SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-16886
Banyan Strategic Land Fund II
(Exact name of Registrant as specified in its charter)
Delaware 36-3465422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 553-9800
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 .
Shares of common stock outstanding as of November 10, 1995: 9,936,421.
Transitional Small Business Disclosure Format: YES . NO X .
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1995 1994
ASSETS
Cash and Cash Equivalents $ 205,556 $ 290,366
Interest Receivable on
Investments 6,297 ---
Interest Receivable on
Loans 48,125 26,357
Investment Securities 1,324,830 ---
------------ ------------
1,584,808 316,723
------------ ------------
Loans Receivable 785,000 801,000
Foreclosed Real Estate
Held for Sale, Net 16,149,764 37,809,395
Investment in Real Estate
Venture 7,395,351 7,093,058
Other Assets 925,464 476,898
------------ ------------
Total Assets $ 26,840,387 $ 46,497,074
============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities
Accounts Payable and
Accrued Expenses $ 619,951 $ 955,825
Accrued Real Estate Taxes 112,131 170,769
Liabilities Assumed at
Foreclosure of Real
Estate 189,465 456,186
Due to Affiliates --- 730,229
------------ ------------
Total Liabilities 921,547 2,313,009
------------ ------------
Stockholders' Equity
Shares of Common Stock,
$0.01 Par Value,
50,000,000 Authorized,
19,266,268 and 19,283,696
Shares Issued, respectively 170,927,133 170,946,739
Accumulated Deficit (129,154,086) (126,735,037)
Treasury Stock at cost,
9,329,847 and 20,100
Shares, respectively (15,854,207) (27,637)
------------ ------------
Total Stockholders' Equity 25,918,840 44,184,065
------------ ------------
Total Liabilities and
Stockholders' Equity $ 26,840,387 $ 46,497,074
============ ============
Book Value Per Share of
Common Stock (9,936,421
and 19,263,596 Shares $ 2.61 $ 2.29
Outstanding, respectively) ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
INCOME 1995 1994
Income From Lending and
Investing Activities:
Interest on Loans $ 19,871 $ 57,193
Income on Investments 350,946 34,274
----------- ------------
Total Income From Lending and
Investing Activities 370,817 91,467
----------- ------------
EXPENSES
Expenses From Property
Operating
Activities:
Interest on Advances From
Affiliates 17,712 218,918
Net Loss From Disposition of
Foreclosed Real Estate Held
for Sale, Net 39,846 ---
Net Loss From Disposition of
Note Receivable --- 65,000
Net Loss From Operations of
Foreclosed Real Estate Held
for Sale 1,236,070 2,294,083
Net (Income) Loss From
Operations of Real Estate
Venture (174,972) 167,132
----------- ------------
Total Expenses From Property
Operating Activities 1,118,656 2,745,133
----------- ------------
Other Expenses:
Stockholder Expenses 183,752 186,610
Directors' Fees, Expenses and
Insurance 323,416 379,882
Other Professional Fees 429,003 539,667
General and Administrative 758,316 656,103
Recovery of Losses on Loans,
Notes, Interest Receivable
and Class Action Settlement
Costs and Expenses (23,277) (242,603)
----------- ------------
Total Other Expenses 1,671,210 1,519,659
----------- ------------
Total Expenses 2,789,866 4,264,792
----------- ------------
Net Loss $(2,419,049) $ (4,173,325)
=========== ============
Net Loss Per Share of Common
Stock (Based on the Weighted
Average Number of Shares
Outstanding of 15,297,847
and 19,256,063, respectively) $ (0.16) $ (0.22)
=========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
INCOME 1995 1994
Income From Lending and
Investing Activities:
Interest on Loans $ 8,989 $ 16,637
Income on Investments 107,567 8,889
----------- ------------
Total Income From Lending and
Investing Activities 116,556 25,526
----------- ------------
EXPENSES
Expenses From Property Operating
Activities:
Interest on Advances From
Affiliates --- 79,986
Net Loss From Disposition of
Note Receivable --- 65,000
Net Loss From Operations of
Foreclosed Real Estate Held
for Sale 322,855 851,459
Net (Income) Loss From
Operations of Real Estate
Venture (234,905) 59,451
----------- ------------
Total Expenses From Property
Operating Activities 87,950 1,055,896
----------- ------------
Other Expenses:
Stockholder Expenses 88,451 43,143
Directors' Fees, Expenses and
Insurance 87,856 126,487
Other Professional Fees 62,741 335,005
General and Administrative 174,534 182,655
----------- ------------
Total Other Expenses 413,582 687,290
----------- ------------
Total Expenses 501,532 1,743,186
----------- ------------
Net Loss $ (384,976) $ (1,717,660)
=========== ============
Net Loss Per Share of Common
Stock (Based on the Weighted
Average Number of Shares
Outstanding of 9,936,421
and 19,263,596, respectively) $ (0.04) $ (0.09)
=========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31, 19,283,696 $170,946,739 $(126,735,037) $ (27,637) $44,184,065
1994
Elimination
of Award Shares
Issued (17,428) (19,606) --- --- (19,606)
Acquisition
of 9,309,747
Shares of
Treasury
Stock, at
Cost --- --- --- (15,826,570) (15,826,570)
Net Loss --- --- (2,419,049) --- (2,419,049)
----------- ------------ ------------ ------------ ------------
Stockholders'
Equity,
September 30,
