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, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________to __________
Commission file number 0-13348
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3314331
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor 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
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. Four 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.
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.
Overall, the investment real estate market saw gradual improvement over the
last year. This improvement has taken place in an environment of generally low
interest rates and little or no new supply, parameters which may not exist in
the next few years. Demand for real estate space, while projected to improve in
line with the overall economy, is also vulnerable to external forces. The major
challenges facing the real estate industry today include increased
international competition, corporate restructurings, new computer and
communications technologies, an aging population and potential revisions of
the tax code. In addition, the increased flow of capital to real estate through
new vehicles such as commercial mortgage-backed securities and REITs could spur
new construction at unsupportable levels, as well as impact existing property
values.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
<PAGE>
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
Shopping centers are the most troubled asset class in real estate currently.
Unlike other asset classes, construction of power shopping centers, those with
a preponderance of "big box" retailers, occurred at a brisk pace during the
early 1990s, and now a shake-out of retailers is taking place. Retailers posted
lackluster sales in 1995, particularly in the latter half of the year, and
similar results are expected for 1996. The slight rise in interest rates in
1995 also contributed to low sales growth in interest rate sensitive sectors
such as automobiles and home furnishings. Nevertheless, retail properties are
particularly unique, and those with strong tenant alignments should better
weather the current slowdown. In the long-term, however, retail real estate is
also vulnerable to technological changes (e.g. home shopping) which could
drastically alter the retail distribution system.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Registrant's residential property. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
During 1995, the Registrant received a discounted prepayment on the Colonial
Coach and Castlewood West loan receivable. See "Item 7. Liquidity and Capital
Resources," for additional information.
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.
<PAGE>
Item 2. Properties
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As of December 31, 1995, the Registrant owns the eight properties described
below:
Location Description of Property
- -------- -----------------------
Prince George's County, Ammendale Technology Park - Phase I: a
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 the Pacific Center
Office Buildings located in Dallas, Texas.
See Notes 7 and 8 of Notes to Financial Statements for additional information
regarding these joint ventures.
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.
<PAGE>
Item 3. Legal Proceedings
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The Registrant is not subject to any material pending legal proceedings, nor
were any such proceedings terminated during the fourth quarter of 1995.
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 1995.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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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 Item 7. Liquidity and Capital Resources.
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was 40,816.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Total income $21,585,862 $20,684,580 $21,902,189 $19,297,804 $19,413,973
Provision for
investment
property
writedowns None None 9,810,000 12,300,000 25,400,000
Provisions for loan
receivable
writedown 768,066 None 1,850,000 None None
Provision for
acquisition loan
writedown None None None 8,071,364 None
Net income (loss) 4,556,857 4,889,802 (5,456,189)(16,300,985)(17,379,703)
Net income (loss)
per Limited Part-
nership Interest 4.00 4.40 (6.64) (17.89) (19.09)
Total assets 120,655,642 123,673,352 126,764,825 139,125,128 165,452,985
Distributions per
taxable Limited
Partnership Interest(A) 5.20 5.20 5.35 5.80 6.05
Distributions per
tax-exempt Limited
Partnership Interest(A) 6.92 6.92 7.12 7.72 8.05
(A) No distributions of Original Capital were made in any of the last five
years.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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During 1995, Balcor Equity Pension Investors - II A Real Estate Limited
Partnership (the "Partnership") generated higher interest income on short-term
investments primarily as a result of higher interest rates and higher rental
income as a result of improved operations at certain of its properties.
However, the Partnership recognized a provision for loan receivable writedown
during 1995 in connection with the prepayment of the Colonial Coach and
Castlewood West loan at a discount which resulted in a decrease in net income
during 1995 when compared to 1994. During 1993, the Partnership recognized
provisions for writedowns on several of its commercial properties and its loan
receivable due to impairments to the values of the assets, resulting in a net
loss during 1993. Further discussion of the Partnership's operations is
summarized below.
