SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -----
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -----
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-17653
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BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3523598
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
- - ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
--------------
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
----- -----
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
-------------- --------------
Cash and cash equivalents $ 7,172,379 $ 1,644,086
Escrow deposits - restricted 11,168
Accounts and accrued interest receivable 126,853 170,139
-------------- --------------
7,299,232 1,825,393
-------------- --------------
Investment in loans receivable:
Investment in acquisition loan 7,900,937 7,954,472
Loan Receivable 5,375,770
Less:
Allowance for potential loan losses 545,000 545,000
-------------- --------------
Net investment in loans receivable 7,355,937 12,785,242
Investment in joint ventures - affiliates 5,247,696 5,904,789
-------------- --------------
12,603,633 18,690,031
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$ 19,902,865 $ 20,515,424
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 9,802 $ 39,074
Due to affiliates 45,666 13,535
Escrow liabilities 22,273
-------------- --------------
Total liabilities 55,468 74,882
Partners' capital (292,708 Limited
Partnership Interests issued and
outstanding) 19,847,397 20,440,542
-------------- --------------
$ 19,902,865 $ 20,515,424
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Interest on loans $ 918,295 $ 1,085,429
Interest on short-term investments 118,488 28,001
-------------- --------------
Total income 1,036,783 1,113,430
-------------- --------------
Expenses:
Mortgage servicing fees 31,769 35,050
Administrative 225,106 152,013
-------------- --------------
Total expenses 256,875 187,063
-------------- --------------
Income before participation in loss
of joint ventures - affiliates and equity
in loss from investment in acquisition loan 779,908 926,367
Participation in loss of joint ventures -
affiliates (508,942) (48,523)
Equity in loss from investment in
acquisition loan (53,535) (68,621)
-------------- --------------
Net income $ 217,431 $ 809,223
============== ==============
Net income allocated to General Partner $ 20,265 $ 20,265
============== ==============
Net income allocated to Limited Partners $ 197,166 $ 788,958
============== ==============
Net income per Limited Partnership Interest
(292,708 issued and outstanding) $ 0.67 $ 2.70
============== ==============
Distributions to General Partner $ 20,265 $ 20,265
============== ==============
Distributions to Limited Partners $ 790,311 $ 790,311
============== ==============
Distributions per Limited Partnership
Interest $ 2.70 $ 2.70
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Interest on loans $ 205,991 $ 363,622
Interest on short-term investments 91,992 8,423
-------------- --------------
Total income 297,983 372,045
-------------- --------------
Expenses:
Mortgage servicing fees 8,402 11,683
Administrative 72,529 44,884
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Total expenses 80,931 56,567
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Income before participation in (loss) income
of joint ventures - affiliates and equity in
loss from investment in acquisition loan 217,052 315,478
Participation in (loss) income of joint
ventures - affiliates (670,531) 134,205
Equity in loss from investment in
acquisition loan (17,845) (22,874)
-------------- --------------
Net (loss) income $ (471,324) $ 426,809
============== ==============
Net income allocated to General Partner $ 6,755 $ 6,755
============== ==============
Net (loss) income allocated to Limited
Partners $ (478,079) $ 420,054
============== ==============
Net (loss) income per Limited Partnership
Interest (292,708 issued and outstanding) $ (1.64) $ 1.44
============== ==============
Distribution to General Partner $ 6,755 $ 6,755
============== ==============
Distribution to Limited Partners $ 263,437 $ 263,437
============== ==============
Distribution per Limited Partnership Interest $ 0.90 $ 0.90
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Operating activities:
Net income $ 217,431 $ 809,223
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in loss from investment in
acquisition loan 53,535 68,621
Participation in loss of joint
ventures - affiliates 508,942 377,189
Accrued interest income due at maturity (7,196) (10,153)
Collection of accrued interest on
investment in acquisition loan 132,966
Net change in:
Escrow deposits - restricted 11,168 (33,478)
Accounts and accrued interest
receivable 43,286 3,128
Accounts payable (29,272) (9,570)
Due to affiliates 32,131 998
Escrow liabilities (22,273) 33,478
-------------- --------------
Net cash provided by operating activities 940,718 1,239,436
-------------- --------------
Investing activities:
Distributions from joint venture - affiliate 148,151
Capital contributions to joint venture -
affiliate (101,639)
Collection of principal payment on
investment in acquisition loan 5,250,000
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Net cash provided by or used in investing
activities 5,398,151 (101,639)
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Financing activities:
Repayment of loan to General Partner (76,961)
Distributions to Limited Partners (790,311) (790,311)
Distributions to General Partner (20,265) (20,265)
-------------- --------------
Net cash used in financing activities (810,576) (887,537)
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Net change in cash and cash equivalents 5,528,293 250,260
Cash and cash equivalents at beginning
of period 1,644,086 1,210,735
-------------- --------------
Cash and cash equivalents at end of period $ 7,172,379 $ 1,460,995
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
Reclassifications have been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. These
reclassifications have not changed the 1993 results. 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,
1994, and all such adjustments are of a normal and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1994 are:
Paid
--------------------
Nine Months Quarter Payable
----------- -------- ---------
Mortgage servicing fees $30,061 $6,694 $5,602
Reimbursement of expenses to
the General Partner, at cost:
Accounting 41,553 28,646 17,251
Data processing 3,557 3,557 11,278
Investor communications 1,748 1,205 750
Legal 1,066 735 1,647
Other 2,530 1,744 500
Portfolio management 22,628 15,600 8,638
For the nine months ended September 30, 1994, the General Partner subordinated
receipt of one-half of its share of distributed Cash Flow, totaling $20,265.
