UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-11699
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BALCOR PENSION INVESTORS-IV
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(Exact name of registrant as specified in its charter)
Illinois 36-3202727
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Pension Investors-IV (the "Registrant") is a limited partnership formed
in 1982 under the laws of the State of Illinois. The Registrant raised
$214,803,000 from sales of Limited Partnership Interests. The Registrant's
operations have consisted of servicing wrap-around mortgage loans and, to a
lesser extent, servicing other junior mortgage loans and first mortgage loans.
The Registrant also currently operates seven properties acquired through
foreclosure and holds a minority joint venture interest in one additional
property. All financial information included in this report relates to this
industry segment.
The Registrant originally funded thirty-eight loans. A portion of Mortgage
Reductions generated by repayments was reinvested in four additional loans and
a portion was used to make special distributions to Limited Partners. The
remainder was added to working capital reserves. As a result of the repayments,
foreclosures and write-offs of forty loans, the Registrant has two loans in its
portfolio as of December 31, 1994. Fourteen properties were acquired through
foreclosure and one loan was reclassified to an investment in joint venture
with affiliates. The Registrant has since disposed of seven of these properties
and has seven properties and an investment in joint venture with affiliates in
its portfolio as of December 31, 1994. See Item 2. Properties for additional
information.
During 1994, the Registrant acquired two properties through foreclosure on
loans. These loans were classified as real estate held for sale at December 31,
1993. See Item 7. Liquidity and Capital Resources for additional information.
During February 1994, the Registrant sold the Republic Park Office Building.
See Item 7. Liquidity and Capital Resources for additional information.
During January 1994, the Registrant repaid the mortgage note payable on Pelican
Pointe Apartments. See Item 7. Liquidity and Capital Resources for additional
information.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure, is subject to federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate. The
General Partner is not aware of any potential liability due to environmental
issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-III, the General Partner
of the Registrant, and its affiliates, perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1994, the Registrant owns the seven properties described
below:
Location Description of Property
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Chapel Hill, North Carolina Colony Apartments: a 197-unit apartment complex
located on approximately 13.6 acres.
Tampa, Florida Del Lago Apartments: a 193-unit apartment complex
located on approximately 12 acres.
Glendale, California Glendale Fashion Center: a shopping center
<PAGE>
containing 294,360 square feet located on
approximately 6.7 acres.
Grand Rapids, Michigan North Kent Mall: a shopping center containing
167,401 square feet located on approximately 19
acres.
St. Petersburg, Florida Palm View Apartments: a 304-unit apartment
complex located on approximately 22 acres.
Pompano Beach, Florida Pelican Pointe Apartments: a 300-unit apartment
complex located on approximately 13 acres.
Evansville, Indiana Regency Club Apartments: a 232-unit apartment
complex located on approximately 18 acres.
Certain of these properties are held subject to various mortgages.
The Registrant also holds a minority joint venture interest in the
Perimeter 400 Center Office Building located in Fulton County, Georgia.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Williams class action
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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) against the
Registrant, the General Partner, The Balcor Company, Shearson Lehman Hutton,
Inc., American Express Company, other affiliates, and seven affiliated limited
partnerships (the "Related Partnerships") as defendants. The complaint alleges
that the defendants violated Federal securities laws as to the adequacy and
accuracy of disclosure of information in the offering of limited partnership
interests of the Registrant and the Related Partnerships and alleges breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint seeks compensatory and punitive
damages. The defendants filed their answer, affirmative defenses and a
counterclaim to the complaint. The defendants' counterclaim asserts claims of
fraud and breach of warranty against certain plaintiffs, as well as a request
for declaratory relief regarding the defendants' rights to be indemnified for
their expenses incurred in defending the litigation. The defendants seek to
recover damages to their reputations and business as well as costs and
attorneys' fees in defending the claims.
In May 1993, the Court issued an order denying the plaintiffs' motion for class
certification based principally on the inadequacy of the individual plaintiffs
representing the proposed class. However, the Court gave plaintiffs leave to
propose new individual class representatives. Further, the Court granted the
defendants' motion for sanctions and ordered that plaintiffs' counsel pay
certain of the defendants' attorneys' fees incurred with the class
certification motion. In January 1995, the Court ordered the plaintiffs'
counsel to pay $75,000 to the defendants and $25,000 to the Court.
The plaintiffs retained new co-counsel and proposed new class representatives.
In July 1994, the Court granted plaintiffs' motion certifying a class relating
to the Federal securities fraud claims. The class certified by the Court
includes only the original investors in the Registrant and the Related
Partnerships. The defendants filed a motion for reconsideration in opposition
<PAGE>
to the class certification which was denied on December 21, 1994. The Court
has ordered the parties to meet to discuss notice to the class and a schedule
for discovery.
A motion filed by the plaintiffs seeking to dismiss the defendants'
counterclaim for fraud was denied by the Court in August 1994.
The defendants intend to continue vigorously contesting this action. Management
of each of the defendants believes they have meritorious defenses to contest
the claims.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1994.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see Financial Statements, Statements of
Partners' Capital and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, below.
As of December 31, 1994, the number of record holders of Limited Partnership
Interests of the Registrant was 31,955.
