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, 1997
------------------
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, 1997 and December 31, 1996
(Unaudited)
ASSETS
1997 1996
-------------- ---------------
Cash and cash equivalents $ 2,913,860 $ 12,857,731
Escrow deposits 335,000 533,283
Accounts and accrued interest receivable 150,278 171,078
Prepaid expenses 14,178
Deferred expenses, net of accumulated
amortization of $39,380 in 1996 35,799
-------------- ---------------
3,399,138 13,612,069
-------------- ---------------
Investment in real estate:
Land 1,045,776
Buildings and improvements 5,789,366
---------------
6,835,142
Less accumulated depreciation 2,456,156
---------------
Investment in real estate, net of
accumulated depreciation 4,378,986
-------------- ---------------
$ 3,399,138 $ 17,991,055
============== ===============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 140,330 $ 133,372
Due to affiliates 111,905 117,361
Accrued liabilities, principally
real estate taxes 35,921
Security deposits 32,222
Mortgage note payable 4,210,138
-------------- ---------------
Total liabilities 252,235 4,529,014
-------------- ---------------
Affiliates' participation in
joint ventures 1,064,860
---------------
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1997 and December 31, 1996
(Unaudited)
(Continued)
Commitments and contingencies
Limited Partners' capital
(59,791 Interests issued and
outstanding) 3,463,864 12,723,428
General Partner's deficit (316,961) (326,247)
-------------- ---------------
Total partners' capital 3,146,903 12,397,181
-------------- ---------------
$ 3,399,138 $ 17,991,055
============== ===============
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, 1997 and 1996
(Unaudited)
1997 1996
-------------- ---------------
Income:
Rental and service $ 30,002 $ 3,850,096
Interest on short-term
investments 87,525 27,882
-------------- ---------------
Total income 117,527 3,877,978
-------------- ---------------
Expenses:
Interest on mortgage
notes payable 37,810 1,476,340
Lender participation 467,557
Depreciation 4,393 591,285
Amortization of deferred
expenses 260 24,013
Property operating 29,214 1,409,358
Real estate taxes 1,870 293,563
Property management fees 1,113 196,780
Administrative 94,620 136,848
-------------- ---------------
Total expenses 169,280 4,595,744
-------------- ---------------
Loss before gain on sales of
properties, participation in joint
ventures and extraordinary item (51,753) (717,766)
Gain on sales of properties 828,751 10,800,286
Affiliates' participation in
income from joint ventures (7,195)
-------------- ---------------
Income before extraordinary item 776,998 10,075,325
-------------- ---------------
Extraordinary item:
Debt extinguishment expense (161,761)
--------------
Net income $ 615,237 $ 10,075,325
============== ===============
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, 1997 and 1996
(Unaudited)
(Continued)
1997 1996
-------------- ---------------
Income before extraordinary item
allocated to General Partner $ 10,904 $ 100,753
============== ===============
Income before extraordinary item
allocated to Limited Partners $ 766,094 $ 9,974,572
============== ===============
Income before extraordinary item
Per Limited Partnership
Interest (59,791 issued
and outstanding) $ 12.81 $ 166.82
============== ===============
Extraordinary item allocated
to General Partner $ (1,618) None
============== ===============
Extraordinary item allocated
to Limited Partners $ (160,143) None
============== ===============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) $ (2.68) None
============== ===============
Net income allocated to
General Partner $ 9,286 $ 100,753
============== ===============
Net income allocated to
Limited Partners $ 605,951 $ 9,974,572
============== ===============
Net income per Limited
Partnership Interest (59,791
issued and outstanding) $ 10.13 $ 166.82
============== ===============
Distribution to Limited Partners $ 9,865,515 $ 149,478
============== ===============
Distribution per Limited Partnership
Interest (59,791 issued and
outstanding) $ 165.00 $ 2.50
============== ===============
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, 1997 and 1996
(Unaudited)
1997 1996
-------------- ---------------
Operating activities:
Net income $ 615,237 $ 10,075,325
Adjustments to reconcile net income
to net cash used in operating
activities:
Gain on sales of property (828,751) (10,800,286)
Debt extinguishment expense 35,539
Affiliates' participation
in income from joint ventures 7,195
Depreciation of properties 4,393 591,285
Amortization of deferred expenses 260 24,013
Net change in:
Escrow deposits 198,283 (138,028)
Accounts and accrued interest
receivable 20,800 (11,175)
Prepaid expenses 14,178 174,617
Accounts payable 6,958 (42,491)
Due to affiliates (5,456) 12,019
Accrued liabilities (35,921) (36,904)
Security deposits (32,222) (70,067)
-------------- ---------------
Net cash used in operating
activities (6,702) (214,497)
-------------- ---------------
Investing activities:
Proceeds from sales of property 5,400,000 33,074,000
Payment of selling costs (196,656) (587,610)
Funding of escrow required in
connection with the sale of property (335,000)
------------ -------------
Net cash provided by investing
activities 5,203,344 32,151,390
------------ -------------
Financing activities:
Distribution to joint venture
partner - affiliate (1,064,860) (105,679)
Distribution to Limited
Partners (9,865,515) (149,478)
Principal payments on mortgage notes
payable (394,666)
Repayment of mortgage notes payable (4,210,138) (26,635,039)
-------------- ---------------
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, 1997 and 1996
(Unaudited)
(Continued)
Net cash used in financing
activities (15,140,513) (27,284,862)
-------------- ---------------
Net change in cash and cash equivalents (9,943,871) 4,652,031
Cash and cash equivalents at beginning
of period 12,857,731 1,093,098
-------------- ---------------
Cash and cash equivalents at end of
period $ 2,913,860 $ 5,745,129
============== ===============
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) A reclassification has been made to the previously reported 1996 financial
statements in order to provide comparability with the 1997 statements. This
reclassification has not changed the 1996 results.
