Item 1. Business - ----------------
Balcor Equity Properties Ltd.-VIII (the "Registrant") is a limited partnership formed in 1979 under the laws of the State of Illinois. The Registrant raised $30,005,000 from sales of Limited Partnership Interests. The Registrant's operations consist exclusively of investment in and operation of income-producing real property, and all information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire thirteen real property investments. The Registrant has since disposed of eight of these properties. As of December 31, 1995, the Registrant owned the five properties described under "Item 2.
Item 2. Properties - ------------------
As of December 31, 1995, the Registrant owns the five properties described below:
Location Description of Property - -------- -----------------------
San Antonio, Texas Cedar Creek Apartment Complex - Phase I: a 176-unit apartment complex located on approximately five acres.
San Antonio, Texas Cedar Creek Apartment Complex - Phase II: a 216-unit apartment complex located on approximately six acres.
Colorado Springs, Colorado Greentree Village Apartment Complex: a 216-unit apartment complex located on approximately eight acres.
San Antonio, Texas Walnut Hills Apartment Complex - Phase I: a 192-unit apartment complex located on approximately eight acres.
San Antonio, Texas Walnut Hills Apartment Complex - Phase II: a 232-unit apartment complex located on approximately eight acres.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its real estate investment properties.
Each of the properties is held subject to mortgages.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.
Item 3. Legal Proceedings - -------------------------
Proposed class action - ---------------------
On February 29, 1996, a proposed class action complaint was filed, Raymond Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of the State of New York, County of New York). The Registrant, additional limited partnerships which were sponsored by The Balcor Company, three limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Registrant and the affiliated partnerships, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are defendants. The complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation and breach of fiduciary duty relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest accrued thereon; general damages for injuries arising from the defendants' actions; recovery from the defendants of all profits received by them as a result of their actions relating to the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. Management of each of the defendants believes they have meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted to a vote of the Limited Partners of the Registrant during 1995.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------------------------------------------------------------------------- Matters - -------
There has not been an established public market for Limited Partnership Interests and it is not anticipated that one will develop; therefore, the market value of the Limited Partnership Interests cannot reasonably be determined. For information regarding distributions, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
As of December 31, 1995, the number of record holders of Limited Partnership Interests of the Registrant was 3,042.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- --------- ---------- ---------- ---------- Total income $6,043,472 $6,175,042 $5,290,545 $5,336,906 $5,129,643 Income (loss) before gain on sale of property and extraordinary item 135,417 414,158 (327,499) (567,448) (679,607) Net income (loss) 135,417 700,620 (327,499) 31,753 (679,607) Net income (loss) per LPI 4.47 23.12 (10.81) 1.05 (22.42) Total assets 12,335,453 15,387,316 15,170,384 14,278,492 16,312,664 Mortgage notes payable 15,212,762 15,320,720 15,419,064 13,226,872 14,570,999 Distributions per LPI 100.57(A) None None None None
(A) This amount includes a distribution of original capital of $59.74 per Limited Partnership Interest.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Operations - ----------
Summary of Operations - ---------------------
During 1994, Balcor Equity Properties Ltd. - VIII (the "Partnership") received a repayment of its interest in the Sherwood Lake Apartments wrap-around note receivable and recognized the previously deferred gain. As a result, net income decreased during 1995 as compared to 1994 and the Partnership recognized net income during 1994 as compared to a net loss during 1993. Further discussion of the Partnership's operations is summarized below.
1995 Compared to 1994 - ---------------------
Due to higher average cash balances, primarily from the Sherwood Lakes Apartments wrap-around note receivable repayment received in November 1994, and higher interest rates earned on short-term investments, interest income on short-term investments increased during 1995 as compared to 1994.
During November 1994, the Partnership's interest in Sherwood Lakes Apartments wrap-around note receivable was repaid. As a result of this repayment, the Partnership recognized interest income on wrap-around note receivable as well as the previously deferred gain on sale of property.
The outstanding short-term loans from the General Partner were repaid during 1994. Prior to this repayment, the Partnership recognized interest expense on short-term loans during 1994.
The Partnership incurred non-recurring legal, consulting, printing and postage costs in connection with two tender offers during 1995. As a result, administrative expenses increased during 1995 as compared to 1994.
