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, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
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.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
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
----- -----
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 22,075,816 $ 11,280,395
Accounts and accrued interest receivable 1,313,564 1,775,121
Prepaid expenses, principally real
estate taxes and insurance 218,187 531,549
Deferred expenses, net of accumulated
amortization of $348,385 in 1996 and
$311,855 in 1995 167,906 204,436
-------------- --------------
23,775,473 13,791,501
-------------- --------------
Investment in real estate:
Land 13,490,636 14,394,281
Buildings and improvements 73,772,401 81,277,182
-------------- --------------
87,263,037 95,671,463
Less accumulated depreciation 27,834,708 29,238,934
-------------- --------------
Investment in real estate, net of
accumulated depreciation 59,428,329 66,432,529
-------------- --------------
Investment in joint ventures with
affiliates 23,071,660 23,017,239
-------------- --------------
$ 106,275,462 $ 103,241,269
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 218,368 $ 289,191
Due to affiliates 53,941 29,973
Accrued liabilities, principally real
estate taxes 464,599 519,233
Security deposits 294,754 329,099
-------------- --------------
Total liabilities 1,031,662 1,167,496
-------------- --------------
Limited Partners' capital (683,204
Interests issued and outstanding) 104,846,684 101,720,792
General Partner's capital 397,116 352,981
-------------- --------------
Total partners' capital 105,243,800 102,073,773
-------------- --------------
$ 106,275,462 $ 103,241,269
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
-------------- --------------
Income:
Rental $ 6,420,024 $ 6,407,808
Service 1,199,504 1,329,966
Participation in income of joint
ventures with affiliates 981,508 999,866
Interest on short-term investments 272,551 304,976
-------------- --------------
Total income 8,873,587 9,042,616
-------------- --------------
Expenses:
Depreciation 1,480,483 1,485,815
Amortization of deferred expenses 36,530 36,530
Property operating 2,832,392 2,493,758
Real estate taxes 834,718 854,970
Property management fees 351,287 350,425
Administrative 505,387 421,536
-------------- --------------
Total expenses 6,040,797 5,643,034
-------------- --------------
Income before gain on sale of
property 2,832,790 3,399,582
Gain on sale of property 4,848,003
-------------- --------------
Net income $ 7,680,793 $ 3,399,582
============== ==============
Net income allocated to General Partner $ 495,212 $ 501,061
============== ==============
Net income allocated to Limited Partners $ 7,185,581 $ 2,898,521
============== ==============
Net income per Limited Partnership Interest
(683,204 issued and outstanding) $ 10.52 $ 4.24
============== ==============
Distributions to General Partner $ 451,077 $ 347,416
============== ==============
Distributions to Limited Partners $ 4,059,689 $ 3,126,740
============== ==============
Distributions per Limited Partnership
Interest:
Taxable $ 4.55 $ 3.50
============== ==============
Tax Exempt $ 6.05 $ 4.66
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1996 and 1995
(Unaudited)
1996 1995
-------------- --------------
Income:
Rental $ 3,113,210 $ 3,237,439
Service 652,716 700,622
Participation in income of joint
ventures with affiliates 485,370 584,573
Interest on short-term investments 127,976 160,077
-------------- --------------
Total income 4,379,272 4,682,711
-------------- --------------
Expenses:
Depreciation 734,320 742,908
Amortization of deferred expenses 18,265 18,265
Property operating 1,508,900 1,336,575
Real estate taxes 427,907 413,481
Property management fees 174,928 172,419
Administrative 374,796 255,434
-------------- --------------
Total expenses 3,239,116 2,939,082
-------------- --------------
Income before gain on sale of property 1,140,156 1,743,629
Gain on sale of property 4,848,003
-------------- --------------
Net income $ 5,988,159 $ 1,743,629
============== ==============
Net income allocated to General Partner $ 244,821 $ 255,008
============== ==============
Net income allocated to Limited Partners $ 5,743,338 $ 1,488,621
============== ==============
Net income per Limited Partnership Interest
(683,204 issued and outstanding) $ 8.41 $ 2.18
============== ==============
Distribution to General Partner $ 277,369 $ 173,708
============== ==============
Distribution to Limited Partners $ 2,496,319 $ 1,563,370
============== ==============
Distribution per Limited Partnership
Interest:
Taxable $ 2.80 $ 1.75
============== ==============
Tax Exempt $ 3.72 $ 2.33
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
-------------- --------------
Operating activities:
Net income $ 7,680,793 $ 3,399,582
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain on sale of property (4,848,003)
Participation in income of joint
ventures with affiliates (981,508) (999,866)
Depreciation of properties 1,480,483 1,485,815
Amortization of deferred expenses 36,530 36,530
Net change in:
Accounts and accrued interest
receivable 461,557 441,201
Prepaid expenses 313,362 210,410
Accounts payable (70,823) (310,781)
Due to affiliates 23,968 (87,824)
Accrued liabilities (54,634) (47,056)
Security deposits (34,345) 23,795
-------------- --------------
Net cash provided by operating activities 4,007,380 4,151,806
-------------- --------------
Investing activities:
Distributions from joint ventures
with affiliates 927,087 861,952
Improvements to property (83,317) (17,304)
Proceeds from sale of property 10,800,000
Payment of selling costs (344,963)
-------------- --------------
Net cash provided by investing activities 11,298,807 844,648
-------------- --------------
Financing activities:
Distributions to Limited Partners (4,059,689) (3,126,740)
Distributions to General Partner (451,077) (347,416)
-------------- --------------
Cash used in financing activities (4,510,766) (3,474,156)
-------------- --------------
Net change in cash and cash equivalents 10,795,421 1,522,298
Cash and cash equivalents at beginning
of period 11,280,395 9,862,343
-------------- --------------
Cash and cash equivalents at end of period $ 22,075,816 $ 11,384,641
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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 six months and quarter
ended June 30, 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
six months and quarter ended June 30, 1996 are:
Paid
-----------------------
Six Months Quarter Payable
------------ --------- ----------
Reimbursement of expenses to
the General Partner, at cost $90,921 $65,940 $53,941
3. Investment in Joint Venture with Affiliates:
The Partnership owns a 39.48% joint venture interest in the 1275 K Street
Office Building, a 43.3% joint venture interest in the Westech 360 Office
Building and a 21.95% joint venture interest in the Perimeter 400 Center Office
Building. The following information has been summarized from the financial
statements of the joint ventures:
1996
------------
Net investment in real estate
as of June 30 $66,529,772
Total liabilities as of June 30 750,910
Total income 7,716,214
Net income 1,677,893
4. Property Sale:
In June 1996, the Partnership sold the Westlake Meadows Apartments in an all
cash sale for $10,800,000. From the proceeds of the sale, the Partnership paid
$344,963 in selling costs. The basis of the property was $5,607,034 which is
net of accumulated depreciation of $2,884,709. For financial statement
purposes, the Partnership recognized a gain of $4,848,003 from the sale of this
property.
<PAGE>
5. Subsequent Events:
(a) In July 1996, the Partnership made a distribution of $2,496,319 ($2.80 per
Taxable Interest and $3.72 per Tax-exempt Interest) to the holders of Limited
Partnership Interests for the second quarter of 1996.
(b) In July 1996, the Partnership sold the Green Trails Apartments in an all
cash sale for $33,050,000. From the proceeds of the sale, the Partnership
incurred $855,400 in closing costs. For financial statement purposes, the
Partnership will recognize a gain of approximately $9,348,000 from the sale of
this property during the third quarter of 1996.
<PAGE>
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 with affiliates, and acquired five real property investments and
a minority joint venture interest with an affiliate in another real property
investment. All four properties collateralized by the Partnership's mortgage
loans were acquired through foreclosure, including the loans funded jointly
with affiliates, which were reclassified to investment in joint ventures with
affiliates. During 1996, the Partnership sold two properties, one in June and
one in July. The Partnership currently has five properties and three
investments in joint ventures with affiliates 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 1995 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
The Partnership recognized a gain related to the June 1996 sale of Westlake
Meadows Apartments which was the primary reason for the increase in net income
for the six months and quarter ended June 30, 1996 as compared to the same
periods in 1995. Further discussion of the Partnership's operations is
summarized below.
