Item 1. Business - ----------------
Balcor Growth Fund A Real Estate Investment for Capital Appreciation (the "Registrant") is a limited partnership formed in August 1985 under the laws of the State of Illinois. The Registrant raised $7,084,000 from sales of Limited Partnership Interests. The Registrant's operations consist exclusively of investment in and operation of income-producing real property, and all financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire joint venture interests in the two real property investments described under Item 2.
Item 2. Properties - ------------------
As of December 31, 1995, the Registrant owns joint venture interests in the two properties described below:
Location Description of Property - -------- -----------------------
Cobb County, Georgia * Post Lake Apartments: a 484-unit apartment complex located on approximately 60 acres.
Redwood City, California ** Redwood Shores Apartments: a 304-unit apartment complex located on approximately 15 acres.
* Owned by the Registrant through a joint venture with affiliates. ** Owned by the Registrant through a joint venture with the seller and an affiliate.
See Note 4 of Notes to Financial Statements for additional information.
Each of the above properties is held subject to various mortgages and other forms of financing.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for the properties in which it has joint venture interests.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.
Item 3. Legal Proceedings - -------------------------
The Registrant is not subject to any material pending legal proceedings, nor were any such proceedings terminated during the fourth quarter of 1995.
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 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. As anticipated, the Registrant has not made distributions to date to investors. For additional information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 1995, the number of record holders of Limited Partnership Interests of the Registrant was 690.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ---------- ---------- ---------- ---------- Net loss $(224,813) $(479,754) $(436,167) $(481,508) $(770,618) Net loss per Limited Part- nership Interest (31.42) (67.05) (60.95) (67.29) (107.70)
Total assets 1,171,976 1,009,834 1,453,169 1,919,258 2,459,673
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Operations - ----------
Summary of Operations - ---------------------
The operations of Balcor Growth Fund A Real Estate Investment for Capital Appreciation (the "Partnership") are primarily comprised of the Partnership's participation in the operations of the Post Lake and Redwood Shores apartment complexes. Improved property operations at Post Lake and decreased interest expense at Redwood Shores resulted in a decrease in the net loss during 1995 as compared to 1994, while higher administrative expenses during 1994 resulted in
an increase in the net loss during 1994 as compared to 1993. Further discussion of the Partnership's operations is summarized below.
1995 Compared to 1994 - ---------------------
Post Lake Apartments generated net income during 1995 as compared to a net loss during 1994 primarily as a result of higher rental income due to higher rental rates and occupancy. This higher rental income resulted in an increase in property management fees for 1995 as compared to 1994. The net improvement in operations resulted in affiliate's participation in income from joint venture during 1995 as compared to a participation in loss during 1994.
The net loss from Redwood Shores Apartments decreased during 1995 as compared to 1994 as a result of higher rental income due to increased rental rates and occupancy and lower interest expense on the mortgage note payable as a result of the re-marketing of the bonds secured by the property. The decrease in the net loss was partially offset by a decrease in interest income due to lower interest rates earned on investments and an increase in administrative expense due to costs incurred in connection with the re-marketing of the bonds.
The seller's 30% participation in the operations of Redwood Shores is limited to the extent the seller contributes capital to the joint venture. Generally accepted accounting principles require that the seller's participation in any losses exceeding such contributions be suspended to subsequent years when sufficient contributions are made. The seller's share of the joint venture's losses exceeded the capital contributed in both 1993 and 1994. However, due to higher capital contributions in 1995 related to the bond re-marketing, a portion of the seller's losses suspended from previous years was recognized in 1995.
As a result of higher outstanding balances and interest rates during 1995, interest expense on the Partnership's short-term loan with an affiliate increased during 1995 as compared to 1994.
Primarily as a result of lower data processing costs, administrative expenses decreased during 1995 as compared to the same period in 1994.
1994 Compared to 1993 - ---------------------
The net loss from Post Lake Apartments decreased during 1994 as compared to 1993 primarily due to higher rental rates in 1994. This decrease in net loss was partially offset by increased maintenance and repairs expenses due to the exterior painting of the buildings during 1994.
The net loss from Redwood Shores Apartments increased slightly during 1994 as compared to 1993 primarily due to an increase in administrative expenses, which was the result of increased legal fees.
As a result of higher interest rates and outstanding affiliate loan balances in 1994, interest expense on the Partnership's short-term loan with an affiliate increased during 1994 as compared to 1993.
Primarily as a result of increased accounting and data processing fees, administrative expenses increased during 1994 as compared to 1993.
Liquidity and Capital Resources - ------------------------------- The cash position of the Partnership increased as of December 31, 1995 as compared to December 31, 1994. The Partnership's operating activities consisted of the payment of Partnership administrative expenses; investing activities consisted of the Partnership's share of the distributions from the Atlanta Lakes Joint Venture and contributions to Redwood Partners; and financing activities consisted of distributions to the affiliated partner on the Atlanta Lakes Joint Venture and borrowings from the General Partner.
