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 0-13348
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Illinois 36-3314331
(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 EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1994 and December 31, 1993
(UNAUDITED)
ASSETS
1994 1993
-------------- ---------------
Cash and cash equivalents $ 17,506,086 $ 17,153,575
Accounts and accrued interest receivable 888,662 1,215,873
Prepaid expenses, principally
real estate taxes 283,068 91,177
Deferred expenses, net of accumulated
amortization of $777,528 in 1994
and $721,884 in 1993 811,956 812,435
Investment in joint venture with an affiliate 1,442,370 1,463,700
-------------- ---------------
20,932,142 20,736,760
-------------- ---------------
Investment in loan receivable 7,540,986 7,540,986
Loan application and processing fees,
net of accumulated amortization of
$192,188 in 1994 and $185,636 in 1993 69,887 76,439
-------------- ---------------
7,610,873 7,617,425
-------------- ---------------
Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 107,555,724 107,555,724
-------------- ---------------
134,364,499 134,364,499
Less accumulated depreciation 36,753,739 35,953,859
-------------- ---------------
Investment in real estate, net of
accumulated depreciation 97,610,760 98,410,640
-------------- ---------------
$ 126,153,775 $ 126,764,825
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 145,153 $ 692,988
Due to affiliates 265,573 124,604
Accrued liabilities, principally
real estate taxes 304,564 342,803
Security deposits 410,703 409,091
-------------- ---------------
Total liabilities 1,125,993 1,569,486
Affiliates' participation in joint ventures 18,248,663 18,182,349
Partners' capital (939,587 Limited Partnership
Interests issued and outstanding) 106,779,119 107,012,990
-------------- ---------------
$ 126,153,775 $ 126,764,825
============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1994 and 1993
(UNAUDITED)
1994 1993
-------------- --------------
Income:
Rental income $ 4,326,458 $ 4,305,483
Service income 427,391 783,135
Interest on short-term investments 142,886 79,193
Interest on loan receivable - first
mortgage, net of amortization of
$6,552 in 1994 and 1993 152,965 194,496
Interest income from investment in
acquisition loan, net of amortization
of $7,366 in 1993 230,052
-------------- --------------
Total income 5,049,700 5,592,359
-------------- --------------
Expenses:
Depreciation 799,880 807,102
Amortization of deferred expenses 55,644 73,535
Property operating 1,590,506 1,314,514
Real estate taxes 287,181 544,878
Property management fees 185,938 181,653
Mortgage servicing fees 5,697 15,478
Administrative 213,814 216,252
Participation in loss (income) of joint
venture with an affiliate 21,330 (18,313)
-------------- --------------
Total expenses 3,159,990 3,135,099
-------------- --------------
Income before participation in joint
ventures and equity from investment in
acquisition loan 1,889,710 2,457,260
Affiliates' participation in income
from joint ventures (371,264) (423,066)
Equity in loss from investment
in acquisition loan (87,454)
-------------- --------------
Net income $ 1,518,446 $ 1,946,740
============== ==============
Net income allocated to General Partner $ 219,091 $ 264,411
============== ==============
Net income allocated to Limited Partners $ 1,299,355 $ 1,682,329
============== ==============
Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 1.38 $ 1.79
============== ==============
Distribution to General Partner $ 175,232 $ 195,487
============== ==============
Distribution to Limited Partners $ 1,577,085 $ 1,759,374
============== ==============
Distribution per Limited Partnership Interest:
Taxable $ 1.30 $ 1.45
============== ==============
Tax-exempt $ 1.73 $ 1.93
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1994 and 1993
(UNAUDITED)
1994 1993
-------------- --------------
Operating activities:
Net income $ 1,518,446 $ 1,946,740
Adjustments to reconcile net income to net
cash provided by operating activities:
Affiliates' participation in income
from joint ventures 371,264 423,066
Participation in loss (income) of
joint venture with an affiliate 21,330 (18,313)
Equity in loss from investment in
acquisition loan 87,454
Depreciation of properties 799,880 807,102
Amortization of deferred expenses 55,644 73,535
Amortization of loan application and
processing fees 6,552 13,918
Net change in:
Accounts and accrued interest
receivable 327,211 23,791
Prepaid expenses (191,891) (179,043)
Accounts payable (547,835) 147,206
Due to affiliates 140,969 52,330
Accrued liabilities (38,239) (15,852)
Security deposits 1,612 (20,391)
-------------- --------------
