SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1994
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 0-11699
BALCOR PENSION INVESTORS-IV
(Exact name of registrant as specified in its charter)
Illinois 36-3202727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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 .
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 13,550,049 $ 14,917,086
Cash and cash equivalents - Early Investment
Incentive Fund 293,812 278,978
Escrow deposits 1,526,594 1,607,545
Escrow deposits - restricted 232,452
Accounts and accrued interest receivable 126,629 533,526
Deferred expenses, net of accumulated
amortization of $19,162 in 1994 and
$13,530 in 1993 163,531 169,163
Other assets 78,538
------------- -------------
15,660,615 17,817,288
------------- -------------
Investment in loans receivable:
Loans receivable - first mortgage 3,117,939 1,247,350
Less:
Allowance for potential loan loss 250,000 250,000
------------- -------------
Net investment in loans receivable 2,867,939 997,350
Loan in substantive foreclosure 1,896,953
Real estate held for sale (net of
allowance of $1,277,805 in 1994
and 1993) 41,368,106 42,852,935
Investment in joint venture with affiliates 4,211,830 4,090,735
------------- -------------
48,447,875 49,837,973
------------- -------------
$ 64,108,490 $ 67,655,261
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued interest payable $ 696,468 $ 727,417
Due to affiliates 178,932 86,745
Other liabilities (principally security
and escrow deposits) 254,652 545,134
Mortgage notes payable 11,510,402 14,410,060
------------- -------------
Total liabilities 12,640,454 15,769,356
------------- -------------
Partners' capital (429,606 Limited
Partnership Interests issued) 58,910,018 59,327,887
Less Interests held by Early Investment
Incentive Fund (25,777 in 1994 and 1993) (7,441,982) (7,441,982)
------------- -------------
51,468,036 51,885,905
------------- -------------
$ 64,108,490 $ 67,655,261
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1994 and 1993
(Unaudited)
1994 1993
-------------- -------------
Income:
Interest on loans receivable and
loans in substantive foreclosure $ 70,377 $ 737,881
Less interest on loans payable -
underlying mortgages 146,996
-------------- -------------
Net interest income on
loans receivable 70,377 590,885
Income from operations of
real estate held for sale 514,412 190,818
Participation in income of
joint venture with affiliates 101,622 39,729
Interest on short-term investments 142,104 114,524
-------------- -------------
Total income 828,515 935,956
-------------- -------------
Expenses:
Mortgage servicing fees 6,384 14,358
Administrative 355,600 286,260
-------------- -------------
Total expenses 361,984 300,618
-------------- -------------
Income before net gain on sale
of real estate 466,531 635,338
Net gain on sale of real estate 1,170,546
-------------- -------------
Net income $ 1,637,077 $ 635,338
============== =============
Net income allocated to
General Partner $ 122,781 $ 47,650
============== =============
Net income allocated to
Limited Partners $ 1,514,296 $ 587,688
============== =============
Net income per average number of
Limited Partnership interests outstanding
(403,829 in 1994 and 406,681 in 1993) $ 3.75 $ 1.45
============== =============
Distribution to General Partner $ 35,801 $ 62,651
============== =============
Distribution to Limited Partners $ 2,019,145 $ 712,241
============== =============
Distribution per Limited Partnership Interest $ 5.00 $ 1.75
============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1994 and 1993
(Unaudited)
1994 1993
------------- -------------
Operating activities:
Net income $ 1,637,077 $ 635,338
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net gain on sale of real estate (1,170,546)
Participation in income of joint
venture with affiliates (101,622) (39,729)
Accrued interest income due at maturity (55,115)
Amortization of deferred expenses 5,632
Net change in:
Escrow deposits 80,951 (225,225)
Escrow deposits-restricted 232,452
Accounts and accrued interest
receivable 406,897 202,772
Other assets 78,538 (158,370)
Accounts and accrued interest payable (30,949) (32,787)
Due to affiliates 92,187 33,567
Other liabilities (290,573) 77,708
------------- -------------
Net cash provided by operating activities 940,044 438,159
------------- -------------
Investing activities:
Capital contribution to joint
venture with affiliates (19,473)
Collection of principal payments on loan
receivable and loan in substantive
foreclosure 26,364 33,583
Additions to real estate (15,599)
Proceeds from sale of real estate 3,250,000
Costs incurred in connection
with sale of real estate (244,360)
Costs incurred in connection
with real estate acquired
through foreclosure (350,174)
------------- -------------
Net cash provided by investing activities 2,662,357 17,984
------------- -------------
Financing activities:
Distribution to Limited Partners (2,019,145) (712,241)
Distribution to General Partner (35,801) (62,651)
