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 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 0-11128
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BALCOR PENSION INVESTORS-III
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(Exact name of registrant as specified in its charter)
Illinois 36-3164211
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(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-III
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
-------------- ---------------
Cash and cash equivalents $ 5,755,822 $ 11,344,948
Cash and cash equivalents - Early
Investment Incentive Fund 772,748 302,437
Escrow deposits 92,692 127,004
Accounts and accrued interest receivable 124,023 222,417
Prepaid expenses 7,723 31,897
Deferred expenses, net of accumulated
amortization of $43,742 in 1996 and
$40,618 in 1995 18,746 21,870
-------------- ---------------
6,771,754 12,050,573
-------------- ---------------
Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 52,998,975 53,030,966
Less:
Loans payable - underlying mortgages 33,519,390 33,761,548
Allowance for potential loan losses 3,943,630 3,943,630
-------------- ---------------
Net investment in loans receivable 15,535,955 15,325,788
Real estate held for sale 14,214,705 14,214,705
Investment in joint ventures with affiliates 6,603,907 6,483,760
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36,354,567 36,024,253
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$ 43,126,321 $ 48,074,826
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 180,779 $ 101,455
Due to affiliates 43,280 36,011
Other liablilities, principally real
estate taxes and escrow deposits 482,771 534,113
Security deposits 87,617 89,848
Mortgage notes payable 1,655,741 1,666,291
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Total liabilities 2,450,188 2,427,718
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Limited Partners' capital (237,476
Interests issued) 47,914,385 52,908,205
<PAGE>
Less Interests held by Early Investment
Incentive Fund (16,090 at March 31, 1996
and December 31, 1995) (6,040,849) (6,040,849)
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41,873,536 46,867,356
General Partner's deficit (1,197,403) (1,220,248)
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Total partners' capital 40,676,133 45,647,108
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$ 43,126,321 $ 48,074,826
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-III
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans receivable $ 1,367,431 $ 1,972,025
Less interest on loans
payable - underlying mortgages 819,181 1,017,165
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Net interest income on loans receivable 548,250 954,860
Income from operations of
real estate held for sale 380,734 609,896
Participation in income
of joint ventures with affiliates 136,648 128,524
Interest on short-term investments 100,650 294,255
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Total income 1,166,282 1,987,535
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Expenses:
Administrative 89,558 193,061
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Total expenses 89,558 193,061
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Income before gain on sale of real estate 1,076,724 1,794,474
Gain on sale of real estate 717,900
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Net income $ 1,076,724 $ 2,512,374
============== ===============
Net income allocated to General Partner $ 80,754 $ 188,428
============== ===============
Net income allocated to Limited Partners $ 995,970 $ 2,323,946
============== ===============
Net income per average number of Limited
Partnership Interests outstanding
(221,386 in 1996 and 227,268 in 1995) $ 4.50 $ 10.23
============== ===============
Distribution to General Partner $ 79,159 $ 79,159
============== ===============
Distribution to Limited Partners $ 5,968,540 $ 909,069
============== ===============
Distribution per Limited Partnership
Interests outstanding $ 26.96 $ 4.00
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-III
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(UNAUDITED)
1996 1995
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Operating activities:
Net income $ 1,076,724 $ 2,512,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of real estate (717,900)
Participation in income of
joint ventures with affiliates (136,648) (128,524)
Amortization of deferred expenses 3,124 3,124
Net change in:
Escrow deposits 34,312 226,496
Escrow deposits - restricted 899,929
Accounts and accrued
interest receivable 98,394 (8,684)
Prepaid expenses 24,174
Accounts payable 79,324 (31,776)
Due to affiliates 7,269 42,357
Other liabilities (51,342) (1,150,396)
Security deposits (2,231) (3,184)
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Net cash provided by operating activities 1,133,100 1,643,816
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Investing activities:
Distributions from joint
venture partners - affiliates 16,501
Collection of principal payments
on loans receivable 11,019
Additions to real estate (20,324)
Proceeds from sale of real estate 856,240
Costs incurred in connection
with sale of real estate (79,750)
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Net cash provided by investing activities 16,501 767,185
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Financing activities:
Distribution to Limited Partners (5,968,540) (909,069)
Distribution to General Partner (79,159) (79,159)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (470,311) (67,891)
Principal payments on underlying
loans payable (210,167) (287,578)
Principal payments on mortgage
notes payable (10,550) (54,950)
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Net cash used in financing activities (6,738,727) (1,398,647)
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<PAGE>
Net change in cash and cash equivalents (5,589,126) 1,012,354
Cash and cash equivalents at beginning
of period 11,344,948 18,445,509
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Cash and cash equivalents at end of period $ 5,755,822 $ 19,457,863
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-III
(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. Interest Expense:
During the quarters ended March 31, 1996 and 1995, the Partnership incurred and
paid interest expense on mortgage notes payable on properties owned by the
Partnership of $38,452 and $139,203, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 are:
Paid Payable
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Mortgage servicing fees $ 7,103 $ 2,356
Reimbursement of expenses to
the General Partner, at cost 12,118 40,924
4. Investments in Joint Ventures with Affiliates:
The Partnership owns a 27.5% joint venture interest in the Brookhollow/Stemmons
Office Center and a 12.68% joint venture interest in the Perimeter 400 Center
Office Building.