Net cash provided by operating activities 2,464,943 3,341,543
-------------- --------------
Investing activities:
Improvements and additions to properties (141,240)
Payment of deferred expenses (55,165)
-------------- --------------
Net cash used in investing activities (55,165) (141,240)
-------------- --------------
Financing activities:
Distribution to Limited Partners (1,577,085) (1,759,374)
Distribution to General Partner (175,232) (195,487)
Distribution to joint venture
partner - affiliate (304,950) (554,241)
-------------- --------------
Net cash used in financing activities (2,057,267) (2,509,102)
-------------- --------------
Net change in cash and cash equivalents 352,511 691,201
Cash and cash equivalents at
beginning of period 17,153,575 9,337,683
-------------- --------------
Cash and cash equivalents at end of period $ 17,506,086 $ 10,028,884
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. 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. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1994 are:
Paid Payable
Mortgage servicing fees $ 3,798 $ 3,798
Property management fees 178,579 66,484
Reimbursement of expenses to
the General Partner, at cost:
Accounting 3,397 36,990
Data processing None 73,289
Investment processing 334 2,895
Investor communications 436 5,109
Legal 1,134 15,844
Portfolio management 4,696 56,726
Other 451 4,438
3. Subsequent Event:
In April 1994, the Partnership made a distribution of $1,577,085 ($1.30 per
Taxable Interest and $1.73 per Tax-exempt Interest) to the holders of Limited
Partnership Interests for the first quarter of 1994.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $234,896,750 through the sale of Limited Partnership
Interests and utilized these proceeds to fund seven loans and acquire five real
property investments and a minority joint venture interest in one additional
real property. From 1987 through 1993, the Partnership acquired three
properties through foreclosure on the loans and accepted prepayments on three
additional loans. As of March 31, 1994, the Partnership has one loan
outstanding and operates eight properties and its minority joint venture
interest.
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 Ammendale Technology Park - Phase I and 100 Ashford Center North and
Westech 360 office buildings experienced declines in property operations during
the first quarter of 1994. Also, interest income and equity in loss from
investment in acquisition loan ceased as a result of the October 1993 repayment
of the Davidson Officenter acquisition loan. These events caused a decrease in
net income during the quarter ended March 31, 1994 when compared to the same
period in 1993. Further discussion of the Partnership's operations is
summarized below.
1994 Compared to 1993
The Partnership bills most tenants at the commercial properties periodically
for common area maintenance, real estate taxes and other operating expenses of
the properties based on estimates. Adjustments are periodically made to these
billings once the Partnership has determined the actual amounts due. Since the
Partnership receives reimbursements based upon the tenants' pro rata share of
rentable space, a decrease in occupancy at the 100 Ashford Center North Office
Building has caused a decrease in the total amount billable for these items. In
addition, a tenant at the Denver Centerpoint Office Building reimbursed the
Partnership in 1993 for improvement costs paid by the Partnership in excess of
the stipulated amount per the lease agreement. The combined effect of these
events has resulted in a decrease in service income during the quarter ended
March 31, 1994 when compared to the same period in 1993.
The proceeds received from the October 1993 repayment of the Davidson
Officenter acquisition loan and improved operations during 1993 at the
Partnership's properties resulted in an increase in funds available for short-
term investments. As a result, interest income on short-term investments
increased during the quarter ended March 31, 1994 when compared to the same
period in 1993.
In February and August 1993, the loan collateralized by the Colonial Coach and
Castlewood West mobile home parks was modified, reducing the interest rate.
This caused a decrease in interest income on loan receivable during the quarter
ended March 31, 1994 when compared to the same period in 1993.
Interest income and equity in loss from investment in acquisition loan ceased
as a result of the October 1993 repayment of the Davidson Officenter
acquisition loan. Equity in loss represented the Partnership's share of
property operations and had no effect on the cash flow of the Partnership.
