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 March 31, 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 May 11, 1995: 19,263,596.
Transitional Small Business Disclosure Format: YES . NO X .
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1995 1994
ASSETS
Cash and Cash Equivalents $ 19,469,700 $ 290,366
Interest Receivable on
Investments 92,982 ---
Interest Receivable on
Loans 32,140 26,357
------------ ------------
19,594,822 316,723
------------ ------------
Loans Receivable 785,000 801,000
Foreclosed Real Estate
Held for Sale, Net 16,366,302 37,809,395
Investment in Real Estate
Venture 7,069,462 7,093,058
Other Assets 513,267 476,898
------------ ------------
Total Assets $ 44,328,853 $ 46,497,074
============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities
Accounts Payable and
Accrued Expenses $ 851,256 $ 955,825
Accrued Real Estate Taxes 197,324 170,769
Liabilities Assumed at
Foreclosure of Real
Estate 368,487 456,186
Due to Affiliates --- 730,229
------------ ------------
Total Liabilities 1,417,067 2,313,009
------------ ------------
Stockholders' Equity
Shares of Common Stock,
$0.01 Par Value,
50,000,000 Authorized,
19,283,696 Shares Issued 170,946,739 170,946,739
Accumulated Deficit (128,007,316) (126,735,037)
Treasury Stock at cost,
20,100 Shares (27,637) (27,637)
------------ ------------
Total Stockholders' Equity 42,911,786 44,184,065
------------ ------------
Total Liabilities and
Stockholders' Equity $ 44,328,853 $ 46,497,074
============ ============
Book Value Per Share of
Common Stock (19,263,596
Shares Outstanding) $ 2.23 $ 2.29
============ ============
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 MARCH 31, 1995 AND 1994
(UNAUDITED)
INCOME 1995 1994
Income From Lending and
Investing Activities:
Interest on Loans $ 3,886 $ 24,470
Income on Investments 39,521 14,975
----------- ------------
Total Income From Lending and
Investing Activities 43,407 39,445
----------- ------------
EXPENSES
Expenses From Property Operating
Activities:
Interest on Advances From
Affiliates 17,712 66,753
Net Loss From Operations of
Foreclosed Real Estate Held
for Sale 483,163 703,408
Net Loss From Operations of
Real Estate Venture 26,248 40,859
----------- -----------
Total Expenses From Property
Operating Activities 527,123 811,020
----------- ------------
Other Expenses:
Stockholder Expenses 39,330 71,558
Directors' Fees, Expenses and
Insurance 122,677 119,213
Other Professional Fees 314,202 119,692
General and Administrative 335,631 233,664
Recovery of Losses on Loans,
Notes, Interest Receivable
and Class Action Settlement
Costs and Expenses (23,277) (242,603)
----------- ------------
Total Other Expenses 788,563 301,524
----------- ------------
Total Expenses 1,315,686 1,112,544
----------- ------------
Net Loss $(1,272,279) $ (1,073,099)
=========== ============
Net Loss Per Share of Common
Stock (Based on the Weighted
Average Number of Shares
Outstanding of 19,263,596
and 19,246,168, respectively) $ (0.07) $ (0.06)
=========== ============
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 THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31, 1994 19,283,696 $170,946,739 $(126,735,037) $ (27,637) $ 44,184,065
Net Loss --- --- (1,272,279) --- (1,272,279)
----------- ------------ ------------ ---------- ------------
Stockholders'
Equity,
March 31, 1995 19,283,696 $170,946,739 $(128,007,316) $ (27,637) $ 42,911,786
=========== ============ ============ ========== ============
</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 THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (1,272,279) $(1,073,099)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Recovery of Losses on Loans, Notes
and Interest Receivable and
Class Action Settlement Costs
and Expenses (23,277) (242,603)
Net Loss From Operations of Real
Estate Venture 26,248 40,859
Net Change In:
Interest Receivable on Investments (92,982) 18,628
Interest Receivable on Loans (5,783) (23,514)
Other Assets (36,369) (60,794)
Accounts Payable and Accrued
Expenses (104,569) (104,580)
Accrued Real Estate Taxes 26,555 239,475
----------- -----------
Net Cash Used In Operating Activities (1,482,456) (1,205,628)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment
Securities, Net --- (690,380)
Proceeds from the Sale of Fore-
closed Real Estate Held for Sale 21,500,434 ---
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 (84,992)
Forfeited Proceeds from Sales
Contracts 28,824 ---
Payment of Liabilities Assumed
at Sale of Foreclosed Real Estate
Held for Sale (86,165) ---
