UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14348
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BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3354308
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1985 under the laws of the
State of Illinois. The Registrant raised $170,801,000 from sales of Limited
Partnership Interests. The Registrant's operations consist exclusively of
investment in and operation of income-producing real property, and all
information included in this report relates to this industry segment.
The Registrant originally 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 in another real property investment. Two
properties were acquired through foreclosure and the two remaining loans were
reclassified to investment in joint ventures with affiliates. The Registrant
has seven properties and three investments in joint ventures with affiliates in
its portfolio as of December 31, 1995. See Item 2. Properties for additional
information. The Partnership Agreement provides that the proceeds of any sale
or refinancing of the Registrant's properties will not be reinvested in new
acquisitions.
Overall, the investment real estate market saw gradual improvement over the
last year. This improvement has taken place in an environment of generally low
interest rates and little or no new supply, parameters which may not exist in
the next few years. Demand for real estate space, while projected to improve
in line with the overall economy, is also vulnerable to external forces. The
major challenges facing the real estate industry today include increased
international competition, corporate restructurings, new computer and
communications technologies, an aging population and potential revisions of
the tax code. In addition, the increased flow of capital to real estate
through new vehicles such as commercial mortgage-backed securities and REITs
could spur new construction at unsupportable levels, as well as impact existing
property values.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
<PAGE>
Shopping centers are the most troubled asset class in real estate currently.
Unlike other asset classes, construction of power shopping centers, those with
a preponderance of "big box" retailers, occurred at a brisk pace during the
early 1990s, and now a shake-out of retailers is taking place. Retailers
posted lackluster sales in 1995, particularly in the latter half of the year,
and similar results are expected for 1996. The slight rise in interest rates
in 1995 also contributed to low sales growth in interest rate sensitive sectors
such as automobiles and home furnishings. Nevertheless, retail properties are
particularly unique, and those with strong tenant alignments should better
weather the current slowdown. In the long-term, however, retail real estate is
also vulnerable to technological changes (e.g. home shopping) which could
drastically alter the retail distribution system.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Partnership's residential properties. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
The Registrant, by virtue of its ownership of real estate, is subject to
Federal and state laws and regulations covering various environmental issues.
Management of the Registrant utilizes the services of environmental consultants
to assess a wide range of environmental issues and to conduct tests for
environmental contamination as appropriate. The General Partner is not aware of
any potential liability due to environmental issues or conditions that would be
material to the Registrant.
The officers and employees of Balcor Equity Partners-III, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1995, the Registrant owns the seven properties described
below:
Location Description of Property
- -------- -----------------------
Prince George's County, Ammendale Technology Park - Phase II: three
Maryland one-story office buildings containing
approximately 109,000 square feet on
approximately 16 acres.
<PAGE>
Ann Arbor, Michigan * Arborland Consumer Mall: a regional enclosed mall
containing approximately 348,000 square feet
located on approximately 37 acres.
Renton, Washington Belmont Apartments: a 202-unit apartment complex
located on approximately 11 acres.
Bingham Farms, Michigan Bingham Farms Office Plaza - Phase IV: a 4-story
office building containing approximately 145,000
square feet.
Colorado Springs, Colorado Erindale Centre: a neighborhood shopping center
containing approximately 167,000 square feet
located on approximately 13 acres.
Lisle, Illinois Green Trails Apartments: a 440-unit apartment
complex located on approximately 21 acres.
Lake Oswego, Oregon Westlake Meadows Apartments: a 162-unit apartment
complex located on approximately 8 acres.
* Owned by the Registrant through a joint venture with the seller.
The Registrant also holds minority joint venture interests in the 1275 K Street
Office Building, Washington, D.C.; the Westech 360 Office Buildings, Austin,
Texas; and the Perimeter 400 Center, Fulton County, Georgia. See Note 6 of
Notes to Financial Statements for additional information.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
- -------------------------
The Registrant is not subject to any material pending legal proceedings, nor
were any such proceedings terminated during the fourth quarter of 1995.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1995.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
- -------
There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see Item 7. Liquidity and Capital Resources.
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was 33,869.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Total income $17,804,510 $16,938,456 $16,634,266 $12,253,384 $8,834,696
Provision for
investment
property
writedowns None None 2,700,000 6,700,000 3,900,000
Income (loss)
before loss
on sale of
property 6,150,471 4,820,354 2,288,740 (5,152,193) (4,879,581)
Net income (loss) 6,150,471 4,820,354 2,288,740 (5,327,305) (4,879,581)
Net income (loss)
per Limited
Partnership
Interest 7.63 5.88 2.17 (8.87) (8.33)
Total assets 103,241,269 105,268,922 107,200,193 112,597,525 126,679,218
Distributions per
taxable Limited
Partnership
Interest (A) 7.90 7.00 7.50 9.25 10.00
Distributions per
tax-exempt
Limited
Partnership
Interest (A) 10.51 9.32 9.98 12.30 13.32
(A) No distributions of original capital were made in any of the last five
years.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
- ----------
Summary of Operations
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Improved property operations at several of the properties held by Balcor Equity
Pension Investors-III A Real Estate Limited Partnership (the "Partnership") and
at one of the Partnership's joint venture properties caused net income to
increase in 1995 as compared to 1994. During 1993, the Partnership recognized a
provision for investment property writedown on the Ammendale Technology
Park-Phase II office building, which was the primary reason for the increase in
net income during 1994 as compared to 1993. Further discussion of the
Partnership's operations is summarized below.
