UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(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, 1996
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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
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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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Securities registered pursuant to Section 12(b) of the Act: None
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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 ]
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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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Balcor Equity Pension Investors - II A Real Estate Limited Partnership (the
"Partnership") recognized gains on the September 1996 sale of the Spalding
Bridge apartment complex and the December 1996 sales of the Denver Centerpoint
and Westech 360 office buildings. During 1996, the Partnership also recognized
its share of a gain on the sale of the Pacific Center office building, in which
the Partnership held a minority joint venture interest. These gains were
partially offset by a loss recognized on the December 1996 sale of the 1275 K
Street office building and a provision for investment property write-down
recognized on the Ammendale Technology Park - Phase I. The combined effect of
these events resulted in higher net income during 1996 as compared to 1995.
During 1995, 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 as
compared to 1994. 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. The combined effect of
these items resulted in a decrease in net income during 1995 when compared to
1994. Further discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
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Rental income increased by approximately $655,000 during 1996 as compared to
1995 due to lease buy-out income received at the Westech 360 office building,
higher occupancy rates at the 100 Ashford Center North office building and the
Bingham Farms Office Plaza - Phase V and higher percentage rental income at the
Ross Plaza Shopping Center. These increases in rental income were partially
offset by lower rental income from the Spalding Bridge Apartments of
approximately $350,000 due to the sale of the property in September 1996.
In 1995, the Partnership accepted a discounted prepayment on the Colonial Coach
and Castlewood West loan receivable. The Partnership recognized interest
income on this loan receivable prior to the prepayment. In connection with the
discounted prepayment, the Partnership recognized a provision of $768,066 for
loan receivable write-down.
The Partnership recognized its share of the gain on the sale of the Pacific
Center office building, in which it held a joint venture interest, resulting in
an increase in participation in income of joint venture with an affiliate
during 1996 as compared to 1995.
<PAGE>
Due to the 1996 sales of the Denver Centerpoint, Westech 360 and 1275 K Street
office buildings, as discussed above, the Partnership fully amortized the
remaining deferred leasing commissions and as a result, amortization of
deferred expenses increased during 1996 as compared to 1995.
The Partnership incurred higher consulting, investor processing, printing and
postage costs in connection with its response to a tender offer and related
litigation during 1996. As a result, administrative expenses increased during
1996 as compared to 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties. Determinations of fair
value are made periodically on the basis of property operations. Determinations
of fair value represent estimations based on many variables which affect the
value of real estate, including economic and demographic conditions. During
December 1996, the Partnership recognized a provision for investment property
writedown of $968,000 to provide for a change in the estimate of fair value of
the Ammendale Technology Park - Phase I.
The Partnership sold the Spalding Bridge Apartments in September 1996 and sold
the Denver Centerpoint, Westech 360 and 1275 K Street office buildings in
December 1996. The Partnership recognized gains totaling $20,627,020 on three
of the property sales and recognized a loss of $5,028,903 on the 1275 K Street
Office Building sale during 1996. See Note 12 of Notes to Financial Statements
for additional information.
The 1275 K Street and Westech 360 office buildings were owned through joint
ventures with affiliates. As a result of the affiliates' share of the gain
recognized on the sale of the Westech 360 office building of approximately
$4,288,000 during 1996, affiliates' participation in income from joint ventures
increased during 1996 as compared to 1995. This increase was partially offset
by the affiliates' share of the loss recognized on the sale of the 1275 K
Street office building of approximately $1,925,000.
1995 Compared to 1994
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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.
<PAGE>
Due to a decrease in expenses related to leasing activity completed in 1994 at
the Pacific Center Office Buildings, 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.
Liquidity and Capital Resources
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The cash position of the Partnership increased by approximately $41,850,000 as
of December 31, 1996 as compared to December 31, 1995 primarily due to proceeds
received from the sales of four properties and the property in which the
Partnership held a minority joint venture interest. Cash flow of approximately
$9,284,000 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 activities consisted of net proceeds received from the
sales the Spalding Bridge Apartments and the Denver Centerpoint, Westech 360
and 1275 K Street office buildings totaling approximately $69,518,000, net
distributions received from the joint venture with an affiliate totaling
approximately $3,627,000, less payments made for improvements to certain of the
Partnership's properties of approximately $920,000. Financing activities
consisted of distributions to the Partners of approximately $20,863,000 and to
the affiliated joint venture partners of approximately $18,797,000. In January
1997, the Partnership made a special Net Cash Proceeds distribution to
Tax-Exempt Limited Partners of approximately $57,892,000.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures.