1995 Compared to 1994
- ---------------------
Primarily as a result of higher rental rates and higher occupancy at the 1275 K
Street office building and higher rental rates at the Westech 360 office
building, rental income increased during 1995 as compared to 1994.
Additionally, because both of these properties are owned through joint ventures
with affiliates, the affiliates' participation in income of joint ventures
increased during 1995 as compared to 1994.
Higher average cash balances as a result of the Colonial Coach and Castlewood
West loan prepayment described below and higher interest rates resulted in an
increase in interest income on short-term investments during 1995 when compared
to 1994.
As a result of the Colonial Coach and Castlewood West loan prepayment in 1995,
the Partnership received less interest income and fully amortized the remaining
loan application and processing fees, resulting in decreased interest income on
the loan receivable during 1995 as compared to 1994.
Participation in income (loss) of joint venture with an affiliate reflects the
Partnership's share of property operations at the Pacific Center Office
Buildings. Due to a decrease in expenses related to leasing activity completed
in 1994, the Partnership recognized participation in income of joint venture
with an affiliate during 1995 as compared to participation in loss during 1994.
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 the property. This refund resulted in lower real estate
tax expense during 1994 as compared to 1995.
<PAGE>
In 1995, the Partnership accepted a discounted prepayment on the Colonial Coach
and Castlewood West loan receivable. As a result, the Partnership recognized a
provision of $768,066 for loan receivable writedown.
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 at the Denver
Centerpoint Office Building and increased rental rates at the 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, 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 costs due to increased leasing activity at the 100 Ashford
Center North, Ammendale Technology Park - Phase I, Bingham Farms - Phase V and
Westech 360 office buildings, higher insurance costs at all of the
Partnership's properties and higher painting costs and floor and wall covering
upgrades at the Spalding Bridge Apartments resulted in an increase in property
operating expense during 1994 when compared to 1993. This was partially offset
by a decrease in leasing costs at the 1275 K Street Office Building.
<PAGE>
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 an impairment had occurred to the
asset values of the 100 Ashford Center North Office Building and the Ammendale
Technology Park - Phase I. The 100 Ashford Center North Office Building is
located in Atlanta, Georgia. The impairment in the asset value of this property
was due to an oversupply of office space resulting in a highly competitive
leasing market in this area which caused rental rates to decline below original
expectations. The property was written down to the Partnership's estimated fair
value, and a $7,510,000 provision for investment property writedown was
recognized in 1993.
The Ammendale Technology Park - Phase I is located in Prince George's County,
Maryland. The impairment in the asset value of this property was caused by an
oversupply of office space resulting in high vacancy rates and rental rates
below original expectations. During 1993, the property was written down to the
Partnership's estimated fair value, and a $2,300,000 provision for investment
property writedown was recognized.
In 1993, the Partnership wrote down the Colonial Coach and Castlewood West loan
receivable. The Partnership's share of the joint venture's $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.
Liquidity and Capital Resources
- ------------------------------
The cash position of the Partnership increased as of December 31, 1995 as
compared to December 31, 1994. The 1995 cash flow provided by the Partnership's
operating activities of approximately $9,740,000 includes cash flow from the
operations of the properties, mortgage payments received on the loan receivable
and interest income on short-term investments, which are partially offset by
the payment of administrative expenses. Investing activities consisted of the
proceeds from the repayment of the Colonial Coach and Castlewood West loan
receivable of approximately $6,770,000, distributions received from the joint
venture with an affiliate of approximately $160,000, and payments for
improvements at certain of the Partnership's properties of approximately
$580,000. Financing activities consisted of quarterly distributions to the
Partners of approximately $7,010,000 and to the affiliated joint venture
partner of approximately $1,600,000.
During 1995 and 1994, 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
<PAGE>
cash flow generated from its properties as an amount equal to the property's
revenue receipts less property related expenditures.