1995 Compared to 1994
- ---------------------
Primarily as a result of higher rental rates at the Green Trails Apartments,
rental income increased during 1995 as compared to 1994.
Improved operations at the Westech 360 Office Buildings resulting from higher
rental rates, and a recovery of a provision related to the change in the
estimate of the fair value of the Perimeter 400 Center Office Building, caused
participation in income of joint ventures with affiliates to increase during
1995 as compared to 1994.
Due to higher average cash balances and higher average interest rates, interest
income on short-term investments increased during 1995 as compared to 1994.
As a result of decreased leasing costs and repairs and maintenance expenditures
at the Erindale Centre Shopping Center and lower advertising costs and repairs
and maintenance expenditures at the Arborland Consumer Mall, property operating
expense decreased during 1995 as compared to 1994.
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 were made to the joint
venture partner in 1995 and 1994. As a result, no seller's participation from
the joint venture was recognized during 1995 and 1994.
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 1994 as compared to 1993.
During 1993, the Partnership recognized its share of a provision for loss
relating to the Perimeter 400 Center office building. This, together with
improved operations at the property resulting from significant leasing activity
<PAGE>
in 1993, caused participation in income of joint ventures with affiliates to
increase during 1994 as compared to 1993. These improvements were partially
offset by an increase in leasing activity during 1994 at the Westech 360 office
buildings.
As a result of higher lobby, hallway and common area expenditures at the
Bingham Farms Office Plaza-Phase IV and increased leasing activity and basement
repairs at the Erindale Centre shopping center, property operating expense
increased during 1994 as compared to 1993. This increase was partially offset
by a decrease in maintenance costs at the Green Trails Apartments, which had
extensive exterior painting work completed in 1993.
During 1993, the Partnership recognized a provision for investment property
writedown on the Ammendale Technology Park-Phase II office building of
$2,700,000.
Higher accounting, legal and portfolio management fees were the primary reasons
for the increase in administrative expense during 1994 as compared to 1993.
This increase was partially offset by a decrease in data processing costs.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased as of December 31, 1995 as
compared to December 31, 1994. The cash flow provided by the Partnership's
operating activities includes cash flow from 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 the Partnership's share of distributions from and
contributions to joint ventures with affiliates, and improvements at certain of
the Partnership's properties. Financing activities consisted of quarterly
distributions to the Limited Partners and the General Partner.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. 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
years ended December 31, 1995 and 1994, all seven properties owned by the
Partnership, and the three properties in which the Partnership holds minority
joint venture interests, generated positive cash flow.
As of December 31, 1995, the occupancy rates of the Partnership's residential
properties ranged from 92% to 99% and the occupancy rates of the commercial
properties ranged from 86% to 96%. 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
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Partnership's residential properties. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
<PAGE>
The Partnership made four distributions from Net Cash Receipts totaling $7.90
and $10.51 per Taxable and Tax-exempt Interest, respectively, in 1995 as
compared to $7.00 and $9.32 per Taxable and Tax-exempt Interest, respectively
in 1994 and $7.50 and $9.98 per Taxable and Tax-exempt Interest, respectively,
in 1993. See Statements of Partners' Capital for additional information. Net
Cash Receipts distributions increased in 1995 as compared to 1994 due to a
special distribution made from Net Cash Receipts reserves in 1995. Net Cash
Receipts distributions decreased in 1994 as compared to 1993 due to decreased
cash flow generated by the Partnership's loans and properties.
In January 1996, the Partnership paid a distribution of $1,563,370 ($1.75 per
Taxable Interest and $2.33 per Tax-exempt Interest) to the holders of Limited
Partnership Interests representing the regular quarterly distribution of Net
Cash Receipts for the fourth quarter of 1995. Including the January 1996
distributions, Limited Partners have received Net Cash Receipts distributions
of $83.20 per $250 Taxable Interest and $110.73 per $250 Tax-exempt Interest.
