SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-9198
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BALCOR PENSION INVESTORS
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(Exact name of registrant as specified in its charter)
Illinois 36-2943462
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR PENSION INVESTORS
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 4,218,036 $ 5,159,556
Accounts and accrued interest receivable 261,878 245,402
------------- -------------
4,479,914 5,404,958
------------- -------------
Investment in loan receivable:
Loan receivable - wrap-around mortgage 30,443,927 30,443,927
Less:
Loan payable - underlying mortgage 21,547,919 21,547,919
Allowance for potential loan loss 4,853,336 4,853,336
------------- -------------
Net investment in loan receivable 4,042,672 4,042,672
Real estate held for sale (net of allowance
of $300,000 in 1996 and 1995) 5,187,724 5,763,025
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9,230,396 9,805,697
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$ 13,710,310 $ 15,210,655
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 128,126 $ 69,002
Due to affiliates 48,363 42,885
Other liabilities, principally real estate
taxes and security deposits 195,552 147,277
Mortgage note payable 575,301
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Total liabilities 372,041 834,465
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Limited Partners' capital (71,675
Partnership Interests issued
and outstanding) 13,525,611 14,561,840
General Partner's deficit (187,342) (185,650)
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Total partners' capital 13,338,269 14,376,190
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$ 13,710,310 $ 15,210,655
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Income:
Interest on loans receivable $ 163,055 $ 661,625
Less interest on loans payable -
underlying mortgages 123,667 418,880
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Net interest income on loans
receivable 39,388 242,745
Income from operations of real estate
held for sale 210,982 220,307
Interest on short-term investments 55,694 85,059
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Total income 306,064 548,111
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Expenses:
Provision for potential losses on
real estate 575,301
General Partner management fees 15,090 9,808
Administrative 82,995 133,875
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Total expenses 673,386 143,683
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(Loss) income before extraordinary item (367,322) 404,428
Extraordinary item:
Gain on forgiveness of debt 575,301
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Net income $ 207,979 $ 404,428
============= =============
(Loss) income before extraordinary item
allocated to General Partner $ (3,673) $ 4,044
============= =============
(Loss) income before extraordinary item
allocated to Limited Partners $ (363,649) $ 400,384
============= =============
(Loss) income before extraordinary item
per Limited Partnership Interest
(71,675 issued and outstanding) $ (5.07) $ 5.59
============= =============
Extraordinary item allocated to General
Partner $ 5,753 None
============= =============
Extraordinary item allocated to Limited
Partners $ 569,548 None
============= =============
Extraordinary item per Limited
Partnership Interest (71,675 issued
and outstanding) $ 7.94 None
============= =============
Net income allocated to General Partner $ 2,080 $ 4,044
============= =============
Net income allocated to Limited Partners $ 205,899 $ 400,384
============= =============
Net income per Limited Partnership Interest
(71,675 issued and outstanding) $ 2.87 $ 5.59
============= =============
Distribution to General Partner $ 3,772 $ 2,452
============= =============
Distribution to Limited Partners $ 1,242,128 $ 232,944
============= =============
Distribution per Limited Partnership
Interest $ 17.33 $ 3.25
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Operating activities:
Net income $ 207,979 $ 404,428
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on forgiveness of debt (575,301)
Provision for potential losses on
real estate 575,301
Net change in:
Accounts and accrued interest
receivable (16,476) (83,353)
Accounts and accrued interest payable 59,124 (130,270)
Due to affiliates 5,478 26,696
Other liabilities 48,275 44,435
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Net cash provided by operating activities 304,380 261,936
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Financing activities:
Distribution to Limited Partners (1,242,128) (232,944)
Distribution to General Partner (3,772) (2,452)
Principal payments on underlying loan (124,580)
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Net cash used in financing activities (1,245,900) (359,976)
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Net change in cash and cash equivalents (941,520) (98,040)
Cash and cash equivalents at beginning
of period 5,159,556 6,226,192
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Cash and cash equivalents at end of period $ 4,218,036 $ 6,128,152
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1996, and all such adjustments are of a normal and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 are:
Paid Payable
------------- ---------
Mortgage servicing fees $ 2,540 $ 847
General Partner management fees 15,090 15,090
Reimbursement of expenses to
the General Partner, at cost 18,311 32,426
3. Subsequent Events:
(a) In April 1996, the Partnership paid a distribution of $358,375 to the
holders of Limited Partnership Interests representing the quarterly
distribution of available Cash Flow of $5.00 per Interest for the first quarter
of 1996.
