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, 1995
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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 0-14332
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BALCOR PENSION INVESTORS-VI
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(Exact name of registrant as specified in its charter)
Illinois 36-3319330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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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-VI (the "Registrant") is a limited partnership formed
in 1984 under the laws of the State of Illinois. The Registrant raised
$345,640,500 from sales of Limited Partnership Interests. The Registrant's
operations currently consist exclusively of a first mortgage loan and operation
of properties acquired through foreclosure, and all information included in
this report relates to this industry segment.
The Registrant originally funded thirty-one loans. A portion of the Mortgage
Reductions generated by repayments was added to the Registrant's working
capital reserves and the remainder was distributed to Limited Partners. As a
result of the repayments, foreclosures and write-off of thirty loans, the
Registrant has one loan in its portfolio as of December 31, 1995. Thirteen
properties and three investments in joint ventures-affiliates were acquired
through foreclosure and an additional investment in joint venture-affiliate was
purchased. The Registrant sold two of the properties and has eleven properties
and four investments in joint ventures-affiliates in its portfolio as of
December 31, 1995. See "Item 2. Properties" for additional information.
During 1995, the Registrant and three affiliates acquired title to the 45 West
45th Street Office Building through foreclosure. See "Item 7. Liquidity and
Capital Resources" for additional information.
During 1995, the Registrant and an affiliate acquired title to the Jonathan's
Landing Apartments through foreclosure. See "Item 7. Liquidity and Capital
Resources" for additional information.
During 1995, the Sun Lake Apartments underlying revenue bonds were refunded and
new bonds were issued. See "Item 7. Liquidity and Capital Resources" for
additional information.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental markets which are growing the fastest:
low-income households and upper-income households who prefer to rent rather
than own. Of all the major asset classes, apartments typically display the
least volatility in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
Shopping centers are the most troubled asset class in real estate currently.
Unlike other asset classes, construction of power shopping centers, those with
a preponderance of "big box" retailers, occurred at a brisk pace during the
early 1990s, and now a shake-out of retailers is taking place. Retailers
posted lackluster sales in 1995, particularly in the latter half of the year,
and similar results are expected for 1996. The slight rise in interest rates
in 1995 also contributed to low sales growth in interest rate sensitive sectors
such as automobiles and home furnishings. Nevertheless, retail properties are
particularly unique, and those with strong tenant alignments should better
weather the current slowdown. In the long-term, however, retail real estate is
also vulnerable to technological changes (e.g. home shopping) which could
drastically alter the retail distribution system.
The General Partner believes that the market for multifamily housing
properties has become increasingly favorable to sellers of these properties.
As a result, the General Partner is exploring an acceleration of its strategy
to sell the Registrant's residential properties. Additionally, the General
Partner will explore the sale of its commercial properties over the next year
if market conditions are favorable.
Activity for the purchase of limited partnership interests ("tender offer") has
increased in real estate limited partnerships generally. Many of these tender
offers have been made by investors seeking to make a profit from the purchase
of the interests. In the event a tender offer is made for interests in the
Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The
General Partner cannot predict with any certainty what impact a tender offer
will have on the operations or management of the Registrant.
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-VI, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Other Information
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Hawthorne Heights Apartments
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In 1985, the Registrant funded a $6,000,000 loan collateralized by a first
mortgage on the Hawthorne Heights Apartments. The Registrant obtained title to
the property through foreclosure in 1990.
On March 21, 1996, the Registrant contracted to sell the property for a sale
price of $8,425,000 to Elkor Realty Corporation, an Illinois corporation. The
purchaser has deposited $250,000 into an escrow account as earnest money and
will pay the remaining $8,175,000 at closing, scheduled for April 23, 1996.
From the proceeds of the sale, the Registrant will pay closing costs and
$210,625 to an unaffiliated party as a brokerage commission. The General
Partner will be reimbursed by the Registrant for its actual expenses incurred
in connection with the sale.
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible that the sale of the property may not
occur.
Item 2. Properties
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As of December 31, 1995, the Registrant owns the eleven properties described
below:
Location Description of Property
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Baton Rouge, Louisiana Hammond Aire Plaza Shopping Center: a regional
shopping center containing approximately 276,000
square feet located on approximately 34 acres.
DeKalb County, Georgia Park Central Office Building: a ten story office
building containing approximately 210,000 square
feet.
Dallas, Texas * Brookhollow/Stemmons Center Office Complex: an 11
story office building containing approximately
221,000 square feet.
Indianapolis, Indiana Hawthorne Heights Apartments: a 241 unit
apartment complex located on approximately 15
acres.
Pembroke Pines, Florida Flamingo Pines Shopping Center: a regional
shopping center containing approximately 124,500
square feet located on approximately 16 acres.
Fulton County, Georgia ** Perimeter 400 Center: a ten story office building
and six story office building connected at the
first 3 levels which combined contain
approximately 358,000 square feet.
Columbia, Maryland Symphony Woods Office Center: a 6 story office
building containing approximately 93,000 square
feet.
Lake Mary, Florida * Sun Lake Apartments: a 600 unit apartment complex
located on approximately 46 acres.
Chicago, Illinois 420 North Wabash Office Building: a 7-story
office building containing approximately 120,000
square feet.
Raleigh, North Carolina Woodscape Apartments: a 240-unit garden apartment
complex located on approximately 27 acres.
Birmingham, Alabama Shoal Run Apartments: a 276-unit garden apartment
complex located on approximately 24 acres.
* Owned by the Registrant through a joint venture with an affiliate. See Note
8 of Notes to Financial Statements for additional information.
** Owned by the Registrant through a joint venture with three affiliates. See
Note 8 of Notes to Financial Statements for additional information.