There have been no distributions of Net Cash Proceeds. In January 1996, the
Partnership also paid $130,281 to the General Partner as its distributive share
of the Net Cash Receipts distributed for the fourth quarter of 1995 and made a
contribution to the Repurchase Fund of $43,427. The General Partner expects
that the cash flow from property operations should enable the Partnership to
continue making quarterly distributions to Limited Partners. However, the level
of future distributions will be dependent on the amount of cash flow generated
from property operations as to which there can be no assurances.
During 1995, the General Partner, on behalf of the Partnership, used amounts
placed in the Repurchase Fund to repurchase 1,683 interests from Limited
Partners at a cost of $313,330.
In 1995, the Financial Accounting Standards Board issued Statements No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of 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.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
<PAGE>
December 31, 1995 December 31, 1994
----------------------- -----------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
----------- ---------- ----------- ----------
Total assets $103,241,269 $136,998,206 $105,268,922 $154,489,777
Partners' capital
accounts:
General Partner 352,981 729,542 198,093 445,065
Limited Partners 101,720,792 152,084,863 103,561,039 152,571,918
Net income:
General Partner 938,472 1,068,061 802,970 873,055
Limited Partners 5,211,999 6,565,191 4,017,384 4,852,822
Per Limited Part-
nership Interest 7.63 (A) 5.88 (A)
(A) Net income is $9.74 per Tax-exempt Interest and $7.90 per Taxable
Interest for 1995 and $7.11 per Tax-exempt Interest and $7.00 per
Taxable Interest for 1994.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
On September 14, 1995, the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995. The General Partner
of the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused Ernst & Young LLP to make reference to the matter
in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Equity Partners - III, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was
employed at the Harris Trust and Savings Bank in the commercial real estate
division where he was involved in various lending activities. Mr. Meador
received his M.B.A. degree from the Indiana University Graduate School of
Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. Mr.
Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy
from DePaul University.
<PAGE>
John K. Powell Jr. (June 1950) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell has been designated a
Certified Real Estate Financier by the National Society for Real Estate Finance
and is a full member of the Urban Land Institute.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1995.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers of Balcor Equity Partners-III, the General Partner. Certain
of these officers receive compensation from The Balcor Company (but not from
the Registrant) for services performed for various affiliated entities, which
may include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 9 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Equity Partners-III (principally through the Repurchase Fund) and
its officers and partners own as a group the following Limited Partnership
Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
------------------- --------------- ----------------
Limited Partnership
Interest 12,611 Interests 1.8%
Relatives and affiliates of the partners and officers of the General Partner do
not own any additional interests.
(c) The Registrant is not aware of any arrangements, the operations of which
may result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for information relating to
transactions with affiliates.
<PAGE>
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 2 to Registrant's Registration
Statement on Form S-11 dated September 25, 1985 (Registration Statement No.
2-97579) is incorporated herein by reference.
(4) Specimen Subscription Agreement set forth as Exhibit 4.1 to Amendment No.
2 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.
(16)Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Registration
Statement 33-7133) is hereby incorporated herein by reference.
(27)Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated October 27,
1995, amending the Current Report on Form 8-K dated September 19, 1995
reporting a change in the Registrant's certifying accountants, was filed
(Commission File No. 0-14348).
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule in this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
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: March 29, 1996
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
/s/Thomas E. Meador Partners-III, the General Partner March 29, 1996
- -------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Equity
/s/Brian D. Parker Partners-III, the General Partner March 29, 1996
- -------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1995
Financial Statement Schedules, other than that listed, are omitted for the
reason that they are inapplicable or equivalent information has been included
elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-III
A Real Estate Limited Partnership:
We have audited the balance sheet and the financial statement schedule of
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (An
Illinois Limited Partnership) as of December 31, 1995 and the related
statements of partners' capital, income and expenses, and cash flows for the
year then ended. These financial statements and the financial statement
schedule are the responsibility of the Partnership's management. Our responsi-
bility is to express an opinion on these financial statements and the financial
statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Equity Pension
Investors-III A Real Estate Limited Partnership at December 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statement taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 23, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Equity Pension Investors-III