During 1996 and 1995, all of the remaining properties as of December 31, 1996
generated positive cash flow. The Spalding Bridge Apartments, the Denver
Centerpoint, Westech 360 and 1275 K Street office buildings, and the Pacific
Center Office Buildings, in which the Partnership held a minority joint venture
interest, all generated positive cash flow during 1995 and prior to their sales
in 1996. As of December 31, 1996, occupancy rates at the Partnership's
remaining commercial properties ranged from 90% to 100%.
During 1996, the Partnership sold four properties and the property in which the
Partnership held a minority joint venture interest was also sold, as discussed
below. During February 1997, the Partnership sold two additional properties,
as discussed below. The Partnership has entered into a contract to sell the
Ross Plaza Shopping Center for a sale price of $10,000,000. See "Item 1.
Business - Other Information" for additional information regarding the
contract. The Partnership is actively marketing its remaining property, the
Bingham Farms Office Plaza - Phase V.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. Such contingencies may include legal and other fees
<PAGE>
stemming from litigation involving the Partnership including, but not limited
to, the lawsuits discussed in "Item 3. Legal Proceedings." In the absence of
any contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency exists, reserves may be held
by the Partnership for a longer period of time.
In September 1996, the Partnership sold the Spalding Bridge Apartments in an
all cash sale for $9,872,500. From the proceeds of the sale, the Partnership
paid $267,092 in selling costs. In accordance with the Partnership Agreement,
the Partnership distributed the proceeds to the Tax-exempt Limited Partners in
January 1997. See Note 12 of Notes to Financial Statements for additional
information.
In December 1996, the Partnership sold the Denver Centerpoint Office Buildings
in an all cash sale for $15,000,000. From the proceeds of the sale, the
Partnership paid $327,876 in selling costs. In accordance with the Partnership
Agreement, the Partnership distributed the proceeds to the Tax-exempt Limited
Partners in January 1997. See Note 12 of Notes to Financial Statements for
additional information.
The 1275 K Street office building was owned by a joint venture consisting of
the Partnership and an affiliate. In December 1996, the joint venture sold the
property in an all cash sale for $28,300,000. From the proceeds of the sale,
the joint venture paid $911,470 in selling costs. The net proceeds of the sale
were $27,388,530, of which $16,575,538 was the Partnership's share. Pursuant
to the terms of the sale, $2,287,500 of the proceeds will be retained by the
joint venture until September 1997. In accordance with the Partnership
Agreement, the remaining proceeds received by the Partnership were distributed
to the Tax-exempt Limited Partners in January 1997. See Note 12 of Notes to
Financial Statements for additional information.
The Westech 360 office buildings were owned by a joint venture consisting of
the Partnership and an affiliate. In December 1996, the joint venture sold the
property in an all cash sale for $18,330,000. From the proceeds of the sale,
the joint venture paid $477,652 in selling costs. The net proceeds of the sale
were $17,852,348, of which $10,122,281 was the Partnership's share. Pursuant
to the terms of the sale, $1,395,000 of the proceeds will be retained by the
joint venture until September 1997. In accordance with the Partnership
Agreement, the remaining proceeds received by the Partnership were distributed
to the Tax-exempt Limited Partners in January 1997. See Note 12 of Notes to
Financial Statements for additional information.
The Pacific Center office buildings were owned by a joint venture consisting of
the Partnership and an affiliate. In December 1996, the joint venture sold the
property in an all cash sale for $15,950,000. From the proceeds of the sale,
the joint venture paid $431,045 in selling costs. The net proceeds of the sale
were $15,518,955, of which $3,555,393 was the Partnership's share. In
accordance with the Partnership Agreement, the remaining proceeds received by
the Partnership were distributed to the Tax-exempt Limited Partners in January
1997. See Note 9 of Notes to Financial Statements for additional information.
<PAGE>
In February 1997, the Partnership sold the 100 Ashford Center North office
building in an all cash sale for $17,746,000. From the proceeds of the sale,
the Partnership paid $392,666 in selling costs. Pursuant to the terms of the
sale, $1,100,000 of the proceeds will be retained by the Partnership until
November 1997. In accordance with the Partnership Agreement, the Partnership
will distribute the remaining proceeds to the Tax-exempt Limited Partners in
1997.
