SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
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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
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3314331
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(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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<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
------------ -------------
Cash and cash equivalents $ 3,659,355 $ 4,301,091
Accounts and accrued interest receivable 7,220 159,149
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$ 3,666,575 $ 4,460,240
============ =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 12,825 $ 33,835
Due to affiliates 75,654 45,302
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Total liabilities 88,479 79,137
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Commitments and contingencies
Limited Partners' capital (939,587 Interests
issued and outstanding) 4,374,325 5,160,001
General Partner's deficit (796,229) (778,898)
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Total partners' capital 3,578,096 4,381,103
------------ -------------
$ 3,666,575 $ 4,460,240
============ =============
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 six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
------------ -------------
Income:
Rental income $ 2,207,340
Service income 331,842
Interest on short-term investments $ 108,644 473,846
Settlement income 117,892
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Total income 226,536 3,013,028
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Expenses:
Depreciation 632,685
Amortization of deferred expenses 359,139
Property operating 1,232,516
Real estate taxes 236,610
Property management fees 97,851
Administrative 243,867 354,618
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Total expenses 243,867 2,913,419
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(Loss) income before net gain on sales of
properties (17,331) 99,609
Net gain on sales of properties 6,670,023
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Net (loss) income $ (17,331) $ 6,769,632
============ =============
Net loss allocated to General Partner $ (17,331) None
============ =============
Net income allocated to Limited Partners None $ 6,769,632
============ =============
Net income per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted None $ 7.20
============ =============
Distribution to General Partner None $ 350,464
============ =============
Distributions to Limited Partners $ 785,676 $ 83,375,855
============ =============
Distributions per Limited Partnership
Interest:
Taxable None $ 2.60
============ =============
Tax-exempt $ 0.95 $ 100.46
============ =============
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 June 30, 1998 and 1997
(Unaudited)
1998 1997
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Income:
Rental income $ 780,687
Service income 87,832
Interest on short-term investments $ 49,460 134,423
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Total income 49,460 1,002,942
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Expenses:
Depreciation 267,743
Amortization of deferred expenses 5,636
Property operating 410,267
Real estate taxes 63,820
Property management fees 38,971
Administrative 95,867 188,357
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Total expenses 95,867 974,794
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Net (loss) income $ (46,407) $ 28,148
============ =============
Net (loss) allocated to General Partner $ (17,331) $ (138,507)
============ =============
Net (loss) income allocated to Limited
Partners $ (29,076) $ 166,655
============ =============
Net (loss) income per Limited Partnership
Interest (939,587 issued and outstanding)
- Basic and Diluted $ (0.03) $ 0.18
============ =============
Distribution to Limited Partners $ 785,676 $ 22,329,747
============ =============
Distributions per Limited Partnership
Interest:
Taxable None None
============ =============
Tax-exempt $ 0.95 $ 27.00
============ =============
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 six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
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Operating activities:
Net (loss) income $ (17,331) $ 6,769,632
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Net gain on sales of properties (6,670,023)
Depreciation of properties 632,685
Amortization of deferred expenses 359,139
Payment of leasing commissions (136,566)
Net change in:
Accounts and accrued interest
receivable 151,929 (7,083)
Prepaid expenses 139,249
Accounts payable (21,010) (263,491)
Due to affiliates 30,352 30,017
Security deposits (100,166)
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Net cash provided by operating activities 143,940 753,393
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Investing activities:
Proceeds from sales of properties 25,478,000
Payment of selling costs (812,679)
Improvements and additions to properties (197,946)
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Net cash provided by investing activities 24,467,375
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Financing activities:
Distributions to Limited Partners (785,676) (83,375,855)
Distribution to General Partner (350,464)
Capital contribution from joint venture
partner - affiliate 39,705
Distribution to joint venture partner -
affiliate (220,882)
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Net cash used in financing activities (785,676) (83,907,496)
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Net change in cash and cash equivalents (641,736) (58,686,728)
Cash and cash equivalents at beginning
of period 4,301,091 66,445,811
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Cash and cash equivalents at end of period $ 3,659,355 $ 7,759,083
============ =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a)The loss allocation between the Limited Partners and the General Partner has
been adjusted for financial statement purposes in order that the capital
account balances more accurately reflect their remaining economic interests as
provided for in the Partnership Agreement.