1995 19,266,268 $170,927,133 $(129,154,086) $(15,854,207) $25,918,840
=========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (2,419,049) $(4,173,325)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Net Loss From Disposition of
Foreclosed Real Estate Held
for Sale, Net 39,846 ---
Loss on Disposition of Note
Receivable --- 65,000
Recovery of Losses on Loans, Notes
and Interest Receivable and
Class Action Settlement Costs
and Expenses (23,277) (242,603)
Net (Income) Loss From Operations
of Real Estate Venture (174,972) 167,132
Net Change In:
Interest Receivable on Investments (6,297) 49,152
Interest Receivable on Loans (21,768) (52,017)
Other Assets (448,566) (225,284)
Accounts Payable and Accrued
Expenses (335,874) 873,821
Accrued Real Estate Taxes (58,638) (15,474)
----------- -----------
Net Cash Used In Operating Activities (3,448,595) (3,553,598)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment
Securities (2,134,298) (687,018)
Proceeds from Sale of Investment
Securities 499,139 181,646
Principal Payments on Investment
Securities 310,329 367,240
Proceeds from the Sale of Fore-
closed Real Estate Held for Sale 21,700,202 310,690
Proceeds from the Sale of Note
Receivable --- 200,000
Recovery of Losses on Loans, Notes
and Interest Receivable and
Class Action Settlement Costs
and Expenses 23,277 242,603
Collection of (Investment in) Loans
Receivable, Net 16,000 (160,508)
Forfeited Proceeds from Sales
Contracts 58,086 98,315
Payment of Liabilities Assumed
at Sale of Foreclosed Real Estate
Held for Sale (317,525) ---
Investments in Real Estate Venture (127,321) (216,934)
(Payment to) Due to Affiliate (730,229) 536,058
Cash Received Upon Loan Fore-
closure of Real Estate, Net --- 900,000
Payment of Liabilities Assumed
at Foreclosure of Real Estate (87,699) (184,474)
----------- -----------
Net Cash Provided By Investing
Activities 19,209,961 1,587,618
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Elimination of) Issuance of Shares
of Common Stock (19,606) 19,606
Acquisition of Treasury Shares (15,826,570) ---
----------- -----------
Net Cash (Used In) Provided By
Financing Activities (15,846,176) 19,606
----------- -----------
Net Decrease in Cash and Cash
Equivalents (84,810) (1,946,374)
Cash and Cash Equivalents at
Beginning of Period 290,366 2,013,948
----------- -----------
Cash and Cash Equivalents at
End of Period $ 205,556 $ 67,574
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Strategic Land
Fund II's (the "Fund's") audited consolidated financial statements for the
year ended December 31, 1994, which are included in the Fund's 1994 Annual
Report and Form 10-KSB, as certain footnote disclosures which would
substantially duplicate those contained in such audited statements have been
omitted from this report.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Fund and its wholly-owned subsidiaries and consolidated venture which
hold title to the Fund's properties. All intercompany balances and
transactions have been eliminated in consolidation. The Fund's 47% interest
in the H Street Assemblage is accounted for on the equity method as an
investment in real estate joint venture.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the previously reported 1994
financial statements in order to provide comparability with the 1995
consolidated financial statements. These reclassifications have not changed
the 1994 operating results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying
consolidated financial statements as of September 30, 1995 and for the three
and nine months ended September 30, 1995 and 1994. These adjustments made to
the financial statements, as presented, are all of a normal recurring nature
to the Fund.
2. INVESTMENT SECURITIES
The Fund's investment securities portfolio at September 30, 1995 is as
follows:
Amortized Cost
Net of
Principal Estimated
Paydowns Market Value
Name of Issuer and Title Received at Sept. 30,
of Each Issue Sept. 30, 1995 1995 (2)
Federal National Mortgage $ 204,628 $ 206,428
Association, (1)
6.5%, 7/05/95-
7/25/2016
Federal Home Loan 628,831 626,169
Mortgage Corp., 6.0%,
7/05/95-6/25/2014 (1)
Collateralized 491,371 486,571
Mortgage Security
Corp., 9.0%, 7/05/95-
6/25/2007
---------- ----------
$1,324,830 $1,319,168
========== ==========
(1) The guaranteed REMIC Pass-Through Certificates are guaranteed as to
timely payment of principal and interest by the Federal National
Mortgage Association. The maturity of the principal of the above
investment securities is dependent upon the repayment of the underlying
U.S. Agency sponsored mortgages. The rate of repayment is dependent
upon the current market level of interest rates on mortgage loans as it
relates to the interest rates of the mortgages underlying each REMIC
security. The maturity of these investment securities, under the market
conditions as of the third quarter of 1995, is expected to be from June
25, 2004 to July 25, 2016. These expectations may change as interest
rates on mortgage loans change.
(2) The estimated market value of the Fund's investment securities as of
September 30, 1995 approximates its carrying value; therefore, the Fund
has not recorded any unrealized loss on such securities.
3. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE AND CLASS
ACTION SETTLEMENT COSTS AND EXPENSES
On February 9, 1995, the Fund received a cash distribution of $23,277
related to its interest in a liquidating trust established for the benefit of
the unsecured creditors of VMS Realty Partners and its affiliates ("VMS").
During the quarter ended March 31, 1995, the Fund recorded $23,277 of this
distribution as a recovery of losses on mortgage loans, notes and interest
receivable on its consolidated statement of income and expenses.
On January 25, 1994, the Fund received net proceeds of $242,603 as a
recovery of payments previously made into an escrow established as part of the
1992 class action settlement of the VMS securities litigation. The escrow was
established to provide the directors of the Fund with monies to fund the cost
of any litigation in which they might be named as defendants following
settlement of the class action. Subsequently, the directors have released the
proceeds from the escrow and the Fund has purchased an insurance policy to
cover the officers and directors.
4. FORECLOSED REAL ESTATE HELD FOR SALE
RANCHO MALIBU
Rancho Malibu is a 274-acre parcel of undeveloped land north of Malibu,
California. On July 1, 1992, a joint venture (the "Venture") between the Fund
and Banyan Mortgage Investment Fund ("BMIF"), acquired title to the property
pursuant to a deed in lieu of foreclosure agreement. The Fund owns a 98.6%
general partner interest in the Venture while BMIF holds the remaining 1.4% as
a limited partner. The Venture's results are consolidated in the accompanying
financial statements. From the acquisition date, the Venture has engaged in
zoning and entitlement activities which have been opposed by the City of
Malibu. The city initiated two separate legal actions intended to preclude
the issuance of a Coastal Development Permit, the most recent of which has
been decided in favor of the Venture and as to which the City of Malibu has
appealed. The parties to the appeal have filed briefs and have presented oral
arguments. A decision is expected by January 15, 1996.
Concurrent with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. On May 30, 1995, the Los
Angeles County Regional Planning Commission, in a 3 to 2 vote, gave
preliminary approval to a revised plan to develop a fifty-one unit housing
community on the Rancho Malibu property. Formal findings were drafted and
approved by the Commissioners. The approval of the findings has been appealed
to the Los Angeles County Board of Supervisors. The appeal is scheduled to be
heard on December 7, 1995. No permit can be obtained and no development
activities can commence until the Board of Supervisors makes a determination
on the appeal. Development of the property is also contingent upon the
issuance of a permit from the California Coastal Commission. The action to
set aside that permit is currently on appeal as described above.
During the nine months ended September 30, 1995, the Fund expended
approximately $1,169,000 relating to entitlement activities, holding costs and
litigation. These costs were included in total expenses from property
operating activities on the Fund's consolidated statements of income and
expenses. As of September 30, 1995 and December 31, 1994, the Fund's carrying
value of the property is $13,841,549.
The realization of this carrying value is based on the present intent of
the Fund to complete the zoning and entitlement efforts and to then assess its
options regarding the Rancho Malibu project, including all alternatives from
site development to a bulk land sale. Management of the Fund estimates that
if the Rancho Malibu property were to be sold before the zoning and
entitlement process was complete, the net realizable value of the property
would decline to approximately $5,000,000 to $7,000,000.
KEY BISCAYNE
In 1990, title to 22 acres of property located in Key Biscayne, Florida,
was conveyed to the Fund under a deed-in-lieu of foreclosure agreement. The
Fund's parcel represented a portion of the "Key Biscayne Project"; the
remainder was owned by THSP Associates Limited Partnership II ("THSP"),
formerly known as Banyan Mortgage Investors L.P. III. The Fund and THSP had
been developing the Key Biscayne Project pursuant to a Joint Development
Agreement dated September 17, 1990 to which the Fund and THSP were parties
("JDA"). As of December 31, 1993, the Fund's carrying value for this property
was $42,740,410 which was based on the estimated value of the property
assuming completion of the development plan. During 1994, the Fund and THSP
engaged in extensive litigation in Florida and Illinois and settlement
negotiations involving the Key Biscayne Project. On March 16, 1995 the Fund
executed a settlement agreement with THSP. Pursuant to the settlement
agreement, the Fund received cash and other consideration totalling
approximately $24,700,000 and transferred to THSP ownership of the Fund's 22-
acre site in Key Biscayne, Florida. The Fund also released all claims it had
asserted to an adjacent parcel owned by THSP. In addition, the Fund and THSP
consensually terminated all pending litigation and exchanged mutual releases.
Of the $24,700,000 settlement, the Fund received approximately
$21,500,000 in cash. The remaining $3,200,000 was used to pay approximately
$1,500,000 in closing fees and prorations and to discharge the Fund's
liability of approximately $1,700,000 due THSP for advances made to the Fund
pursuant to the JDA. The Fund also reduced the Key Biscayne carrying value at
December 31, 1994 for legal and other costs of approximately $775,000 which
were anticipated related to the settlement. For the nine months ended
September 30, 1995, the Fund has expended approximately $318,000 of the total
$775,000 anticipated costs. As a result of the settlement, the Fund recorded
a loss provision of approximately $19,700,000 as of December 31, 1994 which
represented the difference between the net book value of the Fund's investment
in the Key Biscayne project less the settlement amount as reduced by closing
costs and prorations.
