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 0-10225
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BALCOR PENSION INVESTORS-II
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(Exact name of registrant as specified in its charter)
Illinois 36-3114027
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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
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 ]
PART I
Item 1. Business
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Balcor Pension Investors-II (the "Registrant") is a limited partnership formed
in 1981 under the laws of the State of Illinois. The Registrant raised
$85,010,000 from sales of Limited Partnership Interests. The Registrant's
operations consisted of investing in wrap-around mortgage loans and, to a
lesser extent, investing in other junior mortgage loans and first mortgage
loans. The Registrant also currently operates five properties acquired through
foreclosure. All financial information included in this report relates to this
industry segment.
The Registrant originally funded thirty-three loans. A portion of Mortgage
Reductions generated by repayments was reinvested in three additional loans, a
portion was added to the Registrant's working capital reserves, and the
remainder was distributed to the Limited Partners. As a result of the
repayments, foreclosures, and writeoffs of thirty-four loans, the Registrant
has two loans in its portfolio as of December 31, 1994; one of which was repaid
in 1995. Thirteen properties were acquired through foreclosure and the
Registrant has disposed of eight of these properties, leaving five properties
in its portfolio as of December 31, 1994. See Item 2. Properties for additional
information.
The Registrant received repayments on two loans receivable during 1994 and one
during 1995. In addition, the Registrant repaid two mortgage notes payable
related to its properties during 1994. See Item 7. Liquidity and Capital
Resources for additional information.
During 1994, institutionally owned and managed multi-family residential
properties in many markets continued to experience favorable operating
conditions combined with relatively low levels of new construction. These
favorable operating conditions were supported by the strong pattern of national
economic growth which contributed to job growth and rising income levels in
most local economies. However, some rental markets continue to remain extremely
competitive; therefore, the General Partner's goals are to maintain high
occupancy levels, while increasing rents where possible, and to monitor and
control operating expenses and capital improvement requirements at the
properties. All of the Registrant's five properties generated positive cash
flow during 1994. See Item 7. Liquidity and Capital Resources 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, 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
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As of December 31, 1994, the Registrant owns the five properties described
below:
Location Description of Property
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Atlanta, Georgia Cumberland Pines: a 216-unit apartment complex
located on approximately 14 acres.
Orlando, Florida Hollowbrook: a 144-unit apartment complex located
on approximately 6.5 acres.
Ft. Lauderdale, Florida Parkway Distribution Center: six industrial
buildings containing approximately 242,000 square
feet.
Baton Rouge, Louisiana Sherwood Acres Phase I: a 336-unit apartment
complex located on approximately 4 acres.
Baton Rouge, Louisiana Sherwood Acres Phase II: a 284-unit apartment
complex located on approximately 12 acres.
Certain of these properties are held subject to mortgage loans. See Notes to
Financial Statements for other information regarding real property investments.
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
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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
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.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see Financial Statements, Statements of
Partners' Capital, and Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, below.
As of December 31, 1994, the number of record holders of Limited Partnership
Interests of the Registrant was 5,962.
Item 6. Selected Financial Data
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Year ended December 31,
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1994 1993 1992 1991 1990
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Total income $3,825,224 $4,042,705 $3,967,752 $4,010,269 $3,993,649
Provision for po-
tential losses on
loans, real estate,
accrued interest
receivable and
litigation None None 3,780,000 2,750,000 2,250,000
Income (loss) before
extraordinary item 3,296,690 3,441,260 (447,588) 603,502 1,261,028
Net income 3,296,690 3,441,260 51,158 603,502 1,261,028
Net income per
average number of
Limited Partner-
ship Interests
outstanding 38.23 39.64 .59 6.87 14.25
Total assets 41,439,470 49,823,027 50,793,577 53,449,613 58,089,696
Mortgage notes
payable 12,296,687 15,862,096 17,179,483 17,882,039 18,564,212
Distributions per
Limited Partner-
ship Interest 82.50 21.25 29.75 47.50 71.00
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Summary of Operations
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The decrease in net interest income on loans receivable in 1994 due to
repayments of several loans was partially offset by improved operations at most
of the properties owned by Balcor Pension Investors-II (the "Partnership"),
additional interest income on short-term investments, and the receipt of a loan
prepayment premium. As a result, net income decreased slightly in 1994 as
compared to 1993. The Partnership also recognized a provision for potential
losses and an extraordinary gain in 1992, the net of which resulted in lower
net income for 1992 as compared to 1993. Further discussion of the
Partnership's operations is summarized below.
Operations
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1994 Compared to 1993
---------------------
The repayments of the Pheasant Run and North Arch Village apartment complexes'
wrap-around loans in October 1993 and March 1994, respectively, resulted in a
decrease in interest income on loans receivable and a corresponding decrease in
interest expense on loans payable and mortgage servicing fees during 1994 as
compared to 1993. The January 1994 repayment of the Tudor Heights Apartments'
first mortgage loan also contributed significantly to the decreases in interest
income on loans receivable and mortgage servicing fees. In addition, a
prepayment premium of $291,000 was received in January 1994 in connection with
the Tudor Heights Apartments loan repayment.
