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 September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-13348
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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
September 30, 1994 and December 31, 1993
(UNAUDITED)
ASSETS
1994 1993
------------- --------------
Cash and cash equivalents $ 16,760,311 $ 17,153,575
Accounts and accrued interest receivable 1,034,362 1,215,873
Prepaid expenses, principally
real estate taxes 354,505 91,177
Deferred expenses, net of accumulated
amortization of $907,649 in 1994
and $721,884 in 1993 909,446 812,435
Investment in joint venture with an affiliate 1,475,933 1,463,700
------------- --------------
20,534,557 20,736,760
------------- --------------
Investment in loan receivable 7,540,986 7,540,986
Loan application and processing fees,
net of accumulated amortization of
$205,290 in 1994 and $185,636 in 1993 56,785 76,439
------------- --------------
7,597,771 7,617,425
------------- --------------
Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 107,930,146 107,555,724
------------- --------------
134,738,921 134,364,499
Less accumulated depreciation 38,352,705 35,953,859
------------- --------------
Investment in real estate, net of
accumulated depreciation 96,386,216 98,410,640
------------- --------------
$124,518,544 $ 126,764,825
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 129,938 $ 692,988
Due to affiliates 222,684 124,604
Accrued liabilities, principally
real estate taxes 444,425 342,803
Security deposits 456,472 409,091
------------- --------------
Total liabilities 1,253,519 1,569,486
Affiliates' participation in joint ventures 17,490,573 18,182,349
Partners' capital (939,587 Limited Partnership
Interests issued and outstanding) 105,774,452 107,012,990
------------- --------------
$124,518,544 $ 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 nine months ended September 30, 1994 and 1993
(UNAUDITED)
1994 1993
------------- -------------
Income:
Rental income $ 12,901,906 $ 12,687,616
Service income 1,593,099 1,947,521
Interest on short-term investments 528,674 248,771
Interest on loan receivable - first
mortgage, net of amortization of
$19,654 in 1994 and 1993 458,895 515,662
Interest income from investment in
acquisition loan, net of amortization
of $22,099 in 1993 418,878
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Total income 15,482,574 15,818,448
------------- -------------
Expenses:
Depreciation 2,398,846 2,472,290
Amortization of deferred expenses 185,765 209,269
Property operating 5,616,928 4,728,656
Real estate taxes 1,277,399 1,536,322
Property management fees 538,742 542,114
Mortgage servicing fees 17,091 46,435
Administrative 630,381 813,387
Participation in loss (income) of joint
venture with an affiliate 14,833 (39,174)
Provision for investment property writedown 7,510,000
------------- -------------
Total expenses 10,679,985 17,819,299
------------- -------------
Income (loss) before participation in
joint ventures and equity from
investment in acquisition loan 4,802,589 (2,000,851)
Affiliates' participation in income
from joint ventures (784,176) (929,924)
Equity in loss from investment in
acquisition loan (71,446)
------------- -------------
Net income (loss) $ 4,018,413 $ (3,002,221)
============= =============
Net income allocated to General Partner $ 604,439 $ 586,756
============= =============
Net income(loss) allocated to Limited Partners$ 3,413,974 $ (3,588,977)
============= =============
Net income (loss) per Limited Partnership
Interest (939,587 issued and outstanding) $ 3.63 $ (3.82)
============= =============
Distributions to General Partner $ 525,696 $ 545,951
============= =============
Distributions to Limited Partners $ 4,731,255 $ 4,913,544
============= =============
Distributions per Limited Partnership
Interest:
Taxable $ 3.90 $ 4.05
============= =============
Tax-exempt $ 5.19 $ 5.39
============= =============
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 September 30, 1994 and 1993
(UNAUDITED)
1994 1993
------------- -------------
Income:
Rental income $ 4,087,089 $ 4,307,084
Service income 488,210 569,643
Interest on short-term investments 206,277 88,448
Interest on loan receivable - first
mortgage, net of amortization of
$6,549 in 1994 and 1993 152,965 164,157
Interest income from investment in
acquisition loan, net of amortization
of $7,368 in 1993 69,150
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Total income 4,934,541 5,198,482
------------- -------------
Expenses:
Depreciation 799,617 824,067
Amortization of deferred expenses 72,966 57,793
Property operating 2,324,416 1,749,816
Real estate taxes 486,196 480,099
Property management fees 172,525 182,952
Mortgage servicing fees 5,697 15,478
Administrative 152,885 323,725
Participation in loss (income) of joint
