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
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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(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 Equity Pension Investors-II A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $234,896,750 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
making first mortgage loans and investing in and operating income-producing
real property, and all financial information included in this report relates to
this industry segment.
The Registrant originally funded seven loans and acquired five real property
investments plus a minority joint venture interest in an additional real
property investment. Three loans were prepaid and the Registrant foreclosed on
three loans. The Registrant currently owns eight properties plus a minority
joint venture interest in one property as described under Item 2. "Properties,"
below, and has one loan outstanding.
The Partnership Agreement generally provides that the proceeds of any sale,
refinancing or other disposition of properties will not be reinvested, but will
be distributed to the Limited Partners to the extent not required to meet the
Registrant's cash requirements. The Partnership Agreement also provides that
proceeds from the repayment of mortgage loans (including any sale proceeds of
properties acquired through foreclosure) within 14 years of the termination of
the offering may be used to make new mortgage loans. Any such new mortgage loan
would generally provide for repayment in full within 15 years after the
termination of the offering. The General Partner currently has no plans to make
any such new mortgage loans on behalf of the Registrant.
The commercial real estate industry is beginning to emerge from several years
of decline and re-structuring. Office properties have begun to emerge from the
effects of overbuilding and corporate downsizing. Effective rents and occupancy
levels began to increase nationally in 1994 and some markets are experiencing a
shortage of large blocks of contiguous space. With new construction expected to
remain at a minimum for 1995, office market conditions are expected to continue
their upward performance for the next year. However, some 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. As discussed in Item 7. Liquidity and Capital
Resources, all of the Registrant's properties, including the minority joint
venture interest, generated positive cash flow during 1994.
The Registrant, by virtue of its ownership of real estate, 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 Equity Partners-II, 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 eight properties described
below:
Location Description of Property
- -------- -----------------------
Prince George's County, Ammendale Technology Park - Phase I: a
<PAGE>
Maryland one-story office building containing
approximately 47,000 square feet and two
one-story office/warehouse buildings each
containing approximately 60,000 square feet.
Bingham Farms, Michigan Bingham Farms Office Plaza - Phase V: a
four-story office building containing
approximately 193,000 square feet.
Denver, Colorado Denver Centerpoint Office Buildings: a
fourteen-story office complex containing
approximately 163,000 square feet.
Federal Way, Washington Ross Plaza Shopping Center: a three-building,
open-air shopping center containing approximately
170,000 square feet.
Atlanta, Georgia Spalding Bridge Apartments: a 190-unit apartment
complex located on approximately 19 acres.
Austin, Texas * Westech 360 Office Buildings: a three-story
office complex containing approximately 178,000
square feet.
Atlanta, Georgia 100 Ashford Center North Office Building: a
five-story office building containing
approximately 149,000 square feet.
Washington, D.C. ** 1275 K Street Office Building: a twelve-story
office building containing approximately 231,000
square feet.
* The Registrant has a 56.7% interest in the joint venture that owns the
property.
** The Registrant has a 60.52% interest in the joint venture that owns the
property.
The Registrant also holds a 22.91% joint venture interest in Pacific Center
Office Buildings located in Dallas, Texas.
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
- -------------------------
The Registrant is not subject to any material pending proceedings, nor were any
such proceedings terminated during the fourth quarter of 1994.
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 the Registrant's Common Equity and Related Stockholder
- -------------------------------------------------------------------------
Matters
- -------
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 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 41,169.
Item 6. Selected Financial Data
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Year ended December 31,
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1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Total income $20,695,960 $21,924,855 $19,297,804 $19,413,973 $19,181,265
Provision for
investment
property
writedowns None 9,810,000 12,300,000 25,400,000 None
Provision for loan
receivable
writedown None 1,850,000 None None None
Provision for
acquisition loan
writedown None None 8,071,364 None None
Net income (loss) 4,889,802 (5,456,189)(16,300,985)(17,379,703) 3,598,388
Net income (loss)
per Limited Part-
nership Interest 4.40 (6.64) (17.89) (19.09) 3.01
Total assets 123,673,352 126,764,825 139,125,128 165,452,985 197,816,144
Distributions per
taxable Limited
Partnership Interest 5.20 5.35 5.80 6.05 29.69
Distributions per
tax-exempt Limited
Partnership Interest 6.92 7.12 7.72 8.05 30.96
<PAGE>
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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During 1993 and 1992, Balcor Equity Pension Investors - II (the "Partnership")
recognized provisions for writedowns on several of its commercial properties
and loans due to impairments to the values of the assets. The Partnership
recognized net income in 1994 compared to the net losses in 1993 and 1992 which
resulted from the provisions. Further discussion of the Partnership's
operations is summarized below.
