SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
[X]
Documents Incorporated by Reference
Portions of the Prospectus of the Registrant, dated October 4, 1985, are
incorporated by reference into Part IV.
<PAGE>
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.
PART I
ITEM 1. BUSINESS
I.R.E. PENSION INVESTORS, LTD.-II, a limited partnership organized under the
laws of the State of Florida as of September 30, 1985, is primarily engaged in
the business of operating and holding for investment, income producing real
properties. Registrant did not utilize borrowings in connection with the
purchase of its properties. The Partnership commenced a public offering of its
units of limited partnership interest in October 1985. The required escrow
relative to Registrant was reached and subscription funds were transferred to
Registrant on December 26, 1985 ("Inception"). The Registrant closed the
offering in October 1987, having raised $12,373,750 in capital and issued 49,491
units of limited partnership interest at $250 per unit. Galleria Professional
Building and a minority interest in One West Nine Mile Joint Venture were
acquired during 1986 and the Federal Express Distribution Center was acquired
during 1987. During December 1991, the One West Nine Mile Joint Venture was
sold. No properties have been purchased or sold since 1991.
Uninvested cash of Registrant is deposited in demand accounts with commercial
banks and may be invested temporarily in U.S. Treasury Bills, certificates of
deposit or other interest bearing accounts or investments.
Alan B. Levan and I.R.E. Pension Advisors II, Corp. are the general partners of
Registrant. I.R.E. Pension Advisors II, Corp., as Managing General Partner,
manages and controls Registrant's affairs and has general responsibility and the
ultimate authority in all matters affecting Registrant's business.
Affiliates of the general partners of Registrant also own and operate their own
improved real estate and may have investment objectives and policies similar to
those of Registrant. Registrant may be in competition with other limited
partnerships served by affiliates of the Managing General Partner or by other
companies wherein the individual general partner is a controlling stockholder.
On December 31, 1998, Registrant had no employees. The balance of information
required in Item 1 is either inapplicable or not material to an understanding of
the Registrant's business.
ITEM 2. PROPERTIES
The properties listed below are not utilized by Registrant but are held for
investment. All are zoned for their current uses.
Galleria Professional Office Building 60,965 square owned
Fort Lauderdale, FL feet leasable
Federal Express Distribution Center 37,500 square owned
Jacksonville, FL feet leasable
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST AND
RELATED SECURITY HOLDER MATTERS
a) There is no established public trading market for Registrant's units of
limited partnership interest.
b) There are approximately 1,658 holders of units of limited partnership
interest as of February 22, 1999.
c) See Item 6.-Selected Financial Data regarding Registrant's distributions,
incorporated herein by reference as if set forth herein.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
ITEM 6. SELECTED FINANCIAL DATA
For the five years ended December 31, 1998.
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Revenues $ 543,753 588,142 595,779 611,804 476,576
========== ========= ========= ========= ==========
Net income (loss) $ (656,016) 93,716 (6,107) 123,200 (73,884)
========== ========= ========= ========= ==========
Net income (loss) per
weighted average
limited partnership
unit outstanding $ (13.17) 1.88 (.12) 2.49 (1.49)
========== ========= ========= ========= ==========
Total assets $ 6,364,252 6,230,003 5,818,603 5,676,601 5,295,139
========== ========= ========= ========= ==========
Partners' capital $ 6,084,946 5,932,102 5,612,362 5,490,357 5,171,268
========== ========= ========= ========= ==========
Distributions per
weighted average
limited partnership
unit outstanding $ 5.00 5.00 5.00 5.00 5.00
========== ========= ========= ========= ==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF I.R.E. PENSION INVESTORS, LTD. - II
A description of the Partnership's investment properties follows:
* Galleria Professional Building ("Galleria") - A 61,000 square foot office
building located in Fort Lauderdale, Florida.
* Federal Express Distribution Center ("Federal Express") - A 38,000 square
foot warehouse building located in Jacksonville, Florida.
The Partnership was organized in September 1985 and is engaged in the business
of operating and holding for investment, income producing real properties. In
December 1986, the Partnership acquired Galleria and in December 1987, the
Partnership acquired Federal Express. 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 is seeking either a
replacement tenant or a buyer for the property.