This amount will be paid to the General Partner only after required
distribution levels to investors have been met and such amounts, if any, will
be allocated to the Repurchase Fund.
3. Loan Repayment:
In June 1994, the Partnership received $5,423,216 as payment in full on the
first mortgage loan collateralized by the Skyline Village Mobile Home Park. The
amount received consisted of the principal balance of $5,250,000, basic
interest of $40,250 and accrued interest of $132,966.
4. Subsequent Event:
In October 1994, the Partnership paid $175,625 ($.60 per Interest) to Limited
Partners, representing the distribution for the third quarter of 1994 from Cash
Flow, as well as $2,927,080 ($10.00 per Interest), representing a special
distribution of a portion of the Mortgage Reductions received from the
repayment of the Skyline Village Mobile Home Park loan.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Preferred Pension - 12 A Real Estate Limited Partnership (the
"Partnership") was formed in 1987 to invest in participating (and, to a lesser
extent, non-participating) first mortgage loans, wrap-around mortgage loans and
other junior mortgage loans. The Partnership raised $29,270,800 through the
sale of Limited Partnership Interests and utilized these proceeds to invest in
four loans. The Partnership subsequently reclassified its investment in two of
these loans in which it held minority participations to investment in joint
ventures with affiliates. In addition, one of the loans was repaid in June
1994. As of September 30, 1994, the Partnership had an investment in one loan
and two joint ventures with affiliates 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 1993 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The Partnership recognized its share of a decline in fair value of the Sun Lake
Apartments during the quarter ended September 30, 1994. In addition, the loan
collateralized by the Skyline Village Mobile Home park was repaid during the
second quarter of 1994, resulting in a decrease in interest income on loans
receivable. These events are the primary reasons for the decrease in net income
for the nine months and the change from net income to net loss for the quarter
ended September 30, 1994.
1994 Compared to 1993
- - ---------------------
The June 1994 repayment of the loan collateralized by the Skyline Village
Mobile Home Park resulted in a decrease in interest on loans for the nine
months and quarter ended September 30, 1994 when compared to the same periods
in 1993.
A higher average cash balance due to the Skyline Village loan repayment and
higher interest rates resulted in an increase in interest income on short-term
investments for the nine months and quarter ended September 30, 1994 as
compared to the same periods in 1993.
As a result of increased legal fees related to the 45 West 45th Street Office
Building loan default and an increase in other professional and portfolio
management fees, administrative expenses increased during the nine months and
quarter ended September 30, 1994 as compared to the same periods in 1993.
The Partnership did not recognize a provision for potential losses during 1994
or 1993. The allowance for potential losses provides for potential loan losses
and is based upon loss experience for similar loans and for the industry, upon
prevailing economic conditions and the General Partner's analysis of specific
loans in the Partnership's portfolio. While actual losses may vary from time to
time because of changes in circumstances (such as occupancy rates, rental
rates, and other economic factors), the General Partner believes that adequate
recognition has been given to loss exposure in the portfolio at September 30,
1994.
Participation in joint ventures with affiliates represents the Partnership's
share of the property operations at the Sun Lake Apartments and 45 West 45th
Street Office Building. The Partnership recognized its share of a decline in
the fair value of Sun Lake Apartments and the 45 West 45th Street Office
Building in 1994 and 1993, respectively.
The loan collateralized by the Noland Fashion Square Shopping Center has been
recorded by the Partnership as an investment in acquisition loan. The
Partnership has recorded its share of the collateral property's operations as
equity in loss from investment in acquisition loan. The Partnership's share of
operations has no effect on the cash flow of the Partnership. Amounts
representing contractually-required debt service are recorded as interest
income from investment in acquisition loan.
Liquidity and Capital Resources
- - --------------------------------
The cash or near cash position of the Partnership increased significantly as of
September 30, 1994 when compared to December 31, 1993 as a result of the
repayment of the Skyline Village Mobile Home Park loan. A special distribution
was issued to Limited Partners in October 1994 with a portion of the Mortgage
Reductions received from this repayment. The remainder of the Mortgage
Reductions are being held in the Partnership's cash reserves. These funds may
be needed to pay the Partnership's share of costs associated with the
acquisition of the 45 West 45th Street Office Building and the refinancing of
the underlying debt on Sun Lake Apartments. The Partnership's cash or near cash
position fluctuates during each quarter, initially decreasing with the payment
of Partnership distributions for the previous quarter, and then gradually
increasing each month in the quarter as cash flow from investments is received.
