Item 1. Business - ----------------
Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the "Registrant") is a limited partnership formed in 1984 under the laws of the State of Illinois. The Registrant raised $52,811,000 from sales of Limited Partnership Interests. The Registrant has retained cash reserves from the sale of its real estate investments for contingencies which exist or may arise. The Registrant's operations currently consist of interest income earned on short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire four real property investments and a minority joint venture interest in one additional property and has since disposed of all of these investments. The Partnership Agreement provides that the proceeds of any sale or refinancing of the Registrant's properties will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon the occurrence of certain events, including the disposition of all its interests in real estate. The Registrant sold its final real estate investment in July 1997. The Registrant has retained a portion of the cash from the property sales to satisfy obligations of the Registrant as well as to establish a reserve for contingencies. The timing of the termination of the Registrant and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. Such contingencies may include legal and other fees and costs stemming from litigation involving the Registrant including, but not limited to, the Masri and Bruss lawsuits discussed in "Item 3. Legal Proceedings". Due to this litigation, the Registrant will not be dissolved and reserves will be held by the Registrant until the conclusion of such contingencies. There can be no assurances as to the time frame for the conclusion of all contingencies.
The Registrant no longer has an ownership interest in any real estate investment. The General Partner is not aware of any material potential liability relating to environmental issues or conditions affecting real estate formerly owned by the Registrant.
The officers and employees of Balcor Equity Partners-XVIII, 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, 1999, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real estate property investments.
Item 3.
Item 3. Legal Proceedings - --------------------------
Bruss et al. vs. Lehman Brothers, Inc., et al. - ----------------------------------------------
On January 25, 1999, a proposed class action complaint was filed, Dorothy Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law Division, Essex County, Docket No. L-000898-99). The Partnership, ten additional limited partnerships which were sponsored by The Balcor Company (together with the Partnership, the "Affiliated Partnerships"), The Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc., American Express Financial Corporation, and other affiliated entities and 9 individuals were named defendants in the action. Lead counsel representing the plaintiffs in this case is the same counsel representing the plaintiffs in each of the Lenore Klein case (now dismissed) and Raymond Masri case (see below). The Bruss complaint raises largely the same issues as those raised in the Lenore Klein and the Raymond Masri cases.
Upon the defendants' Motion to Dismiss, the Bruss complaint was dismissed without prejudice on September 24, 1999. An amended complaint was filed on November 30, 1999. The amended complaint differs from the original complaint in that 8 of the 9 individual defendants and American Express Company were deleted as defendants; the amended complaint also deletes 4 counts for breach of fiduciary duty, breach of contract, conspiracy and violations of the New Jersey RICO statute and similar statutes of other states. The amended complaint alleges common law fraud, equitable fraud, negligent misrepresentation and violation of certain New Jersey and other similar state statutes relating to the disclosure of information in the offering of limited partnership interests in the Affiliated Partnerships, the marketing of interests in the Affiliated Partnerships and the acquisition of real property for the Affiliated Partner- ships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Affiliated Partnerships by the proposed class plus interest; general damages for injuries arising from the defendants' alleged actions; equitable relief, including rescission on certain counts; punitive damages; recovery from the Defendants of all profits received by them as a result of their alleged actions relating to the Affiliated Partnerships; and attorneys' fees and other costs.
The defendants filed a new Motion to Dismiss on January 31, 2000. The defendants intend to vigorously contest this action. No class has been certified as of this date. Management of each of the defendants believes that it has meritorious defenses to contest the claims.
Raymond Masri vs. Lehman Brothers, Inc., et al. - -----------------------------------------------
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, twelve 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, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney, 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' alleged actions;
recovery from the defendants of all profits received by them as a result of their alleged 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.
No activity occurred on this matter during 1999. Plaintiffs' counsel also represents the plaintiffs in the Dorothy Bruss matter, which is based on the same set of facts. Raymond Masri is named as an additional plaintiff in the Dorothy Bruss matter.
Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et - ----------------------------------------------------------------------------- al. - --- Sandra Dee vs. The Balcor Company, et al. - -----------------------------------------
On May 7, 1999, a proposed class action complaint was filed and on May 13, 1999 was served on the defendants, Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH 08972). The General Partner of the Partnership, the general partners of twenty-one additional limited partnerships which were sponsored by The Balcor Company, The Balcor Company and one individual are named as defendants in this action. The Partnership and the twenty-one additional limited partnerships are referred to herein as the "Affiliated Partnerships". Plaintiffs are entities that initiated tender offers to purchase units and, in fact, purchased units in eleven of the Affiliated Partnerships.
On June 1, 1999, a proposed class action complaint was filed, and on August 16, 1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH 08123). This complaint is identical in all material respects to the Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999. The defendants filed on September 15, 1999 a motion to consolidate the Dee case with the Madison Partnership case. On September 20, 1999, the motion was granted and this case was consolidated with the Madison Partnership case.
The complaints allege breach of fiduciary duties and breach of contract under the partnership agreements for each of the Affiliated Partnerships. The complaints seek the winding up of the affairs of the Affiliated Partnerships, the establishment of a liquidating trust for each of the Affiliated Partnerships until a resolution of all contingencies occurs, the appointment of an independent trustee for each such liquidating trust and the distribution of a portion of the cash reserves to limited partners. The complaints also seek compensatory damages, punitive and exemplary damages, and costs and expenses in pursuing the litigation.
The defendants filed motions to dismiss the complaints on July 14, 1999 and on September 15, 1999. On January 19, 2000 a hearing on the motions was held and the class allegations in the complaints were struck regarding eleven Affiliated Partnerships, but not the Partnership. In all other respects, the motions to
dismiss were denied. While the court directed the plaintiffs to file an amended complaint by February 18, 2000, as of this date they have yet to do so.
The defendants intend to vigorously contest this action. No class has been certified as of this date.
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 1999.
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. For information regarding previous distributions, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
As of December 31, 1999, the number of record holders of Limited Partnership Interests of the Registrant was 4,948.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ----------- --------- --------- ----------- ---------
Total income $84,150 $204,664 $851,817 $6,007,299 $16,743,567 Provision for in- vestment property write-down None None None None 1,016,987 (Loss) income before gain on sales of properties and extraordinary items (51,052) 23,315 (602,105) (454,847) 1,240,270 Net (loss) income (51,052) 23,315 518,188 15,908,429 1,240,270 Net (loss) income per Limited Partner- ship Interest-Basic and Diluted None 0.44 9.81 298.22 23.25 Total assets 1,718,137 1,749,212 1,691,997 15,865,854 58,114,553 Mortgage notes payable None None None 5,101,842 39,475,209 Distributions per Limited Partner- ship Interest(A) None None 176.26 410.00 20.00
(A) These amounts include distributions of Original Capital of $173.76 and $240 per Limited Partnership Interest for 1997 and 1996, respectively.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------------------------------------------------------------------------------- of Operations - -------------
Operations - ----------
Summary of Operations - ---------------------
The operations of Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the "Partnership") in 1999 and 1998 consisted primarily of administrative expenses which were partially offset by interest income earned on short-term investments. The Partnership sold its remaining property in 1997 and recognized a gain in connection with the property sale. During 1998, the Partnership recognized income in connection with the release to the Partnership of escrow funds which were set up in connection with the sale of the 101 Marietta office complex. As a result, the Partnership recognized a net loss during 1999 and the Partnership's net income decreased during 1998 as compared to 1997. Further discussion of the Partnership's operations is summarized below.
1999 Compared to 1998 - ---------------------
As a result of lower interest rates in 1999, interest income on short-term investments decreased during 1999 as compared to 1998.
The Partnership recognized other income during 1998 in connection with the release to the Partnership of escrow funds which were set up in connection with the sale of the 101 Marietta office complex, which was sold in 1996.
Primarily due to a decrease in legal fees, administrative expenses decreased during 1999 as compared to 1998.
1998 Compared to 1997 - ---------------------
The Canyon Pointe Apartments was sold in July 1997 and the Partnership recognized a gain in connection with the sale of $1,141,112. As a result of the sale, rental and service income, interest expense on mortgage notes payable, depreciation expense, amortization expense, property operating, real estate tax expense and property management fees expense ceased during 1997.
