALTY INVESTORS 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 85-Series III A Real Estate Limited Partnership (the
"Partnership") was formed in 1984 to invest in and operate income-producing
real property. The Partnership raised $59,092,000 from the sale of Limited
Partnership Interests and utilized these proceeds to acquire eight real
properties and a minority joint venture interest in one additional real
property. As of June 30, 1998, the Partnership had no properties remaining in
its portfolio.
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.
Summary of Operations
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Administrative expenses were higher than interest income earned on short-term
investments during the six months and quarter ended June 30, 1998. This was the
primary reason the Partnership recognized a net loss for the six months and
quarter ended June 30, 1998. The Partnership recognized a gain in connection
with the sale of the Howell Station Apartments in May 1997. This was the
primary reason the Partnership recognized net income during the six months and
quarter ended June 30, 1997. Further discussion of the Partnership's operations
is summarized below.
1998 Compared to 1997
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Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the six months and quarters ended June 30, 1998 and 1997.
The Partnership sold the Howell Station and North Hill apartment complexes
during 1997. As a result, rental and service income, interest expense on
mortgage notes payable, depreciation, amortization, real estate taxes and
property management fees ceased during 1997.
Due to higher average cash balances in 1997 as a result of the investment of
proceeds received in connection with the property sales prior to distribution
to Limited Partners, interest income on short-term investments decreased during
1998 as compared to 1997.
The Partnership recognized other income during 1998 in connection with a refund
of state income taxes relating to the gain on the sale of the Country Ridge
Apartments during 1996.
Property operating expense decreased during 1998 as compared to 1997 due to the
sales of the Partnership's two remaining properties in 1997. The Partnership
paid final payroll expenditures during 1998 relating to North Hill Apartments,
which was sold in 1997.
Due to expenses incurred by the General Partner to sell the Partnership's two
remaining properties in 1997 and lower accounting and legal fees as a result of
prior years' property sales, administrative expenses decreased during 1998 as
compared to 1997.
In May 1997, the Partnership sold the Howell Station Apartments and recognized
a gain in connection with the sale of $4,846,446.
In connection with the sale of the Howell Station Apartments in May 1997, the
Partnership wrote off the remaining unamortized deferred financing fees of
$95,822 and paid a prepayment penalty of $283,458. These amounts were
recognized as debt extinguishment expense and classified as an extraordinary
item for financial statement purposes.
The North Hill Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. Due to the sale of this property in 1997
affiliate's participation in loss from joint venture ceased during 1997.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $750,000 as of
June 30, 1998 when compared to December 31, 1997 primarily due to the
distribution paid to Limited Partners during January 1998. The Partnership used
cash of approximately $30,000 in its operating activities to pay administrative
and property operating expenses which was partially offset by the receipt of
interest income on short-term investments and a refund of state income taxes
relating to the gain on the sale of the Country Ridge Apartments during 1996.
Financing activities consisted of the payment of a distribution to Limited
Partners of approximately $720,000.
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 two remaining properties.
The Partnership has retained a portion of the proceeds 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 6 of Notes to
Financial Statements. In the absence of any such contingency, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
To date, Limited Partners have received cumulative distributions of Net Cash
Receipts of $59.75 per $1,000 Interest and Net Cash Proceeds of $363.95 per
$1,000 Interest, totaling $423.70 per $1,000 Interest. 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 85-SERIES III
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) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
to the Partnership's Registration Statement on Form S-11 dated August 2, 1985
(Registration No. 2-97249), and Form of Confirmation regarding Interests in the
Partnership set forth as Exhibit 4.2 to the Partnership's Report on Form 10-Q
for the quarter ended June 30, 1992 (Commission File No. 0-14350) are
incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto relating to the sale of
Shadowridge Apartments previously filed as Exhibit (2)(a) to the Registrant's
Current Report on Form 8-K dated July 5, 1996, is incorporated herein by
reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Shadowridge Apartments previously filed as Exhibit (99) to the
Registrant's Current Report on Form 10-Q dated June 30, 1996, is incorporated
herein by reference.
(b)(i) Agreement of Sale relating to the sale of North Hill Apartments, DeKalb
County, Georgia, previously filed as Exhibit (2) to the Registrant's Current
Report on Form 8-K dated May 22, 1997, is incorporated herein by reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(ii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(iii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(iv) Third Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(iv) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(v) Fourth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(v) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(vi) Fifth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(vi) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(vii) Sixth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(vii) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(viii) Letter Agreement dated June 30, 1997 relating to the sale of North Hill
Apartments, DeKalb County, Georgia, previously filed as Exhibit (10)(e)(viii)
to the Registrant's Current Report on Form 10-Q dated June 30, 1997, is
incorporated herein by reference.
(ix) Seventh Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of North Hill Apartments, DeKalb County, Georgia, previously filed as
Exhibit (10)(e)(ix) to the Registrant's Current Report on Form 10-Q dated June
30, 1997, is incorporated herein by reference.
(x) Eighth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of North Hill Apartments, DeKalb County, Georgia, is incorporate herein by
reference.
(c)(i) Agreement of Sale relating to the sale of Howell Station Apartments
previously filed as Exhibit (2)(b)(ii) to the Registrant's Current Report on
Form 8-K dated February 21, 1997, is incorporated herein by reference.
(ii) Amendment No.1 relating to the sale of Howell Station Apartments
previously filed as Exhibit (2)(b)(ii) to the Registrant's Current Report on
Form 8-K dated February 21, 1997, is incorporated herein by reference.
(iii) Agreement relating to the sale of Howell Station Apartments previously
filed as Exhibit (2)(b)(iii) to the Registrant's Current Report on Form 8-K
dated February 21, 1997, is incorporated herein by reference.
(iv) Amendment No. 2 to Agreement of Sale relating to the sale of Howell
Station Apartments previously filed as Exhibit (2)(b)(iv) to the Registrant's
Current Report on Form 8-K dated February 21, 1997, is incorporated herein by
reference.
(v) Amendment No. 3 to Agreement of Sale relating to Howell Station Apartments,
previously filed as Exhibit (10)(f)(v) to the Registrant's Current Report on
Form 10-K for the year ended December 31, 1996, is incorporated herein by
reference.
(vi) Amendment No. 4 to Agreement of Sale relating to Howell Station
Apartments, previously filed as Exhibit (10)(f)(vi) to the Registrant's Current
Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated
herein by reference.
(vii) Amendment No. 5 to Agreement of Sale relating to Howell Station
Apartments, previously filed as Exhibit (10)(f)(vii) to the Registrant's
Current Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
(27) Financial Data schedule of the Partnership for the six months ended June
30, 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 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 85-SERIES III
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Thomas E. Meador
---------------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Partners-XVIII, the
General Partner
By: /s/ Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of Balcor
Partners-XVIII, the General Partner
Date:
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