UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
----------------
Balcor Preferred Pension-12 A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1987 under the laws of the
State of Illinois. The Registrant raised $29,270,800 from sales of Limited
Partnership Interests. The Registrant's operations currently consist of an
investment in one participating first mortgage loan and two joint venture
investments in real properties, and all financial information included in this
report relates to this industry segment.
The Registrant originally funded four loans. As a result of one repayment and
two foreclosures, the Registrant has one loan in its portfolio and two
investments in joint ventures with affiliates as of December 31, 1994.
During 1994, the Registrant received a repayment on the Skyline Village Mobile
Home Park loan receivable. See Item 7. Liquidity and Capital Resources for
additional information.
In February 1995, the Registrant and three affiliates acquired title to the 45
West 45th Street Office Building through foreclosure. See Item 3. Legal
Proceedings for additional information.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure, is subject to federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate. The
General Partner is not aware of any potential liability due to environmental
issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-VIII, the General
Partner of the Registrant, and its affiliates perform services for the
Registrant. The Registrant currently has no employees engaged in its
operations.
Item 2. Properties
------------------
The Registrant currently holds minority joint venture interests in the 45 West
45th Street Office Building (New York City, New York), and the Sun Lake
Apartments (Lake Mary, Florida), which were acquired through foreclosure.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
Item 3. Legal Proceedings
-------------------------
a) Williams class action
---------------------
In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.: 90-
C-0726 (U. S. District Court, Northern District of Illinois) against the
Registrant, the General Partner, The Balcor Company, Shearson Lehman Hutton,
Inc., American Express Company, other affiliates, and seven affiliated limited
partnerships (the "Related Partnerships") as defendants. The complaint alleges
that the defendants violated Federal securities laws as to the adequacy and
accuracy of disclosure of information in the offering of limited partnership
interests of the Registrant and the Related Partnerships and alleges breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint seeks compensatory and punitive
damages. The defendants filed their answer, affirmative defenses and a
<PAGE>
counterclaim to the complaint. The defendants' counterclaim asserts claims of
fraud and breach of warranty against certain plaintiffs, as well as a request
for declaratory relief regarding the defendants' rights to be indemnified for
their expenses incurred in defending the litigation. The defendants seek to
recover damages to their reputations and business as well as costs and
attorneys' fees in defending the claims.
In May 1993, the Court issued an order denying the plaintiffs' motion for class
certification based principally on the inadequacy of the individual plaintiffs
representing the proposed class. However, the Court gave plaintiffs leave to
propose new individual class representatives. Further, the Court granted the
defendants' motion for sanctions and ordered that plaintiffs' counsel pay
certain of the defendants' attorneys' fees incurred with the class
certification motion. In January 1995, the Court ordered the plaintiffs'
counsel to pay $75,000 to the defendants and $25,000 to the Court.
The plaintiffs retained new co-counsel and proposed new class representatives.
In July 1994, the Court granted plaintiffs' motion certifying a class relating
to the Federal securities fraud claims. The class certified by the Court
includes only the original investors in the Registrant and the Related
Partnerships. The defendants filed a motion for reconsideration in opposition
to the class certification which was denied on December 21, 1994. The Court
has ordered the parties to meet to discuss notice to the class and a schedule
for discovery.
A motion filed by the plaintiffs seeking to dismiss the defendants'
counterclaim for fraud was denied by the Court in August 1994.
The defendants intend to continue vigorously contesting this action. Management
of each of the defendants believes they have meritorious defenses to contest
the claims.
b) 45 West 45th Street Office Building
-----------------------------------
In 1988 and 1989, Balcor Mortgage Advisors, Inc., acting as nominee for the
Registrant and three affiliates (together, the "Participants"), funded a
$23,000,000 loan to 45 West 45th Street Associates collateralized by a first
priority lien on the 45 West 45th Street office building, New York City, New
York. The Registrant's share of the loan was $5,000,000, for a participating
percentage of approximately 22%.
In September 1991, the loan was placed in default due to the failure of the
borrower to make payments due under the loan. After modification negotiations
were unsuccessful, the borrower agreed to an uncontested foreclosure (Balcor
Mortgage Advisors, Inc. vs. 45 W. 45th Street Associates, Supreme Court of the
State of New York, City of New York, Case No.: 128631/94). The Participants
were the successful bidder at the foreclosure sale and, on February 2, 1995, a
limited partnership in which each of the Participants holds an interest equal
to its participating percentage in the loan obtained title to the property.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1994.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
---------------------------------------------------------------------
Matters
-------
There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see Financial Statements, Statements of Partners'
Capital, and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources. As of
December 31, 1994, no funds have been set aside in the Repurchase Fund to
repurchase Interests from Limited Partners and it is not expected that any
amounts will be available in the Repurchase Fund to satisfy repurchase requests
in the foreseeable future. See Note 2 of Notes to Financial Statements for
additional information.
As of December 31, 1994, the number of holders of Limited Partnership Interests
of the Registrant was 4,053.
Item 6. Selected Financial Data
-------------------------------
Year ended December 31,
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1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Total income $1,297,345 $1,423,424 $1,754,658 $2,024,310 $2,534,693
Provision for po-
tential losses on
loans and accrued
interest receivable None None 950,000 1,500,000 500,000
Net income (loss) 320,140 1,057,775 (350,533) 150,106 1,679,735
Net income (loss)
per Limited
Partnership
Interest 1.01 3.52 (1.19) .36 5.60
Total assets 16,930,247 20,515,424 20,605,925 22,516,537 24,761,386
Distributions per
Limited Partnership
Interest 13.30 3.60 5.20 8.00 8.00
Item 7. Management's Discussion and Analysis of Financial Condition and
-----------------------------------------------------------------------
Results of Operations
---------------------
Summary of Operations
---------------------
Balcor Preferred Pension - 12 A Real Estate Limited Partnership (the
"Partnership") received a repayment of the Skyline Village loan in 1994,
decreasing the overall income earned on its investments. The Partnership also
recognized less income from its investment in the 45 West 45th Street Office
Building during 1994 as compared to 1993. Furthermore, declines in the fair
values of its joint venture investments were recognized during each of 1994,
1993 and 1992. These losses are reflected in participation in joint ventures
with affiliates in the financial statements. A provision for potential losses
related to the Partnership's loans was also recognized during 1992. As a
result, the Partnership generated lower net income during 1994 as compared to
1993 and net income during 1993 as compared to a net loss during 1992. Further
discussion of the Partnership's operations is summarized below.