Item 6. Selected Financial Data
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Year ended December 31,
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1994 1993 1992 1991 1990
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Total income $3,546,138 $4,237,319 $2,531,773 $4,267,207 $10,535,310
Provision for losses
on loans, real
estate and
accrued interest
receivable None None 5,750,000 8,969,116 4,000,000
Income (loss) before
net gain on sales
of assets 2,241,206 2,761,569 (4,599,843) (6,022,076) 5,429,599
Net income (loss) 3,411,752 2,885,608 (4,599,843) (6,022,076) 5,429,599
Net income (loss)
per average number
of Limited Part-
nership Interests
outstanding 7.84 6.58 (10.44) (13.51) 12.03
Total assets 61,470,589 67,655,261 70,105,484 80,000,225 119,731,510
Mortgage notes
payable 11,316,222 14,410,060 11,975,262 13,095,811 14,510,423
Distributions per
Limited Partner-
ship Interest 14.05 16.75 8.25 70.50 31.15
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Summary of Operations
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Balcor Pension Investors - IV (the "Partnership") recognized a gain in 1994 on
the sale of the Republic Park Office Building which resulted in an increase in
net income during 1994 as compared to 1993. Participation income received in
connection with the 1993 repayment of the Lantana Cascades loan partially
offset this increase.
The Partnership recognized a provision for potential losses on loans and
accrued interest receivable during 1992 but did not do so during 1993. In
addition, during 1992, the Partnership recognized its share of the reduction in
the carrying value of the Perimeter 400 Center Office Building (in which it has
a minority joint venture interest). The combined effect of these events was
the primary cause for the recognition of net income during 1993 as compared to
<PAGE>
a net loss for 1992. Further discussion of the Partnership's operations is
summarized below.
Operations
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1994 Compared to 1993
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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 and mortgage servicing fees during
1994 as compared to 1993. Amounts received from the discounted repayment of a
residual note related to the Independence Green loan prepayment and from the
release of the Partnership's interest in the three remaining Oppenheimer hotels
were recognized as interest income during 1994 and partially offset the above
decrease.
The Partnership has one loan on non-accrual status at December 31, 1994, which
is collateralized by the Stonehaven South Apartments. The funds advanced by the
Partnership for this non-accrual loan are approximately $2,800,000. For
non-accrual loans, income is recorded only as cash payments are received from
the borrowers. During 1994, the Partnership received cash payments of interest
income of approximately $115,000 on this loan. Under the terms of the original
loan agreement, the Partnership would have received approximately $375,000 of
interest income.
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. The Partnership did not
recognize a provision for potential losses on its loans and real estate held
for sale during 1994 and 1993.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At December 31,
1994, the Partnership was operating seven properties. Original funds advanced
by the Partnership totaled approximately $30,200,000 for these seven real
estate investments. The Partnership acquired the North Kent Mall in January
1994 and the Glendale Fashion Center in March 1994, which generated income.
Operations improved at the Palm View Apartments due to increased occupancy
resulting from the completion of exterior painting and other improvements at
the property during 1993. The Partnership completed a major repair program at
the Colony Apartments during 1993 which also resulted in improved occupancy and
overall operations for 1994. Rental income increased at the Pelican Pointe
Apartments due to increased rental rates. Interest expense decreased at the
Pelican Pointe and Del Lago apartment complexes due to the repayment of the
mortgage notes. The majority of the improvement in operations at the Pelican
Pointe Apartments, however, was offset by the completion of exterior painting
during the fourth quarter of 1994. 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 1994 as compared to 1993.
Participation in income (loss) of joint venture with affiliates represents the
Partnership's 15.37% share of the operations of the Perimeter 400 Center Office
Building. The Partnership incurred significant leasing costs at the property
during 1993 which resulted in higher occupancy levels and improved operations
at the property during 1994. As a result, the Partnership recognized a
participation in income of joint venture with affiliates during 1994 as
<PAGE>
compared to a participation in loss during 1993.
The Partnership's loans generally bear interest at contractually-fixed interest
rates. Some loans also provide for additional interest in the form of
participations, usually consisting of either a share in the capital
appreciation of the property collateralizing the Partnership's loan and/or a
share in the increase of the gross income of the property above a certain
level. Participation income was received during 1993 in connection with the
Lantana Cascades loan repayment. There was no participation income received in
1994.
As a result of higher average cash balances available for investment and higher
interest rates earned on short-term investments, interest income on short-term
investments increased during 1994 as compared to 1993.
Decreased legal fees incurred in connection with the loans on non-accrual
status and lower data processing costs caused administrative expenses to
decrease during 1994 as compared to 1993. This decrease was partially offset by
an increase in accounting and portfolio management fees during 1994 as compared
to 1993.
During 1994, the Partnership recognized a gain of $1,170,546 on the sale of the
Republic Park Office Building. During 1993, the Partnership recognized a net
gain of $124,039 on the sales of the Shadows Apartments, the 240 E. Ontario
Office Building and the land related to the University Office Building.
1993 Compared to 1992
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The prepayment of The Bluffs loan in May 1992 and the repayment of the Lantana
Cascades loan in October 1993 were the primary reasons for the decrease in net
interest income on loans receivable and mortgage servicing fees during 1993 as
compared to 1992. Interest income received during 1993 from the borrower of
the Glendale Fashion Center due to a ruling by the Bankruptcy Court and
interest income on the residual notes received as part of The Bluffs and
Independence Green prepayments partially offset the decrease.
The Partnership had one non-accrual loan at December 31, 1993 which was
collateralized by the Stonehaven South Apartments. The funds advanced by the
Partnership for this non-accrual loan totaled approximately $2,800,000. During
1993, the Partnership received cash payments of net interest income totaling
approximately $131,000 on this loan. Under the terms of the original loan
agreement, the Partnership would have received approximately $375,000 of net
interest income.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At December 31,
1993, the Partnership was operating six properties. Original funds advanced by
the Partnership totaled approximately $28,600,000 for these six real estate
investments. Rental income increased and repair and maintenance expense
decreased at the Pelican Pointe Apartments due to increased occupancy resulting
from the completion of lease-up and stabilization programs during 1992. Rental
income also increased at the Republic Park Office Building due to increased
occupancy. Service income increased at the Palm View Apartments due to a
refund from a utility company for services that had been overcharged in prior
years. In addition, due to the requirements of the refinancing agreement, the
Partnership began a major repair program during the second quarter of 1993 at
the Colony Apartments which caused the property to generate a loss in 1993.
