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, 1994
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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 0-14348
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BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3354308
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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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-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
-------------- ---------------
Cash and cash equivalents $ 10,099,510 $ 8,268,552
Accounts and accrued interest receivable 2,493,352 2,295,269
Prepaid expenses, principally real
estate taxes 407,903 470,925
Deferred expenses, net of accumulated
amortization of $220,531 in 1994 and
$166,172 in 1993 295,760 321,303
-------------- ---------------
13,296,525 11,356,049
-------------- ---------------
Investment in real estate:
Land 14,394,281 14,394,281
Buildings and improvements 80,854,187 80,708,913
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95,248,468 95,103,194
Less accumulated depreciation 25,534,214 23,287,761
-------------- ---------------
Investment in real estate, net of
accumulated depreciation 69,714,254 71,815,433
-------------- ---------------
Investment in joint ventures with affiliates 23,444,037 24,028,711
-------------- ---------------
$ 106,454,816 $ 107,200,193
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 538,855 $ 417,717
Due to affiliates 183,543 91,550
Accrued liabilities, principally
real estate taxes 458,005 510,527
Security deposits 290,767 293,309
-------------- ---------------
Total liabilities 1,471,170 1,313,103
Partners' capital (683,204 Limited Partnership
Interests issued and outstanding) 104,983,646 105,887,090
-------------- ---------------
$ 106,454,816 $ 107,200,193
============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Rental $ 9,425,075 $ 9,311,460
Service 2,043,459 2,157,766
Participation in income of joint
ventures with affiliates 1,195,507 675,785
Interest on short-term investments 269,911 193,787
-------------- --------------
Total income 12,933,952 12,338,798
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Expenses:
Depreciation 2,246,453 2,249,647
Amortization of deferred expenses 54,359 47,745
Property operating 4,008,234 3,901,573
Real estate taxes 1,290,806 1,395,294
Property management fees 519,991 517,599
Administrative 506,319 511,304
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Total expenses 8,626,162 8,623,162
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Income before seller's participation
in joint venture 4,307,790 3,715,636
Seller's participation in income from
joint venture (37,237)
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Net income $ 4,307,790 $ 3,678,399
============== ==============
Net income allocated to General Partner $ 673,373 $ 609,736
============== ==============
Net income allocated to Limited Partners $ 3,634,417 $ 3,068,663
============== ==============
Net income per Limited Partnership Interest
(683,204 issued and outstanding) $ 5.32 $ 4.49
============== ==============
Distributions to General Partner $ 521,124 $ 570,352
============== ==============
Distributions to Limited Partners $ 4,690,110 $ 5,133,164
============== ==============
Distributions per Limited Partnership Interest:
Taxable $ 5.25 $ 5.75
============== ==============
Tax-exempt $ 6.99 $ 7.65
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Rental $ 3,181,730 $ 3,141,936
Service 698,109 709,446
Participation in income (loss) of joint
ventures with affiliates 267,121 (39,949)
Interest on short-term investments 112,270 66,087
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Total income 4,259,230 3,877,520
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Expenses:
Depreciation 754,276 749,881
Amortization of deferred expenses 18,383 15,915
Property operating 1,463,785 1,528,370
Real estate taxes 431,929 456,951
Property management fees 176,714 182,644
Administrative 195,708 152,865
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Total expenses 3,040,795 3,086,626
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Net income $ 1,218,435 $ 790,894
============== ==============
Net income allocated to General Partner $ 203,413 $ 159,721
============== ==============
Net income allocated to Limited Partners $ 1,015,022 $ 631,173
============== ==============
Net income per Limited Partnership Interest
(683,204 issued and outstanding) $ 1.49 $ 0.92
============== ==============
Distribution to General Partner $ 173,708 $ 173,708
============== ==============
Distribution to Limited Partners $ 1,563,370 $ 1,563,370
============== ==============
Distribution per Limited Partnership Interest:
Taxable $ 1.75 $ 1.75
============== ==============
Tax-exempt $ 2.33 $ 2.33
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Operating activities:
Net income $ 4,307,790 $ 3,678,399
Adjustments to reconcile net income to net
cash provided by operating activities:
Seller's participation in income from
