SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-10225
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BALCOR PENSION INVESTORS-II
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(Exact name of registrant as specified in its charter)
Illinois 36-3114027
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
(UNAUDITED)
ASSETS
1997 1996
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Cash and cash equivalents $ 2,050,725 $ 16,852,472
Cash and cash equivalents - Early
Investment Incentive Fund 3,613,351 1,969,827
Accounts and accrued interest receivable 35,813 711,458
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$ 5,699,889 $ 19,533,757
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,285 $ 110,948
Due to affiliates 63,373 79,549
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Total liabilities 67,658 190,497
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Commitments and contingencies
Limited Partners' capital (85,010
Interests issued) 10,554,032 23,962,626
Less Interests held by Early Investment
Incentive Fund (8,136 in 1997 and 1996) (5,015,607) (5,015,607)
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5,538,425 18,947,019
General Partner's capital 93,806 396,241
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Total partners' capital 5,632,231 19,343,260
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$ 5,699,889 $ 19,533,757
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1997 and 1996
(UNAUDITED)
1997 1996
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Income:
Interest on loan receivable $ 994,707
Less interest on loan payable -
underlying mortgage 177,681
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Net interest income on loan 817,026
(Loss) income from operations of real
estate held for sale $ (150,504) 1,339,302
Interest on short-term investments 307,865 163,266
Participation income 410,493
Recovery of loss on loan 3,302,517
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Total income 157,361 6,032,604
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Expenses:
Provision for potential loss on
real estate 267,000
Administrative 227,415 515,272
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Total expenses 227,415 782,272
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(Loss) income before gain on sale of loan
receivable and gain on sale of real
estate (70,054) 5,250,332
Gain on sale of loan receivable 306,759
Gain on sale of real estate 3,874,268
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Net (loss) income $ (70,054) $ 9,431,359
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Net (loss) income allocated to
General Partner $ (5,254) $ 707,352
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Net (loss) income allocated to
Limited Partners $ (64,800) $ 8,724,007
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Net (loss) income per average number of
Limited Partnership Interests
outstanding (76,874 in 1997 and 77,524
in 1996) $ (0.84) $ 112.53
============== ==============
Distributions to General Partner $ 336,144 $ 467,555
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BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1997 and 1996
(UNAUDITED)
(Continued)
1997 1996
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Settlement distribution to Limited Partners $ 13,828 None
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Distributions to Limited Partners $ 13,329,966 $ 9,731,541
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Distributions per Limited Partnership
Interest outstanding $ 173.40 $ 126.00
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1997 and 1996
(UNAUDITED)
1997 1996
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Income:
Interest on loan receivable $ 258,647
Less interest on loan payable -
underlying mortgage 42,622
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Net interest income on loan 216,025
Income from operations of real estate
held for sale $ 21,664 190,621
Interest on short-term investments 74,944 96,178
Participation income 160,092
Recovery of loss on loan 3,302,517
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Total income 96,608 3,965,433
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Expenses:
Provision for potential loss on
real estate 267,000
Administrative 57,861 182,517
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Total expenses 57,861 449,517
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Income before gain on sale of loan
receivable 38,747 3,515,916
Gain on sale of loan receivable 306,759
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Net income $ 38,747 $ 3,822,675
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Net income allocated to
General Partner $ 2,906 $ 286,701
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Net income allocated to
Limited Partners $ 35,841 $ 3,535,974
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Net income per average number of Limited
Partnership Interests outstanding
(76,874 in 1997 and 77,182 in 1996) $ 0.47 $ 45.81
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Distribution to General Partner $ None $ 382,545
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BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1997 and 1996
(UNAUDITED)
(Continued)
1997 1996
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Distribution to Limited Partners $ None $ 8,799,137
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Distribution per Limited Partnership
Interest outstanding $ None $ 114.00
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(UNAUDITED)
1997 1996
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Operating activities:
Net (loss) income $ (70,054) $ 9,431,359
Adjustments to reconcile net (loss) income
to net cash provided by operating
activites:
Gain on sale of loan receivable (306,759)
Gain on sale of real estate (3,874,268)
Recovery of loss on loan (3,302,517)
Provision for potential loss on
real estate 267,000
Amortization of deferred expenses 30,454
Net change in:
Escrow deposits (94,580)
Accounts and accrued interest
receivable 675,645 (423,531)
Prepaid expenses (35,990)
Accounts payable (106,663) (19,209)
Due to affiliates (16,176) 30,096
Other liabilities 127,161
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Net cash provided by operating
activities 482,752 1,829,216
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Investing activities:
Proceeds from sale of loan receivable 9,153,755
Costs incurred in connection with sale
of loan receivable (339,500)
Improvements to real estate (327,184)
Proceeds from sale of real estate 9,200,000
Costs incurred in connection with
sale of real estate (153,200)
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Net cash provided by investing
activities 17,533,871
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Financing activities:
Distributions to Limited Partners (13,343,794) (9,731,541)
Deemed distribution to Limited Partners (93,119)
Distributions to General Partner (336,144) (467,555)
Contribution by General Partner 38,963
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(UNAUDITED)
(Continued)
1997 1996
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Increase in cash and cash equivalents -
Early Investment Incentive Fund (1,643,524) (879,025)
Repurchase of Limited Partnership
Interests (276,495)
Principal payments on underlying
loan payable (437,583)
Principal payments on mortgage
notes payable (128,872)
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Net cash used in financing activities (15,284,499) (12,014,190)
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Net change in cash and cash equivalents (14,801,747) 7,348,897
Cash and cash equivalents
at beginning of year 16,852,472 2,901,014
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Cash and cash equivalents at end of
period $ 2,050,725 $ 10,249,911
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) A reclassification has been made to the previously reported 1996 financial
statements in order to provide comparability with the 1997 statements. This
reclassification has not changed the 1996 results.
(b) The Partnership has restated net income for the nine month period ended
September 30, 1996 as a result of the state withholding taxes paid in
connection with the sale of the Cumberland Pines Apartments. Such amount had
previously been recorded as an expense of sale. The state withholding taxes are
now reflected as a deemed distribution. Accordingly, there was no change to
partners' capital as a result of this restatement.
(c) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1997, and all such adjustments are of a normal
and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold all of its remaining properties during 1996.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. The Partnership has retained a portion of the cash from
property sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. Such contingencies may include legal and other fees
and costs stemming from litigation involving the Partnership including, but not
limited to, the lawsuit as discussed in Note 6 of Notes to Financial
Statements. In the absence of any contingency, the reserves will be paid within
twelve months of the last property being sold. In the event a contingency
exists, reserves may be held by the Partnership for a longer period of time.
3. Interest Expense:
During the nine months ended September 30, 1996, the Partnership incurred and
paid interest expense on mortgage notes payable on properties owned by the
Partnership of $846,311.
4. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1997 were:
Paid
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Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $53,456 $32,897 $63,373
The General Partner made a contribution of $38,963 in connection with the
settlement of certain litigation as further discussed in Note 5 of Notes to
Financial Statements.
5. Settlement of Litigation:
A settlement received final approval by the court in November 1996 in the class
action, Paul Williams and Beverly Kennedy et. al. v. Balcor Pension Investors,
et. al. upon the terms described in the notice to class members in September
1996. The General Partner made a contribution of $38,963 to the Partnership, of
which the plaintiffs' counsel received $3,896 pursuant to the settlement
agreement. In February 1997, the General Partner made a settlement payment of
the remaining $35,067 ($0.47 per Interest) to members of the class pursuant to
the settlement. Of the settlement amount, $13,828 was paid to original
investors who held their Limited Partnership Interests at the date of the
settlement and was recorded as a distribution to Limited Partners in the
Financial Statements. The remaining portion of the settlement of $21,239 was
paid to original investors who previously sold their Interests in the
Partnership. This amount was recorded as an administrative expense in the
Financial Statements. Similar contributions and payments were made on the
seven other partnerships included in the lawsuit in addition to those payments
described above. The Balcor Company paid an additional $635,000 to the
plaintiffs' class counsel and The Balcor Company received approximately
$946,000 from the eight partnerships as a reimbursement of its legal expenses,
of which $67,039 was the Partnership's share. The settlement had no material
impact on the Partnership.
6. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the financial position, operations and
liquidity of the Partnership. The Partnership believes it has meritorious
defenses to contest the claims.