1994 Compared to 1993 - ---------------------
Rental rates and/or average occupancy levels increased at all of the Partnership's five properties resulting in increases in rental and service income and property management fees during 1994 as compared to 1993.
Due to higher average cash balances, primarily from the Sherwood Lakes repayment and higher interest rates earned on short-term investments, interest income on short-term investments increased during 1994 as compared to 1993.
As a result of the Sherwood Lakes Apartments wrap-around note receivable repayment in November 1994, the Partnership recognized interest income on wrap-around note receivable and the previously deferred gain on sale of property. No interest income was recognized in 1993 since the wrap-around note receivable had been placed on non-accrual status. For non-accrual loans, income is recorded only as cash payments are received from the purchaser.
The outstanding short-term loan from the General Partner was repaid during 1994, resulting in a decrease in interest expense on short-term loans during 1994 as compared to 1993.
The Partnership incurred refinancing fees in connection with the May 1993 mortgage loan refinancings on the Cedar Creek - Phases I and II and Walnut Hills - Phases I and II apartment complexes which are amortized over the term of the respective loan agreements. As a result, amortization of deferred expenses increased during 1994 as compared to 1993.
Increased accounting and portfolio management fees and data processing costs resulted in an increase in administrative expenses during 1994 as compared to 1993.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership decreased as of December 31, 1995 when compared to December 31, 1994. Operating activities include cash flow from the property operations and short-term investments, which was partially offset by the payment of administrative expenses. Financing activities consisted primarily of a distribution to the Limited Partners, and principal payments on mortgage notes payable.
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 1995 and 1994, four of the Partnership's five properties generated positive cash flow. The Walnut Hills - Phase I Apartments generated a marginal cash flow deficit during 1995 and 1994; however, the combined property operations of the Walnut Hills - Phase I and Phase II apartment complexes generated positive cash flow during the same periods.
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, improving operating performance, and seeking rent increases where market conditions allow.
The General Partner had previously advised limited partners that its strategy was to sell the Partnership's remaining assets over the next two to three years. The General Partner also stated that the timing of the liquidation could be lengthened or shortened due to changes in market conditions, economic factors, interest rates and unforeseen events. Since November 1995, the General Partner believes that the market for multifamily housing properties has become increasingly favorable to sellers of these properties. This belief is based on the results of the sales and marketing activities of the Partnership as described below and based upon the similar results of such activities by various other partnerships affiliated with the Partnership. These favorable market conditions are in part attributable to the increasing strength of the capital markets and the re-entry of REITs into the acquisition market. Since November 1995, the General Partner has entered into a letter of intent to sell one of the Partnership's five remaining properties, and, if the market remains favorable, intends to begin actively marketing more of the remaining properties for sale. If the current market conditions for sales remain favorable and the General Partner can obtain appropriate sales prices, the Partnership's liquidation strategy may be accelerated.
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. See Note 5 of Notes to Financial Statements for information concerning outstanding balances, maturity dates, interest rates and terms related to each of these mortgage loans. As a result of the General Partner's efforts to obtain refinancing of existing loans with
new lenders, the Partnership has no third-party financing which matures prior to 2002.
The Partnership made a distribution of $100.57 per Interest in October 1995. This distribution reflects the resumption by the Partnership of distributions from Net Cash Receipts, a special distribution of $59.74 per Interest from Net Cash Proceeds related to the receipt by the Partnership of the repayment of its interest in a purchase money note received upon the sale of the Sherwood Lakes Apartments and a special distribution of $33.33 per Interest from Net Cash Receipts reserves.
In January 1996, the Partnership paid a distribution of $225,038 ($7.50 per Interest) to the holders of Limited Partnership Interests representing the quarterly distribution from Net Cash Receipts for the fourth quarter of 1995. Including the January 1996 distribution, Limited Partners have received distributions of Net Cash Receipts of $173.33 and Net Cash Proceeds of $142.24, totaling $315.57 per $1,000 Interest, as well as certain tax benefits. The Partnership does not anticipate that it will pay a distribution for the first quarter of 1996. In light of results to date and current market conditions, the General Partner does not anticipate that investors will recover all of their original investment.