<PAGE>
Operations
----------
1994 Compared to 1993
---------------------
The June 1994 repayment on the Skyline Village loan resulted in a decrease in
interest income on loans and mortgage servicing fees during 1994 as compared to
1993.
Higher average cash balances due to proceeds from the Skyline Village loan
repayment and higher interest rates resulted in an increase in interest income
on short-term investments during 1994 as compared to 1993.
As a result of an increase in legal fees related to the 45 West 45th Street
Office Building foreclosure, and increases in accounting fees and investor
communication expenses, administrative expenses increased during 1994 as
compared to 1993.
Allowances are charged to income when the General Partner believes an
impairment has occurred, either in a borrower's ability to repay the loan or in
the value of the collateral property. Determinations of fair value are made
periodically on the basis of performance under the terms of the loan agreements
and assessments of property operations. Determinations of fair value represent
estimations based on many variables which affect the value of real estate,
including economic and demographic conditions. The Partnership recognized no
provisions in 1994 or 1993 related to its loans.
Participation in joint ventures with affiliates during 1994 and 1993 represents
the Partnership's share of the income or loss for the Sun Lake Apartments and
the 45 West 45th Street Office Building. The Partnership also recognized losses
of approximately $685,000 as its share of the decline in fair value of the Sun
Lake Apartments in 1994, and approximately $500,000 as its share of the decline
in the fair value of the 45 West 45th Street Office Building in 1993. As a
result, participation in loss of joint ventures with affiliates increased
during 1994 as compared to 1993.
1993 Compared to 1992
---------------------
As a result of the reclassification of the 45 West 45th Street Office Building
investment from a loan to investment in joint ventures with affiliates
effective January 1993, interest income on loans decreased during 1993 when
compared to 1992. The operations of this investment are reflected in the
Partnership's participation in loss from joint ventures in 1993.
Primarily due to lower interest rates, interest income on short-term
investments decreased during 1993 as compared to 1992.
The Partnership recognized a provision for potential losses of $950,000 related
to its loans in 1992, whereas the Partnership recognized no provision for
losses on its loans in 1993.
During 1992, higher legal fees were incurred due to ongoing negotiations for
the 45 West 45th Street Office Building loan and the Sun Lake Apartments
foreclosure. As a result, administrative expense decreased during 1993 as
compared to 1992.
The participation in loss of joint ventures with affiliates during 1993
represented the Partnership's share of the income on loss for both the 45 West
45th Street Office Building and Sun Lake Apartments, while during 1992, it
represented only the Sun Lake Apartments. The Partnership also recognized its
share of approximately $500,000 for the decline in the fair value of the 45
West 45th Street Office Building in 1993, and its share of approximately
$587,000 for the decline in the fair value of the Sun Lake Apartments in 1992.
As a result, participation in loss of joint ventures with affiliates decreased
<PAGE>
during 1993 as compared to 1992.
Liquidity and Capital Resources
--------------------------------
The cash position of the Partnership increased significantly at December 31,
1994 as compared to December 31, 1993 as a result of the repayment of the
Skyline Village Mobile Home Park loan. Operating activities consisted of the
cash flow from the Partnership's loans receivable and interest income earned
on short-term investments, which was partially offset by the payment of
administrative expenses. Investing activities consisted of the repayment of the
Skyline Village Mobile Home Park loan and distributions from the Sun Lake
Apartments' joint venture. Financing activities consisted of regular quarterly
distributions to the Limited Partners and the General Partner, and a special
distribution to Limited Partners from a portion of the Mortgage Reductions
received from the loan repayment. The remainder of the Mortgage Reductions are
being held in the Partnership's cash reserves.
In June 1994, the Partnership received $5,382,966 as payment in full on the
Skyline Village loan. The amount received consisted of the principal balance of
$5,250,000 and interest of $132,966.
In January 1995, the Partnership paid $175,625 ($.60 per Interest) to Limited
Partners representing the distribution for the fourth quarter of 1994 from Cash
Flow. The Partnership also paid $4,503 to the General Partner as its
unsubordinated distributive share of Cash Flow for the fourth quarter of 1994.
During 1994, the Partnership also 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 loan.
The level of the regular quarterly distribution has been declining in each of
the last three years as a result of the non-accrual status and subsequent
foreclosures of the Sun Lake and 45 West 45th Street loans. The level of the
regular quarterly distribution further decreased during the third quarter of
1994 due to the reduction in Cash Flow resulting from the repayment of the
Skyline Village loan. During 1994, 1993 and 1992, the Partnership made
quarterly distributions to Limited Partners from Cash Flow totaling $3.30,
$3.60 and $5.20 per Interest, respectively. To date, including the January
1995 distribution, the Partnership has distributed $44.70 per $100 Interest, of
which $32.22 represents Cash Flow from operations and $12.48 represents
Original Capital.
The Partnership and three affiliates (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 amount for a participating percentage
of approximately 22%. In February 1995, the Participants received title to the
property through foreclosure.
The Partnership's investment in this loan was reclassified from loan in
substantive foreclosure to an investment in joint venture with an affiliate
effective January 1993. It is the General Partner's opinion that the borrower
had effectively surrendered control of the property. See Item 3. Legal
Proceedings for additional information.
The Noland Fashion Square loan 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 on loans.
The Partnership expects to continue making quarterly cash distributions from
available Cash Flow. 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
<PAGE>
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. For the year ended December 31, 1994, $24,768, which
represents one-half of the General Partner's share of distributed Cash Flow,
was subordinated in accordance with the terms of the Partnership Agreement.