Operations
- ----------
1994 Compared to 1993
- ---------------------
A decrease in rental revenue during 1994 due to lower average occupancy at the
1275 K Street, 100 Ashford Center North and Bingham Farms - Phase V office
buildings was partially offset by higher average occupancy and/or increased
rental rates at the Denver Centerpoint Office Building and Ross Plaza Shopping
Center. In addition, the Partnership received additional income in 1993 from
tenants at the 100 Ashford Center North Office Building due to early lease
terminations. The combined effect of these events resulted in a decrease in
rental income during 1994 when compared to 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 these reimbursements based upon
the tenants' pro rata share of rentable space, the above-referenced overall
decrease in average occupancy caused a decrease in the total amount billable
for these items. Also, the terms of several new leases have lowered the amount
of reimbursements billed to tenants. 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 1994 when compared to 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 1994 when compared to 1993.
In 1993, the Colonial Coach and Castlewood West loan was modified resulting in
a reduction of the interest rate. This caused a decrease in interest income on
loan receivable during 1994 when compared to 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 also decreased during 1994 when compared to 1993 due to
this repayment.
During 1993, capitalized leasing commissions related to the Bingham Farms -
Phase V and Westech 360 office buildings became fully amortized. Also, mortgage
brokerage fees related to the Davidson Officenter loan were fully amortized due
to the October 1993 repayment of the loan. As a result, amortization expense
decreased during 1994 when compared to 1993.
Higher leasing commission expenses at the 100 Ashford Center North, Ammendale
Technology Park - Phase I and Westech 360 office buildings and higher insurance
<PAGE>
costs at all of the Partnership's properties resulted in an increase in
property operating expense during 1994 when compared to 1993.
Increased leasing activity at the 100 Ashford Center North, Bingham Farms -
Phase V and Westech 360 office buildings and higher painting costs and floor
and wall covering upgrades at the Spalding Bridge Apartments resulted in an
increase in maintenance and repairs expense during 1994 when compared to 1993.
This was partially offset by a decrease in leasing activity at the 1275 K
Street Office Building.
A refund of 1992 taxes was received in 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 1994 when compared to 1993.
Lower consulting fees and data processing costs resulted in a decrease in
administrative expense during 1994 when compared to 1993. These decreases were
partially offset by higher accounting and portfolio management fees.
In 1993, the Partnership determined that impairments had occurred to the asset
values of the 100 Ashford Center North Office Building and the Ammendale
Technology Park - Phase I. These properties were written down by $7,510,000 and
$2,300,000, respectively.
In 1993, the Partnership wrote down the Colonial Coach and Castlewood West loan
receivable. The Partnership's share of the joint ventures $2,100,000 provision
for loan receivable writedown was $1,850,000.
The Westech 360 and 1275 K Street office buildings are owned through joint
ventures with affiliates. As a result of decreased average occupancy at the
1275 K Street Office Building and increased expenses relating to leasing
activity at the Westech 360 Office Building, the affiliates' income
participation decreased during 1994 as compared to 1993.
1993 Compared to 1992
- ---------------------
Successful leasing efforts undertaken in 1992 resulted in higher occupancy
and/or increased rental rates at all of the Partnership's properties during
1993. In addition, the Partnership received additional income from tenants at
the 100 Ashford Center North Office Building due to early lease terminations.
These events resulted in an increase in rental income and property management
fees during 1993 when compared to 1992.
Adjustments to previous billings and an increase in occupancy during 1993 at
several of the commercial properties caused an increase in the total amount
billable for common area maintenance, real estate taxes and other operating
expenses, resulting in an increase in service income during 1993 when compared
to 1992.
In October 1993, the Partnership received a discounted prepayment of the
Davidson Officenter acquisition loan. As a result, interest income from
investment in acquisition loan, as well as mortgage servicing fees, decreased
during 1993 when compared to 1992. Also, the Partnership had recognized a
provision for acquisition loan writedown of approximately $8,000,000 on this
loan in 1992.
The Partnership recognized a provision for investment property writedown
related to the 100 Ashford Center North Office Building in 1993 as a result of
an impairment to the asset value of this property. In addition, during 1992,
the Partnership wrote down the Denver Centerpoint, Bingham Farms - Phase V and
1275 K Street investments due to impairments to the asset values of the
respective properties. The combination of these writedowns resulted in a
decrease in depreciation expense during 1993 when compared to 1992.
As a result of increased leasing activity at the 1275 K Street and 100 Ashford
<PAGE>
Center North office buildings, maintenance and repairs increased during 1993
when compared to 1992.
A further reduction in the assessed value of the 1275 K Street Office Building
resulted in a decrease in real estate tax expense during 1993 when compared to
1992.
During 1993, the Partnership incurred significant legal fees related to the
Davidson Officenter litigation. This resulted in an increase in administrative
expense during 1993 when compared to 1992.
Participation in loss of joint venture with an affiliate reflects the
Partnership's share of property operations at the Pacific Center Office
Buildings. The Partnership recognized its $1,400,000 share of this property's
$6,100,000 provision for investment property writedown during 1992.
Additionally, higher average occupancy levels during 1993 resulted in improved
operations at this property. These events caused a significant decrease in the
participation in loss of joint venture with an affiliate during 1993 when
compared to 1992.
