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
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
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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, 1998 and December 31, 1997
(Unaudited)
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 2,448,501 $ 1,983,142
Accounts and accrued interest receivable 617,523 26,582
-------------- --------------
$ 3,066,024 $ 2,009,724
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,003 $ 24,673
Due to affiliates 67,226 41,771
-------------- --------------
Total liabilities 75,229 66,444
-------------- --------------
Commitments and contingencies
Limited Partners' capital (461,470
Interests issued and outstanding) 3,060,483 2,058,244
General Partner's deficit (69,688) (114,964)
-------------- --------------
Total partners' capital 2,990,795 1,943,280
-------------- --------------
$ 3,066,024 $ 2,009,724
============== ==============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Interest on short-term investments $ 143,415 $ 597,485
Recovery of losses on real estate 95,250
Other income 1,114,250
(Loss) income from operations
of real estate held for sale (7,541) 913,916
-------------- --------------
Total income 1,250,124 1,606,651
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Expenses:
Administrative 202,609 461,824
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Total expenses 202,609 461,824
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Income before gain on sales and
affiliate's participation in
income of joint venture 1,047,515 1,144,827
Gain on sales of real estate 8,906,309
Affiliate's participation in
income of joint venture (659,794)
-------------- --------------
Net income $ 1,047,515 $ 9,391,342
============== ==============
Net income allocated to General Partner $ 45,276 $ 1,998,774
============== ==============
Net income allocated to Limited Partners $ 1,002,239 $ 7,392,568
============== ==============
Net income per Limited Partnership Interest
(461,470 issued and outstanding)
- Basic and Diluted $ 2.17 $ 16.02
============== ==============
Distributions to General Partner None $ 333,285
============== ==============
Settlement Distribution to Limited Partners None $ 72,839
============== ==============
Distributions to Limited Partners None $ 32,718,223
============== ==============
Distributions per Limited Partnership
Interest (461,470 issued and outstanding) None $ 70.90
============== ==============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Income:
Income from operations of
real estate held for sale $ 8,028
Interest on short-term investments $ 80,126 262,056
Other income 560,000
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Total income 640,126 270,084
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Expenses:
Administrative 47,154 70,633
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Total expenses 47,154 70,633
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Net income $ 592,972 $ 199,451
============== ==============
Net income allocated to General Partner $ 39,620 $ 4,458
============== ==============
Net income allocated to Limited Partners $ 553,352 $ 194,993
============== ==============
Net income per Limited Partnership Interest
(461,470 issued and outstanding)
- Basic and Diluted $ 1.20 $ 0.42
============== ==============
Distribution to General Partner None $ 128,187
============== ==============
Distribution to Limited Partners None $ 17,074,390
============== ==============
Distribution per Limited Partnership
Interest (461,470 issued and outstanding) None $ 37.00
============== ==============
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, 1998 and 1997
(Unaudited)
1998 1997
-------------- --------------
Operating activities:
Net income $ 1,047,515 $ 9,391,342
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sales of real estate (8,906,309)
Affiliate's participation in income
of joint venture 659,794
Amortization of deferred expenses 215,662
Recovery of losses on real estate (95,250)
Payment of leasing commissions (145,488)
Net change in:
Accounts and accrued interest
receivable (590,941) 185,907
Prepaid expenses 61,204
Accounts payable (16,670) (236,312)
Due to affiliates 25,455 (451)
Accrued real estate taxes (106,465)
Security deposits (70,823)
-------------- --------------
Net cash provided by operating activities 465,359 952,811
-------------- --------------
Investing activities:
Proceeds from sales of real estate 35,900,000
Payment of selling costs (1,096,914)
Escrow related to property sale (1,100,000)
Release of escrow related to property sale 540,000
Improvements to properties (369,518)
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Net cash provided by investing activities 33,873,568
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Financing activities:
Distributions to Limited Partners (32,791,062)
Distributions to General Partner (333,285)
Contribution by General Partner 115,368
Distributions to joint venture partner -
affiliate (4,243,964)
--------------
Net cash used in financing activities (37,252,943)
-------------- --------------
Net change in cash and cash equivalents 465,359 (2,426,564)
Cash and cash equivalents at beginning
of year 1,983,142 17,297,262
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Cash and cash equivalents at end of period $ 2,448,501 $ 14,870,698
============== ==============
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 Policies:
(a) For financial statement purposes, the capital accounts of the General
Partner and the Limited Partners have been adjusted to appropriately reflect
their remaining economic interests as provided for in the Partnership
Agreement.
(b) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1998, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining three real estate
investments. The Partnership has retained a portion of the cash from the
property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership, including, but not limited to, the
lawsuit discussed in Note 5 of Notes to Financial Statements. Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of all contingencies. There can be no
assurances as to the time frame for conclusion of these contingencies.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
nine months and quarter ended September 30, 1998 are:
Paid
-------------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 36,203 $ 17,488 $ 67,226
The General Partner made a contribution to the Partnership of $115,368 during
1997 in connection with the settlement of certain litigation.