The Partnership had the Stonegate Austin Mobile Home Park loan on non-accrual
status at December 31, 1994, and this loan was repaid in March 1995. For
non-accrual loans, income is recorded only as cash payments are received from
the borrower. During 1994, the Partnership received cash payments of net
interest income on this loan of approximately $187,000. The Partnership was
entitled to receive approximately $239,000 of net interest income under the
original terms of the loan agreement.
Operations of real estate held for sale represents the net operations of those
properties acquired by the Partnership through foreclosure. At December 31,
1994, the Partnership was operating five properties. Original funds advanced by
the Partnership totaled approximately $13,339,000 for these five real estate
investments. Rental income increased at the Sherwood Acres Phases I and II and
Cumberland Pines apartment complexes due to higher average occupancy levels
and/or rental rates, and at the Parkway Distribution Center due to leasing
activity during the latter part of 1993 which resulted in increased average
occupancy levels. The cessation of interest expense on the Hollowbrook and
Cumberland Pines apartment complexes' mortgage notes upon their repayment in
1994, and the 1993 sale of the 205 Armstrong Industrial/Office Park, which had
operated at a loss, also contributed to improved operations. These events were
the primary reasons for an increase in income from operations of real estate
held for sale during 1994 as compared to 1993. However, higher property
operating expenses (primarily insurance premiums) at the Sherwood Acres Phases
I and II Apartments and the Parkway Distribution Center, partially offset these
improvements.
The proceeds received from the 1993 and 1994 loan repayments were invested in
short-term investments and were the primary reasons for the increase in funds
available for short-term investments. This increase in invested funds generated
higher interest income on short-term investments during 1994 as compared to
1993.
The Partnership's loans generally bear interest at contractually-fixed interest
rates. Various loan agreements provide for participation by the Partnership in
increases in value of the collateral property when the loan is repaid or
refinanced. In addition, certain loan agreements allow the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income is reflected in the accompanying Statements of Income and Expenses when
received. The Partnership received participation income on the Alzina Office
Building loan during 1994 and 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 agreement
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. No provision for potential
losses was recognized during 1994 or 1993.
1993 Compared to 1992
---------------------
The Partnership had the Stonegate Austin Mobile Home Park loan on non-accrual
status. During 1993, the Partnership received cash payments of net interest
income on this loan of approximately $155,000. The Partnership was entitled to
receive approximately $237,000 of net interest income under the original terms
of the loan agreement.
In addition, the Pheasant Run Apartments and Arlington Lakeside Mobile Home
Park loans were on non-accrual status until repayment in 1993. The decrease in
interest income resulting from the May 1993 repayment of the Arlington Lakeside
Mobile Home Park loan was partially offset by increases in the interest rates
on the Alzina Office Building and Tudor Heights Apartments loans and additional
cash flow payments received on the Pheasant Run Apartments and Stonegate Austin
Mobile Home Park non-accrual loans during 1993.
The 205 Armstrong Industrial/Office Park was acquired through foreclosure
during November 1992 and sold during July 1993. Consequently, the interest
expense on the loan payable collateralized by this property was included within
operations of real estate held for sale during the Partnership's period of
ownership. This loan payable was repaid when the property was sold. In
addition, since the Arlington Lakeside and the Pheasant Run wrap-around loans
were repaid in May 1993 and October 1993, respectively, the Partnership no
longer incurs interest expense on the related loans payable. As a result of
these events, interest expense on loans payable decreased during 1993 as
compared to 1992.
Higher repair and maintenance expenditures at the Sherwood Acres Phases I and
II Apartments were the primary reasons for a decrease in income from operations
of real estate held for sale during 1993 as compared to 1992. This decrease was
partially offset by improved operations at the Cumberland Pines Apartments.
The proceeds received from the Arlington Lakeside and Pheasant Run loan
repayments, the 205 Armstrong Industrial/Office Park sale and the Sherwood
Acres Phases I and II mortgage loan refinancings, resulted in an increase in
funds available for short-term investments. This caused an increase in interest
income on short-term investments during 1993 as compared to 1992.
The Partnership received participation income on the Alzina Office Building
loan during 1993 and 1992, and on the Pheasant Run Apartments loan during 1992.
During July 1993, the Partnership sold the 205 Armstrong Industrial/Office Park
and recognized a gain on the sale of property.
During January 1992, the Partnership repaid the second mortgage note on the
Cumberland Pines Apartments at a discount which resulted in an extraordinary
gain for financial statement purposes.