As of December 31, 1995, occupancy rates at the Partnership's commercial
properties ranged from 83% to 100%, while the occupancy rate of Spalding Bridge
Apartments was 96%. 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.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Partnership's residential property. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
In September 1995 the Partnership and an affiliated partnership (together, the
"Participants") accepted a discounted prepayment of the Colonial Coach and
Castlewood West mobile home parks loan receivable due to the diminished value
of the properties. The Atlanta mobile home park market experienced softness due
to slower industrial job growth and the availability of cheap land in the west
and south submarkets of Atlanta. This resulted in declining net operating
income at the properties. The Partnership received $6,772,920 representing its
share of proceeds. See Note 4 of Notes to Financial Statements for additional
information.
In January 1996, the Partnership paid $3,154,170 ($2.60 per Taxable Interest
and $3.46 per Tax-exempt Interest) to Limited Partners representing the
quarterly distribution for the fourth quarter of 1995. The level of this
distribution increased from the amount distributed to Limited Partners for the
previous quarter. In addition, during January 1996, the Partnership paid
$262,848 to the General Partner, representing its quarterly distribution for
the fourth quarter of 1995 and made a contribution of $87,616 to the Repurchase
Fund. During 1995, the Partnership made distributions to Limited Partners
totaling $5.20 per Taxable Interest and $6.92 per Tax-exempt Interest as
compared to $5.20 and $6.92 in 1994 and $5.35 and $7.12 in 1993, respectively.
See Financial Statements, Statements of Partners' Capital. To date, including
the January 1996 distribution, Limited Partners have received distributions
aggregating approximately $106 per $250 Taxable Interest, of which $80
represents Net Cash Receipts and $26 represents Net Cash Proceeds, and $133 per
$250 Tax-exempt Interest, of which $107 represents Net Cash Receipts and $26
represents Net Cash Proceeds. The General Partner expects that the cash flow
from property operations 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, as to which there can be no assurances.
During 1995, the General Partner, on behalf of the Partnership, used amounts
placed in the Repurchase Fund to repurchase 2,137 Interests from Limited
Partners at a cost of $265,339. See Note 3 of Notes to Financial Statements for
additional information.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
<PAGE>
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
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, 1995 December 31, 1994
---------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $120,655,642 $206,025,929 $123,673,352 $209,659,409
Partners' capital
(deficit):
General Partner 11,167 1,299,971 (85,033) 1,029,319
Limited Partners 102,429,946 177,574,399 104,978,557 180,806,725
Net income:
General Partner 797,128 971,580 760,056 941,029
Limited Partners 3,759,729 3,076,016 4,129,746 4,982,198
Per Limited Part-
nership Interest 4.00 (A) 4.40 (A)
(A) The net income is $3.01 per Tax-exempt Interest and $5.20 per Taxable
Interest for 1995 and $5.32 per Tax-exempt Interest and $5.20 per Taxable
Interest for 1994.
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
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(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
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
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. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. 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.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
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 MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company.
<PAGE>
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 portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell 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.
(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 1995.
Item 11. Executive Compensation
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The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of Balcor Equity Partners-II, 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 (principally through the Repurchase Fund) 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 21,119 Interests Approximately 2%
Relatives and affiliates of the officers of the General Partner own an
additional 32 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.
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 10 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
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 1995 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended December 31, 1995.
