Item 1. Business - ----------------
Balcor Realty Investors-83 (the "Registrant") is a limited partnership formed in 1981 under the laws of the State of Illinois. The Registrant raised $75,005,000 from sales of Limited Partnership Interests. The Registrant's operations consist exclusively of investment in and operation of real properties, and all financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire eleven real property investments and a minority joint venture interest in an additional property. The Registrant has since disposed of five of these properties, including the property in which the Registrant held a minority joint venture interest. As of December 31, 1995, the Registrant owns the seven properties described under "Properties" (Item 2). The Partnership Agreement provides that the proceeds of any sale or refinancing of the Registrant's properties will not be reinvested in new acquisitions.
Overall, the investment real estate market saw gradual improvement over the last year. This improvement has taken place in an environment of generally low interest rates and little or no new supply, parameters which may not exist in the next few years. Demand for real estate space, while projected to improve in line with the overall economy, is also vulnerable to external forces. The major challenges facing the real estate industry today include increased international competition, corporate restructurings, new computer and communications technologies, an aging population and potential revisions of the tax code. In addition, the increased flow of capital to real estate through new vehicles such as commercial mortgage-backed securities and REITs could spur new construction at unsupportable levels, as well as impact existing property values.
Operationally, existing apartment properties continued to register occupancy percentages in the 90s, with average rents rising at an annual rate of between 3 and 4 percent. Apartments are still considered one of the top real estate asset classes in terms of performance. However, some markets are experiencing new construction of rental units which, if unrestrained, could impact the performance of existing properties. Most of the new construction is aimed at the two segments of the rental market which are growing the fastest: low-income households and upper-income households who prefer to rent rather than own. Of all the major asset classes, apartments typically display the least volatility in terms of property values.
The General Partner had previously advised the Limited Partners that its strategy was to sell the Registrant'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 Registrant as described below and based upon the similar results of such activities by various other partnerships affiliated with the Registrant. These favorable market conditions are in part attributable to the increasing strength of the capital markets and the reentry of REITs into the acquisition market. Since
November 1995, the Registrant has entered into a letter of intent to sell one of its seven properties, and, if the market remains favorable, intends to begin actively marketing more of the properties for sale. If the current market conditions for sales remain favorable and the General Partner can obtain appropriate sales prices, the Registrant's liquidation strategy may be accelerated.
The Registrant received notice of an unsolicited offer for the purchase of limited partnership interests ("tender offer") in November 1995. The tender offer was made by Walton Street Capital Acquisition Co., L.L.C. ("Walton Street"). Walton Street stated that their primary motive in making the offer was to make a profit from the purchase of the interests. Walton Street acquired 7.70% of the total interests outstanding in the Registrant and assigned the interests to its affiliate, WIG 83 Partners. The Registrant incurred administrative costs in responding to the tender offer.
The Registrant received notice of an unsolicited offer for the purchase of limited partnership interests ("tender offer") on March 11, 1996. The tender offer was made by Metropolitan Acquisition VII, L.L.C. ("Metropolitan"). Metropolitan is an affiliate of Insignia Financial Group, Inc., which provides property management services to all of the Registrant's properties. Metropolitan has stated that their primary motive in making the offer is to make a profit from the purchase of the interests. Metropolitan is seeking to acquire up to 30% of the total interests outstanding in the Registrant. The Registrant will incur administrative costs in responding to the tender offer and may incur additional costs if additional tender offers are made in the future. The General Partner cannot predict with any certainty what the impact of this tender offer or any future tender offers will have on the operations or management of the Registrant.
The Registrant completed the refinancings of two mortgage notes payable in 1995. See "Item 7. Liquidity and Capital Resources," for additional information.
During 1995, the Registrant sold the North Cove apartment complex. See "Item 7. Liquidity and Capital Resources," for additional information.
The Registrant, by virtue of its ownership of real estate, is subject to federal and state laws and regulations covering various environmental issues. Management of the Registrant utilizes the services of environmental consultants to assess a wide range of environmental issues and to conduct tests for environmental contamination as appropriate. The General Partner is not aware of any potential liability due to environmental issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Partners-XIII, the General Partner of the Registrant, and its affiliates perform services for the Registrant. The Registrant currently has no employees engaged in its operations.
Item 2.
Item 2. Properties - ------------------
As of December 31, 1995, the Registrant owns the seven properties described below:
Location Description of Property - -------- -----------------------
San Antonio, Texas * Deer Oaks Apartments: a 244-unit apartment complex located on approximately 10 acres.
Phoenix, Arizona Desert Sands Apartments: a 412-unit apartment complex located on approximately 20 acres.