The Partnership classifies the cash flow performance of the properties as either positive, a marginal deficit or a significant deficit, each after consideration of debt service payments. A deficit is considered to be significant if it exceeds $250,000 annually or 20% of the property's rental and service income. The Partnership defines cash flow generated from the properties as an amount equal to the property's revenue receipts less property related expenditures, which include debt service payments. During 1995 and 1994, Post Lake Apartments generated positive cash flow. During 1995, Redwood Shores Apartments generated positive cash flow, while in 1994, the property generated a marginal cash flow deficit. The improvement in cash flow at Redwood Shores was due to higher rental income resulting from increased rental rates and occupancy and lower interest on the mortgage note payable as a result of the re-marketing of the bonds. During 1995 and 1994, the mortgage financing on the Redwood Shores Apartments required principal payments of $387,500 and $352,500, respectively. The joint venture partners of Redwood Shores (Redwood Partners and the seller) were required to fund their share of any cash flow deficit the property generated.
While the cash flow of the properties in which the Partnership holds joint venture interests has improved, the General Partner continues to pursue a number of actions aimed at improving the cash flow of these properties including improving property operating performance, and seeking rent increases where market conditions allow.
Redwood Shores Apartments is located in the Redwood Shores Planned Unit Development of Redwood City, California, along the western shores of San Francisco Bay approximately halfway between San Francisco and San Jose. This is an upscale community and surrounding area. There are approximately 400 competing apartment units within the Redwood Shores sub-market plus various townhomes and condominiums, some of which also rent. The market rent of this higher-end product ranges between $1,200 and $1,500 per month for one and two bedroom units, respectively. However, Redwood Shores Apartments, with smaller square footage within its units and fewer amenities, competes more directly with approximately 2,000 units of comparably priced product within the nearby communities of San Mateo and Foster City. Current occupancy at Redwood Shores is 98%. Occupancy in the surrounding market for comparable apartment complexes is comparable.
Post Lake Apartments is located in the northwest metropolitan area of Atlanta in the submarket of Cobb County. Cobb County has a diverse apartment market, catering to a wide range of apartment dwellers. Post Lake Apartments competes with the higher-end product of this submarket and has comparable rental rates. Current occupancy at Post Lake Apartments is 95% while occupancy in the surrounding market for comparable apartment complexes is 94%. The overall Atlanta market population continues to grow and thus, new rental units are under construction in this submarket. Atlanta is the most active metropolitan area in the country relative to multi-family housing permits. Approximately
20,000 new units will be added to inventory in the two year period which began in January 1995. While the Atlanta market is still considered strong, an oversupply situation could occur. This would have a negative impact on rental and occupancy rates.
Each of the 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. In October 1995, the Redwood Shores joint venture completed the re-marketing of the $25,630,000 bonds collateralized by the Redwood Shores Apartments. The principal and bond reserve were unchanged and the interest rate was reduced from 8.75% to 5.20%. The principal will initially be amortized by $200,000 semi-annually. The semi-annual amortization will subsequently increase by $10,000 or $15,000 for each six-month period thereafter through the next tender/re-marketing date, October 2000. The maturity date of the bonds is September 2008. The joint venture paid refinancing fees of $320,000 and Redwood Partners paid legal fees of $39,213 in connection with the re-marketing. The Post Lake Apartments mortgage note payable matures in May 1997.
As of December 31, 1995, $1,118,145 was owed to the General Partner. The additional borrowings in 1995 were primarily used to fund the Partnership's share of the costs of the re-marketing of the Redwood Shores bonds. The General Partner may continue to provide additional short-term loans to the Partnership for working capital or liquidity purposes, although there is no assurance that such loans will be available. Should such short-term loans not be available, the General Partner will seek alternative third party sources of financing working capital. Should additional borrowings be needed and not be available either through the General Partner or third parties, the Partnership may be required to dispose of one or both of its joint venture interests to satisfy these obligations. It is not expected that the Partnership will generate substantial Net Cash Receipts, and any cash flow that is generated is expected to be used to finance the Partnership's share of improvements that are intended to enhance the value of the properties and to repay General Partner advances.
The General Partner believes that the market for multifamily housing properties has become increasingly favorable to sellers of these properties. As a result, the General Partner is exploring an acceleration of its strategy to sell the Partnership's properties.
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's joint ventures as of January 1, 1995, and did not have a material impact on the financial position or results of operations of the Partnership's joint ventures.
Inflation has several types of potentially conflicting impacts on real estate investments. Short-term inflation can increase real estate operating costs which may or may not be recovered through increased rents and/or sales prices, depending on general or local economic conditions. In the long-term, inflation 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 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 returns is summarized as follows:
December 31, 1995 December 31, 1994 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- ---------
Total assets $1,171,976 $(1,533,354) $1,009,834 $(1,431,185) Partners' capital accounts (deficit): General Partner (65,055) (803,831) (62,807) (711,681) Limited Partners (419,078) (1,978,446) (196,513) (1,603,327) Net loss: General Partner (2,248) (92,150) (4,798) (157,218) Limited Partners (222,565) (375,119) (474,956) (521,433) Per Limited Partnership Interest (31.42) (52.95) (67.05) (73.61)
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 Balcor Partners-XX, its general partner, has a Board of Directors.
(b, c & e) The names, ages and business experience 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 Balcor Partners-XX, 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 7 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) No person owns of record or is known by the Registrant to own beneficially more than 5% of the outstanding Limited Partnership Interests of the Registrant.