In 1995, the Financial Accounting Standards Board issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which establishes accounting standards for impairment of long-lived assets and long-lived assets to be disposed of. This statement has been adopted by the Partnership as of January 1, 1995, and did not have a material impact on the financial position or results of operations of the Partnership.
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 sale prices depending on general or local economic conditions. In the long-term, inflation can be expected to increase operating costs and replacement costs and may lead to increased rental revenues and real estate values.
Item 8.
Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
The net effect of the differences between the financial statements and the tax return is summarized as follows:
December 31, 1995 December 31, 1994 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- ---------- ----------- --------
Total assets $12,335,453 $14,268,357 $15,387,316 $17,613,469 Partners' (deficit)
capital accounts: General Partner (224,045) (181,585) (225,399) (220,802) Limited Partners (3,366,783) (1,476,343) (483,243) 1,738,312 Net income (loss): General Partner 1,354 39,217 7,006 349,105 Limited Partners 134,063 (197,052) 693,614 (362,706) Per Limited Part- nership Interest 4.47 6.57 23.12 (12.09)
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - --------------------
There have been no changes in or disagreements with accountants on any matter of accounting principles, practices or financial statement disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
(a) Neither the Registrant nor BRI Partners-79, its General Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers and significant employees of the General Partner of the Registrant are as follows:
TITLE OFFICERS ----- -------- Chairman, President and Chief Thomas E. Meador Executive Officer Senior Vice President Alexander J. Darragh Senior Vice President Josette V. Goldberg Senior Vice President Alan G. Lieberman Senior Vice President, Chief Brian D. Parker Financial Officer, Treasurer and Assistant Secretary Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman, President and Chief Executive Officer and has responsibility for all ongoing day-to-day activities at Balcor. He is a Director of The Balcor Company. He is also Senior Vice President of American Express Company and is responsible for its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial real estate division where he was involved in various lending activities. Mr. Meador received his M.B.A. degree from the Indiana University Graduate School of Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is responsible for due diligence analysis and real estate advisory services for Balcor and American Express Company. He also has supervisory responsibility for Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban Geography from Queen's University and in Urban Planning from Northwestern University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary responsibility for all human resources matters. In addition, she has supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for Balcor's property sales and capital markets functions. Mr. Lieberman is a Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial Officer and Chief Accounting Officer, is responsible for Balcor's financial, legal and treasury functions. He is a Director of The Balcor Company. Mr. Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy from DePaul University.
John K. Powell Jr. (June 1950) joined Balcor in September 1985 and is responsible for portfolio and asset management matters relating to Balcor's partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk management and investor services functions. He received a Master of Planning degree from the University of Virginia. Mr. Powell has been designated a Certified Real Estate Financier by the National Society for Real Estate Finance and is a full member of the Urban Land Institute.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any material legal proceedings nor were any such proceedings terminated during the fourth quarter of 1995.
Item 11.
Item 11. Executive Compensation - ------------------------------- The Registrant has not paid and does not propose to pay any remuneration to the executive officers and directors of BRI Partners-79, the General Partner. Certain of these officers receive compensation from The Balcor Company (but not from the Registrant) for services performed for various affiliated entities, which may include services performed for the Registrant. However, the General Partner believes that any such compensation attributable to services performed for the Registrant is immaterial to the Registrant. See Note 8 of Notes to Financial Statements for the information relating to transactions with affiliates.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially more than 5% of the outstanding Limited Partnership Interests of the Registrant:
Name and Amount and Address of Nature of Percent Beneficial Beneficial of Title of Class Owner Ownership Class - -----------------------------------------------------------------------------
Limited WIG VIII 2,005.5 6.68% Partnership Partners Limited Interests Chicago, Partnership Illinois Interests
(b) Neither BRI Partners-79 nor its officers or partners own any Limited Partnership Interests of the Registrant.
Relatives and affiliates of the partners and officers of the General Partner do not own any additional interests.
(c) The Registrant is not aware of any arrangements, the operation of which may result in a change of control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
See Note 8 of Notes to Financial Statements for information relating to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership previously filed as Exhibit 2(a) to Amendment No. 5 to the Registrant's Registration Statement on Form S-11 dated July 16, 1980 (Registration No. 2-63821) is incorporated herein by reference.