Irving, Texas * Eagle Crest Apartments - Phase I: a 296-unit apartment complex located on approximately 12 acres.
Pasadena, Texas Sandridge Apartments - Phase II: a 196-unit apartment complex located on approximately 8 acres.
Las Vegas, Nevada Springs Pointe Village Apartments: a 484-unit apartment complex located on approximately 27 acres.
Corpus Christi, Texas Walnut Ridge Apartments - Phase I: a 380-unit apartment complex located on approximately 11 acres.
Corpus Christi, Texas Walnut Ridge Apartments - Phase II: a 324-unit apartment complex located on approximately 9 acres.
*Owned by the Registrant through a joint venture with the seller.
See Note 6 of Notes to Financial Statements for additional information.
Each of the properties is held subject to various mortgage loans.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.
Item 3. Legal Proceedings - --------------------------
Deer Oaks Apartments - ---------------------
In 1983, a joint venture consisting of the Registrant as general partner and the seller as limited partner (the "Joint Venture") acquired the Deer Oaks Apartments. In 1981, an affiliate of the seller (together, the "Seller") sold another property to a joint venture affiliated with the Registrant (the "Affiliate"). In 1987, the Joint Venture and the Affiliate filed suit against the Seller, two principals of the Seller and other parties in the 285th District Court, Bexar County, Texas, Case No.: 87-CI-11919, DO Associates, et al. vs. ADC Development Co., et al. seeking to recover amounts from the Seller under the management and guarantee agreements and for construction defects at the properties.
The case went to trial in April 1992 and the jury found for the Joint Venture and the Affiliate on certain counts and against them on other counts. The jury awarded the Joint Venture $195,654 and the Affiliate $205,860, which was less than requested. The Joint Venture and the Affiliate filed a notice of appeal in October 1993, in the Fourth Court of Appeals, State of Texas, San Antonio (Appeal No.: 04-93-00718-CV). In January 1995, a motion was filed in the Appellate Court to stay the appeal so that settlement discussions could proceed. In February 1996, a settlement was completed pursuant to which the Seller has paid the Joint Venture and the Affiliate $208,250 and $216,750, respectively.
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 Item 7. Liquidity and Capital Resources.
As of December 31, 1995, the number of record holders of Limited Partnership Interests of the Registrant was 7,310.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ------------------------------------------------------------ 1995 1994 1993 1992 1991 ----------- ----------- ----------- ------------ -----------
Total income $15,442,492 $16,120,215 $16,565,748 $16,433,299 $15,820,488 Income (loss) before gain on sale of property and extraordinary items 734,890 (291,500) (774,247) (1,179,837) (1,541,314) Net income (loss) 3,387,955 1,108,900 2,994,111 (1,179,837) 1,355,068 Net income (loss) per Limited Part- nership Interest 42.91 14.05 37.92 (14.94) 17.16 Total assets 42,023,971 55,306,162 58,987,183 60,133,453 61,884,993 Mortgage notes payable 46,407,211 56,248,201 58,567,203 62,635,603 62,801,950 Distributions per Limited Partner- ship Interest(A) 85.00 18.00 None None None
(A) These amounts included a distribution of original capital of $67.00 per Limited Partnership Interest for 1995.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - -------------
Operations - ----------
Summary of Operations - ---------------------
Balcor Realty Investors-83 (the "Partnership") recognized gains on the sales of the North Cove Apartments during 1995 and the Sunset Place Apartments during 1993. In addition, in connection with the 1994 refinancing of the North Cove Apartments mortgage loan, the lender forgave deferred interest and a portion of the principal due on the loan resulting in the recognition of an extraordinary gain on forgiveness of debt. These gains are the primary reasons the Partnership generated net income during 1995, 1994 and 1993. Further discussion of the Partnership's operations is summarized below.
1995 Compared to 1994 - ---------------------
The sale of North Cove Apartments in June 1995 resulted in decreases in rental and service income, interest expense on mortgage notes payable, depreciation, property operating expenses, real estate taxes and property management fees during 1995 as compared to 1994. Certain of these decreases were also affected by the events described below. In connection with this sale, the Partnership recognized a gain of $2,711,565 during 1995.
Higher rental rates at most of the Partnership's remaining properties during 1995 were offset by the above-mentioned sale. As a result, rental and service income and, correspondingly, property management fees decreased during 1995 as compared to 1994.
Due to higher interest rates, interest income on short-term investments increased during 1995 as compared to 1994.
Amortization expense decreased during 1995 as compared to 1994 as a result of lower deferred expenses relating to the Eagle Crest - Phase I new mortgage loan.