A Real Estate Limited Partnership:
We have audited the accompanying balance sheet of Balcor Equity Pension
Investors-III A Real Estate Limited Partnership (An Illinois Limited
Partnership) as of December 31, 1994 and the related statements of partners'
capital, income and expenses and cash flows for each of the two years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Balcor Equity Pension Investors-II, an
affiliate, which is the majority joint venturer of the partnerships which own
the 1275 K Street and Westech 360 Investments. The Partnership's share of the
combined operating income of these joint ventures included in the accompanying
1994 and 1993 statements of income and expenses totaled approximately $919,000
and $1,235,000, respectively. The financial statements of Balcor Equity Pension
Investors-II were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for the
aforementioned investments in joint ventures, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and on the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Balcor Equity Pension Investors-III A Real
Estate Limited Partnership at December 31, 1994, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 20, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-III
A Real Estate Limited Partnership:
We have audited the balance sheet of Balcor Equity Pension Investors-II A Real
Estate Limited Partnership (An Illinois Limited Partnership) at December 31,
1994 and the related statements of partners' capital, income and expenses and
cash flows for each of the two years in the period ended December 31, 1994 (not
presented separately herein). These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Equity Pension
Investors-II A Real Estate Limited Partnership at December 31, 1994, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 20, 1995
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
-------------- --------------
Cash and cash equivalents $ 11,280,395 $ 9,862,343
Accounts and accrued interest receivable 1,775,121 2,331,185
Prepaid expenses, principally real
estate taxes and insurance 531,549 489,030
Deferred expenses, net of accumulated
amortization of $311,855 in 1995 and
$238,795 in 1994 204,436 277,496
-------------- --------------
13,791,501 12,960,054
-------------- --------------
Investment in real estate:
Land 14,394,281 14,394,281
Buildings and improvements 81,277,182 80,871,376
-------------- --------------
95,671,463 95,265,657
Less accumulated depreciation 29,238,934 26,259,390
-------------- --------------
Investment in real estate, net of
accumulated depreciation 66,432,529 69,006,267
Investment in joint ventures with
affiliates 23,017,239 23,302,601
-------------- --------------
$ 103,241,269 $ 105,268,922
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 289,191 $ 587,400
Due to affiliates 29,973 102,973
Accrued liabilities, principally
real estate taxes 519,233 514,034
Security deposits 329,099 305,383
-------------- --------------
Total liabilities 1,167,496 1,509,790
-------------- --------------
Limited Partners' capital (683,204
Interests issued and outstanding) 101,720,792 103,561,039
General Partner's capital 352,981 198,093
-------------- --------------
Total partners' capital 102,073,773 103,759,132
-------------- --------------
$ 103,241,269 $ 105,268,922
============== ==============
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 PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994, and 1993
Partners' Capital Accounts
----------------------------------------------
General Limited
Total Partner Partners
-------------- -------------- ----------------
Balance at December 31,
1992 $ 111,038,944 $ 25,238 $ 111,013,706
Cash distributions to:
Limited Partners (A) (6,696,534) (6,696,534)
General Partner (744,060) (744,060)
Net income for the year
ended December 31, 1993 2,288,740 808,777 1,479,963
-------------- -------------- ----------------
Balance at December 31,
1993 105,887,090 89,955 105,797,135
Cash distributions to:
Limited Partners (A) (6,253,480) (6,253,480)
General Partner (694,832) (694,832)
Net income for the year
ended December 31, 1994 4,820,354 802,970 4,017,384
-------------- -------------- ----------------
Balance at December 31,
1994 103,759,132 198,093 103,561,039
Cash distributions to:
Limited Partners (A) (7,052,246) (7,052,246)
General Partner (783,584) (783,584)
Net income for the year
ended December 31, 1995 6,150,471 938,472 5,211,999
-------------- -------------- ----------------
Balance at December 31,
1995 $ 102,073,773 $ 352,981 $ 101,720,792
============== ============== ================
<PAGE>
(A) Summary of cash distributions paid per Interest:
1995 1994 1993
-------------- -------------- ----------------
Taxable
- -------------
First Quarter $ 1.75 $ 1.75 $ 2.25
Second Quarter 1.75 1.75 1.75
Third Quarter 2.65 1.75 1.75
Fourth Quarter 1.75 1.75 1.75
Tax-Exempt
- -------------
First Quarter 2.33 2.33 2.99
Second Quarter 2.33 2.33 2.33
Third Quarter 3.52 2.33 2.33
Fourth Quarter 2.33 2.33 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 INCOME AND EXPENSES
for the years ended December 31, 1995, 1994, and 1993
1995 1994 1993
-------------- -------------- ----------------
Income:
Rental $ 12,986,774 $ 12,650,105 $ 12,618,664
Service 2,445,471 2,508,431 2,550,841
Participation in income
of joint ventures
with affiliates 1,757,775 1,382,726 1,188,674
Interest on short-term
investments 614,490 397,194 276,087
-------------- -------------- ----------------
Total income 17,804,510 16,938,456 16,634,266
-------------- -------------- ----------------
Expenses:
Depreciation 2,979,544 2,971,629 2,999,530
Amortization of deferred
expenses 73,060 72,623 65,379
Property operating 5,461,616 5,925,587 5,441,265
Real estate taxes 1,696,995 1,668,374 1,705,695
Property management fees 715,113 707,876 695,168
Provision for investment
property writedown 2,700,000
Administrative 727,711 772,013 701,252
-------------- -------------- ----------------
