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 June 30, 1995
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
EXCHANGE ACT OF 1934.
For the transition period from to
------------ ------------
Commission file number 0-10225
-------
BALCOR PENSION INVESTORS-II
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3114027
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Ilinois 60015
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 267-1600
--------------
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
----- -----
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1995 and December 31, 1994
(UNAUDITED)
ASSETS
1995 1994
------------- -------------
Cash and cash equivalents $ 7,874,738 $ 7,699,482
Cash and cash equivalents - early
Investment Incentive Fund 38,942 38,238
Escrow deposits 211,352 54,394
Escrow deposits - restricted 81,159
Accounts and accrued interest receivable 395,441 219,814
Prepaid expenses 61,024 12,043
Deferred expenses, net of accumulated
amortization of $170,517 in 1995 and
$144,398 in 1994 176,665 202,784
------------- -------------
8,758,162 8,307,914
------------- -------------
Investment in loans receivable:
Wrap-around loans receivable 11,324,000 13,724,000
Less:
Loans payable - underlying mortgages 3,485,344 4,702,002
Allowance for potential loan losses 2,602,517 2,602,517
------------- -------------
Net investment in loans receivable 5,236,139 6,419,481
Real estate held for sale (net of 26,774,247 26,712,075
allowance of $1,200,000) ------------- -------------
32,010,386 33,131,556
------------- -------------
$ 40,768,548 $ 41,439,470
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 169,793 $ 108,456
Due to affiliates 7,317 83,050
Accrued liabilities, principally
real estate taxes 187,104
Other liabilities 98,369 182,715
Mortgage notes payable 12,213,329 12,296,687
------------- -------------
Total liabilities 12,675,912 12,670,908
------------- -------------
Partners' capital (85,010 Limited
Partnership Interests issued) 32,513,561 32,956,803
Less Interests held by Early Investment
Incentive Fund (6,442 in 1995 and
5,877 in 1994) (4,420,925) (4,188,241)
------------- -------------
28,092,636 28,768,562
------------- -------------
$ 40,768,548 $ 41,439,470
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------- -------------
Income:
Interest on loans receivable $ 1,034,742 $ 1,108,266
Less interest on loans payable -
underlying mortgages 171,969 248,723
------------- -------------
Net interest income on loans 862,773 859,543
Income from operations of real estate
held for sale 1,229,500 622,374
Interest on short-term investments 252,691 227,863
Participation income 240,377 223,610
Prepayment premium 291,000
------------- -------------
Total income 2,585,341 2,224,390
------------- -------------
Expenses:
Administrative 187,284 262,596
------------- -------------
Total expenses 187,284 262,596
------------- -------------
Net income $ 2,398,057 $ 1,961,794
============= =============
Net income allocated to General Partner $ 179,854 $ 147,135
============= =============
Net income allocated to Limited Partners $ 2,218,203 $ 1,814,659
============= =============
Net income per average number of Limited
Partnership Interests outstanding
(79,130 in 1995 and 80,091 in 1994) $ 28.03 $ 22.66
============= =============
Distributions to General Partner $ 70,842 $ 70,842
============= =============
Distributions to Limited Partners $ 2,770,457 $ 4,205,992
============= =============
Distributions per Limited Partnership
Interest outstanding $ 35.00 $ 52.50
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------- -------------
Income:
Interest on loans receivable $ 368,202 $ 441,404
Less interest on loans payable -
underlying mortgages 78,222 113,001
------------- -------------
Net interest income on loans 289,980 328,403
Income from operations of real estate
held for sale 713,181 346,623
Interest on short-term investments 124,821 139,926
------------- -------------
Total income 1,127,982 814,952
------------- -------------
Expenses:
Administrative 105,277 145,338
------------- -------------
Total expenses 105,277 145,338
------------- -------------
Net income $ 1,022,705 $ 669,614
============= =============
Net income allocated to General Partner $ 76,703 $ 50,221
============= =============
Net income allocated to Limited Partners $ 946,002 $ 619,393
============= =============
Net income per average number of Limited
Partnership Interests outstanding
(79,126 in 1995 and 80,068 in 1994) $ 11.95 $ 7.74
============= =============
Distribution to General Partner $ 35,421 $ 35,421
============= =============
Distribution to Limited Partners $ 2,374,011 $ 3,805,440
============= =============
Distribution per Limited Partnership
Interest outstanding $ 30.00 $ 47.50
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(UNAUDITED)
1995 1994
------------- -------------
Operating activities:
Net income $ 2,398,057 $ 1,961,794
Adjustments to reconcile net income to net
cash provided by operating activities:
Collection of interest income due
at maturity 943,117
Amortization of deferred expenses 26,119 32,563
Net change in:
Escrow deposits (156,958) (134,710)
Escrow deposits - restricted 81,159 139,915
Accounts and accrued interest
receivable (175,627) 98,714
Prepaid expenses (48,981)
Accounts payable 61,337 (35,559)
Due to affiliates (75,733) 89,705
Accrued liabilities 187,104 184,791
Other liabilities (84,346) (172,394)
------------- -------------
Net cash provided by operating activities 2,212,131 3,107,936
------------- -------------
Investing activities:
Collection of principal on
loans receivable 2,400,000 12,050,000
Improvements to real estate (62,172) (81,510)
------------- -------------
Net cash provided by investing activities 2,337,828 11,968,490
------------- -------------
Financing activities:
Distributions to Limited Partners (2,770,457) (4,205,992)
Distributions to General Partner (70,842) (70,842)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (704) (70,362)
Repurchase of Limited Partnership Interests (232,684) (210,098)
Principal payments on underlying loans
payable (273,242) (273,353)
Repayment of underlying loan payable (943,416) (926,667)
Principal payments on mortgage notes payable (83,358) (122,086)
Repayment of mortgage notes payable (3,369,552)
Payment of deferred expenses (20,233)
------------- -------------
Net cash used in financing activities (4,374,703) (9,269,185)
------------- -------------
Net change in cash and cash equivalents 175,256 5,807,241
Cash and cash equivalents at beginning of year 7,699,482 4,415,435
------------- -------------
Cash and cash equivalents at end of period $ 7,874,738 $ 10,222,676
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
Several reclassifications have been made to the previously reported 1994
financial statements in order to provide comparability with the 1995
statements, including a reclassification of mortgage servicing fees to
administrative expenses. These reclassifications have not changed the 1994
results. In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the six months
and quarter ended June 30, 1995, and all such adjustments are of a normal and
recurring nature.