The Partnership incurred higher legal, consulting, printing and postage costs in connection with a tender offer during the fourth quarter of 1995. As a result, administrative expenses increased during 1995 as compared to 1994.
During 1995, the Partnership recognized an extraordinary gain on forgiveness of debt in connection with the settlement reached with the seller of the Springs Pointe and Desert Sands apartment complexes. In February 1994, the first mortgage loan collateralized by North Cove Apartments was refinanced, and the lender forgave deferred interest and a portion of the principal. In connection with this transaction, the Partnership recognized an extraordinary gain on forgiveness of debt.
In June 1995, the first mortgage loan collateralized by Deer Oaks Apartments was refinanced, and a prepayment penalty of $43,153 was incurred. Also in June 1995, the North Cove Apartments was sold and the remaining unamortized deferred expenses in the amount of $56,000 were recognized. These two amounts have been recognized as extraordinary items and classified as debt extinguishment expenses.
1994 Compared to 1993 - ---------------------
The sale of Sunset Place Apartments in August 1993 resulted in decreases in rental and service income, interest expense on mortgage notes payable, depreciation, amortization of deferred expenses, property operating expenses, real estate taxes and property management fees during 1994 as compared to 1993.
These decreases were affected by the events described below. In connection with the sale, the Partnership recognized a gain of $3,768,358 during 1993.
Higher rental rates at most of the Partnership's remaining properties during 1994 resulted in increases in rental and service income, and correspondingly property management fees, which partially offset the decrease from the Sunset Place Apartments sale.
Due to higher interest rates and larger average cash balances available for investment during 1994 as a result of the net proceeds from the 1993 property sale and refinancings, interest income on short-term investments increased in 1994 as compared to 1993.
Interest expense decreased for 1994 as compared to 1993 as a result of the sale of Sunset Place Apartments, lower interest rates on the Desert Sands and Springs Pointe mortgage loans effective in 1993 when the interest rates were adjusted downward based on a market index in accordance with the loan agreements, lower interest expense relating to the North Cove mortgage loan refinancing in February 1994, and a prepayment penalty (which was classified as interest expense) in connection with the July 1993 refinancing of the Walnut Ridge - Phase II Apartment's mortgage loan. These decreases were partially offset by higher interest expense due to an increase in debt resulting from the 1993 refinancings on Walnut Ridge Phases - I and II apartment complexes.
Primarily due to higher insurance costs at each of the Partnership's properties, higher roof repair expenditures at the Deer Oaks, Desert Sands, and Sandridge-Phase II apartment complexes, higher exterior painting expenditures at the Desert Sands and Springs Pointe apartment complexes and higher carpet replacement costs at the Eagle Crest - Phase I apartment complex, property operating expenses increased during 1994 as compared to 1993. These expenditures fully offset the decrease from the property sale and a decrease resulting from lower painting costs at the Walnut Ridge - Phase I and II apartment complexes.
As a result of higher accounting and data processing fees combined with legal expenses incurred related to the North Cove bankruptcy proceedings, administrative expenses increased during 1994 as compared to 1993.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership decreased as of December 31, 1995 as compared to December 31, 1994 primarily due to a special distribution to Limited Partners in October 1995 of $5,025,335 from Net Cash Proceeds. The Partnership's operating activities consisted primarily of cash flow generated from the operation of the properties and interest income on short-term investments, which were partially offset by the payment of administrative expenses. Investing activities consisted of the release of the cash collateral related to Desert Sands Apartments and proceeds from the sale of North Cove Apartments. Financing activities consisted of distributions to Limited Partners, principal payments on mortgage notes payable and activity associated with the refinancings of the Eagle Crest-Phase I and Deer Oaks Apartments mortgage loans.
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 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 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, all of the Partnership's seven remaining properties generated positive cash flow. The North Cove Apartments, which was sold in June 1995, generated a marginal cash flow deficit during 1994 and 1995 prior to its sale. As of December 31, 1995, the occupancy rates of the Partnership's properties ranged from 93% to 97%.
While certain of the Partnership's properties have improved, the General Partner continues to pursue a number of actions aimed at improving the cash flow of the Partnership's properties including the refinancing of mortgage loans, improving operating performance and seeking rent increases where market conditions allow.
The General Partner had previously advised the 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 reentry of REITs into the acquisition market. Since November 1995, the Partnership has entered into a letter of intent to sell one of its seven properties, and, if the market remains favorable, intends to begin actively marketing more of the 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.
Although an affiliate of the General Partner has, in certain circumstances, provided loans for certain properties of the Partnership, there can be no assurance that loans of these types will be available from either an affiliate or the General Partner in the future. During 1997, approximately $734,000 of loan financing on the Walnut Ridge - Phase II Apartments with an affiliate of the General Partner matures.