Change in cash and cash equivalents -
Early Investment Incentive Fund (14,834) (6,662)
Repurchase of Limited Partnership Interests (54,460)
Principal payments on underlying loan
payable (13,466)
Principal payments on mortgage notes payable (61,185) (163,274)
Repayment of mortgage note payable (2,838,473)
------------- -------------
Net cash used in financing activities (4,969,438) (1,012,754)
------------- -------------
Net change in cash and
cash equivalents (1,367,037) (556,611)
Cash and cash equivalents at
beginning of year 14,917,086 14,460,945
------------- -------------
Cash and cash equivalents at
end of period $ 13,550,049 $ 13,904,334
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(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,
1994, and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1994 and 1993, the Partnership incurred
interest expense on mortgage notes payable of $281,403 and $383,988 and paid
interest expense of $253,646 and $383,988, respectively.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
quarter ended March 31, 1994 are:
Paid Payable
Mortgage servicing fees $ 5,992 $ 3,700
Property management fees 86,962 28,031
Reimbursement of expenses to
the General Partner - at cost:
Accounting 2,881 27,143
Data processing None 57,410
Investor communications 770 6,914
Legal 663 8,340
Portfolio management 5,834 42,889
Other 533 4,505
4. Real Estate Held for Sale:
The Partnership acquired the North Kent Mall and the Glendale Fashion Center in
January and March 1994, respectively. These properties were classified as real
estate held for sale at December 31, 1993. The Partnership recorded the cost of
the properties at $15,849,638 which was equal to the outstanding loan balances
plus accrued interest receivable. In addition, the Partnership increased the
bases of the properties by $304,713 which represented other receivables,
liabilities, escrows and costs recognized or incurred in connection with the
foreclosures.
5. Property Sale:
In February 1994, the Partnership sold the Republic Park Office Building
located in Aurora, Colorado in an all cash sale for $3,250,000. The carrying
value of the property sold was $1,835,094 and the Partnership incurred selling
expenses of $244,360. For financial statement purposes, the Partnership
recognized a gain of $1,170,546 on the sale of the property during the first
quarter of 1994.
6. Subsequent Event:
In April 1994, the Partnership made a distribution of $2,599,116 ($6.05 per
Interest) to the Limited Partners which represents a regular quarterly
distribution of available Cash Flow of $1.50 per Interest for the first quarter
of 1994, and $4.55 per Interest which represents the Mortgage Reductions
received from prior property sales and loan repayments.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-IV (the "Partnership") is a limited partnership formed
in 1982 to invest in wrap-around mortgage loans and, to a lesser extent, make
other junior mortgage loans and first mortgage loans. The Partnership raised
$214,803,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-eight loans. To date, the Partnership has
distributed $548.10 per $500 Interest, of which $313.10 represents Cash Flow
from operations and $235.00 represents a return of Original Capital. As of
March 31, 1994, there are two loans outstanding in the Partnership's portfolio.
In addition, the Partnership is operating seven properties held for sale and
holds a minority joint venture interest in one property.
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 1993 for a more complete understanding of
the Partnership's financial position.
Operations
Summary of Operations
The Partnership recognized a gain on the sale of the Republic Park Office
Building during 1994 which was the primary reason for the increase in net
income during the quarter ended March 31, 1994 as compared to the same period
in 1993. Further discussion of the Partnership's operations is summarized
below.
1994 Compared to 1993
The foreclosures of the North Kent Mall and the Glendale Fashion Center in
January and March 1994, respectively, and the repayment of the Lantana Cascades
Mobile Home Park loan in October 1993 were the primary reasons for the decrease
in net interest income on loans receivable during the quarter ended March 31,
1994 as compared to the same period in 1993.
The Partnership has one non-accrual loan at March 31, 1994 which is
collateralized by the Stonehaven South Apartments located in Kansas City,
Missouri. The funds advanced by the Partnership for this non-accrual loan total
approximately $2,800,000, representing approximately 1% of original funds
advanced. For non-accrual loans, income is recorded only as cash payments are
received from the borrowers. During the quarter ended March 31, 1994, the
Partnership received cash payments of interest income totaling approximately
$29,000 on this loan. Under the terms of the original loan agreement, the
Partnership would have received approximately $94,000 of interest income.
