SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the transition period from to
------------ ------------
Commission file number 0-10225
-------
BALCOR PENSION INVESTORS-II
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3114027
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
------------- -------------
Cash and cash equivalents $ 2,871,834 $ 2,901,014
Cash and cash equivalents - Early Investment
Incentive Fund 371,799 308,993
Escrow deposits 192,367 113,962
Accounts and accrued interest receivable 154,176 250,265
Prepaid expenses 19,428 77,752
Deferred expenses, net of accumulated
amortization of $205,504 in 1996 and
$195,352 in 1995 141,678 151,830
------------- -------------
3,751,282 3,803,816
------------- -------------
Investment in loan receivable:
Wrap-around loan receivable 11,324,000 11,324,000
Less:
Loan payable - underlying mortgage 3,111,247 3,254,087
Allowance for potential loan losses 3,302,517 3,302,517
------------- -------------
Net investment in loan receivable 4,910,236 4,767,396
Real estate held for sale (net of allowance
of $500,000 in 1996 and 1995) 27,648,170 27,518,370
------------- -------------
32,558,406 32,285,766
------------- -------------
$ 36,309,688 $ 36,089,582
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 107,920 $ 197,880
Due to affiliates 31,761 19,370
Other liabilities 239,030 154,471
Mortgage notes payable 12,096,405 12,138,360
------------- -------------
Total liabilities 12,475,116 12,510,081
------------- -------------
Limited Partners' capital (85,010
Interests issued) 29,933,108 29,692,815
Less Interests held by Early Investment
Incentive Fund (7,310 in 1996
and 1995) (4,725,704) (4,725,704)
------------- -------------
25,207,404 24,967,111
General Partner's deficit (1,372,832) (1,387,610)
------------- -------------
Total partners' capital 23,834,572 23,579,501
------------- -------------
$ 36,309,688 $ 36,089,582
============= =============
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, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Income:
Interest on loans receivable $ 368,030 $ 666,540
Less interest on loans payable -
underlying mortgages 69,115 93,747
------------- -------------
Net interest income on loans 298,915 572,793
Income from operations of real estate
held for sale 514,975 516,319
Interest on short-term investments 33,871 127,870
Participation income 240,377
------------- -------------
Total income 847,761 1,457,359
------------- -------------
Expenses:
Administrative 83,983 82,007
------------- -------------
83,983 82,007
------------- -------------
Net income $ 763,778 $ 1,375,352
============= =============
Net income allocated to
General Partner $ 57,283 $ 103,151
============= =============
Net income allocated to
Limited Partners $ 706,495 $ 1,272,201
============= =============
Net income per average number of
Limited Partnership Interests
outstanding (77,700 in 1996 and 79,133
in 1995) $ 9.09 $ 16.08
============= =============
Distribution to General Partner $ 42,505 $ 35,421
============= =============
Distribution to Limited Partners $ 466,202 $ 396,446
============= =============
Distribution per Limited Partnership $ 6.00 $ 5.00
Interest outstanding ============= =============
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, 1996 and 1995
(UNAUDITED)
1996 1995
------------- -------------
Operating activities:
Net income $ 763,778 $ 1,375,352
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred expenses 10,152 13,700
Net change in:
Escrow deposits (78,405) (34,415)
Escrow deposits - restricted 81,159
Accounts and accrued interest
receivable 96,089 (38,674)
Prepaid expenses 58,324
Accounts payable (89,960) 41,770
Due to affiliates 12,391 37,170
Other liabilities 84,559 78,254
------------- -------------
Net cash provided by operating activities 856,928 1,554,316
------------- -------------
Investing activities:
Collection of principal on
loans receivable 2,400,000
Improvements to real estate (129,800)
------------- -------------
Net cash (used in) or provided by
investing activities (129,800) 2,400,000
------------- -------------
Financing activities:
Distribution to Limited Partners (466,202) (396,446)
Distribution to General Partner (42,505) (35,421)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (62,806) (42,103)
Principal payments on underlying
loans payable (142,840) (94,191)
Repayment of underlying loan payable (943,416)
Principal payments on mortgage
notes payable (41,955) (38,202)
------------- -------------
Net cash used in financing activities (756,308) (1,549,779)
------------- -------------
Net change in cash and cash equivalents (29,180) 2,404,537
Cash and cash equivalents
at beginning of year 2,901,014 7,699,482
------------- -------------
Cash and cash equivalents at end of period $ 2,871,834 $ 10,104,019
============= =============
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:
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,
1996, and all such adjustments are of a normal and recurring nature.
2. Interest Expense:
During the quarters ended March 31, 1996 and 1995, the Partnership incurred
interest expense on mortgage notes payable on properties owned by the
Partnership of $283,106 and $286,859 and paid interest expense of $283,106 and
$280,585, respectively.
3. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1996 were:
Paid Payable
------------ ---------
Mortgage servicing fees $ 2,759 $ 920
Reimbursement of expenses to
the General Partner, at cost 18,565 30,841
4. Subsequent Event:
In April 1996, the Partnership made a distribution of $510,060 ($6.00 per
Interest) to the holders of Limited Partnership Interests, representing the
quarterly distribution of available Cash Flow for the first quarter of 1996.
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. Proceeds from prior loan
repayments were used to fund three additional mortgage loans. As of March 31,
1996, 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 1995 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The March 1995 repayment of the Stonegate Austin Mobile Home Park loan and the
receipt of participation income on the Alzina Office Building loan during 1995
resulted in a decrease in net income during the quarter ended March 31, 1996 as
compared to the same period in 1995. Further discussion of the Partnership's
operations is summarized below.