(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/Brian D. Parker
--------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Equity Partners-II,
the General Partner
Date: March 29, 1996
------------------
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 29, 1996
- -------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Equity
/s/Brian D. Parker Partners-II, the General Partner March 29, 1996
- -------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1995
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, 1995 and 1994,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, 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 27, 1996
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 24,596,293 $ 17,106,496
Accounts and accrued interest receivable 538,041 762,066
Prepaid expenses 213,241 81,915
Deferred expenses, net of accumulated
amortization of $989,273 in 1995 and
$743,106 in 1994 740,093 758,205
Investment in joint venture with an affiliate 1,336,859 1,482,721
------------ ------------
27,424,527 20,191,403
------------ ------------
Investment in loan receivable 7,540,986
Loan application and processing fees, net of
accumulated amortization of $211,843 in 1994 50,232
------------
7,591,218
------------
Investment in real estate
Land 26,808,775 26,808,775
Buildings and improvements 108,826,412 108,250,048
------------ ------------
135,635,187 135,058,823
Less accumulated depreciation 42,404,072 39,168,092
------------ ------------
Investment in real estate, net of
accumulated depreciation 93,231,115 95,890,731
------------ ------------
$ 120,655,642 $ 123,673,352
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 282,014 $ 374,107
Due to affiliates 33,578 124,539
Accrued real estate taxes 448,030 415,971
Security deposits 467,600 434,623
------------ ------------
Total liabilities 1,231,222 1,349,240
Affiliates' participation in joint ventures 16,983,307 17,430,588
------------ ------------
Limited Partners' capital (939,587 Interests
issued and outstanding) 102,429,946 104,978,557
<PAGE>
General Partner's capital (deficit) 11,167 (85,033)
------------ ------------
Total partners' capital 102,441,113 104,893,524
------------ ------------
$ 120,655,642 $ 123,673,352
============ ============
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, 1995, 1994 and 1993
Partners' Capital (Deficit) Accounts
----------------------------------------
General Limited
Total Partner Partners
------------ ------------ ------------
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
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, 1995 4,556,857 797,128 3,759,729
------------ ------------ ------------
Balance at December 31, 1995 $ 102,441,113 $ 11,167 $ 102,429,946
============ ============ ============<PAGE>
(A) Summary of cash distributions paid per Interest:
Taxable 1995 1994 1993
------------ ------------ ------------
First Quarter $ 1.30 $ 1.30 $ 1.45
Second Quarter 1.30 1.30 1.30
Third Quarter 1.30 1.30 1.30
Fourth Quarter 1.30 1.30 1.30
Tax-Exempt 1995 1994 1993
------------ ------------ ------------
First Quarter $ 1.73 $ 1.73 $ 1.93
Second Quarter 1.73 1.73 1.73
Third Quarter 1.73 1.73 1.73
Fourth Quarter 1.73 1.73 1.73
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, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Income:
Rental income $ 17,988,052 $ 17,205,757 $ 18,018,749
Service income 2,004,731 2,123,342 2,594,124
Interest on short-term
investments 1,188,150 755,000 380,277
Interest on loan receivable -
first mortgage, net of
amortization of $50,232 in
1995 and $26,207 in 1994
and 1993 392,298 611,861 708,650
Interest income from investment
in acquisition loan, net of
amortization of $179,246 in
1993 223,055
Participation in income (loss)
of joint venture with an
affiliate 12,631 (11,380) (22,666)
------------ ------------ ------------
Total income 21,585,862 20,684,580 21,902,189
------------ ------------ ------------
Expenses:
Depreciation 3,235,980 3,214,233 3,248,425
Amortization of deferred
expenses 246,167 237,773 294,211
Property operating 7,970,936 7,898,977 7,001,852
Real estate taxes 2,057,705 1,836,717 2,015,499
Property management fees 687,925 723,733 730,871
Administrative 911,554 964,219 1,100,757
Provision for investment
property writedowns 9,810,000
Provision for loan receivable
writedowns 768,066 1,850,000
------------ ------------ ------------
Total expenses 15,878,333 14,875,652 26,051,615
------------ ------------ ------------