Rental income decreased for the year ended December 31, 1998 as compared to the
1997 period primarily due to the vacancy of the Federal Express building,
effective May 31, 1998. Rental income increased for the year ended December 31,
1997 as compared to the comparable period in 1996 as a result of a rental
increase at Federal Express, effective July 1997.
Interest income increased for the year ended December 31, 1998 as compared to
the comparable period in 1997 and 1996 primarily due to increases in funds
available for investments and yields on those investments.
During 1996 and 1998 the carrying value of Federal Express was reduced
approximately $100,000 and $38,000, respectively, to its estimated fair value.
Other property operations increased for the year ended December 31, 1998 as
compared to the comparable period in 1997 primarily due to increases in
insurance, real estate taxes and maintenance as a result of the vacancy at
Federal Express.
Other general and administrative expenses increased for the year ended December
31, 1998 as compared to the same period in 1997 primarily due to the appraisal
fees paid in 1998 for Galleria and Federal Express. Other general and
administrative expenses decreased for the year ended December 31, 1997 as
compared to the same period in 1996 primarily due to the interest accrued on the
rescission of partnership units and cost incurred in 1996 pertaining to
litigation and legal fees associated with the preparation of a sale contract on
the Federal Express Distribution Center in 1996 which was subsequently
cancelled.
The Federal Express lease 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 is seeking either a replacement tenant or a buyer
for the property. If a replacement tenant is not found, rental income for 1999
is expected to decrease by approximately $112,000 from the amount recognized in
1998. Additionally, the Partnership would incur real estate taxes, insurance
expense and other property maintenance expenses for which Federal Express
previously paid pursuant to the terms of its lease. The property has been listed
with an auction company and is scheduled to be presented at an auction in April
1999.
When the Partnership acquired the Galleria Professional Building in 1986, it
executed a net lease with the seller, leasing the property back to the seller on
a totally net basis. The lease requires a minimum annual rental of $217,000 per
annum plus 10% of the property income, as defined, between $217,000 and $467,000
and 50% of the property income in excess of $467,000. Based on operations of the
property, reflected in information provided by the tenant, no percentage rent is
to be paid for 1998.
At December 31, 1998, the Partnership had approximately $235,000 of cash and
cash equivalents and approximately $2.0 million in Treasury Bills included in
securities available for sale. The Partnership has annually been paying
distributions of $5.00 per $1,000 of original capital ($1.25 quarterly) since
the fourth quarter of 1990.
In addition to the items discussed above, the Partnership's long term prospects
will primarily be affected by future net income at Galleria and finding a
replacement tenant for or sale of the Federal Express building. Due to the
uncertainties involving the real estate market and the status of the Federal
Express building, management cannot reasonably determine the Partnership's long
term liquidity position.
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 remediate any year 2000 problems.
Should any of the Partnership's systems fail, the Partnership believes it would
be able to process its data and monitor its accounts through manual systems or
other alternative means. Additionally, the Partnership does not anticipate that
it will have any material expenditure associated with year 2000 issues with
respect to real estate owned by the Partnership.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets - December 31, 1997 and 1998
Statements of Operations - For each of the Years in the Three Year Period
ended December 31, 1998
Statements of Partners' Capital - For each of the Years in the Three Year
Period ended December 31, 1998
Statements of Cash Flows - For each of the Years in the Three Year Period
ended December 31, 1998
Notes to Financial Statements
ITEM 14. FINANCIAL STATEMENT SCHEDULES
III. Properties and Accumulated Depreciation - December 31, 1998.
All other schedules are omitted as the required information is either not
applicable or is presented in the financial statements and related notes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
I.R.E. Pension Investors, Ltd. - II:
We have audited the financial statements of I.R.E. Pension Investors, Ltd. - II
(a Florida Limited Partnership), as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
financial statements and financial statement schedule are the responsibility of
I.R.E. Pension Investors, Ltd. - II's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of I.R.E. Pension Investors, Ltd.