(4) Certificate of Limited Partnership set forth as Exhibit 2(b) to Amendment No. 4 to the Registrant's Registration Statement on Form S-11 dated July 8, 1980 (Registration No. 2-63821) and Form of Confirmation regarding Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-9541) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1995.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PROPERTIES LTD.-VIII
By: /s/Brian D. Parker ----------------------------------- Brian D. Parker Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of BRI Partners-79, the General Partner
Date: March 28, 1996 --------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------------------- ------------------------------- ------------
President and Chief Executive Officer (Principal Executive Officer) of BRI Partners-79, /s/Thomas E. Meador the General Partner March 28, 1996 - -------------------- -------------- Thomas E. Meador
Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of BRI Partners-79, the /s/Brian D. Parker General Partner March 28, 1996 - -------------------- -------------- Brian D. Parker
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Deficit, for the years ended December 31, 1995, 1994 and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1995
Financial Statement Schedules, other than that listed, are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Balcor Equity Properties Ltd.-VIII:
We have audited the financial statements and the financial statement schedule of Balcor Equity Properties Ltd.-VIII (An Illinois Limited Partnership) as listed in the index of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balcor Equity Properties Ltd.-VIII at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois March 20, 1996
BALCOR EQUITY PROPERTIES, LTD. - VIII (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ------------- ------------- Cash and cash equivalents $ 542,128 $ 2,988,843 Escrow deposits - unrestricted 803,873 724,015 Escrow deposits - restricted 94,709 94,352 Accounts and accrued interest receivable 839 33,711 Prepaid expenses 63,360 Deferred expenses, net of accumulated amortization of $147,229 in 1995 and $93,393 in 1994 449,353 503,189 ------------- ------------- 1,954,262 4,344,110 ------------- ------------- Investment in real estate: Land 1,325,898 1,325,898 Buildings and improvements 20,518,019 20,518,019 ------------- ------------- 21,843,917 21,843,917 Less accumulated depreciation 11,462,726 10,800,711 ------------- ------------- Investment in real estate, net of accumulated depreciation 10,381,191 11,043,206 ------------- ------------- $ 12,335,453 $ 15,387,316 ============= =============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 45,964 $ 77,177 Due to affiliates 19,344 49,347 Accrued liabilities, principally real estate taxes 551,280 548,122 Security deposits 96,931 100,592 Mortgage notes payable 15,212,762 15,320,720 ------------- ------------- Total liabilities 15,926,281 16,095,958
Limited Partners' deficit (30,005 Interests issued and outstanding) (3,366,783) (483,243)
General Partner's deficit (224,045) (225,399) ----------- ----------- Total partner's deficit (3,590,828) (708,642) ------------- ------------- $ 12,335,453 $ 15,387,316 ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES, LTD. - VIII (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT for the years ended December 31, 1995, 1994 and 1993
Partners' Deficit Accounts -------------------------------------------- General Limited Total Partner Partners ------------- ------------ ---------------
Balance at December 31, 1992 $ (1,081,763) $ (229,130) $ (852,633)
Net loss for the year ended December 31, 1993 (327,499) (3,275) (324,224) ------------- ------------ --------------- Balance at December 31, 1993 (1,409,262) (232,405) (1,176,857)
Net income for the year ended December 31, 1994 700,620 7,006 693,614 ------------- ------------ --------------- Balance at December 31, 1994 (708,642) (225,399) (483,243)
Cash distributions (A) (3,017,603) (3,017,603)
Net income for the year ended December 31, 1995 135,417 1,354 134,063 ------------- ------------ --------------- Balance at December 31, 1995 $ (3,590,828) $ (224,045) $ (3,366,783) ============= ============ ===============
(A) A distribution of $100.57 per Limited Partnership Interest was made in the fourth quarter of 1995.
