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 September 30, 1998
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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
September 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 2,994,307 $ 8,638,754
Accounts and accrued interest receivable 28,830 172,396
Escrow deposits - restricted 109,526 134,526
-------------- --------------
$ 3,132,663 $ 8,945,676
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 15,919 $ 44,712
Due to affiliates 74,367 44,149
-------------- --------------
Total liabilities 90,286 88,861
-------------- --------------
Commitments and contingencies
Limited Partners' capital (683,204
Interests issued and outstanding) 3,639,683 9,423,550
General Partner's deficit (597,306) (566,735)
-------------- --------------
Total partners' capital 3,042,377 8,856,815
-------------- --------------
$ 3,132,663 $ 8,945,676
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental $ 4,308,283
Service 1,454,893
Interest on short-term investments $ 139,642 646,656
Other income 12,457
-------------- --------------
Total income 152,099 6,409,832
-------------- --------------
Expenses:
Depreciation 1,125,335
Amortization of deferred expenses 131,377
Property operating 2,343,944
Real estate taxes 692,432
Property management fees 267,709
Administrative 303,688 710,085
Other expense 3,600
Provision for investment property
writedowns 2,255,673
-------------- --------------
Total expenses 307,288 7,526,555
-------------- --------------
Loss before gain on sales of properties
and seller's participation in joint
venture (155,189) (1,116,723)
Gain on sales of properties 6,086,360
Seller's participation in income from
joint venture (162,500)
-------------- --------------
Net (loss) income $ (155,189) $ 4,807,137
============== ==============
Net (loss) income allocated to General
Partner $ (2,976) $ 627,675
============== ==============
Net (loss) income allocated to Limited
Partners $ (152,213) $ 4,179,462
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Net (loss) income per Limited Partnership
Interest (683,204 issued and outstanding)
- Basic and Diluted $ (0.22) $ 6.12
============== ==============
Distributions to General Partner $ 27,595 $ 584,605
============== ==============
Distributions to Limited Partners $ 5,631,654 $ 38,733,791
============== ==============
Distributions per Limited Partnership
Interest:
Taxable $ 0.28 $ 5.90
============== ==============
Tax-Exempt $ 8.86 $ 60.63
============== ==============
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 September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental $ 735,750
Service 425,005
Interest on short-term investments $ 44,235 367,554
Other income 12,457
-------------- --------------
Total income 56,692 1,528,309
-------------- --------------
Expenses:
Depreciation 243,260
Amortization of deferred expenses 68,948
Property operating 619,440
Real estate taxes 134,580
Property management fees 55,704
Administrative 64,077 176,097
Provision for investment property
writedown 1,650,516
-------------- --------------
Total expenses 64,077 2,948,545
-------------- --------------
Loss before gain on sales of properties (7,385) (1,420,236)
Gain on sales of properties 5,316,015
-------------- --------------
Net (loss) income $ (7,385) $ 3,895,779
============== ==============
Net income allocated to General Partner None $ 282,734
============== ==============
Net (loss) income allocated to Limited
Partners $ (7,385) $ 3,613,045
============== ==============
Net (loss) income per Limited Partnership
Interest (683,204 issued and outstanding)
- Basic and Diluted $ (0.01) $ 5.29
============== ==============
Distribution to General Partner None $ 49,932
============== ==============
Distribution to Limited Partners None $ 449,395
============== ==============
Distribution per Limited Partnership
Interest:
Taxable None $ 0.50
============== ==============
Tax-Exempt None $ 0.67
============== ==============
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 nine months ended September 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net (loss) income $ (155,189) $ 4,807,137
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Gain on sales of properties (6,086,360)
Seller's participation in income from
joint venture 162,500
Depreciation of properties 1,125,335
Amortization of deferred expenses 131,377
Provision for investment property
writedown 2,255,673
Net change in:
Accounts and accrued interest
receivable 143,566 (314,818)
Escrow deposits - restricted 25,000
Prepaid expenses 290,371
Accounts payable (28,793) (214,114)
Due to affiliates 30,218 9,160
Accrued liabilities (106,625)
Security deposits (156,209)
-------------- --------------
Net cash provided by operating activities 14,802 1,903,427
-------------- --------------
Investing activities:
Proceeds from sales of properties 32,412,530
Payment of selling costs (1,175,271)
Payment of leasing costs (1,018,942)
Distributions from joint ventures
with affiliates 2,112,148
Capital contribution to joint venture
with affiliate (39,705)
--------------
Net cash provided by investing activities 32,290,760
--------------
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 nine months ended September 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Financing activities:
Distributions to Limited Partners (5,631,654) (38,733,791)
Distributions to General Partner (27,595) (584,605)
Distribution to joint venture
partner - seller (162,500)
-------------- --------------
Cash used in financing activities (5,659,249) (39,480,896)
-------------- --------------
Net change in cash and cash equivalents (5,644,447) (5,286,709)
Cash and cash equivalents at beginning
of period 8,638,754 35,523,271
-------------- --------------
Cash and cash equivalents at end of period $ 2,994,307 $ 30,236,562
============== ==============
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 Policies:
(a) For financial statement purposes, the capital accounts of the General
Partner and the Limited Partners have been adjusted to appropriately reflect
their remaining economic interests as provided for in the Partnership
Agreement.
