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, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15528
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BALCOR PENSION INVESTORS-VII
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(Exact name of registrant as specified in its charter)
Illinois 36-3390487
- ------------------------------- -------------------
(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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<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 35,002,851 $ 8,595,511
Escrow deposits 80,519
Accounts and accrued interest receivable 453,460 188,638
Prepaid expenses 140,915 120,902
Deferred expenses, net of accumulated
amortization of $171,365 in 1996 and
$151,560 in 1995 75,891 95,696
-------------- --------------
35,673,117 9,081,266
-------------- --------------
Real estate held for sale (net of
allowance of $1,700,000 in 1996
and $4,537,000 in 1995) 46,575,379 85,099,286
-------------- --------------
46,575,379 85,099,286
-------------- --------------
$ 82,248,496 $ 94,180,552
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 298,621 $ 249,632
Due to affiliates 71,527 26,616
Accrued liabilities, principally
real estate taxes 501,106 281,776
Security deposits 143,295 410,618
Mortgage note payable 4,887,630
-------------- --------------
Total liabilities 1,014,549 5,856,272
-------------- --------------
Affiliates' participation in joint ventures 12,275,321 21,748,967
Limited Partners' capital (461,470
Interests issued and
outstanding) 70,515,196 68,469,893
General Partner's deficit (1,556,570) (1,894,580)
-------------- --------------
Total partners' capital 68,958,626 66,575,313
-------------- --------------
$ 82,248,496 $ 94,180,552
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
-------------- --------------
Income:
Interest on loan
receivable, net of
amortization of loan
application and processing
fees of $156,676 in 1995 $ 323,053
Income from operations of
real estate held for sale $ 5,273,649 4,976,651
Interest on short-term
investments 464,027 499,042
Recovery of loss on
real estate 2,080,943
-------------- --------------
Total income 7,818,619 5,798,746
-------------- --------------
Expenses:
Provision for potential losses
on real estate 1,700,000
Administrative 685,317 525,544
-------------- --------------
Total expenses 2,385,317 525,544
-------------- --------------
Income before gain on sales,
affiliates' participation in
income of joint ventures
and extraordinary item 5,433,302 5,273,202
Gain on sales of real estate 5,954,905
Affiliates' participation in
income of joint ventures (3,312,719) (1,054,355)
-------------- --------------
Income before extraordinary item 8,075,488 4,218,847
-------------- --------------
Extraordinary item:
Debt extinguishment expense (145,775)
Affiliate's participation in debt
extinguishment expense 65,074
--------------
Total extraordinary item (80,701)
-------------- --------------
Net income $ 7,994,787 $ 4,218,847
============== ==============
Income before extraordinary
item allocated to General Partner $ 807,549 $ 421,885
============== ==============
<PAGE>
Income before extraordinary
item allocated to Limited Partners $ 7,267,939 $ 3,796,962
============== ==============
Income before extraordinary item
per Limited Partnership
Interest (461,470 issued and
outstanding) $ 15.75 $ 8.23
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1996 and 1995
(UNAUDITED)
(Continued)
1996 1995
-------------- --------------
Extraordinary item allocated
to General Partner $ (8,070) None
============== ==============
Extraordinary item allocated
to Limited Partners $ (72,631) None
============== ==============
Extraordinary item allocated per
Limited Partnership Interest
(461,470 issued and outstanding) $ (0.16) None
============== ==============
Net income allocated to
General Partner $ 799,479 $ 421,885
============== ==============
Net income allocated to
Limited Partners $ 7,195,308 $ 3,796,962
============== ==============
Net income allocated per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 15.59 $ 8.23
============== ==============
Distributions to General Partner $ 461,469 $ 307,647
============== ==============
Distributions to Limited Partners $ 5,150,005 $ 8,066,496
============== ==============
Distributions per Limited Partnership
Interest $ 11.16 $ 17.48
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1996 and 1995
1996 1995
-------------- --------------
Income:
Interest on loan receivable $ 30,544
Income from operations of
real estate held for sale $ 1,202,189 1,546,843
Interest on short-term
investments 254,463 136,481
Recovery of loss on
real estate 2,080,943
-------------- --------------
Total income 3,537,595 1,713,868
-------------- --------------
Expenses:
Provision for potential losses
on real estate 1,700,000
Administrative 208,723 179,634
-------------- --------------
Total expenses 1,908,723 179,634