1996 Compared to 1995
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the six months and quarters ended June 30, 1996 and 1995.
Participation in income of joint ventures with affiliates represents the
Partnership's share of operations of the 1275 K Street, Westech 360 and
Perimeter 400 office buildings. Operations at the Westech 360 Office Building
remained relatively unchanged during the quarter ended June 30, 1996 as
compared to the same period in 1995. Increased amortization expense recognized
during the second quarter of 1996 related to a settlement of disputed leasing
commissions at the Perimeter 400 Office Building caused income at this property
to decrease. In addition, leasing costs increased at the 1275 K Street Office
Building during the quarter ended June 30, 1996. The combined effect of these
events caused participation in income of joint ventures with affiliates to
decrease during the quarter ended June 30, 1996 as compared to the same period
in 1995.
<PAGE>
As a result of lower average interest rates during 1996, interest income on
short-term investments decreased during 1996 as compared to 1995.
As a result of leasing costs incurred in 1996 related to a tenant at the
Arborland Consumer Mall, property operating expenses increased during 1996 as
compared to 1995. These costs were partially offset by decreased leasing costs
at the Bingham Farms Office Plaza - Phase IV for the quarter ended June 30,
1996 as compared to the same period in 1995.
The Partnership incurred higher legal, consulting, printing and postage costs
in connection with its response to a tender offer and certain related
litigation during the second quarter of 1996. As a result, administrative
expenses increased during 1996 as compared to 1995.
In June 1996, the Partnership recognized a $4,848,003 gain related to the sale
of Westlake Meadows Apartments.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $10,795,000 as
of June 30, 1996 when compared to December 31, 1995 due primarily to the net
proceeds received in connection with the June 1996 sale of the Westlake Meadows
Apartments. The Partnership generated cash flow totaling approximately
$4,007,000 from its operating activities which represent the operations of the
Partnership's 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 sale of the Westlake
Meadows Apartments of approximately $10,455,000, improvements to a property of
approximately $83,000, and distributions received from joint ventures with
affiliates of approximately $927,000. Financing activities consisted of
quarterly distributions to Partners of approximately $4,511,000.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures.
During the six months ended June 30, 1996 and 1995, all six properties owned by
the Partnership at June 30, 1996 and the three properties in which the
Partnership holds minority joint venture interests generated positive cash
flow. The Westlake Meadows Apartments were sold in June 1996 and generated
positive cash flow in 1996 and 1995.
As of June 30, 1996, the occupancy rates of the Partnership's residential
properties ranged from 92% to 94% and the occupancy rates of the commercial
properties ranged from 94% to 98% except for the Arborland Consumer Mall which
had an occupancy of 78%. 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.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties. During June 1996 and July 1996,
the Partnership sold the Westlake Meadows and Green Trails apartment complexes,
respectively. Additionally, the General Partner is exploring the sale of its
commercial properties. The General Partner examines each property individually
by property type and market in determining the optimal time to sell each
property.
<PAGE>
In June 1996, Heitman/JMB Advisory Corporation, an unaffiliated third party,
initiated discussions with the General Partner for a potential sale of all of
the remaining properties of the Partnership. These discussions did not result
in any agreement of terms between the parties, and it is unlikely at this time
that a sale of the Partnership's assets to them will be consummated. This will
not affect the Partnership's strategy as described in the preceding paragraph.
In June 1996, the Partnership sold the Westlake Meadows Apartments in an all
cash sale for $10,800,000. From the proceeds of the sale, the Partnership paid
$344,963 in selling costs. The Partnership expects to distribute the proceeds
to the Tax-exempt Limited Partners. See Note 4 of Notes to Financial Statements
for additional information.
In July 1996, the Partnership sold the Green Trails Apartments in an all cash
sale for $33,050,000. From the proceeds of the sale, the Partnership incurred
$855,400 in selling costs. Pursuant to the terns of the sale, $250,000 of the
proceeds will be retained by the Partnership until December 1996. The
Partnership expects to distribute the remaining proceeds to the Tax-exempt
Limited Partners. See Note 5 of Notes to Financial Statements for additional
information.