Investments in Real Estate Venture (2,652) (87,837)
(Payment to) Due to Affiliate (730,229) 333,486
Cash Received Upon Loan Fore-
closure of Real Estate, Net --- 900,000
Payment of Liabilities Assumed
at Foreclosure of Real Estate (87,699) (64,492)
----------- -----------
Net Cash Provided By Investing
Activities 20,661,790 548,388
----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 19,179,334 (657,240)
Cash and Cash Equivalents at
Beginning of Period 290,366 2,013,948
----------- -----------
Cash and Cash Equivalents at
End of Period $19,469,700 $ 1,356,708
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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, 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 March 31, 1995 and for the three
months ended March 31, 1995 and 1994. These adjustments made to the financial
statements, as presented, are all of a normal recurring nature to the Fund,
unless otherwise indicated.
2. 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").
For the quarter ended March 31, 1995, the Fund recorded a $23,277 recovery of
losses on mortgage loans, notes and interest receivable on its consolidated
statement of income and expenses related to the distribution received from the
liquidating trust.
On January 25, 1994, the Fund received net proceeds of $242,603 relating
to 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 may 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 directors.
3. 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"), an affiliate of the Fund,
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 is
consolidated in the accompanying financial statements.
From the acquisition date through the date of this report, 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 is appealing. The parties to the appeal have filed briefs and are
awaiting the scheduling of oral arguments.
Concurrently with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. Presently the matter is
scheduled for May 30, 1995 for a continuation of a hearing before the Los
Angeles County Regional Planning Commission.
During the quarter ended March 31, 1995, the Fund expensed approximately
$469,000 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 March 31,
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 LP 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 asset
was $42,740,410 which was based on the estimated value assuming development of
the property. During 1994, the Fund and THSP engaged in extensive litigation
in Florida and Illinois and related settlement negotiations related to the
JDA, as amended. 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 cash advances 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
incurred related to the settlement. For the quarter ended March 31, 1995, the
Fund has expended $86,165 of the total $775,000 incurred relating to legal
costs associated with the settlement. 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.
4. LOANS RECEIVABLE
CHINO HILLS MORTGAGE LOAN
The Fund was conveyed 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.
5. INVESTMENT IN JOINT VENTURE
H STREET ASSEMBLAGE
The summary income statement information for the joint venture which
owns the H Street Assemblage for the three months ended March 31, 1995 and
1994 is as follows:
1995 1994
Total Revenues $ 106,845 $ 98,976
============ ============
Net Loss $ 55,847 $ 86,934
============ ============
6. DUE TO AFFILIATES
KEY BISCAYNE
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 expenses 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 in respect to these advances was discharged pursuant to the
settlement of Key Biscayne litigation on March 16, 1995. See Note 8,
Litigation and Contingencies, for further details.
H STREET ASSEMBLAGE
The Fund has entered into a partnership agreement with Banyan Strategic
Realty Trust ("BSRT"), an affiliate, 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 expenses 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 $730,000 to
BSRT. As of March 31, 1995, the H Street advances, and all interest thereon,
made by BSRT have been repaid in full by the Fund.
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 Fund. The Fund's costs for the three
months ended March 31, 1995 and 1994 aggregated $204,517 and $152,960,
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 March 31, 1995, the Fund had a net payable due to BMC of $11,608. The net
payable is included in accounts payable and accrued expenses in the Fund's
Consolidated Balance Sheet.