The allowance for potential losses provides for potential losses on loans and
is based upon loan loss experience for similar loans and prevailing economic
conditions in the market in which the collateral properties are located and the
General Partner's analysis of specific loans in the Partnership's portfolio.
While actual losses may vary from time to time because of changes in
circumstances (such as occupancy rates, rental rates, and other economic
factors), the General Partner believes that adequate recognition has been given
to loss exposure in the portfolio at March 31, 1994.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At March 31, 1994,
the Partnership was operating seven properties which comprise approximately 16%
of the Partnership's portfolio based on original funds advanced. Operations
improved at the Palm View Apartments due to increased occupancy resulting from
the completion of exterior painting at the property during 1993. Rental income
increased at the Pelican Pointe Apartments and interest expense decreased at
the Del Lago and Pelican Pointe apartment complexes due to the repayment of the
mortgage notes. In addition, the Partnership acquired the North Kent Mall in
January 1994 which generated cash flow. Finally, the Shadows Apartments and
the Republic Park Office Building, which were generating income, and the 240 E.
Ontario Office Building, which operated at a loss, were sold in April 1993,
February 1994, and June 1993, respectively. The combined effect of these events
resulted in an increase in income from the operations of the Partnership's
properties during the quarter ended March 31, 1994 as compared to the same
period in 1993.
Participation in income of joint venture with affiliates represents the
Partnership's 15.37% share of the operations of the Perimeter 400 Center Office
Building. Operations at the Perimeter 400 Center Office Building improved
during 1994 due to increased rental income and lower real estate tax expense.
The increase in rental income was due to higher average occupancy levels, while
the decrease in real estate taxes was attributable to a refund received in 1994
relating to the 1993 taxes due to a reduction in the assessed value of the
property. As a result, participation in income of joint venture with affiliates
increased during the quarter ended March 31, 1994 as compared to the same
period in 1993.
As a result of higher average cash balances available for investment, interest
income on short-term investments increased during the quarter ended March 31,
1994 as compared to the same period in 1993.
The reduced amount of loans being serviced during the first quarter of 1994 due
to the relinquishment of the Oakwood Village Apartments loan through
foreclosure, the Lantana Cascades loan repayment and the 1994 foreclosures has
resulted in a decrease in mortgage servicing fees during the quarter ended
March 31, 1994 as compared to the same period in 1993.
Increased legal and professional fees caused administrative expenses to
increase during the quarter ended March 31, 1994 as compared to the same period
in 1993.
During the quarter ended March 31, 1994, the Partnership recognized a gain of
$1,170,546 on the sale of the Republic Park Office Building located in Aurora,
Colorado. See Note 5 of Notes to Financial Statements for additional
information.
Liquidity and Capital Resources
The Partnership received cash flow from its operating activities. The operating
cash flow generated from interest income earned on its investment in loans
receivable and short-term interest bearing instruments and cash flow generated
by the Partnership's properties held for sale offset the payment of
administrative expenses. The Partnership also received funds from investing
activities relating primarily to the sale of the Republic Park Office Building
in February 1994. This receipt of cash was partially offset by the payment of
costs incurred in connection with the foreclosure of the North Kent Mall. The
Partnership also used cash to fund its financing activities which consisted
primarily of the payment of distributions to the General Partner and Limited
Partners, the repayment of the mortgage note on the Pelican Pointe Apartments,
and the payment of principal on the mortgage notes payable. The Partnership's
cash or near cash position fluctuates during each quarter, initially decreasing
with the payment of Partnership distributions for the previous quarter, and
then gradually increasing each month in the quarter as mortgage payments and
cash flow from property operations are received.
During the quarter ended March 31, 1994, six of the seven properties held for
sale by the Partnership generated positive cash flow. The Glendale Fashion
Center operated at a marginal cash flow deficit. The Partnership classifies the
cash flow performance of its properties as either positive, a marginal deficit
or a significant deficit, each after consideration of debt service payments
unless otherwise indicated. The Del Lago, Pelican Pointe and Regency Club
apartment complexes do not have underlying debt. A deficit is considered to be
significant if it exceeds $250,000 annually or 20% of the property's rental and
service income.