(b) Neither Balcor Partners-XX nor its officers and partners own as a group or individually any Limited Partnership Interests of the Registrant.
Relatives and affiliates of the officers and partners of the General Partner do not own any 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 7 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 Schedules, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1 & 2) See the Indexes to the Financial Statements and Financial Statement Schedules in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership of Balcor Growth Fund A Real Estate Investment for Capital Appreciation, previously filed as Exhibit 3 to Amendment No. 3 dated October 1, 1986 to the Registrant's Registration Statement on Form S-11 (Registration No. 33-4963), is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3 dated October 1, 1986 to the Registrant's Registration Statement on Form S-11 (Registration No. 33-4963) 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. 0-15646) 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 Schedules: See the Indexes to the Financial Statements and Financial Statement Schedules 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 GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION
By: /s/Brian D. Parker --------------------------------- Brian D. Parker Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XX, the General Partner
Date: March 25, 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 Balcor Partners-XX, /s/Thomas E. Meador the General Partner March 25, 1996 - ---------------------- -------------- Thomas E. Meador Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XX, /s/Brian D. Parker the General Partner March 25, 1996 - ---------------------- -------------- Brian D. Parker
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' (Deficit) Capital, 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 Schedules 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 Growth Fund A Real Estate Investment for Capital Appreciation:
We have audited the financial statements of Balcor Growth Fund A Real Estate Investment for Capital Appreciation (An Illinois Limited Partnership) as listed in the index of this Form 10-K. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements 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 Growth Fund A Real Estate Investment for Capital Appreciation 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.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois March 20, 1996
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION (AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ----------- ----------- Cash and cash equivalents $ 139,880 $ 37,514 Accounts receivable 39,213 Investment in joint ventures with affiliates 992,883 972,320 ----------- ----------- $ 1,171,976 $ 1,009,834 =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Loan payable - affiliate $ 1,118,145 $ 731,645 Accounts payable 4,480 14,556 Due to affiliates 185,138 139,292 ----------- ----------- Total liabilities 1,307,763 885,493 ----------- -----------
Affiliate's participation in joint venture 348,346 383,661 ----------- ----------- Limited Partners' deficit (7,084 Interests issued and outstanding) (419,078) (196,513) General Partner's deficit (65,055) (62,807) ----------- ----------- Total Partners' deficit (484,133) (259,320) ----------- ----------- $ 1,171,976 $ 1,009,834 =========== ===========
The accompanying notes are an integral part of the financial statements.
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' (DEFICIT) for the years ended December 31, 1995, 1994 and 1993
Partners' Capital (Deficit) Accounts ---------------------------------------- General Limited Total Partner Partners ------------ ------------ ------------
Balance at December 31, 1992 $ 656,601 $ (53,647)$ 710,248
Net loss for the year ended December 31, 1993 (436,167) (4,362) (431,805) ------------ ------------ ------------ Balance at December 31, 1993 220,434 (58,009) 278,443
Net loss for the year ended December 31, 1994 (479,754) (4,798) (474,956) ------------ ------------ ------------ Balance at December 31, 1994 (259,320) (62,807) (196,513)
Net loss for the year ended December 31, 1995 (224,813) (2,248) (222,565) ------------ ------------ ------------ Balance at December 31, 1995 $ (484,133)$ (65,055)$ (419,078) ============ ============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Expenses: Interest on short-term loan from an affiliate $ 65,502 $ 40,003 $ 27,912 Administrative 138,987 155,844 110,285 Participation in losses of joint ventures with affiliates 10,437 299,782 319,766 ------------ ------------ ------------ Total expenses 214,926 495,629 457,963 ------------ ------------ ------------ Loss before affiliate's participation in (income) loss from joint venture (214,926) (495,629) (457,963)
Affiliate's participation in (income) loss from joint venture (9,887) 15,875 21,796 ------------ ------------ ------------ Net loss $ (224,813)$ (479,754)$ (436,167) ============ ============ ============ Net loss allocated to General Partner $ (2,248)$ (4,798)$ (4,362) ============ ============ ============ Net loss allocated to Limited Partners $ (222,565)$ (474,956)$ (431,805) ============ ============ ============ Net loss per Limited Partnership Interest (7,084 issued and outstanding) $ (31.42)$ (67.05)$ (60.95) ============ ============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Operating activities: Net loss $ (224,813)$ (479,754)$ (436,167) Adjustments to reconcile net loss to net cash used in operating activities: Affiliate's participation in income (loss) from joint venture 9,887 (15,875) (21,796) Participation in losses of joint ventures with affiliates 10,437 299,782 319,766 Net change in: Accounts receivable (39,213) Accounts payable (10,076) 2,013 Due to affiliates 45,846 61,496 28,605 ------------ ------------ ------------ Net cash used in operating activities (207,932) (134,351) (107,579) ------------ ------------ ------------ Investing activities: Capital contributions to joint venture with an affiliate (206,000) (37,000) (35,000) Distributions from joint ventures with affiliates 175,000 175,000 150,000 ------------ ------------ ------------ Net cash (used in) or provided by investing activities (31,000) 138,000 115,000 ------------ ------------ ------------ Financing activities: Proceeds from loan payable - affiliate 386,500 36,000 Distributions to joint venture partner - affiliate (45,202) (45,202) (38,744) ------------ ------------ ------------ Net cash provided by or (used in) financing activities 341,298 (9,202) (38,744) ------------ ------------ ------------ Net change in cash and cash equivalents 102,366 (5,553) (31,323) Cash and cash equivalents at beginning of year 37,514 43,067 74,390 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 139,880 $ 37,514 $ 43,067 ============ ============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR GROWTH FUND A REAL ESTATE INVESTMENT FOR CAPITAL APPRECIATION (An Illinois Limited Partnership) NOTES TO FINANCIAL STATEMENTS
1. Balcor Growth Fund A Real Estate Investment For Capital Appreciation is engaged principally in the investment in joint ventures owning residential real estate located in Atlanta, Georgia and San Francisco/San Jose, California.