LINDFIELD'S SINGLE FAMILY
On June 16, 1995, the Fund sold six of the eleven lots comprising the
Lindfield's Single Family property to an unaffiliated third party for $54,000.
After prorations for closing costs of approximately $900 and payment of
assumed liabilities of approximately $900, the Fund received net proceeds of
approximately $52,200 and recognized a gain of approximately $9,500 on the
sale.
PALMDALE
On June 20, 1995, the Fund sold the Palmdale property to an unaffiliated
third party for approximately $350,300. After prorations for closing costs of
approximately $24,600 and payment of assumed liabilities of approximately
$178,200, the Fund received net proceeds of approximately $147,500 and
recognized a loss of approximately $49,300 on the sale.
5. LOANS RECEIVABLE
CHINO HILLS MORTGAGE LOAN
The Fund was assigned an interest in a loan valued at $57,000 as a
result of the Anden Group loan foreclosure on October 20, 1993. The loan was
collateralized by a Deed of Trust secured by five acres of undeveloped land
located in Chino Hills, California ("Chino Hills"). The borrower was New
Romanoffsky Church of California. The loan required monthly payments of
interest at a rate of 9% and periodic principal payments scheduled through the
maturity date of February 14, 1995. During the quarter ended March 31, 1995,
the Fund received the final principal and interest payments of $16,000 and
$360, respectively, on the loan and thereupon released its lien. The Fund has
no further interest in the Chino Hills property.
6. INVESTMENT IN JOINT VENTURE
H STREET ASSEMBLAGE
The summary income statement information for the joint venture which
owns the H Street Assemblage for the nine months ended September 30, 1995 and
1994 is as follows:
1995 1994
Total Revenues $ 409,991 $ 301,943
============ ============
Net Income (Loss) $ 372,281 $ (355,601)
============ ============
7. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC").
These costs are allocated to the Fund and other entities to which BMC provides
administrative services based upon the actual number of hours spent by BMC
personnel on matters related to that particular entity. The Fund's allocable
share of costs for the nine months ended September 30, 1995 and 1994
aggregated $467,909 and $468,443, respectively. As one of its administrative
services, BMC serves as the paying agent for general and administrative costs
of the Fund. As part of providing this payment service, BMC maintains a bank
account on behalf of the Fund. As of September 30, 1995, the Fund had a net
receivable due from BMC of $142,744. The net receivable is included in other
assets in the Fund's Consolidated Balance Sheet.
8. TENDER OFFER
On May 5, 1995, the Fund commenced a tender offer for up to 10,000,000
shares of its stock at a price of $1.70 per share. The tender offer expired
at midnight on June 5, 1995. The trading price of the Fund's stock on the
last day prior to commencement of the tender offer was $1.31 per share. The
tender offer resulted in the purchase by the Fund of 9,309,747 shares for a
total purchase price of $15,826,570. The shares purchased pursuant to the
tender offer have been excluded effective June 5, 1995 when calculating Net
Income Per Share of Common Stock Based on Weighted Average Number of Shares
Outstanding.
9. ELIMINATION OF AWARD SHARES OUTSTANDING AND WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
On April 29, 1994, the Fund issued 17,428 shares of its common stock to
Leonard G. Levine, its President. Pursuant to Mr. Levine's amended employment
agreement, all incentive amounts earned subsequent to January 1, 1993 are paid
80% in cash on or before March 15 of the year following the period for which
the incentive is earned and 20% in shares ("Award Shares") of the Fund. On
January 28, 1994, Mr. Levine was paid $78,425 representing 80% of the
incentive earned during 1993. Mr. Levine's right to the remaining 20% of the
incentive compensation, which equates to 17,428 shares valued at $19,606,
vests on the earlier of: (i) December 31, 1997; (ii) the termination of Mr.
Levine's employment by the Fund without just cause; or (iii) the permanent
disability or death of Mr. Levine. The "Award Shares" were issued at a price
equal to $1.125 per share which was the average closing price of the Fund's
shares for the five business days ended prior to December 31, 1993. At a
meeting of the Fund's Board of Directors on April 28, 1995, the Board of
Directors amended Mr. Levine's employment agreement with respect to the
issuance of Award Shares. Mr. Levine will no longer receive actual shares of
the Fund's Common Stock as Award Shares. Under Mr. Levine's amended
employment agreement, an "Award Share" has been redefined to mean the right to
receive a cash bonus equal to: (i) the value of one share of Common Stock of
the Fund; and (ii) any distributions of the Fund with respect to a share of
Common Stock between the Grant Date and the Settlement Date. The value of an
Award Share on a Grant Date and on a Settlement Date will be the average
closing price of the Fund's shares of Common Stock for the five business days
ended at the Grant Date or the Settlement Date, as the case may be. Mr.