During January and June 1995, the Eagle Crest - Phase I and Deer Oaks apartment complexes' first mortgage loans, respectively, were refinanced. See Note 4 of Notes to Financial Statements for additional information.
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 4 of Notes to Financial Statements for information concerning outstanding balances, maturity dates, interest rates, and other items related to each of these mortgage loans. As a result of the General Partner's efforts to obtain loan modifications as well as refinancings of many existing loans, the Partnership has no third party financing which matures prior to 1998.
A restricted deposit in the amount of $700,000 was pledged as additional collateral related to the mortgage loan on the Desert Sands Apartments. The amount pledged as collateral was invested in short-term instruments pursuant to the terms of the pledge agreement with the lending institution and interest earned on this amount accumulated to the benefit of the Partnership. In March 1995, this restricted deposit was released and the accumulated interest was paid to the Partnership.
During June 1995, the Partnership sold the North Cove Apartments for a sale price of $10,750,000, subject to the underlying mortgage loan, and received net proceeds of $785,831. See Note 9 of Notes to Financial Statements for additional information.
In January 1996, the Partnership paid $337,523 ($4.50 per Interest) to Limited Partners representing the quarterly distribution for the fourth quarter of 1995. The General Partner made four distributions totaling $85.00 and $18.00 per Interest during 1995 and 1994, respectively. Distributions were comprised of $18.00 of Net Cash Receipts during each of 1995 and 1994 and $67.00 of Net Cash Proceeds during 1995. To date, investors have received distributions of Net Cash Receipts of $75.50 and Net Cash Proceeds of $167.00, totaling $242.50 per $1,000 Interest, as well as certain tax benefits. The General Partner expects to continue quarterly distributions to Limited Partners based on the current performance of the Partnership's properties. However, the level of future distributions will depend on cash flow from the Partnership's remaining properties, and proceeds from future property sales, as to all of which there can be no assurances. 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 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. The timing of the long-term effects of inflation on real estate may be dictated by general or local economic conditions.
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 returns is summarized as follows:
December 31, 1995 December 31, 1994 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- ---------
Total assets $42,023,971 $27,201,280 $55,306,162 $36,658,363 Partners' capital (deficit): General Partner (3,478,957) (4,314,868) (3,648,355) (5,449,072) Limited Partners (2,269,466) (14,860,814) 887,404 (14,646,823) Net income: General Partner 169,398 1,134,204 55,445 362,811 Limited Partners 3,218,557 6,161,448 1,053,455 54,555 Per Limited Part- nership Interest 42.91 82.15 14.05 .73
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-XIII, 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 Balcor Partners-XIII, 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 then 5% of the outstanding Limited Partnership Interests of the Registrant:
Name and Amount and Address of Nature of Beneficial Beneficial Titled of Class Owner Ownership Percent of Class --------------- ----------- ----------- ----------------- Limited WIG 83 5,778.08 7.70% Partnership Partners Limited Interests Chicago, Partnership Illinois Interests
(b) Balcor Partners-XIII and its officers and partners own as a group the following Limited Partnership Interests in the Registrant:
Amount Beneficially Title of Class Owned Percent of Class -------------- ------------- ----------------
Limited Partnership 99 Interests Less than 1% Interests
Relatives and affiliates of the officers and partners of the General Partner own 18 Limited Partnership 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 Schedules, 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 set forth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated December 10, 1982 (Registration No. 2-79043) is incorporated herein by reference.
(4) Amended and Restated Certificate of Limited Partnership set forth as Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated December 10, 1982 (Registration No. 2-79043) 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. 0-11805) are incorporated herein by reference.
(10) Agreement of sale relating to the sale of North Cove Apartments previously filed as Exhibit (2) to Registrant's Current Report on Form 8-K dated April 24, 1995 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 31, 1995.
(c) Exhibits: See Item 14 (a)(3) above.