Mortgage servicing fees decreased during the quarter ended March 31, 1994 as
compared to the same period in 1993 due to this repayment.
Participation in loss/income of joint venture with an affiliate reflects the
Partnership's share of property operations at the Pacific Center Office
Buildings. Due to higher tenant and utility costs at this property in the first
quarter of 1994, a loss was generated, resulting in participation in loss of
joint venture with an affiliate during the quarter ended March 31, 1994 as
compared to participation in income during the same period in 1993.
Higher tenant costs and contracted services at the Ammendale Technology Park -
Phase I, and 1275 K Street and Westech 360 office buildings resulted in an
increase in property operating expense during the quarter ended March 31, 1994
when compared to the same period in 1993.
A refund of 1992 taxes was received in 1994 from the local taxing authority for
the 1275 K Street Office Building due to a further decrease in the assessed
value of this property. This refund caused a decrease in real estate tax
expense during the quarter ended March 31, 1994 as compared to the same period
in 1993.
The Westech 360 and 1275 K Street office buildings are owned through joint
ventures with affiliates. As a result of increased tenant costs and contracted
services at both properties, the affiliates' income participation decreased
during the quarter ended March 31, 1994 as compared to the same period in 1993.
The real estate tax refund received at the 1275 K Street Office Building
partially offset this decrease.
Liquidity and Capital Resources
The cash flow provided by the Partnership's operating activities includes cash
flow from the operations of the properties, mortgage payments received on the
loan and short-term interest income. Cash received from these sources was
partially offset by the payment of administrative expenses. The net cash flow
provided by operating activities was partially used in financing activities to
make quarterly distributions to the Partners and to the affiliated joint
venture partners. The Partnership is retaining substantial cash reserves in
anticipation of future leasing costs at several of the Partnership's commercial
properties. The Partnership's cash or near cash position fluctuates during each
quarter, initially decreasing with the payment of the Partnership distributions
for the previous quarter, and then gradually increasing each month as mortgage
payments on loans and cash flow from property operations are received.
During the quarters ended March 31, 1994 and 1993, all of the Partnership's
properties, except the Pacific Center Office Buildings (minority joint
venture), generated positive cash flow. The Pacific Center Office Buildings,
which generated positive cash flow during the quarter ended March 31, 1993,
generated a marginal cash flow deficit for the same period in 1994 due to an
increase in tenant and utility costs. Many rental markets continue to remain
extremely competitive; therefore, the General Partner's goals are to maintain
high occupancy levels while increasing rents where possible and to monitor and
control operating expenses and capital improvement requirements at the
properties.
Distributions to Limited Partners can be expected to fluctuate for various
reasons. Generally, distributions are made from cash flow generated by interest
payments and property operations. Distribution levels can also vary as loans
are placed on non-accrual status, modified or restructured and, as a result of
property operations.
In April 1994, the Partnership paid $1,577,085 ($1.30 per Taxable Interest and
$1.73 per Tax-exempt Interest) representing the quarterly distribution for the
first quarter of 1994. The level of this distribution was consistent with the
amount distributed to Limited Partners for the previous quarter. The General
Partner expects that the cash flow from property operations and debt service
payments on the mortgage loan should enable the Partnership to continue making
quarterly distributions to Limited Partners. However, the level of future
distributions will be dependent on the amount of cash flow generated from
property operations and the receipts from the mortgage loan, as to which there
can be no assurances.
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 EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4) Forms of Subscription Agreements, previously filed as Exhibits 4.1.1 and
4.1.2 to Amendment No. 2 dated September 20, 1984 to the Registrant's
Registration Statement (Registration No. 2-91810) and to Amendment No. 1 dated
January 25, 1985 to the Registrant's Registration Statement (Registration No.
2-95409) and Form of Confirmation regarding Interests in the Registrant set
forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1992 (Commission File No. 0-13348) are incorporated herein by
reference.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1994.
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 EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Thomas E. Meador
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Equity Partners-II, 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
Equity Partners-II, the General Partner
Date: May 11, 1994