The General Partner has recently completed the outsourcing of the financial
reporting and accounting services, transfer agent and investor records
services, and computer operations and systems development functions that
provided services to the Partnership. All of these functions are now being
provided by independent third parties. Additionally, Allegiance Realty Group,
Inc., which has provided property management services to the Partnership, was
sold to a third party. Each of these transactions occurred after extensive due
diligence and competitive bidding processes. The General Partner does not
believe that the cost of providing these services to the Partnership, in the
aggregate, will be materially different to the Partnership during 1995 when
compared to 1994.
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.
Item 8. Financial Statement and Supplementary Data
--------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
(a) Neither the Registrant nor Balcor Mortgage Advisors-VIII, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Executive Vice President, Allan Wood
Chief Financial Officer and
Chief Accounting Officer
Senior Vice President Alexander J. Darragh
First Vice President Daniel A. Duhig
First Vice President Josette V. Goldberg
First Vice President Alan G. Lieberman
First Vice President Brian D. Parker
and Assistant Secretary
First Vice President John K. Powell, Jr.
First Vice President Reid A. Reynolds
First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company.
Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and
Savings Bank in the commercial real estate division where he was involved in
various lending activities. Mr. Meador received his M.B.A. degree from the
Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief
Financial Officer and Chief Accounting Officer, is responsible for the
financial and administrative functions. He is also a Director of The Balcor
Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor,
he was employed by Price Waterhouse where he was involved in auditing public
and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has
primary responsibility for the Portfolio Advisory Group. He is responsible for
due diligence analysis and real estate advisory services in support of asset
management, institutional advisory and capital markets functions. Mr. Darragh
has supervisory responsibility of Balcor's Investor Services, Investment
Administration, Fund Management and Land Management departments. Mr. Darragh
received masters' degrees in Urban Geography from Queens's University and in
Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is
responsible for the Asset Management Department relating to real estate
investments made by Balcor and its affiliated partnerships, including
negotiations for modifications or refinancings of real estate mortgage
investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's administrative and MIS departments.
Ms. Goldberg has been designated as a Senior Human Resources Professional
<PAGE>
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified
Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for
Balcor's corporate and property accounting, treasury and budget activities.
Mr. Parker is a Certified Public Accountant and holds an M.S. degree in
Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is
responsible for the administration of the investment portfolios of Balcor's
partnerships and for Balcor's risk management functions. Mr. Powell received a
Master of Planning degree from the University of Virginia. He has been
designated a Certified Real Estate Financier by the National Society for Real
Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with
the asset management of residential properties for Balcor. Mr. Reynolds is a
licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has
responsibility for various Asset Management functions, including oversight of
the residential portfolio. From January 1986 through September 1994, Mr. Selby
was Regional Vice President and then Senior Vice President of Allegiance Realty
Group, Inc., an affiliate of Balcor providing property management services.
Mr. Selby was responsible for supervising the management of residential
properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1994.
Item 11. Executive Compensation
-------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers of Balcor Mortgage Advisors-VIII, the General Partner.
Certain of these officers receive compensation from The Balcor Company (but not
from the Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the General
Partner believes that any such compensation attributable to services performed
for the Registrant is immaterial to the Registrant. See Note 7 of Notes to
Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Neither Balcor Mortgage Advisors-VIII nor its officers or partners own any
Limited Partnership Interests of the Registrant.
Relatives and affiliates of the officers and partners of the General Partner
own 50 Limited Partnership Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
<PAGE>
-------------------------------------------------------
(a & b) See Note 7 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 2 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K, Table of Contents
for Noland Fashion Square Partnership, and Index to Financial Statements for
Lake Sun Partners Limited Partnership, following this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended
Certificate of Limited Partnership, previously filed as Exhibits 3.1 and 3.2,
respectively, to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 dated December 9, 1987 (Registration No. 33-16145), are incorporated
herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated 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 1994 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended December 31, 1994.
(c)Exhibits: See Item 14(a)(3) above.
(d)Financial Statement Schedules:
See Index to Financial Statements in this Form 10-K.
See Table of Contents of the 1994 and 1993 Financial Statements for Noland
Fashion Square Partnership, which is the collateral for the Partnership's
$7,889,890 loan (Noland Fashion Square loan), following this Form 10-K.
See Index to Financial Statements of Lake Sun Partners Limited Partnership
following this Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, 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/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: March 31, 1995
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
---------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
Advisors-VIII, the General
/s/Thomas E. Meador Partner March 31, 1995
-------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and
Financial Officer) of Balcor
Mortgage Advisors-VIII, the
/s/Allan Wood General Partner March 31, 1995
-------------------- --------------
Allan Wood
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Capital, for the years ended December 31, 1994, 1993
and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993
and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Schedules are omitted for the reason that they are inapplicable or equivalent
information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Preferred Pension-12
A Real Estate Limited Partnership:
We have audited the accompanying balance sheets of Balcor Preferred Pension-12
A Real Estate Limited Partnership (An Illinois Limited Partnership) as of
December 31, 1994 and 1993, and the related statements of partners' capital,
income and expenses and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Noland Fashion Square Partnership, which owns the shopping center
known as Noland Fashion Square (the "Property"), with respect to which the
Partnership has made an investment in an acquisition loan. The Partnership's
equity in loss related to the Property was $64,582, $71,378 and $149,190 in
1994, 1993 and 1992 respectively. The financial statements of Noland Fashion