The Registrant also holds minority joint venture interests in the Sand Pebble
Village and Sand Pebble Village II apartment complexes, located in Riverside
(Los Angeles), California, the 45 West 45th Street Office Building located in
New York, New York, and the Jonathan's Landing Apartments, located in Kent
(Seattle), Washington. See Note 9 of Notes to Financial Statements for
additional information.
Sun Lake Apartments is held subject to a mortgage loan.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate properties.
See Notes to Financial Statements for other information regarding real estate
held for sale.
Item 3. Legal Proceedings
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Williams class action
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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). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates are the
defendants. The complaint alleges violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in 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 subsequently filed a counterclaim asserting 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 for damage 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. Upon the defendants' motion, the
Court ordered plaintiffs' counsel to pay $75,000 to the defendants and $25,000
to the Court for costs incurred with the class certification motion, which
amounts continue to be outstanding.
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 Related Partnerships. The
defendants filed a motion for reconsideration in opposition to the class
certification, which was denied in December 1994. The Court approved the
Notice of Class Action in August 1995 which was sent to potential members of
the class in September 1995.
The defendants intend to continue vigorously contesting this action.
Management of each of the defendants believes they have meritorious defenses to
contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
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 1995.
PART II
Item 5. Market for 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 "Item 7. Liquidity and Capital
Resources".
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was 66,721.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
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Total income $16,011,025 $16,696,829 $16,941,268 $18,438,167 $21,340,107
Recovery of
losses on
loans, real
estate and
accrued interest
receivable 2,465,000 None None None None
Provision for
losses on
loans, real
estate and
accrued interest
receivable 1,800,000 3,900,000 4,665,000 18,500,000 16,086,000
Income before
gain on dis-
positions of
real estate 11,582,447 10,222,248 8,345,743 730,590 3,860,085
Net income 11,582,447 11,040,627 11,817,474 730,590 3,860,085
Net income per
Limited Partner-
ship Interest 7.54 7.18 7.69 .48 2.51
Total assets 176,899,144 190,674,572 240,813,287 242,357,773 259,605,790
Mortgage notes
payable 15,657,066 15,700,000 21,257,668 21,572,650 19,346,412
Distributions per
Limited Partner-
ship Interest (A) 17.40 39.20 8.00 11.00 14.00
(A) These amounts include distributions of original capital of $8.80, $29.20
and $.75 per Limited Partnership Interest for the years 1995, 1994 and 1992,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Operations improved at several of Balcor Pension Investors-VI (the
"Partnership") properties and the Partnership recognized a recovery for losses
during 1995. The Partnership also recognized lower net interest income on
loans and participation income during 1995 as compared to 1994 due to two loan
prepayments in 1994. As a result of these combined events, net income
increased slightly during 1995 as compared to 1994.
The Partnership received two loan prepayments in 1994 as discussed above and
three loan prepayments in 1993 and recognized a gain on the sale of Winchester
Mall in 1993. Operations also improved at several of the Partnership's
properties during 1994. As a result of these combined events, net income
decreased slightly during 1994 as compared to 1993. Further discussion of the
Partnership's operations is summarized below.
1995 Compared to 1994
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Interest income on loans receivable decreased during 1995 as compared to 1994
as a result of the 1994 prepayments of the Breckenridge and Highland Green
loans, the dispositions of the Northgate and Gatewood apartment complexes and
the foreclosure of the Jonathan's Landing Apartments loan in July 1995.
Income from operations of real estate held for sale represents the net
operations of the properties acquired by the Partnership through foreclosure.
At December 31, 1995, the Partnership was operating eleven properties. Original
funds advanced by the Partnership totals approximately $145,000,000 for these
eleven properties. Income from operations of real estate held for sale
increased during 1995 as compared to 1994 due to improved operations at nine of
the properties, in particular at the Brookhollow/Stemmons Center Office Complex
due to higher occupancy, at the Woodscape Apartments as the payment of interest
expense ceased due to the repayment of the property's underlying mortgage loan
in May 1994, at the Sun Lake Apartments due to a decrease in interest expense
resulting from the November 1994 remarketing of the underlying revenue bonds
and at the 420 N. Wabash Office Building where real estate tax expense
decreased due to a decrease in the property's assessed value.
The Partnership's loans receivable generally bear interest at contractually-
fixed interest rates. Some loans also provided for additional interest in the
form of participations, usually consisting of either a share in the capital
appreciation of the property securing the Partnership's loan and/or a share in
the increase of gross income of the property above a certain level.
Participation income of $3,000,000 was recognized during 1994 in connection
with loan prepayments.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrower's
ability to repay a 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. See Note 2(c) of Notes to Financial Statements for further
information regarding the Partnership's accounting policies relating to the
determination of the fair value for its loans and real estate held for sale.
The Partnership recognized a provision of $1,800,000 and a recovery of
$2,465,000 during 1995 and a provision of $3,900,000 during 1994 related to the
Partnership's real estate held for sale to provide for changes in the estimate
of the fair value of certain properties in the Partnership's portfolio. The
Partnership did not recognize any provisions during 1995 or 1994 related to
it's loans.
As a result of legal fees incurred in 1994 relating to the disposition of the
Partnership's investment in the Northgate and Gatewood apartment complexes, as
well as the prepayments of the Breckenridge and Highland Green loans,
administrative expenses decreased during 1995 as compared to 1994.
Participation in income (loss) of joint ventures with affiliates represents the
Partnership's share of the operations of the Sand Pebble Village, Sand Pebble
Village II and Jonathan's Landing apartment complexes and the 45 West 45th
Street Office Building. The Partnership recognized its share of a provision for
loss relating to the 45 West 45th Street Office Building during 1995. This
resulted in participation in loss of joint ventures with affiliates in 1995 as
compared to participation in income of joint ventures with affiliates in 1994.