- - II, at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Fort Lauderdale, Florida
March 2, 1999
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Balance Sheets
December 31, 1997 and 1998
Assets
1997 1998
---- ----
Cash and cash equivalents $ 519,678 234,761
Securities available for sale 1,673,707 2,000,507
Investments in real estate:
Office building 5,782,761 5,782,761
Warehouse building 2,147,267 2,109,267
----------- ----------
7,930,028 7,892,028
Less accumulated depreciation (4,449,318) (4,861,920)
----------- ----------
3,480,710 3,030,108
Other assets, net 2,506 29,763
$ 5,676,601 5,295,139
=========== ==========
Liabilities and Partners' Capital
Accounts payable 25,382 18,931
Other liabilities 157,589 101,449
Due to affiliates 3,273 3,491
----------- ----------
Total liabilities 186,244 123,871
Partners' capital:
49,041 limited partnership units issued
and outstanding 5,490,357 5,171,268
----------- ----------
$ 5,676,601 5,295,139
=========== ==========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Operations
For each of the Years in the Three Year Period ended December 31, 1998
1996 1997 1998
---- ---- ----
Revenues:
Rental income $ 503,440 511,018 362,398
Interest income 91,599 99,493 113,558
Other income 740 1,293 620
--------- ------- --------
Total revenues 595,779 611,804 476,576
--------- ------- --------
Costs and expenses:
Depreciation 412,602 412,602 412,602
Impairment loss on real estate 100,000 -- 38,000
Property operations:
Property management fees to affiliate 5,034 5,110 3,624
Other 5,353 4,432 17,640
General and administrative:
To affiliates 32,878 30,544 32,490
Other 46,019 35,916 46,104
--------- ------- --------
Total costs and expenses 601,886 488,604 550,460
--------- ------- --------
Net income (loss) $ (6,107) 123,200 (73,884)
========= ======= ========
Net income (loss) per weighted average
limited partnership unit outstanding $ (.12) 2.49 (1.49)
========= ======= ========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Partners' Capital
For each of the Years in the
Three Year Period ended December 31, 1998
Limited General
Partners Partners Total
-------- -------- -----
Balance at December 31, 1995 $ 5,934,192 (2,090) 5,932,102
Limited partner distributions (245,883) -- (245,883)
Rescission of limited partner
units (67,750) -- (67,750)
Net loss (5,496) (611) (6,107)
----------- ------ ----------
Balance at December 31, 1996 5,615,063 (2,701) 5,612,362
Limited partner distributions (245,205) -- (245,205)
Net income 121,968 1,232 123,200
----------- ------ ----------
Balance at December 31, 1997 5,491,826 (1,469) 5,490,357
Limited partner distributions (245,205) -- (245,205)
Net loss (73,145) (739) (73,884)
----------- ------ ----------
Balance at December 31, 1998 $ 5,173,476 (2,208) 5,171,268
=========== ====== ==========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Statements of Cash Flows
For each of the Years in the Three Year Period Ended December 31, 1998
1996 1997 1998
---------- ---------- -----------
Operating Activities:
Net income (loss) $ (6,107) 123,200 (73,884)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 412,602 412,602 412,602
Impairment loss on real estate 100,000 -- 38,000
Non-cash portion of rental income (33,828) (33,828) (33,828)
Changes in operating assets and
liabilities:
Increase (decrease) in accrued
expenses, accounts payable, other
liabilities and due to affiliates (57,832) 13,831 (28,545)
Decrease (increase) in other
assets, net 740 (169) (27,257)
---------- ---------- -----------
Net cash provided by operating
activities 415,575 515,636 287,088
---------- ---------- -----------
Investing Activities:
Redemption and sale of securities
available for sale 6,209,829 6,451,355 11,714,710
Purchase of securities
available for sale (6,449,995) (6,534,809) (12,041,510)
---------- ---------- -----------
Net cash used in
investing activities (240,166) (83,454) (326,800)
---------- ---------- -----------
Financing Activities:
Rescission of limited partner
units (67,750) -- --
Limited partner distributions (245,883) (245,205) (245,205)
---------- ---------- -----------
Net cash used by financing
activities (313,633) (245,205) (245,205)
---------- ---------- -----------
Increase (decrease) in cash and
cash equivalents (138,224) 186,977 (284,917)
Cash and cash equivalents at
beginning of year 470,925 332,701 519,678
---------- ---------- -----------
Cash and cash equivalents
at end of year $ 332,701 519,678 234,761
========== ========== ===========
See accompanying notes to financial statements.