joint venture 37,237
Participation in income of joint
ventures with affiliates (1,195,507) (675,785)
Depreciation of properties 2,246,453 2,249,647
Amortization of deferred expenses 54,359 47,745
Net change in:
Accounts and accrued interest
receivable (198,083) (1,045,210)
Prepaid expenses 63,022 167,673
Accounts payable 121,138 (59,216)
Due to affiliates 91,993 16,250
Accrued liabilities (52,522) (132,703)
Security deposits (2,542) 1,654
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Net cash provided by operating activities 5,436,101 4,285,691
-------------- --------------
Investing activities:
Capital contribution to joint venture
with an affiliate (26,096)
Distributions from joint ventures with
affiliates 1,806,277 1,383,836
Improvements to property (145,274)
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Net cash provided by investing activities 1,634,907 1,383,836
-------------- --------------
Financing activities:
Distributions to Limited Partners (4,690,110) (5,133,164)
Distributions to General Partner (521,124) (570,352)
Distribution to joint venture
partner - seller (37,237)
Payment of deferred expenses (28,816)
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Cash used in financing activities (5,240,050) (5,740,753)
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Net change in cash and cash equivalents 1,830,958 (71,226)
Cash and cash equivalents at beginning
of period 8,268,552 8,665,131
-------------- --------------
Cash and cash equivalents at end of period $ 10,099,510 $ 8,593,905
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-III
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 nine months and quarter
ended September 30, 1994, 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
nine months and quarter ended September 30, 1994 are:
Paid
--------------------
Nine Months Quarter Payable
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Property management fees $372,501 $130,796 $42,712
Reimbursement of expenses to
the General Partner, at cost:
Accounting 54,714 38,381 30,084
Data processing 14,574 14,574 53,094
Investment processing 6,699 4,699 1,557
Investor communications 8,659 6,074 6,047
Legal 11,863 8,321 11,583
Portfolio management 46,472 32,509 34,468
Other 9,716 6,815 3,998
3. Subsequent Event:
In October 1994, the Partnership made a distribution from Net Cash Receipts of
$1,563,370 ($1.75 per Taxable Interest and $2.33 per Tax-exempt Interest) to
the holders of Limited Partnership Interests for the third quarter of 1994.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1985 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $170,801,000 through the sale of Limited Partnership
Interests. The Partnership funded four first mortgage loans, two of which were
jointly funded by affiliates, and acquired five real property investments plus
a minority joint venture interest in another real property investment. The
Partnership subsequently acquired minority joint venture interests in the
Westech 360 office buildings and the Perimeter 400 Office Center in lieu of its
participation in the loans collateralized by these properties and received
title to Ammendale Technology Park - Phase II and Green Trails Apartments
through foreclosure. The Partnership currently owns seven properties and
minority joint venture interests in three properties.
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 1993 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
Primarily as a result of improved operations at the Perimeter 400 Office
Center, in which the Partnership holds a minority joint venture interest, net
income increased during the nine months and quarter ended September 30, 1994 as
compared to the same periods in 1993. Further discussion of the Partnership's
operations is summarized below.
1994 Compared to 1993
- ---------------------
Due to higher average cash balances and higher interest rates earned on short-
term investments, interest income on short-term investments increased during
the nine months and quarter ended September 30, 1994 as compared to the same
periods in 1993.
Improved operations at the Perimeter 400 Office Center resulting from
significant leasing activity in 1993 caused participation in income of joint
ventures with affiliates to increase during the nine months ended September 30,
1994 as compared to the same period in 1993 and caused participation in income
for the quarter ended September 30, 1994 as compared to participation in loss
for the same period in 1993. These improvements were partially offset by costs
incurred due to an increase in leasing activity at the Westech 360 office
buildings.
As a result of higher bad debt expense at the Arborland Consumer Mall, property
operating expense increased for the nine months ended September 30, 1994 as
compared to the same period in 1993. This increase was partially offset for the
nine months and completely offset for the quarter by a decrease in maintenance
costs at the Green Trails apartment complex, which had extensive exterior
painting work completed in 1993.