Liquidity and Capital Resources
-------------------------------
The cash position of the Partnership increased significantly as of December 31,
1994 when compared to December 31, 1993, due to the net proceeds received from
the repayment of two loans receivable. The operating activities of the
Partnership reflect the cash flow from operations of the properties, net cash
flow from loans receivable and interest income on short-term investments,
partially offset by administrative costs and the payment of the litigation
settlement relating to the Interstate Office Building. The cash flow provided
by operating activities during 1994 also reflects a prepayment premium and
interest income due at maturity related to the Tudor Heights and North Arch
Village Apartments loan repayments, respectively. The net cash flow from
investing activities reflects the proceeds received from the repayments of the
Tudor Heights and North Arch Village Apartments loans receivable. This net cash
flow was partially used in financing activities to repay the North Arch Village
Apartments underlying loan payable. Other financing activities included
distributions to partners, including special distributions of Mortgage
Reductions to Limited Partners in April and July 1994, repurchases of Limited
Partnership Interests, repayment of the Hollowbrook and Cumberland Pines
apartment complexes' mortgage notes payable and principal payments on
underlying and mortgage notes payable. A portion of the remaining cash reserves
is being retained to meet future working capital needs of the Partnership, and
a portion is expected to be distributed to Limited Partners.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments. During 1994 and 1993, the Cumberland Pines and Sherwood Acres
Phases I and II apartment complexes and Parkway Distribution Center generated
positive cash flow. The Hollowbrook Apartments generated a marginal cash flow
deficit during 1993, which was a result of low rental rates due to a weak
rental market. An increase in rental rates and the cessation of debt service
payments due to the February 1994 prepayment of the mortgage loan resulted in
positive cash flow at this property during 1994. As of December 31, 1994, the
occupancy rates of the Partnership's residential properties ranged from 90% to
98% and the occupancy rate of the Parkway Distribution Center was 97%.
The General Partner is continuing its efforts to maintain high occupancy
levels, while increasing rents where possible, and to monitor and control
operating expenses and capital improvement requirements at the properties. The
General Partner will also examine the terms of any mortgage loans relating to
its properties, and may refinance or, in certain instances, use Partnership
reserves to repay such loans. In February 1994, the Partnership used working
capital reserves to prepay the Hollowbrook Apartments' first mortgage loan.
This mortgage loan was due to mature in December 1994, bore interest at 8.75%
and had an outstanding balance of $1,105,658 at the time of the prepayment.
Also, in June 1994, the Partnership used additional working capital reserves to
prepay the Cumberland Pines Apartments' first mortgage loan. This loan was due
to mature in February 1996, bore interest at 8.5% and had an outstanding
balance of $2,263,894 at the time of prepayment.
In March 1995, the Partnership received $2,625,437 as payment in full on the
Stonegate Austin wrap-around loan, from which the underlying loan of $943,416
was repaid. The amount received consists of the original funds advanced of
$1,272,643, equity build-up related to principal payments of $183,941 made by
the Partnership on the underlying loan and additional interest of $225,437. The
funds advanced by the Partnership represent the difference between the original
loan receivable balance of $2,400,000 and the original balance of the
underlying loan of $1,127,357.
In March 1994, the Partnership received $3,369,762 as payment in full on the
North Arch Village Apartments wrap-around loan, from which the underlying loan
of $926,667 was repaid. The amount received consists of the original funds
advanced of $940,258, equity build-up related to principal payments of $483,075
made by the Partnership on the underlying loan, accrued interest due at
maturity of $943,117 and additional interest of $76,645. The funds advanced by
the Partnership represent the difference between the original loan receivable
balance of $2,350,000 and the original balance of the underlying loan of
$1,409,742.
In January 1994, the Partnership received $10,064,858 as payment in full on the
Tudor Heights Apartments first mortgage loan receivable. The amount received
consists of the original funds advanced of $9,700,000, a prepayment premium of
$291,000 and additional interest of $73,858. Additionally, $248,764 of interest
income that had been accrued and included in the loan balance, was written off
against the previously established allowance for potential loan losses.
A principal of the former owner of the Interstate Office Building commenced
legal proceedings in 1990 against the Partnership alleging that it was entitled
to recover from the Partnership approximately $630,000 representing the amount
the former owner paid to the first mortgage holder as a principal reduction of
the first mortgage loan. These payments had been made prior to the
Partnership's foreclosure of the property and had increased the Partnership's
equity in the wrap-around loan. In March 1993, a judgment of approximately
$780,000 was entered against the Partnership, which included the amount sought
plus accrued interest thereon. The Partnership appealed, but the judgment was
upheld in September 1994. The judgment amount plus additional interest of
$115,162 was paid during November 1994. A potential litigation loss of $780,000
was recognized by the Partnership in 1992 and was included in other liabilities
on the balance sheet as of December 31, 1993. The payment of the additional
$115,162 was written off in 1994 against the allowance for potential loan
losses.