<PAGE>
I.R.E. Pension Investors, Ltd.-II
(A Florida Limited Partnership)
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
I.R.E. Pension Investors, Ltd. - II (the "Partnership") was organized on
September 30, 1985 in accordance with the provisions of the Florida Uniform
Limited Partnership Act to invest in, hold and manage income producing real
estate. A sufficient amount of capital was raised to allow funds to be released
from escrow to the Partnership on December 26, 1985. The Partnership closed its
offering of limited partnership units in October 1987 after having raised
$12,373,750.
The Managing General Partner has complete authority in the management and
control of the Partnership. I.R.E. Pension Advisors II, Corp. is the Managing
General Partner and Alan B. Levan is the individual General Partner of the
Partnership. The General Partners may serve in the same capacity for other
entities having similar investment objectives. Should any conflicts of interest
arise among these entities, the management of the managing general partners
will, at their sole discretion, resolve such conflicts.
Basis of Financial Statement Presentation - The financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the statements of financial condition and income and expenses for
the periods presented. Actual results could differ significantly from those
estimates. A material estimate that is susceptible to significant change in the
next year relates to the determination of the impairment loss on real estate.
Compensation or Reimbursements to General Partners and Affiliates
The General Partners and/or their affiliates are entitled to receive
compensation or reimbursements only as specified by the Partnership Agreement.
The determination of amount and timing of payment is subject to certain
limitations and to cash distribution preferences of limited partners. Following
is a brief description of such compensation and the services to be rendered:
Underwriting Commissions:
Due upon the sale of Partnership units of interest.
Non-recurring Acquisition Fees:
Principally for evaluating and selecting real property for potential
purchase by the Partnership.
Property Management Fee:
Due for services in connection with the continuing professional property
management of the Partnership properties.
Partnership Management Fee:
Due for services rendered in evaluating and selecting properties for the
Partnership, reviewing cash requirements including the determination of the
amount and timing of distributions, if any, making decisions as to the
nature and terms of the acquisition and disposition of such properties,
selecting, retaining and supervising consultants, contractors, architects,
engineers, lenders, borrowers, agents and others and otherwise generally
managing the day-to-day operations of the Partnership.
Subordinated Real Estate Commissions:
Related to sales of Partnership properties.
Interest in Cash from Sales or Financing:
Due also for services as listed under "Partnership Management Fee".
Interest in Net Income and Net Loss as Determined for Federal Income Tax
Purposes:
1% of net losses and the greater of (a) 1% of net income or (b) an amount
of such net income which is in proportion to the percentage of cash
distributed to the General Partners as a Partnership Management Fee or for
their Interest in Cash From Sales or Financing.
Cash and cash equivalents
Cash equivalents include liquid investments with a maturity of three months or
less.
Securities Available for Sale
The Partnership's securities are classified as available for sale. These
securities are carried at fair value, with any related unrealized appreciation
or depreciation reported as a separate component of partners capital. At
December 31, 1997, the Partnership owned one treasury bill that matured in
February 1998 in which cost approximated fair value. At December 31, 1998, the
Partnership owned two treasury bills that both mature in January 1999 in which
cost approximated fair value.
Properties
The properties are assets to be held and used and are stated at cost in the
accompanying statements of financial condition. The office building and
distribution center are depreciated using the straight-line method over an
estimated useful life of 20 years.
Long-lived assets to be held and used by the Partnership are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. In performing the review
for recoverability, the Partnership estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized and the
property's cost basis is reduced. Measurement of an impairment loss for
long-lived assets that the Partnership expects to hold and use is based on the
fair value of the asset.