-------------- --------------
Income before gain on sales,
affiliates' participation in
income of joint ventures and
extraordinary item 1,628,872 1,534,234
Gain on sales of real estate 5,954,905
Affiliates' participation in
income of joint ventures (2,253,263) (351,315)
-------------- --------------
Income before extraordinary item 5,330,514 1,182,919
-------------- --------------
Extraordinary item:
Debt extinguishment expense (145,775)
Affiliate's participation in debt
extinguishment expense 65,074
--------------
Total extraordinary item (80,701)
-------------- --------------
Net income $ 5,249,813 $ 1,182,919
============== ==============
Income before extraordinary item
allocated to General Partner $ 533,052 $ 118,292
============== ==============
Income before extraordinary item
allocated to Limited Partners $ 4,797,462 $ 1,064,627
============== ==============
Income before extraordinary item
per Limited Partner Interest
(461,470 issued and outstanding) $ 10.40 $ 2.31
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1996 and 1995
(Continued)
1996 1995
-------------- --------------
Extraordinary item allocated
to General Partner $ (8,070) None
============== ==============
Extraordinary item allocated
to Limited Partners $ (72,631) None
============== ==============
Extraordinary item per Limited
Partnership Interest (461,470
issued and outstanding) $ (0.16) None
============== ==============
Net income allocated to
General Partner $ 524,982 $ 118,292
============== ==============
Net income allocated to
Limited Partners $ 4,724,831 $ 1,064,627
============== ==============
Net income per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 10.24 $ 2.31
============== ==============
Distribution to General Partner $ 153,823 $ 102,549
============== ==============
Distribution to Limited Partners $ 1,384,410 $ 4,766,985
============== ==============
Distribution per Limited Partnership
Interest $ 3.00 $ 10.33
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
Balcor Pension Investors - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(UNAUDITED)
1996 1995
-------------- --------------
Operating activities:
Net income $ 7,994,787 $ 4,218,847
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for potential losses
on real estate 1,700,000
Recovery of loss on real estate (2,080,943)
Affiliates'
participation in
income of joint ventures 3,312,719 1,054,355
Affiliate's participation in
debt extinguishment expense (65,074)
Debt extinguishment expense 145,775
Gain on sales of real estate (5,954,905)
Amortization of
deferred expenses 19,805 20,137
Amortization of loan
application and
processing fees 156,676
Net change in:
Escrow deposits 80,519 (11,076)
Accounts and accrued
interest receivable (264,822) (128,666)
Prepaid expense (20,013) (205,946)
Accounts payable 48,989 (49,153)
Due to affiliates 44,911 (35,928)
Accrued liabilities 219,330 411,652
Security deposits (267,323) (13,186)
-------------- --------------
Net cash provided by
operating activities 4,913,755 5,417,712
-------------- --------------
Investing activities:
Proceeds relating to land condemnation 113,900
Proceeds from sales of real estate 45,800,000
Payment of selling costs (1,054,145)
Costs incurred in connection
with real estate acquired
through foreclosure (283,490)
-------------- --------------
Net cash provided by or used
in investing activities 44,859,755 (283,490)
-------------- --------------
<PAGE>
Balcor Pension Investors - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(UNAUDITED)
(Continued)
Financing activities:
Distributions to Limited
Partners (5,150,005) (8,066,496)
Distributions to General
Partner (461,469) (307,647)
Repayment of mortgage note payable (4,859,155)
Distributions to joint
venture partners -
affiliates (12,721,291) (857,254)
Principal payments on
mortgage note payable (28,475) (40,147)
Payment of prepayment penalty (145,775)
-------------- --------------
Net cash used in financing
activities (23,366,170) (9,271,544)
-------------- --------------
Net change in cash and cash
equivalents 26,407,340 (4,137,322)
Cash and cash equivalents at
beginning of year 8,595,511 13,194,808
-------------- --------------
Cash and cash equivalents at
end of period $ 35,002,851 $ 9,057,486
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
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, 1996, and all such adjustments are of a normal and
recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
nine months and quarter ended September 30, 1996 are:
Paid
-----------------------
Nine Months Quarter Payable
------------ --------- ----------
Mortgage servicing fees $34,344 $ 7,360 $ 2,453
Reimbursement of expenses to
the General Partner, at cost 85,890 17,142 69,074
3. Contingency:
A proposed settlement has been reached with respect to the class action
complaint, Paul Williams and Beverly Kennedy, et al, v. Balcor Pension
Investors, et al. between counsel for the Class and counsel for the defendants.