Total expenses 11,654,039 12,118,102 14,308,289
-------------- -------------- ----------------
Income before seller's
participation in income
from joint venture 6,150,471 4,820,354 2,325,977
Seller's participation in
income from joint
venture (37,237)
-------------- -------------- ----------------
Net income $ 6,150,471 $ 4,820,354 $ 2,288,740
============== ============== ================
Net income allocated to
General Partner $ 938,472 $ 802,970 $ 808,777
============== ============== ================
Net income allocated to
Limited Partners $ 5,211,999 $ 4,017,384 $ 1,479,963
============== ============== ================
Net income per Limited
Partnership (683,204
issued and outstanding) $ 7.63 $ 5.88 $ 2.17
============== ============== ================
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 years ended December 31, 1995, 1994, and 1993
1995 1994 1993
-------------- -------------- ----------------
Operating activities:
Net income $ 6,150,471 $ 4,820,354 $ 2,288,740
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Seller's particip-
ation in income
from joint venture 37,237
Participation in
income of joint
ventures with
affiliates (1,757,775) (1,382,726) (1,188,674)
Depreciation of
properties 2,979,544 2,971,629 2,999,530
Amortization of
deferred expenses 73,060 72,623 65,379
Provision for
investment property
writedown 2,700,000
Payment of leasing
commissions (28,816) (31,263)
Net change in:
Accounts and
accrued interest
receivable 556,064 (35,916) (912,183)
Prepaid expenses (42,519) (18,105) 134,055
Accounts payable (298,209) 169,683 (193,814)
Due to affiliates (73,000) 11,423 31,864
Accrued liabilities 5,199 3,507 (83,332)
Security deposits 23,716 12,074 (196)
-------------- -------------- ----------------
Net cash provided by
operating activities 7,616,551 6,595,730 5,847,343
-------------- -------------- ----------------
Investing activities:
Capital contribution to
joint venture with
an affiliate (17,347) (26,096) (257,697)
Distributions from joint
ventures with affil-
iates 2,060,484 2,134,932 1,491,606
Improvements to properties (405,806) (162,463)
-------------- -------------- ----------------
Net cash provided by
investing activities 1,637,331 1,946,373 1,233,909
-------------- -------------- ----------------
<PAGE>
Financing activities:
Distributions to
Limited Partners (7,052,246) (6,253,480) (6,696,534)
Distributions to
General Partner (783,584) (694,832) (744,060)
Distributions to joint
venture partner -
seller (37,237)
-------------- -------------- ----------------
Cash used in financing
activities (7,835,830) (6,948,312) (7,477,831)
-------------- -------------- ----------------
Net change in cash and
cash equivalents 1,418,052 1,593,791 (396,579)
Cash and cash equivalents
at beginning of year 9,862,343 8,268,552 8,665,131
-------------- -------------- ----------------
Cash and cash equivalents
at end of year $ 11,280,395 $ 9,862,343 $ 8,268,552
============== ============== ================
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. Nature of the Partnership's Business:
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") is engaged principally in the operation of residential,
commercial and retail real estate located in various markets within the United
States.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense is computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation are based upon the
following estimated useful lives:
Buildings and improvements 20 to 31 years
Furniture and fixtures 4 to 5 years
Maintenance and repairs are charged to expense when incurred. Expenditures for
improvements are charged to the related asset account.
As properties are sold, the related costs and accumulated depreciation are
removed from the respective accounts. Any gain or loss on disposition is
recognized in accordance with generally accepted accounting principles.
(c) Loan losses on mortgage notes receivable were charged to income when the
General Partner believed the loan balance would not be recovered. The General
Partner assessed the collectibility of each loan on a periodic basis through a
review of the collateral property operations, the property value and the
borrower's ability to repay the loan. Upon foreclosure, the loan balance was
transferred to real estate, after the fair value of the property less costs of
disposal was assessed. Upon the transfer to real estate, a new basis in the
property was established. Consistent with the Partnership's investment
objectives to own income-producing real property to be held for long-term
appreciation, real estate acquired through foreclosure is recorded as
investment in real estate.
Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121,
the Partnership records its investments in real estate at the lower of cost or
fair value, and periodically assesses, but not less than on an annual basis,
<PAGE>
possible impairment to the value of its properties. The General Partner
estimates the fair value of its properties by dividing the property's
expected net operating income by a risk adjusted rate of return which considers
economic and demographic conditions in the market. In the event the General
Partner determines an impairment in value has occurred, and the carrying
amount of the real estate asset will not be recovered, a provision is recorded
to reduce the carrying basis of the property to its estimated fair value. The
General Partner considers the method referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicate otherwise.
(d) Investment in joint ventures with affiliates represents the Partnership's
39.48%, 43.3% and 21.95% interests, under the equity method of accounting, in
three joint ventures with affiliated partnerships. Under the equity method of
accounting, the Partnership records its initial investment at cost and adjusts
its investment account for additional capital contributions, distributions and
its share of joint venture income or loss.
(e) Deferred expenses consist of leasing commissions which are amortized over
the life of each respective lease.