(d) Financial Statement Schedules: 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 REALTY INVESTORS-83
By: /s/Brian D. Parker ------------------------------ Brian D. Parker Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XIII, 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 Balcor Partners-XIII, /s/Thomas E. Meador the General Partner March 28, 1996 - -------------------- -------------- Thomas E. Meador Brian D. Parker Senior Vice President, and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Partners-XIII, 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' Capital (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 Realty Investors-83:
We have audited the financial statements and the financial statement schedule of Balcor Realty Investors-83 (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 Realty Investors-83 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 REALTY INVESTORS-83 (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1995 and 1994
ASSETS
1995 1994 ------------ ------------ Cash and cash equivalents $ 2,734,729 $ 5,950,452 Restricted investment 700,000 Escrow deposits 1,694,777 1,560,542 Accounts and accrued interest receivable 64,523 97,846 Prepaid expenses 184,700 36,266 Deferred expenses, net of accumulated amortization of $702,304 in 1995 and $631,300 in 1994 648,778 597,642 ------------ ------------ 5,327,507 8,942,748 ------------ ------------ Investment in real estate: Land 8,885,606 10,560,405 Buildings and improvements 54,739,601 66,665,695 ------------ ------------ 63,625,207 77,226,100 Less accumulated depreciation 26,928,743 30,862,686 ------------ ------------ Investment in real estate, net of accumulated depreciation 36,696,464 46,363,414 ------------ ------------ $42,023,971 $ 55,306,162 ============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 141,244 $ 214,310 Due to affiliates 24,811 74,058 Accrued liabilities, principally real estate taxes 938,309 1,241,718 Security deposits 260,819 288,826 Mortgage note payable - affiliate 734,154 772,896 Mortgage notes payable 45,673,057 55,475,305 ------------ ------------ Total liabilities 47,772,394 58,067,113 ------------ ------------ Limited Partners' (deficit) capital (75,005 Interests issued and outstanding (2,269,466) 887,404 General Partner's deficit (3,478,957) (3,648,355) ------------ ------------ Total partners' deficit (5,748,423) (2,760,951) ------------ ------------ $ 42,023,971 $ 55,306,162 ============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (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 $ (5,513,870) $ (3,853,506) $(1,660,364)
Net income for the year ended December 31, 1993 2,994,111 149,706 2,844,405 -------------- -------------- ------------ Balance at December 31, 1993 (2,519,759) (3,703,800) 1,184,041
Cash distributions to Limited Partners (A) (1,350,092) (1,350,092) Net income for the year ended December 31, 1994 1,108,900 55,445 1,053,455 -------------- -------------- ------------ Balance at December 31, 1994 (2,760,951) (3,648,355) 887,404
Cash distributions to Limited Partners (A) (6,375,427) (6,375,427) Net income for the year ended December 31, 1995 3,387,955 169,398 3,218,557 -------------- -------------- ------------ Balance at December 31, 1995 $ (5,748,423) $ (3,478,957) $ (2,269,466) ============== ============== ============
(A) Summary of cash distributions paid per Interest:
1995 1994 1993 ------------- ------------- ------------- First Quarter $ 4.50 $ 4.50 None Second Quarter 4.50 4.50 None Third Quarter 4.50 4.50 None Fourth Quarter 71.50 4.50 None
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (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 $ 15,054,742 $ 15,796,390 $ 16,422,721 Interest on short-term investments 387,750 323,825 143,027 ------------- ------------- ------------- Total income 15,442,492 16,120,215 16,565,748 ------------- ------------- ------------- Expenses: Interest on mortgage notes payable 4,037,357 4,477,599 5,843,874 Depreciation 1,797,112 1,988,938 2,144,183 Amortization of deferred expenses 169,149 192,062 214,176 Property operating 5,970,865 6,935,788 6,287,619 Real estate taxes 1,300,427 1,446,103 1,582,090 Property management fees 753,664 789,447 824,080 Administrative 679,028 581,778 443,973 ------------- ------------- ------------- Total expenses 14,707,602 16,411,715 17,339,995 ------------- ------------- ------------- Income (loss) before gain on sale of property and extraordinary items 734,890 (291,500) (774,247) Gain on sale of property 2,711,565 3,768,358 ------------- ------------- ------------- Income (loss) before extraordinary items 3,446,455 (291,500) 2,994,111 ------------- ------------- ------------- Extraordinary items: Gain on forgiveness of debt 40,653 1,400,400 Debt extinguishment expenses (99,153) ------------- ------------- Total extraordinary items (58,500) 1,400,400 ------------- ------------- ------------- Net income $ 3,387,955 $ 1,108,900 $ 2,994,111 ============= ============= ============= Income (loss) before extra- ordinary items allocated to General Partner $ 172,323 $ (14,575) $ 149,706 ============= ============= ============= Income (loss) before extra- ordinary items allocated to Limited Partners $ 3,274,132 $ (276,925) $ 2,844,405 ============= ============= ============= Income (loss) before extra- ordinary items per Limited Partnership Interest (75,005 issued and outstanding) $ 43.65 $ (3.69) $ 37.92 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1995, 1994 and 1993 (Continued)