8. LITIGATION AND CONTINGENCIES
On May 25, 1994, Banyan Strategic Land Fund II and its subsidiary, VSLF
II Key Biscayne Hotel Corp. (collectively referred to as the "Fund") filed in
Illinois a multi-count complaint (the "Illinois Complaint") against THSP
Associates Limited Partnership II ("THSP"), formerly known as Banyan Mortgage
Investors L.P. III and its affiliate, VMLP III Key Biscayne Villas Limited
Partnership, an Illinois limited partnership, (collectively referred to as the
"Partnership"). On September 9, 1994, the Fund, with leave of court, filed an
amended complaint adding as additional defendants three individual directors
of the Partnership. The Illinois Complaint sought, in part, a declaration of
the rights and obligations of the Fund and the Partnership with respect to
their joint development of, and rights to receive proceeds from, a project on
the island of Key Biscayne, Florida, known as the Key Biscayne Hotel and
Villas.
On June 30, 1994, the Partnership filed a complaint in Florida (the
"Florida Complaint") against the Fund which was subsequently amended to
include the Fund's president and Banyan Management Corp. as additional
defendants. The Florida Complaint sought to quiet title in respect to the Key
Biscayne property and also contained allegations of fraud and breach of
fiduciary duty.
On March 16, 1995, the Fund executed a settlement agreement with the
Partnership. Pursuant to the settlement agreement, on March 17, 1995, the
Fund received cash and other consideration totalling approximately $24,700,000
and transferred to a subsidiary of 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 litigation currently pending in Illinois and
Florida as discussed above 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 costs and prorations and to discharge a liability of the
Fund of approximately $1,700,000 due THSP for advances made to the Fund
pursuant to a prior agreement between the Fund and THSP. As a result of the
settlement, the Fund recorded a year-end valuation provision of approximately
$19,700,000 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.
9. OTHER INFORMATION
On April 28, 1995, the Fund's Board of Directors, after analyzing the
various alternative methods of distribution to shareholders of the excess
proceeds of the recent Key Biscayne settlement, determined to commence a
tender offer whereby the Fund would offer to acquire from its stockholders up
to 10,000,000 shares at a price of $1.70 per share. The tender offer was
commenced on May 5, 1995 and will expire 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.
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. The Fund has ceased funding 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 its remaining assets and their future cash
requirements, the Fund suspended distributions to stockholders. The receipt
of proceeds relating to collections on mortgage loans, the Key Biscayne
settlement and disposition of properties has 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 pro-rata
distribution to all stockholders, an open-market stock repurchase program, or
a self tender offer. On April 28, 1995, the Fund's Board of Directors, after
analyzing the various alternative methods of distribution to shareholders, as
discussed above, determined to commence a tender offer whereby the Fund would
offer to acquire from its stockholders up to 10,000,000 shares at a price of
$1.70 per share. The tender offer was commenced on May 5, 1995 and will
expire 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Fund's cash and cash equivalents balance at March 31, 1995 and December
31, 1994 was $19,469,700 and $290,366, respectively. The increase in total
cash and cash equivalents is primarily due to the receipt of approximately
$21,500,000 relating to proceeds from the resolution of the Key Biscayne
project and the settlement of the Key Biscayne litigation. See Litigation and
Contingencies for further details. Also contributing to this increase in
total cash and cash equivalents was the receipt of forfeited proceeds from
sales contracts of $28,824 relating to the Hemet III, Landfield's single
family and Lake Rogers properties, 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 short term investments.
Partially offsetting these cash receipts was the payment of approximately
$469,000 related to entitlement, litigation and holding costs associated with
the Rancho Malibu property, the repayment of $730,229 to Banyan Strategic
Realty Trust relating to advances made on behalf of the Fund for H Street
Assemblage expenditures, $86,165 in payments of liabilities assumed 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 expenses 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 in respect to these advances was discharged pursuant to the
settlement of Key Biscayne litigation on March 16, 1995. See Litigation and
Contingencies for further details.