In 1992, the Partnership determined that impairments had occurred to the asset
values of the 1275 K Street, Denver Centerpoint and Bingham Farms - Phase V
office buildings. The 1275 K Street Office Building is owned by a joint venture
with an affiliated partnership. This property was written down by $3,900,000,
and the Partnership's share of this writedown was $2,360,000. The Denver
Centerpoint and Bingham Farms - Phase V office buildings were written down by
$3,200,000 and $5,200,000, respectively.
The Westech 360 and 1275 K Street office buildings are owned through joint
ventures with affiliates. During 1992, the affiliate which owns a share of the
1275 K Street Office Building recognized its $1,540,000 share of the $3,900,000
provision for investment property writedown relating to this property. As a
result of this event in 1992 and improved operations at both properties in
1993, the affiliates' participated in income during 1993 as compared to a loss
in 1992.
Equity in loss from investment in acquisition loan represented the
Partnership's share of property operations at the Davidson Officenter, the
collateral property of the loan. The Partnership's share of operations had no
effect on the cash flow of the Partnership.
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, which were partially offset
by the payment of administrative expenses. Investing activities consisted
primarily of improvements and leasing commissions at certain of the
Partnership's properties. Financing activities consisted of 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.
During 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. The Partnership defines
cash flow generated from its properties as an amount equal to the property's
revenue receipts less property related expenditures. As of December 31, 1994,
occupancy rates of the Partnership's commercial properties ranged from 95% to
100%, except for the Bingham Farms - Phase V Office Building which was 72%
occupied. The low occupancy at Bingham Farms - Phase V Office Building is a
result of the relocation of a major tenant during the third quarter of 1994.
The Partnership is currently working to re-lease this space. The occupancy rate
of Spalding Bridge Apartments was 94%. Many rental markets continue to remain
extremely competitive; therefore, the General Partner's goals are to maintain
<PAGE>
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 January 1995, the Partnership paid $1,577,085 ($1.30 per Taxable Interest
and $1.73 per Tax-exempt Interest) to Limited Partners representing the
quarterly distribution for the fourth quarter of 1994. In addition, during
January 1995, the Partnership paid $131,424 to the General Partner,
representing its quarterly distribution for the fourth quarter of 1994 and made
a contribution of $43,808 to the Repurchase Fund. During 1994, the Partnership
made distributions to Limited Partners totaling $5.20 per Taxable Interest and
$6.92 per Tax-exempt Interest as compared to $5.35 and $7.12 in 1993 and $5.80
and $7.72 in 1992, respectively. See Financial Statements, Statements of
Partners' Capital. To date, including the January 1995 distribution, Limited
Partners have received distributions aggregating approximately $100 per $250
Taxable Interest, of which $74 represents Net Cash Receipts and $26 represents
Net Cash Proceeds, and $124 per $250 Tax-exempt Interest, of which $98
represents Net Cash Receipts and $26 represents Net Cash Proceeds. The General
Partner expects that the cash flow from property operations and debt service
payments on the funded 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 1994, the General Partner, on behalf of the Partnership, used amounts
placed in the Repurchase Fund to repurchase 2,343 Interests from Limited
Partners at a cost of $277,845. See Note 2 of Notes to Financial Statements for
additional information.
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 all 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1994 December 31, 1993
---------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $123,673,352 $209,659,409 $126,764,825 $211,453,185
Partners' capital
(deficit):
General Partner (85,033) 1,029,319 (144,161) 789,218
Limited Partners 104,978,557 180,806,725 107,157,151 182,132,867
Net income (loss):
General Partner 760,056 941,029 781,283 935,946
Limited Partners 4,129,746 4,982,198 (6,237,472) (4,585,802)
Per Limited Part-
nership Interest 4.40 (A) (6.64) (A)
(A) The net income (loss) is $5.32 per Tax-exempt Interest and $5.20 per
Taxable Interest for 1994 and ($6.28) per Tax-exempt Interest and $5.35 per
Taxable Interest for 1993.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
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
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Equity Partners-II, 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
----- --------
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.
Ms. Goldberg has been designated as a Senior Human Resources Professional
<PAGE>
(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 10 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 Equity Partners-II and its officers own as a group the following
Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 19,047 Interests Approximately 2%
<PAGE>
Relatives and affiliates of the officers of the General Partner own an
additional 72 Limited Partnership Interests in the Registrant.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 10 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 2 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(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 Schedule and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership,
previously filed as Exhibit 3 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-11 dated September 20, 1984 (Registration No.
2-91810) and to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 dated January 24, 1985 (Registration No. 2-95409), are hereby
incorporated herein by reference.
(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 24, 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 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1994.
(c) Exhibits: See Item 14 (a)(3) above.