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) Investment in joint ventures with affiliates represents the recording of the Partnership's interests, under the equity method of accounting, in two joint ventures with affiliated entities. Under the equity method of accounting, the Partnership records its initial interests at cost and adjusts its investment accounts for additional capital contributions, distributions and its share of joint venture income or loss. Supplemental financial information for the respective joint ventures is provided in the attached joint venture financial statements.
(c) 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. 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 and investment in joint ventures from its disclosure requirements.
(d) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less.
(e) The Partnership is not liable for Federal income taxes and each partner recognizes his proportionate share of the Partnership income and loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
3. Partnership Agreement:
The Partnership was organized in August 1985. The Partnership Agreement provides for Balcor Partners-XX to be the General Partner and for the admission of Limited Partners through the sale of up to 100,000 Limited Partnership Interests at $1,000 per Interest, 7,084 of which were sold through October 2, 1987, the termination date of the offering.
The Partnership Agreement provides that profits and losses are allocated 99% to the Limited Partners and 1% to the General Partner. One hundred percent of Net Cash Receipts available for distribution shall be distributed to the holders of Interests in proportion to their participating percentages as of the record date for such distributions. There shall, however, be accrued for the benefit of the General Partner as its distributive share from operations, an amount
equivalent to approximately 1% of the total Net Cash Receipts being distributed, which will be paid only as a part of the General Partner's share of distributed Net Cash Proceeds. This accrued distributive share along with the General Partner's share of Net Cash Proceeds is subordinated to the receipt by Limited Partners of certain levels of returns as defined in the Partnership Agreement.
4. Investment in Joint Ventures with Affiliates:
(a) The Partnership, through Atlanta Lakes Investors (a partnership which initially was wholly-owned by the Partnership), acquired a 50% joint venture interest in Atlanta Lakes Joint Venture which owns Post Lake Apartments. The remaining 50% joint venture interest is owned by Atlanta Lakes, Inc., an entity managed by an affiliate of the General Partner. The Partnership did not raise sufficient capital to enable it to retain its original ownership percentage of Atlanta Lakes Investors without incurring additional mortgage financing. The Partnership transferred 25.83% of its interest in Atlanta Lakes Investors to another affiliate of the General Partner for 25.83% of the amount of the Partnership's cash payments made in connection with the acquisition of the property. During 1995, 1994 and 1993, Atlanta Lakes Investors received $175,000, $175,000 and $150,000, respectively, representing its portion of distributions from the joint venture.
(b) The Partnership, through its ownership of Redwood Associates, owns a 50% joint venture interest in Redwood Partners (the "Joint Venture"), a joint venture between Redwood Associates and Sequoia Shores, Inc. (an entity managed by an affiliate of the General Partner). The Joint Venture acquired a 70% general partnership interest in an existing limited partnership which owns Redwood Shores Apartments. During 1995, 1994, and 1993 Redwood Associates contributed $206,000, $37,000 and $35,000, respectively, to the Joint Venture.
5. Affiliate's Participation in Joint Venture:
Atlanta Lakes Investors is a joint venture between the Partnership and an affiliated partnership. Profits and losses are allocated 74.17% to the Partnership and 25.83% to the affiliate. All assets, liabilities, income and expenses of the joint venture (which owns a 50% equity investment in Atlanta Lakes Joint Venture) are included in the financial statements of the Partnership with the appropriate adjustment of profit or loss for the affiliate's participation in the joint venture. Distributions of $45,202, $45,202, and $38,744 were made to the joint venture partner during 1995, 1994 and 1993, respectively, as its share of distributions received from Atlanta Lakes Joint Venture.
6. 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 loss for 1995 in the financial statements is $242,456 less than the tax loss of the Partnership for the same period.