2. Interest Expense:
During the six months ended June 30, 1995 and 1994, the Partnership incurred
interest expense on mortgage notes payable on properties owned by the
Partnership of $572,813 and $705,650 and paid interest expense of $572,533 and
$705,650 respectively.
3. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1995 were:
Paid
--------------------
Six Months Quarter Payable
----------- -------- ---------
Mortgage servicing fees $ 6,382 $ 2,827 $ 920
Reimbursement of expenses to
the General Partner, at cost: 151,791 151,791 6,397
4. Subsequent Event:
In July 1995, the Partnership made a distribution of $5,370,936 ($63.18 per
Interest) to the holders of Limited Partnership Interests for the second
quarter of 1995. This distribution includes a regular quarterly distribution of
$5.00 per Interest from Cash Flow, a special distribution of $42.00 per
Interest from Cash Flow reserves and a special distribution of $16.18 per
Interest from Mortgage Reductions received in connection with the Stonegate
Austin mortgage loan repayment.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-II (the "Partnership") is a limited partnership formed
in 1981 to invest in wrap-around mortgage loans and, to a lesser extent, other
junior mortgage loans and first mortgage loans. The Partnership raised
$85,010,000 through the sale of Limited Partnership Interests and used these
proceeds to originally fund thirty-three loans. In addition, proceeds from
prior loan repayments were used to fund three additional mortgage loans. As of
June 30, 1995, the Partnership is operating five properties acquired through
foreclosure and has one loan outstanding 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 1994 for a more complete understanding of
the Partnership's financial position.
Operations
----------
Summary of Operations
---------------------
Improved operations at all of the Partnership's properties resulted in an
increase in net income during the six months and quarter ended June 30, 1995 as
compared to the same periods in 1994. The Partnership also received additional
interest income related to the March 1995 prepayment of the Stonegate Austin
Mobile Home Park wrap-around loan. These increases in income were partially
offset by decreased interest income and the receipt of a prepayment premium
related to two loan repayments during the first quarter of 1994. Further
discussion of the Partnership's operations is summarized below.
1995 Compared to 1994
---------------------
The repayments of the Tudor Heights Apartments first mortgage loan and the
North Arch Village Apartments wrap-around loan in January and March 1994,
respectively, resulted in a decrease in interest income on loans receivable
during the six months and quarter ended June 30, 1995 as compared to the same
periods in 1994. This decrease was partially offset by additional interest
income received in conjunction with the repayment of the Stonegate Austin
Mobile Home Park wrap-around loan in March 1995. In addition, the North Arch
Village and Stonegate Austin loan repayments resulted in a decrease in interest
expense on loans payable during the six months and quarter ended June 30, 1995
as compared to the same periods in 1994. Also, a prepayment premium of $291,000
was received in January 1994 in connection with the Tudor Heights loan
repayment.
Operations of real estate held for sale represents the net operations of those
properties acquired by the Partnership through foreclosure. At June 30, 1995,
the Partnership was operating five properties. Original funds advanced by the
Partnership total approximately $13,339,000 for these five real estate
investments. Higher rental income due to higher average occupancy levels and
rental rates at all of the properties, as well as lower repair and maintenance
<PAGE>
expenditures at the Sherwood Acres - Phases I and II Apartments, were the
primary reasons for the increase in income from operations of real estate held
for sale during the six months and quarter ended June 30, 1995 as compared to
the same periods in 1994. The cessation of interest expense on the Hollowbrook
and Cumberland Pines apartment complexes' mortgage notes upon repayment of the
loans in 1994 also contributed to the increase.
