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, 1999
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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
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BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
-------------- -------------
Cash and cash equivalents $ 2,950,680 $ 2,961,482
Accrued interest receivable 5,986 8,461
Escrow deposits - restricted 109,526
-------------- -------------
$ 2,956,666 $ 3,079,469
============== =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 41,753 $ 47,555
Due to affiliates 61,470 53,814
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Total liabilities 103,223 101,369
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Commitments and contingencies
Limited Partners' capital (683,204
Interests issued and outstanding) 3,450,749 3,575,406
General Partner's deficit (597,306) (597,306)
-------------- -------------
Total partners' capital 2,853,443 2,978,100
-------------- -------------
$ 2,956,666 $ 3,079,469
============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
-------------- -------------
Income:
Interest on short-term investments $ 103,611 $ 139,642
Other income 3,437 12,457
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Total income 107,048 152,099
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Expenses:
Administrative 192,573 307,288
Other expense 39,132
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Total expenses 231,705 307,288
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Net loss $ (124,657) $ (155,189)
============== =============
Net loss allocated to General Partner None $ (2,976)
============== =============
Net loss allocated to Limited Partners $ (124,657) $ (152,213)
============== =============
Net loss per Limited Partnership Interest
(683,204 issued and outstanding) -
Basic and Diluted $ (0.18) $ (0.22)
============== =============
Distribution to General Partner None $ 27,595
============== =============
Distribution to Limited Partners None $ 5,631,654
============== =============
Distribution per Limited Partnership
Interest:
Taxable None $ 0.28
============== =============
Tax-Exempt None $ 8.86
============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 29,888 $ 44,235
Other income 12,457
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Total income 29,888 56,692
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Expenses:
Administrative 60,196 64,077
Other expense 39,132
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Total expenses 99,328 64,077
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Net loss $ (69,440) $ (7,385)
============== =============
Net loss allocated to General Partner None None
============== =============
Net loss allocated to Limited Partners $ (69,440) $ (7,385)
============== =============
Net loss per Limited Partnership Interest
(683,204 issued and outstanding) -
Basic and Diluted $ (0.10) $ (0.01)
============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
-------------- -------------
Operating activities:
Net loss $ (124,657) $ (155,189)
Adjustments to reconcile net loss to
net cash (used in) or provided by
operating activities:
Net change in:
Accounts and accrued interest
receivable 2,475 143,566
Escrow deposits - restricted 39,132 25,000
Accounts payable (5,802) (28,793)
Due to affiliates 7,656 30,218
-------------- -------------
Net cash (used in) or provided by
operating activities (81,196) 14,802
-------------- -------------
Investing activity:
Release of escrow in connection with the
sale of real estate 70,394
--------------
Cash provided by investing activity 70,394
--------------
Financing activities:
Distribution to Limited Partners (5,631,654)
Distribution to General Partner (27,595)
-------------
Cash used in financing activities (5,659,249)
-------------
Net change in cash and cash equivalents (10,802) (5,644,447)
Cash and cash equivalents at beginning
of period 2,961,482 8,638,754
-------------- -------------
Cash and cash equivalents at
end of period $ 2,950,680 $ 2,994,307
============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) 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, 1999, and all such adjustments are of a normal
and recurring nature.
(b) A reclassification has been made to the previously reported 1998 financial
statements in order to provide comparability with the 1999 statements. This
reclassification has not changed the 1998 results.
2. Partnership Termination:
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in October 1997. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership litigation was filed in May 1999. The second Sandra Dee case was
filed June 1, 1999 and served on August 16, 1999. See Note 6 of Notes to
Financial Statements for additional information regarding the Madison
Partnership/Dee litigation. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including any allocable
share of the Repurchase Fund) to the partners in accordance with the
partnership agreement. In the event that a new contingency (such as a lawsuit)
arises during 1999, the Partnership may not be dissolved and may continue in
existence until such new contingency is resolved. The Partnership does not
consider the Madison Partnership/Dee case to be a matter that would preclude
the dissolution of the Partnership in 1999.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1999 are:
Paid
-----------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 23,906 $ 3,651 $ 61,470
4. Other Income:
During the first quarter of 1999, the Partnership received $3,437 representing
a refund of real estate taxes related to the Green Trails Apartments, which was
sold in 1996. This amount has been recognized as other income for financial
statement purposes.