Notice of the proposed settlement terms was sent to class members in September
1996. A final hearing on the proposed settlement is expected to be held in
November 1996. The General Partner does not believe that the proposed
settlement will have a material adverse impact on the Partnership.
4. Property Sales:
(a) The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate hold participating percentages in the joint venture of 55.36% and
44.64%, respectively. In August 1996, the joint venture sold the property in
an all cash sale for $19,411,765. From the proceeds of the sale, the joint
venture paid $431,822 in selling costs. The basis of the property was
$21,436,000. The Partnership recognized no gain or loss on the sale of this
property for financial statement purposes. The Partnership recognized a
recovery of the loss allowance of $2,080,943, of which $928,933 is the minority
joint venture partner's share and wrote off $2,456,057 against the previously
established loss allowance.
(b) The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate hold participating percentages in the joint venture of 55.36% and
44.64%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $12,088,235. From the proceeds of the sale, the joint venture
<PAGE>
paid $4,859,155 to the third party mortgage holder in full satisfaction of the
first mortgage loan and $272,701 in selling costs. The basis of the property
was $9,357,449. For financial statement purposes, the Partnership recognized a
gain of $2,458,085 from the sale of this property, of which $1,097,289 is the
minority joint venture partner's share.
(c) In September 1996, the Partnership sold the Hickory Creek Apartments in an
all cash sale for $14,300,000. From the proceeds of the sale, the Partnership
paid $349,622 in selling costs. The basis of the property was $10,453,558. For
financial statement purposes, the Partnership recognized a gain of $3,496,820
from the sale of this property.
5. Extraordinary Item:
In connection with the sale of Sand Pebble Village Apartments - Phase II in
August 1996, the Partnership incurred a prepayment penalty in the amount of
$145,775 which was recognized as an extraordinary item and classified as debt
extinguishment expense. The minority joint venture partner's share of the
extraordinary item is $65,074.
6. Subsequent Event:
In October 1996, the Partnership paid $28,149,670 ($61.00 per Interest) to the
holders of Limited Partnership Interests. This amount includes the regular
quarterly distribution from Cash Flow of $3.00 per Interest, a special
distribution from Cash Flow reserves of $2.00 per Interest and a special
distribution of Mortgage Reductions of $56.00 per Interest from the August
sales of Sand Pebble Village Apartments - Phases I & II and the September sale
of Hickory Creek Apartments.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors - VII (the "Partnership") is a limited partnership
formed in 1985 to invest principally in first mortgage loans. The Partnership
raised $115,367,500 from sales of Limited Partnership Interests and utilized
these proceeds to fund eight loans. The Partnership sold three properties
during 1996. As of September 30, 1996, one loan remained outstanding in the
Partnership's portfolio, and the Partnership owned three properties; however,
the Whispering Hills loan is accounted for as real estate held for sale.
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 1995 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The Partnership sold Sand Pebble Village Apartments - Phase I in August 1996
and recognized a recovery of loss on real estate as a result of the sale. In
addition, the Partnership also sold Sand Pebble Village Apartments - Phase II
in August 1996 and Hickory Creek Apartments in September 1996, resulting in
gain on sales of both properties. The additional income resulting from the
recovery of loss and gain on sales was partially offset by a provision for
potential losses on real estate recognized for Butler Plaza Shopping Center
during the quarter ended September 30, 1996. As a result, net income increased
substantially during the nine months and quarter ended September 30, 1996, as
compared to the same periods in 1995. Further discussion of the Partnership's
operations is summarized below.
1996 Compared to 1995
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the quarters and nine months ended September 30, 1996 and 1995.
The foreclosure of the Jonathan's Landing Apartments loan in July 1995 resulted
in the cessation of interest income on loans receivable during 1996 as compared
to 1995.
Income from operations of real estate held for sale represents the net
operations of seven properties, three of which were sold during the third
quarter of 1996. Original funds advanced by the Partnership total approximately
$50,185,000 for the remaining four properties. The Partnership acquired the
Jonathan's Landing Apartments in July 1995, which generated income during 1996.