Income Taxes
The payment of income taxes is the obligation of the individual partners;
therefore, there is no provision for income taxes in the accompanying financial
statements. The Partnership's tax returns have not been examined by Federal or
state taxing authorities.
Net income or loss reported for income tax purposes involves, among other
things, various determinations relating to properties purchased. Although
management of the Partnership believes that such determinations are appropriate,
there can be no assurance that the Internal Revenue Service will not contest the
Partnership's tax treatment of various items or, if contested, such treatment
will be sustained by the Courts. Further, there is a possibility that the
Treasury will amend existing regulations or promulgate new regulations, and such
action may be retroactive. Accordingly, the tax status of the Partnership and
the availability of prior and future income tax benefits to limited partners may
be adversely affected.
Financial Reporting
The Partnership maintains its accounting records on a modified cash basis. The
accompanying financial statements are presented on an accrual basis.
Rental Income
Rental income is recognized under the operating method whereby aggregate rentals
are reported as income over the life of the lease and the costs and expenses are
charged against such revenue. Rental income, from leases with non-level
payments, is recognized ratably over the term of the lease.
(2) PROPERTIES
Following is a brief description of the property investments made by the
Partnership.
Galleria Professional Building
On December 31, 1986, the Partnership purchased a six story office building
containing 60,965 square feet of net leasable area in Fort Lauderdale, Florida.
The Partnership owns a leasehold interest in a long-term ground lease for two
parcels of land which encompass the building site and parking areas. The lease
commenced in 1955 and expires in 2054. Ground rent is approximately $13,000
annually. Every 20 years the ground rent is adjusted to be equal to five percent
of the then current appraised value of the land. The Partnership also purchased
the rights to the parking agreement with the Galleria Mall. The agreement
requires rental payments and common area maintenance charges which currently
aggregate approximately $25,000 annually. The parking agreement and ground lease
have concurrent terms.
Simultaneous with the acquisition of the property, the Partnership executed a
net lease with the seller, leasing the Property back to the Seller on a totally
net basis. The terms of the lease require a minimum annual rental of $217,000
per annum plus 10% of the property income, as defined, between $217,000 and
$467,000 and 50% of the property income in excess of $467,000. In accordance
with generally accepted accounting principles, the rental income will be
recognized ratably over the term of the lease. The ratable minimum rent through
2001 (the date of the buy/sell option discussed below) after the modification of
the lease in September 1990 is $250,824 per year and such amount is recognized
annually for financial statement purposes. The seller, as lessee, is responsible
for any and all costs associated with the property, including but not limited to
operating expenses, insurance, taxes, the ground lease and parking agreement
payments.
Commencing 2002, the Partnership and the tenant have a buy/sell option for this
property, which may be exercised by either the Partnership or the tenant. In
essence, this option gives the tenant the right to purchase the property at its
then fair market value or allows the Partnership to terminate the tenant lease.
As part of this option, $6,000,000 plus the excess between approximately
$100,000 per month and actual rent paid during the lease term (less certain
defined offsets) can constitute the Partnership's offer to sell under the
option. In such event, if the tenant fails to purchase the property at such
price, the lease would be terminated and the Partnership would have no
obligation to pay any part of the offering price to the tenant.
At December 31, 1998, the Galleria Professional Building was 98% percent
occupied, with an average leasing rate of approximately $16.32 per square foot.
As indicated above, the lessee is responsible for any and all costs associated
with the property. Galleria Professional Building is located in Fort Lauderdale
Florida on the Middle River Waterway. There are several mid-rise office
buildings in the area. Galleria Mall, a large regional shopping center, is
located east of this property. Rental rates of the mid-rise office buildings in
close proximity to the Galleria Professional Building were similar to those
being charged by the Galleria Professional Building.
Following is summarized financial information with respect to operations at the
Galleria office building. The following information is unaudited because the
Partnership has no contractual right to require the lessee of the property to
provide audited information.