1995 1994 1993 ------------- ------------- ------------- Extraordinary items allocated to General Partner $ (2,925)$ 70,020 None ============= ============= ============= Extraordinary items allocated to Limited Partners $ (55,575)$ 1,330,380 None ============= ============= ============= Extraordinary items per Limited Partnership Interest (75,005 issued and outstanding) $ (0.74)$ 17.74 None ============= ============= ============= Net income allocated to General Partner $ 169,398 $ 55,445 $ 149,706 ============= ============= ============= Net income allocated to Limited Partners $ 3,218,557 $ 1,053,455 $ 2,844,405 ============= ============= ============= Net income per Limited Partnership Interest (75,005 issued and outstanding) $ 42.91 $ 14.05 $ 37.92 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (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 $ 3,387,955 $ 1,108,900 $ 2,994,111 Adjustments to reconcile net income to net cash provided by operating activities: Gain on forgiveness of debt (40,653) (1,400,400) Debt extinguishment expenses 99,153 Gain on sale of property (2,711,565) (3,768,358) Depreciation of properties 1,797,112 1,988,938 2,144,183 Amortization of deferred expenses 169,149 192,062 214,176 Deferred interest expense 323,214 Payments of deferred interest expense (377,109) Net change in: Escrow deposits (134,235) (367,273) (387,049) Accounts and accrued interest receivable 33,323 (87,622) 173,344 Prepaid expenses (148,434) 73,987 (75,022) Accounts payable (73,066) (53,813) (88,499) Due to affiliates (49,247) (37,417) 29,818 Accrued liabilities (303,409) (82,335) 48,926 Security deposits (28,007) (13,788) (8,331) ------------- ------------- ------------- Net cash provided by operating activities 1,998,076 1,321,239 1,223,404 ------------- ------------- ------------- Investing activities: Redemption of restricted investment 700,000 Improvements to properties (110,424) (93,545) Proceeds from sale of real estate 954,428 10,600,000 Payment of selling costs (168,597) (26,200) ------------- ------------- ------------- Net cash provided by or used in investing activities 1,485,831 (110,424) 10,480,255 ------------- ------------- ------------- Financing activities: Distributions to Limited Partners (6,375,427) (1,350,092) Proceeds from issuance of mortgage notes payable 11,980,000 3,000,000 11,043,750 Repayment of mortgage notes payable (11,254,363) (3,123,000) (10,916,567) Repayment of mortgage note payable - affiliate (38,742) (121,443) (3,837,920) Principal payments on mortgage notes payable (691,660) (1,607,633) (357,663) Payment of deferred expenses (276,285) (209,719) (275,200) Payment of prepayment premium (43,153) ------------- ------------- ------------- Net cash used in financing activities (6,699,630) (3,411,887) (4,343,600) ------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1995, 1994 and 1993 (Continued)
1995 1994 1993 ------------- ------------- ------------- Net change in cash and cash equivalents (3,215,723) (2,201,072) 7,360,059 Cash and cash equivalents at beginning of year 5,950,452 8,151,524 791,465 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 2,734,729 $ 5,950,452 $ 8,151,524 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83 (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors-83 is engaged principally in the operation of residential real estate located in various markets within the United States.
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 reported 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:
Years -----
Buildings and improvements 20 to 30 Furniture and fixtures 5
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.
(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 modification and 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 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 highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are held or invested primarily in one issuer of commercial paper.
(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) A reclassification has been made to the previously reported 1994 and 1993 financial statements to conform with the classification used in 1995. This reclassification has not changed the 1994 or 1993 results.
3. Partnership Agreement:
The Partnership was organized in December 1981; however, operations did not commence until February 1983. The Partnership Agreement provides for Balcor Partners-XIII to be the General Partner and for the admission of Limited Partners through the sale of up to 75,005 Limited Partnership Interests at $1,000 per Interest, all of which were sold as of March 28, 1983, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated 5% of the operating profits and losses and 1% of capital losses and the greater of 1% of capital profits or an amount equal to Net Cash Proceeds distributed to the General Partner. The Partnership has allocated 5% of capital profits (which are mainly a result of prior depreciation deductions) to the General Partner. This method more evenly matches deductions and the gain resulting from those deductions. 100% 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. In addition, there shall be accrued for the benefit of the General Partner as its distributive share from operations, an amount equivalent to 5.26% of the total Net Cash Receipts being distributed, which will be paid only out of available Net Cash Proceeds.
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 the Limited Partners until such time as the Limited Partners have received an amount equal to their Original Capital plus any
deficiency in the Cumulative Distribution of 6% per annum on Adjusted Original Capital. Only after such returns are made to the Limited Partners would the General Partner receive 18% of further distributed Net Cash Proceeds including its accrued share of Net Cash Receipts, subject to certain limitations as specified in the Partnership Agreement.