In January 1995, the Partnership paid a distribution of $425,050 ($5.00 per
Interest) to the holders of Limited Partnership Interests, $35,421 to the
General Partner and $11,807 to the Early Investment Incentive Fund,
representing the quarterly distribution of available Cash Flow for the fourth
quarter of 1994. The quarterly distributions totaling $20 per Interest made
from Cash Flow decreased from $21.25 per Interest for 1993 and $29.75 per
Interest for 1992. In addition, the Partnership made special distributions of
$62.50 per Interest in 1994 from Mortgage Reductions generated from loan
repayments and property sales. The Partnership expects to distribute a portion
of its current Mortgage Reductions to Limited Partners in 1995 and reserve the
remaining portion for working capital purposes. To date, Limited Partners have
received distributions totaling $1,258.50 per $1,000 Interest, of which $888.50
represents Cash Flow from operations and $370.00 represents a return of
Original Capital. The Partnership expects to continue making cash
distributions; however, the level of such future distributions will be
dependent upon the Cash Flow generated by the receipts of mortgage payments and
property cash flow, less payments on the mortgage loans and administrative
expenses. The General Partner believes it has retained, on behalf of the
Partnership, an appropriate amount of working capital to meet cash or liquidity
requirements which may occur.
During 1994, the General Partner on behalf of the Partnership used amounts
placed in the Early Investment Incentive Fund to repurchase 981 Interests from
Limited Partners at a cost of $432,537.
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 some of the
Partnership's properties, 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 Statements and Supplementary Data
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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
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Financial Disclosure
--------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors, 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
(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 and directors of Balcor Mortgage Advisors, 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 9 of
Notes to Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(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) Balcor Mortgage Advisors and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership 52 Less than 1%
Interests
Relatives and affiliates of the officers and partners of the General Partner
own one Limited Partnership Interest.
(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
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(a, b) See Note 9 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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(a)
(1 & 2) Financial Statements: See Index to Financial Statements in this Form
10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and
Restated Certificate of Limited Partnership, previously filed as Exhibits 3(a)
and 3(b) to Amendment No. 1 to the Registrant's Registration Statement on Form
S-11 dated May 7, 1981 (Registration No. 2-70841), are incorporated herein by
reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4(a) to
Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated
May 7, 1981 (Registration No. 2-70841) 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. 0-10225)
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 filed on Form 8-K during the quarter ended
December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-II
By: /s/Allan Wood
------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors,
the General Partner
Date: March 30, 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
/s/Thomas E. Meador Advisors, the General Partner March 30, 1995
-------------------- --------------
Thomas E. Meador
Executive Vice President, and Chief
Accounting and Financial Officer
(Principal Accounting and
Financial Officer) of Balcor
Mortgage Advisors, the General
/s/Allan Wood Partner March 30, 1995
-------------------- --------------
Allan Wood
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
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-II:
We have audited the accompanying balance sheets of Balcor Pension Investors-II
(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 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 Balcor Pension Investors-II 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 20, 1995
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
1994 1993
------------- -------------
Cash and cash equivalents $ 7,699,482 $ 4,415,435
Cash and cash equivalents - Early
Investment Incentive Fund 38,238 2,333
Escrow deposits 54,394 89,056
Escrow deposits - restricted 81,159 219,979
Accounts and accrued interest receivable 231,857 411,977
Deferred expenses, net of accumulated
amortization of $144,398 in 1994 and
$81,400 in 1993 202,784 245,549
------------- -------------
8,307,914 5,384,329
------------- -------------
Investment in loans receivable:
Loans receivable - wrap-around
and first mortgages 13,724,000 26,965,881
Less:
Loans payable - underlying mortgages 4,702,002 6,169,121
Allowance for potential loan losses 2,602,517 4,166,443
------------- -------------
Net investment in loans receivable 6,419,481 16,630,317
Real estate held for sale (net of
allowance of $1,200,000 in 1994) 26,712,075 27,808,381
------------- -------------
33,131,556 44,438,698
------------- -------------
$ 41,439,470 $ 49,823,027
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 108,456 $ 133,141
Due to affiliates 83,050 37,131
Other liabilities 182,715 1,152,046
Mortgage notes payable 12,296,687 15,862,096
------------- -------------