During the quarter ended March 31, 1993, the Colony, Del Lago, Pelican Pointe
and Regency Club apartment complexes generated positive cash flow while the
Palm View Apartments generated a significant deficit. The Palm View Apartments
improved from a significant deficit to positive cash flow during 1994 due to
the completion of exterior painting during 1993 and a resultant increase in
average occupancy levels and rental rates. 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 collateralized by its properties, and may refinance or,
in certain instances, use Partnership reserves to repay such loans.
In January 1994, the Partnership used a portion of its cash reserves to repay
the $2,838,473 first mortgage loan collateralized by the Pelican Pointe
Apartments.
In addition, 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.
Because of the current weak real estate markets in certain cities and regions
of the country, attributable to local and regional market conditions such as
overbuilding and recessions in local economies and specific industry segments,
certain borrowers have requested that the Partnership allow prepayment of
mortgage loans. The Partnership has allowed some of these borrowers to prepay
such loans, in some cases without assessing prepayment premiums, under
circumstances where the General Partner believed that refusing to allow such
prepayment would ultimately prove detrimental to the Partnership in light of
the probable inability of the properties to generate sufficient revenues to
keep loan payments current. In other cases, borrowers have requested prepayment
in order to take advantage of lower available interest rates. In these cases,
the Partnership has collected substantial prepayment premiums.
The Partnership obtained title to the North Kent Mall pursuant to a deed in
lieu of foreclosure in January 1994. In addition, the Partnership obtained
title to the Glendale Fashion Center through foreclosure in March 1994. See
Note 4 of Notes to Financial Statements and Item 1. Legal Proceedings for
additional information.
In February, 1994, the Partnership sold the Republic Park Office Building
located in Aurora, Colorado in an all cash sale for $3,250,000. The Partnership
incurred selling expenses of $244,360. See Note 5 of Notes to Financial
Statements for additional information.
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 and
from property operations. 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 non-accrual 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 1994, the Partnership made a distribution of $2,599,116 ($6.05 per
Interest) to the Limited Partners which represents a regular quarterly
distribution of available Cash Flow of $1.50 per Interest for the first quarter
of 1994, and $4.55 per Interest which represents the Mortgage Reductions
received from the sale of the land related to the University Office Building
and a portion of the Mortgage Reductions received from the repayment of the
Lantana Cascades Mobile Home Park loan and the sale of the Republic Park Office
Building. The quarterly distribution level was increased from $1.00 per
Interest for the fourth quarter of 1993. The Partnership expects to continue
making regular quarterly cash distributions; however, the level of such future
distributions will be dependent upon the cash flow generated by the receipt of
mortgage payments and improved operations of the Partnership's properties held
for sale, less mortgage servicing fees and administrative expenses. The General
Partner, on behalf of the Partnership, has retained what it believes to be an
appropriate amount of working capital to meet current cash or liquidity
requirements which may occur.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Glendale Fashion Center
As previously reported, the borrower of the loan collateralized by the Glendale
Fashion Center, Glendale, California, commenced bankruptcy proceedings in the
U.S. Bankruptcy Court, Central District of California, Case No.: LA 91-13321
SB, In re Glendale Fashion Center. The Bankruptcy Court lifted the stay
imposed by the bankruptcy proceedings and in March 1994, the Partnership
obtained title to the property subject to two first mortgage loans (the
"Loans") held by an unaffiliated lender. Prior to the foreclosure, the
Bankruptcy Court issued an order modifying the Loans to be payable in monthly
interest-only installments at the rate of 9% per annum through maturity in 1999
and 1995, respectively. Subsequent to the foreclosure, the Partnership has
continued to make payments on the Loans under the modified terms. The lender
has advised the Partnership that it believes that the modification does not
survive the bankruptcy and, in March 1994, placed the Loans in default and
accelerated payment. The Partnership has filed a motion in Bankruptcy Court
for a clarification of this issue; no hearing date has been set at this time.
Item 6. Exhibits and Reports on Form 8-K
(a) (3) Exhibits:
(4) Form of Confirmation regarding Interests in the Registrant set forth as
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1992 (Commission File No. 0-11699) is incorporated herein by
reference.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated February 2, 1994 reporting the sale of land
related to the University Office Building located in Denver, Colorado, the sale
of the Republic Park Office Building located in Aurora, Colorado and the
acquisition pursuant to a deed in lieu of foreclosure of the North Kent Mall
located in Grand Rapid, Michigan.
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-IV
By: /s/ Thomas E. Meador
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-III, the General Partner
By: /s/ Allan Wood
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Mortgage Advisors-III, the General Partner
Date: May 13, 1994