Square Partnership were audited by another auditor whose report has been
furnished to us. Our opinion, insofar as it relates to data included for the
equity in loss of the Property to which the Partnership has made an investment
in an acquisition loan, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Balcor Preferred Pension-12 A Real Estate
Limited Partnership (An Illinois Limited Partnership) at December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1995
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------ ------------
Cash and cash equivalents $ 4,256,384 $ 1,644,086
Escrow deposits - restricted 11,168
Accounts and accrued interest receivable 60,777 101,944
------------ ------------
4,317,161 1,757,198
------------ ------------
Investment in loans receivable:
Loan receivable 5,375,770
Investment in acquisition loan 7,889,890 7,954,472
Less:
Allowance for potential loan losses 545,000 545,000
------------ ------------
Net investment in loans receivable 7,344,890 12,785,242
Investment in joint ventures - affiliates 5,268,196 5,972,984
------------ ------------
12,613,086 18,758,226
------------ ------------
$16,930,247 $20,515,424
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 44,388 $ 39,074
Due to affiliates 42,961 13,535
Escrow liabilities 22,273
------------ ------------
Total liabilities 87,349 74,882
Partners' capital (292,708 Limited
Partnership Interests issued and
outstanding) 16,842,898 20,440,542
------------ ------------
$16,930,247 $20,515,424
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1994, 1993 and 1992
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners
------------- ------------ ------------
Balance at December 31, 1991 $ 22,375,177 $ 629 $22,374,548
Cash distributions (A) (1,561,109) (39,027) (1,522,082)
Net loss for the year
ended December 31, 1992 (350,533) (3,505) (347,028)
------------- ------------ ------------
Balance at December 31, 1992 20,463,535 (41,903) 20,505,438
Cash distributions (A) (1,080,768) (27,020) (1,053,748)
Net income for the year
ended December 31, 1993 1,057,775 27,020 1,030,755
------------- ------------ ------------
Balance at December 31, 1993 20,440,542 (41,903) 20,482,445
Cash distributions (A) (3,917,784) (24,768) (3,893,016)
Net income for the year
ended December 31, 1994 320,140 24,768 295,372
------------- ------------ ------------
Balance at December 31, 1994 $ 16,842,898 $ (41,903) $16,884,801
============= ============ ============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1994 1993 1992
------------- ------------ -----------
First Quarter $ 0.90 $ 0.90 $ 1.35
Second Quarter 0.90 0.90 1.35
Third Quarter 0.90 0.90 1.35
Fourth Quarter 10.60 0.90 1.15
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------ ------------
Income:
Interest on loans $ 1,117,310 $ 1,383,790 $ 1,706,029
Interest on short-term
investments 180,035 39,634 48,629
------------- ------------ ------------
Total income 1,297,345 1,423,424 1,754,658
------------- ------------ ------------
Expenses:
Provision for potential
losses on loans and
accrued interest
receivable 950,000
Mortgage servicing fees 40,171 46,733 44,605
Administrative 359,824 207,574 242,747
------------- ------------ ------------
Total expenses 399,995 254,307 1,237,352
------------- ------------ ------------
Income before participation
in loss of joint ventures -
affiliates and equity in
loss from investment in
acquisition loans 897,350 1,169,117 517,306
Participation in loss of joint
ventures - affiliates (512,628) (39,964) (718,649)
Equity in loss from investment
in acquisition loans (64,582) (71,378) (149,190)
------------- ------------ ------------
Net income (loss) $ 320,140 $ 1,057,775 $ (350,533)
============= ============ ============
Net income (loss) allocated to
General Partner $ 24,768 $ 27,020 $ (3,505)
============= ============ ============
Net income (loss) allocated to
Limited Partners $ 295,372 $ 1,030,755 $ (347,028)
============= ============ ============
Net income (loss) per Limited
Partnership Interest
(292,708 outstanding) $ 1.01 $ 3.52 $ (1.19)
============= ============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------- ------------ ------------
Operating activities:
Net income (loss) $ 320,140 $ 1,057,775 $ (350,533)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Provision for potential
losses on loans and
accrued interest
receivable 950,000
Equity in loss from
investment in
acquisition loans 64,582 71,378 149,190
Participation in loss of joint
ventures - affiliates 512,628 39,964 718,649
Accrued interest income
due at maturity of loan (7,196) (13,778) (12,301)
Collection of accrued interest
income due at maturity 132,966
Net change in:
Escrow deposits -
restricted 11,168 11,318 12,228
Accounts and accrued
interest receivable 41,167 64,953 (62,981)
Accounts payable 5,314 6,798 18,930
Due to affiliates 29,426 2,868 (5,672)
Escrow liabilities (22,273) (213) (12,228)
------------- ------------ ------------
Net cash provided by
operating activities 1,087,922 1,241,063 1,405,282
------------- ------------ ------------
Investing activities:
Collection of principal payment
on investment in acquisition
loan 356,492
Collection of principal payment
on loan receivable 5,250,000
Capital contributions to joint
venture - affiliate (101,639) (660,807)
Distributions from joint
ventures - affiliates 192,160 451,656 29,144
------------- ------------ -----------
Net cash provided by or (used
in) investing activities 5,442,160 350,017 (275,171)
------------- ------------ -----------
<PAGE>
Financing activities:
Distributions to Limited
Partners $ (3,893,016) $(1,053,748) $(1,522,082)
Distributions to General
Partner (24,768) (27,020) (39,027)
Repayment of loan to
General Partner (76,961)
------------- ------------ ------------
Cash (used in) financing
activities (3,917,784) (1,157,729) (1,561,109)
------------- ------------ ------------
Net change in cash and
cash equivalents 2,612,298 433,351 (430,998)
Cash and cash equivalents
at beginning of year 1,644,086 1,210,735 1,641,733
------------- ------------ ------------
Cash and cash equivalents
at end of year $ 4,256,384 $ 1,644,086 $ 1,210,735
============= ============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(b) Income on loans is recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest is discontinued when a loan
becomes ninety days contractually delinquent or sooner when, in the opinion of
the Partnership's management, an impairment has occurred in the value of the
collateral property securing the loan. Income on nonaccrual loans or loans
which are otherwise not performing in accordance with their terms is recorded
on a cash basis.
(c) Investment in acquisition loan represents the mortgage loan which, because
the loan agreement includes certain specified terms, must be accounted for as
an investment in a real estate venture. The investment is therefore reflected
in the accompanying financial statements using the equity method of accounting.
Under this method, the Partnership classifies its investment in the loan
receivable as an investment in acquisition loan at cost (representing total
loan funding), and subsequently adjusts its investment for its share of the
collateral property's income or loss.
Amounts representing contractually-required debt service are recorded in the
accompanying statement of income and expenses as interest income. Equity in
loss from investment in acquisition loan represents the Partnership's share of
the collateral property operations, including depreciation and interest
expense. The Partnership's share of operations has no effect on cash flow of
the Partnership.
(d) Allowances are recorded through charges to income when the General Partner
believes an impairment has occurred, either in a borrower's ability to repay
the loan or in the value of the collateral property. Determinations of
impairment are made periodically on the basis of performance under the terms of
the loan agreement and assessments of property operations.