The Partnership recognized a gain of $818,379 on the disposition of the
Partnership's investment in the Northgate and Gatewood Apartment Complexes in
August 1994.
1994 Compared to 1993
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As a result of the prepayment of two loans in 1994 and three loans in 1993,
interest income on loans receivable decreased during 1994 as compared to 1993.
Interest on loans payable - underlying mortgages ceased in 1994 due to the
prepayment of the Miami Free Zone loan in 1993. As of December 31, 1994, the
Jonathan's Landing Apartments loan was on non-accrual status. The funds
advanced by the Partnership for this non-accrual loan totaled approximately
$11,045,000, representing approximately 4% of original funds advanced. For
non-accrual loans, income is recorded only as cash payments are received from
the borrowers. During 1994, the Partnership received cash payments of interest
income totaling approximately $881,300 on this loan, as required under the
terms of the loan agreement.
Income from operations of real estate held for sale increased during 1994 as
compared to 1993 due to improved operations at five of the properties, but in
particular at the Perimeter 400 Center office complex where rental income
increased in 1994 due to significant leasing activity in 1993.
The 1993 and 1994 loan prepayments resulted in an increase in cash available
for investment, and correspondingly, an increase in interest income on
short-term investments during 1994 as compared to 1993.
The Partnership received participation income in connection with loan
prepayments totaling $3,000,000 in 1994 and approximately $933,000 in 1993.
A prepayment premium of $210,000 was also received in 1993 in connection with
the prepayment of the Pinellas Cascade, Land of Lakes Pinellas Park loan.
The Partnership recognized a provision for potential losses on loans of
$600,000 in 1993. In addition, the Partnership recognized a provision for
potential losses of $4,065,000 in 1993 related to the Partnership's real estate
held for sale to provide for declines in the fair value of certain properties
in the Partnership's portfolio.
During 1993, the Partnership incurred leasing commissions in connection with
leases signed at four of its commercial properties which resulted in an
increase in amortization of deferred expenses during 1994 as compared to 1993.
The Partnership recognized its share of a decline in the fair values of the
Sand Pebble Village during 1994 and 1993 and the 45 West 45th Street Office
Building during 1993. As a result, the Partnership recognized participation in
loss of joint ventures with affiliates during 1993 as compared to participation
in income during 1994. In addition, Sand Pebble Village II, purchased in
October 1993, generated income in 1994, which contributed to the income from
joint ventures with affiliates during 1994.
The Partnership incurred significant leasing costs at the Perimeter 400 Center
during 1993, which resulted in improved operations at the property during 1994.
In addition, the Partnership recognized a decline in the fair values of the Sun
Lake Apartments during 1994 and the Brookhollow/Stemmons Center Office Complex
during 1993. As a result of the combined effect of these events, the affiliates
recognized participation in income of joint ventures during 1994 as compared to
a participation in loss of joint ventures during 1993.
The Partnership recognized a gain on disposition of real estate of $3,471,731
during 1993 in connection with the sale of Winchester Mall.
Liquidity and Capital Resources
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The cash position of the Partnership decreased as of December 31, 1995 when
compared to December 31, 1994 primarily due to distributions to Partners of
approximately $25,400,000. Operating activities generated cash of approximately
$11,609,000, primarily due to cash flow from the operations of the
Partnership's real estate held for sale, interest income from short-term
investments and from the Partnership's remaining loans, which were partially
offset by the payment of administrative expenses. Investing activities
consisted of net distributions from joint ventures-affiliates of approximately
$721,000 and expenditures of approximately $522,000 for improvements to the
Partnership's properties. Financing activities consisted primarily of
distributions paid to Partners of approximately $25,400,000, distributions to
joint venture-affiliates of approximately $1,000,000, and the payment of
refinancing fees of approximately $775,000.
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 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. The Sun Lake Apartments is the Partnership's only property with
underlying debt. During 1995 and 1994, all eleven of the Partnership's
properties and all four of the properties in which the Partnership holds
minority joint venture interests with affiliates generated positive cash flow.
The 45 West 45th Street Office Building, in which the Partnership holds a
minority joint venture interest, incurred significant leasing costs in 1995
which were not included in classifying the cash flow performance of the
property. Had these nonrecurring expenditures been included, the property
would have generated a significant deficit in 1995. The Jonathan's Landing
Apartments, in which the Partnership holds a minority joint venture interest,
generated positive cash flow after being acquired in 1995. As of December 31,
1995, the occupancy rates of the Partnership's commercial properties ranged
from 84% to 98% and the occupancy rates of the residential properties ranged
from 95% to 97%.
Many rental markets continue to be 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.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Partnership's residential properties. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate. Lower interest rates
may increase the probability the borrower may seek prepayment of the
Partnership's loan whereas rising interest rates decrease the yield on the loan
and make prepayment less likely.
The Partnership and three affiliates previously funded a $23,000,000 loan on
the 45 West 45th Street Office Building. In February 1995, the participants
obtained title to the property through foreclosure. The Partnership owns a
41.3% joint venture interest in the property.
In January 1995, the Partnership and an affiliate placed the Jonathan's Landing
Apartments loan in default and accelerated the loan due to the sale of the
property by the borrower without the required consent from the Partnership and
the affiliate. The property was posted for a foreclosure sale in July 1995 at
which time the Partnership and the affiliate obtained title to the property.
The Partnership owns a 46.5% joint venture interest in the property.
In October 1995, the underlying revenue bonds which financed the Sun Lake
Apartments $15,700,000 mortgage note payable were refunded. The proceeds from
the new bonds were used to repay the prior bonds. In connection with the
refunding, the $700,000 debt service reserve was released, and the Partnership
paid approximately $775,000 in financing and closing fees, of which the
Partnership's share is approximately $480,000. See Note 4 of Notes to
Financial Statements for additional information.