Total liabilities 12,670,908 17,184,414
------------- -------------
Partners' capital (85,010 Limited
Partnership Interests issued) 32,956,803 36,394,317
Less Interests held by Early Investment
Incentive Fund (5,877 in 1994 and
4,896 in 1993) (4,188,241) (3,755,704)
------------- -------------
28,768,562 32,638,613
------------- -------------
$ 41,439,470 $ 49,823,027
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(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 $ 33,962,419 $ (1,247,970) $ 35,210,389
Repurchase of 417 Limited
Partnership Interests (196,218) (196,218)
Cash distributions (A) (2,612,497) (210,754) (2,401,743)
Net income for the year
ended December 31, 1992 51,158 3,837 47,321
------------- ------------- -------------
Balance at December 31, 1992 31,204,862 (1,454,887) 32,659,749
Repurchase of 320 Limited
Partnership Interests (149,803) (149,803)
Cash distributions (A) (1,857,706) (150,539) (1,707,167)
Net income for the year
ended December 31, 1993 3,441,260 258,095 3,183,165
------------- ------------- -------------
Balance at December 31, 1993 32,638,613 (1,347,331) 33,985,944
Repurchase of 981 Limited
Partnership Interests (432,537) (432,537)
Cash distributions (A) (6,734,204) (141,684) (6,592,520)
Net income for the year
ended December 31, 1994 3,296,690 247,252 3,049,438
------------- ------------- -------------
Balance at December 31, 1994 $ 28,768,562 $ (1,241,763) $ 30,010,325
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1994 1993 1992
------------- ------------- ------------
First Quarter $ 5.00 $ 6.25 $ 11.00
Second Quarter 47.50 5.00 6.25
Third Quarter 25.00 5.00 6.25
Fourth Quarter 5.00 5.00 6.25
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(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
receivable $ 1,991,074 $ 3,655,279 $ 3,715,772
Less interest on loans
payable - underlying
mortgages 466,076 817,331 1,037,770
------------- ------------- -------------
Net interest income on loans 1,524,998 2,837,948 2,678,002
Income from operations of
real estate held for sale 1,344,513 884,256 988,302
Interest on short-term
investments 441,103 99,164 73,385
Participation income 223,610 221,337 228,063
Prepayment premium 291,000
------------- ------------- -------------
Total income 3,825,224 4,042,705 3,967,752
------------- ------------- -------------
Expenses:
Provision for potential
losses on loans, real
estate, accrued interest
receivable and litigation 3,780,000
Mortgage servicing fees 16,416 43,503 48,067
Administrative 512,118 557,942 587,273
------------- ------------- -------------
Total expenses 528,534 601,445 4,415,340
------------- ------------- -------------
Income (loss) before
extraordinary item 3,296,690 3,441,260 (447,588)
Extraordinary item:
Discount on repayment of
mortgage note payable 498,746
------------- ------------- -------------
Net income $ 3,296,690 $ 3,441,260 $ 51,158
============= ============= =============
Income (loss) before
extraordinary item allocated
to General Partner $ 247,252 $ 258,095 $ (33,569)
============= ============= =============
Income (loss) before
extraordinary item allocated
to Limited Partners $ 3,049,438 $ 3,183,165 $ (414,019)
============= ============= =============
Income (loss) before
extraordinary item per
average number of Limited
Partnership Interests
outstanding (79,768 in 1994,
80,308 in 1993 and 80,680
in 1992) $ 38.23 $ 39.64 $ (5.12)
============= ============= =============
Extraordinary item allocated to
General Partner None None $ 37,406
============= ============= =============
Extraordinary item allocated to
Limited Partners None None $ 461,340
============= ============= =============
Extraordinary item per average
number of Limited Partnership
Interests outstanding (79,768
in 1994, 80,308 in 1993 and
80,680 in 1992) None None $ 5.71
============= ============= =============
Net income allocated to General
Partner $ 247,252 $ 258,095 $ 3,837
============= ============= =============
Net income allocated to Limited
Partners $ 3,049,438 $ 3,183,165 $ 47,321
============= ============= =============
Net income per average number
of Limited Partnership
Interests outstanding (79,768
in 1994, 80,308 in 1993 and
80,680 in 1992) $ 38.23 $ 39.64 $ 0.59
============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(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 $ 3,296,690 $ 3,441,260 $ 51,158
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for potential
losses on loans, real
estate, accrued
interest receivable and
litigation 3,780,000
Gain on sale of real
estate (23,175)
Discount on repayment of
mortgage note payable (498,746)
Accrued interest income
due at maturity (201,428) (205,976)
Collection of interest
income due at maturity 943,117
Amortization of deferred
expenses 62,998 107,608 75,955
Payment of deferred
interest expense on
mortgage notes payable (817,179)
Settlement of litigation (895,162)
Net change in:
Escrow deposits 34,662 205,248 (42,484)
Escrow deposits -
restricted 138,820 (4,886) (12,246)
Accounts and accrued
interest receivable 180,120 50,512 (173,939)
Accounts payable (24,685) (227,350) 233,323
Due to affiliates 45,919 (1,492) (12,503)
Accrued liabilities (76,186) (61,619)
Other liabilities (189,331) 27,784 25,022
------------- ------------- -------------
Net cash provided by
operating activities 3,593,148 2,480,716 3,157,945
------------- ------------- -------------
Investing activities:
Collection of principal on
loans receivable 12,050,000 4,008,636
Improvements to real estate (103,694) (402,894) (263,704)
Proceeds from sales
of real estate 775,000 2,025,000
Costs incurred in connection
with sales of real estate (48,825) (120,969)
Costs incurred in connection
with the acquisition of
real estate held for sale (140,178)