Levine will continue to receive twenty percent (20%) of his Incentive
Compensation in Award Shares. At the time upon which Mr. Levine determines to
dispose of Award Shares, Mr. Levine will notify the Company of the number of
Award Shares he wishes to tender and he will receive from the Company a cash
bonus equal to the value of the Award Shares tendered to the Company. The
cash bonus from the Award Shares attributable to distributions will be paid
currently for all distributions declared for stockholders of record between
the Grant Date and the Settlement Date. Shares of Common Stock previously
issued as Award Shares were converted into cash bonus shares as described
above on April 28, 1995, as provided for in the amended employment agreement.
The 17,428 shares as previously issued on April 29, 1994 have been excluded
effective April 28, 1995 when calculating Net Income Per Share of Common Stock
Based on Weighted Average Number of Shares Outstanding. The Award Shares will
continue to be subject to the existing vesting provisions. The amendment is
intended to preserve the original intent of the Award Shares which was to
further align the interests of Mr. Levine with those of the Fund's
stockholders. All Award Shares shall be forfeited by Mr. Levine if he fails
to be employed by the Fund on December 31, 1997, unless such failure is due to
death or permanent disability or termination without just cause.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Fund was originally established to make mortgage loans principally
to entities affiliated with VMS Realty Partners which planned to acquire and
develop strategically located properties not then at their highest and best
use. These borrowers subsequently defaulted on these loans and the Fund has
ceased funding any future mortgage loans except where necessary to protect the
value of its assets acquired through foreclosure or otherwise. Its current
business plan focuses on preserving and maximizing the value of its assets,
including managing and/or developing properties acquired until these
properties can be disposed of in an orderly manner.
Due to the modest size of the Fund's cash position (prior to March 1995)
and the uncertainty regarding the future cash requirements of the remaining
assets, the Fund suspended distributions to stockholders. In early 1995, the
receipt of proceeds from collections on mortgage loans, the Key Biscayne
settlement and disposition of properties caused the Fund to reassess the
reinstatement of distributions. Management proposed several alternatives to
the Board of Directors of the Fund in connection with the utilization of the
Fund's net cash proceeds in excess of those needed for operations. The
distribution strategies included various options such as a dividend to all
stockholders, an open-market stock repurchase program, or a self tender offer.
On May 5, 1995, the Fund commenced a tender offer for up to 10,000,000 shares
of its stock at a price of $1.70 per share. The tender offer expired at
midnight on June 5, 1995. The trading price of the Fund's stock on the last
day prior to commencement of the tender offer was $1.31 per share. The tender
offer resulted in the purchase by the Fund of 9,309,747 shares for a total
purchase price of $15,826,570. The Fund's management will continue to
periodically assess the status of the Fund's assets, evaluate its distribution
policy and the overall business plan for the Fund as cash proceeds are
recovered from its current assets. The Fund's management currently does not
anticipate commencing distributions in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Fund's cash and cash equivalents balance at September 30, 1995 and
December 31, 1994 was $205,556 and $290,366, respectively. In addition, at
September 30, 1995 the Fund holds $1,324,830 in investment securities which
are immediately convertible to cash. The increase in total cash, cash
equivalents and investment securities of approximately $1,240,000 is primarily
due to the receipt of approximately $21,500,000 in proceeds from the
resolution of the Key Biscayne project and the settlement of the Key Biscayne
litigation. Also contributing to this increase in total cash, cash
equivalents and investment securities was approximately $200,000 of proceeds
from the sale of the Palmdale property and a portion of the Lindfield Single
Family property in June 1995 (see Results of Operations for further details),
the receipt of forfeited proceeds from sales contracts of $58,086 relating to
the Hemet III property, Lindfield's Single Family property and Lake Rogers
property, the receipt of a final principal payment of $16,000 relating to the
Fund's Chino Hill mortgage loan, a $23,277 recovery of losses on loans, notes
and interest receivable relating to the VMS liquidating trust and the receipt
of interest earned on the Fund's investment securities and short-term
investments. Partially offsetting these cash receipts was the cash used by
the Fund to purchase its shares of common stock pursuant to the self tender
offer totalling $15,826,570, the payment of approximately $1,169,000 related
to entitlement, litigation and holding costs associated with the Rancho Malibu
property, the repayment of $730,229 to Banyan Strategic Realty Trust ("BSRT")
relating to advances made on behalf of the Fund for H Street Assemblage
expenditures, $317,525 in payments of liabilities relating to legal costs
associated with the Key Biscayne settlement and the payment of the Fund's
operating expenses.
During 1993, THSP Associates Limited Partnership II ("THSP") (formerly
known as Banyan Mortgage Investors L.P. III) advanced all costs, totalling
$2,232,320, associated with the development of the Key Biscayne Project,
including the Fund's share of such costs. As provided in the Joint
Development Agreement, all advances made by THSP for the Fund's share of the
Key Biscayne Project bore interest at a rate of 15% per annum until repaid.
On November 24, 1993, the Fund repaid $865,000 to THSP representing a
principal payment of $692,000 and accrued interest of $173,000.
As of December 31, 1994, the Fund's total payable to THSP was
approximately $1,725,000 which represented the principal balance of $1,540,000
as of December 31, 1993 plus accrued interest through December 31, 1994. The
Fund's obligation with respect to these advances was discharged pursuant to
the settlement of Key Biscayne litigation on March 16, 1995.