When the General Partner believes the likelihood of foreclosure is more than
remote, a loss provision is recorded if the loan balance exceeds the estimated
fair value of the collateral property less costs of disposal. Upon foreclosure,
actual losses are charged to the allowance and the fair value of the property
is transferred to real estate held for sale. Determinations of fair value
represent estimations based on many variables which affect the value of real
estate, including economic and demographic conditions. An allowance for loss is
recorded when a decline in the value of a property owned is believed to be
temporary. Impairment in value considered to be permanent results in the direct
writedown of the property's carrying value to its estimated fair value.
(e) Investment in joint ventures - affiliates represents the Partnership's
interest in the joint ventures with affiliated partnerships. Under the equity
method of accounting, the Partnership records its initial investments at cost
and adjusts its investment accounts for additional capital contributions,
distributions and the Partnership's share of each joint venture's income or
loss.
(f) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(g) Several reclassifications have been made in the previously reported 1993
financial statements to conform with the classification used in 1994 including
<PAGE>
the reclassification of "loans in substantive foreclosure" to real estate to
conform with the provisions of Statement of Financial Accounting Standards
No.114 which was adopted as of January 1, 1994. These reclassifications have
not changed the 1993 results.
2. Partnership Agreement:
The Partnership was organized on July 15, 1987. The Partnership Agreement
provides for Balcor Mortgage Advisors-VIII to be the General Partner and for
the admission of Limited Partners through the sale of up to 2,000,000 Limited
Partnership Interests at $100 per Interest, of which 292,708 were sold through
April 28, 1989, the termination date of the offering.
Pursuant to the Partnership Agreement, all profits of the Partnership will be
allocated to the General Partner at the greater of 1% of such profits or the
General Partner's share of Partnership distributions, with the remainder
allocated to the Limited Partners. All losses of the Partnership will be
allocated 99% to the Limited Partners and 1% to the General Partner. All
deductions for offering period payments made to Limited Partners with funds
contributed by the General Partner were allocated to the General Partner.
To the extent available, Cash Flow will be distributed as follows: (i) 95% will
be paid to the holders of Interests and (ii) 5% will be paid to the General
Partner. Up to 50% of the General Partner's share of Cash Flow shall be
utilized to pay to the Limited Partners any deficiency in the Warranty
Distribution of 8% per annum. Amounts utilized from the General Partner's share
of Cash Flow to pay a deficiency in the Warranty Distribution will be repaid to
the General Partner from future Cash Flow available for distribution or from
Mortgage Reductions only after the required subordination levels have been
attained.
To the extent that one-half of the General Partner's share of Cash Flow has not
been utilized to meet deficiencies in the Warranty Distribution, or has been so
utilized and has subsequently been repaid to the General Partner, such share
will be allocated to the Repurchase Fund. Amounts placed in the Repurchase Fund
may, at the sole discretion of the General Partner and subject to certain
limitations, be used to repurchase Interests from existing Limited Partners.
The General Partner anticipates that one half of its share of Cash Flow will
continue to be utilized to fund deficiencies in the Warranty Distribution and,
therefore, the General Partner does not expect that the Repurchase Fund will
repurchase Interests in the foreseeable future. Amounts allocated, if any, to
the Repurchase Fund will be commingled with other assets of the General Partner
and, to the extent then available, will be returned to the Partnership at the
dissolution of the Partnership to the extent necessary to permit payment to
investors of their Original Capital plus any deficiency in their Cumulative
Return.
3. Investment in Acquisition Loan:
The Partnership and two affiliates (the "Participants") funded the $23,300,000
Noland Fashion Square loan in 1989. The Partnership participates ratably in
approximately 38% of the loan, interest income and participation income. The
Partnership's share of the loan balance at December 31, 1994 is $7,889,890.
Current monthly interest only payments of $68,604 are due representing an
interest rate of 9.75%, and the loan matures in 1999. The Participants may
receive additional payments from the borrower representing participation in the
operating results of the collateral property which exceed specified levels and
a share of appreciation in the collateral property upon repayment or
refinancing.
4. Loan Repayment:
In June 1994, the Partnership received $5,382,966 as payment in full on the
Skyline Village loan. The amount received consisted of the principal balance of
$5,250,000 and interest of $132,966.
<PAGE>
5. Allowances for Losses on Loans
Activity recorded in the allowance for losses on loans during the three years
ended December 31, 1994 is described in the table below.
1994 1993 1992
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 545,000 $ 1,345,000 $ 2,000,000
Provision charged to
income None None 950,000
Charge-off of losses None (800,000) (1,605,000)
----------- ----------- -----------
Balance at the end of
the year $ 545,000 $ 545,000 $ 1,345,000
=========== =========== ===========
Included in the 1992 charge-off of losses are amounts reflecting the
Partnership's adoption of Statement of Position 92-3, "Accounting for
Foreclosed Assets" which required the Partnership to adjust the carrying amount
of its loan previously classified as in substantive foreclosure to the lower of
fair value of the asset, less estimated costs to sell, or the cost of the
asset. This change had no effect on the results of operations of the
Partnership in 1992 since the Partnership had previously recorded an allowance
to reflect a decline in the value of the loan.
6. Investments in Joint Ventures - Affiliates:
(a) The Partnership owns a 38.05% joint venture interest in the Sun Lake
Apartments which was acquired through foreclosure. The joint venture partner is
an affiliate of the Partnership. During 1994, the Partnership received
distributions of $192,160 from the joint venture. During 1993 and 1992, the
Partnership made net contributions to the joint venture of $43,869 and
$631,663, respectively. During 1994 and 1992, the joint venture recognized
losses relating to declines in the fair value of the property. The
Partnership's participation in joint ventures with affiliates for 1994 and 1992
includes the Partnership's share of the losses of approximately $685,000 and
$587,000, respectively.
The original borrower has retained the right to receive 20% of the net proceeds
received upon the first sale of the property after the payment of the third
party debt, closing costs, proration items and an amount to the participants
equal to their original investment plus certain returns specified in the
foreclosure sale agreement. However, in no event will this amount exceed
$500,000.