Years ended December 31,
------------------------
1996 1997 1998
---- ---- ----
(Unaudited)
Rental income 968,191 1,028,522 1,000,104
Other income 7,405 11,630 7,766
--------- --------- ---------
975,596 1,036,288 1,011,734
--------- --------- ---------
Property operating expenses 579,803 667,712 696,798
Ground rent 37,692 37,368 37,365
--------- --------- ---------
617,495 705,080 734,163
--------- --------- ---------
Operating income 358,101 331,208 277,571
========= ========= =========
Federal Express Distribution Center
On December 15, 1987, the Partnership purchased, from an unaffiliated seller, 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 which 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 is seeking either a replacement tenant or
a buyer for the property. If a replacement tenant is not found, rental income
for 1999 will decrease by approximately $112,000as compared to rental income
received in 1998. The property has been listed with an auction company and is
scheduled to be presented at auction in April 1999. Additionally, the
Partnership would incur real estate taxes, insurance expense and other property
maintenance expenses for which Federal Express was responsible.
During 1996 and 1998, the carrying value of this property was reduced by
approximately $100,000 and $38,000, respectively, to its estimated fair value.
Leases
The aggregate sum of the minimum lease rental payments to be received for the
Galleria Professional Building over the five succeeding years is approximately
as follows:
Year ending December 31,
------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
$ 217,000 217,000 217,000 217,000 217,000
======= ======= ======= ======= =======
(3) COMPENSATION OR REIMBURSEMENTS TO GENERAL PARTNERS AND AFFILIATES
During the year ended December 31, 1996, 1997 and 1998 compensation to general
partners and affiliates was as follows:
1996 1997 1998
---- ---- ----
Reimbursement for administrative
and accounting services $32,878 30,544 32,490
Property management fees (a) 5,034 5,110 3,624
------- ------- -------
Total $37,912 35,654 36,114
======= ======= =======
(a) Property management fees are computed as 1% of rental income.
(4) RECONCILIATION OF NET INCOME (LOSS) AND PARTNERS' CAPITAL
The following reconciliation provides details of the nature and amount of
differences between net income (loss) and partners' capital per the accompanying
financial statements and the Partnership tax return.
1996 1997 1998
---- ---- ----
Net income (loss):
Amount reported for financial statement
purposes $ (6,107) 123,200 (73,884)
Difference in financial statement/tax
depreciation expense 202,719 202,722 202,722
Difference between accrual basis of
accounting used for financial
statements and the method used for
income tax purposes (71,365) (18,178) (55,900)
Adjustment due to fair value
considerations in the carrying
value of real estate for financial
statement purposes 100,000 -- 38,000
----------- ----------- ----------
Amount reported for income tax purposes $ 225,247 307,744 110,938
=========== =========== ==========
1996 1997 1998
---- ---- ----
Partners' capital:
Amount reported for financial statement
purposes $ 5,612,362 5,490,357 5,171,268
Difference in financial statement/tax
depreciation expense 1,991,158 2,193,880 2,396,602
Difference between accrual basis of
accounting used for financial
statements and the method used for
income tax purposes 175,542 157,364 101,464
Difference due to fair value
considerations in the carrying value
of real estate for financial statement
and income tax purposes 786,000 786,000 824,000
Cost of raising capital, deducted from
partners' capital for financial
statements and included in other
assets for income tax purposes 1,501,488 1,501,488 1,501,488
----------- ----------- ----------
Amount reported for income tax purposes $10,066,550 10,129,089 9,994,822
=========== =========== ==========
(5) OTHER LIABILITIES
Other liabilities at December 31, 1997 and 1998 consisted primarily of unearned
rental income, which, as stated in the Summary of Significant Accounting
Policies (note 1), arises from leases with non-level payments being recognized
ratably over the term of the lease.