The proceeds from the October 1996 sale of the Knollwood Village Apartments were distributed to Limited Partners in January 1997 and the proceeds from the July 1997 sale of the Canyon Pointe Apartments were distributed to Limited Partners in October 1997. As a result, the Partnership earned higher interest income on short-term investments during 1997 as compared to 1998.
The Partnership recognized other income during 1997 in connection with a partial refund of prior years' insurance premiums relating to the Partnership's properties.
During 1997, the Partnership paid real estate tax consulting fees related to the 101 Marietta Tower office complex, which was sold in 1996, and a state income tax liability related to the gain on the 1996 sale of Knollwood Village Apartments. For financial statement purposes, these items were classified as other expenses.
Administrative expenses decreased during 1998 as compared to 1997 primarily due to a decrease in accounting, data processing, investor services and bank fees. This decrease was partially offset by legal fees accrued in connection with the class action litigation.
In connection with the sale of the Canyon Pointe Apartments in 1997, the Partnership wrote-off the remaining unamortized deferred expenses related to the mortgage loan of $20,819. This amount was recorded as an extraordinary item and classified as debt extinguishment expense for financial statement purposes.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership decreased by approximately $32,000 as of December 31, 1999 when compared to December 31, 1998 primarily due to cash used in operating activities for the payment of administrative expenses, which was partially offset by interest income earned on short-term investments.
The Partnership Agreement provides for the dissolution of the Partnership upon the occurrence of certain events, including the disposition of all its interests in real estate. The Partnership sold its final real estate investment in July 1997. The Partnership has retained a portion of the cash from the property sales to satisfy obligations of the Partnership as well as to establish a reserve for contingencies. The timing of the termination of the Partnership and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. Such contingencies may include legal and other fees and costs stemming from litigation involving the Partnership including, but not limited to, the Masri and Bruss lawsuits discussed in "Item 3. Legal Proceedings". Due to this litigation, the Partnership will not be dissolved and reserves will be held by the Partnership until the conclusion of such contingencies. There can be no assurances as to the time frame for the conclusion of all contingencies. The Partnership made distributions in 1997 totaling $176.26 per Limited Partnership Interest. The Partnership did not make any distributions to Limited Partners in 1999 or 1998. See Statements of Partners' Capital for additional information. The 1997 distributions were comprised of $2.50 per Interest of Net Cash Receipts and $173.76 per Interest of Net Cash Proceeds.
Limited Partners have received distributions of Net Cash Receipts of $288.00 and Net Cash Proceeds of $428.26, totaling $716.26 per $1,000 Interest, as well as certain tax benefits. No additional distributions are anticipated to be made prior to termination of the Partnership. However, after paying final partnership expenses, any remaining cash reserves will be distributed. Limited Partners will not recover all of their original investment.
The Partnership believes that its key vendors were Year 2000 compliant with respect to the Partnership's operations as of December 31, 1999 and that there was no material effect on the business, financial position or results of operations of the Partnership related to Year 2000 issues.
Certain statements in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may include statements regarding income or losses as well as assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to differ from any future results, performance or achievements expressed or implied by the forward-looking statements.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K is not applicable.
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, 1999 December 31, 1998 ----------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- ---------
Total assets $1,718,137 $8,843,898 $1,749,212 $8,875,867 Partners' capital (deficit): General Partner (113,558) (175,033) (62,506) (175,037) Limited Partners 1,734,093 8,921,330 1,734,093 8,973,277 Net (loss) income: General Partner (51,052) None None None Limited Partners None (51,947) 23,315 17,938 Per Limited Part- nership Interest None (0.98) 0.44(A) 0.34
(A) Amount represents basic and diluted net income per Limited Partnership Interest.
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 Equity Partners-XVIII, 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 Managing Director, Chief Jayne A. Kosik Financial Officer, Treasurer and Assistant Secretary
Thomas E. Meador (age 52) 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 member of the board of directors 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.
Mr. Meador is on the Board of Directors of AMLI Commercial Properties Trust, a private real estate investment trust that owns office and industrial buildings in the Chicago, Illinois area. Mr. Meador was elected to the Board of AMLI Commercial Properties Trust in August 1998.