Finally, Haystack and Shadows apartment complexes, which were generating
income, were sold in August 1992 and April 1993, respectively, and the 240 E.
Ontario Office Building, acquired by the Partnership in April 1992 and sold in
June 1993, continued to operate at a loss during 1993. The combined effect of
these events resulted in the recognition of income from the operations of the
Partnership's properties during 1993 as compared to a loss during 1992.
Participation in loss of joint venture with affiliates represents the
<PAGE>
Partnership's 15.37% share of the operations of the Perimeter 400 Center Office
Building. During 1992, the Partnership also recognized a loss of $1,173,961 as
its share of a reduction in the carrying value of this property. As a result,
participation in loss of joint venture with affiliates decreased during 1993 as
compared to 1992.
Lower interest rates earned on short-term investments caused a decrease in
interest income on short-term investments during 1993 as compared to 1992.
Participation income increased during 1993 as compared to 1992 primarily due to
significant participations totaling $849,169 received in connection with the
Lantana Cascades loan repayment in October 1993.
Liquidity and Capital Resources
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The cash position of the Partnership decreased as of December 31, 1994 when
compared to December 31, 1993. 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 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 used cash to fund its financing activities
which consisted primarily of the payment of distributions to the Limited
Partners and General Partner, the repayment of the Pelican Pointe mortgage note
payable and the payment of principal on the mortgage notes payable. This use of
cash was partially offset by a release of funds from the capital improvement
escrow on the Colony Apartments.
During 1994, all seven properties held for sale by the Partnership generated
positive cash flow. 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. A
deficit is considered to be significant if it exceeds $250,000 annually or 20%
of the property's rental and service income. 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. The Del Lago, Pelican Pointe and Regency Club apartment complexes do
not have underlying debt. As of December 31, 1994, the occupancy rates of the
Partnership's residential properties ranged from 94% to 97% except for the Del
Lago and Regency Club apartment complexes which had occupancy rates of 87% and
88%, respectively. The Partnership acquired North Kent Mall through foreclosure
in January 1994. The Partnership is evaluating alternative strategies to
upgrade and reposition the property in its market. The current occupancy of the
Mall is 65%. In addition, the Partnership acquired Glendale Fashion Center
through foreclosure in March 1994. The Partnership is currently in the process
of signing letters of intent for new tenants at the Center in an effort to
prepare the property for redevelopment. The current occupancy is 25%. The
Partnership continues to evaluate its options with respect to the redevelopment
process for the Center which includes the potential of marketing the property
for sale.
During 1993, the Pelican Pointe and Regency Club apartment complexes generated
positive cash flow and the Del Lago and Palm View apartment complexes generated
marginal cash flow deficits. The Colony Apartments generated a significant cash
flow deficit. The Colony Apartments improved from a significant deficit to
positive cash flow during 1994 due to the completion during 1993 of a repair
program required under the terms of the refinancing agreement. The Del Lago
Apartments improved from a marginal deficit to positive cash flow during 1994
due to the repayment of its mortgage note payable in December 1993. Finally,
the improvement in cash flow during 1994 for the Palm View Apartments was due
to the completion of exterior painting and other improvements during 1993 and a
resultant increase in average occupancy levels and rental rates. The General
<PAGE>
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.
During 1994, the Partnership used a portion of its cash reserves to repay the
$2,838,473 Pelican Pointe first mortgage loan.
In November 1990, the borrower of the Independence Green loan repaid the loan
except for a portion of the interest which was payable pursuant to the terms of
a subsequent note executed by the borrower. During 1994, the Partnership
accepted $414,000 as a discounted repayment of the note, which has been
recognized as interest income. In accordance with its accounting policies, the
Partnership had not reflected this note in its financial statements.
During 1994, the Partnership released its mortgage interest in the three
remaining Oppenheimer hotel investments. The Partnership received $100,000 in
consideration for the release and this amount has been recognized as interest
income during 1994. The Partnership had previously written off its investment
in the Oppenheimer hotels.
During 1994, the Partnership acquired the North Kent Mall and Glendale Fashion
Center through foreclosure on the loans. See Note 7 of Notes to Financial
Statements for additional information.
During 1994, the Partnership sold the Republic Park Office Building in an all
cash sale for $3,250,000. See Note 10 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 January 1995, the Partnership paid $644,409 to the holders of Limited
Partnership Interests representing a regular quarterly distribution of
available Cash Flow of $1.50 per Interest for the fourth quarter of 1994. The
Partnership made four distributions totaling $5.50 in Cash Flow and $8.55 of
Mortgage Reductions in 1994, $1.75 in Cash Flow and $15.00 of Mortgage
Reductions in 1993 and $8.25 in Cash Flow in 1992. See Statement of Partners'
Capital. The distributions of Mortgage Reductions in 1994 resulted from the
repayment of the Lantana Cascades loan, the sale of the land related to the
University Office Building and the sale of the Republic Park Office Building.