<PAGE>
This increase in income from the operations of real estate held for sale was
partially offset for the nine months ended September 30, 1996 and fully offset
for the quarter ended September 30, 1996 by the August 1996 sales of Sand
Pebble Village Apartments - Phases I and II and the September 1996 sale of
Hickory Creek Apartments.
As a result of higher cash balances due to proceeds received from the sales of
Sand Pebble Village Apartments - Phases I and II in August 1996 and Hickory
Creek Apartments in September 1996, interest income on short-term investments
increased during the quarter ended September 30, 1996, as compared to the same
period in 1995.
The Partnership incurred higher consulting, printing and postage costs in
connection with its response to a tender offer during the second quarter of
1996. As a result, administrative expenses increased during 1996 as compared to
1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties. Determinations of fair
value are made periodically on the basis of assessments of property operations.
Determinations of fair value represent estimates based on many variables which
affect the value of real estate, including economic and demographic conditions.
The Partnership recognized a provision of $1,700,000 for potential losses on
the Butler Plaza Shopping Center during the nine months ended September 30,
1996 to provide for the change in the estimate of the fair value of the
property and no provisions during the same period in 1995. In addition, the
Partnership recognized a recovery of loss on real estate of $2,080,943 as a
result of the sale of Sand Pebble Village Apartments - Phase I in August 1996,
of which $928,933 is the minority joint venture partner's share and wrote off
$2,456,057 against the previously established loss allowance.
The Partnership sold Sand Pebble Village Apartments - Phase II in August 1996
and Hickory Creek Apartments in September 1996. As a result of the sales, the
Partnership recognized gain on sales of $5,954,905, of which $1,097,289
represents the minority joint venture partner's share from the sale of Sand
Pebble Village Apartments - Phase II. Additionally, in connection with the
sale of Sand Pebble Village Apartments - Phase II, the Partnership incurred a
prepayment penalty of $145,775 which was recognized as an extraordinary item
and classified as debt extinguishment expense. The minority joint venture
partner's share of the extraordinary item is $65,074.
The Jonathan's Landing Apartments is one of the properties owned by the
Partnership through a joint venture with an affiliate. As a result of income
recognized from operations of this property which was acquired through
foreclosure in July 1995 and the recovery of loss on real estate and gain on
sale recognized in connection with the sales of Sand Pebble Village Apartments
- - Phases I and II, respectively, affiliates' participation in income from joint
ventures increased during 1996 as compared to 1995.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $26,407,000 as
of September 30, 1996, when compared to December 31, 1995. Cash flow of
approximately $4,914,000 was provided by operating activities consisting of
cash flow from the operations of the Partnership's properties and interest
income earned on short-term investments, net of the payment of administrative
expenses. Cash received from investing activities of approximately $44,860,000
relates to proceeds received in connection with the sales of Sand Pebble
Village Apartments - Phases I and II and Hickory Creek Apartments, net of
selling costs, and proceeds received in connection with the land condemnation
settlement at Butler Plaza, as described below. Financing activities consisted
primarily of distributions to Partners of approximately $5,611,000,
distributions of cash flow and sale proceeds to joint venture partners of
approximately $12,721,000, the repayment of the $4,859,000 mortgage note
payable on Sand Pebble Village Apartments - Phase II, principal payments on
mortgage note payable of approximately $29,000 and a prepayment penalty of
approximately $146,000 related to the sale of the Sand Pebble Village
Apartments - Phase II. Additionally, the Partnership made a special
distribution to the Limited Partners in October 1996 from proceeds received in
connection with the three property sales.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures,
which include debt service payments. Sand Pebble Village Apartments - Phase II
was the only property that had underlying debt prior to its sale in August
1996. All of the Partnership's properties generated positive cash flow during
1996 and 1995.
As of September 30, 1996, the occupancy rates of the Partnership's remaining
residential properties, Jonathan's Landing Apartments and Whispering Hills
Apartments, were 95% and 92%, respectively. The occupancy rates at the U.S.
West Direct Center Office Building and the Butler Plaza Shopping Center were
98% and 69%, respectively. Many rental markets continue to remain extremely
competitive; therefore, the General Partner's goals are to maintain high
occupancy levels while increasing rents where possible and to monitor and
control operating expenses and capital improvement requirements at the
properties.
