SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 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
June 30, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 3,020,357 $ 8,638,754
Accounts and accrued interest receivable 8,215 172,396
Escrow deposits - restricted 109,526 134,526
-------------- --------------
$ 3,138,098 $ 8,945,676
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 11,167 $ 44,712
Due to affiliates 77,169 44,149
-------------- --------------
Total liabilities 88,336 88,861
-------------- --------------
Commitments and contingencies
Limited Partners' capital (683,204
Interests issued and outstanding) 3,647,068 9,423,550
General Partner's deficit (597,306) (566,735)
-------------- --------------
Total partners' capital 3,049,762 8,856,815
-------------- --------------
$ 3,138,098 $ 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 six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental $ 3,572,533
Service 1,029,888
Interest on short-term investments $ 95,407 279,102
-------------- --------------
Total income 95,407 4,881,523
-------------- --------------
Expenses:
Depreciation 882,075
Amortization of deferred expenses 62,429
Property operating 1,724,504
Real estate taxes 557,852
Property management fees 212,005
Administrative 239,611 533,988
Other expense 3,600
Provision for investment property
writedown 605,157
-------------- --------------
Total expenses 243,211 4,578,010
-------------- --------------
(Loss) income before gain on sales of
properties and seller's participation in
joint venture (147,804) 303,513
Gain on sales of properties 770,345
Seller's participation in income from
joint venture (162,500)
-------------- --------------
Net (loss) income $ (147,804) $ 911,358
============== ==============
Net (loss) income allocated to General
Partner $ (2,976) $ 344,941
============== ==============
Net (loss) income allocated to Limited
Partners $ (144,828) $ 566,417
============== ==============
Net (loss) income per Limited Partnership
Interest (683,204 issued and outstanding)
- Basic and Diluted $ (0.21) $ 0.83
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Distributions to General Partner $ 27,595 $ 534,673
============== ==============
Distributions to Limited Partners $ 5,631,654 $ 38,284,396
============== ==============
Distributions per Limited Partnership
Interest:
Taxable $ 0.28 $ 5.40
============== ==============
Tax-Exempt $ 8.86 $ 59.96
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Rental $ 1,792,423
Service 422,888
Interest on short-term investments $ 37,761 71,004
-------------- --------------
Total income 37,761 2,286,315
-------------- --------------
Expenses:
Depreciation 434,887
Amortization of deferred expenses 15,915
Property operating 696,239
Real estate taxes 275,245
Property management fees 105,917
Administrative 101,611 312,087
Provision for investment property
writedown 605,157
-------------- --------------
Total expenses 101,611 2,445,447
-------------- --------------
(Loss) income before seller's participation
in joint venture (63,850) (159,132)
Seller's participation in income from
joint venture (162,500)
-------------- --------------
Net (loss) income $ (63,850) $ (321,632)
============== ==============
Net income allocated to General Partner None $ 246,540
============== ==============
Net (loss) income allocated to Limited
Partners $ (63,850) $ (568,172)
============== ==============
Net (loss) income per Limited Partnership
Interest (683,204 issued and outstanding)
- Basic and Diluted $ (0.09) $ (0.83)
============== ==============
Distribution to General Partner $ 1,528 $ 257,304
============== ==============
Distribution to Limited Partners $ 13,756 $ 11,832,749
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Distribution per Limited Partnership
Interest:
Taxable $ 0.28 $ 2.60
============== ==============
Tax-Exempt None $ 18.46
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net (loss) income $ (147,804) $ 911,358
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Gain on sales of properties (770,345)
Seller's participation in income from
joint venture 162,500
Depreciation of properties 882,075
Amortization of deferred expenses 62,429
Provision for investment property
writedown 605,157
Net change in:
Accounts and accrued interest
receivable 164,181 16,520
Escrow deposits - restricted 25,000
Prepaid expenses 451,080
Accounts payable (33,545) (188,048)
Due to affiliates 33,020 32,514
Accrued liabilities (53,319)
Security deposits (29,463)
-------------- --------------
Net cash provided by operating activities 40,852 2,082,458
-------------- --------------
Investing activities:
Proceeds from sales of properties 5,768,000
Payment of selling costs (289,417)
Payment of leasing costs (1,018,942)
Distributions from joint ventures
with affiliates 220,882
Capital contribution to joint venture
with affiliate (39,705)
--------------
Net cash provided by investing activities 4,640,818
--------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997
(Unaudited)
(Continued)
1998 1997
-------------- --------------
Financing activities:
Distributions to Limited Partners (5,631,654) (38,284,396)
Distributions to General Partner (27,595) (534,673)
Distribution to joint venture
partner - seller (162,500)
-------------- --------------
Cash used in financing activities (5,659,249) (38,981,569)
-------------- --------------
Net change in cash and cash equivalents (5,618,397) (32,258,293)
Cash and cash equivalents at beginning
of period 8,638,754 35,523,271
-------------- --------------
Cash and cash equivalents at end of period $ 3,020,357 $ 3,264,978
============== ==============
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 six months
and quarter ended June 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 4 of Notes to
Financial Statements. In the absence of any such contingencies, the reserves
will be paid within twelve months of the last property being sold. In the event
a contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1998 are:
Paid
-------------------------
Six Months Quarter Payable
------------ --------- ---------
Reimbursement of expenses to
the General Partner, at cost $ 26,758 $ 12,324 $ 77,169
<PAGE>
4. 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 June 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 six months and quarter ended June 30, 1998. As a
result, the Partnership recognized a net loss for the six months and quarter
ended June 30, 1998. During 1997, the Partnership recognized income from the
operations of five properties and recognized a gain on the sale of the
Ammendale Technology Park - Phase II office buildings, which were sold in
February 1997. During the quarter ended June 30, 1997, the Partnership
recognized a provision for investment property writedown related to the Bingham
Farms Office Plaza - Phase IV. As a result of these events, the Partnership
recognized net income during the six months ended June 30, 1997 and a net loss
during the quarter ended June 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 six months and quarters ended June 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 the 1996 and February 1997 property sales
prior to distribution to Limited Partners in January 1997 and April 1997. This
resulted in a decrease in interest income on short-term investments during 1998
as compared to 1997.
During the six months ended June 30, 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 other professional fees 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 a provision for investment property writedown
of $605,157 related to the Bingham Farms Office Plaza - Phase IV based on the
property's sales price less closing costs.
The Partnership sold the Ammendale Technology Park - Phase II office buildings
in February 1997, and recognized a gain of $770,345 in connection with the
property sale.
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 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 $5,618,000 as
of June 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
$41,000 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.
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
<PAGE>
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 4 of Notes to
Financial Statements. In the absence of any such contingencies, the reserves
will be paid within twelve months of the last property being sold. In the event
a contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
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 in 1998.
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 June 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
<PAGE>
as Exhibit (2)(ii) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
(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 six months ended June
30, 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended June 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: August 13, 1998
-----------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3020
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3138
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3138
<CURRENT-LIABILITIES> 88
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3050
<TOTAL-LIABILITY-AND-EQUITY> 3138
<SALES> 0
<TOTAL-REVENUES> 95
<CGS> 0
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (148)
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