Income (loss) before affiliates'
participation in joint
ventures and equity from
investment in acquisition loan 5,707,529 5,808,928 (4,149,426)
Affiliates' participation in
income from joint ventures (1,150,672) (919,126) (1,235,317)
Equity in loss from investment
in acquisition loan (71,446)
------------ ------------ ------------
Net income (loss) $ 4,556,857 $ 4,889,802 $ (5,456,189)
============ ============ ============
<PAGE>
Net income allocated to
General Partner $ 797,128 $ 760,056 $ 781,283
============ ============ ============
Net income (loss) allocated to
Limited Partners $ 3,759,729 $ 4,129,746 $ (6,237,472)
============ ============ ============
Net income (loss) per Limited
Partnership Interest (939,587
issued and outstanding) $ 4.00 $ 4.40 $ (6.64)
============ ============ ============
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, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Operating activities:
Net income (loss) $ 4,556,857 $ 4,889,802 $ (5,456,189)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Affiliates' participation
in income from joint
ventures 1,150,672 919,126 1,235,317
Participation in (income)
loss of joint venture
with an affiliate (12,631) 11,380 22,666
Equity in loss from invest-
ment in acquitsition loan 71,446
Depreciation of properties 3,235,980 3,214,233 3,248,425
Amortization of deferred
expenses 246,167 237,773 294,211
Amortization of loan
application and
processing fees 50,232 26,207 205,453
Provision for investment
property writedowns 9,810,000
Provision for loan
receivable writedowns 768,066 1,850,000
Payment of leasing
commissions (228,055) (183,543) (171,928)
Net change in:
Accounts and accrued
interest receivable 224,025 453,807 285,273
Prepaid expenses (131,326) 9,262 26,274
Accounts payable (92,093) (318,881) 375,723
Due to affiliates (90,961) (65) 32,838
Accrued real estate taxes 32,059 73,168 40,525
Security deposits 32,977 25,532 7,042
------------ ------------ ------------
Net cash provided by
operating activities 9,741,969 9,357,801 11,877,076
------------ ------------ ------------
Investing activities:
Capital contributions to joint
venture with an affiliate (48,400) (136,441)
Distributions from joint
venture with an affiliate 158,493 17,999 35,738
Collection of principal
payment on loan receivable 6,772,920
<PAGE>
Collection of principal
payment on acquisition loan 6,000,000
Improvements and additions to
properties (576,364) (694,324) (1,364,922)
------------ ------------ ------------
Net cash provided by or (used
in) investing activities 6,355,049 (724,725) 4,534,375
------------ ------------ ------------
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, 1995, 1994 and 1993
(CONTINUED)
1995 1994 1993
-------------- ------------ ------------
Financing activities:
Distributions to Limited
Partners $ (6,308,340)$ (6,308,340)$ (6,490,629)
Distributions to General
Partner (700,928) (700,928) (721,183)
Distributions to joint venture
partners - affiliates (1,597,953) (1,670,887) (1,383,747)
------------ ------------ ------------
Net cash used in
financing activities (8,607,221) (8,680,155) (8,595,559)
------------ ------------ ------------
Net change in cash and cash
equivalents 7,489,797 (47,079) 7,815,892
Cash and cash equivalents at
beginning of year 17,106,496 17,153,575 9,337,683
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 24,596,293 $ 17,106,496 $ 17,153,575
============ ============ ============
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. Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Partnership") is engaged principally in the operation of residential,
commercial, and retail real estate located in various markets within the United
States.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) 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.
(c) Interest income on the loan receivable consisted of monthly payments
received from the borrower, which were recorded in the period they were earned
as determined by the terms of the loan agreement. The accrual of interest was
discontinued when the loan became ninety days contractually delinquent or
sooner, when in the opinion of the General Partner, an impairment had occurred
in the value of the collateral property securing the loan. Once the loan
receivable had been placed on non-accrual status, income was recorded only as
cash payments were received from the borrower. The Partnership received a
prepayment of its last mortgage loan receivable in September 1995.