(f) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
is recognized as revenue in the period the applicable costs are incurred.
(g) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Statement No. 107 does not apply to all balance sheet items and
excludes certain financial instruments and all non-financial instruments such
as real estate and investment in joint ventures from its disclosure
requirements.
(h) Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less. Cash and cash equivalents are
primarily invested in commercial paper, approximately 40% of which is with one
issuer.
(i) The Partnership is not liable for Federal income taxes and each Partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(j) Several reclassifications have been made to the previously reported 1994
and 1993 financial statements to conform with the classifications used in 1995.
These reclassifications have not changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized in April 1985. The Partnership Agreement provides
for Balcor Equity Partners-III to be the General Partner and for the admission
of Limited Partners through the sale of up to 1,000,000 Limited Partnership
Interests at $250 per Interest, 683,204 of which were sold on or prior to
August 1, 1986, the termination date of the offering.
<PAGE>
"Operating Income" of the Partnership is allocated 10% to the General Partner
and 90% to the Limited Partners; however, certain components are specially
allocated as described in the Partnership Agreement. "Operating Losses" and
certain other components are allocated 1% to the General Partner and 99% to the
Limited Partners pursuant to terms set forth in the Partnership Agreement.
The Partnership Agreement provides for different allocations of profits and
losses and Net Cash Receipts and Net Cash Proceeds distributions to Limited
Partners depending on whether the investor originally acquiring the Interest
was a taxable or tax-exempt entity.
"Net Cash Receipts" available for distribution are distributed as follows: 90%
to Limited Partners, 7.5% to the General Partner as its distributive share from
Partnership operations and an additional 2.5% to the General Partner for
allocation to the Repurchase Fund which may be used to repurchase Interests
from Limited Partners pursuant to the terms set forth in the Partnership
Agreement.
At the sole discretion of the General Partner and subject to certain
limitations, amounts placed in the Repurchase Fund are available to be used to
repurchase Interests from existing Limited Partners. During 1995, the General
Partner used amounts placed in the Repurchase Fund to repurchase 1,683
Interests from Limited Partners at a cost of $313,330. An amount not to exceed
the amount originally allocated to the Repurchase Fund will be returned to the
Partnership at liquidation, if necessary, to permit payment to the Limited
Partners of their "Original Capital" plus any deficiency in their "Liquidation
Preference" as defined in the Partnership Agreement.
Subject to the provisions of the Partnership Agreement, "Net Cash Proceeds"
which are available for distribution will be distributed only among the Limited
Partners until such time as the Limited Partners have received a return of
their "Original Capital" and their "Liquidation Preference"; thereafter, the
remaining "Net Cash Proceeds" will be distributed 90% to the Limited Partners
and 10% to the General Partner. Net Cash Proceeds will be distributed among
Taxable and Tax-exempt Limited Partners in accordance with the Partnership
Agreement. The General Partner's share of Net Cash Proceeds shall be returned
to the Partnership if necessary to permit payment to the Limited Partners of
any deficiency in the return of their Original Capital and Preferential
Cumulative Distributions.
4. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are
under management agreements with third-party management companies. These
management agreements provide for annual fees of 5% of gross operating receipts
for residential properties, and 3% to 6% of gross operating receipts for
commercial and retail properties.
5. Seller's Participation in Joint Venture:
The Arborland Consumer Mall is owned by a joint venture between the Partnership
and the seller. Consequently, the seller retains an interest in the property
through its interest in the joint venture. All assets, liabilities, income and
expenses of the joint venture are included in the financial statements of the
Partnership with the appropriate deduction from income or loss, if any, for the
seller's participation in the joint venture. The seller shares in the cash flow
of the property only after the Partnership receives a preferential
<PAGE>
distribution. The Partnership made no distribution to the seller in 1995 or
1994. During 1993, the Partnership made a distribution to the seller of
$37,237.
6. Investment in Joint Ventures with Affiliates:
(a) In 1986, the Partnership and an affiliate acquired the 1275 K Street Office
Building. Profits and losses, all capital contributions and distributions are
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage is 39.48%. During 1995, 1994, and 1993,
the Partnership received distributions from this joint venture totaling
$1,240,391, $1,379,998, and $1,075,474, respectively.
(b) In 1988, the Partnership and an affiliate acquired the Westech 360 Office
Building. Profits and losses, all capital contributions and distributions are
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage is 43.3%. During 1995, 1994, and 1993, the
Partnership received distributions from this joint venture totaling $357,562,
$290,889, and $308,273, respectively.