<PAGE>
SCHEDULE III
I.R.E. Pension Investors, Ltd.-II
Properties and Accumulated Depreciation
December 31, 1998
Galleria Federal Express
Professional Distribution
Office Bldg. Center
Ft. Lauderdale Jacksonville
Florida Florida Total
------- ------- -----
Acquisition Date 12/86 12/87
===== =====
Encumbrances $ -- -- --
=========== =========== ===========
Initial Costs:
Land $ -- 470,981 470,981
Building and
Improvements 6,285,472 1,771,786 8,057,258
----------- ----------- -----------
6,285,472 2,242,767 8,528,239
----------- ----------- -----------
Improvements:
Costs capitalized
subsequent to
acquisition:
Land -- 945 945
Building and
Improvements 183,289 3,555 186,844
----------- ----------- -----------
183,289 4,500 187,789
----------- ----------- -----------
Allowance to state real
estate at fair
value (686,000) (138,000) (824,000)
----------- ----------- -----------
(686,000) (138,000) (824,000)
----------- ----------- -----------
Gross Amount:
Land -- 471,926 471,926
Building and
Improvements 5,782,761 1,637,341 7,420,102
----------- ----------- -----------
Total 5,782,761 2,109,267 7,892,028
=========== =========== ===========
Accumulated
Depreciation $ 3,878,095 983,825 4,861,920
=========== =========== ===========
Life on which
depreciation
is computed 20 years 20 years
<PAGE>
SCHEDULE III Continued
I.R.E. Pension Investors, Ltd.-II
Reconciliation of Cost and Accumulated Depreciation
For each of the Years in the Three Year Period ended
December 31, 1998
1996 1997 1998
---- ---- ----
Cost:
Balance at beginning of period $ 8,030,028 7,930,028 7,930,028
Allowance to state real
estate at fair
value (100,000) -- (38,000)
----------- ----------- -----------
Balance at end of period $ 7,930,028 7,930,028 7,892,028
=========== =========== ===========
Accumulated Depreciation:
Balance at beginning of period $ 3,624,114 4,036,716 4,449,318
Additions:
Depreciation 412,602 412,602 412,602
----------- ----------- -----------
Balance at end of period $ 4,036,716 4,449,318 4,861,920
=========== =========== ===========
The aggregate basis for Federal income tax purposes (not reduced by accumulated
depreciation) of the above properties was approximately $8,716,000 at December
31, 1998.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Registrant has no directors or officers.
a) Directors.
Listed below are the directors of I.R.E. Pension Advisors II, Corp.,
Managing General Partner of Registrant, all of whom are to serve until the
election and qualification of their respective successors unless sooner
removed from office:
NAME AGE POSITIONS HELD
---- --- --------------
Alan B. Levan 54 Director since 1985
Earl Pertnoy 72 Director since 1985
Carl E. B. McKenry, Jr. 69 Director since 1985
b) Executive Officers.
Listed below are the executive officers of I.R.E. Pension Advisors II,
Corp., all of whom are to serve until they resign or are replaced by the
Board of Directors:
NAME AGE POSITIONS HELD
Alan B. Levan 54 President since 1985
Glen R. Gilbert 54 Executive Vice President
since July 1997, Senior Vice
President from 1985 to July
1997; Chief Financial
Officer since 1987;
Secretary since 1988
c) Certain Significant Employees.
Not applicable.
d) Family Relationships.
Not applicable.
e) Business Experience.
ALAN B. LEVAN formed the I.R.E. Group in 1972. Since 1978, he has been the
Chairman of the Board, President, and Chief Executive Officer of BFC
Financial Corporation (or its predecessor companies), a financial services
and unitary savings bank holding company. He is also Chairman of the Board
and President of I.R.E. Realty Advisors, Inc., I.R.E. Properties, Inc.,
I.R.E. Realty Advisory Group, Inc., U.S. Capital Securities, Inc., and
Florida Partners Corporation. Mr. Levan is also Chairman of the Board and
Chief Executive Officer of BankAtlantic Bancorp, Inc. Mr. Levan is also an
individual general partner and an officer and a director of the corporate
general partner of Registrant.
GLEN R. GILBERT has been Executive Vice President of BFC Financial
Corporation since July 1997, Chief Financial Officer since 1987 and
Secretary since 1988. From 1985 through July 1997 he served in the
position of Senior Vice President of BFC Financial Corporation. Mr.
Gilbert has been a certified public accountant since 1970. Mr. Gilbert
serves as an officer of Florida Partners Corporation and of the corporate
general partner of Registrant.
EARL PERTNOY has been for more than the past five years a real estate
investor and developer. He has been a director of BFC Financial
Corporation and its predecessor companies since 1978. He is a director of
the corporate general partner of Registrant.