(d) Financial Statement Schedule: See Financial Statements and Financial
Statement Schedule in this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, 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/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: March 28, 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 Equity
/s/Thomas E. Meador Partners-II, the General Partner March 28, 1995
- -------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Equity
/s/Allan Wood Partners-II, the General Partner March 28, 1995
- -------------------- --------------
Allan Wood
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
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
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1994
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-II
A Real Estate Limited Partnership:
We have audited the financial statements and the financial statement schedule
of Balcor Equity Pension Investors-II A Real Estate Limited Partnership (An
Illinois Limited Partnership) as listed in the index of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedule 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 Equity Pension
Investors-II A Real Estate Limited Partnership 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. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 20, 1995
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 17,106,496 $ 17,153,575
Accounts and accrued interest receivable 762,066 1,215,873
Prepaid expenses, principally
real estate taxes 81,915 91,177
Deferred expenses, net of accumulated
amortization of $743,106 in 1994
and $721,884 in 1993 758,205 812,435
Investment in joint venture with an affiliate 1,482,721 1,463,700
------------- -------------
20,191,403 20,736,760
------------- -------------
Investment in loan receivable 7,540,986 7,540,986
Loan application and processing fees,
net of accumulated amortization of
$211,843 in 1994 and $185,636 in 1993 50,232 76,439
------------- -------------
7,591,218 7,617,425
------------- -------------
Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 108,250,048 107,555,724
------------- -------------
135,058,823 134,364,499
Less accumulated depreciation 39,168,092 35,953,859
------------- -------------
Investment in real estate, net of
accumulated depreciation 95,890,731 98,410,640
------------- -------------
$123,673,352 $126,764,825
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 374,107 $ 692,988
Due to affiliates 124,539 124,604
Accrued liabilities, principally
real estate taxes 415,971 342,803
Security deposits 434,623 409,091
------------- -------------
Total liabilities 1,349,240 1,569,486
Affiliates' participation in joint ventures 17,430,588 18,182,349
Partners' capital (939,587 Limited Partnership
Interests issued and outstanding) 104,893,524 107,012,990
------------- -------------
$123,673,352 $126,764,825
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(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 $143,801,420 $ 72,401 $143,729,019
Cash distributions to:
Limited Partners (A) (7,037,496) (7,037,496)
General Partner (781,948) (781,948)
Net (loss) income for the year
ended December 31, 1992 (16,300,985) 505,286 (16,806,271)
------------- ------------- -------------
Balance at December 31, 1992 119,680,991 (204,261) 119,885,252
Cash distributions to:
Limited Partners (A) (6,490,629) (6,490,629)
General Partner (721,183) (721,183)
Net (loss) income for the year
ended December 31, 1993 (5,456,189) 781,283 (6,237,472)
------------- ------------- -------------
Balance at December 31, 1993 107,012,990 (144,161) 107,157,151
Cash distributions to:
Limited Partners (A) (6,308,340) (6,308,340)
General Partner (700,928) (700,928)
Net income for the year ended
December 31, 1994 4,889,802 760,056 4,129,746
------------- ------------- -------------
Balance at December 31, 1994 $104,893,524 $ (85,033) $104,978,557
============= ============= =============
(A) Summary of cash distributions paid per Interest:
Taxable 1994 1993 1992
------------- ------------- -------------
First Quarter $ 1.30 $ 1.45 $ 1.45
Second Quarter 1.30 1.30 1.45
Third Quarter 1.30 1.30 1.45
Fourth Quarter 1.30 1.30 1.45
Tax-Exempt 1994 1993 1992
------------- ------------- -------------
First Quarter $ 1.73 $ 1.93 $ 1.93
Second Quarter 1.73 1.73 1.93
Third Quarter 1.73 1.73 1.93
Fourth Quarter 1.73 1.73 1.93
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------- -------------
Income:
Rental income $ 17,205,757 $ 18,018,749 $ 15,482,206
Service income 2,123,342 2,594,124 1,865,174
Interest on short-term
investments 755,000 380,277 395,440
Interest on loan receivable -
first mortgage, net of
amortization of $26,207
in 1994, 1993 and 1992 611,861 708,650 658,751
Interest income from invest-
ment in acquisition loan,
net of amortization of
$179,246 in 1993 and
$29,465 in 1992 223,055 896,233
------------- ------------- -------------
Total income 20,695,960 21,924,855 19,297,804
------------- ------------- -------------
Expenses:
Depreciation 3,214,233 3,248,425 3,643,587
Amortization of deferred
expenses 237,773 294,211 294,136
Property operating 5,619,572 5,063,976 5,071,837
Maintenance and repairs 2,279,405 1,937,876 1,356,408
Real estate taxes 1,836,717 2,015,499 2,149,406
Property management fees 723,733 730,871 652,004
Administrative 941,431 1,047,889 804,579
Mortgage servicing fees 22,788 52,868 61,913
Participation in loss of joint
venture with an affiliate 11,380 22,666 1,481,315
Provision for investment
property writedowns 9,810,000 12,300,000
Provision for loan receivable
writedown 1,850,000
Provision for acquisition loan
writedown 8,071,364
------------- ------------- -------------
Total expenses 14,887,032 26,074,281 35,886,549
------------- ------------- -------------
Income (loss) before affiliates'
participation in joint
ventures and equity from