The Partnership was awarded $303,300 in connection with the condemnation of a
parcel of land at Butler Plaza, of which the Partnership has received $113,900
in 1996. The proceeds are recorded as a reduction of the carrying value of the
property in the financial statements. The Partnership anticipates receiving the
remaining proceeds during late 1996 or early 1997.
The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $19,411,765. From the
proceeds of the sale, the joint venture paid $431,822 in selling costs. The net
proceeds of the sale were $18,979,943, of which $10,507,296 was the
Partnership's share. The sale proceeds were distributed to the Limited Partners
in October 1996. See Note 4 of Notes to Financial Statements for additional
information.
<PAGE>
The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $12,088,235. From the
proceeds of the sale, the joint venture paid $4,859,155 to the third party
mortgage holder in full satisfaction of the first mortgage loan, paid a
prepayment penalty of $145,775 and paid $272,701 in selling costs. The net
proceeds of the sale were $6,810,604 of which $3,770,350 was the Partnership's
share. The sale proceeds were distributed to the Limited Partners in October
1996. See Note 4 of Notes to Financial Statements for additional information.
In September 1996, the Partnership sold the Hickory Creek Apartments in an all
cash sale for $14,300,000. From the proceeds of the sale, the Partnership paid
$349,622 in selling costs. Pursuant to the terms of the sale, $250,000 of the
proceeds will be retained by the Partnership until March 1997. After retaining
an appropriate amount of working capital, the remainder of the proceeds were
distributed to the Limited Partners in October 1996. See Note 4 of Notes to
Financial Statements for additional information.
The General Partner believes that the market for multifamily housing and office
properties is favorable to sellers of these properties. As described above, the
Partnership and an affiliate sold the Sand Pebble Village Apartments Phases I
and II in August 1996. In addition, the Partnership sold the Hickory Creek
Apartments in September 1996. Currently, the Partnership has entered into a
contract to sell the Jonathan's Landing Apartments for a sale price of
$21,300,000. Additionally, the General Partner is actively marketing the
remaining properties in its portfolio. The General Partner examines each
property individually by property type and market in determining the optimal
time to sell each property.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
In October 1996, the Partnership paid $28,149,670 ($61.00 per Interest) to the
holders of Limited Partnership Interests. This amount includes the regular
quarterly distribution from Cash Flow of $3.00 per Interest, a special
distribution from Cash Flow reserves of $2.00 per Interest and a special
distribution of Mortgage Reductions of $56.00 per Interest from the August
sales of Sand Pebble Village Apartments - Phases I & II and the September sale
of Hickory Creek Apartments. The level of the regular quarterly distribution
remained unchanged from the amount distributed for the second quarter of 1996.
In October 1996, the Partnership also paid $192,279 to the General Partner as
its share of the Cash Flow distributed for the third quarter of 1996 and
$64,093 as its contribution to the Early Investment Incentive Fund. Including
the October 1996 distribution, Limited Partners have received $116.56 of Cash
Flow from operations and a return of Original Capital of $94.49, totaling
$211.05 per $250 Interest.
The Partnership expects to continue making cash distributions to Limited
Partners from the Cash Flow generated by property operations and proceeds from
future property sales less administrative expenses. The General Partner
believes the Partnership has retained an appropriate amount of working capital
to meet cash or liquidity requirements which may occur.
<PAGE>
During the nine months ended September 30, 1996, the General Partner used
amounts placed in the Early Investment Incentive Fund to repurchase 1,376
Interests from Limited Partners at a cost of $227,249.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Partnership, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the same
court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884) (the
"Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the Balcor Defendants' and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs amended their complaint on October 8, 1996,
adding additional claims. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers. Each of the defendants have filed motions to dismiss the
complaint. The court has not yet ruled on these motions.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. Management of each of the Balcor Defendants
believes they have meritorious defenses to contest the claims. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the Partnership.
