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
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
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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 0-10225
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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, Illinois 60015
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(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
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<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Unaudited)
ASSETS
1995 1994
------------- -------------
Cash and cash equivalents $ 2,978,616 $ 7,699,482
Cash and cash equivalents - Early Investment
Incentive Fund 385,875 38,238
Escrow deposits 136,644 54,394
Escrow deposits - restricted 81,159
Accounts and accrued interest receivable 244,300 219,814
Prepaid expenses 151,720 12,043
Deferred expenses, net of accumulated
amortization of $182,933 in 1995
and $144,398 in 1994 164,249 202,784
------------- -------------
4,061,404 8,307,914
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Investment in loans receivable:
Wrap-around loans receivable 11,324,000 13,724,000
Less:
Loans Payable - underlying mortgages 3,393,848 4,702,002
Allowance for potential loan losses 2,602,517 2,602,517
------------- -------------
Net investment in loans receivable 5,327,635 6,419,481
Real estate held for sale (net of allowance
of $1,200,000) 26,806,785 26,712,075
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32,134,420 33,131,556
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$ 36,195,824 $ 41,439,470
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 119,133 $ 108,456
Due to affiliates 22,112 83,050
Accrued liabilities, principally
real estate taxes 255,711
Other liabilities 159,560 182,715
Mortgage notes payable 12,179,343 12,296,687
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Total liabilities 12,735,859 12,670,908
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Partners' capital (85,010 Limited
Partnership Interests issued) 28,056,216 32,956,803
Less Interests held by Early Investment
Incentive Fund (6,943 in 1995
and 5,877 in 1994) (4,596,251) (4,188,241)
------------- -------------
23,459,965 28,768,562
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$ 36,195,824 $ 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 nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
------------- -------------
Income:
Interest on loans receivable $ 1,402,772 $ 1,549,670
Less interest on loans payable -
underlying mortgages 247,221 358,862
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Net interest income on loans 1,155,551 1,190,808
Income from operations of real estate
held for sale 1,804,085 981,765
Interest on short-term investments 312,726 332,622
Participation income 240,377 223,610
Prepayment premium 291,000
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Total income 3,512,739 3,019,805
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Expenses:
Administrative 275,087 428,960
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Total expenses 275,087 428,960
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Net income $ 3,237,652 $ 2,590,845
============= =============
Net income allocated to General Partner $ 242,824 $ 194,313
============= =============
Net income allocated to Limited Partners $ 2,994,828 $ 2,396,532
============= =============
Net income per average number of
Limited Partnership Interests outstanding
(78,939 in 1995 and 79,930 in 1994) $ 37.94 $ 29.98
============= =============
Distributions to General Partner $ 403,798 $ 160,263
============= =============
Distributions to Limited Partners $ 7,734,441 $ 6,197,330
============= =============
Distributions per Limited Partnership
Interest outstanding $ 98.18 $ 77.50
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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 September 30, 1995 and 1994
(Unaudited)
1995 1994
Income: ------------- -------------
Interest on loans receivable $ 368,030 $ 441,404
Less interest on loans payable -
underlying mortgages 75,252 110,139
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Net interest income on loans 292,778 331,265
Income from operations of real estate
held for sale 574,585 359,391
Interest on short-term investments 60,035 104,759
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Total income 927,398 795,415
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Expenses:
Administrative 87,803 166,364
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Total expenses 87,803 166,364
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Net income $ 839,595 $ 629,051
============= =============
Net income allocated to General Partner $ 62,970 $ 47,178
============= =============
Net income allocated to Limited Partners $ 776,625 $ 581,873
============= =============
Net income per average number of
Limited Partnership Interests outstanding
(78,563 in 1995 and 79,613 in 1994) $ 9.91 $ 7.30
============= =============
Distribution to General Partner $ 332,956 $ 35,421
============= =============
Distribution to Limited Partners $ 4,963,984 $ 1,991,338
============= =============
Distribution per Limited Partnership
Interest outstanding $ 63.18 $ 25.00
============= =============
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 nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
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Operating activities:
Net income $ 3,237,652 $ 2,590,845
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 38,535 47,833
Net change in:
Escrow deposits (82,250) (110,622)
Escrow deposits - restricted 81,159 139,399
Accounts and accrued interest
receivable (24,486) 135,811
Prepaid expenses (139,677)
Accounts payable 10,677 (15,593)
Due to affiliates (60,938) 59,543
Accrued liabilities 255,711 281,145
Other liabilities (23,155) (178,121)
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Net cash provided by operating activities 3,293,228 3,893,357
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Investing activities:
Collection of principal on
loans receivable 2,400,000 12,050,000
Improvements to real estate (94,710) (103,694)
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Net cash provided by investing activities 2,305,290 11,946,306
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Financing activities:
Distributions to Limited Partners (7,734,441) (6,197,330)
Distributions to General Partner (403,798) (106,263)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (347,637) (61,517)
Repurchase of Limited Partnership
Interests (408,010) (365,715)
Principal payments on underlying
loans payable (364,738) (405,440)
Repayment of underlying loan payable (943,416) (926,667)
Principal payments on mortgage
notes payable (117,344) (158,539)
Repayment of mortgage notes payable (3,369,552)
Payment of deferred expenses (20,233)
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Net cash used in financing activities (10,319,384) (11,611,256)
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Net change in cash and cash equivalents (4,720,866) 4,228,407
Cash and cash equivalents
at beginning of year 7,699,482 4,415,435
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Cash and cash equivalents at end of period $ 2,978,616 $ 8,643,842
============= =============
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 nine months
and quarter ended September 30, 1995, and all such adjustments are of a normal
and recurring nature.