(b) The Partnership and three affiliates (together, the "Participants"),
previously funded a $23,000,000 loan on the 45 West 45th Street Office
Building. In February 1995, the Participants received title to the property
through foreclosure, and the Partnership owns a 21.74% joint venture interest
in the property. The Partnership's investment was reclassified from loan in
substantive foreclosure to an investment in joint venture with an affiliate
effective January 1993. It is the General Partner's opinion that the borrower
had effectively surrendered control of the property. During 1993, the
Partnership received distributions of $393,886 from the joint venture. In 1993,
the joint venture recognized a loss relating to the decline in the fair value
of the property. The Partnership's participation in joint ventures with
affiliates for 1993 includes the Partnership's share of the loss of $500,000.
The following information has been summarized from the financial statements of
the joint ventures:
<PAGE>
1994 1993 1992
------------ ------------ ------------
Net investment in real
estate as of
December 31 $ 31,603,406 $ 24,685,000 $ 24,685,000
Total liabilities as
of December 31 15,982,056 15,869,439 15,871,734
Total income 6,102,755 3,415,562 3,126,398
Net (loss) income (1,163,731) 173,851 (1,888,696)
The joint venture information for 1994 includes information for both the 45
West 45th Street Office Building and Sun Lake Apartments. The joint venture
information for 1993 and 1992 includes only information for Sun Lake
Apartments.
<PAGE>
7. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/94 12/31/93 12/31/92
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $41,264 $2,801 $46,733 $3,894 $45,469 $3,894
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 47,471 19,682 38,570 3,190 45,517 3,561
Data processing 12,400 2,219 16,316 4,303 19,051 1,478
Investor communica-
tions 17,127 1,990 1,620 134 2,450 191
Legal 3,492 1,622 987 82 3,086 242
Other 12,543 2,977 2,349 195 907 71
Portfolio management 16,903 11,670 21,004 1,737 15,723 1,230
In accordance with the provisions of the Partnership Agreement, the General
Partner loaned the Partnership $76,961 on a non-interest bearing basis in 1989,
which was utilized to fund deficiencies in Limited Partners' receipt of the
Warranty Distribution. The loan was repaid in April 1993 from Partnership cash
reserves.
The General Partner subordinates receipt of one-half of its share of
distributed Cash Flow, totaling $24,768, $27,020 and $39,027 for the years
ending December 31, 1994, 1993 and 1992, respectively. These amounts will be
paid to the General Partner only after required distribution levels to
investors have been met and such amounts, if any, will then be allocated to the
Repurchase Fund.
8. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
this action. While a plaintiff class has been certified, no determinations of
the merits have been made. Although the outcome of these matters is not
presently determinable, it is management's opinion that the ultimate outcome
should not have a material adverse affect on the financial position of the
Partnership. Management of the defendants believes they have meritorious
defenses to contest the claims.
9. Subsequent Event:
In January 1995, the Partnership paid $175,625 ($.60 per Interest) to Limited
Partners, representing a distribution for the fourth quarter of 1994 from Cash
Flow.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
YEARS ENDED DECEMBER 31, 1994 AND 1993
CONTENTS
Independent auditors' report
Financial statements:
Balance sheets
Statements of operations
Statements of changes in partners' equity deficiency
Statements of cash flows
Notes to financial statements
<PAGE>
Independent Auditors' Report
To the Partners
Noland Fashion Square Partnership
Kansas City, Missouri
We have audited the accompanying balance sheets of Noland Fashion Square
Partnership (the Partnership) as of December 31, 1994 and 1993, and the related
statements of operations, changes in partners' equity deficiency and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Noland Fashion Square
Partnership as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
March 16, 1995
House Park and Company, P.C.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
BALANCE SHEETS - DECEMBER 31, 1994 AND 1993
ASSETS (Note 4)
1994 1993
----------- -----------
Property and equipment (Note 3) $14,236,614 $14,858,663
Cash 142,812 130,461
Accounts receivable, tenants, less allowance
for doubtful accounts of $22,048 in 1994 and
$18,423 in 1993 90,854 130,216
Funds in escrow (Note 5) 288,294 247,494
Prepaid insurance 7,948
Deferred charges (Notes 2 and 6) 500,885 616,061
----------- -----------
$15,267,407 $15,982,895
=========== ===========
LIABILITIES AND PARTNERS' EQUITY DEFICIENCY
Liabilities:
Mortgage note payable (Notes 2 and 4) $22,356,107 $22,356,107
Partners' notes payable (Notes 2 and 4) 955,012 955,012
----------- -----------
23,311,119 23,311,119
----------- -----------
Accounts payable:
Trade 3,022 36,365
Tenants 25,213 50,572
Related parties (Note 2) 14,807 37,697
----------- -----------
43,042 124,634
----------- -----------
Accrued interest 123,049 123,049
----------- -----------
Tenants' security deposits 14,018 33,324
----------- -----------
23,491,228 23,592,126
Partners' equity deficiency ( 8,223,821) ( 7,609,231)
----------- -----------
$15,267,407 $15,982,895
=========== ===========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
---------- ----------
Revenues:
Rent (Note 7) $2,453,835 $2,372,558
Interest 19,533 15,220
Other (Note 7) 538,105 599,483
---------- ----------
3,011,473 2,987,261
---------- ----------
Expenses:
Amortization 158,609 177,217
Contract labor 59,525 73,437
Depreciation 643,280 634,529
Insurance 42,082 40,756
Interest (Note 4) 2,180,995 2,182,104
Management fees (Note 2) 60,955 56,368
Bad debt expense 9,646 7,400
Other 15,521 10,504
Professional fees (Note 2) 22,333 25,669
Property tax 390,579 384,015
Repairs and maintenance 26,187 39,466
Utilities 16,351 20,201
---------- ----------
3,626,063 3,651,666
---------- ----------
Net loss ($ 614,590) ($ 664,405)
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY DEFICIENCY
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
---------- ----------
Balance, beginning ($7,609,231) ($6,944,826)
Net loss for the year ( 614,590) ( 664,405)
---------- ----------
Balance, ending ($8,223,821) ($7,609,231)
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
---------- ----------
Cash flows from operating activities:
Net loss ($ 614,590) ($ 664,405)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 643,280 634,529
Amortization of deferred charges 158,609 177,217
Change in accounts receivable 39,362 ( 49,000)
Change in prepaid insurance ( 7,948)
Change in accounts payable ( 81,592) 22,733
Change in accrued interest ( 45,973)
Change in tenants' security deposits ( 19,306) 938
---------- ----------
Net cash provided by
operating activities 117,815 76,039
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment ( 21,231) ( 77,994)
Increase in deferred charges ( 43,433) ( 115,587)
---------- ----------
Net cash used by investing
activities ( 64,664) ( 193,581)
---------- ----------
Cash flows from financing activities,
net change in funds held in escrow ( 40,800) 16,383
---------- ----------
Net change in cash 12,351 ( 101,159)
Cash, beginning of year 130,461 231,620
---------- ----------
Cash, end of year $ 142,812 $ 130,461
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $2,180,995 $2,182,104
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1. Organization and summary of significant accounting policies:
Organization:
Noland Fashion Square Partnership (the Partnership) is a Missouri general
partnership formed October 1, 1985 for the purpose of developing, constructing
and operating the Noland Fashion Square Shopping Center in Independence,
Missouri. Substantially all of the Partnership's revenue is generated from the
Independence, Missouri rental property.