Primarily as a result of increased accounting and portfolio management fees,
administrative expense increased during the quarter ended September 30, 1994 as
compared to the same period in 1993.
The seller/joint venture partner of the Arborland Consumer Mall shares in the
cash flow of the property after the Partnership receives a preferential
distribution. The joint venture has retained a portion of the cash flow
generated at the property to fund leasing costs anticipated to be incurred in
the near future, and consequently, no distributions have been made to the joint
venture partner in 1994. As a result, no seller's participation from the joint
venture was recognized for the nine months and quarter ended September 30,
1994.
Liquidity and Capital Resources
- -------------------------------
The cash or near cash position of the Partnership increased from December 31,
1993 to September 30, 1994. The Partnership's cash flow provided by operating
activities during the nine months ended September 30, 1994 was generated from
the operation of the Partnership's properties and interest income on short-term
investments, which was partially offset by administrative expenses. This cash
flow, as well as cash flow from investing activities comprised of the
Partnership's share of operations from properties owned through joint ventures
with affiliates, less property improvements, was utilized primarily for
distributions to Limited Partners and the General Partner. The Partnership's
cash or near cash position fluctuates during each quarter initially decreasing
with the payment of Partnership distributions for the previous quarter and then
gradually increasing each month as property operating income is received.
The increase in cash flow during 1994 has been retained while the Partnership
analyzes future working capital requirements.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. A deficit is
considered to be significant once it exceeds $250,000 annually or 20% of the
property's rental and service income. During the nine months ended September
30, 1994 all seven of the properties owned by the Partnership generated
positive cash flow as compared to six of the seven properties during the same
period in 1993. The Bingham Farms Office Plaza - Phase IV generated a marginal
cash flow deficit during the nine months ended September 30, 1993 as a result
of rental concessions given to a major tenant which occupies approximately 73%
of the building. This tenant renewed its lease for a six-year term commencing
in August 1992; however, market conditions made it necessary to offer
significant rental concessions. The lease provided for free rent during the
first seven months of 1993 and the first three months of 1994. All three
properties in which the Partnership holds minority joint venture interests
generated positive cash flow during the nine months ended September 30, 1994
and 1993. During 1993, significant leasing costs were incurred at the Perimeter
400 Office Center to lease vacant space and renew existing tenant leases which
were scheduled to expire during 1993. These costs were not included in
classifying the cash flow performance of the property since they are non-
recurring expenditures. Had these costs been included, the property would have
operated at a significant deficit for the nine months ended September 30, 1993.
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 October 1994, the Partnership paid $1,563,370 ($1.75 per Taxable Interest
and $2.33 per Tax-exempt Interest) to the holders of Limited Partnership
Interests and $130,281 to the General Partner representing the quarterly
distributions of available Cash Flow for the third quarter of 1994. The level
of these distributions are consistent with the amounts distributed for the
first and second quarters of 1994. The Partnership expects to continue making
cash distributions from the cash flow generated by property operations less
administrative expenses. The General Partner believes it has retained, on
behalf of the Partnership, an appropriate amount of working capital to meet
cash or liquidity requirements which may occur.
In October 1994, the Partnership paid $43,427 to the General Partner
representing its contribution to the Early Investment Incentive Fund for the
third quarter of 1994. During the nine months ended September 30, 1994, the
General Partner used amounts placed in the Early Investment Incentive Fund to
purchase 1,126 Interests from Limited Partners for a total cost of $202,245.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina.
As a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
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-III
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) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3
to the Registrant's Registration Statement on Form S-11 dated October 22, 1986
(Registration Statement No. 2-97579) 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. 0-14348)
are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended September 30, 1994.
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-III
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-III,
the General Partner
By: /s/Allan Wood
-----------------------------------
Allan Wood
Executive Vice President, and Chief Accounting
and Financial Officer (Principal Accounting and
Financial Officer) of Balcor Equity Partners-III,
the General Partner
Date: November 8, 1994
----------------------
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