SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 1998 0-14188
I.R.E. PENSION INVESTORS, LTD. - II
(Exact Name of Registrant as Specified in its
Certificate of Limited Partnership)
Florida 59-2582239
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Fort Lauderdale, Florida 33304
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (954) 760-5200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units,
$250 Per Unit
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>
I.R.E. Pension Investors, Ltd. - II
Index to Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of September 30, 1998 and December 31, 1997 -
Unaudited
Statements of Operations for the nine and three month periods ended
September 30, 1997 and 1998 - Unaudited
Statements of Partners' Capital for the nine month periods ended
September 30, 1998 - Unaudited
Statements of Cash Flows for the nine months ended September 30, 1997
and 1998 - Unaudited
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Balance Sheets
December 31, 1997 and September 30, 1998
(Unaudited)
Assets
1997 1998
---- ----
Cash and cash equivalents $ 519,678 246,779
Securities available for sale 1,673,707 2,030,695
Investments in real estate:
Office building 5,782,761 5,782,761
Warehouse building 2,147,267 2,147,267
----------- -----------
7,930,028 7,930,028
Less accumulated depreciation (4,449,318) (4,758,769)
----------- -----------
3,480,710 3,171,259
Other assets, net 2,506 4,400
----------- -----------
$ 5,676,601 5,453,133
=========== ===========
Liabilities and Partners' Capital
Accounts payable 25,382 19,300
Other liabilities 157,589 115,604
Due to affiliates 3,273 1,004
----------- -----------
Total liabilities 186,244 135,908
Partners' capital:
49,041 limited partnership
units issued and outstanding 5,490,357 5,317,225
----------- -----------
$ 5,676,601 5,453,133
=========== ===========
See accompanying notes to unaudited financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Operations
For the nine and three month periods ended September 30, 1997 and 1998
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- ---------------------
1997 1998 1997 1998
---- ---- ---- ----
Revenues:
Rental income $381,366 299,693 129,646 62,707
Interest income 72,849 85,722 25,581 29,362
Other income 990 370 590 --
-------- -------- -------- --------
Total revenues 455,205 385,785 155,817 92,069
-------- -------- -------- --------
Costs and expenses:
Depreciation 309,451 309,451 103,150 103,150
Property operations:
Property management fees to
affiliate 3,814 2,797 1,297 427
Other 3,230 10,842 1,203 8,436
General and administrative:
To affiliates 23,104 24,747 8,440 7,721
Other 28,729 27,176 2,868 5,008
-------- -------- -------- --------
Total costs and expenses 368,328 375,013 116,958 124,742
-------- -------- -------- --------
Net income (loss) $ 86,877 10,772 38,859 (32,673)
======== ======== ======== ========
Net income (loss) per weighted
average limited partnership
unit outstanding $ 1.75 .22 .78 (.66)
======== ======== ======== ========
See accompanying notes to unaudited financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Partners' Capital
For the nine months ended September 30, 1998
(Unaudited)
Limited General
Partners Partners Total
----------- ----------- -----------
Balance at December 31, 1997 $ 5,491,826 (1,469) 5,490,357
Limited partner distributions (183,904) -- (183,904)
Net income 10,664 108 10,772
----------- ----------- -----------
Balance at September 30, 1998 $ 5,318,586 (1,361) 5,317,225
=========== =========== ===========
See accompanying notes to unaudited financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Cash Flows
For the nine months ended September 30, 1997 and 1998
(Unaudited)
1997 1998
---- ----
Operating Activities:
Net income $ 86,877 10,772
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 309,451 309,451
Non-cash portion of rental income (25,371) (25,371)
Changes in operating assets and liabilities:
Increase (decrease) in accounts
payable, other liabilities
and due to affiliates 10,745 (24,965)
Increase in other
assets, net (19,455) (1,894)
----------- -----------
Net cash provided by operating
activities 362,247 267,993
----------- -----------
Investing Activities:
Redemption and sale of securities
available for sale 4,810,585 8,689,006
Purchase of securities
available for sale (4,871,957) (9,045,994)
----------- -----------
Net cash used in
investing activities (61,372) (356,988)
----------- -----------
Financing Activities:
Limited partner distributions (183,903) (183,904)
----------- -----------
Net cash used by financing
activities (183,903) (183,904)
----------- -----------
Increase (decrease) in cash and
cash equivalents 116,972 (272,899)
Cash and cash equivalents at
beginning of period 332,701 519,678
----------- -----------
Cash and cash equivalents
at end of period $ 449,673 246,779
=========== ===========
See accompanying notes to unaudited financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Notes to Unaudited Financial Statements
September 30, 1998
Note 1 - General
The accompanying financial statements have been prepared by the Partnership in
accordance with the accounting policies described in its 1997 Annual Report and
should be read in conjunction with the notes to financial statements which
appear in that report.