The Fund has entered into a partnership agreement with BSRT regarding
the ownership and operation of the H Street Assemblage (the "H Street
Venture"). Under the terms of this Agreement, BSRT has the right, but is not
obligated, to advance expenditures on behalf of the Fund. During 1994 and
1993, BSRT advanced to the H Street Venture all funds expended on the H Street
Assemblage, including the Fund's portion. As provided in the H Street
partnership agreement, all advances made by BSRT for the Fund's share of the H
Street Venture's expenditures bore interest at a rate of prime plus 2% per
annum until repaid. As of December 31, 1994, the Fund's total payable to BSRT
was approximately $730,000. On March 24, 1995, the Fund repaid the December
31, 1994 outstanding balance of approximately $730,000 to BSRT. As of
September 30, 1995, the H Street advances, and all interest thereon, made by
BSRT have been repaid in full by the Fund.
On February 9, 1995, the Fund received a cash distribution of $23,277
related to its interest in a liquidating trust established for the benefit of
the unsecured creditors of VMS Realty Partners and its affiliates. During the
quarter ended March 31, 1995, the Fund recorded $23,277 of this distribution
as a recovery of losses on mortgage loans, notes and interest receivable on
its consolidated statement of income and expenses.
The Fund's future liquidity needs are expected to be funded from cash
proceeds from the sale of its properties, collection of principal and interest
on the Fund's mortgage loans, distributions of cash from the liquidating
trust of which the Fund is a beneficiary and interest earned on the Fund's
investment securities and short-term investments. At the present time, the
Fund's cash position, as well as cash anticipated to be generated from the
sale of land parcels which had collateralized the Westholme loans, is
anticipated to provide adequate liquidity to meet the Fund's operating
expenses plus the holding costs and operating expenses consistent with the
Fund's business plan for the H Street Assemblage, Rancho Malibu property and
the land parcels acquired through the Westholme foreclosure.
As of September 30, 1995 and December 31, 1994, the Fund's mortgage loan
portfolio consisted of two and three loans, respectively, with carrying values
totaling $785,000 and $801,000, respectively. During the quarter ended March
31, 1995, the Fund received a final principal and interest payment on the
Chino Hills loan totaling $16,360.
On a quarterly basis, management reviews the mortgage loans in the
Fund's portfolio and records appropriate loss provisions. The provisions are
based upon a number of factors, including analysis of the value of the
collateral and, in certain cases, ongoing negotiations regarding disposition
of this collateral, as well as consideration of the general business
conditions affecting the Fund's portfolio. Management also reviews the
investment properties held by the Fund on a quarterly basis and, when it has
been determined that a permanent impairment in the value of a given property
has occurred, the carrying value of the property is then written down to its
fair value. Management has determined that no reductions are necessary for
the quarter ended September 30, 1995.
The Fund's ability to make future distributions to its stockholders is
dependent upon, among other things: (i) the eventual sales price of properties
to which the Fund has taken title; (ii) operating results of the Fund's
properties; (iii) the Fund's ability to control its operating expenses; and
(iv) the general improvement of conditions in the real estate markets where
the Fund's properties or loan collateral are located.
RESULTS OF OPERATIONS
Total income for the nine months ended September 30, 1995 increased to
$370,817 from $91,467 for the nine months ended September 30, 1994. This
increase of approximately $279,000 was due to an increase in income earned on
investments offset partially by a decrease in the interest earned on loans.
The increase in income on investments is due to an increase in cash available
for investment due primarily to the proceeds received on March 17, 1995 from
the resolution of the Key Biscayne litigation. The decrease in interest on
loans is due primarily to a decrease in loans receivable. Loans receivable
decreased in 1995 when compared to 1994 due to the Westholme Partners Notes I
and II foreclosures which occurred in March of 1994.