5. Other Expense:
In October 1997, the Partnership sold the Arborland Consumer Mall. At closing,
$109,526 of the sale proceeds was placed in escrow until certain tenant
reimbursement issues were resolved. During August 1999, the escrow was released
and the Partnership received $70,394. The buyer of the property received the
remaining escrow amount of $39,132 to settle outstanding tenant issues. This
amount has been recognized as other expense for financial statement purposes.
6. Contingency:
In May 1999, a lawsuit was filed against the Partnership, Madison Partnership
Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the
Partnership and certain affiliates have been named as defendants. The
plaintiffs are entities that initiated tender offers to purchase and, in fact,
purchased units in eleven affiliated partnerships. The complaint alleges breach
of fiduciary duties and breach of contract under the partnership agreement and
seeks the winding up of the affairs of the Partnership, the establishment of a
liquidating trust, the appointment of an independent trustee for the trust and
the distribution of a portion of the cash reserves to limited partners. On June
1, 1999, a second lawsuit was filed and was served on August 16, 1999, Sandra
Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to
the Madison Partnership complaint and on September 20, 1999 was consolidated
into the Madison Partnership case. The defendants intend to vigorously contest
these actions. The Partnership believes that it has meritorious defenses to
contest the claims. It is not determinable at this time how the outcome of
these actions will impact the remaining cash reserves of the Partnership.
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, 1999, 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 1998 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
The operations of the Partnership in 1999 and 1998 consisted primarily of
administrative expenses which were partially offset by interest income earned
on short-term investments. In addition, the Partnership recognized other
expense during the third quarter of 1999 in connection with the settlement of
outstanding tenant issues at the Arborland Consumer Mall. Primarily as a result
of lower administrative expenses in 1999, the Partnership's net loss decreased
during the nine months ended September 30, 1999 as compared to the same period
in 1998. The decrease in the net loss was partially offset by lower interest
income earned on short-term investments and the other expense recognized.
Primarily as a result of lower interest income earned on short-term investments
and the other expense, the Partnership's net loss increased during the quarter
ended September 30, 1999 as compared to the same period in 1998. Further
discussion of the Partnership's operations is summarized below.
1999 Compared to 1998
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to the nine months and quarters ended September 30, 1999 and 1998.
As a result of lower average interest rates in 1999 and higher cash balances in
1998 prior to the distribution to Limited Partners in January 1998, interest
income on short-term investments decreased during 1999 as compared to 1998.
During the first quarter of 1999, the Partnership received $3,437 representing
a refund of real estate taxes related to the Green Trails Apartments, which was
sold in 1996. During the third quarter of 1998, the Partnership received
$12,457 representing its share of a refund of real estate taxes related to the
Perimeter 400 Office Building, which was owned by a joint venture consisting of
the Partnership and three affiliates and was sold in 1996. These amounts have
been recognized as other income for financial statement purposes.
During 1999, the Partnership recognized other expense of $39,132 in connection
with the settlement of outstanding tenant issues at the Arborland Consumer
Mall. See Note 5 of Notes to Financial Statements for additional information.
Primarily due to a decrease in accounting, portfolio management and investor
processing fees, administrative expenses decreased during 1999 as compared to
1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $11,000 as of
September 30, 1999 as compared to December 31, 1998. Operating activities used
cash of approximately $81,000 for the payment of administrative expenses, which
were partially offset by interest income earned on short-term investments.
Investing activities generated cash of approximately $70,000 from the receipt
of restricted escrow deposits associated with the Arborland Consumer Mall.