In March 1996, the Partnership contracted to sell the Hawthorne Heights
Apartments. See Item 1. Business for additional information.
The Noland Fashion Square shopping center 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, and amounts representing
contractually required debt service are recorded as interest income.
The Partnership made four distributions totaling $17.40, $39.20, and $8.00 per
Interest in 1995, 1994, and 1993, respectively. See Statement of Partner's
Capital for additional information. Distributions were comprised of $8.60 of
Cash Flow and $8.80 of Mortgage Reductions in 1995, $10.00 of Cash Flow and
$29.20 of Mortgage Reductions in 1994 and $8.00 of Cash Flow in 1993. Cash Flow
distributions decreased in 1995 as compared to 1994 primarily due to decreased
Cash Flow in 1995 resulting from loan prepayments received in 1994. Cash Flow
distributions increased in 1994 as compared to 1993 primarily due to loan
prepayments and the disposition of the Partnership's investment in the
Northgate and Gatewood apartment complexes in 1994.
In January 1996, the Partnership paid a distribution of $2,765,124 ($2.00 per
Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow for the fourth quarter of 1995.
Including the January 1996 distribution, Limited Partners have received cash
distributions totaling $203.32 per $250 Interest. Of this amount, $128.52
represents Cash Flow from operations and $74.80 represents a return of Original
Capital. In January 1996, the Partnership also paid $230,427 to the General
Partner as its distributive share of the Cash Flow distributed for the fourth
quarter of 1995 and made a contribution to the Early Investment Incentive Fund
of $76,809.
During 1995 the General Partner used amounts placed in the Early Investment
Incentive Fund to repurchase 9,666 Interests from Limited Partners at a cost of
$1,152,093.
The Partnership expects to continue making cash distributions. The level of
future distributions is dependent on cash flow from property operations and the
receipt of interest income from the acquisition loan less fees to the General
Partner and administrative expenses. The General Partner, on behalf of the
Partnership, has retained what it believes is an appropriate amount of working
capital to meet current cash or liquidity requirements which may occur.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sale 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
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On September 14, 1995 the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent accountants for the fiscal year ending
December 31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed
as auditors of the Registrant effective September 14, 1995. The General
Partner of the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors-VI, 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
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Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
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. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. 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.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
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 MIS functions. 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
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. 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 portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell 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.
(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 1995.
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-VI, 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 10 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) Balcor Mortgage Advisors-VI and its officers and partners own as a group
through the Early Investment Incentive Fund and otherwise the following Limited
Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 53,748 Interests 3.9%
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional 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
- --------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 dated January 14, 1985 (Registration No.
2-93840), is 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 January 14,
1985 (Registration No. 2-93840) 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. 0-14332) are
incorporated herein by reference.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
file No. O-14332) is hereby incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated October 27,
1995, amending the Current Report on Form 8-K dated September 19, 1995
reporting a change in the Registrant's certifying accountant, was filed.
(Commission File No. 0-14332).
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
(99) Agreement of Sale and attachment thereto relating to the sale of the
Hawthorne Heights Apartments.
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 PENSION INVESTORS-VI
By: /s/Brian D. Parker
-----------------------------------
Brian D. Parker
Executive Vice President, and Chief Accounting
and Financial Officer (Principal Accounting
and Financial Officer) of Balcor Mortgage
Advisors-VI, the General Partner
Date: March 29, 1996
----------------
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
- --------------------- ------------------------------- ------------
Executive and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
/s/Thomas E. Meador Advisors-VI, the General Partner March 29, 1996
- --------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief Accounting
and Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Mortgage
/s/Brian D. Parker Advisors-VI, the General Partner March 29, 1996
- -------------------- --------------
Brian D. Parker
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
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 ACCOUNTANTS
To the Partners of
Balcor Pension Investors-VI:
We have audited the accompanying balance sheet of Balcor Pension Investors-VI
(An Illinois Limited Partnership) as of December 31, 1995, and the related
statements of partners' capital, income and expenses 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 Balcor Pension Investors-VI
(An Illinois Limited Partnership) at December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1996
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-VI:
We have audited the accompanying balance sheet of Balcor Pension Investors-VI
(An Illinois Limited Partnership) as of December 31, 1994, and the related
statements of partners' capital, income and expenses and cash flows for each of
the two 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-VI
at December 31, 1994 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 11, 1995
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
--------------- ----------------
Cash and cash equivalents $ 16,076,834 $ 31,007,746
Restricted investment 700,000
Escrow deposits 557,405 14,627
Accounts and accrued interest receivable 2,522,489 2,539,740
Prepaid expenses 283,525 106,824