(d) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121,
the Partnership records its investments in real estate at the lower of cost or
fair value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties by dividing the property's expected
net operating income by a risk adjusted rate of return or by applying a
discounted cash flow analysis both of which consider economic and demographic
conditions in the market. In the event the General Partner determines an
impairment in value has occurred, and the carrying amount of the real estate
asset will not be recovered, a provision is recorded to reduce the carrying
<PAGE>
basis of the property to its estimated fair value. The General Partner
considers the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicate otherwise.
Loan losses on mortgage notes receivable were charged to income when the
General Partner believed the loan balance would not be recovered. The General
Partner assessed the collectibility of each loan on a periodic basis through a
review of the collateral property operations, the property value and the
borrower's ability to repay the loan. Upon foreclosure, the loan balance was
transferred to real estate, after the fair value of the property less costs of
disposal was assessed. Upon the transfer to real estate, a new basis in the
property was established. Consistent with the Partnership's investment
objectives to own income producing real property to be held for long-term
appreciation, real estate acquired through foreclosure was recorded as
investment in real estate.
(e) Investment in acquisition loan represented a first mortgage loan which,
because the loan agreement included certain specified terms, was required to be
accounted for as an investment in a real estate venture. The Partnership
received a prepayment of the 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 recorded its
investment at cost (representing total loan fundings) and subsequently adjusted
its investment for its share of property income or loss.
Amounts representing contractually required debt service were recorded in the
accompanying Statements of Income and Expenses as interest income. Equity 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 cash flow of the
Partnership.
(f) Deferred expenses consist of loan application and processing fees and
mortgage brokerage fees which were amortized over the average term of the
loans, and leasing commissions which are amortized over the life of each
respective lease.
(g) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
for operating costs such as real estate taxes, maintenance and insurance and is
recognized as revenue in the period the applicable costs are incurred.
(h) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Statement No. 107 does not apply to all balance sheet items and
excludes certain financial instruments and all non-financial instruments such
as real estate and investment in joint ventures from its disclosure
requirements.
(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
<PAGE>
account for additional capital contributions, distributions and its share of
joint venture income or loss.
(j) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash equivalents
are primarily held or invested in four issuers of commercial paper.
(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.
(l) Mortgage servicing fees have been reclassified and are included in
administrative expenses during 1995. Several other reclassifications have also
been made to the previously reported 1994 and 1993 financial statements to
conform with the classifications used in 1995. These reclassifications have
not changed the 1994 and 1993 results.
3. 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 as set forth in the Partnership Agreement, amounts placed in the
Repurchase Fund became available, beginning October 15, 1987, to be used to
repurchase Interests from Limited Partners. During 1995, the General Partner
used amounts placed in the Repurchase Fund to repurchase 2,137 Interests from
Limited Partners at a cost of $265,339. All repurchases of Interests have been
made at 90% of the then current valuation of such Limited Partnership Interests
at the previous quarter end less any distributions made after the previous
quarter end. 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 which
will be accounted for as a capital contribution from the General Partner if
<PAGE>
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
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. Net Cash Proceeds will be distributed among Taxable and
Tax-Exempt Limited Partners in accordance with the Partnership Agreement. 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.
4. Loan Receivable Prepayment:
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 participated in
approximately 88% of the loan amount and interest income.
During 1993, the Participants determined that an impairment to the value of the
properties had occurred. The Atlanta mobile home park market experienced
softness due to slower industrial job growth and the availability of cheap land
in the west and south submarkets of Atlanta. This resulted in declining net
operating income at the properties. As a result, the Partnership wrote down the
loan receivable to its estimated fair value at that time 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.
In 1995, the Partnership accepted a discounted prepayment on the loan for
$6,772,920. As a result, the Partnership recognized an additional provision for
loan receivable writedown of $768,066.
Under the original loan terms, the interest income received relating to this
impaired loan would have been approximately $669,000 in 1995, $1,003,000 in
1994, and $912,000 in 1993. Interest income received from this impaired loan
and included in the accompanying Statements of Income and Expenses amounted to
approximately $443,000 in 1995, $638,000 in 1994, and $735,000 in 1993.