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in October 1997. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership and the new Sandra Dee litigation, described in Part II, Item 1, of
this report, were filed in May 1999 and June 1999, respectively. Despite the
existence of the Madison Partnership/Dee litigation, the Partnership currently
plans to dissolve in December 1999 and distribute remaining cash reserves
(including any allocable share of the Repurchase Fund) to the partners in
accordance with the partnership agreement. In the event that a new contingency
(such as a lawsuit) arises during 1999, the Partnership may not be dissolved
and may continue in existence until such new contingency is resolved. The
Partnership does not consider the Madison Partnership/Dee case to be a matter
that would preclude the dissolution of the Partnership in 1999. As a result of
the pending dissolution of the Partnership, the general partner has suspended
transfer of limited partnership interests in the Partnership. Certain transfers
which are not for value (such as death, divorce, change of custodian or other
estate planning) will continue to be permitted. In the event that dissolution
of the Partnership does not occur during 1999, the Partnership will allow
transfers of limited partnership interests to occur commencing in January 2000.
Limited Partners have received Net Cash Receipts distributions of $103.98 per
$250 Taxable Interest and $138.36 per $250 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 $250 Interest. 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. 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.
In October 1997, the Partnership sold the Arborland Consumer Mall. At closing,
$109,526 of the sale proceeds was placed in escrow until certain tenant
reimbursement issues were resolved. During August 1999, the escrow was released
and the Partnership received $70,394. The buyer of the property received the
remaining escrow amount of $39,132 to settle outstanding tenant issues.
In 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of September 30, 1999, there was cash of $2,770,137 in the
Repurchase Fund.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors has involved soliciting information from these vendors through the use
of surveys, follow-up discussions and review of data where needed. The
Partnership has received the surveys from each of these vendors. While the
Partnership cannot guarantee Year 2000 compliance by its key vendors, and is
relying on statements from these vendors without independent verification,
these surveys, testing of systems, where applicable and discussions with the
key vendors performing services for the Partnership indicate that the key
vendors are substantially Year 2000 compliant as of September 30, 1999. The
Partnership will continue to monitor the Year 2000 compliance of its key
vendors during the fourth quarter of 1999. In addition, the Partnership has
developed a contingency plan in the event of non-compliance by these key
vendors in the Year 2000. The Partnership does not believe that failure by any
of its key vendors to be Year 2000 compliant by the year 2000 would have a
material effect on the business, financial position or results of operations of
the Partnership.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et
- ----------------------------------------------------------------------------
al.
- ---
On May 7, 1999, a proposed class action complaint was filed, and on May 13,
1999 was served on the defendants, Madison Partnership Liquidity Investors XX,
et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH 06972). The general partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one other limited partnerships are referred to herein as the "Affiliated
Partnerships". Plaintiffs are entities that initiated tender offers to purchase
units and, in fact, purchased units in eleven of the Affiliated Partnerships.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. On July 14, 1999, the defendants filed a Motion to
Dismiss the complaint. A hearing date on the motion has not yet been set. On
September 20, 1999 the Sandra Dee case described below was consolidated with
this case. Future reports to investors will report only the consolidated case.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership believes that it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Partnership.
Sandra Dee vs. The Balcor Company, et al.
- -----------------------------------------
On June 1, 1999, a proposed class action complaint was filed, and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). The general partner of the Partnership, the general partners of
twenty-one additional limited partnerships which were sponsored by The Balcor
Company, The Balcor Company and one individual are named as defendants in this
action. The Partnership and the twenty-one other limited partnerships are
referred to herein as the "Affiliated Partnerships". This complaint is
identical in all material respects to the Madison Partnership Liquidity
Investors XX, et al. vs. The Balcor Company et al complaint filed in May 1999.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. The defendants filed on September 15, 1999 a motion to
consolidate this case with the Madison Partnership case. On September 20, 1999,
the motion was granted and this case was consolidated with the Madison
Partnership case. Future reports to investors will report only the consolidated
case. On September 15, 1999, the defendants also filed a Motion to Dismiss the
complaint.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The defendants believe that they have meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Partnership.
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.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1999 is attached hereto.
(b) Reports on Form 8-K: No Reports were filed on Form 8-K during the quarter
ended September 30, 1999.
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 and Financial
Officer) of Balcor Equity Partners - III, the
General Partner
Date: November 4, 1999
----------------
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