------------- ------------- -------------
Net cash provided by
investing activities 11,946,306 4,331,917 1,500,149
------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners (6,592,520) (1,707,167) (2,401,743)
Distributions to General
Partner (141,684) (150,539) (210,754)
(Increase) decrease in
cash and cash equivalents -
Early Investment Incentive
Fund (35,905) 1,772 (777)
Repurchase of Limited
Partnership Interests (432,537) (149,803) (196,218)
Principal payments on
underlying loans payable (540,452) (517,384) (569,905)
Repayment of underlying
loan payable (926,667)
Principal payments on
mortgage notes payable (195,857) (328,678) (249,619)
Proceeds from refinancing of
mortgage notes payable 11,625,000
Repayments of mortgage
notes payable (3,369,552) (12,613,709) (2,479,299)
Payment of deferred expenses (20,233) (312,019) (49,165)
------------- ------------- -------------
Net cash used in
financing activities (12,255,407) (4,152,527) (6,157,480)
------------- ------------- -------------
Net change in cash and
cash equivalents 3,284,047 2,660,106 (1,499,386)
Cash and cash equivalents at
beginning of year 4,415,435 1,755,329 3,254,715
------------- ------------ ------------
Cash and cash equivalents at
end of year $ 7,699,482 $ 4,415,435 $ 1,755,329
============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) The Partnership records wrap-around mortgage loans at the face amount of
the mortgage instrument, which includes the outstanding indebtedness of the
borrower under the terms of the underlying mortgage obligation. The underlying
mortgage obligation is recorded as a reduction of the wrap-around mortgage loan
and the resulting balance represents the Partnership's net advance to the
borrower. The Partnership is responsible for making periodic payments to the
underlying mortgage lender only to the extent that payments as required by the
wrap-around mortgage agreement are received by the Partnership from the
borrower.
(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 General Partner, 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.
Various loan agreements provide for participation by the Partnership in
increases in value of the collateral property when the loan is repaid or
refinanced. In addition, certain loan agreements allow the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income is reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate owned is reflected in the accompanying
Statements of Income and Expenses net of related direct operating expenses.
(c) 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.
(d) Deferred expenses consist of loan financing fees which are amortized on a
straight-line basis over the term of the loan and leasing commissions which are
amortized on a straight-line basis over the terms of the leases to which they
relate.
(e) The Partnership records repurchases of Interests by the Early Investment
Incentive Fund as a reduction of Partners' Capital (see Note 2). Cash and cash
equivalents not yet utilized to repurchase Interests, but which are part of the
Early Investment Incentive Fund, are classified as restricted assets of the
Partnership.
(f) Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
(g) 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.
(h) A reclassification has been made to the previously reported 1993 financial
statements to conform with the classification used in 1994. This
reclassification has not changed the 1993 results.
2. Partnership Agreement:
The Partnership was organized on January 23, 1981. The Partnership Agreement
provides for Balcor Mortgage Advisors to be the General Partner and for the
admission of Limited Partners through the sale of Limited Partnership Interests
at $1,000 per Interest, 85,010 of which were sold on or prior to March 15,
1982, the termination date of the offering.
For financial statement purposes, profits and losses are allocated 92.5% to the
Limited Partners, of which 2.5% relates to the Early Investment Incentive Fund,
and 7.5% to the General Partner.
To the extent that Cash Flow is distributed, distributions will be made as
follows: (i) 90% of such Cash Flow will be distributed to the Limited Partners,
(ii) 7.5% of such Cash Flow will be distributed to the General Partner, and
(iii) 2.5% of such Cash Flow will be set aside in the Early Investment
Incentive Fund ("Fund") for payment on dissolution of the Partnership to
certain Early Investors if necessary for them to receive a return of their
Original Capital plus a 22% Cumulative Return. Amounts, if any, remaining in
the Fund after the Early Investors have received such return will be
distributed 90% to all Limited Partners and 10% to the General Partner.
Amounts placed in the Fund may, at the sole discretion of the General Partner
and subject to certain limitations, be used to repurchase Interests from
existing Limited Partners. During 1994, the Fund repurchased 981 Interests at a
cost of $432,537. Distributions of Cash Flow and Mortgage Reductions
pertaining to such repurchased Interests are paid to the Fund.
3. Investment in Loans Receivable:
(A) The Alzina Office Building wrap-around loan receivable which was funded in
1982 has a balance of $11,324,000 at December 31, 1994 and 1993. Current
monthly payments of $122,677 are due representing an interest rate of 13%. The
loan matures in 1997. The Partnership may receive additional payments from the
borrower representing participation in the operating results of the collateral
property which exceeded specified levels and a share of appreciation in the
collateral property upon repayment or refinancing. The underlying loan payable
has a balance of $3,752,438 at December 31, 1994. Current monthly payments of
$70,999 are due representing an interest rate of 8.75%. The loan matures in
2000.