The distributions of Mortgage Reductions in 1993 resulted from the prepayment
of The Bluffs loan, the sale of the Haystack Apartments and the refinancing of
the Colony Apartments. The distributions made from Cash Flow increased between
1994 and 1993 and decreased between 1993 and 1992 due to the cash flow
requirements of the Partnership. To date, the Partnership has distributed
$552.60 per $500 Interest, of which $317.60 represents Cash Flow from
operations and $235.00 represents a return of Original Capital.
The Partnership expects to continue making 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,
<PAGE>
has retained what it believes to be an appropriate amount of working capital to
meet current cash or liquidity requirements which may occur.
During 1994, the General Partner, on behalf of the Partnership, used amounts
placed in the Early Investment Incentive Fund to repurchase 3,206 Interests
from Limited Partners at a total cost of $439,439.
The General Partner has recently completed the outsourcing of the financial
reporting and accounting services, transfer agent and investor records
services, and computer operations and systems development functions that
provided services to the Partnership. All of these functions are now being
provided by independent third parties. Additionally, Allegiance Realty Group,
Inc., which has provided property management services to some of the
Partnership's properties, was sold to a third party. Each of these transactions
occurred after extensive due diligence and competitive bidding processes. The
General Partner does not believe that the cost of providing these services to
the Partnership, in the aggregate, will be materially different to the
Partnership during 1995 when compared to 1994.
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.
Item 8. Financial Statements and Supplementary Data
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See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors-III, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
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Chairman, President and Chief Thomas E. Meador
Executive Officer
Executive Vice President, Allan Wood
Chief Financial Officer and
Chief Accounting Officer
Senior Vice President Alexander J. Darragh
First Vice President Daniel A. Duhig
First Vice President Josette V. Goldberg
First Vice President Alan G. Lieberman
First Vice President Brian D. Parker
and Assistant Secretary
First Vice President John K. Powell, Jr.
First Vice President Reid A. Reynolds
First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company.
Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and
Savings Bank in the commercial real estate division where he was involved in
various lending activities. Mr. Meador received his M.B.A. degree from the
Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief
Financial Officer and Chief Accounting Officer, is responsible for the
financial and administrative functions. He is also a Director of The Balcor
Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor,
he was employed by Price Waterhouse where he was involved in auditing public
and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has
primary responsibility for the Portfolio Advisory Group. He is responsible for
due diligence analysis and real estate advisory services in support of asset
management, institutional advisory and capital markets functions. Mr. Darragh
has supervisory responsibility of Balcor's Investor Services, Investment
Administration, Fund Management and Land Management departments. Mr. Darragh
received masters' degrees in Urban Geography from Queens's University and in
Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is
responsible for the Asset Management Department relating to real estate
investments made by Balcor and its affiliated partnerships, including
negotiations for modifications or refinancings of real estate mortgage
investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's administrative and MIS departments.
<PAGE>
Ms. Goldberg has been designated as a Senior Human Resources Professional
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified
Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for
Balcor's corporate and property accounting, treasury and budget activities.
Mr. Parker is a Certified Public Accountant and holds an M.S. degree in
Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is
responsible for the administration of the investment portfolios of Balcor's
partnerships and for Balcor's risk management functions. Mr. Powell received a
Master of Planning degree from the University of Virginia. He has been
designated a Certified Real Estate Financier by the National Society for Real
Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with
the asset management of residential properties for Balcor. Mr. Reynolds is a
licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has
responsibility for various Asset Management functions, including oversight of
the residential portfolio. From January 1986 through September 1994, Mr. Selby
was Regional Vice President and then Senior Vice President of Allegiance Realty
Group, Inc., an affiliate of Balcor providing property management services.
Mr. Selby was responsible for supervising the management of residential
properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1994.
Item 11. Executive Compensation
- --------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. Certain of these
officers receive compensation from The Balcor Company (but not from the
Registrant) for services performed for various affiliated entities, which may
include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 8 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Mortgage Advisors-III and its officers and partners own as a group
the following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership 20 Interests Less than 1%
Interests
<PAGE>
Relatives and affiliates of the partners and officers of the General Partner
own 2 additional Interests.
(c) The Registrant is not aware of any arrangements, the operations of which
may result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
(a & b) See Note 2 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profit and
losses.
See Note 8 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and
Restated Certificate of Limited Partnership, previously filed as Exhibits 3(a)
and 3(b) to Amendment No. 2 to the Registrant's Registration Statement on
Form S-11 dated February 23, 1983 (Registration No. 2-80287) and to the
Registrant's Registration Statement dated April 8, 1983 (Registration No.
2-82952), are incorporated herein by reference.
(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.
(10) (a) Agreement of Sale relating to the sale of Republic Park One Office
Building, Aurora, Colorado, previously filed as Exhibit (2) to the Registrant's
Current Report on Form 8-K dated February 2, 1994 is incorporated herein by
reference.
(b) Agreement of Sale and Escrow Agreement relating to the sale of 240 E.