Total expenses for the nine months ended September 30, 1995 decreased to
$2,789,866 from $4,264,792 for the nine months ended September 30, 1994. This
decrease of approximately $1,475,000 for the nine months ended September 30,
1995 when compared to the prior year's period is due primarily to a decrease
of approximately $1,626,000 in total expenses from property operating
activities partially offset by an increase of approximately $151,000 in total
other expenses. The decrease in total expenses from property operating
activities is due primarily to a decrease in interest expense on advances from
affiliates, a decrease in net loss from operations of foreclosed real estate
held for sale and a decrease in net loss from operations of real estate
venture. In addition, during 1994 the Fund recorded a $65,000 net loss from
the July 1994 sale of the Princeton Ridings Note which also contributed to the
decrease in total expenses from property operating activities. Interest on
advances from affiliates decreased due to the Fund's settlement of the Key
Biscayne litigation. In addition, during March 1995 the Fund repaid all
outstanding advances to BSRT thereby creating a further decrease in interest
on advances from affiliates. As a result of the Key Biscayne settlement, net
loss from operations of foreclosed real estate held for sale decreased
approximately $870,000 for the nine month period in 1995 when compared to the
same period in 1994 due to the elimination of real estate tax expense and
other holding costs associated with the Fund's interest in the Key Biscayne
Project. The net loss from operations of foreclosed real estate held for sale
further decreased due to approximately $81,000 in real estate tax refunds on
several land parcels which were acquired through the 1994 Westholme
foreclosures. In addition, five of these land parcels were sold during 1994
which resulted in a further decrease in the net loss from operations of
foreclosed real estate held for sale of approximately $81,000 as no costs were
paid for these properties during 1995. See below for discussion of the
decrease in net loss from operations of real estate venture. The decrease in
expenses from total property operating activities is partially offset by a
$39,846 net loss on the disposition of foreclosed real estate held for sale
from the disposition of Fund's interest in the Palmdale property and a portion
of the Lindfield's Single Family property in 1995 (see below for further
details). The increase in total other expenses is due primarily to an
increase in general and administrative expenses as well as a $242,603 recovery
of class action settlement costs and expenses recorded in 1994 relating to the
release of an escrow established as part of the class action settlement of the
VMS securities litigation. General and administrative expenses increased due
to the increase in the expenses allocated to the Fund by Banyan Management
Corp. personnel as a result of the Key Biscayne litigation. In addition,
general and administrative costs further increased as a result of additional
administrative expenses associated with the Rancho Malibu litigation and
entitlement activities (see below for details). These changes were offset by
decreases in directors' fees, expenses and insurance and other professional
fees. Director's fees, expenses and insurance decreased due to a decrease in
the number of meetings held during 1995 as compared to the same period in
1994. Other professional fees decreased due to nonrecurring legal costs paid
in 1994 associated with the Fund's dispute with the Key Biscayne Joint
Development Agreement.
The above discussed changes resulted in an decrease in the net loss for
the nine months ended September 30, 1995 to $2,419,049 ($0.16 per share) from
$4,173,325 ($0.22 per share) for the nine months ended September 30, 1994.
Total income for the three months ended September 30, 1995 increased to
$116,556 from $25,526 for the three months ended September 30, 1994. This
increase was due primarily to an increase in income earned on investments.
The increase in income on investments is due to an increase in cash available
for investment due primarily to the proceeds received on March 17, 1995 from
the resolution of the Key Biscayne litigation.
Total expenses for the three months ended September 30, 1995 decreased
to $501,532 from $1,743,186 for the three months ended September 30, 1994.
This decrease of approximately $1,242,000 for the three months ended September
30, 1995 when compared to the prior year's period is due primarily to
decreases of approximately $968,000 in total expenses from property operating
activities and approximately $274,000 in total other expenses. The decrease
in total property operating expenses is due to a decrease in interest expense
on advances from affiliates, a decrease in net loss from operations of
foreclosed real estate held for sale and a decrease in net loss from
operations of real estate venture. In addition, during 1994 the Fund recorded
a $65,000 net loss from the July 1994 sale of the Princeton Ridings Note which
also contributed to the decrease in total expenses from property operating
activities. Interest on advances from affiliates decreased due to the Fund's
settlement of the Key Biscayne litigation and the repayment of advances made
to the Fund by BSRT. As a result of the settlement agreement with THSP
relating to the Key Biscayne project during March 1995, net loss from
operations of foreclosed real estate held for sale decreased by approximately
$331,000 in 1995 as compared to the same period in 1994. See below for
discussion of the decrease in net loss from operations of real estate venture.
The decrease in total other expenses is due primarily to decreases in
directors fees, expenses and insurance and other professional fees.
Director's fees, expenses and insurance decreased due to a decrease in the
number of meetings held during 1995 as compared to the same period in 1994 and
a decrease in the premium for insurance coverage in 1995. Other professional
fees decreased due to nonrecurring legal costs incurred in 1994 relating to
the Fund's Key Biscayne litigation. These decreases were partially offset by
an increase in stockholder expenses. The increase in stockholder expenses is
due to costs associated with the Fund's tender offer which was commenced in
May 1995.
During the nine and three months ended September 30, 1995, the Fund
recorded net income of $174,972 and $234,905, respectively, from the
operations of the H Street Venture. The increase in net income for 1995 when
compared to net losses for the nine months and quarter ended September 30,
1994 of $167,132 and $59,451, respectively, is partially due to a reduction in
legal costs paid in 1994 relating to the successful real estate tax appeal
which reduced the property's assessed taxable value. During 1995, the Venture
recorded approximately $534,000 for real estate tax refunds, and interest
thereon, relating to years 1992 and 1993. As a result of the successful real
estate tax appeal real estate tax expense decreased by approximately $160,000
for the nine months ended September 30, 1995 when compared to the same period
in 1994. In addition, legal and entitlement costs for 1995 were further
reduced when compared to 1994 due to the nonrecurring payment for professional
services associated with obtaining the historic preservation rights in 1994.
The Fund has completed and obtained the zoning, entitlement and historic
preservation rights for the development of an approximately 300,000 square
foot commercial building on the H Street Assemblage. The Fund has not made any
significant capital expenditures on this asset and is allowing occupancy to
decline by selectively retenanting the Victor building at the H Street
Assemblage with short term leases so that the building will be more marketable
to a potential buyer which would need to vacate the Victor building before the
H Street Assemblage can be redeveloped. The H Street Venture is currently
marketing the H Street Assemblage for sale. The current market for the sale
of undeveloped land where the H Street Assemblage is located is very limited.