(b) A foreclosure sale of the remaining building in Normandy Mall took place in
March 1996 and the underlying lender made a successful bid and obtained title
to the building in April 1996. In connection with the foreclosure, the
Partnership recognized an extraordinary gain on forgiveness of debt of
$575,301. In addition, the Partnership recognized a provision for losses equal
to the carrying value of the building of $575,301 during the quarter ended
March 31, 1996. The Partnership has no further interest in the building or the
remainder of Normandy Mall.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors (the "Partnership") was formed in 1977 to invest in
wrap-around mortgage loans and, to a lesser extent, in other junior mortgage
loans and first mortgage loans. The Partnership raised $71,675,000 through the
sale of Limited Partnership Interests and utilized these proceeds to fund
thirty-six loans. Currently, the Partnership has one loan and two properties in
its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- --------------------
Net income decreased during the quarter ended March 31, 1996 as compared to the
same period in 1995 due to reduced interest income collected on the North
Capitol Office Building loan which was placed on non-accrual status in December
1995. Further discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
The North Capitol Office Building wrap-around loan was placed on non-accrual
status in December 1995 when the borrower did not make the payment due upon the
maturity of the loan. For non-accrual loans, income is recorded only as cash
payments are received from the borrower. In March 1996, the borrower
discontinued the monthly payments required on the wrap-around loan pursuant to
a forbearance agreement. This resulted in a decrease in net interest income on
the loan receivable during 1996 when compared to 1995. The funds advanced by
the Partnership for this loan total approximately $4,100,000, representing 6.4%
of original funds advanced. During 1996, the Partnership received cash payments
of net interest income totaling approximately $79,000. See Liquidity and
Capital Resources, below, for additional information.
<PAGE>
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represent estimations based on many variables
which affect the value of real estate, including economic and demographic
conditions. During the quarter ended March 31, 1996, the Partnership recognized
a provision of $575,301 in connection with the foreclosure of the building it
retained title to in Normandy Mall. The Partnership did not recognize any
provisions for potential losses related to its loan or real estate held for
sale during the quarter ended March 31, 1995.
Primarily as a result of lower interest rates and less cash available for
investment due to special distributions to the Limited Partners in July 1995
and January 1996, interest income on short-term investments decreased during
1996 when compared to 1995.
General Partner management fees increased as a result of the increased
quarterly distribution of Cash Flow during 1996 when compared to 1995.
Legal fees incurred in 1995 relating to the Normandy Mall litigation and
decreased accounting fees resulted in a decrease in administrative expense
during 1996 when compared to 1995.
During the quarter ended March 31, 1996, the Partnership recognized an
extraordinary gain on forgiveness of debt of $575,301 in connection with the
foreclosure of the one building that it retained title to in Normandy Mall.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $942,000 as of
March 31, 1996 when compared to December 31, 1995. The Partnership generated
cash flow totaling approximately $304,000 from its operating activities
primarily from the operation of its properties, net of the payment of
administrative expenses. The Partnership's financing activities consisted of
the payment of distributions totaling approximately $1,246,000 to Partners.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures.
During the quarters ended March 31, 1996 and 1995, both of the remaining
properties generated positive cash flow.
As of March 31, 1996, occupancy rates were 97% and 81% at Nob Hill Apartments -
Phase I and Huntington Plaza, respectively. Many rental markets continue to
remain extremely competitive; therefore, the General Partner's goals are to
maintain high occupancy levels, while increasing rents where possible, and to
monitor and control operating expenses and capital improvement requirements at
the properties.
