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, 1998
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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
September 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,435,273 $ 3,558,254
Cash and cash equivalents - Early
Investment Incentive Fund 4,922,573 4,520,005
Accounts and accrued interest receivable 34,542 54,198
-------------- --------------
$ 6,392,388 $ 8,132,457
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,992 $ 33,055
Due to affiliates 61,506 41,705
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Total liabilities 70,498 74,760
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Commitments and contingencies
Limited Partners' capital (237,476
Interests issued) 13,097,497 14,686,267
Less Interests held by the Early
Investment Incentive Fund (21,249 at
September 30, 1998 and December 31, 1997) (7,024,362) (7,024,362)
-------------- --------------
6,073,135 7,661,905
General Partner's capital 248,755 395,792
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Total partners' capital 6,321,890 8,057,697
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$ 6,392,388 $ 8,132,457
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
(Loss) income from operations of
real estate held for sale $ (10,765) $ 619,335
Participation in income
of joint venture with affiliate 441,062
Interest on short-term investments 253,783 564,733
Other income 7,196
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Total income 250,214 1,625,130
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Expenses:
Administrative 169,713 299,031
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Total expenses 169,713 299,031
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Income before gains on sales of real
estate and extraordinary item 80,501 1,326,099
Gains on sales of real estate 2,503,098
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Income before extraordinary item 80,501 3,829,197
Extraordinary item:
Debt extinguishment expenses (35,392)
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Net income $ 80,501 $ 3,793,805
============== ==============
Income before extraordinary item
allocated to General Partner None None
============== ==============
Income before extraordinary item
allocated to Limited Partners $ 80,501 $ 3,829,197
============== ==============
Income before extraordinary item per
average number of Limited Partnership
Interests outstanding (216,227 in 1998
and 1997) - Basic and Diluted $ 0.37 $ 17.71
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Extraordinary item allocated to
General Partner None None
============== ==============
Extraordinary item allocated to
Limited Partners None $ (35,392)
============== ==============
Extraordinary item per average number
of Limited Partnership Interests
outstanding (216,227 in 1998
and 1997) - Basic and Diluted None $ (0.16)
============== ==============
Net income allocated to General Partner None None
============== ==============
Net income allocated to Limited Partners $ 80,501 $ 3,793,805
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(216,227 in 1998 and 1997)- Basic
and Diluted $ 0.37 $ 17.55
============== ==============
Distributions to General Partner $ 147,037 $ 554,112
============== ==============
Settlement Distribution to Limited Partners None $ 30,670
============== ==============
Distributions to Limited Partners $ 1,669,271 $ 30,747,462
============== ==============
Distributions per Limited Partnership
Interest outstanding $ 7.72 $ 142.20
============== ==============
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 September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Interest on short-term investments $ 83,864 $ 154,302
Other income 7,196
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Total income 91,060 154,302
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Expenses:
Loss from operations of real
estate held for sale 4,031 8,276
Administrative 44,071 74,710
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Total expenses 48,102 82,986
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Net income $ 42,958 $ 71,316
============== ==============
Net income allocated to General Partner None None
============== ==============
Net income allocated to Limited Partners $ 42,958 $ 71,316
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(216,227 in 1998 and 1997) - Basic
and Diluted $ 0.20 $ 0.33
============== ==============
Distribution to General Partner None $ 257,266
============== ==============
Distribution to Limited Partners None $ 16,865,696
============== ==============
Distribution per Limited Partnership
Interest outstanding None $ 78.00
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net income $ 80,501 $ 3,793,805
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gains on sales of real estate (2,503,098)
Debt extinguishment expenses 3,329
Participation in income of
joint venture with affiliate (441,062)
Amortization of deferred expenses 6,044
Net change in:
Escrow deposits 126,507
Accounts and accrued
interest receivable 19,656 41,345
Prepaid expenses 33,582
Accounts payable (24,063) (281,996)
Due to affiliates 19,801 (1,599)
Other liabilities (384,433)
Security deposits (83,571)
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Net cash provided by operating activities 95,895 308,853
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Investing activities:
Distributions from joint
venture partner - affiliate 3,691,111
Capital contribution to joint venture
partners - affiliate (67,591)
Proceeds from sales of real estate 17,200,000
Costs incurred in connection
with sales of real estate (482,197)
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Net cash provided by investing activities 20,341,323
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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 nine months ended September 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Financing activities:
Distributions to Limited Partners (1,669,271) (30,778,132)
Distributions to General Partner (147,037) (554,112)
Contribution by General Partner 79,159
Increase in cash and cash and
cash equivalents - Early
Investment Incentive Fund (402,568) (3,305,974)
Principal payments on mortgage
note payable (19,461)
Repayment of mortgage note payable (1,603,132)
-------------- --------------
Net cash used in financing activities (2,218,876) (36,181,652)
-------------- --------------
Net change in cash and cash equivalents (2,122,981) (15,531,476)
Cash and cash equivalents at beginning
of period 3,558,254 19,044,458
-------------- --------------
Cash and cash equivalents at end of period $ 1,435,273 $ 3,512,982
============== ==============
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 Policies:
(a) The income allocation between the Limited Partners and the General Partner
has been adjusted for financial statement purposes in order that the capital
account balances more accurately reflect their remaining economic interests as
provided for in the Partnership Agreement.