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 September
30, 1997, the Partnership has no loans outstanding or properties remaining 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 1996 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The Partnership recognized a net loss during the nine months and net income
during the quarter ended September 30, 1997 as compared to net income during
the same periods in 1996 primarily due to the gains on the sales of the
Partnership's five remaining properties and the Alzina Office Building loan in
1996 and the recovery of a loss related to the Alzina Office Building loan in
1996. Further discussion of the Partnership's operations is summarized below.
1997 Compared to 1996
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Discussions of fluctuations between 1997 and 1996 refer to the nine months and
quarters ended September 30, 1997 and 1996, unless otherwise indicated.
Due to the sale of the Partnership's interest in the Alzina Office Building
loan in 1996, net interest income on loan receivable ceased during 1997 as
compared to 1996.
During 1996, the Partnership sold the Parkway Distribution Center and
Cumberland Pines, Hollowbrook and Sherwood Acres - Phases I and II apartment
complexes which had been generating income from operations prior to their
sales. During the nine months ended September 30, 1997, the Partnership paid
additional expenditures related to certain of the properties sold during 1996
which resulted in a loss from operations of real estate held for sale. In the
third quarter of 1997, the Partnership received refunds from vendors related to
certain of the properties sold during 1996 which resulted in income from
operations of real estate held for sale.
Due to higher average cash balances as a result of the proceeds received in
connection with the property sales during the latter part of 1996 prior to
distribution to Limited Partners in January 1997, interest income on short-term
investments increased during 1997 as compared to the 1996. The proceeds
received from the August 1996 sale of the Alzina Office Building loan were
invested in short-term investments prior to distribution in October 1996 and
resulted in higher interest income during the quarter ended September 30, 1996
as compared to the same period in 1997.
The Partnership received participation income on the Alzina Office Building
loan during 1996.
Provisions were charged to income when the General Partner believed an
impairment had 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 were made periodically on the basis of performance
under the terms of the loan agreement, assessments of property operations and
the property's estimated sales price less closing costs. Determinations of fair
value represented estimations based on many variables which affected the value
of real estate, including economic and demographic conditions. During the nine
months ended September 30, 1996, the Partnership recognized a recovery of
$3,302,517 related to the Alzina Office Building loan and recognized a
provision of $267,000 related to the Hollowbrook Apartments to provide for
changes in the estimate of their fair value.
Legal, consulting, printing and postage costs incurred in connection with a
response to a tender offer during the second quarter of 1996 resulted in a
decrease in administrative expenses during 1997 as compared to 1996. In
addition, lower legal fees and portfolio management costs during 1997
contributed to the decrease in administrative expenses.
During the third quarter of 1996, the Partnership recognized a gain of $306,759
in connection with the sale of its interest in the Alzina Office Building loan.
During the second quarter of 1996, the Partnership recognized a gain of
$3,874,268 in connection with the sale of Cumberland Pines Apartments.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $14,800,000 as
of September 30, 1997 when compared to December 31, 1996 primarily due to
special distributions made from proceeds received in connection with the sales
of the Sherwood Acres - Phases I and II and Hollowbrook apartment complexes and
the Parkway Distribution Center. The Partnership generated cash flow totaling
approximately $482,000 from its operating activities primarily as a result of
the interest income earned on its short-term investments, net of the payment of
administrative and certain property related expenses. In addition, the
Partnership received insurance proceeds for fire damage incurred at the
Sherwood Acres - Phases I and II apartment complexes. The Partnership used
cash of approximately $15,284,000 to fund its financing activities which
consisted primarily of the payment of distributions to the Partners and an
increase in cash in the Early Investment Incentive Fund.
Pursuant to the sale agreement for the Sherwood Acres - Phases I and II
apartment complexes, $250,000 of the sale proceeds was retained by the
Partnership and was unavailable for distribution until February 1997, at which
time the funds were released.
In February 1997, the General Partner made a settlement payment of $35,067
($0.47 per $1,000 Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly
Kennedy, et. al., v. Balcor Pension Investors, et. al. class action lawsuit.
The General Partner made a contribution of $38,963 to the Partnership, of which
the plaintiffs' counsel received $3,896 pursuant to the settlement agreement.