A special distribution was made in April 1995 from the proceeds received in
connection with the Tudor Heights and North Arch Village mortgage loan
repayments. Prior to this distribution, these proceeds, along with proceeds
received in connection with the Stonegate Austin loan repayment, were invested
in short-term investments. As a result of these events, interest income on
short-term investments increased during the six months ended June 30, 1995, but
decreased during the quarter ended June 30, 1995 as compared to the same
periods in 1994.
The Partnership's loans generally bear interest at contractually-fixed interest
rates. Various loan agreements provide for participation by the Partnership in
increases in value of the collateral property when the loan is repaid or
refinanced. In addition, certain loan agreements allow the Partnership to
receive a percentage of rental income exceeding a base amount. This
participation income is reflected in the accompanying Statements of Income and
Expenses when received. The Partnership received participation income on the
Alzina Office Building loan during the six months ended June 30, 1995 and 1994.
Allowances are charged to income when the General Partner believes an
impairment has occurred, either in a borrower's ability to repay the 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. No provision for potential
losses was recognized during the six months ended June 30, 1995 and 1994.
Legal fees incurred in 1994 relating to the Interstate Office Building
litigation, as well as lower data processing fees, resulted in a decrease in
administrative expenses during the six months and quarter ended June 30, 1995
as compared to the same periods in 1994.
Liquidity and Capital Resources
-------------------------------
The cash position of the Partnership increased slightly as of June 30, 1995
when compared to December 31, 1994. The operating activities of the Partnership
reflect the cash flow from operations of the properties, net cash flow from
loans receivable and interest income on short-term investments, which was
partially offset by administrative costs. The net cash flow from investing
activities reflects the proceeds received from the repayment of the Stonegate
Austin loan. This net cash flow was partially used in financing activities to
repay the related underlying loan payable. Other financing activities include
distributions to partners and principal payments on underlying and mortgage
notes payable. In July 1995, the Partnership made a special distribution in
connection with the 1995 loan repayment, as described below.
<PAGE>
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 the six months ended June 30, 1995
and 1994, all five of the Partnership's properties generated positive cash
flow. As of June 30, 1995, the occupancy rates of the Partnership's residential
properties ranged from 96% to 98% and the occupancy rate of the Parkway
Distribution Center was 94%.
The General Partner is continuing its efforts to maintain high occupancy
levels, while increasing rents where possible, and to monitor and control
operating expenses and capital improvement requirements at the properties. The
General Partner will also examine the terms of any mortgage loans relating to
its properties, and may refinance or, in certain instances, use Partnership
reserves to repay such loans.
In March 1995, the Partnership received $2,625,437 as payment in full on the
Stonegate Austin Mobile Home Park wrap-around loan, from which the underlying
loan of $943,416 was repaid. The net amount received consists of the original
funds advanced of $1,272,643, equity build-up related to principal payments of
$183,941 made by the Partnership on the underlying loan and additional interest
of $225,437. The funds advanced by the Partnership represent the difference
between the original loan receivable balance of $2,400,000 and the original
balance of the underlying loan of $1,127,357.
In July 1995, the Partnership paid a distribution of $5,370,936 ($63.18 per
Interest) to the holders of Limited Partnership Interests, $332,956 to the
General Partner and $110,985 to the Early Investment Incentive Fund, for the
second quarter of 1995. This distribution includes a regular distribution of
$5.00 per Interest from Cash Flow, a special distribution of $42.00 from Cash
Flow reserves and a special distribution of $16.18 from Mortgage Reductions
received in connection with the Stonegate Austin mortgage loan repayment. The
level of the regular distribution is consistent with the amount distributed to
Limited Partners for the previous quarter. To date, Limited Partners have
received distributions totaling $1,351.68 per $1,000 Interest, of which $940.50
represents Cash Flow from operations and $411.18 represents a return of
Original Capital. The Partnership expects to continue making cash
distributions; however, the level of such future distributions will be
dependent upon the Cash Flow generated by the receipt of mortgage payments and
property cash flow, less payments on the mortgage loans 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.
During the six months ended June 30, 1995, the General Partner on behalf of the
Partnership used amounts placed in the Early Investment Incentive Fund to
repurchase 565 Interests from Limited Partners at a cost of $232,684.
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-II
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4(a) to
Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated
May 7, 1981 (Registration No. 2-70841) 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. 0-10225)
are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the six month period ending
June 30, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 1995.
<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-II
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 Parker
----------------------------------------
Brian Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors, the
General Partner
Date: August 9, 1995
-------------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 7914
<SECURITIES> 0
<RECEIVABLES> 5632
<ALLOWANCES> 3803
<INVENTORY> 0
<CURRENT-ASSETS> 8581
<PP&E> 26774
<DEPRECIATION> 0
<TOTAL-ASSETS> 40769
<CURRENT-LIABILITIES> 462
<BONDS> 12213
<COMMON> 0
0
0
<OTHER-SE> 32514
<TOTAL-LIABILITY-AND-EQUITY> 40769
<SALES> 0
<TOTAL-REVENUES> 2585
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2398
<INCOME-TAX> 0
<INCOME-CONTINUING> 2398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2398
<EPS-PRIMARY> 28.03
<EPS-DILUTED> 28.03
</TABLE>