(b) 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, 1998, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining two properties and
the property in which the Partnership held a minority joint venture interest.
The Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 5 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
3. Interest Expense:
During the nine months ended September 30, 1997, the Partnership incurred and
paid interest expense on mortgage note payable of $69,212.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1998 are:
Paid
-------------------------
Nine Months Quarter Payable
------------ --------- ----------
Reimbursement of expenses to
the General Partner, at cost $ 29,696 $ 13,254 $ 61,506
<PAGE>
5. Other Income:
The Perimeter 400 Office Building, which was owned by a joint venture
consisting of the Partnership and three affiliates, was sold in December 1996.
During the fourth quarter 1998, the Partnership received $7,196 representing
its share of a refund of 1996 real estate taxes which had been under appeal.
6. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal, which is pending.
It is not determinable at this time whether or not an unfavorable decision in
this action would have a material adverse impact on the financial position of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
<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. Eleven properties were
acquired through foreclosure and two loans were reclassified as investment in
joint ventures with affiliates. As of September 30, 1998, the Partnership has
no loans or real estate 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 1997 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
The operations of the Partnership during 1998 and the quarter ended September
30, 1997 consisted primarily of the receipt of interest income earned on
short-term investments which was partially offset by the payment of
administrative expenses. Interest income on short-term investments was higher
during the quarter ended September 30, 1997 than during the same period in 1998
which was the primary reason net income decreased during the quarter ended
September 30, 1998 as compared to the same period in 1997. The Partnership sold
its remaining two properties, which were generating income prior to their
sales, during the second quarter of 1997 and recognized gains on the sales. In
addition, in April 1997, the Partnership recognized its share of the gain on
the sale of the property held by a joint venture with an affiliate. Primarily
as a result of these sales, net income decreased during the nine months ended
September 30, 1998 as compared to the same period in 1997. Further discussion
of the Partnership's operations is summarized below.
1998 Compared to 1997
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the nine months and quarters ended September 30, 1998 and 1997.
The Brookhollow/Stemmons Center Office Building was owned by a joint venture
with an affiliate. As a result of the sale of this property during 1997,
participation in income of joint venture with affiliate ceased during 1997.
<PAGE>
Higher average cash balances were available for investment during 1997
primarily as a result of the timing of the distribution of the proceeds
received in connection with the 1996 sale of the Carmel on Providence loan and
the 1997 sales of the Woods Apartments, Orchards Shopping Center and
Brookhollow/Stemmons Center Office Building. As a result, interest income on
short-term investments decreased during 1998 as compared to 1997.
Other income was recognized during the third quarter 1998 in connection with a
refund of real estate taxes which had been under appeal related to the
Perimeter 400 Office Building in which the Partnership held a joint venture
interest. The property was sold in 1996.
Income from operations of real estate held for sale represented the net
operations of the properties acquired by the Partnership through foreclosure.
The Partnership sold the Woods Apartments and the Orchards Shopping Center in
April and June 1997, respectively. Both of these properties were generating
income prior to their sales. The Partnership paid expenditures related to
properties sold in 1996 during the quarter ended September 30, 1997 which
resulted in a loss from operations for the quarter ended September 30, 1997.
Additionally, during the second and third quarters of 1998, the Partnership
paid expenditures related to both the Orchards Shopping Center and the Woods
Apartments. As a result, the Partnership generated a loss from operations of
real estate held for sale during 1998 as compared to income during the nine
months ended September 30, 1997 and a loss during the quarter ended September
30, 1997.
During February 1997, the General Partner made a payment relating to the
settlement of certain litigation to original investors who previously sold
their Interests in the Partnership, which was recognized as an administrative
expense. In addition, during 1998 the Partnership incurred lower accounting and
portfolio management fees and bank charges. As a result, administrative expense
decreased during 1998 as compared to 1997.