(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, 1997, and all such adjustments are of a normal and recurring
nature.
(c) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the General
Partner was allocated additional income in 1997 for financial statement
purposes.
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 1996, the Partnership sold five properties and 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 stemming from litigation involving the Partnership including,
but not limited to, the lawsuits discussed in Note 7 of Notes to Financial
Statements. In the absence of any such contingency, the reserves will be paid
within twelve months of the last property sale. In the event a contingency
continues to exist or arises, reserves may be held by the Partnership for a
longer period of time.
3. Interest Expense:
During the quarters ended March 31, 1997 and 1996, the Partnership incurred
interest expense on mortgage notes payable of $37,810 and $1,476,340, and paid
interest expense of $37,810 and $1,440,862, respectively.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1997 are:
Paid Payable
------------ ---------
Reimbursement of expenses to
the General Partner, at cost $11,287 $111,905
5. Property Sale:
In January 1997, the Partnership sold the Lake Ridge Apartments in an all cash
sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first and second mortgage loans, and paid $196,656 in selling costs and
$126,222 in prepayment penalties. The basis of the property was $4,374,593,
which is net of accumulated depreciation of $2,460,549. For financial statement
purposes, the Partnership recognized a gain of $828,751 from the sale of this
property.
6. Extraordinary Item:
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership wrote-off the remaining unamortized deferred financing fees related
to the property of $35,539 and paid $126,222 in prepayment penalties. These
amounts were recognized as an extraordinary item and classified as a debt
extinguishment expense.
7. 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 federal securities law violations with regard
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 and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
8. Subsequent Event:
In April 1997, the Partnership paid a distribution of $747,388 ($12.50 per
Interest) to the holders of Limited Partnership Interests representing a
special distribution of remaining available Net Cash Proceeds received in
connection with the 1996 sales of the Cedar Crest and Lakeville Resort
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 1997, seven of the real property investments
and the minority joint venture interest in a property were sold. During 1997,
the Partnership sold its remaining property, the Lake Ridge Apartments.
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 1996 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The Partnership recognized significant gains on the sales of two properties
during March 1996. The gains were the primary reasons the Partnership
recognized lower net income during the quarter ended March 31, 1997 as compared
to the same period in 1996. Further discussion of the Partnership's operations
is summarized below.
1997 Compared to 1996
- ---------------------
Discussions of fluctuations between 1997 and 1996 refer to the quarters ended
March 31, 1997 and 1996.
The sales of the Pines of Cloverlane, Lakeside, Brighton Townhomes, Lakeville
and Cedar Crest apartment complexes during 1996 and the sale of the Lake Ridge
Apartments during January 1997, resulted in decreases in rental and service
income, interest expense on mortgage notes payable, depreciation, amortization,
property operating expense, real estate taxes and property management fees
during 1997 as compared to 1996. During 1997, the Partnership recognized a
gain of $828,751 in connection with the sale of Lake Ridge Apartments. During
1996, the Partnership recognized gains totaling $10,800,286 in connection with
the sales of the Pines of Cloverlane and Lakeside apartment complexes.
Interest income on short-term investments increased in 1997 as compared to 1996
due to higher average cash balances resulting from the investment of property
sales proceeds prior to making distributions to Limited Partners in January
1997.
The Partnership paid to the lender a participation of $467,557 in connection
with the sale of the Lakeside Apartments during 1996. The lender participation
represents additional interest paid to the lender calculated as a percentage of
the sales price in excess of amounts specified in the loan agreement.
The Partnership incurred higher portfolio management and professional fees
during 1996. As a result, administrative expenses decreased in 1997 as compared
to 1996.
The Lakeville and Cedar Crest apartment complexes, which generated income
before their sale in 1996, were owned through joint ventures with affiliates.
As a result of the sales, affiliates' participation in income from joint
venture ceased in 1996.