As previously reported, the Partnership is now in its liquidation stage and the
General Partner believes that the market for multifamily housing properties has
become increasingly favorable to sellers of these properties. Currently, the
Partnership has a contract to sell Huntington Plaza for a sales price of
$2,400,000 and has entered into negotiations for a contract to sell the Nob
Hill Apartments - Phase I. It is expected that the Partnership will complete
<PAGE>
the disposition of its assets and be terminated by the end of 1996. However,
the timing of the liquidation could be lengthened or shortened based on the
outcome of the North Capitol Building bankruptcy, as well as changes in market
conditions, economic factors, interest rates, and unforeseen events.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
In December 1995, the North Capitol Building wrap-around loan matured and the
borrower failed to make the principal payment due. Pursuant to a forbearance
agreement dated January 24, 1996, the Partnership agreed not to exercise its
rights against the borrower through March 1, 1996. The borrower continued to
make monthly interest only payments on the loan while negotiations with the
Partnership for repayment continued. The borrower did not make the March 1996
payment and the loan was placed in default on March 7, 1996. On March 22, 1996,
the borrower commenced proceedings under Chapter 11 of the U.S. Bankruptcy
Code. The General Partner is reviewing the borrower's bankruptcy filing and
will take such actions as are necessary to protect the Partnership's interests.
In 1991, the Partnership obtained title to the Normandy Mall and Norwood Plaza
shopping centers and in 1993, title to the properties, with the exception of
one building in Normandy Mall (the "Building"), was relinquished to the first
mortgage holder pursuant to a settlement agreement. The first mortgage loan
collateralized by the Building was held by a different third party lender, Gulf
Life Insurance Company ("Gulf Life"), who commenced foreclosure proceedings in
January 1995. Gulf Life subsequently sold the loan to American Mortgage
Acquisition Corporation ("American"). A foreclosure sale of the Building took
place in March 1996 and American made a successful bid and obtained title to
the Building in April 1996. The Partnership has no further interest in the
Building or the remainder of Normandy Mall.
In April 1996, the Partnership paid a distribution of $358,375 ($5.00 per
Interest) to the holders of Limited Partnership Interests representing the
quarterly distribution of Cash Flow for the first quarter of 1996. The level of
this distribution remained unchanged from the amount distributed to Limited
Partners during the fourth quarter of 1995. Including the April 1996
distribution, Limited Partners have received cumulative distributions of
$1,731.14 per $1,000 Interest, of which $1,171.41 represents Cash Flow from
operations and $559.73 represents a return of Original Capital.
The Partnership expects to continue making cash distributions from the Cash
Flow generated by property operations less fees to the General Partner and
administrative expenses. The General Partner believes it has retained, on
behalf of the Partnership, an appropriate amount of working capital to meet
cash or liquidity requirements which may occur.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
BALCOR PENSION INVESTORS
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Normandy Mall
- -------------
As previously described, in January 1995, Gulf Life Insurance Company ("Gulf
Life"), the holder of the first mortgage loan collateralized by the remaining
building owned by the Partnership at Normandy Mall, commenced foreclosure
proceedings in the Fourth Judicial Circuit Court, Duval County, Florida, Gulf
Life Insurance Company vs. Normandy Norwood Limited Partnership, et al., Case
No. 95-00334CA. Gulf Life subsequently sold the loan to American Mortgage
Acquisition Corporation ("American"). The Partnership did not oppose the
foreclosure action and a foreclosure sale took place on March 29, 1996.
American made a successful bid and obtained title to the building on April 10,
1996. The Partnership has no further interest in the building or the remainder
of Normandy Mall.
Paul Williams, et al. vs. Balcor Pension Investors, et al.
- ----------------------------------------------------------
In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726 (U.S. District Court, Northern District of Illinois). The
Partnership, the General Partner, seven affiliated limited partnerships and
other affiliates are the defendants. In July 1994, the Court granted
plaintiffs' motion certifying a class relating to Federal securities fraud
claims. The Court approved the Notice of Class Action in August 1995 which was
sent to potential members of the class in September 1995. Settlement
discussions among the parties are currently on-going but no final settlement
has been reached. There can be no assurance, however, that such settlement
discussions will ultimately be successful.