Deferred expenses, net of accumulated
amortization of $1,014,165 in 1995 and
$713,230 in 1994 1,935,041 1,196,673
--------------- ----------------
21,375,294 35,565,610
--------------- ----------------
Investment in loans receivable:
Loan receivable - first mortgage 9,635,000
Investment in acquisition loan 4,434,410 4,467,124
Less:
Allowance for potential loan losses 274,594 1,308,594
--------------- ----------------
Net investment in loans receivable 4,159,816 12,793,530
Real estate held for sale (net of
allowance of $7,300,000 in 1995 and
$7,965,000 in 1994) 130,149,878 128,963,046
Investment in joint ventures with
affiliates 21,214,156 13,352,386
--------------- ----------------
155,523,850 155,108,962
--------------- ----------------
$ 176,899,144 $ 190,674,572
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 763,742 $ 505,648
Due to affiliates 51,700 174,178
Accrued liabilities, principally
real estate taxes 808,262 905,270
Security deposits 665,005 645,604
Mortgage note payable 15,657,066 15,700,000
--------------- ----------------
Total liabilities 17,945,775 17,930,700
Affiliates' participation in joint
ventures 19,861,816 19,857,072
Limited Partners' capital (1,382,562
Interests issued and
outstanding) 146,274,796 159,907,173
General Partner's deficit (7,183,243) (7,020,373)
--------------- ----------------
Total partners' capital 139,091,553 152,886,800
--------------- ----------------
$ 176,899,144 $ 190,674,572
=============== ================
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
Partners' Capital (Deficit) Accounts
--------------- --------------- ---------------
General Limited
Total Partner Partners
--------------- --------------- ---------------
Balance at
December 31, 1992 $ 198,050,749 $ (6,541,059) $ 204,591,808
Cash distributions to:
Limited Partners (A) (11,060,496) (11,060,496)
General Partner (1,228,944) (1,228,944)
Net income for the year
ended December 31, 1993 11,817,474 1,181,747 10,635,727
--------------- --------------- ---------------
Balance at
December 31, 1993 197,578,783 (6,588,256) 204,167,039
Cash distributions to:
Limited Partners (A) (54,196,430) (54,196,430)
General Partner (1,536,180) (1,536,180)
Net income for the year
ended December 31, 1994 11,040,627 1,104,063 9,936,564
--------------- --------------- ---------------
Balance at
December 31, 1994 152,886,800 (7,020,373) 159,907,173
Cash distributions to:
Limited Partners (A) (24,056,579) (24,056,579)
General Partner (1,321,115) (1,321,115)
Net income for the year
ended December 31, 1995 11,582,447 1,158,245 10,424,202
--------------- --------------- ---------------
Balance at
December 31, 1995 $ 139,091,553 $ (7,183,243) $ 146,274,796
=============== =============== ===============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1995 1994 1993
--------------- --------------- ---------------
First Quarter $ 2.00 $ 12.20 $ 2.00
Second Quarter 4.50 12.00 2.00
Third Quarter 6.52 13.00 2.00
Fourth Quarter 4.38 2.00 2.00
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
--------------- --------------- ---------------
Income:
Interest on loans
receivable and from
investment in
acquisition loan $ 816,044 $ 2,362,044 $ 7,800,950
Less interest on loans
payable - underlying
mortgages 935,768
--------------- --------------- ---------------
Net interest income on
loans receivable 816,044 2,362,044 6,865,182
Income from operations
of real estate held
for sale 11,142,276 9,639,905 8,241,518
Interest on short-term
investments 1,587,705 1,694,880 692,015
Participation income 3,000,000 932,553
Prepayment income 210,000
Recovery of losses on
loans, real estate
and accrued interest
receivable 2,465,000
--------------- --------------- ---------------
Total income 16,011,025 16,696,829 16,941,268
Expenses:
Provision for potential
losses on loans, real
estate and accrued
interest receivable 1,800,000 3,900,000 4,665,000
Amortization of deferred
expenses 300,935 281,613 202,244
Administrative 1,229,199 1,514,676 1,690,133
--------------- --------------- ---------------
Total expenses 3,330,134 5,696,289 6,557,377
--------------- --------------- ---------------
Income before joint venture
participations, equity in
loss from investment in
acquisition loan and
gain on dispositions of
real estate 12,680,891 11,000,540 10,383,891
Participation in (loss)
income of joint ventures
- affiliates (18,481) 568,147 (2,482,286)
Equity in loss from
investment in
acquisition loan (32,714) (40,410) (51,798)
Affiliates' participation
in (income) loss of
joint ventures (1,047,249) (1,306,029) 495,936
Gain on dispositions of
real estate 818,379 3,471,731
--------------- --------------- ---------------
Net income $ 11,582,447 $ 11,040,627 $ 11,817,474
=============== =============== ===============
Net income allocated to
General Partner $ 1,158,245 $ 1,104,063 $ 1,181,747
=============== =============== ===============
Net income allocated to
Limited Partners $ 10,424,202 $ 9,936,564 $ 10,635,727
=============== =============== ===============
Net income per Limited
Partnership Interest
(1,382,562 issued and
outstanding) $ 7.54 $ 7.18 $ 7.69
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
--------------- --------------- ---------------
Operating activities:
Net income $ 11,582,447 $ 11,040,627 $ 11,817,474
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Recovery of losses on
loans, real estate
and accrued interest
receivable (2,465,000)
Provision for
potential losses on
loans, real estate
and accrued interest
receivable 1,800,000 3,900,000 4,665,000
Payment of deferred
expenses (264,559) (284,080) (486,394)
Amortization of
deferred expenses 300,935 281,613 202,244
Participation in loss
(income) of joint
ventures-affiliates 18,481 (568,147) 2,482,286
Equity in loss from
investment in
acquisition loan 32,714 40,410 51,798
Affiliates' partici-
pation in income
(loss) of joint
ventures 1,047,249 1,306,029 (495,936)
Gain on dispositions
of real estate (818,379) (3,471,731)
Net change in:
Escrow deposits (341,703) (281)
Escrow deposits -
restricted 238,983 590,551
Accounts and accrued
interest receivable 17,251 (455,195) (322,238)
Prepaid expenses (176,701) 24,528 (48,462)
Accounts payable 258,094 77,072 44,269
Due to affiliates (122,478) 19,763 5,960
Accrued liabilities (97,008) (185,427) (976,242)
Security deposits 19,401 (21,219) 54,703
--------------- --------------- ---------------
Net cash provided by
operating activities 11,609,123 14,596,297 14,113,282
--------------- --------------- ---------------
Investing activities:
Distributions from joint
ventures - affiliates 859,648 871,330 1,292,204
Contribution to joint
ventures - affiliates (138,899)
Collection of principal
payments on loans
receivable 21,637,000 35,290,969
Improvements to
properties (521,832) (867,198) (3,347,853)
Proceeds from disposition
of real estate 8,325,000 8,971,731
Purchase of joint venture
interest in property
with affiliate (1,932,909)
--------------- --------------- ---------------
Net cash provided by
investing activities 198,917 29,966,132 40,274,142
--------------- --------------- ---------------
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(CONTINUED)