Jayne A. Kosik (age 42) joined Balcor in August 1982 and, as Chief Financial Officer, is responsible for Balcor's financial, human resources and treasury functions. Ms. Kosik is also a member of the board of directors of The Balcor Company. From June 1989 until October 1996, Ms. Kosik had supervisory responsibility for accounting functions relating to Balcor's public and private partnerships. She is also Treasurer and a Senior Managing Director of The Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(e) 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 1999 except that Mr. Meador is named, in his capacity as an officer of Balcor, as a defendant in the Madison/Dee lawsuit described in "Item 3. Legal Proceedings".
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 the General Partner. The executive 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) 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) Balcor Equity Partners-XVIII and its officers and partners own as a group the following Limited Partnership Interests of the Registrant:
Amount Beneficially Title of Class Owned Percent of Class -------------- -------------- ---------------- Limited Partnership Interests 100 Interests Less than 1%
Relatives of the officers and affiliates of the partners of the General Partner do not own any additional Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title to 50 Limited Partnership Interests in the Partnership due exclusively to instances in which Limited Partners abandoned title to their Limited Partnership Interests. Balcor LP Corp. is a nominee holder only of such Interests and has disclaimed any economic or beneficial ownership in said Interests. All distributions of cash payable with respect to such Interests held by Balcor LP Corp. are returned to the Partnership for distribution to other Limited Partners in accordance with the Partnership Agreement.
(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 8 of Notes to Financial Statements for additional information relating to transactions with affiliates.
See Note 4 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership set forth as Exhibit 3 to Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated September 17, 1984 (Registration No. 2-89380) is hereby incorporated herein by reference.
(4) Form of Subscription Agreement, previously filed as Exhibit 4.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-11 dated May 15, 1984 (Registration No. 2-89380), 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 are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1999 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the quarter ended December 31, 1999.
(c) Exhibits: See Item 14(a)(3)above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Jayne A. Kosik ----------------------------------- Jayne A. Kosik Senior Managing Director and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Equity Partners-XVIII, the General Partner
Date: March 28, 2000 ---------------
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 Equity Partners-XVIII, the General Partner /s/Thomas E. Meador March 28, 2000 - ------------------- -------------- Thomas E. Meador
Senior Managing Director and Chief Financial Officer (Principal Accounting and Financial Officer) of Balcor Equity Partners-XVIII, the General Partner /s/Jayne A. Kosik March 28, 2000 - ----------------- -------------- Jayne A. Kosik
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1999 and 1998
Statements of Partners' Capital for the years ended December 31, 1999, 1998 and
Statements of Income and Expenses, for the years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows, for the years ended December 31, 1999, 1998 and 1997
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 Equity Properties-XVIII A Real Estate Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of partners' capital, of income and expenses and of cash flows present fairly, in all material respects, the financial position of Balcor Equity Properties-XVIII A Real Estate Limited Partnership (An Illinois Limited Partnership, the "Partnership") at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement provides for the dissolution of the Partnership upon the occurrence of certain events, including the disposition of all its interests in real estate. The Partnership no longer has an ownership interest in any real estate investment. As described in Note 13, the Partnership has contingencies related to litigation. Upon resolution of the litigation contingency matters, the Partnership intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois March 28, 2000
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
BALANCE SHEETS December 31, 1999 and 1998
ASSETS
1999 1998 ------------- ------------- Cash and cash equivalents $ 1,709,777 $ 1,741,812 Accounts and accrued interest receivable 8,360 7,400 ------------- ------------- $ 1,718,137 $ 1,749,212 ============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 64,765 $ 55,610 Due to affiliates 32,837 22,015 ------------- ------------- Total liabilities 97,602 77,625 ------------- ------------- Commitments and contingencies
