SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-13348
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
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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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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
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
------------ ------------
Cash and cash equivalents $ 23,415,402 $ 24,596,293
Accounts and accrued interest receivable 481,650 538,041
Prepaid expenses 304,059 213,241
Deferred expenses, net of accumulated
amortization of $1,050,900 in 1996 and
$989,273 in 1995 740,721 740,093
Investment in joint venture with an affiliate 1,414,978 1,336,859
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26,356,810 27,424,527
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Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 108,826,412 108,826,412
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135,635,187 135,635,187
Less accumulated depreciation 43,220,592 42,404,072
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Investment in real estate, net of
accumulated depreciation 92,414,595 93,231,115
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$ 118,771,405 $ 120,655,642
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 288,138 $ 282,014
Due to affiliates 53,123 33,578
Accrued real estate taxes 320,372 448,030
Security deposits 478,769 467,600
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Total liabilities 1,140,402 1,231,222
Affiliates' participation in joint ventures 16,955,544 16,983,307
Limited Partners' capital (939,587 Interests
issued and outstanding) 100,772,076 102,429,946
General Partner's (deficit) capital (96,617) 11,167
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Total partners' capital 100,675,459 102,441,113
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$ 118,771,405 $ 120,655,642
============ ============
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 quarters ended March 31, 1996 and 1995
(Unaudited)
1996 1995
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Income:
Rental income $ 4,800,099 $ 4,357,498
Service income 439,169 464,145
Interest on short-term investments 314,016 267,584
Interest on loan receivable - first mortgage,
net of amortization of $6,552 in 1995 152,965
Participation in income of joint venture
with an affiliate 32,567 32,588
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Total income 5,585,851 5,274,780
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Expenses:
Depreciation 816,520 808,024
Amortization of deferred expenses 61,627 55,314
Property operating 1,737,955 1,423,065
Real estate taxes 517,674 537,322
Property management fees 182,902 167,623
Administrative 149,343 219,456
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Total expenses 3,466,021 3,210,804
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Income before affiliates' participation in
joint ventures 2,119,830 2,063,976
Affiliates' participation in income from
joint ventures (380,850) (303,645)
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Net income $ 1,738,980 $ 1,760,331
============ ============
Net income allocated to General Partner $ 242,680 $ 240,419
============ ============
Net income allocated to Limited Partners $ 1,496,300 $ 1,519,912
============ ============
Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 1.59 $ 1.62
============ ============
Distribution to General Partner $ 350,464 $ 175,232
============ ============
Distribution to Limited Partners $ 3,154,170 $ 1,577,085
============ ============
Distribution per Limited Partnership Interest:
Taxable $ 2.60 $ 1.30
============ ============
Tax-exempt $ 3.46 $ 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 CASH FLOWS
for the quarters ended March 31, 1996 and 1995
(Unaudited)
1996 1995
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Operating activities:
Net income $ 1,738,980 $ 1,760,331
Adjustments to reconcile net income to net
cash provided by operating activities:
Affiliates' participation in income
from joint ventures 380,850 303,645
Participation in income of joint
venture with an affiliate (32,567) (32,588)
Depreciation of properties 816,520 808,024
Amortization of deferred expenses 61,627 55,314
Amortization of loan application and
processing fees 6,552
Payment of leasing commissions (62,255)
Net change in:
Accounts and accrued interest
receivable 56,391 (119,794)
Prepaid expenses (90,818) (220,517)
Accounts payable 6,124 (36,055)
Due to affiliates 19,545 50,930
Accrued real estate taxes (127,658) (109,075)
Security deposits 11,169 (6,629)
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Net cash provided by operating activities 2,777,908 2,460,138
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Investing activity:
Capital contribution to joint venture with
an affiliate (45,552)
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Cash used in investing activity (45,552)
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Financing activities:
Distribution to Limited Partners (3,154,170) (1,577,085)
Distribution to General Partner (350,464) (175,232)
Distribution to joint venture
partners - affiliates (408,613)
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Cash used in financing activities (3,913,247) (1,752,317)
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Net change in cash and cash equivalents (1,180,891) 707,821
Cash and cash equivalents at
beginning of period 24,596,293 17,106,496
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Cash and cash equivalents at end of period $ 23,415,402 $ 17,814,317
============ ============
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 Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1996, and all such adjustments are of a normal and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost $22,611 $53,123
3. Subsequent Event:
In April 1996, the Partnership made a distribution of $3,154,170 ($2.60 per
Taxable Interest and $3.46 per Tax-exempt Interest) to the holders of Limited
Partnership Interests for the first quarter of 1996.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $234,896,750 through the sale of Limited Partnership
Interests and utilized these proceeds to fund seven loans and acquire five real
property investments and a minority joint venture interest in one additional
real property. Subsequently, the Partnership acquired three properties through
foreclosure on loans and accepted prepayments on four additional loans. As of
March 31, 1996, the Partnership operates eight properties and holds a minority
joint venture interest in an additional property.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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Improved operations at certain of the Partnership's properties was offset by a
decrease in interest income on loan receivable due to the Colonial Coach and
Castlewood West loan prepayment in September 1995. As a result, the
Partnership's net income remained relatively unchanged during the quarter ended
March 31, 1996 as compared to the same period in 1995. Further discussion of
the Partnership's operations is summarized below.