investment in acquisition loan 5,808,928 (4,149,426) (16,588,745)
Affiliates' participation in
(income) loss from joint
ventures (919,126) (1,235,317) 637,575
Equity in loss from investment
in acquisition loan (71,446) (349,815)
------------- ------------- -------------
Net income (loss) $ 4,889,802 $ (5,456,189) $(16,300,985)
============= ============= =============
Net income allocated to
General Partner $ 760,056 $ 781,283 $ 505,286
============= ============= =============
Net income (loss) allocated to
Limited Partners $ 4,129,746 $ (6,237,472) $(16,806,271)
<PAGE>
============= ============= =============
Net income (loss) per Limited
Partnership Interest (939,587
issued and outstanding) $ 4.40 $ (6.64) $ (17.89)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(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) $ 4,889,802 $ (5,456,189) $(16,300,985)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Affiliates' participation
in income (loss) from
joint ventures 919,126 1,235,317 (637,575)
Participation in loss of
joint venture with
an affiliate 11,380 22,666 1,481,315
Equity in loss from invest-
ment in acquisition loan 71,446 349,815
Depreciation of properties 3,214,233 3,248,425 3,643,587
Amortization of deferred
expenses 237,773 294,211 294,136
Amortization of loan
application and
processing fees 26,207 205,453 55,672
Provision for investment
property writedowns 9,810,000 12,300,000
Provision for loan
receivable writedown 1,850,000
Provision for acquisition
loan writedown 8,071,364
Accrued interest income due
at maturity (119,968)
Net change in:
Escrow deposits 221,540
Accounts and accrued
interest receivable 453,807 285,273 227,186
Prepaid expenses 9,262 26,274 (5,875)
Accounts payable (318,881) 375,723 91,718
Due to affiliates (65) 32,838 3,337
Escrow liabilities (241,895)
Accrued liabilities 73,168 40,525 14,123
Security deposits 25,532 7,042 41,228
------------- ------------- -------------
Net cash provided by
operating activities 9,541,344 12,049,004 9,488,723
------------- ------------- -------------
Investing activities:
Capital contributions to joint
venture with an affiliate (48,400) (136,441)
Distributions from joint
venture with an affiliate 17,999 35,738 59,119
Proceeds from repayment of
acquisition loan 6,000,000
Improvements and additions
to properties (694,324) (1,364,922) (1,779,917)
Payment of deferred expenses (183,543) (171,928) (365,408)
------------- ------------- -------------
<PAGE>
Net cash used in or provided
by investing activities (908,268) 4,362,447 (2,086,206)
------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners $ (6,308,340) $ (6,490,629) $ (7,037,496)
Distributions to General
Partner (700,928) (721,183) (781,948)
Capital contributions by joint
venture partner - affiliate 93,490
Distributions to joint venture
partners - affiliates (1,670,887) (1,383,747) (1,375,783)
------------- ------------- -------------
Net cash used in
financing activities (8,680,155) (8,595,559) (9,101,737)
------------- ------------- -------------
Net change in cash and
cash equivalents (47,079) 7,815,892 (1,699,220)
Cash and cash equivalents at
beginning of year 17,153,575 9,337,683 11,036,903
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 17,106,496 $ 17,153,575 $ 9,337,683
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Depreciation expense is computed using straight-line and accelerated
methods. Rates used in the determination of depreciation are based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 35
Furniture and fixtures 5
Depreciation expense for tenant improvements is computed using a straight-line
method over the term of the lease.
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
(b) Deferred expenses consist of mortgage brokerage fees which are amortized
over the average term of the loans, and leasing commissions which are amortized
over the term of each respective lease.
(c) Loan application and processing fees are amortized over the terms of the
loans.
(d) Income from operating leases with abatements and scheduled rent increases
is recognized on a straight-line basis over the respective lease terms.
(e) The income which represents reimbursements for operating costs such as
taxes, maintenance and insurance is recognized as revenue in the period the
applicable costs are incurred.
(f) Income on loans receivable 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 General Partner, an impairment has occurred in the value of the
property collateralizing the loan. Income on nonaccrual loans or loans which
are otherwise not performing in accordance with their terms is recorded on a
cash basis.
(g) Investment in acquisition loan represented a first mortgage loan which had
certain participations in excess of 50% of the collateral property's cash flow
and sales price or appraised value at maturity over certain stated amounts.
Under generally accepted accounting principles this investment was required to
be accounted for as an investment in a real estate venture. As described in
Note 5, the Partnership received a discounted prepayment of this acquisition
loan in October 1993. The investment had been reflected in the accompanying
financial statements using the equity method of accounting. Under this method,
the Partnership classified its investment in loan receivable as an investment
in acquisition loan, at cost (representing total loan fundings) and
subsequently adjusted its investment for its share of collateral property
income or loss.
Amounts representing debt service were recorded in the accompanying statements
of income and expenses as interest income. Equity in income or loss from
investment in acquisition loan represented the Partnership's share of the
collateral property's operations, including depreciation and interest expense.
The Partnership's share of operations had no effect on the cash flow of the
Partnership.