(b) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1998, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining five properties.
The Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as to establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 5 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1998 are:
Paid
-------------------------
Nine Months Quarter Payable
------------ --------- ---------
Reimbursement of expenses to
the General Partner, at cost $ 51,997 $ 25,239 $ 74,367
4. Other Income:
The Perimeter 400 Office Building, which was owned by a joint venture
consisting of the Partnership and three affiliates, was sold in December 1996.
During October 1998, the Partnership received $12,457 representing its share of
a refund of 1996 real estate taxes which had been under appeal. This amount has
been recognized as other income for financial statement purposes during the
third quarter of 1998.
<PAGE>
5. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal, which is pending.
It is not determinable at this time whether or not an unfavorable decision in
this action would have a material adverse impact on the financial position of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-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. As of September 30, 1998, the Partnership has no loans outstanding
or properties remaining in its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1997 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
Administrative expenses were higher than interest income earned on short-term
investments during the nine months and quarter ended September 30, 1998. As a
result, the Partnership recognized a net loss for the nine months and quarter
ended September 30, 1998. During 1997, the Partnership recognized income from
the operations of five properties and recognized gains from the sale of three
of these properties. The Partnership also recognized provisions for investment
property writedowns related to the Bingham Farms Office Plaza - Phase IV and
the Arborland Consumer Mall during 1997. The net effect of these events
resulted in the Partnership recognizing net income during the nine months and
quarter ended September 30, 1997. Further discussion of the Partnership's
operations are summarized below.
1998 Compared to 1997
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the nine months and quarters ended September 30, 1998 and 1997.
During 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings, the Belmont Apartments, the Erindale Centre Shopping Center,
the Bingham Farms Office Plaza - Phase IV and the Arborland Consumer Mall. As
a result, rental income, service income, depreciation, amortization of deferred
expenses, property operating expenses, real estate taxes and property
management fees ceased during 1997.
<PAGE>
Higher average cash balances were available for investment during 1997 due to
proceeds received in connection with 1996 and 1997 property sales prior to
distribution to Limited Partners in 1997 and January 1998. This resulted in a
decrease in interest income on short-term investments during 1998 as compared
to 1997.
The Perimeter 400 Office Building, which was owned by a joint venture
consisting of the Partnership and three affiliates, was sold in December 1996.
During October 1998, the Partnership received $12,457 representing its share of
a refund of 1996 real estate taxes which had been under appeal.
During March 1998, the Partnership recognized other expense of $3,600 related
to the settlement of a dispute with a vendor at the Erindale Centre Shopping
Center.
The Partnership incurred lower accounting, bank, portfolio management, legal
and professional fees and postage costs during 1998 as compared to 1997
resulting in a decrease in administrative expenses during 1998 as compared to
1997.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represented estimations based on many variables which affect the
value of real estate, including economic and demographic conditions. During
1997, the Partnership recognized provisions for investment property writedown
of $605,157 related to the Bingham Farms Office Plaza - Phase IV and $1,650,516
related to the Arborland Consumer Mall based on the properties' sales prices
less closing costs.