(B) The Stonegate Austin Mobile Home Park wrap-around loan receivable which was
funded in 1982 has a balance of $2,400,000 at December 31, 1994 and 1993. This
loan is hereinafter referred to as an impaired loan since it was previously
modified and placed on non-accrual status. There is no allowance related to
this loan at December 31, 1994. The loan was scheduled to mature in 1996;
however, the borrower repaid the loan in full during March 1995 as described in
Note 5 of Notes to Financial Statements. The underlying loan payable has a
balance of $949,564 at December 31, 1994.
Net interest income relating to impaired loans would have been $239,000 in
1994, $548,000 in 1993 and $561,000 in 1992. Net interest income from impaired
loans included in the accompanying Statements of Income and Expenses amounted
to $187,000 (cash and accrual basis) in 1994, $401,000 in 1993 and $360,000 in
1992.
4. Allowance for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowance for losses on loans and real estate held for
sale during the three years ended December 31, 1994 is described in the table
below.
1994 1993 1992
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 4,166,443 $ 5,817,625 $ 3,183,160
Provision charged to
income (1,200,000) 2,634,465
Charge-off of losses (363,926) (1,651,182)
------------ ----------- -----------
Balance at the end of
the year $ 2,602,517 $ 4,166,443 $ 5,817,625
=========== =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year None None $ 7,946,000
Provision charged to
income 1,200,000 365,535
Charge-off of losses (8,311,535)
----------- ----------- ------------
Balance at the end of
the year $ 1,200,000 None None
=========== =========== ===========
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
amounts of its real estate held for sale 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 these allowances to reflect declines in the
value of the real estate and loans.
5. Loan Receivable Repayments:
(a) In March 1995, the Partnership received $2,625,437 as payment in full on
the Stonegate Austin wrap-around loan, from which the underlying loan of
$943,416 was repaid. The face amount of the loan was $2,400,000. The amount
received consists of the net receivable of $1,456,584 and additional interest
of $225,437.
(b) In March 1994, the Partnership received $3,369,762 as payment in full on
the North Arch Village Apartments' wrap-around loan, from which the underlying
loan of $926,667 was repaid. The amount received consists of the face amount of
the loan of $2,350,000, accrued interest due at maturity of $943,117 and
additional interest of $76,645.
(c) In January 1994, the Partnership received $10,064,858 as payment in full on
the Tudor Heights Apartments' first mortgage loan. The amount received consists
of the face amount of the loan of $9,700,000, a prepayment premium of $291,000
and additional interest of $73,858. Additionally, $248,764 of interest income
that had been accrued and included in the loan balance, was written off against
the previously established allowance for potential loan losses.
(d) In October 1993, the Partnership received $1,562,387 as payment in full on
the Pheasant Run Apartments' wrap-around loan. The amount received consists of
$1,541,280, representing the Partnership's carrying value of the loan of
$3,858,636, net of the underlying mortgage payable of $2,317,356, and $21,107
of additional interest.
(e) In May 1993, the Partnership accepted a discounted repayment of the
Arlington Lakeside Mobile Home Park wrap-around loan and received $150,000. The
Partnership recognized a loss of $1,651,182 in 1993, which was written off
against the previously established allowance for potential losses. This
write-off consisted of the wrap-around loan receivable balance of $2,729,900
and related receivables and escrows of $9,125, net of the underlying mortgage
payable balance of $1,087,843.
6. Mortgage Notes Payable:
The mortgage notes payable at December 31, 1994, and 1993 consist of the
following:
Carrying Carrying Current
Amount of Amount of Current Inter- Final Estimated
Notes at Notes at Monthly est Maturity Balloon
Property 12/31/94 12/31/93 Payments Rate Date Payment
--------------- --------- -------- -------- ------ -------- ---------
Real estate held for sale:
--------------------------
Apartments:
Cumberland Pines(A) $2,310,525
Hollowbrook (A) 1,110,719
Sherwood Acres
Phase I (B) $5,752,081 5,791,268 $48,155 9.33% 2001 $5,321,000
Sherwood Acres
Phase II (B) 5,752,081 5,791,268 48,155 9.33% 2001 5,321,000
Industrial Park:
Parkway Distri-
bution Center 792,525 858,316 12,043 9.50% 2000 278,000
----------- -----------
Total $12,296,687 $15,862,096
=========== ===========
(A) In 1994, the Partnership used working capital reserves to prepay this
mortgage loan.
(B) In May 1993, these loans were refinanced, resulting in the Partnership
obtaining two new mortgage loans, each in the original amount of $5,812,500.
For the Phase I loan, the interest rate decreased from 9.75% to 9.33%, the
maturity date was extended from June 1994 to June 2001 and the monthly payments
decreased from $50,690 to $48,155. For the Phase II loan, the interest rate
decreased from 9.5% to 9.33%, the maturity date was extended from March 1995 to
June 2001, and the monthly payments increased from $40,400 to $48,155. The
Partnership used a portion of the proceeds from the new mortgage loans to repay
the existing mortgage loans totaling $9,992,465 and deferred interest expense
thereon of $817,179.