5. Investment Property Writedowns:
In 1993, the Partnership determined that an impairment had occurred to the
asset values of the 100 Ashford Center North Office Building and the Ammendale
Technology Park - Phase I. The 100 Ashford Center North Office Building is
located in Atlanta, Georgia. The impairment in the asset value of this property
was due to an oversupply of office space resulting in a highly competitive
leasing market in this area which has caused rental rates to decline below
original expectations. The property was written down to the Partnership's
estimated fair value of $11,902,000, and a $7,510,000 provision for investment
property writedown was recognized in 1993.
The Ammendale Technology Park - Phase I is located in Prince George's County,
Maryland. The impairment in the asset value of this property was caused by an
oversupply of office space resulting in high vacancy rates and rental rates
below original expectations. During 1993, the property was written down to the
<PAGE>
Partnership's estimated fair value of $8,404,000, and a $2,300,000 provision
for investment property writedown was recognized.
6. Management Agreements:
As of December 31, 1995, 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 5% of gross operating receipts
for the residential property and a range of 3% to 6% of gross operating
receipts for commercial properties.
7. Affiliate's Participation in Joint Ventures:
The 1275 K Street Office Building and the Westech 360 Office Buildings are
owned by the Partnership and an affiliated partnership. For the 1275 K Street
Office Building, profits and losses are allocated 60.52% to the Partnership and
39.48% to the affiliate. For the Westech 360 Office Buildings, profits and
losses are allocated 56.7% to the Partnership and 43.3% to the affiliate. 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. Net distributions of
$1,597,953, $1,670,887, and $1,383,747 were made to the joint venture partner
during 1995, 1994, and 1993, respectively.
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 venture partner is an affiliate with investment
objectives similar to those of the Partnership. During 1995, the Partnership
received distributions from property operations of $158,493 and made net
capital contributions of $30,401 and $100,703 in 1994 and 1993, respectively.
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 (GAAP), 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 1995 in the financial statements is
$509,261 greater than the tax income for the same period resulting primarily
from a higher loss on the prepayment of the Colonial Coach loan receivable tax
basis because the loan previously had been written down GAAP basis in 1993.
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $15,192 None $ 22,788 $ 1,899 $56,128 $1,899
Property management fees None None 661,698 None 727,174 59,125
<PAGE>
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 75,593 $ 5,742 98,711 37,288 87,835 7,266
Data processing 52,281 2,906 92,976 22,313 150,164 41,229
Investment processing None None 23,907 1,926 8,646 715
Investor communica-
tions 10,517 None 13,023 7,685 11,266 932
Legal 31,299 2,388 32,434 14,824 29,315 2,425
Portfolio management 165,535 22,487 134,704 34,201 124,795 10,047
Other 5,983 55 11,238 4,403 11,672 966
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed 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; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $104,720, $107,935 and $72,615 for 1995, 1994, and 1993,
respectively.
11. Rentals under Operating Leases:
The Partnership receives rental income from the leasing of office and retail
space under operating leases. The minimum future rentals (excluding amounts
representing executory costs such as taxes, maintenance and insurance) to be
received by the Partnership for its properties based on operating leases held
at December 31, 1995 are approximately as follows:
1996 $16,704,000
1997 13,335,000
1998 11,011,000
1999 8,169,000
2000 4,936,000
Thereafter 2,923,000
-----------
$57,078,000
===========
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 1995, 1994
and 1993. The Partnership is subject to the usual business risks regarding the
collection of the above-mentioned rentals.
12. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, and accounts payable approximates fair value.