(c) In 1990, the Partnership and an affiliate acquired the Perimeter 400 Office
Center. Profits and losses, all capital contributions and distributions are
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage is 21.95%. During 1995, the Partnership
recognized income of $145,968 as its share of the recovery related to the
change in the estimate of the fair value of the property. During 1993, the
Partnership recognized a loss of $145,968 as its share of the reduction in the
carrying value of the property. These amounts are included in the
Partnership's participation in income of joint venture with affiliates. In
addition, during 1995, 1994, and 1993, the Partnership received distributions
from this joint venture totaling $462,531, $464,045, and $107,860,
respectively; and made contributions of $17,347, $26,096, and $257,697,
respectively.
The following information has been summarized from the financial statements of
the joint ventures:
1995 1994 1993
---------- ---------- ----------
Net investment in real estate
as of December 31 $67,113,953 $68,282,318 $69,149,078
Total liabilities as of
December 31 650,669 751,926 596,505
Total income 14,167,508 13,124,088 12,843,241
Net income before loss provisions2,424,601 4,437,187 3,524,043
Net income 2,424,601 4,437,187 2,859,043
7. Provision for Investment Property Writedowns:
In 1993, the Partnership determined that an impairment to the asset value of
the Ammendale Technology Park-Phase II office buildings had occurred. As a
result, the property was written down by $2,700,000, to an amount representing
the Partnership's estimate of the property's fair value.
<PAGE>
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the tax
returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1995 in the financial statements is $1,482,781 less than the
tax income for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees None None $706,757 None $482,771 $43,232
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $ 56,355 $ 4,277 77,188 $28,693 68,717 5,678
Data processing 48,537 2,297 79,700 23,037 124,341 33,998
Investment processing 46,869 8,340 16,063 1,290 8,413 695
Investor communica-
tions 9,607 None 12,740 7,211 10,875 899
Legal 23,554 1,908 18,725 10,009 14,899 1,231
Portfolio management 104,228 13,139 67,524 27,154 61,708 4,809
Other 7,597 12 27,922 5,579 12,203 1,008
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program, however, the General Partner is reimbursed
for expenses. The Partnership paid premiums to the deductible insurance program
of $63,162, $89,149 and $60,460 in 1995, 1994 and 1993, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed six
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
10. Rentals under Operating Leases:
The Partnership receives rental income from the leasing of office and retail
space under operating leases. The minimum future rentals (excluding amounts
representing executory costs such as taxes, maintenance and insurance) to be
received by the Partnership for Ammendale Technology Park-Phase II office
building, Arborland Consumer Mall, Bingham Farms Office Plaza-Phase IV, and the
Erindale Centre shopping center based on operating leases held at December 31,
1995 are approximately as follows:
<PAGE>
1996 $ 6,890,000
1997 6,300,000
1998 4,577,000
1999 2,216,000
2000 1,513,000
Thereafter 3,469,000
-----------
$ 24,965,000
===========
These rentals include amounts relating to land leases which the Partnership
entered into with certain tenants of the shopping center.
Minimum rentals do not include amounts which may be received from certain
tenants based upon a percentage of their gross sales in excess of stipulated
minimums. Percentage rentals were not significant during 1995, 1994 and 1993.
The Partnership is subject to the usual business risks regarding the collection
of these rentals.
Approximately 83% of the space at the Bingham Farms Office Plaza - Phase IV is
leased to Allnet Communications Services, and 14% of the Partnership's total
rental income recognized during 1995 relates to the Allnet lease. Allnet's
lease extends through July 1998.
11. Fair Value of Financial Investments:
At December 31, 1995, the carrying value of cash and cash equivalents, accounts
and accrued interest receivable, and accounts payable approximates fair value.
12. Subsequent Event:
In January 1996, the Partnership paid $1,563,370 to Limited Partners
representing the regular quarterly distribution of available Net Cash Receipts
of $1.75 per Taxable Interest and $2.33 per Tax-exempt Interest for the fourth
quarter of 1995.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1995
<CAPTION>
Col. A Col. B Col. C Col. D
- --------------------- -------- -------------------- ---------------------------------
Initial Cost Cost Adjustments
to Partnership Subsequent to Acquisition
-------------------- ---------------------------------
Buildings Carrying Reduction
Encum- and Im- Improve- Costs of Basis
Description brances Land provements ments (a) (b)
- --------------------- ------- -------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ammendale Technology
Park-Phase II, three
109,000 sq. ft. one-
story ofc. bldgs. in
Prince George's
County, MD None $4,642,744 $2,416,214 $ 391,233 $177,650 $(2,700,000)
Arborland Consumer Mall,
348,000-sq. ft. mall
in Ann Arbor, MI None 2,400,000 18,344,680 375,059 85,161
Belmont Apts., 202-
units in Renton, WA None 1,011,730 7,672,086 None 12,317
Bingham Farms Office
Plaza-Phase IV, 4-
story 145,000-sq.
ft. office bldg. in
Bingham Farms, MI None 1,000,000 17,180,850 959,441 15,047 (3,400,000)
Erindale Centre,
167,000-sq. ft.