Financing activities:
Distributions to Limited
Partners $ (24,056,579) $ (54,196,430) $ (11,060,496)
Distributions to General
Partner (1,321,115) (1,536,180) (1,228,944)
Distributions to joint
venture partners -
affiliates (1,042,505) (1,188,567) (160,988)
Capital contributions by
joint venture partners
- affiliates 103,285 770,696
Refunding of underlying
revenue bonds 15,700,000
Issuance of underlying
revenue bonds (15,700,000)
Release of restricted
investment 700,000
Repayment of mortgage
notes payable and
underlying loan payable (5,434,419) (7,851,022)
Principal payments on
mortgage notes payable (42,934) (123,249) (314,982)
Funding of repair escrows (201,075)
Payment of
refinancing fees (774,744)
--------------- --------------- ---------------
Net cash used in
financing activities (26,738,952) (62,375,560) (19,845,736)
--------------- --------------- ---------------
Net change in cash and cash
equivalents (14,930,912) (17,813,131) 34,541,688
Cash and cash equivalents
at beginning of year 31,007,746 48,820,877 14,279,189
--------------- --------------- ---------------
Cash and cash equivalents
at end of year $ 16,076,834 $ 31,007,746 $ 48,820,877
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Pension Investors-VI (the "Partnership") is engaged principally in the
operation of residential, commercial and retail real estate located in various
markets within the United States and to a lesser extent, investment in a first
mortgage loan.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(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 held for sale is reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
(c) Loan losses on mortgage notes receivable are charged to income and an
allowance account is established when the General Partner believes the loan
balance will not be recovered. The General Partner assesses the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance is transferred to real estate
held for sale after the fair value of the property, less costs of disposal, is
assessed. Upon the transfer to real estate held for sale, a new basis in the
property is established.
Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of". Under SFAS 121,
the General Partner periodically assesses, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimates the fair value of its properties by dividing the property's
expected net operating income by a risk adjusted rate of return or by applying
a discounted cash flow analysis both of which consider economic and demographic
conditions in the market. Changes in the property's fair value is recorded by
an adjustment to the property allowance account and is recognized in the income
statement as an increase or decrease through recovery income or a provision for
loss in the period the change in fair value is determined. The General Partner
considers the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicate otherwise.
(d) Investment in acquisition loans represents first mortgage loans which,
because the loan agreements include 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 records its investment at cost
(representing total loan fundings) and subsequently adjusts its investment for
its share of property income or loss.
Amounts representing contractually required debt service are recorded in the
accompanying Statements of Income and Expenses as interest income and
participation income. Equity from investment in acquisition loan represents the
Partnership's share of the collateral properties' operations, including
depreciation and interest expense. The Partnership's share of operations has no
effect on cash flow of the Partnership.
(e) Investment in joint ventures - affiliates represents the Partnership's
44.63%, 41.3%, and 46.5% interest, under the equity method of accounting, in
joint ventures with affiliates. Under the equity method of accounting, the
Partnership records its initial investment at cost and adjusts its investment
account for additional capital contributions, distributions and its share of
joint venture income or loss.
(f) Deferred expenses consist of refinancing fees which are amortized over the
term of the respective agreement, and leasing commissions which are amortized
over the life of each respective lease.
(g) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, may not
be realized in immediate settlement of the instrument. Statement No. 107 does
not apply to all balance sheet items and excludes certain financial instruments
and all non-financial instruments such as real estate and investment in joint
ventures from its disclosure requirements.
(h) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
is recognized as revenue in the period the applicable costs are incurred.
(i) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less when purchased.
Cash and cash equivalents are primarily invested in commercial paper,
approximately 65% of which is with two issuers.
(j) 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.
(k) Several reclassifications have been made to the previously reported 1994
and 1993 financial statements to conform with the classifications used in 1995,
including a reclassification of mortgage servicing fees to administrative
expenses. These reclassifications have not changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized in October 1984. The Partnership Agreement
provides for Balcor Mortgage Advisors-VI to be the General Partner and for the
admission of Limited Partners through the sale of up to 1,450,000 Limited
Partnership Interests at $250 per Interest, 1,382,562 of which were sold on or
prior to October 31, 1985, the termination date of the offering. For financial
statement purposes, the Partnership's results of operations are allocated 90%
to Limited Partners and 10% to the General Partner, of which 2.5% of the
General Partner's share relates to the Early Investment Incentive Fund.
To the extent that Cash Flow is distributed, distributions are made as follows:
(i) 90% of such Cash Flow is distributed to the Limited Partners, (ii) 7.5% of
such Cash Flow is distributed to the General Partner, and (iii) an additional
2.5% of such Cash Flow is distributed to the General Partner and constitutes
the Early Investment Incentive Fund (the "Fund"). An amount not to exceed such
2.5% share originally allocated will be returned to the Partnership by the Fund
at the dissolution of the Partnership to the extent necessary to enable early
investors to receive upon dissolution of the Partnership a return of their
Original Capital plus a Cumulative Return of 15% for Interests purchased on or
before June 30, 1985, and 14% for Interests purchased between July 1, 1985 and
October 31, 1985.
Amounts placed in the Fund are used to repurchase Interests from existing
Limited Partners, at the sole discretion of the General Partner and subject to
certain limitations. During 1995, the Fund repurchased 9,666 Interests at a
cost of $1,152,093. All repurchases of Interests have been made at 90% of the
current value of such Limited Partnership Interests at the previous quarter
end.