7. Transactions with Affiliates:
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 ------ ------- ------ ------- ------ ------- Reimbursement of expenses to the General Partner, at cost: Accounting $29,145 $1,702 $36,741 $14,602 $27,597 $2,300 Data processing 8,899 479 17,018 3,322 5,158 368 Investor communica- tions 2,822 None 11,974 2,708 9,434 786 Legal 4,796 548 2,512 528 487 41 Portfolio management 25,912 3,018 4,322 4,261 7,674 639 Other 2,503 343 3,408 325 1,770 119
As of December 31, 1995, $1,118,145 is owed to the General Partner, $386,500 of which was borrowed during 1995. The Partnership incurred interest expense of $65,502, $40,003, and $27,912 in 1995, 1994 and 1993, respectively. The Partnership paid no interest expense during these years. As of December 31, 1995, interest expense of $179,048 is payable. Interest expense was computed at the American Express Company cost of funds rate plus a spread to cover administrative costs. As of December 31, 1995 this rate was 6.31%.
The General Partner may continue to make arrangements with an affiliate to provide additional short-term loans to the Partnership to fund future working capital needs or operating deficits, although there is no assurance that such loans will be available. Should such short-term loans from affiliates not be available, the General Partner will seek alternative third party sources of financing working capital. Should additional borrowings be needed and not be available either through the General Partner or third parties, the Partnership may be required to dispose of one or both of its joint venture interests to satisfy these obligations.
8. 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 receivable, and accounts payable approximates fair value.
ATLANTA LAKES JOINT VENTURE INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Income and Expenses and Partners' Capital, 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 Atlanta Lakes Joint Venture
We have audited the financial statements and the financial statement schedule of Atlanta Lakes Joint Venture (An Illinois General 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 Atlanta Lakes Joint Venture 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
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ----------- ----------- Cash and cash equivalents $ 229,555 $ 47,918 Escrow deposits 80,257 92,357 Accounts receivable 218,300 207,180 Deferred expenses, net of accumulated amortization of $190,493 in 1995 and $168,513 in 1994 29,306 51,286 ----------- ----------- 557,418 398,741 ----------- ----------- Investment in real estate: Land 3,794,165 3,794,165 Buildings and improvements 21,297,917 21,297,917 ----------- ----------- 25,092,082 25,092,082 Less accumulated depreciation 7,623,429 6,970,136 ----------- ----------- Investment in real estate, net of accumulated depreciation 17,468,653 18,121,946 ----------- ----------- $ 18,026,071 $ 18,520,687 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 902 $ 3,112 Security deposits 109,891 108,009 Mortgage note payable 15,195,030 15,415,878 ----------- ----------- Total liabilities 15,305,823 15,526,999
Partners' capital 2,720,248 2,993,688 ----------- ----------- $ 18,026,071 $ 18,520,687 =========== ===========
The accompanying notes are an integral part of the financial statements.
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Income: Rental and service $ 4,077,724 $ 3,812,914 $ 3,634,210 Interest on short-term investments 11,003 6,393 7,037 ------------ ------------ ------------ Total income 4,088,727 3,819,307 3,641,247 ------------ ------------ ------------ Expenses: Interest on mortgage note payable 1,416,761 1,436,202 1,453,932 Depreciation 653,293 653,293 650,296 Amortization of deferred expenses 21,980 21,980 21,980 Property operating 1,474,839 1,431,346 1,288,293 Real estate taxes 246,286 227,583 232,857 Property management fees 188,804 160,401 154,262 Administrative 10,204 11,423 8,395 ------------ ------------ ------------ Total expenses 4,012,167 3,942,228 3,810,015 ------------ ------------ ------------ Net income (loss) 76,560 (122,921) (168,768)
Partners' capital at beginning of year 2,993,688 3,466,609 3,935,377
Distributions to joint venture partners (350,000) (350,000) (300,000) ------------ ------------ ------------ Partners' capital at end of year $ 2,720,248 $ 2,993,688 $ 3,466,609 ============ ============ ============
The accompanying notes are an integral part of the financial statements.
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Operating activities: Net income (loss) $ 76,560 $ (122,921)$ (168,768) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property 653,293 653,293 650,296 Amortization of deferred expenses 21,980 21,980 21,980 Net change in: Escrow deposits 12,100 (3,141) (4,835) Accounts receivable (11,120) (12,966) (10,268) Accounts payable (2,210) 112 Security deposits 1,882 13,164 3,460 ------------ ------------ ------------ Net cash provided by operating activities 752,485 549,409 491,977 ------------ ------------ ------------ Investing activity: Improvements to property (89,891) Net cash used in investing ------------ activity (89,891) ------------ Financing activities: Distributions to joint venture partners (350,000) (350,000) (300,000) Principal payments on mortgage notes payable (220,848) (201,408) (183,679) ------------ ------------ ------------ Net cash used in financing activities (570,848) (551,408) (483,679) ------------ ------------ ------------ Net change in cash and cash equivalents 181,637 (1,999) (81,593)
Cash and cash equivalents at beginning of year 47,918 49,917 131,510 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 229,555 $ 47,918 $ 49,917 ============ ============ ============
The accompanying notes are an integral part of the financial statements.
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Atlanta Lakes Joint Venture (the "Joint Venture") is engaged solely in the operation of residential real estate located in Atlanta, Georgia.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the Joint Venture 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 the straight-line method. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 30 Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
(c) Effective January 1, 1995 the Joint Venture 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 Joint Venture records its investment 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 the property. The Joint Venture estimates the fair value of the property 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 Joint Venture 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 Joint Venture considers the method referred to above to result in a reasonable measurement of the property's fair value, unless other factors affecting the property's value indicate otherwise.