Further contributing to the decline in demand for commercial development sites
in the Washington, D.C. market was the recent government decision to downsize
various departments and agencies and place a freeze on leasing of any
additional office space. Therefore, the H Street Venture currently
anticipates its marketing efforts could proceed slower than originally
anticipated.
The above discussed changes resulted in an decrease in the net loss for
the three months ended September 30, 1995 to $384,976 ($0.04 per share) from
$1,717,660 ($0.09 per share) for the three months ended September 30, 1994.
PROPERTY OPERATIONS
Rancho Malibu is a 274-acre parcel of undeveloped land north of Malibu,
California owned by a joint venture between the Fund and Banyan Mortgage
Investment Fund (the "Venture"). Since the acquisition date, the Venture has
engaged in zoning and entitlement activities which have been opposed by the
City of Malibu. The city initiated two separate legal actions intended to
preclude the issuance of a Coastal Development Permit, the most recent of
which has been decided in favor of the Venture and as to which the City of
Malibu has appealed. The parties to the appeal have filed briefs and have
presented oral arguments. A decision is expected by January 15, 1996.
Concurrent with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. On May 30, 1995, the Los
Angeles County Regional Planning Commission, in a 3 to 2 vote, gave
preliminary approval to a revised plan to develop a fifty-one unit housing
community on the Rancho Malibu property. Formal findings were drafted and
approved by the Commissioners. The approval of the findings has been appealed
to the Los Angeles County Board of Supervisors. The appeal is scheduled to be
heard on December 7, 1995. No permit can be obtained and no development
activities can commence until the Board of Supervisors makes a determination
on the appeal. Development of the property is also contingent upon the
issuance of a permit from the California Coastal Commission. The action to
set aside that permit is currently on appeal as described above.
During the nine months ended September 30, 1995, the Fund expended
approximately $1,169,000 on Rancho Malibu relating to entitlement activities,
holding costs and litigation. These costs were included in total expenses
from property operating activities on the Fund's consolidated statements of
income and expenses. As of September 30, 1995 and December 31, 1994, the
Fund's carrying value for its interest in the property was $13,841,549.
The realization of this carrying value is based on the present intent of
the Fund to complete the zoning and entitlement efforts and to then assess its
options regarding the Rancho Malibu project, including all alternatives from
site development to a bulk land sale. Management of the Fund estimates that
if the Rancho Malibu property were to be sold before the zoning and
entitlement process was complete, the net realizable value of the property
would decline to approximately $5,000,000 to $7,000,000.
On June 16, 1995, the Fund sold six of the eleven lots comprising the
Lindfield's Single Family property to an unaffiliated third party for $54,000.
After prorations for closing costs of approximately $900 and payment of
assumed liabilities of approximately $900, the Fund received net proceeds of
approximately $52,200 and recognized a gain of approximately $9,500 on the
sale.
On June 20, 1995, the Fund sold the Palmdale property to an unaffiliated
third party for approximately $350,300. After prorations for closing costs of
approximately $24,600 and payment of assumed liabilities of approximately
$178,200, the Fund received net proceeds of approximately $147,500 and
recognized a loss of approximately $49,300 on the sale.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Fund held its 1994 Annual Meeting of Stockholders on August 10,
1995.
There were two proposals considered at the Meeting.
Proposal #1 was to elect three Independent Directors to hold office for
one year or otherwise as provided in the Fund's By-laws.
Proposal #2 was to concur in the selection of Ernst & Young L.L.P. as
the Fund's independent public accountants for the fiscal year ended December
31, 1995.
The following votes were cast or abstained from voting in connection
with the proposals in the manner as set forth:
PROPOSAL #1
SLATE OF DIRECTORS ELECTED FOR AGAINST ABSTAIN
Walter E. Auch, Sr. 5,123,670 357,442 0
Gerald L. Nudo 5,128,833 352,279 0
Robert M. Ungerleider 5,129,705 351,407 0
PROPOSAL #2
FOR AGAINST ABSTAIN
5,236,345 97,955 152,896
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this Report.
(b) No Reports on Form 8-K were filed during the quarter ended
September 30, 1995.
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.
BANYAN STRATEGIC LAND FUND II
By: /s/ Leonard G. Levine Date: November 10, 1995
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: November 10, 1995
Joel L. Teglia, Vice President
Finance and Administration, Chief
Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from
Banyan Strategic Land Fund II's Form 10QSB for the nine months ended
September 30, 1995 and is qualified in its entirety by reference to
such Form 10QSB."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 205,556
<SECURITIES> 1,324,830
<RECEIVABLES> 839,422
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,584,808
<PP&E> 23,545,115
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,840,387
<CURRENT-LIABILITIES> 921,547
<BONDS> 0
<COMMON> 25,918,840
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,840,387
<SALES> 0
<TOTAL-REVENUES> 370,817
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,813,143
<LOSS-PROVISION> (27,277)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,419,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,419,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,419,049)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