In February 1997, the Partnership sold the Ammendale Technology Park - Phase I
office building in an all cash sale for $7,732,000. From the proceeds of the
sale, the Partnership paid $420,013 in selling costs. Pursuant to the terms of
the sale, $229,096 of the proceeds will be held in escrow until November 1997.
In accordance with the Partnership Agreement, the Partnership will distribute
the remaining proceeds to the Tax-exempt Limited Partners in 1997.
In January 1997, the Partnership paid $61,046,108 ($2.60 per Taxable Interest
and $73.46 per Tax-exempt Interest) to Limited Partners. Of this amount,
$3,154,170 ($2.60 per Taxable Interest and $3.46 per Tax-exempt Interest)
represents the regular quarterly cash distribution of Net Cash Receipts for the
fourth quarter of 1996. The level of the regular quarterly cash distribution
was consistent with the amount distributed to Limited Partners for the previous
quarter. In addition, $57,891,938 ($70.00 per Tax-exempt Interest) of the cash
distribution represents a special cash distribution of Net Cash Proceeds to
Tax-exempt Limited Partners pursuant to the Partnership Agreement from the 1996
property sales, as discussed above. During January 1997, the Partnership paid
$262,847 to the General Partner, representing its quarterly cash distribution
for the fourth quarter of 1996 and made a contribution of $87,616 to the
Repurchase Fund. To date, including the January 1997 cash distribution, Limited
Partners have received cash distributions aggregating approximately $117 per
$250 Taxable Interest, of which $91 represents Net Cash Receipts and $26
represents Net Cash Proceeds, and $225 per $250 Tax-exempt Interest, of which
$121 represents Net Cash Receipts and $104 represents Net Cash Proceeds. In
light of results to date, the General Partner does not anticipate that taxable
investors will recover all of their original investment.
The Partnership made four distributions totaling $10.40, $5.20 and $5.20 per
Taxable Interest and $22.02, $6.92 and $6.92 per Tax-exempt Interest in 1996,
1995 and 1994, respectively. Distributions to tax-exempt investors were
comprised of $13.84 of Net Cash Receipts and $8.18 of Net Cash Proceeds in 1996
from the Colonial Coach and Castlewood West loan prepayment in 1995, $6.92 of
Net Cash Receipts in 1995 and $6.92 of Net Cash Receipts in 1994. Distributions
to taxable investors were comprised of Net Cash Receipts in all three years.
Net Cash Receipts distributions increased from 1995 to 1996 due to improved
operations at the Partnership's properties. In accordance with the Partnership
Agreement, sales proceeds are being allocated to the Tax-exempt Investors, and
Taxable and Tax-exempt Investors have received quarterly distributions from Net
Cash Receipts. Since a majority of the Partnership's properties have been
sold, it is not anticipated that the Partnership will generate further Net Cash
Receipts. Taxable Investors are not expected to receive further quarterly
distributions, beginning with the first quarter 1997. Tax-exempt Investors
will receive future Net Cash Proceeds distributions primarily from the February
1997 property sales and the sale of the Partnership's remaining properties.
However, Taxable Investors will share in the amounts allocated to the
Repurchase Fund.
<PAGE>
During 1996, the General Partner, on behalf of the Partnership, used amounts
placed in the Repurchase Fund to repurchase 3,380 interests from Limited
Partners at a cost of $433,367. In February 1997, the Partnership discontinued
the repurchase of Interests from Limited Partners.
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.
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital
expenditures, plans for future operations, financing plans or requirements, and
plans relating to properties of the Partnership, as well as assumptions
relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ materially
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
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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/ Jayne A. Kosik
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Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of
Balcor Equity Partners-II,
the General Partner
Date: April 4, 1997
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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
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President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
/s/ Thomas E. Meador Partners-II, the General Partner April 4, 1997
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Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of
Balcor Equity Partners-II,
/s/ Jayne A. Kosik the General Partner April 4, 1997
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Jayne A. Kosik
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