The Fund has entered into a partnership agreement with Banyan Strategic
Realty Trust ("BSRT"), an affiliate, 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 expenses 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 $730,000 to
BSRT. As of March 31, 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. For the
quarter ended March 31, 1995, the Fund recorded a $23,277 recovery of losses
on mortgage loans, notes and interest receivable on its consolidated statement
of income and expenses related to the distribution received from the
liquidating trust.
The Fund's future source of liquidity is 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
short-term investments. At the present time, the Fund's cash position, as
well as anticipated cash to be generated from the sale of land parcels which
had collateralized the Westholme and Anden loans, is anticipated to provide
adequate liquidity to meet the Fund's operating expenses plus the holding
costs and operating expenses for the H Street Assemblage, Rancho Malibu
property and the land parcels acquired through the Westholme foreclosure.
As of March 31, 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.
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. As discussed above,
pursuant to the direction of the Fund's Board of Directors, the Fund, on May
5, 1995 commenced a self tender offer which will effect a distribution of the
net cash proceeds in excess of those needed for operations that the Fund
received on March 17, 1995 from the Key Biscayne Settlement.
RESULTS OF OPERATIONS
Total income for the three months ended March 31, 1995 increased to
$43,407 from $39,445 for the three months ended March 31, 1994. This increase
was primarily due to an increase in income on investments offset partially by
a decrease in interest 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 project and
settlement of the Key Biscayne litigation as discussed above. The decrease in
interest on loans is due primarily to a decrease in loans receivable. Loans
receivable decreased in 1995 due to the Westholme Partners Notes I and II
foreclosures which occurred in March of 1994.
Total expenses for the three months ended March 31, 1995 increased to
$1,315,686 from $1,112,544 for the three months ended March 31, 1994. This
increase of approximately $203,000 for the three months ended March 31, 1995
when compared to the prior year's period is due primarily to an increase of
approximately $487,000 in total other expenses partially offset by a decrease
in total expenses from property operating activities of approximately
$284,000. The increase in total other expenses is due primarily to increases
in other professional fees and 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 1992
class action settlement of the VMS securities litigation. These changes were
offset by a decrease in stockholder expenses. Other professional fees
increased due to the Fund's legal costs regarding the Key Biscayne litigation.
General and administrative expenses increased due to the increase in the hours
and expenses allocated to the Fund by Banyan Management Corp. personnel as a
result of the Key Biscayne litigation. The decrease in stockholder expenses
is due to the timing of the payment for annual report and proxy costs of the
Fund. The decrease in total property operating expenses is due primarily to
decreases in interest on advances from affiliates and net loss from operations
of foreclosed real estate held for sale. Interest on advances from affiliates
decreased due to the Fund's settlement of the Key Biscayne litigation whereby
the Fund's payable as of December 31, 1994 to THSP was discharged in 1995. In
addition, pursuant to the settlement agreement with THSP relating to the Key
Biscayne project, the Fund's share of the 1995 real estate taxes which was
previously recorded in 1994 as an accrued liability was discharged in
conjunction with the closing of the Key Biscayne resolution thereby resulting
in a decrease in net loss from operations of foreclosed real estate held for
sale of approximately $195,000.
For the quarters ended March 31, 1995 and 1994, the Fund recognized a
net loss of $26,248 and $40,859, respectively, from the operations of the H
Street Venture. The decrease in the net loss for 1995 as compared to 1994 is
primarily 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 in 1994. During 1994, the Fund completed and obtained the
zoning, entitlement and historic preservation rights for 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 property 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 its redevelopment. The H Street Venture is
currently marketing the H Street Assemblage for sale.
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").
From the acquisition date through the date of this report, 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 is appealing. The parties to the appeal have filed briefs and are
awaiting the scheduling of oral arguments.