Note 2 - Real Estate
On December 15, 1987, the Partnership purchased the Federal Express Distribution
Center, a one story, 37,500 square foot office/warehouse building in
Jacksonville, Florida. The building was designed for and was occupied solely by
Federal Express Corporation pursuant to a lease that expired May 31, 1998.
Federal Express vacated the property on that date and the Partnership is not
currently receiving rent on this property. The Partnership has begun the search
for either a replacement tenant or a buyer for the property.
On December 31, 1986, the Partnership purchased the Galleria Professional
Building, a six story office building containing 60,965 square feet of net
leaseable area in Fort Lauderdale, Florida.
Following is summarized financial information with respect to operations at the
Galleria Professional Building:
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
Rental income $759,974 741,059 244,661 238,877
Other income 10,048 9,738 5,088 4,981
-------- -------- -------- --------
770,022 750,797 249,749 243,858
-------- -------- -------- --------
Property operating expenses 422,582 513,187 146,998 176,574
Ground rent 28,026 28,024 9,342 9,340
-------- -------- -------- --------
450,608 541,211 156,340 185,914
-------- -------- -------- --------
Operating income $319,414 209,586 93,409 57,944
======== ======== ======== ========
Note 3 - Other Liabilities
Other liabilities at December 31, 1997 and September 30, 1998 consists primarily
of unearned rental income which arises from leases with non-level payments being
recognized ratably over the term of the lease.
Note 4 - Compensation or Reimbursements to General Partners and Affiliates
During the nine and three months ended September 30, 1997 and 1998, compensation
to general partners and affiliates was as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- ------------------
1997 1998 1997 1998
---- ---- ---- ----
Reimbursement for administrative
and accounting services $23,104 24,747 8,440 7,721
Property management fees (a) 3,814 2,797 1,297 427
------- ------- ------- -------
Total $26,918 27,544 9,737 8,148
======= ======= ======= =======
(a) Property management fees are computed as 1% of rental income.
Note 5 - Securities Available for Sale
Securities held by the Partnership are available for sale and are carried at
fair value, with any related unrealized appreciation and/or depreciation
reported as a separate component of partners' capital. At December 31, 1997, the
Partnership held a treasury bill that matured in February 1998, the cost of
which approximated fair value. At September 30, 1998, the partnership held
commercial paper that matures in October 1998, the cost of which approximates
fair value.
Note 6 - Management Representation
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Partnership's unaudited
consolidated statements of financial condition at September 30, 1998 and
December 31, 1997, the unaudited consolidated statements of operations for the
nine and three months ended September 30, 1998 and 1997, the unaudited
consolidated statements of stockholders' equity for the nine months ended
September 30, 1998 and 1997 and the unaudited consolidated statements of cash
flows for the nine months ended September 30, 1998 and 1997. Such adjustments
consisted only of normal recurring items. The unaudited consolidated financial
statements and related notes are presented as permitted by Form 10-Q and should
be read in conjunction with the notes to consolidated financial statements
appearing in the Partnership's Annual Report on Form 10K for the year ended
December 31, 1997.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 1998
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Partnership's expectations
and are subject to a number of risks and uncertainties, including but not
limited to, economic matters (both as a general matter and in particular in the
areas where the Partnership owns real estate), competitive and other factors
affecting the Partnership's operations, markets, property values and other
factors including factors associated with the continued ownership and operation
of real estate and the leasing or sale of the Federal Express Distribution
Center discussed elsewhere in this report and the documents filed by the
Partnership with the Securities and Exchange Commission. Many of these factors
are beyond the Partnership's control. Actual results could differ materially
from these forward-looking statements. In light of these risks and
uncertainties, there is no assurance that the results discussed in such
forward-looking statements contained in this report will, in fact, occur. The
Partnership does not undertake any obligation to publicly release the results of
any revisions to these forward-looking statements to reflect future events or
circumstances.