The following information has been summarized from the financial statements of
the joint ventures:
1996
-------------
Net investment in real estate as of March 31 $36,015,862
Total liabilities as of March 31 464,594
Total income 1,911,401
Net income 779,955
5. Subsequent Event:
In April 1996, the Partnership paid $949,904 to Limited Partners representing
the regular quarterly distribution of available Cash Flow of $4.00 per Interest
for the first quarter of 1996.
<PAGE>
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-III (the "Partnership") is a limited partnership
formed in 1982 to invest in wrap-around mortgage loans and, to a lesser extent,
other junior mortgage loans and first mortgage loans. The Partnership raised
$118,738,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-two loans. In addition, proceeds from prior loan
repayments were used to fund five additional loans. As of March 31, 1996, five
loans remain outstanding in the Partnership's portfolio. In addition, the
Partnership owns two properties held for sale and held minority joint venture
interests in an additional two properties.
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
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During 1995, the Partnership sold two properties and received repayments on two
loans. The combined effect of these events, especially the recognition of the
gain on the sale of the Crossings Shopping Center, resulted in a decrease in
net income for the quarter ended March 31, 1996 as compared to the same period
in 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 repayments of the Colony Apartments loan in August 1995 and the Rivergate
Apartments loan in December 1995 resulted in a decrease in net interest income
on loans receivable during 1996 as compared to 1995.
The Partnership has two loans on non-accrual status at March 31, 1996 which are
collateralized by Carmel on Providence Apartments and Bannockburn Executive
Plaza. For non-accrual loans, income is recorded only as cash payments are
received from the borrower. The funds advanced by the Partnership for these two
loans total approximately $6,200,000, representing approximately 6% of original
funds advanced. During 1996, the Partnership received cash payments of net
interest income totaling approximately $88,000 on the Carmel on Providence
loan. The Partnership would have received approximately $74,000 of net interest
income under the terms of the original loan agreement. Of the net interest
income received, $12,000 relates to costs incurred by the Partnership prior to
the borrower's bankruptcy filing, which have been added to the principal of the
loan and which accrue interest, payable by the borrower on a quarterly basis.
<PAGE>
In addition, approximately $149,000 was received on the Bannockburn Executive
Plaza loan. This loan originally matured in January 1994 and was subsequently
extended to December 1997.
Provisions 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. The Partnership did not
recognize any provisions for potential losses related to its loans or real
estate held for sale during the quarters ended March 31, 1996 and 1995.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At March 31, 1996,
the Partnership was operating The Woods Apartments and the Orchards Shopping
Center. Original funds advanced by the Partnership total approximately
$6,678,000 for these properties. The Partnership sold the Crossings Shopping
Center and the Candlewyck Apartments in 1995, which had been generating income.
In addition, rental and service income decreased at the Orchards Shopping
Center during 1996 due to decreased occupancy levels. The combined effect of
these events resulted in a decrease in income from real estate held for sale
during 1996 as compared to 1995. Improved operations at The Woods Apartments
resulting from increased rental rates and occupancy levels and decreased repair
and maintenance expense due to the completion of structural repairs and
clubhouse renovation during 1995 partially offset this decrease.
Proceeds received in connection with the 1994 loan repayments and property
sales were invested when received and resulted in a decrease in interest income
on short-term investments during 1996 as compared to 1995.
Decreases in legal expenses, accounting fees and portfolio management fees
resulted in a decrease in administrative expenses during 1996 as compared to
1995.
During 1995, the Partnership recognized a gain of $717,900 in connection with
the sale of the Crossings Shopping Center.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $5,589,000 as
of March 31, 1996 when compared to December 31, 1995 primarily due to a special
distribution made to Limited Partners in January 1996. The Partnership
generated cash flow totaling approximately $1,133,000 from its operating
activities primarily as a result of the net interest income earned on its loans
receivable, the operations of its properties, and the interest received on its
short-term investments, net of the payment of administrative expenses. The
Partnership's financing activities consisted primarily of the payment of
distributions totaling approximately $6,048,000 to the Partners and principal
payments on underlying loans and mortgage notes payable totaling approximately
$221,000.
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 if applicable. During the quarters ended
<PAGE>
March 31, 1996 and 1995, the Orchards Shopping Center and The Woods Apartments
generated positive cash flow. The Crossings Shopping Center, which was sold in
January 1995, generated positive cash flow prior to its sale in 1995 and the
Candlewyck Apartments, which was sold in August 1995, generated positive cash
flow during the quarter ended March 31, 1995. The Brookhollow/Stemmons and
Perimeter 400 Center office complexes, properties in which the Partnership
holds minority joint venture interests, also generated positive cash flow
during the quarters ended March 31, 1996 and 1995.