1996 Compared to 1995
- ---------------------
Discussions of fluctuations between 1996 and 1995 refer to the quarters ended
March 31, 1996 and 1995.
The repayment of the Stonegate Austin Mobile Home Park wrap-around loan in
March 1995 resulted in a decrease in net interest income on loans receivable
during 1996 as comapred to 1995.
A special distribution was made in April 1995 from the proceeds received in
connection with the Tudor Heights and North Arch Village mortgage loan
repayments. Prior to this distribution, these proceeds were invested in
short-term investments. As a result interest income on short-term investments
decreased during 1996 as compared to 1995.
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. This
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 1995.
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. The Partnership did not recognize any provisions for potential
losses related to its loans or real estate held for sale during the quarters
ended March 31, 1996 and 1995.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased slightly as of March 31, 1996
when compared to December 31, 1995. The Partnership generated cash flow
totaling approximately $857,000 from its operating activities primarily as a
result of the net interest income earned on its investment in loan receivable,
the operations of its properties, and the interest received on its short-term
investments, net of the payment of administrative expenses. The Partnership
used cash of approximately $130,000 to fund its investing activity which
consisted of roof repairs at the Parkway Distribution Center. The Partnership
also used cash to fund its financing activities which consisted primarily of
the payment of distributions totaling approximately $509,000 to the partners
and principal payments on the underlying loan and mortgage notes payable
totaling approximately $185,000.
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 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 properties' revenue
receipts less property related expenditures, which include debt service
payments. During the quarters ended March 31, 1996 and 1995, each of the
Cumberland Pines, Hollowbrook and Sherwood Acres Phases I and II apartment
complexes generated positive cash flow. The Parkway Distribution Center
generated positive cash flow during the quarter ended March 31, 1996 as
compared to a marginal cash flow deficit during the same period in 1995 due to
increased rental and service income as a result of higher occupancy levels and
lower leasing costs.
As of March 31, 1996, the occupancy rates of the Partnership's residential
properties ranged from 93% to 99% except for the Hollowbrook Apartments which
had an occupancy rate of 90%. The occupancy rate of the Parkway Distribution
Center was 96%. Many rental markets continue to remain extremely competitive;
therefore, the General Partner's goals are to maintain high occupancy levels,
while increasing rents where possible, and to monitor and control operating
expenses and capital improvement requirements at the properties.
As previously reported, the Partnership is in its liquidation stage. The
General Partner believes that the market for multifamily housing properties has
become increasingly favorable to sellers of these properties and the General
Partner's strategy is to sell or otherwise dispose of all assets by the end of
1997. Currently, the Partnership has contracted to sell Cumberland Pines
Apartments for a sale price of $9,200,000 and is marketing the four remaining
properties in its portfolio. See Item 5 Other Information for additional
information. Proceeds will be distributed to Limited Partners upon the sale or
disposition of the remaining assets.
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 that borrowers' may seek prepayment of the
Partnership's loan whereas rising interest rates decrease the yields on the
loans and make prepayment less likely.
In April 1996, the Partnership paid a distribution of $510,060 ($6.00 per
Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow for the first quarter of 1996.
Including the April 1996 distribution, Limited Partners have received
distributions totaling $1,368.68 per $1,000 Interest. Of this amount $957.50
represents Cash Flow from operations and $411.18 represents a return of
Original Capital. In April 1996, the Partnership also paid $42,505 to the
General Partner as its distributive share of Cash Flow distributed for the
first quarter of 1996 and made a contribution to the Early Investment Incentive
Fund in the amount of $14,168.
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 underlying mortgage loan 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 1. Legal Proceedings
- --------------------------
Paul Williams, et al. vs. Balcor Pension Investors, et al.
- ----------------------------------------------------------
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
Partnership, the General Partner, seven affiliated limited partnerships and
other affiliates are the defendants. In July 1994, the Court granted
plaintiffs' motion certifying a class relating to Federal securities fraud
claims. The Court approved the Notice of Class Action in August 1995 which was
sent to potential members of the class in September 1995. Settlement
discussions among the parties are currently on-going but no final settlement
has been reached. There can be no assurance, however, that such settlement
discussions will ultimately be successful.
Item 5. Other Information
- ---------------------------
Cumberland Pines Apartments
- ----------------------------
In 1982, the Partnership funded a $1,645,564 wrap-around mortgage loan
collateralized by the Cumberland Pines Apartments, Atlanta, Georgia. The
Partnership obtained title to the property through foreclosure in 1991. The
Partnership paid $1,200,000 in 1991 as a discounted repayment of the second
mortgage loan collateralized by the property and repaid the first mortgage loan
of $2,263,894 in 1994.
On April 29, 1996, the Partnership contracted to sell the property for a sale
price of $9,200,000 to Earl Phillips, L.L.C., a Georgia limited liability
company. The purchaser deposited $200,000 into an escrow account as earnest
money and will pay the remaining $9,000,000 at closing, which is expected to
occur on or about June 17, 1996. From the proceeds of the sale, the
Partnership will pay closing costs and $184,000 to an unaffiliated party as a
brokerage commission. The General Partner will be reimbursed by the
Partnership 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 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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 September 30, 1992 (Commission File No.
0-10225) are incorporated herein by reference.
(10) Agreement of Sale and attachment thereto relating to the sale of
Cumberland Pines apartment complex, Atlanta, Georgia.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1996 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1996.
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
---------------------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors, the General Partner
By: /s/Brian Parker
----------------------------------------
Brian Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors, the
General Partner
Date: May 13, 1996
-------------------------------