Item 5. Other Information
- ---------------------------
As previously reported, on April 26, 1996, the Partnership contracted to sell
Huntington Plaza Shopping Center to an unaffiliated party, J. Herzog & Sons,
Inc. On May 14, 1996, the Partnership and the assignee of the purchaser,
Huntington #1 1996 LLC, a Colorado limited liability company (the "Purchaser"),
agreed to extend the closing date of the sale from May 21, 1996 to May 23,
1996. Further, upon notice to the Partnership by the Purchaser, to be received
no later than May 17, 1996, and the deposit of an additional $50,000 in earnest
money into the escrow account, the Purchaser may extend the closing to June 27,
1996.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement set forth as Exhibit 3(c) to Amendment No. 2
to the Registrant's Registration Statement on Form S-11 dated December 15, 1977
(Registration No. 2-60478) 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. 0-9198) are incorporated
herein by reference.
(10)(a) Agreement of Sale and attachment thereto; First Amendment to Agreement
of Sale; Form of Junior Mortgage and Security Agreement; Form of Principal
Note; and Satisfaction and Release, relating to the sale of Huntington Plaza,
Huntington, Indiana, previously filed as Exhibits (2)(a), (b), (c), (d) and (e)
to the Registrant's Current Report on Form 8-K dated April 26, 1996 are
incorporated herein by reference.
(b) Second Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Huntington Plaza, Huntington, Indiana, is attached hereto.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1996 is attached hereto.
(b) Reports on form 8-K: A Current Report on Form 8-K dated April 25, 1996 was
filed reporting a contract to sell Huntington Plaza located in Huntington,
Indiana.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors, the General Partner
By: /s/Brian D. Parker
------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors, the
General Partner
Date: May 15, 1996
---------------------------
<PAGE>
SECOND AMENDMENT TO
AGREEMENT OF SALE AND ESCROW AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT OF SALE AND ESCROW AGREEMENT
("Amendment") is made this 14th day of May, 1996 by and between Huntington #1
1996 LLC, a Colorado limited liability company ("Purchaser"), and Huntington
Plaza Limited Partnership, an Illinois limited partnership ("Seller").
WHEREAS, Seller and the predecessor of Purchaser entered into an Agreement
of Sale, dated as of April 26, 1996 and a First Amendment to Agreement of Sale
and Escrow Agreement, dated April 26, 1996 (collectively, the "Agreement", to
which reference should be made for all terms not otherwise herein defined),
pertaining to the Property commonly known as Huntington Plaza Shopping Center,
Huntington, Indiana; and
WHEREAS, Purchaser and Seller desire to amend the Agreement to provide for
the extension of the closing date, as more fully herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the receipt and sufficiency
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Closing Date. The Closing Date pursuant to Section 8 of the Agreement
is amended by extending the Closing Date from May 21, 1996 to May 23, 1996.
The Extended Closing Date shall continue to be June 27, 1996, which must be
exercised by Purchaser by providing written notice thereof to Seller on or
before May 17, 1996, together with the additional Earnest Money of $50,000.00,
as more fully provided in Section 8.b. of the Agreement.
2. Force and Effect. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
As herein modified, the Agreement shall remain in full force and effect in
accordance with the terms and conditions thereof.
3. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute
the binding and enforceable agreement of the parties hereto. This Amendment
may be executed and delivered by a party by facsimile transmission, which
transmission copy shall be considered an original, and shall be binding and
enforceable against such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
PURCHASER:
HUNTINGTON #1 1996, LLC,
a Colorado limited liability company
By: /s/ Martin H. Herzog, Manager
--------------------------------------
Martin Howard Herzog, Manager
SELLER:
HUNTINGTON PLAZA LIMITED
PARTNERSHIP, an Illinois limited
partnership
By: Huntington Plaza, Inc., an
an Illinois corporation, the
General Partner
By: /s/ Phillip Schechter
--------------------------
Name: Phillip Schechter
Title: Authorized Agent
ESCROW AGENT:
FIRST AMERICAN TITLE
INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
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0
0
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