In July 1996, the Partnership paid $2,496,319 ($2.80 per Taxable Interest and
$3.72 per Tax-exempt Interest) to Limited Partners, representing the quarterly
distribution of Net Cash Receipts for the second quarter of 1996. This
distribution remained unchanged from the amount paid for the first quarter of
1996. Including the July 1996 distribution, Limited Partners have received Net
Cash Receipts distributions of $88.80 per $250 Taxable Interest and $118.17 per
Tax-exempt Interest. There have been no distributions of Net Cash Proceeds. In
July 1996, the Partnership also paid $208,027 to the General Partner as its
distributive share of Net Cash Receipts distributed for the second quarter of
1996 and made a contribution to the Repurchase Fund of $69,342. The General
Partner expects that the cash flow from property operations should enable the
Partnership to continue making quarterly distributions. However, the level of
future distributions will be dependent on the amount of cash flow generated
from property operations and property sales as to which there can be no
assurances.
During the six months ended June 30, 1996, the General Partner, on behalf of
the Partnership, used amounts placed in the Repurchase Fund to repurchase 1,298
Interests from Limited Partners at a total cost of $252,244.
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.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On May 22, 1996, a proposed class and derivative action complaint was filed,
Chipain vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 05299) (the "Chipain Case"), naming the General Partner and the
general partners (together, the "Balcor Defendants") of nine other limited
partnerships sponsored by The Balcor Company (together, with the Partnership,
the "Affiliated Partnerships") as defendants. Additional defendants were
Insignia Management Group ("Insignia") and Walton Street Capital Acquisition
II, LLC ("Walton") and certain of their affiliates and principals
(collectively, the "Walton and Insignia Defendants"). The complaint alleged,
among other things, that the tender offers for the purchase of limited
partnership interests in the Affiliated Partnerships made by a joint venture
consisting of affiliates of Insignia and Walton were coercive and unfair.
The Walton and Insignia Defendants filed motions to dismiss the complaint,
which were granted on June 5, 1996. The plaintiffs filed an amended complaint,
which all defendants then moved to dismiss. On June 18, 1996, the court
dismissed the complaint in its entirety as to the Walton and Insignia
Defendants and as to the Balcor Defendants on all counts on which dismissal was
sought.
On June 14, 1996, a second proposed class and derivative action complaint was
filed in Chancery Court, Dee vs. Walton Street Capital Acquisition II, LLC
(Case No. 96 CH 06283) (the "Dee Case"). On July 1, 1996, a proposed class
action complaint was filed in the same court, Anderson vs. Balcor Mortgage
Advisors (Case No. 96 CH 06884) (the "Anderson Case"). An amended complaint
consolidating the Dee and Anderson Cases (the "Dee/Anderson Case") was filed on
July 25, 1996. The same day, the plaintiffs in the Chipain Case withdrew their
complaint. The Dee/Anderson Case names the Balcor Defendants, the Affiliated
Partnerships, and the Walton and Insignia Defendants, as defendants. The
complaint seeks to assert class and derivative claims against the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the General Partner's and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. Management of each of the Balcor Defendants
believes they have meritorious defenses to contest the claims. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the Partnership.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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 September 25,
1985 (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.
(10) Material Contracts:
Agreement of Sale and attachment thereto relating to the sale of the Green
Trails Apartments located in Lisle, Illinois previously filed as Exhibit 2 to
the Registrant's Report on Form 8-K dated June 28, 1996 is incorporated herein
by reference.
(27) Financial Data Schedule of the Registrant for the six month period ending
June 30, 1996 is attached hereto.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K dated May 20, 1996, was filed reporting a
contract to sell Westlake Meadows Apartments located in Lake Oswego, Oregon.
(ii) A Current Report on Form 8-K dated June 28, 1996, was filed reporting a
contract to sell Green Trails Apartments located in Lisle, Illinois and the
closing of the sale of Westlake Meadows Apartments located in Lake Oswego,
Oregon.
<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-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/Brian D. Parker
-----------------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor Equity
Partners-III, the General Partner
Date: August 14, 1996
----------------------
<PAGE>
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0
0
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