(d) Deferred expenses consist of financing fees which are amortized over the term of the agreement.
(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 and investment in joint ventures from its disclosure requirements.
(f) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
(g) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less.
(h) The Joint Venture is not liable for Federal income taxes and each partner recognizes its proportionate share of the Joint Venture loss or income in its tax return; therefore, no provision for income taxes is made in the financial statements of the Joint Venture.
(i) A reclassification has been made to the previously reported 1994 and 1993 financial statements to conform with the classifications used in 1995. This reclassification has not changed the 1994 or 1993 results.
3. Joint Venture Agreement:
The Joint Venture was organized in December 1986 and provides for Atlanta Lakes Investors, an Illinois limited partnership, and Atlanta Lakes, Inc., an Illinois corporation, to be joint venturers (together, the "Partners"). Atlanta Lakes Investors is owned by Balcor Growth Fund A Real Estate Investment for Capital Appreciation ("BGF") and Balcor Employee Investment Partners-87. An affiliate of the General Partner of BGF manages the business activities of Atlanta Lakes, Inc.
The Joint Venture Agreement provides that each Partner will have a participation percentage of 50% in the Joint Venture. Each item of income, gain, loss, deduction or credit for each year will be allocated to the Partners in accordance with their respective participation percentages. The Partners may set aside as a reserve for contingencies and/or working capital, any portion of Net Cash Receipts and/or Net Capital Proceeds which they reasonably deem necessary or appropriate for the business of the Joint Venture. Net Cash Receipts of the Joint Venture shall be distributed from time to time as the Partners shall determine, in accordance with the Partners' respective participation percentages. Net Capital Proceeds shall be distributed first, to the repayment in full of any loans or advances made to the Joint Venture by any Partner; and thereafter, to the Partners in accordance with their respective participation percentages.
During 1995, 1994 and 1993, the Joint Venture distributed $350,000, $350,000 and $300,000, respectively, to its Partners.
4. Mortgage Note Payable:
The Joint Venture obtained first mortgage financing in the amount of $16,575,000 collateralized by Post Lake Apartments, which has a carrying value of $17,468,653 at December 31, 1995. The mortgage note bears interest at the rate of 9.25% and is payable in monthly installments of principal and interest of $136,468 through May 1997, the maturity date of the loan. At maturity, the Joint Venture will be required to make a balloon payment of approximately $14,867,000, which will require the sale or refinancing of the property.
Future annual maturities of the above mortgage note payable during each of the next two years are approximately as follows:
1996 $ 242,000 1997 14,953,000
During 1995, 1994, and 1993 the Joint Venture incurred and paid interest expense on the mortgage note payable of $1,416,761, $1,436,202 and $1,453,932, respectively.
5. Management Agreement:
Post Lake Apartments is managed by an affiliate of the seller for a management fee of 4.25% of gross receipts. In addition, the manager is entitled to receive 20% of operating income in excess of the budgeted operating income for each year up to an amount which, when added to the base monthly fee, equals 5.5% of the gross receipts for Post Lake for such calendar year. The manager earned $15,240 and $3,683 of additional management fees for 1995 and 1993. The operating income did not exceed the budgeted operating income in 1994. The term of the agreement continues until terminated by either party.
6. Tax Accounting:
The Joint Venture 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 $169,210 more than the tax loss of the Joint Venture for the same period.
7. Fair Value 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 and accounts payable approximates fair value.
Mortgage note payable: 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 note payable approximates the carrying value.
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
ATLANTA LAKES JOINT VENTURE (An Illinois General Partnership)
NOTES TO SCHEDULE III
(a) See description of the mortgage note payable in Note 4 of Notes to Financial Statements.
(b) Consists of acquisition and investigatory fees, legal fees, appraisal fees, title costs and other related professional fees.
(c) Guaranteed income earned under the terms of the management agreement was recorded by the Joint Venture as a reduction of the basis of the property.
(d) The aggregate cost of land, buildings, and improvements is the same for Federal income tax purposes.
(e)Reconciliation of Real Estate ----------------------------- 1995 1994 1993 ---------- ---------- ----------
Balance at beginning of year $25,092,082 $25,092,082 $25,002,191
Additions during the year: Improvements 89,891 ----------- ----------- ------------
Balance at end of year $25,092,082 $25,092,082 $25,092,082 =========== =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------
1995 1994 1993 ---------- ---------- ----------
Balance at beginning of year $6,970,136 $6,316,843 $5,666,547
Depreciation expense for the year 653,293 653,293 650,296 ---------- ---------- ---------- Balance at end of year $7,623,429 $6,970,136 $6,316,843 ========== ========== ==========
(f) Depreciation expense is computed based upon the following estimated useful lives: Years -----
Building and improvements 30 Furniture and fixtures 5
REDWOOD PARTNERS INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Income and Expenses and Partners' Deficit, 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 Redwood Partners
We have audited the financial statements and the financial statement schedule of Redwood Partners (An Illinois General 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 Redwood Partners 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
REDWOOD PARTNERS (An Illinois General Partnership)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ----------- ----------- Cash and cash equivalents $ 7,025 $ 9,887 Bond reserve 2,478,000 2,478,000 Accounts and accrued interest receivable 587,529 204,228 Deferred expenses, net of accumulated amortization of $17,961 in 1995 341,252 ----------- ----------- 3,413,806 2,692,115 ----------- ----------- Investment in real estate: Land 6,043,941 6,043,941 Buildings and improvements 22,942,335 22,942,335 ----------- ----------- 28,986,276 28,986,276 Less accumulated depreciation 7,329,420 6,598,769 ----------- ----------- Investment in real estate, net of accumulated depreciation 21,656,856 22,387,507 ----------- ----------- $ 25,070,662 $ 25,079,622 =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 70,217 $ 3,890 Security deposits 113,213 115,565 Mortgage note payable 25,530,000 25,917,500 ----------- ----------- Total liabilities 25,713,430 26,036,955
Partners' deficit (642,768) (957,333) ----------- ----------- $ 25,070,662 $ 25,079,622 =========== ===========
The accompanying notes are an integral part of the financial statements.