<PAGE>
Item 5. Other Information
- --------------------------
Hickory Creek Apartments
- ------------------------
As previously reported, on August 12, 1996, the Partnership contracted to sell
Hickory Creek Apartments, Columbus, Ohio to an unaffiliated party, American
Apartment Communities II, L.P., a Delaware limited partnership, for a sale
price of $14,300,000. The sale closed September 13, 1996. From the proceeds of
the sale, the Partnership paid $214,500 to an unaffiliated party as a brokerage
commission and closing costs of $27,872. An affiliate of the third party
providing property management services for the property received a fee of
$107,250 for services rendered in connection with the sale. Additionally,
pursuant to an agreement, the Partnership paid the purchaser $26,700 for
deferred maintenance at the property. The Partnership received approximately
$13,924,000 representing the remaining proceeds. Of such proceeds, $250,000
will be retained by the Partnership and will not be available for use or
distribution by the Partnership until 180 days after closing.
Jonathan's Landing Apartments
- -----------------------------
As previously reported, a limited partnership in which the Partnership and an
affiliate hold interests and which owns Jonathan's Landing Apartments, Kent,
Washington, contracted to sell the property to an unaffiliated party,
Commercial Ventures, Inc., a Delaware corporation, for a sale price of
$22,000,000. Pursuant to a First Amendment to the Agreement of Sale, the
Partnership and the purchaser have agreed to reduce the sale price to
$21,300,000. In addition, the closing of the sale has been extended from
October 12, 1996 to November 15, 1996.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated March 6,
1986 (Registration No. 33-01630) 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 September 30, 1992 (Commission File No. 0-15528) are
incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase I previously filed as Exhibit (2)(a) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
(b) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase II previously filed as Exhibit (2)(b) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
<PAGE>
(c)(i) Agreement of Sale and attachments thereto relating to the sale of
Hickory Creek Apartments previously filed as Exhibit (10)(i) to the
Registrant's Form 10-Q dated June 30, 1996, is incorporated herein by
reference.
(c)(ii) Letter Agreement dated August 14, 1996, relating to the sale of Hickory
Creek Apartments is attached hereto.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of
Jonathan's Landing Apartments previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated August 30, 1996, is incorporated
herein by reference.
(d)(ii) First Amendment to the Agreement of Sale relating to the sale of
Jonathan's Landing Apartments is attached hereto.
(27) Financial Data Schedule of the Registrant for the nine months ended
September 30, 1996 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated August 30, 1996 was
filed reporting the contract to sell the Jonathan's Landing Apartments in Kent,
Washington.
<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 PENSION INVESTORS-VII
By: /s/ Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of
Balcor Mortgage Advisors-VII,
the General Partner
By: /s/ Jayne A. Kosik
-----------------------------
Jayne A. Kosik
Vice President, and Chief Financial Officer
(Principal Accounting Officer) of Balcor
Mortgage Advisors-VII, the General Partner
Date: November 13, 1996
---------------------------
<PAGE>
August 14, 1996
VIA FACSIMILE
Mr. George Nickerson
American Apartment Communities, Inc.
2109 W. Fifth Avenue, Suite C
Columbus, Ohio 43212
Mr. Mark Saturno
The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A-200
Bannockburn, Illinois 60015
Re: Agreement of Sale by and between American Apartment Communities II,
L.P. ("Purchaser") and Hickory Creek Limited Partnership ("Seller")
for Hickory Creek Apartments (the "Agreement of Sale")
Dear George and Mark:
In connection with the above-referenced transaction, this letter
agreement, when executed in the acknowledgement blocks below by both Purchaser
and Seller will serve to memorialize the parties' agreement to the following
changes to the Agreement of Sale:
1. The eighteenth line of Paragraph 6.1 (located on the last line of page
3) is hereby deleted in its entirety and the following is hereby inserted in
lieu thereof: "Purchaser with an amount not to exceed a total of $25,000.00
against the Purchase Price at Closing. If Purchaser terminates this".
2. The following language is hereby added to the fifth line of Paragraph
13.3 immediately following "1996": "but in no event later than September 30,
1997".
3. The following is hereby added as Paragraph 26 of the Agreement of
Sale:
"26. CREDIT FOR INTERIOR ATTIC DRYWALL. At Closing, Seller shall credit
purchaser with Twenty Six Thousand Seven Hundred and No/100 Dollars
($26,700.00) for the taping of interior attic drywall."
4. The list of Personal Property attached to the Agreement of Sale as
Exhibit B is hereby deleted and the list of Personal Property attached hereto
is hereby inserted in lieu thereof. Additionally, Purchaser and Seller hereby
acknowledge that the personal property shall not include any computer software.