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership wrote-off the remaining unamortized deferred financing fees related
to the property of $35,539 and paid $126,222 in prepayment penalties. These
amounts were recognized as an extraordinary item and classified as debt
extinguishment expense.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership as of March 31, 1997 decreased by
approximately $9,944,000 as compared to December 31, 1996 primarily due to the
January 1997 distribution of sale proceeds to Limited Partners which was
partially offset by the net proceeds received from the sale of the Lake Ridge
Apartments in January 1997. Net cash used in operating activities of
approximately $7,000 during 1997 consisted primarily of the loss generated from
operations of the Lake Ridge Apartments prior to its sale and the payment of
administrative expenses which were partially offset by interest income received
on short-term investments. Cash provided by investing activities of
approximately $5,203,000 consisted of the net proceeds received from the sale
of the Lake Ridge Apartments. Cash used in financing activities consisted of a
special distribution of approximately $9,865,000 to Limited Partners, the
repayment of the Lake Ridge Apartments' mortgage note payable of approximately
$4,210,000 and a distribution to joint venture partner - affiliate of
approximately $1,065,000. A special distribution of $747,388 from the remaining
available proceeds from the 1996 sales of the Lakeville Resort and Cedar Crest
apartment complexes was paid to the Limited Partners during April 1997.
In January 1997, the Partnership sold the Lake Ridge Apartments in an all cash
sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first and second mortgage loans, paid $196,656 in selling costs and also
paid $126,222 in prepayment penalties. See Note 5 of Notes to Financial
Statements for additional information.
The Lakeville Resort Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. Pursuant to the sale agreement for the property,
$500,000 of the sale proceeds was retained by the joint venture and was
unavailable for distribution until February 1997, at which time the funds were
released in full. The Partnership's share of the funds was $298,750.
The Cedar Crest Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. Pursuant to the sale agreement for the property,
$500,000 of the sale proceeds was retained by the joint venture and was
unavailable for distribution until March 1997, at which time the funds were
released in full. The Partnership's share of the funds was $481,800.
In April 1997, the Partnership made a distribution of $747,388 ($12.50 per
$1,000 Interest) to the holders of Limited Partnership Interests representing a
special distribution of remaining available Net Cash Proceeds received in
connection with the sales of the Cedar Crest and Lakeville Resort apartment
complexes. Since all of the Partnership's properties have been sold, no
additional quarterly distributions are expected. Including the April 1997
distribution, investors have received distributions of Net Cash Receipts of
$12.50 and Net Cash Proceeds of $286.50, totaling $299.00 per $1,000 Interest,
as well as certain tax benefits. Investors will not recover a substantial
portion of their original investment.
During 1996, the Partnership sold five properties and during 1997, the
Partnership sold its remaining property, the Lake Ridge Apartments. The
majority of the proceeds from the sales has been distributed to Limited
Partners. The Partnership has retained a portion of the cash from the 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 stemming from litigation involving the Partnership including,
but not limited to, the lawsuits discussed in Note 7 of Notes to Financial
Statements. In the absence of any such contingency, the reserves will be paid
within twelve months of the last property sale. In the event a contingency
continues to exist or arises, reserves may be held by the Partnership for a
longer period of time.
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
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.
(b) 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.
(c)(i) 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.
(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 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 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 Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated 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 Report on
Form 8-K dated August 16, 1996 are incorporated herein by reference.
(d)(i) The Agreement of Sale relating to the sale of Brighton Townhomes
Apartments previously filed as Exhibit (10)(v) to the Registrant's Report on
Form 10-Q for the quarter ending March 31, 1996 is incorporated herein by
reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement dated May 31,
1996 relating to the sale of Brighton Townhomes, Washington County, Oregon,
previously filed as Exhibit (10)(d)(ii) to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1996 is incorporated herein by reference.
(iii) Letter of Termination dated June 12, 1996 relating to the sale of
Brighton Townhomes, Washington County, Oregon, previously filed as Exhibit
(10)(d)(iii) to the Registrant's Report on Form 10-Q for the quarter ended June
30, 1996 is incorporated herein by reference.
(iv) Reinstatement and Second Amendment to Agreement of Sale and Escrow
Agreement dated June 13, 1996 relating to the sale of Brighton Townhomes,
Washington County, Oregon, previously filed as Exhibit (10)(d)(iv) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated herein by reference.
(v) Letter of Extension dated July 8, 1996 relating to the sale of Brighton
Townhomes, Washington County, Oregon, previously filed as Exhibit (10)(d)(v) to
the Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 is
incorporated herein by reference.
(e) 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 is incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1997 is attached hereto.
(b) Reports on Form 8-K: No reports were filed in Form 8-K during the quarter
ended March 31, 1997.
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
Managing Director and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Partners XIX, the General Partner
Date: May 15, 1996
---------------