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES, LTD. - VIII (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------- ------------ --------------- Income: Rental and service $ 5,861,649 $ 5,724,364 $ 5,271,564 Interest on short-term investments 181,823 43,253 18,981 Interest on wrap-around note receivable 407,425 ------------- ------------ --------------- Total income 6,043,472 6,175,042 5,290,545 ------------- ------------ ---------------
Expenses: Interest on mortgage notes payable 1,448,914 1,463,776 1,419,454 Interest on short-term loans from affiliate 5,773 38,845 Depreciation 662,015 655,407 648,503 Amortization of deferred expenses 53,836 53,836 32,860 Property operating 2,478,862 2,424,097 2,398,046 Real estate taxes 555,297 545,503 534,618 Property management fees 279,931 286,031 262,846 Administrative 429,200 326,461 282,872 ------------- ------------ --------------- Total expenses 5,908,055 5,760,884 5,618,044 ------------- ------------ --------------- Income (loss) before gain on sale of property 135,417 414,158 (327,499)
Gain on sale of property 286,462 ------------- ------------ --------------- Net income (loss) $ 135,417 $ 700,620 $ (327,499) ============= ============ =============== Net income (loss) allocated to General Partner $ 1,354 $ 7,006 $ (3,275) ============= ============ =============== Net income (loss) allocated to Limited Partners $ 134,063 $ 693,614 $ (324,224) ============= ============ =============== Net income (loss) per Limited Partnership Interest (30,005 issued and outstanding) $ 4.47 $ 23.12 $ (10.81) ============= ============ ===============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES, LTD. - VIII (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------- ------------ --------------- Operating activities: Net income (loss) $ 135,417 $ 700,620 $ (327,499) Adjustments to reconcile net income (loss)to net cash provided by operating activities: Gain on sale of property (286,462) Depreciation of properties 662,015 655,407 648,503 Amortization of deferred expenses 53,836 53,836 32,860 Net change in: Escrow deposits - unrestricted (79,858) (138,271) (373,551) Escrow deposits - restricted (42,817) (12,672) (30,839) Accounts and accrued interest receivable 32,872 (33,711) Prepaid expenses (63,360) Accounts payable (31,213) 22,474 (11,679) Due to affiliates (30,003) 11,936 (8,996) Accrued liabilities 3,158 13,580 393,159 Security deposits (3,661) (15,559) 16,680 ------------- ------------ --------------- Net cash provided by operating activities 636,386 971,178 338,638 ------------- ------------ --------------- Investing activities: Additions to properties (60,134) (133,077) Proceeds from wrap-around note receivable 1,792,575 ------------ --------------- Net cash provided by or used in investing activities 1,732,441 (133,077) ------------ --------------- Financing activities: Proceeds from issuance of mortgage notes payable 12,350,000 Payments of mortgage notes payable (10,025,572) Repayment of loans payable- affiliate (417,775) (1,361,965) Principal payments on mortgage notes payable (107,958) (98,344) (132,236) Funding of repair escrows (235,277) Releases of repair escrows 99,903 135,374 Releases of escrow deposits - restricted 42,460 109,822 102,860 Payment of deferred expenses (474,277) Distributions to Limited Partners (3,017,603) ------------- ------------ --------------- Net cash used in or provided by financing activities (3,083,101) (306,394) 358,907 ------------- ------------ --------------- Net change in cash and cash equivalents (2,446,715) 2,397,225 564,468 Cash and cash equivalents at beginning of period 2,988,843 591,618 27,150 ------------- ------------ --------------- Cash and cash equivalents at end of period $ 542,128 $ 2,988,843 $ 591,618 ============= ============ ===============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Properties Ltd.-VIII is engaged principally in the operation of residential real estate located in Texas and Colorado.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
(b) Depreciation expense is computed using straight-line and accelerated methods. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Buildings and improvements 15 to 33 years Furniture and fixtures 3 to 5 years
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
As properties are sold, the related costs and accumulated depreciation are removed from the respective accounts. Any gain or loss on disposition is recognized in accordance with generally accepted accounting principles. Deferred gains on the sales of properties result from sales recorded under the installment method. Gains are recognized based on the gross profit percentage as future sales proceeds are collected.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the Partnership records its investments in real estate at the lower of cost or fair value, and periodically assesses, but not less than on an annual basis, possible impairment to the value of its properties. The General Partner estimates the fair value of its properties by dividing the property's expected net operating income by a risk adjusted rate of return which considers economic and demographic conditions in the market. In the event the General Partner determines an impairment in value has occurred, and the carrying amount of the real estate asset will not be recovered, a provision is recorded to reduce the carrying basis of the property to its estimated fair value. The General Partner considers the method referred to above to result in a reasonable measurement of a property's fair value, unless other factors affecting the property's value indicate otherwise.
