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 September 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
September 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- ---------------
Cash and cash equivalents $ 3,639,549 $ 4,301,091
Accounts and accrued interest receivable 16,874 159,149
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$ 3,656,423 $ 4,460,240
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 17,591 $ 33,835
Due to affiliates 68,567 45,302
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Total liabilities 86,158 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 (804,060) (778,898)
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Total partners' capital 3,570,265 4,381,103
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$ 3,656,423 $ 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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
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Income:
Rental income $ 2,395,225
Service income 391,515
Interest on short-term investments $ 162,034 732,572
Settlement income 117,892
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Total income 279,926 3,519,312
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Expenses:
Depreciation 731,235
Amortization of deferred expenses 582,238
Property operating 1,407,321
Real estate taxes 253,865
Property management fees 112,877
Administrative 305,088 463,227
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Total expenses 305,088 3,550,763
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Loss before net gain on sales of
properties (25,162) (31,451)
Net gain on sales of properties 8,585,912
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Net (loss) income $ (25,162) $ 8,554,461
============== ===============
Net loss allocated to General Partner $ (25,162) None
============== ===============
Net income allocated to Limited Partners None $ 8,554,461
============== ===============
Net income per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted None $ 9.10
============== ===============
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 September 30, 1998 and 1997
(Unaudited)
1998 1997
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Income:
Rental income $ 187,885
Service income 59,673
Interest on short-term investments $ 53,390 258,726
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Total income 53,390 506,284
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Expenses:
Depreciation 98,550
Amortization of deferred expenses 223,099
Property operating 174,805
Real estate taxes 17,255
Property management fees 15,026
Administrative 61,221 108,609
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Total expenses 61,221 637,344
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Loss before gain on sales of properties (7,831) (131,060)
Gain on sales of properties 1,915,889
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Net (loss) income $ (7,831) $ 1,784,829
============== ===============
Net loss allocated to General Partner $ (7,831) None
============== ===============
Net income allocated to Limited Partners None $ 1,784,829
============== ===============
Net income per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted None $ 1.90
============== ===============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
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Operating activities:
Net (loss) income $ (25,162) $ 8,554,461
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Net gain on sales of properties (8,585,912)
Depreciation of properties 731,235
Amortization of deferred expenses 582,238
Payment of leasing commissions (136,566)
Net change in:
Accounts and accrued interest
receivable 142,275 14,982
Prepaid expenses 139,249
Accounts payable (16,244) (355,434)
Due to affiliates 23,265 11,643
Security deposits (246,359)
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Net cash provided by operating activities 124,134 709,537
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Investing activities:
Proceeds from sales of properties 45,731,500
Payment of selling costs (1,677,041)
Improvements and additions to properties (197,950)
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Net cash provided by investing activities 43,856,509
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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
Distributions to joint venture partners -
affiliates (1,728,022)
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Net cash used in financing activities (785,676) (85,414,636)
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Net change in cash and cash equivalents (661,542) (40,848,590)
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 $ 3,639,549 $ 25,597,221
============== ===============
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 nine months
and quarter ended September 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 5 of Notes to Financial Statements.
Due to this litigation, the Partnership will not be dissolved and reserves will
be held by the Partnership until the conclusion of all contingencies. There can
be no assurances as to the time frame for conclusion of these contingencies.
3. 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.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1998 are:
<PAGE>
Paid
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Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 58,713 $ 28,896 $ 68,567
5. 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.
<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 September 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
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Administrative expenses were higher than interest income earned on short-term
investments during the nine months and quarter ended September 30, 1998. This
was the primary reason the Partnership recognized a net loss for the nine
months and quarter ended September 30, 1998. The loss for the nine months ended
September 30, 1998 was partially offset by income related to a settlement of a
dispute with a former tenant at a property. During 1997, the Partnership
recognized gains from the sales of the 100 Ashford Center North office building
in February 1997, the Bingham Farms Office Plaza - Phase V in July 1997, and
the Ross Plaza Shopping Center in August 1997. As a result of these gains on
sales, the Partnership recognized net income for the nine months and quarter
ended September 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 nine months and quarters ended September 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 a
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 accounting, portfolio management, legal and
professional fees and lower postage costs 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, the Bingham Farms Office Plaza - Phase V in July 1997, and the Ross Plaza
Shopping Center in August 1997 and recognized gains totaling $8,664,860 from
these property sales. 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 $662,000 as of
September 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 $124,000 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 on
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 5 of Notes to Financial Statements.
Due to this litigation, the Partnership will not be dissolved and reserves will
be held by the Partnership until the conclusion of all contingencies. There can
be no assurances as to the time frame for conclusion of these contingencies.
<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 sale proceeds was retained by the
Partnership pending the resolution of a dispute with a tenant at the property.
The funds were unavailable for distribution until February 1998, at which time
the funds were released in full.
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 September 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
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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 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 nine months ended
September 30, 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended September 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: November 12, 1998
-----------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3640
<SECURITIES> 0
<RECEIVABLES> 17
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3656
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3656
<CURRENT-LIABILITIES> 86
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3570
<TOTAL-LIABILITY-AND-EQUITY> 3656
<SALES> 0
<TOTAL-REVENUES> 280
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25)
<EPS-PRIMARY> 0
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</TABLE>