(b)In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the six months
and quarter ended June 30, 1998, and all such adjustments are of a normal and
recurring nature.
(c) A reclassification has been made to the previously reported 1997 financial
statements in order to provide comparability with the 1998 statements. This
reclassification has not changed the 1997 results.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its four remaining properties.
The Partnership has retained a portion of the cash to satisfy obligations of
the Partnership, as well as to establish a reserve for contingencies. 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 and
costs stemming from litigation involving the Partnership, including, but not
limited to, the lawsuit discussed in Note 4 of Notes to Financial Statements.
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 continues
to exist or arises, reserves may be held by the Partnership for a longer period
of time.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1998 are:
Paid
-------------------------
Six Months Quarter Payable
------------ --------- ---------
Reimbursement of expenses to
the General Partner, at cost $ 29,817 $ 14,313 $ 75,654
<PAGE>
4. Contingencies:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal, which is pending.
It is not determinable at this time whether or not an unfavorable decision in
this action would have a material adverse impact on the financial position of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
5. Settlement Income:
The Pacific Center Office Buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
During April 1998, the Partnership received $117,892 as its share of the
settlement related to a dispute with a former tenant at the property. This
amount was recognized as settlement income for financial statement purposes.
<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. As of June 30, 1998, the Partnership has no loans outstanding or
properties remaining in its portfolio.
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 1997 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
Administrative expenses were higher than interest income earned on short-term
investments and income related to a settlement of a dispute with a former
tenant at a property during the six months and quarter ended June 30, 1998. As
a result, the Partnership recognized a net loss for the six months and quarter
ended June 30, 1998. During 1997, the Partnership recognized income from the
operation of five properties and recognized a gain during the six months ended
June 30, 1997 in connection with the sale of the 100 Ashford Center North
office building. As a result of these events, the Partnership recognized net
income for the six months and quarter ended June 30, 1997. Further discussion
of the Partnership's operations is summarized below.
1998 Compared to 1997
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the six months and quarters ended June 30, 1998 and 1997.
The Partnership sold the Ammendale Technology Park - Phase I, the 100 Ashford
Center North office buildings, the Bingham Farms Office Plaza - Phase V, and
the Ross Plaza Shopping Center during 1997. As a result, rental income, service
income, depreciation, amortization expense, property operating expenses, real
estate taxes and property management fees ceased during 1997.
<PAGE>
Higher average cash balances were available for investment during 1997 due to
the proceeds received by the Partnership from the 1997 and 1996 property sales,
a portion of which was distributed to Partners in 1997 and April 1998. This
resulted in a decrease in interest income on short-term investments during 1998
as compared to 1997.
The Pacific Center Office Buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
During April 1998, the Partnership received $117,892 as its share of the
settlement related to a dispute with a former tenant at the property. This
amount was recognized as settlement income for financial statement purposes
during 1998.
The Partnership incurred lower bank, portfolio management, legal and other
professional fees during 1998 as compared to 1997 resulting in a decrease in
administrative expenses during 1998 as compared to 1997.
The Partnership sold the 100 Ashford Center North office building in February
1997 and recognized a gain of $6,748,971 on the property sale. The Partnership
sold the Ammendale Technology Park - Phase I office building in February 1997
and recognized a loss of $78,948 on the property sale.
Liquidity and Capital Resources
- ------------------------------
The cash position of the Partnership decreased by approximately $642,000 as of
June 30, 1998 when compared to December 31, 1997 primarily due to the
distribution made to Tax-exempt Limited Partners in April 1998 consisting
primarily of Net Cash Proceeds from the release of the holdback on the 100
Ashford Center North Office Building. Operating activities generated cash of
approximately $144,000 and consisted of the collection of a receivable related
to several sold properties, income from a settlement of a dispute with a former
tenant at the Pacific Center Office Buildings and interest income earned from
short-term investments, which were partially offset by the payment of
administrative expenses. Financing activities consisted of a distribution to
the Tax-exempt Limited Partners of approximately $786,000.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its four remaining properties.