1996 Compared to 1995
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Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
Primarily as a result of higher average occupancy at the 1275 K Street office
building, higher rental rates at the Denver Centerpoint and Westech 360 office
buildings, and higher percentage rents at the Ross Plaza shopping center,
rental income increased during 1996 as compared to 1995. These increases were
partially offset by lower occupancy at the Ammendale Technology Park - Phase I.
Higher average cash balances resulting from the Colonial Coach and Castlewood
West loan prepayment in September 1995 caused an increase in interest income on
short-term investments during 1996 when compared to 1995.
Interest income on loan receivable was recognized prior to the Colonial Coach
and Castlewood West loan prepayment in September 1995.
Primarily as a result of higher leasing costs due to increased leasing activity
at the Westech 360 office building, higher repairs and maintenance at the
<PAGE>
Denver Centerpoint office building and higher snow removal costs at the
Ammendale Technology Park-Phase I, property operating expenses increased during
1996 as compared to 1995. These increases were partially offset by lower
leasing costs at the 1275 K Street office building.
Primarily as a result of lower accounting fees, administrative expenses
decreased for 1996 as compared to 1995. In addition, the Partnership no longer
incurs mortgage servicing fees, which were included in administrative expenses
in 1995, due to the prepayment of the Colonial Coach and Castlewood West loan
receivable, as described above.
The 1275 K Street and Westech 360 office buildings are owned through joint
ventures with affiliates. As a result of increased rental income and lower
leasing costs at the 1275 K Street office building, as described above,
affiliates' participation in income from joint ventures increased during 1996
as compared to 1995.
Liquidity and Capital Resources
- ------------------------------
The cash position of the Partnership decreased by approximately $1,181,000 as
of March 31, 1996 as compared to December 31, 1995. Cash flow of approximately
$2,778,000 provided by the Partnership's operating activities includes cash
flow from the operations of the properties and interest income on short-term
investments, which were partially offset by the payment of administrative
expenses. Investing activity consisted of a contribution made to the joint
venture with an affiliate of approximately $46,000. Financing activities
consisted of distributions to the Partners of approximately $3,505,000 and to
the affiliated joint venture partners of approximately $409,000.
During each of the quarters ended March 31, 1996 and 1995, 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 March 31, 1996, occupancy rates at the Partnership's commercial
properties ranged from 94% to 100%, except for Bingham Farms - Phase V Office
Plaza where the occupancy rate was 84%. 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.
In April 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 first quarter of 1996. The level of this distribution was
consistent with the amount distributed to Limited Partners for the previous
quarter. In addition, during April 1996, the Partnership paid $262,848 to the
General Partner, representing its quarterly distribution for the first quarter
of 1996 and made a contribution of $87,616 to the Repurchase Fund. To date,
including the April 1996 distribution, Limited Partners have received
distributions aggregating approximately $109 per $250 Taxable Interest, of
which $83 represents Net Cash Receipts and $26 represents Net Cash Proceeds,
and $136 per $250 Tax-exempt Interest, of which $110 represents Net Cash
<PAGE>
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.
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.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Forms of Subscription Agreements, previously filed as Exhibits 4.1.1 and
4.1.2 to Amendment No. 2 dated September 20, 1984 to the Registrant's
Registration Statement (Registration No. 2-91810) and to Amendment No. 1 dated
January 25, 1985 to the Registrant's Registration Statement (Registration No.
2-95409) and Form of Confirmation regarding Interests in the Registrant set
forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1992 (Commission File No. 0-13348) are incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1996 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Equity Partners-II, the General Partner
By: /s/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: May 15, 1996
-------------------------------
<PAGE>
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<PERIOD-END> MAR-31-1996
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