CARL E. B. McKENRY, JR. is the Director of the Small Business Institute at
the University of Miami in Coral Gables, Florida. He has been associated
in various capacities with the University since 1955. He has been a
director of BFC Financial Corporation since 1981 and is a director of the
corporate general partner of Registrant.
f) Certain Legal Proceedings.
None.
ITEM 11. EXECUTIVE COMPENSATION
a) Cash Compensation.
The Registrant has no officers or directors.
The Registrant did not pay salaries or expenses of the officers and
directors of the general partner of the Registrant in 1998, except for
travel and other expenses directly related to activities of the
Registrant.
b) Compensation Pursuant to Plans.
Registrant has no annuity, pension or retirement plan for any director,
officer or employee.
c) Other Compensation.
Not applicable.
d) Compensation of Directors.
Registrant has no directors.
e) Termination of Employment and Change of Control Arrangement.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) No person owns 5% or more of Registrant's voting securities.
b) Registrant has no officers or directors. The following information is
provided with respect to units owned by directors and officers of the
managing general partner.
(3)
Amount and
(2) Nature of (4)
(1) Name And Address Of Beneficial Percent
Title Of Class Beneficial Owner Ownership Of Class
-------------- ---------------- --------- --------
(i)
Units of Limited Alan B. Levan 20 Direct 0% (approx.)
Partnership 1750 E. Sunrise Blvd.
Interest Fort Lauderdale, FL 33304
All other directors and
officers of the Managing
General Partner as a
group 0 Direct .0%
--------- ---
TOTAL 20 Direct .0% (approx.)
========= ===
(i) Alan B. Levan is a general partner of Registrant and is President and
Director of the Managing General Partner.
c) Registrant knows of no contract or other arrangement that could result
in a change in control of registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a) & b) During the year ending December 31, 1998, the following entities
received the fees and payments indicated for services rendered with
respect to the Registrant:
NAME AND
RELATIONSHIP TO REGISTRANT TRANSACTION AMOUNT
-------------------------- ----------- ------
BFC Financial Corporation Reimbursement for
or subsidiaries, administrative and
Affiliates of the General accounting services $ 32,490
Partners
Property management fees $ 3,624
c) Indebtedness of Management.
None.
d) Transactions with Promoters.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A-1. See Item 8. Financial Statements and Supplementary Data.
A-2. See Item 8. Financial Statements and Supplementary Data.
A-3. Exhibits:
Exhibit 3 Articles of incorporation and by-laws. Limited
Partnership Agreement set forth as Exhibit A to the
Prospectus of the Partnership dated October 4, 1985, as
filed with the Commission pursuant to Rule 424(c), is
hereby incorporated herein by reference.
Exhibit 27 Financial data schedule - Included as Exhibit 27.
B. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
No annual report or proxy material for the year 1998 has been sent to the
Partners of the Partnership. An annual report will be sent to the Partners
subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
I.R.E. PENSION INVESTORS, LTD. - II
Registrant
By: I.R.E. Pension Advisors-II, Corp.,
Managing General Partner
By: /S/ Alan B. Levan
Alan B. Levan, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Managing General
Partner on behalf of the Registrant and in the capacities and on the dates
indicated.
/S/ Alan B. Levan March 2, 1999
- -------------------------------------------------------
Alan B. Levan, Director and Principal Executive Officer
/S/ Earl Pertnoy March 2, 1999
- -------------------------------------------------------
Earl Pertnoy, Director
/S/ Carl E.B. McKenry, Jr. March 2, 1999
- -------------------------------------------------------
Carl E. B. McKenry Jr., Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 234,761
<SECURITIES> 2,000,507
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,892,028
<DEPRECIATION> (4,761,920)
<TOTAL-ASSETS> 5,295,139
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,171,268
<TOTAL-LIABILITY-AND-EQUITY> 5,295,139
<SALES> 0
<TOTAL-REVENUES> 476,576
<CGS> 0
<TOTAL-COSTS> 550,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (73,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,884)
<EPS-PRIMARY> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