(d) Deferred expenses consist of loan refinancing fees which are amortized over the terms of the respective agreements.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate that value. Since quoted market prices are not available for the Partnership's financial instruments, fair values have been based on estimates using present value techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. Statement No. 107 does not apply to all balance sheet items and excludes certain financial instruments and all non-financial instruments such as real estate from its disclosure requirements.
(f) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less.
(g) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
(h) The Partnership is not liable for Federal income taxes and each Partner recognizes his proportionate share of the Partnership income or loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(i) Several reclassifications have been made to the previously reported 1994 and 1993 financial statements to conform with the classifications used in 1995. These reclassifications have not changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized in February 1979. The Partnership Agreement provides for BRI Partners-79 to be the General Partner and for the admission of Limited Partners through the sale of up to 30,005 Limited Partnership Interests at $1,000 per Interest, all of which were sold on or prior to October 31, 1980, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated 1% of the profits and losses. To the extent Net Cash Receipts are distributed, the General Partner will be entitled to 10% of the Net Cash Receipts (9% being its management fee and 1% being its distributive share), which payment is subordinated to certain levels of return to holders of Interests as specified by the Partnership Agreement. There have been no cash payments made to the General Partner under these provisions.
When and as the Partnership sells or refinances properties, the Net Cash Proceeds resulting therefrom which are available for distribution will be distributed only to holders of Interests until such time as holders of Interests have received an amount equal to their Original Capital plus certain levels of return, as specified by the Partnership Agreement. Only after such returns are made to the Limited Partners would the General Partner receive 15% of further distributed Net Cash Proceeds. There have been no cash payments made to the General Partner under these provisions.
4. Wrap-around Note Receivable:
In January 1988, the Partnership sold (subject to the underlying debt obligations) the wrap-around note receivable previously received by the Partnership as a portion of the selling price of the Sherwood Lake Apartments. At closing, the Partnership retained a 21.6% interest in the note pursuant to
the terms of a participation agreement entered into by the Partnership and the purchaser of the note.
The purchaser of the property failed to make the balloon payment due in June 1991. As a result, foreclosure proceedings were commenced and shortly thereafter the purchaser of the property filed for protection under the U.S. Bankruptcy Code. In December 1993, a liquidation plan was confirmed by the bankruptcy court. In November 1994, the Partnership received $2,200,000 representing its participation in the wrap-around note. The repayment consisted of the Partnership's share of the principal balance of the note of $1,792,575 and interest income of $407,425. The Partnership also recognized a $286,462 deferred gain on sale.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1995 and 1994 consisted of the following:
Carrying Carrying Current Final Property Amount of Amount of Inter- Matur- Current Estimated Pledged as Notes at Notes at est ity Monthly Balloon Collateral 12/31/95 12/31/94 Rate Date Payment Payment - ----------- ----------- ---------- ------- ------- -------- ------- Apartment Complexes: Cedar Creek Phase I $ 2,333,156 $ 2,350,562 9.38% 2003 $19,763 $2,138,000 Cedar Creek Phase II 2,775,228 2,795,931 9.38% 2003 23,507 2,543,000 Greentree Village 3,083,359 3,099,604 9.75% 2026 26,479 None Walnut Hills Phase I 5,125,345 5,164,476 9.26% 2002 42,977 4,767,000 Walnut Hills Phase II 1,895,674 1,910,147 9.26% 2002 15,896 1,763,000 ----------- -----------
Total $15,212,762 $15,320,720 =========== ===========
All of the Partnership's loans described above require current monthly payments of principal and interest.
Real estate with an aggregate carrying value of $10,381,191 at December 31, 1995 was pledged as collateral for repayment of mortgage loans.
Future annual maturities of the above mortgage notes payable during each of the next five years are approximately as follows :
1996 $ 119,000 1997 130,000 1998 143,000 1999 157,000 2000 172,000
During the years ended December 31, 1995, 1994 and 1993, the Partnership incurred and paid interest expense on mortgage notes payable of $1,448,914, $1,463,776 and $1,419,454, respectively.
6. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are under management agreements with a third-party management company. These management agreements provide for annual fees of 5% of gross operating receipts.
7. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder, and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax returns due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net income for 1995 in the financial statements is $293,252 higher than the tax loss of the Partnership for the same period.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/95 12/31/94 12/31/93 -------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------- ------ ------- ------ ------- -------
Property management fees None None $283,313 None $263,313 $22,346 Reimbursement of expenses to the General Partner, at cost: Accounting $34,886 $3,244 50,895 $18,653 47,708 3,941 Data processing 21,180 2,454 23,660 4,773 13,598 2,824 Investor communica- tions 5,217 None 17,584 4,864 17,915 1,480 Legal 15,472 2,769 6,703 3,202 6,139 507 Portfolio management 63,955 10,531 27,997 15,353 28,449 3,637 Other 1,994 346 18,156 2,502 7,851 648
The Partnership participates in an insurance deductible program with other affiliated partnerships in which the program pays claims up to the amount of the deductible under the master insurance policies for its properties. The program is administered by an affiliate of the General Partner who receives no fee for administering the program; however, the General Partner is reimbursed for expenses. The Partnership paid premiums to the deductible insurance program of $35,119, $49,714 and $25,901 for 1995, 1994 and 1993, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all of the Partnership's properties until the affiliate was sold to a third-party in November 1994.
As of December 31, 1993, the Partnership had loans from the General Partner totaling $417,775, which were repaid during 1994 with cash flow available from property operations. The Partnership incurred interest expense of $5,773 and
$38,845, and paid interest expense of $7,801 and $46,898 in 1994 and 1993, respectively, on these loans.
9. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest receivable, accounts payable and restricted escrow deposits approximates fair value.
Based on borrowing rates available to the Partnership at the end of 1995 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes payable approximates the carrying value.
10. Subsequent Events:
(a) In January 1996, the Partnership paid $225,038 to Limited Partners representing the quarterly distribution of available Net Cash Receipts of $7.50 per Interest for the fourth quarter of 1995.
(b) On February 29, 1996, a proposed class action complaint was filed, Raymond Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of the State of New York, County of New York). The Partnership, additional limited partnerships which were sponsored by The Balcor Company, three limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Partnership and the affiliated partnerships, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are defendants. The complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation and breach of fiduciary duty relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest accrued thereon; general damages for injuries arising from the defendants' actions; recovery from the defendants of all profits received by them as a result of their actions relating to the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. Management of each of the defendants believes they have meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Partnership.
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
BALCOR EQUITY PROPERTIES LTD.-VIII (An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs and other related professional fees.
(b) Guaranteed income earned on properties under the terms of certain management and guarantee agreements was recorded by the Partnership as a reduction of the basis of the property to which the guaranteed income related.
(c)Reconciliation of Real Estate --------------------------------
1995 1994 1993 ---------- ---------- ---------- Balance at beginning of year $21,843,917 $21,783,783 $21,650,706 Additions during year: Improvements None 60,134 133,077 Deductions during year: Foreclosure of investment property None None None ----------- ----------- ----------- Balance at end of year $21,843,917 $21,843,917 $21,783,783 =========== =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------
1995 1994 1993 ---------- ---------- ---------- Balance at beginning of year $10,800,711 $10,145,304 $9,496,801 Depreciation expense for the year 662,015 655,407 648,503 Accumulated depreciation of foreclosed investment property None None None ----------- ----------- ----------- Balance at end of year $11,462,726 $10,800,711 $10,145,304 =========== =========== ===========
(d) The aggregate cost of land for Federal income tax purposes is $1,627,607 and the aggregate cost of buildings and improvements for Federal income tax purposes is $10,133,138. The total of these is $11,760,745.
(e) See description of mortgage notes payable in Note 5 of Notes to Financial Statements.
(f) Depreciation expense is computed based upon the following estimated useful lives:
Buildings and improvements 15 to 33 years Furniture and fixtures 3 to 5 years
(g) The Greentree Village Apartments cash balance is restricted due to provisions of the HUD financing agreement.
(h) This apartment complex was completed in stages from 1971 to 1979.
(i) During 1986, these properties were acquired at a foreclosure sale.