Real estate held for sale with an aggregate carrying value of $19,269,065 at
December 31, 1994 was pledged as collateral for repayment of mortgage loans.
During the years ended December 31, 1994, 1993 and 1992, the Partnership
incurred interest expense of $1,282,001, $1,478,624 and $1,566,970 and paid
interest of $1,282,001, $2,295,803 and $1,624,338, respectively.
The Partnership's loans described above require current monthly payments of
principal and interest, and approximate principal maturities during each of the
next five years are as follows:
1995 $ 158,000
1996 174,000
1997 191,000
1998 210,000
1999 230,000
7. Real Estate Held for Sale:
The Partnership acquired the 205 Armstrong Industrial/Office Park through
foreclosure in 1992 and recorded its cost at $1,384,989. This amount
represented the outstanding loan balances plus accrued interest receivable. In
addition, the Partnership increased the basis by $140,178 for certain other net
receivables, liabilities, escrows and costs recognized or incurred in
connection with the foreclosure. At the date of foreclosure, the property was
transferred to real estate held for sale at its fair value, net of allowances
previously recorded. This property was subsequently sold in 1993.
8. Property Sales:
During 1993 and 1992, the Partnership sold the 205 Armstrong Industrial/Office
Park and the Broadway Business Center in all cash sales for $775,000 and
$2,025,000, respectively. From the proceeds of the sales, the Partnership paid
$303,888 and $1,379,299 in full satisfaction of the properties' first mortgage
loans, respectively. The basis of these properties totalled $703,000 and
$4,216,399. For financial statement purposes, the Partnership recognized a gain
of $23,175 on the sale of 205 Armstrong. The Partnership had previously
established an allowance for potential losses related to Broadway Business
Center, against which its remaining net investment of $2,312,368 was written
off in 1992.
9. 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 $15,231 $1,185 $ 47,355 None $ 48,235 $ 3,852
Property management fees 235,885 None 243,053 $20,495 245,041 19,027
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 70,948 31,360 60,624 5,052 78,912 6,013
Data processing 33,480 7,511 24,303 5,219 26,605 2,159
Investor communica-
tions 13,488 6,530 11,344 945 28,010 2,134
Legal 4,142 6,218 5,425 452 14,620 1,114
Portfolio management 42,771 24,417 38,895 3,241 43,931 3,347
Other 20,377 5,829 20,715 1,727 15,314 977
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed
four of the Partnership's properties until the affiliate was sold to a third
party in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program. The Partnership's premiums to the deductible
insurance program were $73,320, $48,327 and $49,849 for 1994, 1993 and 1992,
respectively.
10. Management Agreements:
As of December 31, 1994, all of the properties owned by the Partnership are
under management agreements with third party management companies. These
management agreements provide for annual fees of 5% of gross operating revenue
for the residential properties, and for a monthly fee equal to the greater of
(i) 3% of gross operating receipts or (ii) $2,500 plus leasing commissions
earned, for Parkway Distribution Center.
11. 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 determination 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 effect on the financial position of the
Partnership. Management of the defendants believes they have meritorious
defenses to contest the claims.
12. Settlement of Litigation:
A principal of the former owner of the Interstate Office Building commenced
legal proceedings in 1990 against the Partnership alleging that it was entitled
to recover from the Partnership approximately $630,000 representing the amount
the former owner paid to the first mortgage holder as a principal reduction of
the first mortgage loan. These payments had been made prior to the
Partnership's foreclosure of the property and had increased the Partnership's
equity in the wrap-around loan. In March 1993, a judgment of approximately
$780,000 was entered against the Partnership, which includes the amount sought
plus accrued interest thereon. The Partnership appealed, but the judgment was
upheld in September 1994. The judgment amount plus additional interest of
$115,162 was paid during November 1994. A potential litigation loss of $780,000
was recognized by the Partnership in 1992 and was included in other liabilities
on the balance sheet at December 31, 1993. The payment of the additional
$115,162 was written off against the allowance for potential loan losses.
13. Extraordinary Item:
The Cumberland Pines Apartments' second mortgage note matured in 1991 and the
lender agreed to accept $1,200,000 in full satisfaction of all principal and
interest due. The outstanding principal and accrued interest due at the date of
the agreement was $1,698,746. In December 1991, the Partnership paid $100,000
which was applied against the accrued interest due to the lender and the
remaining balance of $1,100,000 was paid in January 1992 and applied against
the principal balance. The Partnership recognized an extraordinary gain of
$498,746 in 1992 in connection with the discount received on the repayment of
the mortgage note and accrued interest thereon.
14. Subsequent Event:
In January 1995, the Partnership made a distribution of $425,050, ($5.00 per
Interest) to the holders of Limited Partnership Interests, representing the
quarterly distribution of available Cash Flow for the fourth quarter of 1994.