SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
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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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
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BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1995 and December 31, 1994
(UNAUDITED)
ASSETS
1995 1994
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Cash and cash equivalents $ 10,104,019 $ 7,699,482
Cash and cash equivalents - Early
Investment Incentive Fund 80,341 38,238
Escrow deposits 88,809 54,394
Escrow deposits - restricted 81,159
Accounts and accrued interest receivable 270,531 231,857
Deferred expenses, net of accumulated
amortization of $158,098 in 1995 and
$144,398 in 1994 189,084 202,784
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10,732,784 8,307,914
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Investment in loans receivable:
Wrap-around loans receivable 11,324,000 13,724,000
Less:
Loans payable - underlying mortgages 3,664,395 4,702,002
Allowance for potential loan losses 2,602,517 2,602,517
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Net investment in loans receivable 5,057,088 6,419,481
Real estate held for sale (net of
allowance of $1,200,000) 26,712,075 26,712,075
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31,769,163 33,131,556
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$ 42,501,947 $ 41,439,470
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 150,226 $ 108,456
Due to affiliates 120,220 83,050
Other liabilities 260,969 182,715
Mortgage notes payable 12,258,485 12,296,687
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Total liabilities 12,789,900 12,670,908
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Partners' capital (85,010 Limited
Partnership Interests issued) 33,900,288 32,956,803
Less Interests held by Early Investment
Incentive Fund (5,877 in 1995 and 1994) (4,188,241) (4,188,241)
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29,712,047 28,768,562
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$ 42,501,947 $ 41,439,470
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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 quarters ended March 31, 1995 and 1994
(UNAUDITED)
1995 1994
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Income:
Interest on loans receivable $ 666,540 $ 666,862
Less interest on loans payable -
underlying mortgages 93,747 135,722
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Net interest income on loans 572,793 531,140
Income from operations of real
estate held for sale 516,319 275,751
Interest on short-term investments 127,870 87,937
Participation income 240,377 223,610
Prepayment premium 291,000
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Total income 1,457,359 1,409,438
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Expenses:
Administrative 82,007 117,258
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Total expenses 82,007 117,258
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Net income $ 1,375,352 $ 1,292,180
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Net income allocated to General Partner $ 103,151 $ 96,914
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Net income allocated to Limited Partners $ 1,272,201 $ 1,195,266
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Net income per average number of Limited
Partnership Interests outstanding
(79,133 in 1995 and 80,114 in 1994) $ 16.08 $ 14.92
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Distribution to General Partner $ 35,421 $ 35,421
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Distribution to Limited Partners $ 396,446 $ 400,552
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Distribution per Limited Partnership
Interest outstanding $ 5.00 $ 5.00
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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 quarters ended March 31, 1995 and 1994
(UNAUDITED)
1995 1994
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Operating activities:
Net income $ 1,375,352 $ 1,292,180
Adjustments to reconcile net income to
net cash provided by operating
activities:
Collection of interest income due
at maturity 943,117
Amortization of deferred expenses 13,700 17,292
Net change in:
Escrow deposits (34,415) (38,005)
Escrow deposits - restricted 81,159 140,383
Accounts and accrued interest
receivable (38,674) (43,765)
Accounts payable 41,770 (39,070)
Due to affiliates 37,170 53,667
Other liabilities 78,254 (85,424)
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Net cash provided by operating activities 1,554,316 2,240,375
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Investing activities:
Collection of principal on loans
receivable 2,400,000 12,050,000
Improvements to real estate (50,848)
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Net cash provided by investing
activities 2,400,000 11,999,152
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Financing activities:
Distribution to Limited Partners (396,446) (400,552)
Distribution to General Partner (35,421) (35,421)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (42,103) (35,570)
Principal payments on underlying
loans payable (94,191) (144,128)
Repayment of underlying loan
payable (943,416) (926,667)
Principal payments on mortgage
notes payable (38,202) (62,322)
Repayment of mortgage note payable (1,105,658)
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Net cash used in financing activities (1,549,779) (2,710,318)
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Net change in cash and cash equivalents 2,404,537 11,529,209
Cash and cash equivalents at beginning
of year 7,699,482 4,415,435
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Cash and cash equivalents at end of period $ 10,104,019 $ 15,944,644
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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 Policy:
Several reclassifications have been made to the previously reported 1994
financial statements in order to provide comparability with the 1995
statements, including a reclassification of mortgage servicing fees to
administrative expenses. These reclassifications have not changed the 1994
results. In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the quarter
ended March 31, 1995, and all such adjustments are of a normal and recurring
nature.
2. Interest Expense:
During the quarters ended March 31, 1995 and 1994, the Partnership incurred
interest expense on mortgage notes payable on properties owned by the
Partnership of $286,859 and $351,042 and paid interest expense of $280,585 and
$344,330, respectively.
3. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1995 were:
Paid Payable
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Mortgage servicing fees $ 3,555 $ 988
Reimbursement of expenses to
the General Partner, at cost None 119,232
4. Subsequent Event:
In April 1995, the Partnership made a distribution of $2,550,300 ($30.00 per
Interest) to the holders of Limited Partnership Interests for the first quarter
of 1995. This distribution includes a regular quarterly distribution of $5.00
per Interest from Cash Flow and a special distribution of $25.00 per Interest
from Mortgage Reductions received in connection with the Tudor Heights and
North Arch Village mortgage loan repayments.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-II (the "Partnership") is a limited partnership formed
in 1981 to invest in wrap-around mortgage loans and, to a lesser extent, other
junior mortgage loans and first mortgage loans. The Partnership raised
$85,010,000 through the sale of Limited Partnership Interests and used these
proceeds to originally fund thirty-three loans. In addition, proceeds from
prior loan repayments were used to fund three additional mortgage loans. As of
March 31, 1995, the Partnership is operating five properties acquired through
foreclosure and has one loan outstanding in its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1994 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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Improved operations at four of the Partnership's properties and additional
interest income received with the March 1995 prepayment of the Stonegate Austin
wrap-around loan were partially offset by decreased interest income and the
receipt of a prepayment premium related to two loan repayments in 1994. These
events resulted in an increase in net income during the quarter ended March 31,
1995 as compared to the same period in 1994. Further discussion of the
Partnership's operations is summarized below.
1995 Compared to 1994
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The repayments of the Tudor Heights Apartments' first mortgage loan and the
North Arch Village Apartments' wrap-around loan in January and March 1994,
respectively, resulted in a decrease in interest income on loans receivable
during the quarter ended March 31, 1995 as compared to the same period in 1994.
This decrease was offset by additional interest income received in conjunction
with the repayment of the Stonegate Austin wrap-around loan in March 1995. In
addition, the North Arch Village and Stonegate Austin loan repayments resulted
in a decrease in interest expense on loans payable during the quarter ended
March 31, 1995 as compared to the same period in 1994. Also, a prepayment
premium of $291,000 was received in January 1994 in connection with the Tudor
Heights Apartments loan repayment.
Operations of real estate held for sale represents the net operations of those
properties acquired by the Partnership through foreclosure. At March 31, 1995,
the Partnership was operating five properties. Original funds advanced by the
Partnership totaled approximately $13,339,000 for these five real estate
investments. Higher rental income due to higher average occupancy levels and
rental rates at most of the properties, as well as lower repair and maintenance
expenditures at the Sherwood Acres - Phases I and II Apartments, were the
primary reasons for the increase in income from operations of real estate held
for sale during the quarter ended March 31, 1995 as compared to the same period
in 1994. The cessation of interest expense on the Hollowbrook and Cumberland
Pines apartment complexes' mortgage notes upon repayment of the loans in 1994
also contributed to the increase. Decreased rental income as a result of lower
rental rates on new leases at the Parkway Distribution Center partially offset
these increases.
The proceeds received from loan repayments were invested in short-term
investments, resulting in an increase in average funds available for short-term
investments. This increase in invested funds, combined with higher interest
rates, generated higher interest income on short-term investments during the
quarter ended March 31, 1995 as compared to the same period in 1994.
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, which
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 the quarters ended March 31, 1995 and 1994.
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 the quarters ended March 31, 1995 and 1994.
Legal fees incurred in 1994 relating to the Interstate Office Building
litigation resulted in a decrease in administrative expenses during the quarter
ended March 31, 1995 as compared to the same period in 1994.
Liquidity and Capital Resources
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The cash position of the Partnership increased as of March 31, 1995 when
compared to December 31, 1994 due to the net proceeds received from the
repayment of the Stonegate Austin loan in March 1995. 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. The net cash flow from investing
activities reflects the proceeds received from the repayment of the Stonegate
Austin loan. This net cash flow was partially used in financing activities to
repay the related underlying loan payable. Other financing activities included
distributions to partners and principal payments on underlying and mortgage
notes payable. In April 1995, the Partnership made a special distribution of
proceeds received in connection with the 1994 loan repayments, as described
below.
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 the quarters ended March 31, 1995 and 1994, the Cumberland
Pines, Hollowbrook and Sherwood Acres Phases I and II apartment complexes
generated positive cash flow. The Parkway Distribution Center generated a
marginal cash flow deficit during the quarter ended March 31, 1995 compared to
positive cash flow during the same period in 1994 due to lower rental rates on
new leases. As of March 31, 1995, the occupancy rates of the Partnership's
residential properties ranged from 97% to 99% and the occupancy rate of the
Parkway Distribution Center was 96%.
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 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 net 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 April 1995, the Partnership paid a distribution of $2,550,300 ($30.00 per
Interest) to the holders of Limited Partnership Interests, $35,421 to the
General Partner and $11,807 to the Early Investment Incentive Fund, for the
first quarter of 1995. This distribution includes a regular distribution of
$5.00 per Interest from Cash Flow and a special distribution of $25.00 from
Mortgage Reductions received in connection with mortgage loan repayments. The
level of the regular distribution is consistent with the amount distributed to
Limited Partners for the previous quarter. To date, Limited Partners have
received distributions totaling $1,288.50 per $1,000 Interest, of which $893.50
represents Cash Flow from operations and $395.00 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 receipt 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.
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.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(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 the three month period
ending March 31, 1995 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-II
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors, the General Partner
By: /s/ Brian Parker
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Brian Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors, the
General Partner
Date: May 10, 1995
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