<PAGE>
4. Other Income:
(a) The Partnership received $554,250 during the second quarter of 1998
relating to the condemnation of a portion of the land at the Butler Plaza
Shopping Center during 1996. This amount was recognized as other income for
financial statement purposes.
(b) In 1997, the Partnership sold the U.S. West Direct Center Office Building.
Pursuant to the terms of the sale, $560,000 of the sales proceeds was held in
escrow to be used for the potential payment of costs relating to the removal of
soil contamination at the property. This amount was recorded as a reduction to
the sales price of the property for financial statement purposes at the date of
sale. No amounts were expended and the full amount of the escrow was released
to the Partnership in November 1998, along with accrued interest of $45,588.
The $560,000 escrow amount has been recognized as other income for financial
statement purposes during the quarter ended September 30, 1998.
5. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal, which is pending.
It is not determinable at this time whether or not an unfavorable decision in
this action would have a material adverse impact on the financial position of
the Partnership. The Partnership believes that it has meritorious defenses to
contest the claims.
<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. Two of these loans were repaid, five
properties were acquired through foreclosure and subsequently sold and one of
the loans was sold. In addition, the Partnership purchased and subsequently
sold one property. As of September 30, 1998, the Partnership has no loans or
real estate in its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1997 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The operations of the Partnership in 1998 consisted primarily of interest
income earned on short-term investments, income resulting from the release to
the Partnership of escrow funds in connection with the sale of the U.S. West
Direct Center Office Building and income received in connection with the
settlement of the Butler Plaza Shopping Center condemnation proceedings, which
were partially offset by the payment of administrative expenses. As a result,
the Partnership recognized net income for the nine months and quarter ended
September 30, 1998. During the second quarter of 1997, the Partnership
recognized significant gains on sales of its remaining three real estate
investments which were generating income prior to their sales. As a result, the
Partnership recognized net income for the nine months ended September 30, 1997.
The operations of the Partnership during the quarter ended September 30, 1997
consisted primarily of interest income earned on short-term investments, which
was partially offset by the payment of administrative expenses. As a result,
the Partnership generated income for the quarter ended September 30, 1997.
Further discussion of the Partnership's operations is summarized below.
1998 Compared to 1997
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1998 and 1997 refer
to both the nine months and quarters ended September 30, 1998 and 1997.
During 1997, income from operations of real estate held for sale represented
the net operations of the U.S. West Direct Center Office Building, the Butler
Plaza Shopping Center and the loan collateralized by Whispering Hills
<PAGE>
Apartments, which was accounted for as real estate held for sale. These
properties were generating income prior to their sales in 1997. The
Partnership paid certain expenditures during the first quarter of 1998 related
to certain of these sold properties which is the reason the Partnership
recognized a loss from operations of real estate held for sale for the nine
months ended September 30, 1998.
Primarily as a result of higher average cash balances in 1997 due to the
investment of proceeds received from property sales during the fourth quarter
of 1996 prior to distribution to Limited Partners in 1997 and the investment of
proceeds received from property sales during the second quarter of 1997 prior
to distribution to Limited Partners in July 1997 and October 1997, interest
income on short-term investments decreased during 1998 as compared to 1997.
The Partnership received $554,250 during the second quarter of 1998 relating to
the condemnation of a portion of the land at the Butler Plaza Shopping Center
during 1996. The Partnership received $560,000 during November 1998 in
connection with the release of an escrow related to the sale of the U.S. West
Direct Center Office Building. These amounts have been recognized as other
income for financial statement purposes. See Note 4 of Notes to Financial
Statements for additional information.
The Partnership incurred lower legal, accounting and portfolio management fees
and printing and postage costs during the nine months ended September 30, 1998
as compared to the same period in 1997. In addition, during February 1997, the
General Partner made a payment relating to the settlement of certain litigation
to original investors who previously sold their Interests in the Partnership
which was accounted for as an administrative expense. As a result,
administrative expenses decreased during the nine months ended September 30,
1998 as compared to the same period in 1997.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically, but not less than annually, on the basis of
assessments of property operations and estimated sales prices less closing
costs. Determinations of fair value represented estimates based on many
variables which affect the value of real estate, including economic and
demographic conditions. During the second quarter of 1997, the Partnership
recognized a recovery of $95,250 and a write off of $3,839,750 of a previously
established loss allowance in connection with the sale of the Butler Plaza
Shopping Center.
During the second quarter of 1997, the Partnership sold the U.S. West Direct
Center Office Building and the loan collateralized by Whispering Hills
Apartments, which was accounted for as real estate held for sale. As a result,
the Partnership recognized gains totaling $8,906,309 in connection with these
sales for financial statement purposes.
The Whispering Hills Apartments was owned by a joint venture with an affiliate.