<PAGE>
(h) The Partnership's investment objectives provide for investment in income
producing real property to be held for long-term appreciation. Consistent with
these objectives, properties acquired through foreclosure are recorded as
investments in real estate at the lower of fair value or cost at the date of
foreclosure. The Partnership makes periodic assessments concerning possible
permanent impairment to the value of all of its properties. In the event that
the Partnership determines that a permanent impairment in value has occurred,
the carrying basis of the property is reduced to its estimated fair value.
(i) Investment in joint venture with an affiliate represents the Partnership's
22.91% interest, under the equity method of accounting, in a joint venture with
an affiliated partnership. 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.
(j) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(k) 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.
2. Partnership Agreement:
The Partnership was organized on May 29, 1984. The Partnership Agreement
provides for Balcor Equity Partners-II to be the General Partner and for the
admission of Limited Partners through the sale of up to 1,000,000 Limited
Partnership Interests at $250 per Interest, 939,587 of which were sold on or
prior to February 20, 1985, the termination date of the offering.
"Operating Income" of the Partnership is allocated 10% to the General Partner
and 90% to the Limited Partners; however, certain components are specially
allocated as described in the Partnership Agreement. "Operating Losses" and
certain other components are allocated 1% to the General Partner and 99% to the
Limited Partners.
The Partnership Agreement provides for different allocations of profits and
losses and cash distributions to Limited Partners depending on whether the
investor originally acquiring the Interest was a taxable or tax-exempt entity.
"Net Cash Receipts" available for distribution are distributed as follows: 90%
to Limited Partners, 7.5% to the General Partner as its distributive share from
Partnership operations and an additional 2.5% of such "Net Cash Receipts" are
paid to the General Partner for allocation to the Repurchase Fund which may be
utilized to repurchase Interests from Limited Partners.
At the sole discretion of the General Partner and subject to certain
limitations, amounts placed in the Repurchase Fund became available, beginning
October 15, 1987, to be used to repurchase Interests from Limited Partners.
During 1994, the General Partner used amounts placed in the Repurchase Fund to
repurchase 2,343 Interests from Limited Partners at a cost of $277,845.
Distributions of "Net Cash Receipts" and "Net Cash Proceeds" pertaining to such
repurchased Interests are paid to the Repurchase Fund and are available to
repurchase additional Interests.
An amount not to exceed the dollars originally allocated to the Repurchase Fund
will be returned by the Repurchase Fund to the Partnership at liquidation if
necessary to permit payment to the Limited Partners of their "Original Capital"
plus any deficiency in their "Liquidation Preference" as defined in the
Partnership Agreement.
When and as the Partnership sells or refinances its real properties, or obtains
repayments of its mortgage loans, the "Net Cash Proceeds" resulting therefrom
which are available for distribution will be distributed only to the Limited
<PAGE>
Partners until such time as they have received a return of their "Original
Capital" and their "Liquidation Preference"; thereafter, the remaining "Net
Cash Proceeds" will be distributed 90% to the Limited Partners and 10% to the
General Partner. The General Partner's share shall be returned to the
Partnership if necessary to permit payment to the Limited Partners of any
deficiency in the return of their Original Capital and Preferential Cumulative
Distributions.
3. Investment in Loan Receivable:
The Partnership and an affiliated partnership (together, the "Participants")
funded a first mortgage loan collateralized by the Colonial Coach and
Castlewood West mobile home parks. The Partnership participates in
approximately 88% of the loan amount and interest income.
During 1993, the Participants determined that an impairment to the value of the
property had occurred. As a result, the Partnership wrote down the loan
receivable to its estimated fair value and recognized its $1,850,000 share of
the total $2,100,000 provision for loan receivable writedown. The carrying
value of the loan was $7,540,986 at December 31, 1994 and 1993.
The Participants and the borrower executed second and third modifications of
the loan terms during 1993. The second modification resulted in a decrease in
the contract rate of the loan from 10% per annum to 8% per annum commencing
March 1993 through February 1995. Thereafter, through maturity in January 1997,
the contract rate of the loan was to be 11% per annum. The third modification
resulted in a change in the contract rate to 9% per annum with a 7% pay rate
per annum, effective with the September 1993 payment through an extended
maturity date in July 1998. The difference between the 9% contract rate and the
7% pay rate is deferred and payable at maturity. The difference is not being
accrued by the Partnership since this loan is currently classified on non-
accrual status and is hereinafter referred to as an impaired loan. The third
modification also eliminated all types of contingent additional interest. None
of these amounts were previously accrued since receipt was dependent on various
conditions.
Under the original loan terms, interest income relating to this impaired loan
would have been $1,003,000 in 1994, $912,000 in 1993 and $912,000 in 1992.
Interest income from this impaired loan included in the accompanying Statements
of Income and Expenses amounted to $638,000 in 1994, $735,000 in 1993 and
$685,000 in 1992.
4. Investment Property Writedowns:
In 1993, the Partnership determined that impairments had occurred to the asset
values of the 100 Ashford Center North Office Building and the Ammendale
Technology Park - Phase I. The properties were written down to their estimated
fair value, and provisions for investment property writedowns of $7,510,000 and
$2,300,000, respectively, were recognized in 1993.