Ontario Street Office Building, Chicago, Illinois, previously filed as Exhibit
(2) to the Registrant's Current Report on Form 8-K dated April 15, 1993, is
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1994 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/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: March 27, 1995
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------ ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
Advisors-III, the General
/s/ Thomas E. Meador Partner March 27, 1995
- ---------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage
/s/Allan Wood Advisors-III, the General Partner March 27, 1995
- ---------------------- --------------
Allan Wood
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Capital, for the years ended December 31, 1994, 1993
and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993
and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Schedules are omitted for the reason that they are inapplicable or equivalent
information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-IV:
We have audited the accompanying balance sheets of Balcor Pension Investors-IV
(An Illinois Limited Partnership) as of December 31, 1994 and 1993, and the
related statements of partners' capital, income and expenses and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Pension Investors-IV at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
March 6, 1995
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 11,860,415 $ 14,917,086
Cash and cash equivalents - Early Investment
Incentive Fund 157,547 278,978
Escrow deposits 771,879 1,607,545
Escrow deposits - restricted 232,452
Accounts and accrued interest receivable 119,016 533,526
Deferred expenses, net of accumulated
amortization of $36,058 in 1994 and
$13,530 in 1993 146,635 169,163
Other assets 78,538
------------- -------------
13,055,492 17,817,288
------------- -------------
Investment in loans receivable:
Loans receivable - first mortgages 3,037,096 3,144,303
Less:
Allowance for potential loan loss 250,000 250,000
------------- -------------
Net investment in loans receivable 2,787,096 2,894,303
Real estate held for sale (net of allowance
of $1,277,805 in 1994 and 1993) 41,518,106 42,852,935
Investment in joint venture with affiliates 4,109,895 4,090,735
------------- -------------
48,415,097 49,837,973
------------- -------------
$ 61,470,589 $ 67,655,261
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued real estate taxes
payable $ 747,113 $ 727,417
Due to affiliates 124,148 86,745
Other liabilities (principally security
and escrow deposits) 289,249 545,134
Mortgage notes payable 11,316,222 14,410,060
------------- -------------
Total liabilities 12,476,732 15,769,356
------------- -------------
Partners' capital (429,606 Limited
Partnership Interests issued) 56,875,278 59,327,887
Less Interests held by Early Investment
Incentive Fund (28,983 in 1994 and 25,777
in 1993) (7,881,421) (7,441,982)
------------- -------------
48,993,857 51,885,905
------------- -------------
$ 61,470,589 $ 67,655,261
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1994, 1993 and 1992
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1991 $ 64,877,095 $ (3,055,897) $ 67,932,992
Repurchase of 1,841 Limited
Partnership Interests (310,458) (310,458)
Cash distributions (A) (3,663,248) (295,354) (3,367,894)
Net loss for the year
ended December 31, 1992 (4,599,843) (344,988) (4,254,855)
------------- ------------- -------------
Balance at December 31, 1992 56,303,546 (3,696,239) 59,999,785
Repurchase of 3,167 Limited
Partnership Interests (440,264) (440,264)
Cash distributions (A) (6,862,985) (62,651) (6,800,334)
Net income for the year
ended December 31, 1993 2,885,608 216,421 2,669,187
------------- ------------- -------------
Balance at December 31, 1993 51,885,905 (3,542,469) 55,428,374
Repurchase of 3,206 Limited
Partnership Interests (439,439) (439,439)
Cash distributions (A) (5,864,361) (196,904) (5,667,457)
Net income for the year
ended December 31, 1994 3,411,752 255,881 3,155,871
------------- ------------- -------------
Balance at December 31, 1994 $ 48,993,857 $ (3,483,492) $ 52,477,349
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1994 1993 1992
------------- ------------- -------------
First Quarter $ 5.00 $ 1.75 $ 3.00
Second Quarter 6.05 5.00 1.75
Third Quarter 1.50 5.00 1.75
Fourth Quarter 1.50 5.00 1.75
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------- -------------
Income:
Interest on loans receivable $ 756,808 $ 3,241,345 $ 3,508,993
Less interest on loans
payable - underlying
mortgages 666,718 712,049
------------- ------------- -------------
Net interest income on
loans receivable 756,808 2,574,627 2,796,944
Income (loss) from operations
of real estate held for sale 1,885,863 374,948 (52,136)
Participation in income (loss)
of joint venture with
affiliates 324,624 (32,660) (779,403)
Participation income 849,169 12,737
Interest on short-term
investments 578,843 471,235 553,631
------------- ------------- -------------
Total income 3,546,138 4,237,319 2,531,773
------------- ------------- -------------
Expenses:
Provision for potential losses
on loans, real estate and
accrued interest receivable 5,750,000
Mortgage servicing fees 13,973 50,109 67,244
Administrative 1,290,959 1,425,641 1,314,372
------------- ------------- -------------
Total expenses 1,304,932 1,475,750 7,131,616
------------- ------------- -------------
Income (loss) before net gain
on sales of real estate 2,241,206 2,761,569 (4,599,843)
Net gain on sales of real estate 1,170,546 124,039
------------- ------------- -------------
Net income (loss) $ 3,411,752 $ 2,885,608 $ (4,599,843)
============= ============= =============
Net income (loss) allocated to
General Partner $ 255,881 $ 216,421 $ (344,988)
============= ============= =============
Net income (loss) allocated to
Limited Partners $ 3,155,871 $ 2,669,187 $ (4,254,855)
============= ============= =============
Net income (loss) per average
number of Limited Partnership
interests outstanding (402,745,
405,785 and 407,728 for the
years ended December 31, 1994,
1993 and 1992, respectively) $ 7.84 $ 6.58 $ (10.44)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------- -------------
Operating activities:
Net income (loss) $ 3,411,752 $ 2,885,608 $ (4,599,843)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Net gain on sales of real
estate (1,170,546) (124,039)
Participation in (income)
loss of joint venture
with affiliates (324,624) 32,660 779,403
Provision for potential
losses on loans, real
estate and accrued
interest receivable 5,750,000
Accrued interest income
due at maturity (152,718) (194,759)
Collection of interest
income due at maturity 1,015,000
Amortization of deferred
expenses 22,528 13,530
Amortization of deferred
loan fees (113,640)
Net change in:
Escrow deposits 107,671 (132,721) (23,492)
Escrow deposits-restricted 232,452 (228,203) 490,310
Accounts and accrued
interest receivable 414,510 32,380 146,136
Other assets 78,538 (9,812) (15,800)
Accounts and accrued real
estate taxes payable 19,696 (446,122) 380,910
Due to affiliates 37,403 14,857 (27,436)
Other liabilities (255,976) 50,049 (328,210)
------------- ------------- -------------
Net cash provided by
operating activities 2,573,404 2,950,469 2,243,579
------------- ------------- -------------
Investing activities:
Capital contributions to joint
venture with affiliates (19,473) (127,990)
Distributions from joint
venture with affiliates 324,937 24,271 314,195
Collection of principal
payments on loans receivable 107,207 6,110,965 6,559,678
Additions to real estate (150,000) (170,502) (277,512)
Proceeds from sales of real
estate 3,250,000 5,870,000 3,300,000
Costs incurred in connection
with sales of real estate (244,360) (371,962) (135,971)
Costs incurred in connection
with real estate acquired
through foreclosure (350,174) (693,219)
------------- ------------- -------------
Net cash provided by
investing activities 2,918,137 11,334,782 9,067,171
------------- ------------- -------------
Financing activities:
<PAGE>
Distributions to Limited
Partners (5,667,457) (6,800,334) (3,367,894)
Distributions to General
Partner (196,904) (62,651) (295,354)
Change in cash and cash
equivalents - Early
Investment Incentive Fund 121,431 (102,611) 30,217
Repurchase of Limited
Partnership Interests (439,439) (440,264) (310,458)
Principal payments on
underlying loans payable (229,227) (360,062)
Repayment of underlying
loan payable (1,970,263) (1,915,128)
Principal payments on mortgage
notes payable (255,365) (199,351) (353,751)
Proceeds from mortgage note
refinancings 6,331,013
Repayment of mortgage
notes payable (2,838,473) (8,963,704) (2,023,049)
Funding of capital improvement
escrows (1,309,675)
Release of capital improvement
escrows 727,995 100,650
Payment of deferred expenses (182,693)
------------- ------------- -------------
Net cash used in
financing activities (8,548,212) (13,829,110) (8,595,479)
------------- ------------- -------------
Net change in cash and
cash equivalents (3,056,671) 456,141 2,715,271
Cash and cash equivalents at
beginning of year 14,917,086 14,460,945 11,745,674
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 11,860,415 $ 14,917,086 $ 14,460,945
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Income on loans is recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest is discontinued when a loan
becomes ninety days contractually delinquent or sooner when, in the opinion of
the Partnership's management, an impairment has occurred in the value of the
collateral property securing the loan. Income on non-accrual loans or loans
which are otherwise not performing in accordance with their terms is recorded
on a cash basis.
Various loan agreements provided for participation by the Partnership in
increases in value of the collateral property when the loan was repaid or
refinanced. In addition, certain loan agreements allowed the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income is reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate owned is reflected in the accompanying
Statements of Income and Expenses net of related direct operating expenses.
(b) Allowances are recorded through charges 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
impairment are made periodically on the basis of performance under the terms of
the loan agreement and assessments of property operations.
When the General Partner believes the likelihood of foreclosure is more than
remote, a loss provision is recorded if the loan balance exceeds the estimated
fair value of the collateral property less costs of disposal. Upon foreclosure,
actual losses are charged to the allowance and the fair value of the property
is transferred to real estate held for sale. Determinations of fair value
represent estimations based on many variables which affect the value of real
estate, including economic and demographic conditions. An allowance for loss is
recorded when a decline in the value of a property owned is believed to be
temporary. Impairment in value considered to be permanent results in the direct
writedown of the property's carrying value to its estimated fair value.
(c) Under certain circumstances, the Partnership has accepted promissory notes
in satisfaction of a borrower's obligations for certain fees upon prepayment of
a loan as required by the loan agreement. These fees include, among other
things, prepayment premiums and participations in the borrower's equity in the
collateral property. The Partnership's policy is to record such income on a
cash basis as payments required under the terms of the promissory notes are
received.
(d) Deferred expenses consist of refinancing fees which are amortized over the
term of the respective loan.
(e) Investment in joint venture with affiliates represents the Partnership's
15.37% interest in a joint venture with affiliates. Under the equity method of
accounting, the Partnership records its initial investment at cost and adjusts
its investment account for additional capital contributions, distributions and
its share of joint venture income or loss.
(f) The Partnership records repurchases of Interests by the Early Investment
Incentive Fund as a reduction of Partners' Capital (see Note 2 of Notes to
Financial Statements). Cash and cash equivalents not yet utilized to
repurchase Interests, but which are part of the Early Investment Incentive
Fund, are classified as restricted assets of the Partnership.
(g) Cash equivalents include all highly liquid investments with a maturity of
<PAGE>
three months or less when purchased.
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) Several reclassifications have been made in the previously reported 1993
and 1992 financial statements to conform with the classification used in 1994
including the reclassification of "loans in substantive foreclosure" to loans
to conform with the provisions of Statement of Financial Accounting Standards
No.114 which was adopted as of January 1, 1994. These reclassifications have
not changed the 1993 or 1992 results.
2. Partnership Agreement:
The Partnership was organized on October 21, 1982; however, operations did not
commence until 1983. The Partnership Agreement provides for Balcor Mortgage
Advisors-III to be the General Partner and for the admission of Limited
Partners through the sale of up to 450,000 Limited Partnership Interests at
$500 per Interest, 429,606 of which were sold on or prior to June 2, 1983, the
termination date of the offering. For financial statements purposes, profits
and losses are allocated 92.5% to the Limited Partners, of which 2.5% relates
to the Early Investment Incentive Fund, and 7.5% to the General Partner.