venture with an affiliate 10,324 (224)
Provision for investment property writedown 7,510,000
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Total expenses 4,024,626 11,143,706
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Income (loss) before participation in
joint ventures and equity from
investment in acquisition loan 909,915 (5,945,224)
Affiliates' participation in income
from joint ventures (139,704) (292,472)
Equity in loss from investment in
acquisition loan (23,570)
------------- -------------
Net income (loss) $ 770,211 $ (6,261,266)
============= =============
Net income allocated to General Partner $ 145,366 $ 119,053
============= =============
Net income(loss) allocated to Limited Partners$ 624,845 $ (6,380,319)
============= =============
Net income (loss) per Limited Partnership
Interest (939,587 issued and outstanding) $ 0.66 $ (6.79)
============= =============
Distribution to General Partner $ 175,232 $ 175,232
============= =============
Distribution to Limited Partners $ 1,577,085 $ 1,577,085
============= =============
Distribution per Limited Partnership
Interest:
Taxable $ 1.30 $ 1.30
============= =============
Tax-exempt $ 1.73 $ 1.73
============= =============
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 nine months ended September 30, 1994 and 1993
(UNAUDITED)
1994 1993
------------- -------------
Operating activities:
Net income (loss) $ 4,018,413 $ (3,002,221)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Affiliates' participation in income
from joint ventures 784,176 929,924
Participation in loss (income) of
joint venture with an affiliate 14,833 (39,174)
Equity in loss from investment in
acquisition loan 71,446
Depreciation of properties 2,398,846 2,472,290
Amortization of deferred expenses 185,765 209,269
Amortization of loan application
and processing fees 19,654 41,753
Provision for investment property
writedown 7,510,000
Net change in:
Accounts and accrued interest
receivable 181,511 105,171
Prepaid expenses (263,328) (251,411)
Accounts payable (563,050) (261,492)
Due to affiliates 98,080 24,628
Accrued liabilities 101,622 253,997
Security deposits 47,381 (2,856)
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Net cash provided by operating activities 7,023,903 8,061,324
------------- -------------
Investing activities:
Capital contributions to joint venture
with an affiliate (45,065) (136,441)
Distributions from joint venture
with an affiliate 17,999 21,959
Improvements and additions to properties (374,422) (464,100)
Payment of deferred expenses (282,776)
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Net cash used in investing activities (684,264) (578,582)
------------- -------------
Financing activities:
Distributions to Limited Partners (4,731,255) (4,913,544)
Distributions to General Partner (525,696) (545,951)
Distributions to joint venture
partners - affiliates (1,475,952) (1,383,747)
------------- -------------
Net cash used in financing activities (6,732,903) (6,843,242)
------------- -------------
Net change in cash and cash equivalents (393,264) 639,500
Cash and cash equivalents at beginning
of period 17,153,575 9,337,683
------------- -------------
Cash and cash equivalents at end of period $ 16,760,311 $ 9,977,183
============= =============
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:
Several reclassifications have been made to the previously reported 1993
statements in order to provide comparability with the 1994 statements. These
reclassifications have not changed the 1993 results. In the opinion of
management, all adjustments necessary for a fair presentation have been made to
the accompanying statements for the nine months and quarter ended September 30,
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
nine months and quarter ended September 30, 1994 are:
Paid
--------------------
Nine Months Quarter Payable
---------- -------- ---------
Mortgage servicing fees $ 15,192 $ 3,798 $ 3,798
Property management fees 541,604 175,340 56,263
Reimbursement of expenses to
the General Partner, at cost:
Accounting 72,928 48,362 34,154
Data processing 15,727 15,727 69,183
Investment processing 7,179 4,761 1,186
Investor communications 9,354 6,203 6,523
Legal 24,339 16,140 13,183
Portfolio management 100,834 66,867 34,171
Other 9,691 6,427 4,223
3. Subsequent Event:
In October 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 third 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 September 30, 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
- ---------------------
During the third quarter of 1993, the Partnership recognized a provision for
investment property writedown related to the 100 Ashford Center North Office
Building, which resulted in a net loss during the nine months and quarter ended
September 30, 1993 as compared to net income during the same periods in 1994.