A description of the Partnership's investment properties follows:
* Federal Express Distribution Center - A 38,000 square foot warehouse
building located in Jacksonville, Florida.
* Galleria Professional Building - A 61,000 square foot office building
located in Fort Lauderdale, Florida.
The Galleria Professional Building is net leased to a tenant. The Federal
Express Distribution Center was occupied solely by Federal Express Corporation
pursuant to a lease that expired May 31, 1998. Federal Express vacated the
property on that date and the Partnership is not currently receiving rent on
this property. The Partnership has begun the search for either a replacement
tenant or a buyer for the property.
Rental income decreased approximately $82,000 and $67,000 for the nine and three
month periods ended September 30, 1998 as compared to the 1997 periods primarily
due to the vacancy of the Federal Express building, effective May 31, 1998.
Interest income increased approximately $13,000 and $4,000 for nine and three
month periods ended September 30, 1998 as compared to the comparable periods in
1997 primarily due to an increase in investable funds.
Other property operations increased approximately $8,000 and $7,000 for the nine
and three month periods ended September 30, 1998 as compared to the comparable
periods in 1997 primarily due to increases in insurance, real estate taxes and
maintenance as a result of the vacancy at Federal Express.
At September 30, 1998, the Partnership had approximately $247,000 of cash and
cash equivalents and approximately $2.0 million in commercial paper included in
securities available for sale. The Partnership has been paying distributions of
$5.00 per $1,000 of original capital on a quarterly basis since the fourth
quarter of 1990.
The Partnership's long term prospects will be primarily affected by future net
income at the Galleria Professional Building and finding a replacement tenant
for or the sale of the Federal Express Distribution Center. Due to the
uncertainties involving the real estate market and the status of the Federal
Express Distribution Center, management cannot reasonably determine the
Partnership's long term liquidity position. However, management believes the
Partnership currently has sufficient liquidity for operations and to meet its
obligations and commitments for the foreseeable future.
The Partnership's computer system is composed of seven personal computers
running on a Windows NT network. The Partnership's primary in-house computer
applications consist of general ledger, accounts payable, property management,
spreadsheet and database applications. The personal computers have been checked
and found to be year 2000 compliant. The vendor of the general ledger, accounts
payable and property management packages have indicated that their software is
also year 2000 compliant. The spreadsheet and database applications utilized are
the most recent versions available from Microsoft. Accordingly, the Partnership
does not expect to expend material amounts to third parties to remediate any
year 2000 problems. Additionally, the Partnership does not anticipate that it
will have any material expenditure with respect to real estate owned by the
Partnership. Should any of the above systems fail, the Partnership believes it
would be able to process its data and monitor its accounts through manual
systems or other alternative means.
<PAGE>
Part II - Other Information
September 30, 1998
Item 1 through 5
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial data schedule
b. No report on Form 8-K was filed during the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
I.R.E. PENSION INVESTORS, LTD.-II
Registrant
By: I.R.E. Pension Advisors II, Corp.
Managing General Partner of Registrant
Date: November 12, 1998 By: /s/ Alan B. Levan
-------------------
Alan B. Levan, President
Date: November 12, 1998 By: /s/ Glen R. Gilbert
---------------------
Glen R. Gilbert, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 246,779
<SECURITIES> 2,030,695
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,930,028
<DEPRECIATION> (4,758,769)
<TOTAL-ASSETS> 5,453,133
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,317,225
<TOTAL-LIABILITY-AND-EQUITY> 5,453,133
<SALES> 0
<TOTAL-REVENUES> 385,785
<CGS> 0
<TOTAL-COSTS> 375,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,772
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,772
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