2. Interest Expense:
During the nine months ended September 30, 1995 and 1994, the Partnership
incurred interest expense on mortgage notes payable on properties owned by the
Partnership of $857,839 and $994,258 and paid interest expense of $851,565 and
$994,258, respectively.
3. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1995 were:
Paid
-----------------------
Nine Months Quarter Payable
------------ --------- ---------
Mortgage servicing fees $ 9,142 $2,760 $ 920
Reimbursement of expenses to
the General Partner, at cost: 161,397 9,606 21,192
4. Subsequent Event:
In October 1995, the Partnership made a distribution of $425,050 ($5.00 per
Interest) to the holders of Limited Partnership Interests, representing the
quarterly distribution of available Cash Flow for the third quarter of 1995.
<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
September 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
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Summary of Operations
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Improved operations at all of the Partnership's properties resulted in an
increase in net income during the nine months and quarter ended September 30,
1995 as compared to the same periods in 1994. Further discussion of the
Partnership's operations is summarized below.
1995 Compared to 1994
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1995 and 1994 refer
to both the nine months and quarters ended September 30, 1995 and 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 1995 as compared to 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 1995 as compared to 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 September 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
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 1995 as compared to 1994. In addition, a refund relating to
<PAGE>
1994 taxes was received in June 1995 from the local taxing authority at the
Parkway Distribution Center. This refund, combined with lower real estate
taxes during 1995 at the Parkway Distribution Center and the cessation of
interest expense on the Cumberland Pines Apartment's mortgage note upon
repayment of the loan 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 were invested in
short-term investments. As a result interest income on short-term investments
decreased during 1995 as compared to 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 nine months ended September 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 nine months ended September 30, 1995 and 1994.
Legal fees incurred in 1994 relating to the Interstate Office Building
litigation resulted in a decrease in administrative expenses during 1995 as
compared to 1994.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased as of September 30, 1995 when
compared to December 31, 1994 primarily due to a special distribution to
Limited Partners in July 1995. The Partnership generated cash flow from the
operation of its properties and the receipt of interest income on its loans
receivable, and also received proceeds from the net repayment of the Stonegate
Austin loan. These proceeds, along with cash reserves, were used to fund
distributions to the Limited Partners.
The Partnership defines cash flow generated from its properties as an amount
equal to the properties' revenue receipts less property related expenditures,
which include debt service payments. During the nine months ended September 30,
1995 and 1994, all five of the Partnership's properties generated positive cash
flow.
As of September 30, 1995, the occupancy rates of the Partnership's residential
properties ranged from 92% to 97% and the occupancy rate of the Parkway
Distribution Center was 98%. 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
<PAGE>
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 October 1995, the Partnership paid a distribution of $425,050 ($5.00 per
Interest) to the holders of Limited Partnership Interests, $35,421 to the
General Partner and $11,807 to the Early Investment Incentive Fund,
representing the quarterly distribution of available Cash Flow for the third
quarter of 1995. The level of the regular distribution is consistent with the
amount distributed to Limited Partners for the previous quarter. Including the
October 1995 distribution, Limited Partners have received distributions
totaling $1,356.68 per $1,000 Interest, of which $945.50 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 nine months ended September 30, 1995, the General Partner on behalf
of the Partnership used amounts placed in the Early Investment Incentive Fund
to repurchase 1,066 Interests from Limited Partners at a cost of $408,010.
The Partnership is in its liquidation phase. The Partnership's remaining loan
collateralized by the Alzina Office Building matures in June 1997. The
Partnership expects to begin the disposition of its remaining assets in 1996
and complete the disposition by the end of 1997.
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 September 30, 1992 (Commission File No.
0-10225) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated September 14,
1995, as amended by Form 8-K/A dated October 27, 1995, was filed reporting a
change in the Registrant's certifying public accountants.
<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: November 10, 1995
-------------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3364
<SECURITIES> 0
<RECEIVABLES> 5572
<ALLOWANCES> 3803
<INVENTORY> 0
<CURRENT-ASSETS> 3897
<PP&E> 26807
<DEPRECIATION> 0
<TOTAL-ASSETS> 36196
<CURRENT-LIABILITIES> 557
<BONDS> 12179
<COMMON> 0
0
0
<OTHER-SE> 28056
<TOTAL-LIABILITY-AND-EQUITY> 36196
<SALES> 0
<TOTAL-REVENUES> 3513
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3238
<INCOME-TAX> 0
<INCOME-CONTINUING> 3238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3238
<EPS-PRIMARY> 37.94
<EPS-DILUTED> 37.94
</TABLE>