In June 1994, the Partnership received $5,423,216 as payment in full on the
first mortgage loan collateralized by the Skyline Village Mobile Home Park. The
amount received consisted of the principal balance of $5,250,000, basic
interest of $40,250 and accrued interest of $132,966.
In October 1994, the Partnership paid $2,927,080 ($10.00 per Interest) to
Limited Partners, representing a special distribution of a portion of the
Mortgage Reductions received from the repayment of the Skyline Village Mobile
Home Park loan. The Partnership also paid $175,625 ($.60 per Interest) to
Limited Partners representing a distribution for the third quarter of 1994 from
Cash Flow. The level of this distribution decreased from $.90 per Interest for
the prior quarter due to the reduction in Cash Flow resulting from the
repayment of the Skyline Village Mobile Home Park loan. The Partnership also
paid $4,281 to the General Partner as its unsubordinated distributive share of
Cash Flow for the third quarter of 1994.
The Partnership and three affiliated partnerships (the "Participants") funded a
$23,000,000 mortgage loan collateralized by the 45 West 45th Street Office
Building. The Partnership funded $5,000,000 of the total loan amount for a
participating percentage of approximately 22%. See Item 1. Legal Proceedings
for additional information regarding the foreclosure proceedings.
The Partnership expects to continue making quarterly cash distributions from
the available Cash Flow generated. In accordance with the Partnership
Agreement, ninety-five percent of such Cash Flow will be distributed to Limited
Partners, and five percent will be distributed to the General Partner as its
share from Partnership operations, subject to certain subordinations. Cash
available for distribution will be determined by the General Partner after it
creates any reserves or makes expenditures appropriate for the operation of the
Partnership. There is no assurance that the Partnership will generate Cash Flow
or that, if generated, it will be available for distribution or be sufficient
to provide a return of Original Capital, the Warranty Distribution or the
Cumulative Return.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values. The Partnership's use of
participations for loans receivable is intended to provide a hedge against the
impact of inflation; sharing in cash flow or rental income and/or the capital
appreciation of the properties collateralizing the loans should result in
increases in the total yields on the loans as inflation rates rise.
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
(a) Williams proposed class action
With respect to the proposed class action lawsuit filed in the U. S. District
Court, Northern District of Illinois (Paul Williams and Beverly Kennedy, et al.
vs. Balcor Pension Investors, et al., Case No. 90-C-0726), against the
Partnership and certain affiliated entities, in May 1993, the Court issued an
opinion and order denying the plaintiffs' motion for class certification based
in part on the inadequacy of the individual plaintiffs representing the
proposed class. Further, the Court granted the defendants' motion for certain
sanctions against plaintiffs' counsel and ordered the plaintiffs' counsel to
pay the defendants' attorneys' fees incurred with the class certification
motion. The defendants filed a petition for reimbursement of their fees and
costs from plaintiffs' counsel which remains pending. A motion previously filed
by the plaintiffs seeking to dismiss the defendants' counterclaim for fraud was
denied on August 18, 1994.
In July 1993, the Court gave plaintiffs leave to retain new counsel and to
propose new individual class representatives. The plaintiffs retained new
counsel and proposed three new individual class representatives. The
defendants conducted discovery regarding the proposed new class representatives
and, in February 1994, filed a response to the plaintiffs' latest motion for
class certification. On July 29, 1994, the Court indicated an intent to certify
a class relating to the plaintiffs' securities fraud claims, but gave leave for
the defendants to file a further motion opposing class certification. On
August 26, 1994, the defendants filed a motion which has been briefed. The
motion remains pending.
(b) 45 West 45th Street Office Building
As previously reported, the Partnership and three affiliates (together, the
"Participants") funded a $23,000,000 mortgage loan collateralized by the 45
West 45th Street Office Building. The Partnership funded $5,000,000 of the
loan for a participating percentage of 22%. The loan was placed in default,
and after modification negotiations between the Participants and the borrower
were unsuccessful, the borrower agreed to an uncontested foreclosure. On
October 7, 1994, the Participants filed consensual foreclosure proceedings
against the borrower in the Supreme Court of the State of New York, City of New
York, Balcor Mortgage Advisors, Inc. vs. 45 W. 45th Street Associates (Case
No.: 128631/94). The borrower has agreed not to contest the case. The
Participants expect to obtain title to the property in 1995 and until such
time, continue to receive all net cash flow from property operations.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 in Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated December 9,
1987 (Registration No. 33-16145) and Form of Confirmation regarding Interests
in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1992 (Commission File No. 0-17653) are
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1994.
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 PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-VIII, the General Partner
By: /s/Allan Wood
------------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Mortgage Advisors-VIII, the General Partner
Date: November 14, 1994
---------------------------
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