Of the settlement amount, $13,828 was paid to original investors who held their
Limited Partnership Interests at the date of the settlement and was recorded as
a distribution to Limited Partners in the Financial Statements. The remaining
portion of the settlement of $21,239 was paid to original investors who
previously had sold their Interests in the Partnership. This amount was
recorded as an administrative expense in the Financial Statements. Similar
contributions and payments were made on the seven other partnerships included
in the lawsuit in addition to those payments described above. The Balcor
Company paid an additional $635,000 to the plaintiffs' class counsel and The
Balcor Company received approximately $946,000 from the eight partnerships as a
reimbursement of its legal expenses, of which $67,039 was the Partnership's
share.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners.
To date, Limited Partners have received distributions totaling $1,743.08 per
$1,000 Interest. Of this amount $1,093.95 represents Cash Flow from operations
and $649.13 represents a return of Original Capital. Since all of the
Partnership's properties have been sold, no additional regular quarterly
distributions are expected.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold all of its remaining properties during 1996.
The timing of the termination of the Partnership and final distribution of cash
will depend upon the nature and extent of liabilities and contingencies which
exist or may arise. The Partnership has retained a portion of the cash from
property sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. Such contingencies may include legal and other fees
and costs stemming from litigation involving the Partnership including, but not
limited to, the lawsuit discussed in Note 6 of Notes to Financial Statements.
In the absence of any contingency, the reserves will be paid within twelve
months of the last property being sold. In the event a contingency exists,
reserves may be held by the Partnership for a longer period of time.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4(a) to
Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated
May 7, 1981 (Registration No. 2-70841) and Form of Confirmation regarding
Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1992 (Commission File No.
0-10225) is incorporated herein by reference.
(10) (i)(a) Agreement of Sale and attachment thereto relating to the sale of
Cumberland Pines Apartments, Atlanta, Georgia, previously filed as Exhibit (10)
to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated herein by reference.
(b) First, Second and Third Amendments to Agreement of Sale and Escrow Trust
Instructions relating to the sale of Cumberland Pines Apartments, Atlanta,
Georgia, previously filed as Exhibits (99)(a)(b) and (c) to the Registrant's
Report on Form 8-K dated June 28, 1996, is incorporated herein by reference.
(ii) Purchase and Sale Agreement regarding the sale of the Partnership's
interest in the Alzina Office Building loan, previously filed as Exhibit (10)
(iii) to the Registrant's Report on Form 10-Q for the quarter ended June 30,
1996, is incorporated herein by reference.
(iii)(a) Agreement of Sale and attachment thereto and Amendment to Agreement of
Sale and Escrow Agreement relating to the sale of Parkway Commerce Center, Fort
Lauderdale, Florida, previously filed as Exhibits 2(a) and 2(b) to the
Registrant's Current Report on Form 8-K dated August 13, 1996, is incorporated
herein by reference.
(b) Second Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of Parkway Commerce Center, Fort Lauderdale, Florida, previously filed as
Exhibit (99) to the Registrant's Report on Form 8-K dated September 17, 1996,
is incorporated herein by reference.
(iv)(a) Agreement of Sale and attachment thereto and First Amendment to
Agreement of Sale relating to the sale of Hollowbrook Apartments, Orlando,
Florida, previously filed as Exhibits 2(a) and 2(b) to the Registrant's Current
Report on Form 8-K dated September 17, 1996, is incorporated herein by
reference.
(b) Letter Agreement relating to the sale of Hollowbrook Apartments, Orlando,
Florida, previously filed as Exhibit (99) to the Registrant's Current Report on
Form 8-K dated October 14, 1996, is incorporated herein by reference.
(v)(a) Agreement of Sale and attachment thereto relating to the sale of
Sherwood Acres Apartments, Phases I and II, Baton Rouge, Louisiana, previously
filed as Exhibit (2) to the Registrant's Current Report on Form 8-K dated
October 14, 1996, is incorporated herein by reference.
(b) First Amendment to Agreement of Sale relating to the sale of Sherwood Acres
Apartments, Phases I and II, Baton Rouge, Louisiana, previously filed as
Exhibit (10)(v)(b) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
(c) Second Amendment to Agreement of Sale relating to the sale of Sherwood
Acres Apartments, Phases I and II, Baton Rouge, Louisiana, previously filed as
Exhibit (10)(v)(c) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1997 is incorporated herein by reference.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-II
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors, the General Partner
By: /s/Jayne A. Kosik
-----------------------------
Jayne A. Kosik
Managing Director and Chief Financial
Officer (Principal Accounting Officer) of
Balcor Mortgage Advisors, the General
Partner
Date: November 6, 1997
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