The Partnership has retained a portion of the cash to satisfy obligations of
the Partnership, as well as to establish a reserve for contingencies. 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 and
costs stemming from litigation involving the Partnership, including, but not
limited to, the lawsuit discussed in Note 4 of Notes to Financial Statements.
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 continues
to exist or arises, reserves may be held by the Partnership for a longer period
of time.
<PAGE>
The Pacific Center Office Buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
The Partnership receieved $117,892 as its share of the settlement related to a
dispute with a former tenant at the property in April 1998.
The Partnership sold the Ross Plaza Shopping Center during 1997. Pursuant to
the sale agreement, $100,000 of the proceeds is being retained by the
Partnership and is not available for distribution until a dispute with a tenant
at the property is resolved.
To date, Taxable Limited Partners have received cash distributions aggregating
$116.78 per $250 Taxable Interest, of which $90.95 represents Net Cash Receipts
and $25.83 represents Net Cash Proceeds and Tax-exempt Limited Partners have
received cash distributions aggregating $279.05 per $250 Tax-exempt Interest,
of which $121.03 represents Net Cash Receipts and $158.02 represents Net Cash
Proceeds. No additional distributions are anticipated to be made prior to the
termination of the Partnership. However, after paying final partnership
expenses, any remaining cash reserves will be distributed in accordance with
the Partnership Agreement. Amounts allocated to the Repurchase Fund will also
be distributed at that time. Taxable Limited Partners will not receive
aggregate distributions from the Partnership equal to their original
investment. However, Taxable Limited Partners will receive a distribution from
amounts allocated to the Repurchase Fund.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of June 30, 1998, there were 24,071 Interests and cash of
$2,896,122 in the Repurchase Fund.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Forms of Subscription Agreements, previously filed as Exhibits 4.1.1 and
4.1.2 to Amendment No. 2 dated September 20, 1984 to the Registrant's
Registration Statement (Registration No. 2-91810) and to Amendment No. 1 dated
January 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 Current Report on Form 10-Q for the
quarter ended June 30, 1992 (Commission File No. 0-13348), are incorporated
herein by reference.
(10) Material Contracts:
(i) Agreement of Sale and attachments thereto relating to the sale of the 1275
K Street office building, Washington, D.C., previously filed as Exhibit (2) to
the Registrant's Current Report on Form 8-K dated November 29, 1996, is
incorporated herein by reference.
(ii)(a) Agreement of Sale and attachment thereto relating to the sale of the
100 Ashford Center North office building, Atlanta, Georgia, previously filed as
Exhibit (2) to the Registrant's Current Report on Form 8-K dated January 20,
1997, is incorporated herein by reference.
(ii)(b) Letter Agreement relating to the sale of the 100 Ashford Center North
office building, Atlanta, Georgia, previously filed as Exhibit (10)(ii)(b) to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
(iii)(a) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed
as Exhibit (10)(iv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, is hereby incorporated by reference.
(iii)(b) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed
as Exhibit (10)(iii)(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, is hereby incorporated by reference.
(iii)(c) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed as
Exhibit (10)(iii)(c) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is hereby incorporated by reference.
<PAGE>
(iv)(a) Agreement of Sale and attachment thereto relating to the sale of the
Ross Plaza Shopping Center, Federal Way, Washington, previously filed as
Exhibit (10)(iv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is hereby incorporated by reference.
(iv)(b) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Ross Plaza Shopping Center, Federal Way, Washington, previously
filed as Exhibit (10)(iv)(b) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is hereby incorporated by reference.
(iv)(c) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Ross Plaza Shopping Center, Federal Way, Washington, previously
filed as Exhibit (10)(iv)(c) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is hereby incorporated by reference.
(27) Financial Data Schedule of the Registrant for the six months ended June
30, 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended June 30, 1998.
<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/ Jayne A. Kosik
------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal Accounting
Officer) of Balcor Equity Partners-II,
the General Partner
Date: August 14, 1998
-----------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3659
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3667
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3667
<CURRENT-LIABILITIES> 88
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3578
<TOTAL-LIABILITY-AND-EQUITY> 3667
<SALES> 0
<TOTAL-REVENUES> 227
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17)
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</TABLE>