The Partnership Agreement provides for the allocation of profits and losses
proportionate to the partners' capital contributions.
Property and equipment and depreciation:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using both straight-line and accelerated
methods.
Deferred charges:
Lease commissions are amortized by the straight-line method over the term of
the leases.
Financing costs are amortized by the straight-line method over the term of the
related loan.
Income taxes:
No provision is made for income taxes since such taxes, if any, are the
liability of the individual partners.
2. Related parties:
An affiliated company, two of the officers of which are partners in the
Partnership, manages the Partnership's rental property and is its primary
leasing agent. Management fees and leasing commissions accrued to the
affiliated company during 1994 and 1993 totaled $104,387 and $171,955,
respectively, of which $14,807 and $37,241 were included in "Accounts payable,
related parties" as of December 31, 1994 and 1993, respectively.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
2. Related parties (continued):
The Partnership incurred legal fees of $8,829 and $6,761 in 1994 and 1993,
respectively, payable to a law firm, one of whose partners is also a partner of
Noland Fashion Square Partnership. "Accounts payable, related parties"
includes $-0- and $456 payable to this law firm as of December 31, 1994 and
1993, respectively.
Partners notes payable at December 31, 1994 and 1993, represent funds borrowed
by the Partnership to pay down its mortgage (Note 4).
3. Property and equipment:
1994 1993
----------- -----------
Land and land improvements $ 3,587,363 $ 3,580,374
Building and improvements 14,019,795 14,007,353
Tenant leasehold improvements 1,319,852 1,318,052
----------- -----------
18,927,010 18,905,779
Accumulated depreciation ( 4,690,396) ( 4,047,116)
----------- -----------
$14,236,614 $14,858,663
=========== ===========
4. Mortgage payable:
The mortgage payable is collateralized by substantially all of the
Partnership's assets and assignment of leases. Interest only, at 9.75%, is
payable monthly until maturity on January 31, 2000. The loan agreement also
provides for the payment of additional interest contingent upon positive cash
flow and payment of 45% of the net appreciation of the property above the
original mortgage balance upon sale or transfer of the property. No additional
interest was required for 1994 or 1993.
All interest costs incurred in 1994 and 1993 were expensed.
The loan agreement required the Partnership to achieve net cash flow equal to
interest expense on the loan, calculated at 10.25%, by December 31, 1991. Any
deficiency in the defined cash flow could have resulted in the mortgagee
drawing a maximum of $1,300,000 against the partners' letters of credit, to be
used to reduce the mortgage balance.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
4. Mortgage payable (continued):
During 1992, the partners drew against these letters of credit and loaned the
funds to the Partnership which, in turn, reduced the mortgage balance by
$943,893, the shortfall computed for 1991.
5. Funds in escrow:
According to the provisions of the mortgage (Note 4), the Partnership is
required to maintain escrow accounts to pay future costs of property taxes and
property replacement. Monthly deposits are required for the tax reserve and
quarterly deposits for the replacement reserve. The funds held in escrow
consist of the following:
1994 1993
-------- --------
Real estate tax reserve $ 29,960 $ 38,723
Replacement reserve 141,294 104,058
Interest reserve 117,040 104,713
-------- --------
$288,294 $247,494
======== ========
6. Deferred charges:
1994 1993
---------- ----------
Financing costs $ 758,522 $ 758,522
Leasing commissions and costs 678,150 784,848
---------- ----------
1,436,672 1,543,370
Accumulated amortization ( 935,787) ( 927,309)
---------- ----------
$ 500,885 $ 616,061
========== ==========
7. Operating leases:
The Partnership leases the Noland Fashion Square Shopping Center to tenants
under noncancellable operating leases with terms generally ranging from three
to fifteen years.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
7. Operating leases (continued):
The following is a schedule of future minimum annual rental payments to be
received under these noncancellable operating leases as of December 31, 1994:
Year ending
December 31, Amount
------------ ------
1995 $ 2,308,382
1996 2,275,844
1997 2,055,117
1998 1,887,473
1999 1,866,639
Thereafter 10,772,296
-----------
$21,165,751
===========
The Partnership receives additional rent from tenants for common area
maintenance charges, which are allocated on a pro rata basis. Common area
maintenance charges were $120,406 and $165,180 in 1994 and 1993, respectively.
The Partnership is reimbursed for real estate taxes and other defined expenses
from certain tenants under the terms of their leases. Other revenues include
$347,707 and $346,980 from real estate tax reimbursements in 1994 and 1993,
respectively, and other defined expenses of $23,488 and $23,819 in 1994 and
1993, respectively.