In 1992, the Partnership determined that impairments had occurred to the asset
values of the 1275 K Street, Denver Centerpoint and Bingham Farms - Phase V
office buildings. The 1275 K Street Office Building is owned by a joint venture
with an affiliated partnership. The property was written down to its estimated
fair value and a $3,900,000 provision for investment property writedown was
recognized in 1992. The Partnership's share of this writedown was $2,360,000.
The Denver Centerpoint and Bingham Farms - Phase V office buildings were
written down to their estimated fair value and provisions for investment
property writedowns of $3,200,000 and $5,200,000, respectively, were recognized
in 1992.
5. Acquisition Loan Writedown:
The Partnership funded a $15,650,000 first mortgage loan collateralized by the
Davidson Officenter which was classified as an investment in an acquisition
loan as a result of a modification of the loan terms. In 1992, the Partnership
<PAGE>
determined that an impairment to the value of the property collateralizing the
loan had occurred. As a result, the acquisition loan and related net accrued
interest were written down to a carrying value equal to the property's
estimated fair value and a $8,071,364 provision for acquisition loan writedown
was recognized. In 1993, the Partnership received a discounted prepayment of
the loan in the amount of $6,000,000.
6. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are
under management agreements with a third-party management company. These
management agreements provide for annual fees of 3% to 6% of gross operating
receipts.
7. Affiliate's Participation in Joint Ventures:
The 1275 K Street Office Building and the Westech 360 Office Buildings are
owned by joint ventures between the Partnership and an affiliated partnership.
All assets, liabilities, income and expenses of the joint ventures are included
in the financial statements of the Partnership with the appropriate adjustment
of profit or loss for the affiliate's participation in the joint ventures. For
the 1275 K Street Office Building, profits and losses are allocated 60.52% to
the Partnership and 39.48% to the affiliate. The 1992 loss relating to the 1275
K Street Office Building includes the affiliate's $1,540,000 share of the
provision for investment property writedown relating to this property. For the
Westech 360 Office Buildings, profits and losses are allocated 56.7% to the
Partnership and 43.3% to the affiliate.
8. Investment in Joint Venture with an Affiliate:
The Partnership owns a 22.91% joint venture interest in the Pacific Center
Office Buildings. The joint venturer is an affiliate of the Partnership with
investment objectives similar to those of the Partnership. In 1992, it was
determined that an impairment to the fair value of the Pacific Center Office
Buildings had occurred. The Partnership's share of the 1992 provision for
investment property writedown was $1,400,000.
9. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1994 in the financial statements is $1,033,425 less than the
tax income of the Partnership for the same period.
10. 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 $ 22,788 $ 1,899 $56,128 $1,899 $61,913 $5,159
Property management fees 661,698 None 727,174 59,125 566,469 55,428
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 98,711 37,288 87,835 7,266 72,701 5,787
Data processing 92,976 22,313 150,164 41,229 159,782 12,907
Investment processing 23,907 1,926 8,646 715 16,436 1,308
<PAGE>
Investor communica-
tions 13,023 7,685 11,266 932 18,112 1,442
Legal 32,434 14,824 29,315 2,425 26,652 2,121
Portfolio management 134,704 34,201 124,795 10,047 81,815 6,512
Other 11,238 4,403 11,672 966 13,843 1,102
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
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 $107,935, $72,615 and $68,987 for 1994, 1993, and 1992,
respectively.
11. Rentals under Operating Leases:
The Partnership receives rental income from the leasing of retail, office and
shopping center space under operating leases. The minimum future rentals
(excluding amounts representing costs such as taxes, maintenance and insurance)
based on operating leases held at December 31, 1994 are approximately as
follows:
1995 $ 14,064,000
1996 12,573,000
1997 9,395,000
1998 7,553,000
1999 5,105,000
Thereafter 4,563,000
-----------
$ 53,253,000
============
Minimum future rentals do not include amounts which may be received from
certain tenants based upon a percentage of their gross sales in excess of
stipulated minimums. Percentage rentals were not significant during 1994, 1993
and 1992.
The Partnership is subject to the usual business risks regarding the collection
of the above-mentioned rentals.
12. Subsequent Event:
In January 1995, the Partnership made a distribution of $1,577,085 ($1.30 per
Taxable Interest and $1.73 per Tax-exempt Interest) to holders of Limited
Partnership Interests for the fourth quarter of 1994.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
<CAPTION>
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
-------------------- ---------------------------------
Buildings Carrying Reduction
Encum- and Im- Improve- Costs of Basis
Description brances Land provements ments (a) (b)
- --------------------- ------- -------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ammendale Technology
Park-Phase I, 167,000
sq. ft. offc./wrhs.
cmplx., Prince George's
County, MD (f)(g) None $6,142,781 $4,315,384 $240,963 $281,465 $(2,300,000)
Bingham Farms Office
Plaza-Phase V, 193,000
sq. ft. bldg., Bingham
Farms, MI (f) None 1,000,000 17,404,255 2,440,366 21,935 (5,200,000)
Denver Centerpoint,
163,000 sq. ft. offc.