REDWOOD PARTNERS (An Illinois General Partnership)
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' DEFICIT for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Income: Rental and service $ 3,604,060 $ 3,450,870 $ 3,437,041 Interest on short-term investments 271,092 303,404 302,390 ------------ ------------ ------------ Total income 3,875,152 3,754,274 3,739,431 ------------ ------------ ------------
Expenses: Interest on mortgage note payable 2,047,003 2,290,644 2,318,298 Depreciation 730,651 730,652 730,651 Amortization of deferred expenses 17,961 Property operating 857,163 797,404 773,747 Real estate taxes 296,936 286,438 282,440 Property management fees 139,319 138,142 137,530 Administrative 64,760 31,422 16,124 ------------ ------------ ------------ Total expenses 4,153,793 4,274,702 4,258,790 ------------ ------------ ------------ Loss before seller's participation in loss of joint venture (278,641) (520,428) (519,359) Seller's participation in loss of joint venture 181,206 43,784 48,593 ------------ ------------ ------------ Net loss (97,435) (476,644) (470,766)
Partners' deficit at beginning of year (957,333) (554,689) (153,923)
Contributions from joint venture partners 412,000 74,000 70,000 ------------ ------------ ------------ Partners' deficit at end of year$ (642,768)$ (957,333)$ (554,689) ============ ============ ============
The accompanying notes are an integral part of the financial statements.
REDWOOD PARTNERS (An Illinois General Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ------------ ------------ ------------ Operating activities: Net loss $ (97,435)$ (476,644)$ (470,766) Adjustments to reconcile net loss to net cash provided by operating activities: Seller's participation in loss from joint venture (181,206) (43,784) (48,593) Depreciation of property 730,651 730,652 730,651 Amortization of deferred expenses 17,961 Net change in: Accounts receivable (243,301) 19,022 (20,772) Accounts payable 66,327 140 Due to affiliates (506) Security deposits (2,352) (4,245) (6,140) ------------ ------------ ------------ Net cash provided by operating activities 290,645 225,001 184,014 ------------ ------------ ------------ Financing activities: Capital contributions by joint venture partners 412,000 74,000 70,000 Capital contributions by joint venture partner - seller 181,206 43,784 48,593 Principal payments on mortgage note payable (387,500) (352,500) (322,500) Payment of deferred expenses (359,213) Funding of reserve for replacements (140,000) ------------ ------------ ------------ Net cash used in financing activities (293,507) (234,716) (203,907) ------------ ------------ ------------ Net change in cash and cash equivalents (2,862) (9,715) (19,893)
Cash and cash equivalents at beginning of year 9,887 19,602 39,495 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 7,025 $ 9,887 $ 19,602 ============ ============ ============
The accompanying notes are an integral part of the financial statements.
REDWOOD PARTNERS (An Illinois General Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Redwood Partners (the "Joint Venture") is engaged solely in the operation of residential real estate located in the San Francisco/San Jose, California market.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the Joint Venture 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) The financial statements include the accounts of Redwood Partners and its 70% general partnership interest in Redwood Shores Apartments Associates ("RSAA") on a consolidated basis. The seller owns a 30% limited partnership interest in RSAA. The seller's 30% participation in the operations of the property is limited to the extent of the seller's capital contributions. The seller's participation in any losses exceeding such contributions is suspended until sufficient contributions are made.
(c) Depreciation expense is computed using the straight-line method. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 30 Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
(d) Effective January 1, 1995 the Joint Venture 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 Joint Venture records its investment 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 the property. The Joint Venture estimates the fair value of the property 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 Joint Venture 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 Joint Venture considers the method referred to above to result in a reasonable measurement of the property's fair value, unless other factors affecting the property's value indicate otherwise.
(e) Deferred expenses consist of financing fees which are amortized over the term of the re-marketing period of the bonds secured by the property.
(f) 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 and investment in joint ventures from its disclosure requirements.
(g) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
(h) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less.
(i) The Joint Venture is not liable for Federal income taxes and each partner recognizes its proportionate share of the Joint Venture loss or income in its tax return; therefore, no provision for income taxes is made in the financial statements of the Joint Venture.
(j) 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 or 1993 results.