The Partnership sold the Ammendale Technology Park - Phase II office buildings,
the Belmont Apartments and the Erindale Centre Shopping Center in 1997, and
recognized gains totaling $6,086,360 on these property sales.
The Arborland Consumer Mall was owned by a joint venture between the
Partnership and the seller prior to its sale in October 1997. The seller
received a cash flow distribution during the second quarter of 1997 of $162,500
pursuant to the joint venture agreement. The amount was recognized as seller's
participation in income from joint venture in 1997.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $5,644,000 as
of September 30, 1998 when compared to December 31, 1997 primarily due to the
distribution made to Tax-exempt Limited Partners in January 1998 consisting
primarily of proceeds received in connection with the October 1997 sale of the
Arborland Consumer Mall. Operating activities generated cash of approximately
$15,000 consisting of the collection of certain operating accounts receivable
and restricted escrow deposits and interest income earned on short-term
investments, which were partially offset by the payment of administrative
expenses. Financing activities consisted of distributions to the Partners of
approximately $5,659,000.
<PAGE>
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining five properties.
The Partnership has retained a portion of the cash from the property sales to
satisfy obligations of the Partnership as well as to establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 5 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
The Partnership sold the Arborland Consumer Mall in October 1997. In connection
with the sale, $109,526 related to tenant reimbursements was placed in escrow
at closing and will be held in escrow until such time as payment of these
reimbursements are received from the tenants.
The Partnership sold the Erindale Centre Shopping Center in August 1997. In
connection with the sale, $25,000 of the sale proceeds was placed in escrow at
closing until the settlement of a dispute with a vendor at the property was
reached. In March 1998, the Partnership paid $3,600 to the vendor in
settlement of the dispute. In April 1998, the $25,000 escrow was released to
the Partnership in full.
To date, Limited Partners have received Net Cash Receipts distributions of
$103.98 per $250 Taxable Interest and $138.36 per Tax-exempt Interest, and Net
Cash Proceeds of $159.97 per $250 Tax-exempt Interest. Distributions to
Tax-exempt Limited Partners total $298.33 per Interest. Taxable Limited
Partners will not receive aggregate distributions from the Partnership equal to
their original investment. However, Taxable Limited Partners will receive a
distribution from amounts allocated to the Repurchase Fund. No additional
distributions are anticipated to be made prior to the termination of the
Partnership. However, after paying final partnership expenses, any remaining
cash reserves will be distributed in accordance with the Partnership Agreement.
Amounts allocated to the Repurchase Fund will also be distributed at that time.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of September 30, 1998, there were 19,585 Interests and
cash of $2,770,137 in the Repurchase Fund.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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:
(a) Agreement of Sale and attachment thereto relating to the sale of the 1275
K Street Office Building, Washington, D.C., previously filed as Exhibit (2) to
the Registrant's Current Report on Form 8-K dated November 29, 1996 is
incorporated herein by reference.
(b) (i) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (10)(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 is incorporated herein by reference.
(b) (ii) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (99)(b)(i) to the Registrant's Current Report on Form 8-K
dated June 17, 1997, is incorporated herein by reference.
(b) (iii) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously filed as
Exhibit (99)(b)(ii) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(c) Agreement of Sale and attachment thereto relating to the sale of Belmont
Apartments, Renton, Washington, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated May 16, 1997, is incorporated
herein by reference.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(i) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
(d)(ii) First Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(ii) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
<PAGE>
(d)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (99)(a) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(e)(i) Agreement of Sale and attachment thereto relating to the sale of
Arborland Consumer Mall, Ann Arbor, Michigan, previously filed as Exhibit
(2)(a) to the Registrant's Current Report on Form 8-K dated June 17, 1997, is
incorporated herein by reference.
(e)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Arborland Consumer Mall, Ann Arbor, Michigan, previously filed
as Exhibit (2)(b) to the Registrant's Current Report on Form 8-K dated June 17,
1997, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ended
September 30, 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-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/Jayne A. Kosik
-----------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of Balcor
Equity Partners - III, the General Partner
Date: November 12, 1998
-----------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2994
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3133
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3133
<CURRENT-LIABILITIES> 90
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3042
<TOTAL-LIABILITY-AND-EQUITY> 3133
<SALES> 0
<TOTAL-REVENUES> 152
<CGS> 0
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (155)
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