As of March 31, 1996, The Woods Apartments and the Orchards Shopping Center
have occupancy rates of 89% and 83%, 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. The General Partner will also examine the terms of the mortgage
loan collateralized by the Orchards Shopping Center, which matures in 1997 and
may refinance or use Partnership reserves to repay the loan.
As previously reported, the General Partner believes that the market for
multifamily housing properties has become increasingly favorable to sellers of
these properties. Currently, the Partnership is preparing to market its
remaining residential property for sale. Additionally, the General Partner may
explore the sale of its commercial properties over the next year if market
conditions become favorable. The General Partner examines each property
individually by property type and market in determining the optimal time to
sell each property. In addition, the General Partner considers capital factors
and Partnership administrative costs as it pertains to Partnership performance.
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. Lower interest rates
may increase the probability that borrowers may seek prepayment of the
Partnership's loans whereas rising interest rates decrease the yields on the
loans and make prepayment less likely.
Certain borrowers have failed to make payments when due to the Partnership for
more than ninety days and, accordingly, these loans have been placed on
non-accrual status (income is recorded only as cash payments are received). The
General Partner has negotiated with some of these borrowers regarding
modifications of the loan terms and has instituted foreclosure proceedings
under certain circumstances. Such foreclosure proceedings may be delayed by
factors beyond the General Partner's control such as bankruptcy filings by
borrowers and state law procedures regarding foreclosures. Further, certain
loans made by the Partnership have been restructured to defer and/or reduce
interest payments where the properties collateralizing the loans were
generating insufficient cash flow to support property operations and debt
service.
During February 1995, a plan of reorganization related to the Bannockburn
Executive Plaza loan was confirmed by the Bankruptcy Court effective March
1995. Pursuant to the plan, the borrower is required to remit all excess cash
flow from property operations on a monthly basis directly to the holder of the
underlying loan to further reduce the principal balance of the loan. Excess
cash flow of $31,991 was remitted to the holder of the underlying loan during
the first quarter of 1996.
<PAGE>
Distributions to Limited Partners can be expected to fluctuate for various
reasons. Generally, distributions are made from Cash Flow generated by interest
and other payments made by borrowers under the Partnership's mortgage loans.
Loan prepayments and repayments can initially cause Cash Flow to increase as
prepayment premiums and participations are paid; however, thereafter
prepayments and repayments will have the effect of reducing Cash Flow. If such
proceeds are distributed, Limited Partners will have received a return of
capital and the dollar amount of Cash Flow available for distribution
thereafter can be expected to decrease. Distribution levels can also vary as
loans are placed on nonaccrual status, modified or restructured and, if the
Partnership has taken title to properties through foreclosure or otherwise, as
a result of property operations.
In April 1996, the Partnership paid $949,904 to Limited Partners representing
the quarterly distribution for the first quarter of 1996 of $4.00 of Cash Flow
per Interest. The level of the regular quarterly distribution is consistent
with the amount distributed for the fourth quarter of 1995. The Partnership
also paid $79,159 to the General Partner as its distributive share of the Cash
Flow distributed for the first quarter of 1996 and $26,386 as its contribution
to the Early Investment Incentive Fund. Including the April 1996 distribution,
the Partnership has distributed $671.88 per $500 Interest, of which $454.80
represents Cash Flow from operations and $217.08 represents a return of
Original Capital.
The Partnership expects to continue making cash distributions from the Cash
Flow generated by the receipt of mortgage payments and from property
operations, less payments on the underlying loans and administrative expenses.
The General Partner believes the Partnership has retained 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 sale 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 - III
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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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 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement, previously filed as Exhibit 4(a) to
Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated
May 20, 1982 (Registration Statement No. 2-75938) and as Exhibit 4(a) to the
Registrant's Registration Statement on Form S-11 dated November 2, 1982
(Registration No. 2-80123); 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. 0-11128) are incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ended March 31,
1996 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended March 31, 1996.
<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-III
By: /s/Thomas E. Meador
-------------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-II, 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-II, the
General Partner
Date: May 14, 1996
----------------------------
<PAGE>
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6529
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<RECEIVABLES> 53123
<ALLOWANCES> 3944
<INVENTORY> 0
<CURRENT-ASSETS> 6753
<PP&E> 14215
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<TOTAL-ASSETS> 43126
<CURRENT-LIABILITIES> 794
<BONDS> 1656
0
0
<COMMON> 0
<OTHER-SE> 40676
<TOTAL-LIABILITY-AND-EQUITY> 43126
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<OTHER-EXPENSES> 89
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<INCOME-PRETAX> 1077
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