Limited Partners' capital (52,811 Interests issued and outstanding) 1,734,093 1,734,093 General Partner's deficit (113,558) (62,506) ------------- ------------- Total partners' capital 1,620,535 1,671,587 ------------- ------------- $ 1,718,137 $ 1,749,212 ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL for the years ended December 31, 1999, 1998 and 1997
Partners' Capital (Deficit) Accounts ------------- --------------------------- General Limited Total Partner Partners ------------- ------------- -------------
Balance at December 31, 1996 $ 10,438,551 $ (62,506) $ 10,501,057
Cash distributions to Limited Partners (A) (9,308,467) (9,308,467)
Net income for the year ended December 31, 1997 518,188 518,188 ------------- ------------- ------------- Balance at December 31, 1997 1,648,272 (62,506) 1,710,778
Net income for the year ended December 31, 1998 23,315 23,315 ------------- ------------- ------------- Balance at December 31, 1998 1,671,587 (62,506) 1,734,093
Net loss for the year ended December 31, 1999 (51,052) (51,052) ------------- ------------- ------------- Balance at December 31, 1999 $ 1,620,535 $ (113,558) $ 1,734,093 ============= ============= =============
(A) Summary of cash distributions per Limited Partnership Interest:
1999 1998 1997 ------------ ------------- -------------
First Quarter None None $ 157.50 Second Quarter None None 2.76 Third Quarter None None None Fourth Quarter None None 16.00
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------- ------------- ------------- Income: Rental $ 692,173 Service 14,592 Interest on short-term investments $ 84,150 $ 88,974 122,907 Other 115,690 22,145 ------------- ------------- ------------- Total income 84,150 204,664 851,817 ------------- ------------- ------------- Expenses: Interest on mortgage note payable 256,219 Depreciation 141,606 Amortization of deferred expenses 13,155 Property operating 459,772 Real estate taxes 107,537 Property management fees 35,575 Other 219,839 Administrative 135,202 181,349 220,219 ------------- ------------- ------------- Total expenses 135,202 181,349 1,453,922 ------------- ------------- ------------- (Loss) income before gain on sale of property and extraordinary item (51,052) 23,315 (602,105)
Gain on sale of property 1,141,112 ------------- ------------- ------------ (Loss) income before extraordinary item (51,052) 23,315 539,007
Extraordinary item: Debt extinguishment expense (20,819) ------------- ------------- ------------- Net (loss) income $ (51,052) $ 23,315 $ 518,188 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1999, 1998 and 1997 (Continued)
1999 1998 1997 ------------- ------------- ------------- (Loss) income before extraordinary item allocated to General Partner $ (51,052) None None ============= ============= ============= (Loss) income before extraordinary item allocated to Limited Partners None $ 23,315 $ 539,007 ============= ============= ============= (Loss) income before extraordinary item per Limited Partnership Interest (52,811 issued and outstanding) - Basic and Diluted None $ 0.44 $ 10.20 ============= ============= ============= Extraordinary item allocated to General Partner None None None ============= ============= ============= Extraordinary item allocated to Limited Partners None None $ (20,819) ============= ============= ============= Extraordinary item per Limited Partnership Interest (52,811 issued and outstanding) - Basic and Diluted None None $ (0.39) ============= ============= ============= Net (loss) income allocated to General Partner $ (51,052) None None ============= ============= ============= Net (loss) income allocated to Limited Partners None $ 23,315 $ 518,188 ============= ============= ============= Net (loss) income per Limited Partnership Interest(52,811 issued and outstanding) - Basic and Diluted None $ 0.44 $ 9.81 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------- ------------- ------------- Operating activities: Net (loss) income $ (51,052) $ 23,315 $ 518,188 Adjustments to reconcile net (loss) income to net cash (used in) or provided by operating activities: Gain on sale of property (1,141,112) Debt extinguishment expense 20,819 Depreciation 141,606 Amortization of deferred expenses 13,155 Net change in: Escrow deposits 263,326 Accounts and accrued interest receivable (960) 551 92,479 Note receivable 31,878 Prepaid expenses 17,314 Accounts payable 9,155 40,200 (29,494) Due to affiliates 10,822 (6,300) (70,632) Accrued liabilities (167,154) Security deposits (14,456) ------------- ------------- ------------- Net cash (used in) or provided by operating activities (32,035) 57,766 (324,083) ------------- ------------- ------------- Investing activities: Proceeds from sale of real estate 6,300,000 Costs incurred in connection with sale of real estate (154,363) ------------- Net cash provided by investing activities 6,145,637 ------------- Financing activities: Distributions to Limited Partners (9,308,467) Repayment of mortgage note payable (5,071,928) Principal payments on mortgage note payable (29,914) -------------
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1999, 1998 and 1997 (Continued)