Distributions of Cash Flow and Mortgage Reductions pertaining to such
repurchased Interests are paid to the Fund and are available to repurchase
additional Interests.
4. Mortgage Notes Payable:
In October 1995, the underlying revenue bonds which financed the Sun Lake
Apartments $15,700,000 mortgage note payable, were refunded. The proceeds from
the new bonds were used to repay the prior bonds. The interest rate increased
from 4.5% to 5.375%. The prior bonds were collateralized by a letter of credit
for a fee of 1.7% annually of the letter of credit balance. The new bonds
require payment of guarantee and servicing fees totaling .975% annually of the
letter of credit balance. The monthly principal and interest payment due on the
new bonds is $99,080. The maturity date of the bonds is October 2025 with the
next mandatory remarketing date being October 2005. The mortgage note payable
had a balance of $15,657,066 at December 31, 1995.
In November 1994, the Partnership remarketed the underlying revenue bonds which
financed the Sun Lake Apartments $15,700,000 mortgage note payable, which
reduced the interest rate of the loan from 7.625% to 4.5% effective November 1,
1994. The interest rate remained constant until November 1, 1995, the
remarketing date of the bonds. The bonds were collateralized by an irrevocable
letter of credit. In connection with the remarketing, the letter of credit was
reduced to approximately $16,131,750 and extended one additional year to
November 1, 1995. The Partnership needed to replace the letter of credit or
find an alternate credit facility for the bonds as of such date. The
Partnership paid a fee of approximately 1.7% on the letter of credit balance.
In addition, beginning November 1, 1994, the Partnership was required to remit
excess cash flow payments to the letter of credit provider to be held in trust
for future remarketing expenditures. Unless there was a prior redemption of all
or part of the bonds, the entire principal balance of the loan would have been
due on November 1, 1997.
Real estate held for sale with an aggregate carrying value of $21,885,000 at
December 31, 1995 was pledged as collateral for repayment of this mortgage
note.
Future annual maturities of the above mortgage note payable during each of the
next five years are approximately as follows:
1996 $ 179,000
1997 191,000
1998 204,000
1999 217,000
2000 232,000
During the years ended December 31, 1995, 1994 and 1993, the Partnership
incurred interest expense on the mortgage notes payable of $959,064, $1,688,971
and $1,855,630, respectively, and paid interest expense of $1,020,529,
$1,627,506 and $1,855,630, respectively.
5. Investment in Acquisition Loan:
Non-accrual loans and loans whose payment terms have been restructured are
hereinafter referred to as impaired loans. Net interest income relating to
impaired loans would have been $524,637 in 1995, $1,049,275 in 1994 and
$4,444,476 in 1993. Net interest income included in the accompanying Statements
of Income and Expenses amounted to $425,421 in 1995, $887,409 in 1994 and
$3,198,625 in 1993.
In January 1989, the Partnership and two affiliates entered into a
participation agreement to fund a $23,300,000 first mortgage loan on the Noland
Fashion Square. The Partnership participates ratably in approximately 21% of
the loan amount, related interest income and participation income. At December
31, 1995, the loan had a balance of $4,434,410, and a related allowance of
$274,594, and current monthly interest-only payments of $38,979 are due through
maturity in December 1999. The Partnership may receive additional payments from
the borrower representing participations in the operating results of the
collateral property which exceed specified levels and a share in the
appreciation of the collateral property upon repayment or refinancing. The loan
balance includes the Partnership's share of the cumulative net loss of the
property after the loan was funded.
The Jonathan's Landing impaired loan balance of $9,635,000 at December 31, 1994
included a related allowance for losses of $1,034,000. The average recorded
investment in the impaired loan during the year ended December 31, 1994 was
$9,635,000.
6. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1995 is described in the
table below:
1995 1994 1993
----------- ----------- -----------
Loans:
Balance at beginning of
year $1,308,594 $ 1,308,594 $ 2,815,500
Provision charged to
income None None 600,000
Direct write-off of
loans against allowance (1,034,000) None (2,106,906)
----------- ----------- ------------
Balance at the end of
the year $ 274,594 $ 1,308,594 $ 1,308,594
=========== =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year $7,965,000 $ 4,065,000 None
Provision charged to
income 1,800,000 3,900,000 $ 4,065,000
Recovery of provision
previously charged
to income (2,465,000) None None
----------- ----------- -----------
Balance at the end of
the year $7,300,000 $ 7,965,000 $ 4,065,000
=========== =========== ===========
7. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are
under management agreements with a third-party management company. These
management agreements provide for annual fees of 5% of gross operating receipts
for residential properties and a range of 3% to 6% of gross operating receipts
for commercial properties.
8. Affiliates' Participation in Joint Ventures:
(a) The Brookhollow/Stemmons Center Office Complex is owned by the Partnership
and an affiliate. Profits and losses are allocated 72.5% to the Partnership
and 27.5% to the affiliate.
(b) The Perimeter 400 Center Office Building is owned by the Partnership and
three affiliates. Profits and losses are allocated 50% to the Partnership and
50% among the affiliates.
(c) The Sun Lake Apartments is owned by the Partnership and an affiliate.
Profits and losses are allocated 61.95% to the Partnership and 38.05% to the
affiliate.
All assets, liabilities, income and expenses of the joint ventures are included
in the financial statements of the Partnership with the appropriate adjustment
of profit or loss for each affiliate's participation.
Net (distributions) contributions of $(1,042,505), $(1,085,282) and $609,708
were made to joint venture partners during 1995, 1994 and 1993, respectively.