<PAGE>
13. Subsequent Event:
In January 1996, the Partnership made a distribution of $3,154,170 ($2.60 per
Taxable Interest and $3.46 per Tax-exempt Interest) to holders of Limited
Partnership Interests for the fourth quarter of 1995.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<CAPTION>as of December 31, 1995
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 $369,463 $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 2,740,869 21,935 (5,200,000)
Denver Centerpoint,
163,000 sq. ft. offc.
cmplx., Denver, CO (f) None 3,534,700 22,077,000 2,075,391 23,744 (14,200,000)
Ross Plaza, 170,000 sq.
ft. shpg. cntr.,
Federal Way, WA 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 (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 (g) None 2,554,000 16,431,518 3,856,993 27,327 (7,510,000)
<PAGE>
1275 K Street, 231,000
sq. ft. offc. bldg.,
Washington, D.C. None 13,200,000 33,950,050 3,671,006 52,090 (3,900,000)
----------- ------------ ---------- ---------- ------------
$34,416,481 $130,386,691 $16,871,700 $1,470,315 $(47,510,000)
=========== ============ =========== ========== ============
</TABLE>
See notes (a) through (h).
<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, 1995
(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 $3,730,847 $8,809,093 $522,126 1986 1991 (e)
Bingham Farms Office
Plaza-Phase V, 193,000
sq. ft. bldg., Bingham
Farms, MI (f) 746,097 15,220,962 15,967,059 6,005,057 1984 1985 (e)
Denver Centerpoint,
163,000 sq. ft. offc.
cmplx., Denver, CO (f) 1,666,414 11,844,421 13,510,835 5,959,894 1983 1985 (e)
Ross Plaza, 170,000 sq.
ft. shpg. cntr.,
Federal Way, WA 2,522,217 11,826,898 14,349,115 5,734,443 (h) 1985 (e)
Spalding Bridge Apts.,
190-units, Atlanta, GA 951,899 9,122,385 10,074,284 3,626,159 1984 1985 (e)
Westech 360, 178,000 sq.
ft. offc. cmplx.,
Austin, TX (g) 1,970,644 8,621,173 10,591,817 2,674,953 1986 1988 (e)
100 Ashford Center North,
<PAGE>
149,000 sq. ft. offc.
bldg., Atlanta, GA
(g) 1,681,675 13,678,163 15,359,838 4,228,229 1987 1987 (e)
1275 K Street, 231,000
sq. ft. offc. bldg.,
Washington, D.C. 12,191,583 34,781,563 46,973,146 13,653,211 1985 1986 (e)
----------------------- ------------ -----------
$26,808,775$108,826,412 $135,635,187 $42,404,072
======================= ============ ===========
</TABLE>
See notes (a) through (h).
<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 $153,569,072. The total of these is $188,323,711.
(d) Reconciliation of Real Estate
-----------------------------
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $135,058,823 $134,364,499 $142,809,577
Additions during the year:
Improvements 576,364 694,324 1,364,922
Deductions during the year:
Provision for investment
property writedowns (9,810,000)
------------ ------------ ------------
Balance at end of year $135,635,187 $135,058,823 $134,364,499
============ ============ ============
Reconciliation of Accumulated Depreciation
-------------------------------------------
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $39,168,092 $35,953,859 $32,705,434
Depreciation expense
for the year 3,235,980 3,214,233 3,248,425
----------- ----------- -----------
Balance at end of year $42,404,072 $39,168,092 $35,953,859
=========== =========== ===========
(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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 24596
<SECURITIES> 0
<RECEIVABLES> 538
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25348
<PP&E> 135635
<DEPRECIATION> 42404
<TOTAL-ASSETS> 120656
<CURRENT-LIABILITIES> 1231
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 102441
<TOTAL-LIABILITY-AND-EQUITY> 120656
<SALES> 0
<TOTAL-REVENUES> 20435
<CGS> 0
<TOTAL-COSTS> 10716
<OTHER-EXPENSES> 4394
<LOSS-PROVISION> 768
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4557
<INCOME-TAX> 0
<INCOME-CONTINUING> 4557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4557
<EPS-PRIMARY> 4.00
<EPS-DILUTED> 4.00
</TABLE>