shpg. cntr. in
Colorado Springs, CO None 2,630,000 14,710,425 280,901 86,273 (7,200,000)
Green Trails Apts.,
440-units in
Lisle, IL None 4,634,385 21,155,668 None 297,856
Westlake Meadows Apts.,
162-units in Lake
<PAGE>
Oswego, OR None 900,000 7,557,445 None 34,298
----------- ----------- ---------- -------- ------------
Total $17,218,859 $89,037,368 $2,006,634 $708,602 $(13,300,000)
=========== =========== ========== ======== ============
</TABLE
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
</TABLE>
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
as of December 31, 1995
(Continued)
<CAPTION>
Col. A Col. E Col. F Col. G Col. H
- ------------------- -------------------------------- -------- -------- ------ --------------
Gross Amounts at Which Life Upon
Carried at Close of Period Which Depre-
------------------------------- ciation in
Buildings Accumulated Date Date Latest Income
and Im- Total Deprecia- of Con- Acq- Statement
Description Land provements (c)(d) tion(d) struction uired is Computed
- ------------------- -------- ---------- ----------- --------- --------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ammendale Technology
Park-Phase II, three
one-story ofc. bldgs.
containing 109,000
sq. ft. in Prince
George's County, MD $2,991,777 $ 1,936,064 $ 4,927,841 $ 319,887 (e) 10/91(f) (g)
Arborland Consumer Mall,
348,000-sq. ft. mall
in Ann Arbor, MI 2,409,853 18,795,049 21,204,902 9,109,524 (h) 5/86 (g)
Belmont Apts., 202-
units in Renton, WA 1,013,169 7,682,963 8,696,132 3,050,773 1986 7/86 (g)
Bingham Farms Office
Plaza-Phase IV, 4-
story 145,000-sq.
ft. office bldg. in
Bingham Farms, MI 820,628 14,934,710 15,755,338 5,988,818 1982 1/86 (g)
Erindale Centre,
167,000-sq. ft.
shpg. cntr. in
Colorado Springs, CO 1,567,300 8,940,298 10,507,598 5,178,039 (i) 9/86 (g)
Green Trails Apts.,
440-units in
Lisle, IL 4,687,909 21,400,000 26,087,909 2,812,180 1988 9/92(f) (g)
Westlake Meadows Apts.,
<PAGE>
162-units in Lake
Oswego, OR 903,645 7,588,098 8,491,743 2,779,713 1986 7/86 (g)
----------- ----------- ----------- -----------
Total $14,394,281 $81,277,182 $95,671,463 $29,238,934
=========== =========== =========== ===========
</TABLE>
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs and other related
professional fees.
(b) Represents a reduction of basis due to a permanent impairment of the asset
value.
(c) The aggregate cost of land for Federal income tax purposes is $17,417,431
and the aggregate cost of buildings and improvements for Federal income tax
purposes is $92,997,407. The total of these is $110,414,838.
(d)Reconciliation of Real Estate
-----------------------------
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $95,265,657 $95,103,194 $97,803,194
Additions during the year:
Improvements 405,806 162,463
Deductions during the year:
Investment property
writedowns (2,700,000)
----------- ----------- ---------
Balance at end of year $95,671,463 $95,265,657 $95,103,194
=========== =========== ===========
Reconciliation of Accumulated Depreciation
------------------------------------------
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year $26,259,390 $23,287,761 $20,288,231
Depreciation expense for
the year 2,979,544 2,971,629 2,999,530
----------- ----------- -----------
Balance at end of year $29,238,934 $26,259,390 $23,287,761
=========== =========== ===========
(e) The office buildings were completed in phases in 1985 and 1987.
(f) This property was acquired through foreclosure.
(g) Depreciation expense is computed based upon the following estimated useful
lives:
Buildings and improvements 20 to 31 years
Furniture and fixtures 4 to 5 years
<PAGE>
Depreciation expense for tenant improvements is computed using a straight-line
method over the term of the lease.
(h) This consumer mall was completed in 1960 and enclosed in 1973.
(i) This shopping center was completed in phases in 1983 and 1985.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11280
<SECURITIES> 0
<RECEIVABLES> 1775
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13587
<PP&E> 95671
<DEPRECIATION> 29239
<TOTAL-ASSETS> 103241
<CURRENT-LIABILITIES> 1167
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 102074
<TOTAL-LIABILITY-AND-EQUITY> 103241
<SALES> 0
<TOTAL-REVENUES> 17805
<CGS> 0
<TOTAL-COSTS> 7874
<OTHER-EXPENSES> 3780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6150
<INCOME-TAX> 0
<INCOME-CONTINUING> 6150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6150
<EPS-PRIMARY> 7.63
<EPS-DILUTED> 7.63
</TABLE>