1999 1998 1997 ------------- ------------- ------------- Cash used in financing activities (14,410,309) ------------- ------------- ------------- Net change in cash and cash equivalents (32,035) 57,766 (8,588,755) Cash and cash equivalents at beginning of year 1,741,812 1,684,046 10,272,801 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 1,709,777 $ 1,741,812 $ 1,684,046 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PROPERTIES-XVIII A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Properties-XVIII A Real Estate Limited Partnership (the "Partnership") has retained cash reserves from the sale of its real estate investments for contingencies which exist or may arise. The Partnership's operations currently consist of interest income earned on short-term investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon the occurrence of certain events, including the disposition of all its interests in real estate. The Partnership sold its final real estate investment in July 1997. The Partnership has retained a portion of the cash from the property sales to satisfy obligations of the Partnership as well as to establish a reserve for contingencies. The timing of the termination of the Partnership and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. Such contingencies may include legal and other fees and costs stemming from litigation involving the Partnership including, but not limited to, the Masri and Bruss lawsuits discussed in Note 13 of Notes to the Financial Statements. Due to this litigation, the Partnership will not be dissolved and reserves will be held by the Partnership until the conclusion of such contingencies. There can be no assurances as to the time frame for the conclusion of all contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line method. Rates used in the determination of depreciation were based upon the following estimated useful lives: Years ----- Buildings and improvements 18-30 Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for improvements were charged to the related asset account.
As properties were sold, the related costs and accumulated depreciation were removed from the respective accounts. Any gain or loss on disposition was recognized in accordance with generally accepted accounting principles.
(c) The Partnership recorded its investments in real estate at the lower of cost or fair value, and periodically assessed, but not less than on an annual basis, possible impairment to the value of its properties. The General Partner estimated the fair value of its properties based on the current sales price less estimated closing costs. In the event the General Partner determined an impairment had occurred, and the carrying amount of the real estate asset would not be recovered, a provision was recorded to reduce the carrying basis of the property to its estimated fair value. The General Partner considered 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 consisted of mortgage refinancing fees which were amortized over the terms of the respective agreements. Upon sale, any remaining balance was recognized as debt extinguishment expense and classified as an extraordinary item.
(e) The Partnership calculates the fair value of its financial instruments based on estimates using present value techniques. The Partnership includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
(f) In order for the capital account balances to more accurately reflect the partners' remaining economic interests in the Partnership, the income (loss) allocations have been adjusted.
(g) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less. Cash is held or invested in one financial institution.
(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) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share" was adopted by the Partnership effective for the year ended December 31, 1997. The Partnership has no dilutive securities.
4. Partnership Agreement:
The Partnership was organized in January 1984. The Partnership Agreement provides for Balcor Equity Partners-XVIII 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, 52,811 of which were sold on or prior to July 31, 1985, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated 1% of the profits and losses and the Limited Partners will be allocated 99% of the profits and losses. In order for the capital account balances to more accurately reflect the partners' remaining economic interests in the Partnership, the income (loss) allocations have been adjusted.
In accordance with the Partnership Agreement, 100% of Net Cash Receipts available for distribution have been distributed to holders of Limited Partnership Interests. Under certain circumstances, the General Partner would have participated in the Net Cash Proceeds of the sale or refinancing of Partnership properties. Since the required subordination levels were not met, the General Partner has not received any distributions of Net Cash Receipts or Net Cash Proceeds during the lifetime of the Partnership.
5. Mortgage Note Payable:
During 1997, the Partnership incurred and paid interest expense on mortgage note payable of $256,219.
6. Management Agreements:
The Partnership's properties were managed by a third party management company prior to the sale of the properties. These management agreements provided for annual fees of between 3% and 6% of gross operating receipts.
7. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax returns due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net loss for 1999 in the financial statements is $895 less than the tax loss of the Partnership for the same period.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
For the For the For the Year Ended Year Ended Year Ended 12/31/99 12/31/98 12/31/97 -------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------ ------- ------ ------- ------ ------- Reimbursement of expenses to the General Partner, at cost: Accounting $7,726 $7,319 $6,078 $4,302 $15,172 $6,974 Data processing 4,798 8,167 2,224 872 2,702 1,352 Legal 3,676 4,872 4,804 3,407 16,199 4,302 Portfolio management 12,084 12,479 15,759 13,434 47,674 12,627 Other None None 1,370 None 4,829 1,370 Property sales None None 1,690 None 19,408 1,690
Subject to the provisions of the partnership agreement, the Partnership has agreed to advance the legal fees incurred by the General Partner in defending the Madison Partnership lawsuit discussed in Note 13 of Notes to Financial Statements.
9. Property Sale:
In July 1997, the Partnership sold the Canyon Pointe Apartments in an all cash sale for $6,300,000. From the proceeds of the sale, the Partnership paid $5,071,928 to the third party mortgage holder in full satisfaction of the first mortgage loan, and paid $154,363 in selling costs. The basis of the property was $5,004,525, which is net of accumulated depreciation of $3,825,618. For financial statement purposes, the Partnership recognized a gain of $1,141,112 from the sale of this property.
10. Extraordinary Item:
In connection with the sale of the Canyon Pointe Apartments in 1997, the Partnership wrote-off the remaining unamortized deferred expenses related to the mortgage loan of $20,819. This amount was recorded as an extraordinary item and classified as debt extinguishment expense for financial statement purposes.
11. Other Income:
The Partnership recognized other income of $115,690 during 1998 in connection with the release to the Partnership of escrow funds which were set up in connection with the sale of the 101 Marietta Tower office complex, which was sold in 1996. The Partnership recognized other income of $22,145 during 1997 primarily in connection with refunds of prior years' insurance premiums relating to the Partnership's properties.
12. Other Expenses:
The Partnership paid $118,596 in 1997 for real estate tax consulting fees related to the 101 Marietta Tower office complex, which was sold in 1996. In connection with the 1996 sale of the Knollwood Village Apartments, the Partnership paid $101,243 in 1997 for a state income tax liability related to the gain on the sale of the property. These items have been recorded as other expenses for financial statement purposes.
13. Contingencies:
(a) The Partnership is currently involved in two related lawsuits, Masri vs. Lehman Brothers, Inc., et al. and Bruss, et al. vs. Lehman Brothers, Inc., et al., whereby the Partnership and certain affiliates have been named as defendants alleging substantially similar claims involving certain state securities and common law violations with regard to the property acquisition process of the Partnership, and to the adequacy and accuracy of disclosures of information concerning, as well as marketing efforts related to, the offering of the Limited Partnership Interests of the Partnership. The defendants continue to vigorously contest these actions. A plaintiff class has not been certified in either action. With respect to the Masri case, no determinations upon any significant issues have been made. The Bruss complaint was filed on January 25, 1999. On September 24, 1999, the court granted the defendants' motion to dismiss the complaint for failure to state a cause of action. An amended complaint was filed on November 30, 1999. The defendants filed a new Motion to Dismiss on January 31, 2000. The defendants continue to vigorously contest these claims. The Partnership believes it has meritorious defenses to contest the claims. It is not determinable at this time how the outcome of either action will impact the remaining cash reserves of the Partnership.
(b) In May 1999, a lawsuit was filed, Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the General Partner and certain affiliates have been named as defendants. The plaintiffs are entities that initiated tender offers to purchase and, in fact, purchased units in eleven affiliated partnerships. The complaint alleges breach of fiduciary duties and breach of contract under the partnership agreement and seeks the winding up of the affairs of the Partnership, the establishment of a liquidating trust, the appointment of an independent trustee for the trust and the distribution of a portion of the cash reserves to limited partners. On June 1, 1999 a second lawsuit was filed and was served on August 16, 1999, Sandra Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to the Madison Partnership complaint and on September 20, 1999 was consolidated into the Madison Partnership case. On January 19, 2000, a hearing was held on the defendants' motion to dismiss; the motion to dismiss was denied as to the Partnership. The defendants intend to vigorously contest these actions. It is not determinable at this time how the outcome of these actions will impact the remaining cash reserves of the Partnership.