As a result of the sale of this property during 1997, affiliate's participation
in income of joint venture ceased during 1997.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $465,000 as of
September 30, 1998, when compared to December 31, 1997 due to cash flow
provided by operating activities. These activities consisted primarily of
income received in connection with the settlement of the Butler Plaza Shopping
Center condemnation proceedings and interest income earned on short-term
investments which were partially offset by the payment of administrative and
operating expenses related to sold properties.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1997, the Partnership sold its remaining three real estate
investments. The Partnership has retained a portion of the cash from the
property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership, including, but not limited to, the
lawsuit discussed in Note 5 of Notes to Financial Statements. Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of all contingencies. There can be no
assurances as to the time frame for conclusion of these contingencies.
In 1997, the Partnership sold the U.S. West Direct Center Office Building.
Pursuant to the terms of the sale, $1,100,000 of the proceeds was placed in
escrow. Of this amount, $540,000 was paid to the Partnership in 1997. The
remaining $560,000 was held in escrow to be used for the potential payment of
costs relating to the removal of soil contamination at the property. This
amount remained in escrow until November 1998, at which time it was released to
the Partnership in full, along with accrued interest of $45,588.
In 1996, the Partnership was awarded $300,300 in connection with the
condemnation of a portion of the land at the Butler Plaza Shopping Center and
received $113,900 at that time. The Partnership as well as tenants at the
property were parties to the condemnation proceedings. In 1997, the Partnership
agreed to resolve the land condemnation and received an additional award of
$367,850 bringing the total amount of the award to $668,150. The Partnership
received the remaining $554,250 during the second quarter of 1998 after certain
issues with the tenants at the property were resolved.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of September 30, 1998, there were 18,456 Interests and
cash of $1,577,712 in the Early Investment Incentive Fund.
To date, Limited Partners have received distributions of $123.06 of Cash Flow
from operations and a return of Original Capital of $187.09, totaling $310.15
per $250 Interest. The available proceeds from the release of the U.S. West
Direct Center Office Building escrow and the Butler Plaza Shopping Center
condemnation proceeds will be distributed to Limited Partners in late 1998.
<PAGE>
No additional distributions are anticipated to be made prior to the
termination of the Partnership. However, after paying final partnership
expenses, any remaining cash reserves will be distributed. Amounts allocated
to the Early Investment Incentive Fund will also be distributed at that time.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
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 Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-15528)
are incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale and attachment thereto relating to the sale of the
U.S. West Office Building, Murray, Utah, previously filed as Exhibit (99) to
the Registrant's Current Report on Form 8-K dated January 14, 1997, is
incorporated herein by reference.
(a)(ii) First Amendment to Agreement of Sale relating to the sale of the
U.S. West Office Building, Murray, Utah, previously filed as Exhibit
(10)(a)(ii) to the Registrant's Annual Report on Form 10-K dated December 31,
1996, is incorporated herein by reference.
(a)(iii) Second Amendment to Agreement of Sale relating to the sale of
the U.S. West Office Building, Murray, Utah, previously filed as Exhibit
(10)(a)(iii) to the Registrant's Annual Report on Form 10-K dated December 31,
1996, is incorporated herein by reference.
(a)(iv) Third Amendment to Agreement of Sale relating to the sale of the U.S.
West Office Building, Murray, Utah, previously filed as Exhibit (10)(a)(iv) to
the Registrant's Annual Report on Form 10-K dated December 31, 1996, is
incorporated herein by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of Butler
Plaza Shopping Center, Orlando, Florida, previously filed as Exhibit (10)(f) to
the Registrant's Annual Report on Form 10-K dated December 31, 1996, is
incorporated herein by reference.
(b)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of Butler Plaza Shopping Center, Orlando, Florida, previously filed as
Exhibit (10)(f)(ii) to the Registrant's Quarterly Report on Form 10-Q dated
March 31, 1997, is incorporated herein by reference.
(c)(i) Agreement to Purchase Loan Documents relating to the sale of the loan
collateralized by the Whispering Hills Apartments, Overland Park, Kansas,
previously filed as Exhibit (10)(g) to the Registrant's Quarterly Report on
Form 10-Q dated March 31, 1997, is incorporated herein by reference.
<PAGE>
(c)(ii) First Amendment to Agreement to Purchase Loan Documents related to the
sale of the loan collateralized by the Whispering Hills Apartments, Overland
Park, Kansas, previously filed as Exhibit (10)(g)(ii) to the Registrant's
Quarterly Report on Form 10-Q dated June 30, 1997, is incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for the nine months ended
September 30, 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR 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
Senior Managing Director and Chief Financial
Officer (Principal Accounting Officer) of
Balcor Mortgage Advisors-VII, the General
Partner
Date: November 13, 1998
---------------------------
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2449
<SECURITIES> 0
<RECEIVABLES> 618
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3066
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3066
<CURRENT-LIABILITIES> 75
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2991
<TOTAL-LIABILITY-AND-EQUITY> 3066
<SALES> 0
<TOTAL-REVENUES> 1250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1048
<INCOME-TAX> 0
<INCOME-CONTINUING> 1048
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1048
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
</TABLE>