By Purchaser's and Seller's signatures hereon, Purchaser and Seller hereby
authorize Stephen J. Levy, Esq. to revise the Escrow Agreement executed in
connection with the Agreement of Sale as follows, and to initial said changes
on behalf of both Purchaser and Seller prior to the time that said Escrow
Agreement is delivered to the Escrow Agent:
<PAGE>
1. All references to August 1, 1996 in paragraphs II and III of said
escrow agreement are hereby revised to be references to August 12, 1996.
This letter agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, and all of such counterparts shall
constitute one agreement. A facsimile copy of either parties' signature shall
be valid as an original.
Please make two copies of this letter agreement, execute all three copies,
and fax one copy to me this afternoon with two originals to follow via
overnight mail. Upon receipt of the originals, I will prepare counterpart
originals and will forward copies to both of you. Please feel free to call me
with any comments or questions.
Very truly yours,
/s/ Stephen J. Levy
Stephen J. Levy
SJL/243394
cc: Megan Kent, Esq. (via facsimile)
Daniel J. Perlman, Esq.
Ms. Natalie Spadaccini Rosenberg
[ACKNOWLEDGEMENT BLOCKS FOLLOW ON NEXT PAGE]
<PAGE>
ACKNOWLEDGED TO AND AGREED THIS 16th DAY OF AUGUST, 1996
PURCHASER:
American Apartment Communities II, L.P., a
Delaware limited partnership
By: American Apartment Communities II, Inc., a
Maryland corporation, its general partner
By: /s/ George R. Nickerson
------------------------------------
Name: George R. Nickerson
------------------------------------
Its: Vice President
------------------------------------
ACKNOWLEDGED TO AND AGREED THIS 15th DAY OF AUGUST, 1996
SELLER:
Hickory Creek Limited Partnership, an Illinois
Limited Partnership
By: Hickory Creek, Inc., an Illinois
Corporation, its general partner
By: /s/ James E. Mendelson
------------------------------------
Name: James E. Mendelson
------------------------------------
Its: Authorized Representative
------------------------------------
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF SALE
THIS AGREEMENT (this "Agreement"), is entered into as of the 22nd day of
October, 1996, by and between COMMERCIAL VENTURES, INC., a Delaware corporation
("Purchaser"), and JONATHONS LANDING LIMITED PARTNERSHIP, an Illinois limited
partnership ("Seller").
RECITALS
A. Purchaser and Seller entered into an Agreement of Sale dated as of
August 30, 1996 (the "Agreement").
B. Purchaser and Seller desire to amend the Agreement. Terms defined in
the Agreement will have the same meaning when used herein.
NOW THEREFORE, Purchaser and Seller agree as follows:
1. The Purchase Price is changed to $21,300,000.
2. Purchaser acknowledges that all conditions to Purchaser's obligation
to purchase the Property in Sections 7.1 and 9 of the Agreement have been
satisfied or waived by Purchaser. The Earnest Money is non-refundable.
3. The Closing Date will be November 15, 1996.
4. Except as amended hereby, the Agreement will remain in full force and
effect and is ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as of
the date first set forth above.
PURCHASER:
COMMERCIAL VENTURES, INC., a Delaware corporation
By: /s/ Richard J. Nathan
------------------------------------
Name: Richard J. Nathan
------------------------------------
Its: President
------------------------------------
SELLER:
JONATHONS LANDING LIMITED PARTNERSHIP, an Illinois
limited partnership
By: Jonathons Landing, Inc., an Illinois corporation,
its general partner
By: /s/ James E. Mendelson
--------------------------------------
Name: James E. Mendelson
--------------------------------------
Its: Sr. VP
--------------------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 35003
<SECURITIES> 0
<RECEIVABLES> 453
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35597
<PP&E> 46575
<DEPRECIATION> 0
<TOTAL-ASSETS> 82248
<CURRENT-LIABILITIES> 1015
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 68959
<TOTAL-LIABILITY-AND-EQUITY> 82248
<SALES> 0
<TOTAL-REVENUES> 10461
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 685
<LOSS-PROVISION> 1700
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8075
<INCOME-TAX> 0
<INCOME-CONTINUING> 8075
<DISCONTINUED> 0
<EXTRAORDINARY> (81)
<CHANGES> 0
<NET-INCOME> 7995
<EPS-PRIMARY> 15.59
<EPS-DILUTED> 15.59
</TABLE>