4. 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 - --------------- --------- ----------- -------- ------ ------- ----------
Mortgage Notes Payable - Nonaffiliates:
Apartment Complexes:
Deer Oaks (A) $4,777,636 $4,332,577 7.350% 2002 $33,071 $4,404,000 Desert Sands 9,034,548 9,272,229 6.498% 1998 66,166 8,472,000 Eagle Crest - Phase I (B) 7,140,577 6,939,000 9.621% 2002 61,008 6,776,000 North Cove (C) 9,831,545 (C) (C) (C) (C) Sandridge - Phase II (D) 2,971,144 2,991,895 9.125% 2001 24,409 2,816,000 Springs Pointe Village 10,902,316 11,174,573 6.498% 1998 79,845 10,209,000 Walnut Ridge - Phase I 5,764,108 5,810,155 8.940% 2000 46,968 5,498,000 Walnut Ridge - Phase II 5,082,728 5,123,331 8.940% 2000 41,416 4,848,000 ----------- -----------
Subtotal 45,673,057 55,475,305 ----------- -----------
Mortgage Notes Payable - Affiliate: Apartment Complex:
Walnut Ridge - 734,154 772,896 10.50% 1997 (E) 734,000 Phase II (E) ----------- -----------
Total $46,407,211 $56,248,201 =========== ===========
(A) In June 1995, this loan was refinanced. The interest rate decreased from 10.00% to 7.35%, the maturity date was extended from October 1995 to July 2002 and the monthly payments decreased from $39,491 to $33,071. A portion of the proceeds from the new $4,800,000 first mortgage loan were used to repay the existing first mortgage loan of $4,315,363. In connection with the refinancing, a prepayment penalty of $43,153 was incurred and classified as debt extinguishment expense.
(B) In January 1995, this loan was refinanced. The interest rate increased from 9.025% to 9.621%, the maturity date was extended from November 1994 to February 2002 and the monthly payments increased from $52,187 to $61,008. A portion of the proceeds from the new $7,180,000 first mortgage loan were used to repay the existing first mortgage loan of $6,939,000.
(C) This property was sold to an unaffiliated party during June 1995. See Note 9 of Notes to Financial Statements for additional information. Prior to the sale, this loan had originally matured in June 1993 and the Partnership remitted the property's monthly cash flow as interest expense until the loan was refinanced in February 1994. Pursuant to the terms of the refinancing, the Partnership was required to remit $1,000,000 to the lender representing a principal reduction, and the lender forgave $466,926 of the principal balance and deferred interest of $933,474, reducing the principal balance from $11,366,926 to $9,900,000. This resulted in a $1,400,400 extraordinary gain on forgiveness of debt in 1994.
(D) In July 1994, this loan was refinanced. The interest rate increased from 9.025% to 9.125%, the maturity date was extended from December 1994 to August 2001 and the monthly payments increased from $23,489 to $24,409. The proceeds from the new $3,000,000 first mortgage loan and cash reserves were used to repay the existing first mortgage loan of $3,123,000.
(E) Represents an unsecured loan from The Balcor Company ("TBC"), an affiliate of the General Partner, as successor to Balcor Real Estate Holdings, Inc. The pay rate is equal to the net cash flow from the property and payments are applied first to interest and then to principal. The loan matured in December 1994, and TBC extended the loan for an additional three years.
Real estate with an aggregate carrying value of $36,696,464 at December 31, 1995 was pledged as collateral for repayment of mortgage loans.
The Partnership's loans described above require current monthly payments of principal and interest, unless otherwise noted.
Five-year maturities of the mortgage notes payable are approximately as follows:
1996 $ 682,000 1997 1,467,000 1998 19,217,000 1999 275,000 2000 10,577,000
During 1995, 1994 and 1993, the Partnership incurred interest expense on mortgage notes payable to non-affiliates of $3,962,845, $4,382,118 and $5,519,514, respectively. The Partnership paid interest expense to non-affiliates of $3,962,845 in 1995, $4,382,118 in 1994 and $5,312,292 in 1993.
5. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are managed by a third-party management company. These management agreements provide for annual fees of 5% of gross operating receipts.
6. Sellers' Participation in Joint Ventures:
The Deer Oaks and Eagle Crest - Phase I apartment complexes are owned by joint ventures between the Partnership and the respective sellers. Consequently, the sellers retain an interest in each property through their interest in each joint venture. All assets, liabilities, income and expenses of the joint ventures are included in the financial statements of the Partnership with the appropriate adjustment to income or loss, if any, for the sellers' participation in the joint ventures.