cmplx., Denver, CO (f) None 3,534,700 22,077,000 1,928,030 23,744 (14,200,000)
Ross Plaza, 170,000 sq.
ft. shpg. cntr.,
Federal Way, WA (f) None 2,355,000 9,045,000 2,113,028 836,087
Spalding Bridge Apts.,
190-units, Atlanta, GA None 950,000 9,103,190 21,094
Westech 360, 178,000
sq. ft. offc. cmplx.,
Austin, TX (f)(g) None 4,680,000 18,060,294 2,044,950 206,573 (14,400,000)
100 Ashford Center North,
149,000 sq. ft. offc.
bldg., Atlanta, GA (f)(g) None 2,554,000 16,431,518 3,856,993 27,327 (7,510,000)
1275 K Street, 231,000
sq. ft. offc. bldg.,
Washington, D.C. (f) None 13,200,000 33,950,050 3,671,006 52,090 (3,900,000)
----------- ------------ ---------- ---------- ------------
$34,416,481 $130,386,691 $16,295,336 $1,470,315 $(47,510,000)
=========== ============ =========== ========== ============
</TABLE>
See notes (a) through (i).
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1994
(Continued)
<CAPTION>
Col. A Col. E Col. F Col. G Col. H Col. I
- ------------------ ------------------------------- -------- -------- ------ -------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (c)(d) tion(d) struction uired is Computed
- ------------------- -------- ---------- ----------- ---------- ---------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ammendale Technology
Park-Phase I, 167,000
sq. ft. offc./wrhs.
cmplx., Prince George's
County, MD (f)(g) $5,078,246 $3,602,347 $8,680,593 $399,382 1986 1991(g) (e)
Bingham Farms Office
Plaza-Phase V, 193,000
sq. ft. bldg., Bingham
Farms, MI (f) 746,097 14,920,459 15,666,556 5,632,187 1984 1985 (e)
Denver Centerpoint,
163,000 sq. ft. offc.
cmplx., Denver, CO (f) 1,666,414 11,697,060 13,363,474 5,720,084 1983 1985 (e)
Ross Plaza, 170,000 sq.
ft. shpg. cntr.,
Federal Way, WA (f) 2,522,217 11,826,898 14,349,115 5,143,148 (h) 1985 (e)
Spalding Bridge Apts.,
190-units, Atlanta, GA 951,899 9,122,385 10,074,284 3,347,869 1984 1985 (e)
Westech 360, 178,000 sq.
ft. offc. cmplx.,
Austin, TX (f)(g) 1,970,644 8,621,173 10,591,817 2,437,135 1986 1988(i) (e)
100 Ashford Center North,
149,000 sq. ft. offc.
bldg., Atlanta, GA
(f)(g) 1,681,675 13,678,163 15,359,838 3,765,622 1987 1987(i) (e)
1275 K Street, 231,000
sq. ft. offc. bldg.,
Washington, D.C. (f) 12,191,583 34,781,563 46,973,146 12,722,665 1985 1986 (e)
----------- ------------ ------------ -----------
$26,808,775 $108,250,048 $135,058,823 $39,168,092
=========== ============ ============ ===========
</TABLE>
See notes (a) through (i).
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related
professional fees and capitalized construction period interest.
(b) Represents a reduction of basis due to a permanent impairment of the asset
value.
(c) The aggregate cost of land for Federal income tax purposes is $34,754,639
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $150,998,347. The total of the above mentioned is $185,752,986.
(d) Reconciliation of Real Estate
-----------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $134,364,499 $142,809,577 $153,329,660
Additions during the year:
Improvements 694,324 1,364,922 1,779,917
Deductions during the year:
Provision for investment
property writedowns (9,810,000) (12,300,000)
------------ ------------ ------------
Balance at end of year $135,058,823 $134,364,499 $142,809,577
============ ============ ============
Reconciliation of Accumulated Depreciation
------------------------------------------
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $35,953,859 $32,705,434 $29,061,847
Depreciation expense
for the year 3,214,233 3,248,425 3,643,587
----------- ----------- -----------
Balance at end of year $39,168,092 $35,953,859 $32,705,434
=========== =========== ===========
(e) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-----
Buildings and improvements 20 to 35
Furniture and fixtures 5
(f) This property is making tenant improvements which are necessary in order to
prepare the suites for occupancy.
(g) This property was acquired through foreclosure.
(h) This shopping center was completed in two phases in 1964 and 1981.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 17106
<SECURITIES> 0
<RECEIVABLES> 8303
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17950
<PP&E> 135059
<DEPRECIATION> 39168
<TOTAL-ASSETS> 123673
<CURRENT-LIABILITIES> 1349
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 104894
<TOTAL-LIABILITY-AND-EQUITY> 123673
<SALES> 0
<TOTAL-REVENUES> 19777
<CGS> 0
<TOTAL-COSTS> 10494
<OTHER-EXPENSES> 4393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4890
<INCOME-TAX> 0
<INCOME-CONTINUING> 4890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4890
<EPS-PRIMARY> 4.40
<EPS-DILUTED> 4.40
</TABLE>