To the extent that Cash Flow is distributed, distributions will be made as
follows: (i) 90% of such Cash Flow will be distributed to the Limited Partners,
(ii) 7.5% of such Cash Flow will be distributed to the General Partner, and
(iii) 2.5% of such Cash Flow will be set aside in the Early Investment
Incentive Fund (the "Fund") for payment on dissolution of the Partnership to
those investors who subscribed prior to August 31, 1983 ("Early Investors") if
necessary for them to receive a return of their Original Capital plus a
specified Cumulative Return based on the date of investment. Amounts, if any,
remaining in the Fund after Early Investors have received such returns will be
distributed 90% to all Limited Partners and 10% to the General Partner.
Amounts placed in the Fund may, at the sole discretion of the General Partner
and subject to certain limitations, be used to repurchase Interests from
existing Limited Partners. During 1994, the Fund repurchased 3,206 Interests at
a cost of $439,439. Distributions of Cash Flow and Mortgage Reductions
pertaining to such repurchased Interests are paid to the Fund. To the extent
that amounts in the Fund are not utilized to repurchase Interests, such amounts
are invested in short-term interest-bearing instruments with interest thereon
being earned by the Fund.
3. Investment in Loans Receivable:
The Stonehaven South Apartments loan receivable had a balance of $1,789,746 and
$1,896,953 at December 31, 1994 and 1993, respectively. Current monthly
payments of $20,041 are due representing an interest rate of 11.25%. The loan
matures in 1997. This loan has been classified as non-accrual at December 31,
1994 and 1993 due to the borrower's noncompliance with the original terms of
the loan agreement.
The Colonial Coach Mobile Home Park loan receivable which was funded by the
Partnership and an affiliated partnership (together, the "Participants") had a
balance of $1,247,350 at December 31, 1994 and 1993. The Partnership
participates ratably in approximately 12% of the original loan amount and
interest income. In February 1993, the Participants and the borrower executed a
second modification agreement of this loan which resulted in a decrease in the
contract rate of the loan. In August 1993, a third modification agreement was
executed which resulted in a change in the contract rate to 10% per annum with
an 8% pay rate per annum, effective with the September 1993 payment through an
extended maturity date of July 1998. The difference between the 10% contract
rate and the 8% pay rate is deferred and payable at maturity. The third
modification also eliminated all types of contingent additional interest. None
<PAGE>
of these amounts were previously recognized since receipt was dependent on
various conditions.
The Stonehaven South Apartments loan receivable, due to its non-accrual status,
and the Colonial Coach Mobile Home Park loan receivable, due to the
restructuring of its monetary terms, are hereinafter referred to as impaired
loans.
Interest income relating to impaired loans would have been approximately
$505,000 in 1994, $505,000 in 1993 and $3,439,000 in 1992. Net interest income
from impaired loans included in the accompanying Statements of Income and
Expenses amounted to approximately $203,000 (cash basis) in 1994, $227,000 in
1993 and $1,311,000 in 1992.
Included in the impaired loan balances of $3,037,096 at December 31, 1994 is an
allowance for losses of $250,000 related to the Colonial Coach Mobile Home Park
loan. The average recorded investment in impaired loans during the year ended
December 31, 1994 was approximately $3,090,700.
4. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1994 is described in the
table below.
1994 1993 1992
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 250,000 $ 1,527,805 $ 11,797,000
Provision charged to
income None (1,277,805) 5,750,000
Charge-off of losses None None (16,019,195)
------------ ----------- ------------
Balance at the end of
the year $ 250,000 $ 250,000 $ 1,527,805
============ ============ ============
Real Estate Held for Sale:
Balance at beginning of
year $ 1,277,805 None $ 17,811,000
Provision charged to
income None $ 1,277,805 None
Charge-off of losses None None (17,811,000)
----------- ----------- ------------
Balance at the end of
the year $ 1,277,805 $ 1,277,805 None
=========== =========== ============
Included in the 1992 charge-off of losses are amounts reflecting the
Partnership's adoption of Statement of Position 92-3, "Accounting for
Foreclosed Assets" which required the Partnership to adjust the carrying
amounts of its real estate held for sale and loans previously classified as in
substantive foreclosure to the lower of fair value of the asset less estimated
costs to sell, or the cost of the asset. This change had no effect on the
results of operations of the Partnership in 1992 since the Partnership had
previously recorded these allowances to reflect declines in the value of the
real estate and loans.
5. Mortgage Notes Payable:
The mortgage notes payable at December 31, 1994 and 1993 consisted of the
following:
<PAGE>
Carrying Carrying
Amount of Amount of Current Current Final Estimated
Notes at Notes at Monthly Interest Maturity Balloon
Property 12/31/94 12/31/93 Payments Rate % Date Payment
- ---------------- -------- -------- -------- -------- ------- -------
Apartment Complexes:
Colony (A) $3,428,771 $3,451,048 $23,363 7.50% 2028 None
Palm View (B) 2,831,112 2,853,699 22,118 8.54 1998 $2,740,000
Pelican Pointe (C) 2,838,473
Shopping Centers:
North Kent Mall 2,355,703 2,543,614 35,126 9.50 1996 2,073,000
847,137 869,727 9,617 11.00 2010 None
Glendale Fashion
Center 1,234,815 1,234,815 9,261 9.00 1999 1,235,000
618,684 618,684 4,640 9.00 1995 619,000
----------- -----------
Total $11,316,222 $14,410,060
=========== ===========
(A) In April 1993, this loan was refinanced. The interest rate decreased from
11.00% to 7.50%, the maturity date was extended from February 1993 to May 2028,
and monthly payments increased from $18,734 to $23,363. A portion of the
proceeds from the new $3,465,000 first mortgage loan was used to repay the
existing first mortgage loan of $1,829,202.