Certain lease agreements provide for the payment of contingent rent based upon
a percentage of the tenant's revenues. Contingent rent of $19,992 and $23,255
is included in rent revenues in 1994 and 1993, respectively. During 1994 and
1993, respectively, the Partnership received $37,291 and $15,640 for lease
cancellation fees which are included in other revenues.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
Report of Independent Auditors
Financial Statements:
Balance Sheet, December 31, 1994
Statement of Income and Expenses and Partners' Capital, for the year ended
December 31, 1994
Statement of Cash Flows, for the year ended December 31, 1994
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Lake Sun Partners Limited Partnership
We have audited the accompanying balance sheet of Lake Sun Partners Limited
Partnership (An Illinois Limited Partnership) as of December 31, 1994 and the
related statements of income and expenses and partners' capital and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lake Sun Partners Limited
Partnership (An Illinois Limited Partnership) at December 31, 1994 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1995
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEET
December 31, 1994
ASSETS
Cash and cash equivalents $ 412,543
Restricted investment 700,000
Accounts receivable 125,000
Escrow deposits 11,889
Deferred expenses (net of accumulated
amortization of $13,083) 65,417
------------
1,314,849
Real estate held for sale: ------------
Land 3,801,490
Structures (net of allowance of $3,341,986) 17,541,524
------------
21,343,014
------------
Total assets $ 22,657,863
============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued interest payable $ 106,150
Security deposits 96,180
Mortgage note payable 15,700,000
------------
Total liabilities 15,902,330
Partners' capital 6,755,533
------------
Total liabilities and partners' capital $ 22,657,863
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
for the year ended December 31, 1994
Income:
Rental $ 3,476,440
Service 116,224
------------
Total income 3,592,664
------------
Expenses:
Interest expense 1,343,014
Amortization 71,833
Property operating 1,256,634
Repairs and maintenance 250,865
Real estate taxes 297,642
Property management fees 164,533
Provision for potential losses on real estate 1,800,000
------------
Total expenses 5,184,521
------------
Net loss (1,591,857)
Partners' capital at beginning of the year 8,347,390
------------
Partners' capital at end of year $ 6,755,533
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF CASH FLOW
for the year ended December 31, 1994
Operating activities:
Net loss $ (1,591,857)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for potential losses on real estate 1,800,000
Amortization of deferred expenses 71,833
Net change in:
Accounts receivable (125,000)
Accounts and accrued interest payable 58,767
Due to affiliates (14,402)
Security deposits (11,475)
------------
Net cash provided by operating activities 187,866
------------
Financing activities:
Payment of deferred expenses (78,500)
------------
Net cash used in financing activities (78,500)
------------
Net change in cash and cash equivalents 109,366
Cash and cash equivalents at beginning of period 303,177
------------
Cash and cash equivalents at end of year $ 412,543
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) The Partnership records real estate held for sale at the lower of cost
or fair value, and periodically assesses possible impairment to the
value of its property. Determinations of fair value represent
estimations based on many variables which affect the value of real
estate, including economic and demographic conditions. An allowance for
loss is recorded when a decline in the value of the property owned is
believed to be temporary. Impairment in value considered to be permanent
results in the direct writedown of the property's carrying value to its
estimated fair value. The Partnership recognized a provision of
$1,800,000 in 1994 to provide for a decline in the fair value of the
property.
(b) Deferred expenses consist of financing fees which are amortized on a
straight-line basis over the term of the loan.
(c) Cash equivalents include all highly liquid investments with a maturity
of three months or less when purchased.
(d) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership's income or loss
in his tax return; therefore, no provision for income taxes is made in
the financial statements of the Partnership.
2. Partnership Agreement:
The Partnership was organized in September 1991. The general partner is
Lake Sun Partners, Inc. and the limited partners are Balcor Pension
Investors - VI and Balcor Preferred Pension - 12. The Partnership's
results of operations are allocated 99% to the limited partners and 1%
to the general partner.
3. Restricted Investment:
In April 1992, a debt service reserve account of $700,000 was
established as additional collateral for obligations related to the
mortgage loan, pursuant to the settlement agreement reached in December
1991. The funds are invested in short-term interest bearing instruments
and interest earned on the investments is payable to the limited
partners. The funds will be released once certain terms and conditions
of the loan agreement are met. The November 1994 re-marketing of the
underlying revenue bonds relating to this loan did not change the terms
of the reserve agreement.
<PAGE>
4. Mortgage Note Payable:
The mortgage loan is refinanced with underlying revenue bonds.
Principal and interest payments due on the mortgage loan reflect
payments due to the bondholders. In November 1994, the Partnership re-
marketed these bonds, which reduced the interest rate of the loan from
7.625% to 4.5% effective November 1, 1994. The interest rate will
remain constant until November 1, 1995, the next re-marketing date of
the bonds. The bonds may be redeemed, at par plus accrued interest, on
this date and on subsequent dates prior to maturity pursuant to the
terms of the bond indenture. The bonds are secured by an irrevocable
letter of credit. In connection with the re-marketing, the letter of
credit was reduced to approximately $16,131,750 and extended one
additional year to November 1, 1995. The Partnership will need to
replace the letter of credit or find an alternate credit facility for
the bonds as of such date. The Partnership will pay a fee of
approximately 1.7% on the letter of credit balance. In addition,
beginning November 1, 1994, the Partnership is required to remit excess
cash flow payments to the letter of credit provider to be held in trust
for future re-marketing expenditures. Unless there is a prior
redemption of all or part of the bonds, the entire principal balance of
the loan will be due on November 1, 1997. Monthly interest payments of
$58,875 are due until maturity. Real estate held for sale with an
aggregate carrying value of $21,343,014 at December 31, 1994 was pledged
as collateral for repayment of this mortgage note. During the year ended
December 31, 1994, the Partnership incurred interest expense on the
mortgage note payable of $1,343,014 and paid interest expense of
$1,281,549.
5. Management Agreement:
As of December 31, 1994, the property is under a management agreement
with a third-party management company. The management agreement
provides for an annual fee of 5% of gross operating receipts of the
property. Allegiance Realty Group, Inc., an affiliate of the General
Partner, managed the property and earned fees totaling $149,849 until
the affiliate was sold to a third party in November 1994.
<PAGE>
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<ALLOWANCES> 545
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