3. Joint Venture Agreement:
The Joint Venture was organized in April 1987 and provides for Redwood Associates, an Illinois limited partnership, and Sequoia Shores, Inc., an Illinois corporation, to be joint venturers (together, the "Partners"). In June 1987, the Joint Venture acquired a 70% general partnership interest in RSAA, an existing California limited partnership which owns the Redwood Shores Apartments in Redwood City, California. Redwood Associates is owned by Balcor Growth Fund A Real Estate Investment for Capital Appreciation ("BGF"). An affiliate of the General Partner of BGF manages the business activities of Sequoia Shores, Inc.
The Joint Venture Agreement provides that each Partner will have a participation percentage of 50% in the Joint Venture. Each item of income, gain, loss, deduction or credit for each year will be allocated to the Partners in accordance with their respective participation percentages. Joint Venture distributions from all sources will also be made to the Partners in accordance with their respective participation percentages.
4. Mortgage Note Payable:
RSAA assumed a $28,000,000 loan (the "Bond Loan") funded from the proceeds of the sale of Multi-Family Housing Revenue Bonds, Series 1985B, issued by the City of Redwood City, California, consisting of $2,370,000 in serial bonds and $25,630,000 in term bonds. The Bond Loan is collateralized by a mortgage on the Redwood Shores apartment complex, which has a carrying value of $21,656,856 at December 31, 1995. A bond reserve of $2,478,000 was established with proceeds
from the Bond Loan. Pursuant to the loan agreement, these amounts are invested in short-term investments and interest earned thereon accumulates to the benefit of RSAA and is applied against the debt service payments on the Bond Loan.
In October 1995, RSAA completed the re-marketing of the $25,630,000 term bonds. The principal and bond reserve were unchanged and the interest rate was reduced from 8.75% to 5.20%. The principal will initially be amortized by $200,000 semi-annually. The semi-annual amortization will subsequently increase by $10,000 or $15,000 for each six-month period thereafter through the next tender/re-marketing date in October 2000. RSAA paid refinancing fees of $320,000 and Redwood Partners paid legal fees of $39,213 in connection with the re-marketing.
The remaining serial bonds were fully repaid during 1995. Principal and interest payments due on the term bonds reflect payments due to the bondholders and are payable monthly in an amount equal to one-sixth of the principal and interest due on the bonds semi-annually. The term bonds are subject to various redemption options and tender provisions pursuant to the terms of the bond indenture. RSAA is obligated to make principal payments on the mortgage note to the extent the bonds are redeemed or mature under these provisions. Unless there is a prior redemption of all or a part of the bonds, principal of approximately $16,820,000 will be due in September 2008, which will require the sale or refinancing of the property.
Future annual maturities of the above mortgage note payable during each of the next five years are approximately as follows:
1996 $ 410,000 1997 450,000 1998 490,000 1999 530,000 2000 580,000
RSAA incurred and paid interest expense in 1995, 1994 and 1993 on the Bond Loan of $2,047,003, $2,290,644 and $2,318,298, respectively.
5. Management and Guarantee Agreement:
An affiliate of the seller, the limited partner of RSAA, is managing the property for a fee of 4% of gross rental receipts. The management agreement extends through the sale date of the property unless terminated earlier by mutual consent of the seller and the Joint Venture. In addition, Redwood Partners receives a management fee of 1% of gross rental income plus $10,000 from RSAA.
6. Tax Accounting:
The Joint Venture 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 loss for 1995 in the financial statements is $359,410 less than the tax loss of the Joint Venture for the same period.
7. 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 and accounts payable approximates fair value.
Mortgage note payable: The fair value for the Joint Venture's mortgage note payable is $22,754,218. The fair value of the mortgage note payable was estimated using discounted cash flow analysis based on borrowing rates available to the Partnership at the end of 1995 for mortgage loans with similar terms and maturities.
REDWOOD PARTNERS (An Illinois General Partnership)
REDWOOD PARTNERS (An Illinois General Partnership)
NOTES TO SCHEDULE III
(a) See description of Mortgage Note Payable in Note 3 of Notes to Financial Statements.
(b) Guaranteed income earned under the terms of the management and guarantee agreement was recorded by the Joint Venture as a reduction of the basis of the property.
(c) The aggregate cost of land for Federal income tax purposes is $6,607,981 and the aggregate cost of buildings and improvements for Federal income tax purposes is $16,007,658. The total of the above-mentioned is $22,615,639.
(d)Reconciliation of Real Estate ----------------------------- 1995 1994 1993 ---------- ---------- ----------
Balance at beginning of year $28,986,276 $28,986,276 $28,986,276 ----------- ----------- -----------
Balance at end of year $28,986,276 $28,986,276 $28,986,276 =========== =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------ 1995 1994 1993 ---------- ---------- ----------
Balance at beginning of year $6,598,769 $5,868,117 $5,137,466
Depreciation expense for the year 730,651 730,652 730,651 ---------- ---------- ---------- Balance at end of year $7,329,420 $6,598,769 $5,868,117 ========== ========== ==========
(e) Depreciation expense is computed based upon the following estimated useful lives: Years -----
Buildings and improvements 30 Furniture and fixtures 5