Concurrently with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. Presently the matter is
scheduled for May 30, 1995 for a continuation of a hearing before the Los
Angeles County Regional Planning Commission.
During the quarter ended March 31, 1995, the Fund expensed approximately
$469,000 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 March 31,
1995 and December 31, 1994, the Fund's carrying value of 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.
The above discussed changes resulted in an increase in the net loss for
the three months ended March 31, 1995 to $1,272,279 ($0.07 per share) from
$1,073,099 ($0.06 per share) for the three months ended March 31, 1994.
LITIGATION AND CONTINGENCIES
On May 25, 1994, Banyan Strategic Land Fund II and its subsidiary, VSLF
II Key Biscayne Hotel Corp. (collectively referred to as the "Fund") filed in
Illinois a multi-count complaint (the "Illinois Complaint") against THSP
Associates Limited Partnership II ("THSP"), formerly known as Banyan Mortgage
Investors L.P. III and its affiliate, VMLP III Key Biscayne Villas Limited
Partnership, an Illinois limited partnership, (collectively referred to as the
"Partnership"). On September 9, 1994, the Fund, with leave of court, filed an
amended complaint adding as additional defendants three individual directors
of the Partnership. The Illinois Complaint sought, in part, a declaration of
the rights and obligations of the Fund and the Partnership with respect to
their joint development of, and rights to receive proceeds from, a project on
the island of Key Biscayne, Florida, known as the Key Biscayne Hotel and
Villas.
On June 30, 1994, the Partnership filed a complaint in Florida (the
"Florida Complaint") against the Fund which was subsequently amended to
include the Fund's president and Banyan Management Corp. as additional
defendants. The Florida Complaint sought to quiet title in respect to the Key
Biscayne property and also contained allegations of fraud and breach of
fiduciary duty.
On March 16, 1995, the Fund executed a settlement agreement with the
Partnership. Pursuant to the settlement agreement, on March 17, 1995, the
Fund received cash and other consideration totalling approximately $24,700,000
and transferred to a subsidiary of 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 litigation currently pending in Illinois and
Florida as discussed above 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 costs and prorations and to discharge a liability of the
Fund of approximately $1,700,000 due THSP for advances made to the Fund
pursuant to a prior agreement between the Fund and THSP. As a result of the
settlement, the Fund recorded a year-end valuation provision of approximately
$19,700,000 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.
As a result of the settlement of the litigation with THSP, a major
uncertainty was removed which had negatively impacted the Fund. The amount of
the settlement was less than the net book value of the Key Biscayne Property,
but the Fund's ability to fully recover its carrying value was contingent upon
its ability to jointly develop the Key Biscayne project with THSP. As the
litigation and settlement negotiations evolved, it became evident to
management of the Fund that joint development of the Key Biscayne property
would occur, if at all, only after a costly and protracted legal battle. By
accepting the settlement, the Fund intends to redirect its resources toward
the successful completion of its business plan for its remaining assets. On
April 28, 1995, the Fund's Board of Directors, after analyzing the various
alternative methods of distribution to shareholders of the proceeds received
from the Key Biscayne settlement in excess of those necessary to fund
anticipated continuing operating costs of the Fund, determined to commence a
tender offer whereby the Fund would offer to acquire from its stockholders up
to 10,000,000 shares at a price of $1.70 per share. The tender offer was
commenced on May 5, 1995 and will expire 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.
PART II - OTHER INFORMATION
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 March
31, 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: May 11, 1995
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: May 11, 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 quarter ended March
31, 1995 and is qualified in its entirety by reference to such Form 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,469,700
<SECURITIES> 0
<RECEIVABLES> 910,122
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,594,822
<PP&E> 23,435,764
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,328,853
<CURRENT-LIABILITIES> 1,417,067
<BONDS> 0
<COMMON> 42,911,786
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,328,853
<SALES> 0
<TOTAL-REVENUES> 43,407
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,338,963
<LOSS-PROVISION> (23,277)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,272,279)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,272,279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,272,279)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