The Partnership sold the Woods Apartments and the Orchards Shopping Center in
April and June 1997, respectively, and recognized gains on the sales totaling
$2,503,098.
In connection with the June 1997 sale of the Orchards Shopping Center, the
Partnership wrote-off the remaining unamortized deferred expenses of $3,329 and
paid prepayment penalties of $32,063. These amounts were recognized as debt
extinguishment expenses and classified as an extraordinary item for financial
statement purposes.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $2,123,000 as
of September 30, 1998 when compared to December 31, 1997 primarily due to the
payment of distributions to Partners in January 1998. The Partnership generated
cash of approximately $96,000 from its operating activities primarily from
interest income received on short-term investments, which was partially offset
by the payment of administrative expenses and expenditures related to the
<PAGE>
properties sold in 1997. The Partnership's financing activities consisted of
the payment of distributions to the Partners of approximately $1,816,000 and an
increase in restricted cash and cash equivalents of approximately $403,000 due
to the discontinuance of the repurchase of Interests from Limited Partners in
1997.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining two properties and
the property in which the Partnership held a minority joint venture interest.
The Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 6 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of September 30, 1998, there were 21,249 Interests and
cash of $4,922,573 in the Early Investment Incentive Fund.
To date, Limited Partners have received cash distributions totaling $878.18 per
$500 Interest. Of this amount, $510.73 represents Cash Flow from operations and
$367.45 represents a return of Original Capital. No additional distributions
are anticipated to be made prior to the termination of the Partnership.
However, after paying final partnership expenses, any remaining cash reserves
will be distributed. Amounts allocated to the Early Investment Incentive Fund
will also be distributed at that time.
<PAGE>
BALCOR PENSION INVESTORS - III
(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. 2 to the Registrant's Registration Statement on Form S-11 dated
May 20, 1982 (Registration Statement No. 2-75938) and as previously filed as
Exhibit 4(a) to 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 are incorporated herein by
reference.
(10) Material Contracts:
(i)(a) Agreement of Sale relating to the sale of the Woods Apartments, Austin,
Texas, previously filed as Exhibit (2)(b) to the Registrant's Current Report on
Form 8-K dated March 12, 1997 is incorporated herein by reference.
(i)(b) Letter Agreement relating to the sale of the Woods Apartments, Austin,
Texas, previously filed as Exhibit (2)(c) to the Registrant's Current Report on
Form 8-K dated March 12, 1997 is incorporated herein by reference.
(i)(c) Letter of Agreement relating to the sale of the Woods Apartments,
Austin, Texas, previously filed as Exhibit (99)(i) to the Registrant's Current
Report on Form 8-K dated April 11, 1997 is incorporated herein by reference.
(i)(d) Letter Agreement relating to the sale of the Woods Apartments, Austin,
Texas, previously filed as Exhibit (99)(ii) to the Registrant's Current Report
on Form 8-K dated April 11, 1997 is incorporated herein by reference.
(i)(e) Letter Agreement relating to the sale of the Woods Apartments, Austin,
Texas, previously filed as Exhibit (99)(iii) to the Registrant's Current Report
on Form 8-K dated April 11, 1997 is incorporated herein by reference.
(ii)(a) Agreement of Sale relating to the sale of the Brookhollow/Stemmons
Center Office Building, Dallas, Texas previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated April 11, 1997 is incorporated
herein by reference.
(ii)(b) Amendment No. 1 to Agreement of Sale relating to the sale of
Brookhollow/Stemmons Center Office Building, Dallas, Texas, previously filed as
Exhibit (10)(iv)(b) to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 1997, is incorporated herein by reference.
<PAGE>
(iii) Agreement of Sale relating to the sale of Orchards Shopping Center,
Loveland, Colorado, previously filed as Exhibit (2) to the Registrant's Current
Report on Form 8-K dated April 14, 1997 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ended
September 30, 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1998.
<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/ Jayne A. Kosik
------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of
Balcor Mortgage Advisors-II, the General
Partner
Date: November 12, 1998
----------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6358
<SECURITIES> 0
<RECEIVABLES> 34
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6392
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6392
<CURRENT-LIABILITIES> 70
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6322
<TOTAL-LIABILITY-AND-EQUITY> 6392
<SALES> 0
<TOTAL-REVENUES> 250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 80
<INCOME-TAX> 80
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