In addition, the joint ventures were allocated their pro-rata share of the
recovery of losses in the amount of $580,001 during 1995 and provision for
potential losses in the amount of $380,500, $684,900 and $1,020,000 during
1995, 1994 and 1993, respectively.
9. Investment in Joint Ventures with Affiliates:
(a) The Partnership and an affiliate acquired title to the Sand Pebble Village
Apartments through a foreclosure sale in July 1992. The participants purchased
the adjacent property, the Sand Pebble Village II Apartments in October 1993.
Profits and losses, all capital contributions and distributions are allocated
in accordance with each participant's original funding percentages in the loan.
The Partnership's ownership percentage is 44.63%. During 1994 and 1993, the
Partnership recognized losses of $512,000 and $1,517,420, respectively, as its
share of a provision relating to the change in the estimate of the fair value
of these properties. These amounts are included in the Partnership's
participation in income (loss) of joint venture with affiliates. In addition,
during 1995, 1994, and 1993 the Partnership received net distributions from
these joint ventures totaling $855,945, $871,330, and $1,292,204, respectively.
(b) In 1995, the Partnership and three affiliates acquired title to the 45
West 45th Street Office Building. Profits and losses, all capital contributions
and distributions are allocated in accordance with each participant's original
funding percentages in the loan. The Partnership's ownership percentage is
41.3%. The Partnership recognized a loss of $1,021,000 and $2,400,000 during
1995 and 1993, respectively, as its share of a provision relating to the change
in the estimate of the fair value of the property. These amounts are included
in the Partnership's participation in income (loss) of joint venture with
affiliates. In addition, during 1995 the Partnership made a net contribution of
$211,957 to this joint venture.
(c) In 1995, the Partnership and an affiliate acquired title to the Jonathan's
Landing Apartments. Profits and losses, all capital contributions and
distributions are allocated in accordance with each participants original
funding percentages in the loan. The Partnership's ownership percentage is
46.5%. During 1995 the Partnership received net distributions from the joint
venture of $76,761.
The following information has been summarized from the December 31, 1995
financial statements of the above joint ventures:
Net investment in real estate $51,397,309
Total liabilities 5,324,506
Total income 8,268,086
Net income before provision 1,251,627
Provision for potential losses (2,473,000)
Net loss (1,221,373)
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
---------------- --------------- ----------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $30,603 $957 $71,937 $4,944 $186,190 $10,678
Property management fees None None 973,445 None 1,053,447 84,481
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 93,992 8,319 122,102 46,741 119,308 9,444
Data processing 74,804 5,848 147,462 33,817 243,662 21,660
Investor communica-
tions 10,982 None 41,294 10,280 21,334 1,688
Legal 35,956 4,294 37,638 14,843 37,335 2,955
Portfolio management 195,656 32,272 121,413 39,432 126,791 21,782
Other 27,456 10 26,545 24,121 21,812 1,727
Allegiance Realty Group, Inc. an affiliate of the General Partner, managed ten
of the Partnership's eleven 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; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $169,385, $219,226 and $139,156 in 1995, 1994 and 1993,
respectively.
11. Property Dispositions:
(a) During 1993, the Partnership sold the Winchester Mall in an all cash sale
for $9,000,000. The basis of this property was $5,500,000. For financial
statement purposes, the Partnership recognized a gain of $3,471,731 from the
sale of this property.
(b) In August 1994, the Partnership disposed of its investment in the Northgate
and Gatewood apartment complexes which had a basis of $7,506,621. In connection
with the disposition, the Partnership received proceeds of $8,325,000 and the
underlying loans related to the properties of $2,047,463 were repaid. The
Partnership recognized a gain for financial statement purposes of $818,379.
12. Restricted Investment:
In April 1992, the Partnership and an affiliate established a debt service
reserve account of $700,000 as additional collateral for their obligations
related to the mortgage loan on Sun Lake Apartments, pursuant to a settlement
agreement reached in December 1991. The Partnership contributed $433,650 as
its share of the account. The remaining portion was included in the
affiliate's investment in the joint venture. The funds were invested in
short-term interest bearing instruments and interest earned on the investments
was payable to the participants. The underlying revenue bonds which financed
the Sun Lake Apartments mortgage note payable were refunded in October 1995 and
the $700,000 debt service reserve account, plus accrued interest, was released.
See Note 4 of Notes to Financial Statements for additional information.
13. Real Estate Held for Sale:
The partnership acquired the Shoal Run Apartments through foreclosure in
February 1993. The partnership recorded the cost of the property at $7,506,621.
This amount represented the outstanding loan balance plus any accrued interest
receivable. At the date of foreclosure, the property was transferred to real
estate held for sale at its fair value, net of any allowances previously
recorded.
14. Contingencies:
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 the
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. It is not determinable at this time whether or not
an unfavorable decision in this action would have a material adverse impact on
the Partnership. Management of each of the defendants believes that they have
meritorious defenses to contest the claims.
15. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, and accounts payable approximates fair value.
Loan receivable: The fair value for the Partnership's loan receivable
approximates the carrying value of $4,159,816.
Mortgage note payable: The fair value for the Partnership's mortgage note
payable is $13,675,375. The carrying value is $15,657,066.
The fair value for the Partnership's investments in loan receivable and
mortgage note payable was estimated using discounted cash flow analyses. The
discount rates were based upon rates at the end of 1995 comparable to those the
Partnership could receive or charge in the commercial real estate lending
market with terms and maturities comparable to the Partnership's loans
receivable and mortgage note it presently holds.
16. Subsequent Events:
(a) In January 1996, the Partnership paid $2,765,124 ($2.00 per Interest) to
Limited Partners representing the regular quarterly distribution of available
Cash Flow for the fourth quarter of 1995.
(b) In March 1996, the Partnership contracted to sell Hawthorne Heights
Apartments for a sale price of $8,425,000.