(B) In May 1993, this loan was refinanced. The interest rate decreased from
9.00% to 8.54%, the maturity date changed from November 2003 to June 1998, and
monthly payments decreased from $29,785 to $22,118. A portion of the proceeds
from the new $2,866,013 first mortgage loan were used to repay the existing
first mortgage loan of $2,749,909.
(C) This loan was repaid in January 1994.
The Partnership's mortgage notes described above require current monthly
payments of principal and interest, except for the Glendale Fashion Center
mortgage notes which require interest only payments. Real estate held for sale
with an aggregate carrying value of $25,261,530 at December 31, 1994 was
pledged as collateral for repayment of mortgage notes.
Maturities of mortgage notes payable in each of the next five years are
approximately as follows:
1995 $ 897,000
1996 2,228,000
1997 86,000
1998 2,813,000
1999 1,303,000
During the years ended December 31, 1994, 1993 and 1992, the Partnership
incurred interest expense on the mortgage notes payable of $1,038,164,
$1,157,238 and $1,337,831, respectively, and paid interest of $1,046,137,
$1,157,238 and $1,337,831, respectively.
6. Investment in Joint Venture with Affiliates:
In February 1991, the Partnership and three affiliates (the "Participants")
acquired title to the Perimeter 400 Center Office Building. Profits and
losses, and all capital contributions and distributions are allocated in
accordance with the Participants' original funding percentages. The
Partnership's sharing percentage is 15.37%. During 1993 and 1992, the
Partnership recognized a loss of $102,211 and $1,173,961, respectively, as its
share of the reduction in the carrying value of the property. These amounts
are included in the Partnership's participation in income (loss) of joint
venture with affiliates. In addition, during 1994, 1993 and 1992, the
Partnership received distributions from this joint venture totaling $324,937,
<PAGE>
$24,271 and $314,195, respectively. The Partnership also made contributions of
$19,473 and $127,990 to this joint venture during 1994 and 1993, respectively.
7. Real Estate Held For Sale:
The Partnership acquired the North Kent Mall and the Glendale Fashion Center
through foreclosure in 1994. These properties were classified as real estate
held for sale at December 31, 1993. The Partnership also acquired the 240 E.
Ontario Office Building in 1992. The Partnership recorded the costs of the
properties at $15,849,638 and $9,864,354 in 1993 and 1992, respectively. These
amounts represented the outstanding loan balances plus any accrued interest
receivable. In addition, the Partnership increased the bases of the properties
by $350,265 and $672,092 during 1994 and 1992, respectively, and decreased the
bases by $45,552 during 1993 for certain other receivables, liabilities,
escrows and costs recognized or incurred in connection with the foreclosure. At
the date of each foreclosure, the property was transferred to real estate held
for sale at its fair value, net of allowances previously recorded.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/94 12/31/93 12/31/92
-------------- -------------- ----------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $16,438 $843 $51,587 $3,308 $70,251 $ 4,786
Property management fees 317,614 None 373,246 30,443 386,859 30,746
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 86,815 34,741 74,940 6,193 96,153 7,352
Data processing 79,203 18,189 117,237 32,116 125,958 10,196
Investor communica-
tion 36,365 14,990 20,027 1,655 38,230 2,924
Legal 10,532 4,341 17,258 1,426 17,455 1,335
Portfolio management 100,282 39,124 112,764 10,458 98,759 13,483
Other 28,919 11,920 13,867 1,146 13,934 1,066
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed six
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program. The Partnership's premiums to the deductible
insurance program were $115,474, $57,566 and $65,021 for 1994, 1993 and 1992,
respectively.
9. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are
under management agreements with third-party management companies. These
management agreements provide for annual fees of 5% of gross operating receipts
for residential properties and 3% to 6% of gross operating receipts for
commercial properties.
10. Real Estate Sales:
The Partnership sold the Republic Park Office Building during 1994, the Shadows
Apartments, 240 E. Ontario Office Building and the land related to the
University Office Building during 1993 and the Haystack Apartments during 1992,
<PAGE>
in separate all cash sales for $3,250,000, $5,870,000 and $3,300,000,
respectively. From the proceeds of the sales, the Partnership paid $976,572,
$1,247,224 and $2,023,049 in full satisfaction of the Shadows, 240 E. Ontario
and Haystack first mortgage loans, respectively. The Republic Park Office
Building did not have underlying debt. The bases of the properties sold during
1994, 1993 and 1992 totaled $1,835,094, $5,374,000 and $4,509,644,
respectively. For financial statement purposes, the Partnership recognized net
gains of $1,170,546 and $124,039 from the sale of real estate during 1994 and
1993, respectively. The Partnership incurred a loss on the sale of the Haystack
Apartments of $1,345,615 which was written off against the allowance for losses
previously established.
11. Contingencies:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
this action. While a plaintiff class has been certified, no determinations of
the merits have been made. Although the outcome of these matters is not
presently determinable, it is management's opinion that the ultimate outcome
should not have a material adverse affect on the financial position of the
Partnership. Management of the defendants believes they have meritorious
defenses to contest the claims.
12. Subsequent Event:
In January 1995, the Partnership made a distribution of $644,409 to the holders
of Limited Partnership Interests representing a regular quarterly distribution
of available Cash Flow of $1.50 per Interest for the fourth quarter of 1994.
<PAGE>
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<PERIOD-END> DEC-31-1994
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<ALLOWANCES> 1528
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<LOSS-PROVISION> 0
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