Further discussion of the Partnership's operations is summarized below.
1994 Compared to 1993
- ---------------------
Higher average occupancy and/or increased rental rates in 1994 at the Denver
Centerpoint, Ammendale Technology Park - Phase I and Ross Plaza office
buildings were offset by a decrease in average occupancy during the second and
third quarters of 1994 at the 1275 K Street, 100 Ashford Center North, Westech
360 and Bingham Farms - Phase V office buildings. These events resulted in an
increase in rental income during the nine months ended September 30, 1994 and a
decrease in rental income during the quarter ended September 30, 1994 when
compared to the same periods in 1993.
The Partnership bills most tenants at its commercial properties periodically
for common area maintenance, real estate taxes and other operating expenses of
the properties. Since the Partnership receives reimbursements based upon the
tenants' pro rata share of rentable space, the above referenced decreases in
average occupancy caused a decrease in the total amount billable for these
items. In addition, the billings are based on estimates, and adjustments are
periodically made once the Partnership has determined the actual amounts due.
The periodic adjustment of billings, combined with the decrease in the total
amount billable, have resulted in a decrease in service income during the nine
months and quarter ended September 30, 1994 when compared to the same periods
in 1993.
The proceeds received from the October 1993 repayment of the Davidson
Officenter acquisition loan resulted in an increase in funds available for
short-term investments. As a result, interest income on short-term investments
increased during the nine months and quarter ended September 30, 1994 when
compared to the same periods 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 nine
months and quarter ended September 30, 1994 when compared to the same periods
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 nine months and quarter ended
September 30, 1994 as compared to the same periods in 1993 due to this
repayment.
Higher leasing costs at the 100 Ashford Center North, 1275 K Street and Westech
360 office buildings and painting costs and floor and wall covering upgrades at
the Spaulding Bridge Apartments resulted in an increase in property operating
expense during the nine months and quarter ended September 30, 1994 when
compared to the same periods in 1993.
A refund of 1992 taxes was received in the first quarter of 1994 from the local
taxing authority for the 1275 K Street Office Building due to a decrease in the
assessed tax value of this property. This refund caused a decrease in real
estate tax expense during the nine months ended September 30, 1994 as compared
to the same period in 1993.
The Partnership recognized a provision for investment property writedown
related to the 100 Ashford Center North Office Building in September 1993 as a
result of an impairment to the asset value of this property.
During the first nine months of 1993, the Partnership incurred significant
legal fees related to the Davidson Officenter litigation. As a result,
administrative expense decreased during the nine months and quarter ended
September 30, 1994 when compared to the same periods in 1993.
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 leasing and utility costs at this property during
1994, a slight loss was generated, resulting in participation in loss of joint
venture with an affiliate during the nine months and quarter ended September
30, 1994 as compared to participation in income during the same periods in
1993.
The Westech 360 and 1275 K Street office buildings are owned through joint
ventures with affiliates. As a result of decreased average occupancy and
increased leasing costs at both properties, the affiliates' income
participation decreased during the nine months and quarter ended September 30,
1994 as compared to the same periods in 1993.
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 interest income on short-term investments. 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 investing
activities for capital improvements and leasing commissions at certain of the
Partnership's properties and in financing activities to make quarterly
distributions to the Partners and to the affiliated joint venture partners. The
Partnership is retaining 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 the loan and cash flow
from property operations are received.
During the nine months ended September 30, 1994 and 1993, all of the
Partnership's properties, including the Pacific Center Office Buildings (in
which the Partnership holds a minority joint venture interest), generated
positive cash flow. 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 October 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 third quarter of 1994. The level of this distribution was consistent with
the amount distributed to Limited Partners for the previous quarter. In
addition, during October 1994, the Partnership paid $131,424 to the General
Partner, representing its quarterly distribution for the third quarter of 1994
and made a contribution of $43,808 to the Repurchase Fund. 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.
During the nine months ended September 30, 1994, the General Partner, on behalf
of the Partnership, used amounts placed in the Repurchase Fund to repurchase
1,638 Interests from Limited Partners at a total cost of $188,744.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
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.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 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: November 10, 1994
-------------------------------
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