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. For 1995, the net effect of these accounting differences is that the net income in the financial statements is $3,907,697 less than the tax income 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 $721,999 None $806,815 $86,121 Reimbursement of expenses to General Partner, at cost: Accounting $58,817 $ 2,504 86,414 $30,902 59,807 4,984 Data processing 32,721 2,404 54,173 10,892 31,161 5,706 Investor communica- tions 7,620 None 20,528 5,964 18,471 1,539 Legal 30,838 2,549 13,567 8,702 13,841 1,153 Portfolio management 98,173 11,332 54,667 14,929 54,668 10,974 Property sales administration 12,043 5,932 None None None None Other 3,279 90 9,785 2,669 11,986 998
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, 1995, the Partnership has a $734,154 unsecured third loan outstanding to TBC. The Partnership incurred interest expense on the affiliate loans of $74,512, $95,481 and $324,360 and paid interest expense of $81,500, $164,371 and $381,585 during 1995, 1994 and 1993, respectively.
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 program expenses. The Partnership paid premiums to the deductible insurance program of $97,533, $161,478 and $106,145 in 1995, 1994 and 1993, respectively.
9. Property Sale:
In June 1995, the North Cove Apartments was sold for $10,750,000. In connection with the sale, the purchaser assumed the $9,795,572 third party first mortgage loan. The basis of the property was $7,869,838, which is net of accumulated depreciation of $5,731,055. For financial statement purposes, the Partnership recognized a gain of $2,711,565 from the sale of the property. In connection with the sale, the remaining unamortized deferred expenses in the amount of $56,000 were recognized as an extraordinary item and classified as debt extinguishment expense.
10. Restricted Investments:
A restricted deposit in the amount of $700,000 was pledged as additional collateral to the mortgage loan on the Desert Sands Apartments. The amount pledged as collateral was invested in short-term instruments pursuant to the terms of the pledge agreement with the lending institution and interest earned on this amount accumulated to the benefit of the Partnership. In March 1995, this restricted deposit was released and the accumulated interest was paid to the Partnership.
11. 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 Notes 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 notes payable approximates the carrying value.
12. Extraordinary Items:
(a) During 1995, the Partnership recognized an extraordinary gain on forgiveness of debt of $40,653 in connection with the settlement reached with the seller of the Springs Pointe and Desert Sands apartment complexes.
(b) During 1995, the Partnership refinanced the Deer Oaks Apartments first mortgage loan. In connection with the refinancing, a prepayment penalty of $43,153 was incurred and classified as debt extinguishment expense.
(c) During 1995, the Partnership sold the North Cove Apartments. In connection with the sale, the remaining unamortized deferred expenses in the amount of $56,000 were recognized as an extraordinary item and classified as debt extinguishment expense.
13. Subsequent Events:
(a) In January 1996, the Partnership made a distribution of $337,523 ($4.50 per Interest) to the holders of Limited Partnership Interests for the fourth quarter of 1995.
(b) The Partnership reached a settlement with the seller of the Deer Oaks Apartments in February 1996. In connection with this settlement, the Partnership received $208,250 representing amounts due from the seller under the management and guarantee agreement, as well as construction defects at the property.
(c) 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 REALTY INVESTORS-83 (An Illinois Limited Partnership)
BALCOR REALTY INVESTORS-83 (An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) See description of Mortgage Notes Payable in Note 4 of Notes to Financial Statements.
(b) Consists of legal fees, appraisal fees, title costs, other related professional fees, and capitalized construction period interest and real estate taxes.
(c) 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.
(d) The aggregate cost of land for Federal income tax purposes is $8,862,383 and the aggregate cost of buildings and improvements for Federal income tax purposes is $50,554,229. The total of these is $59,416,612.
Reconciliation of Real Estate (e) ----------------------------- 1995 1994 1993 ----------- ----------- ----------- Balance at beginning of year: $77,226,100 $77,115,676 $87,572,161
Additions during year: Improvements None 110,424 93,545 Deductions during year: Cost of real estate sold (13,600,893) None (10,550,030) ----------- ----------- ----------- Balance at close of year $63,625,207 $77,226,100 $77,115,676 =========== =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------- 1995 1994 1993 ----------- ----------- -----------
Balance at beginning of year $30,862,686 $28,873,748 $30,474,153
Depreciation expense for the year 1,797,112 1,988,938 2,144,183 Accumulated depreciation of real estate sold (5,731,055) None (3,744,588) ----------- ----------- ----------- Balance at close of year $26,928,743 $30,862,686 $28,873,748 =========== =========== ===========
(f) Depreciation expense is computed based upon the following estimated useful lives:
Years ----- Buildings and improvements 20 to 30 Furniture and fixtures 5